The Liza discovery has completely changed the oil exploration outlook on Guyana. This well is located some 120 miles North of New Amsterdam and is expected to be the first successful commercial oil production site in Guyana. Oil and gas production is where reserves are converted to cash. This means bringing the oil and gas up to the surface in its raw form for temporary storage, offloading and transport to the refineries.
On June 22, 2017, ExxonMobil announced it had awarded the contract to SBM Offshore (a US billion Dutch company) to build, install, lease and operate a floating production, storage and offloading (FPSO) vessel at the “Liza 1” well site. The FPSO vessel is a type of floating tank system designed to take all the oil and gas produced from a nearby deep sea platform and store it until the crude carrier comes to transfer it to the refinery. In Guyana’s case, this FPSO vessel is a VLCC (Very Large Crude Carrier) with a capacity to receive 100,000 barrels of crude per day and store 1.6 million barrels of oil. (see system below)
The unconventional methods
The big drilling companies will tell you that their main customers especially the “super-majors” (“big oil” who are the six largest oil companies) are the main drivers of the unconventional methods to secure new sources of oil and gas. Three of the main unconventional methods that have brought great wealth to the industry are:
1. The snake drilling technique (horizontal drilling)
2. Fracking
3. Deep sea drilling (Guyana’s case)
Horizontal drilling
This technique allows for vertical drilling before turning the drill horizontally to pursuing the targeted oil, like a snake. This approach efficiently recovers more oil and gas than the traditional vertical method and has a smaller environmental footprint. This technique is enabled by steerable tools, which provide better access to areas with oil and gas reservoirs, thereby increasing the productivity and profitability of the well. Today some horizontal drills can exceed a distance of seven miles away from the original drill location.
Fracking
Hydraulic fracking is the process of injecting water, gas, and sand into wells under very high pressures. The resulting fractures in the surrounding rock formations allow for microscopic hydrocarbons to escape and accumulate. The used fluid that was injected into the well at high pressures contains highly toxic fluids. These toxic fluids are either recycled at another well and the excess is buried under the earth. The long-term environmental effect from fracking remains unknown according to National Geographic.
Deep-water drilling
Some of the largest oil and gas discoveries of the last decade have been found in the deep waters off the coasts of Africa and South America, including Guyana. Deep-water subsea engineering has now made the production of oil and gas in water depth exceeding 10,000 feet much more feasible.
This is an extremely complex process that allows for a conductor pipe along with a casing pipe to be inserted into the seabed. Cement is then pumped into the hole between the hole and the casing pipe to fix the pipe in place and prevent it from collapsing. Once the oil is identified and tapped, a blowout preventer is run down to the sea floor, which is connected to the casing pipe to regulate the flow of the crude.
The blowout preventer stands on average about five stories tall (just short of the Bank of Guyana building). This blowout preventer can hold well pressure as high as 15,000 PSI (remember the PSI on your car tire is 35) and can shut the well off to prevent any oil spills. However, the blowout preventer system is not foolproof as the Deep Water Horizon oil well proved in the Gulf of Mexico when it failed and created one of modern day’s largest environmental disasters. (see diagram right)
However, irrespective of the risks, deep-water drilling is expected to play a key role as the global population hits nine billion and energy needs double.
I will stop here for this week and continue next week with the business characteristics of upstream oil and gas activities.
