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By Matthew Smith – Feb 24, 2023, 6:00 PM CST
Conflicting drilling results and seismic data saw 50% partners in Block 58 offshore Suriname Apache and TotalEnergies delay their financial investment decision
Recent news indicates the headwinds buffeting Suriname’s fledgling offshore oil boom may not be as severe as initially perceived.
Suriname likely will not see first oil before 2027 and perhaps even later, with still no clear commitment from TotalEnergies and Apache that they will proceed with developing Block 58.
By late 2022 there were considerable concerns and doubts surrounding Suriname’s burgeoning offshore oil boom. Conflicting drilling results and seismic data saw 50% partners in Block 58 offshore Suriname Apache and TotalEnergies delay their financial investment decision, known as a FID. It is estimated that it could take as much as $10 billion to successfully develop the block, justifying the energy companies caution. That development is threatening Suriname’s burgeoning oil boom with the tiny South American nation thought to possess oil potential in its territorial waters which rivals that of neighboring Guyana. Recent news indicates the headwinds buffeting Suriname’s fledgling offshore oil boom may not be as severe as initially perceived.
TotalEnergies, the operator, and 50% partner Apache have made five commercial oil discoveries in Block 58 between January 2020 and February 2022, the last being with the Krabdagu exploration well.
Source: TotalEnergies.
While those discoveries support estimates that Block 58 could contain as much as 6.5 billion barrels of oil resources, poor drilling results and high development costs are weighing on the block’s future prospects. A recent slew of dry wells and sub-commercial discoveries in Block 58 sparked considerable concern for TotalEnergies. Among the most recent was the August 2022 announcement that the Dikkop wildcat well had struck water-bearing sandstone seeing it capped and abandoned. That was followed by Awari exploration well drilled in the northwest of Block 58 where the oil discovered was deemed to be non-commercial.
Those poor drilling results combined with conflicting seismic data saw TotalEnergies baulk at proceeding with the FID during 2022, as originally anticipated, until further testing was conducted. During early October 2022 TotalEnergies Chief Executive Officer Patrick Pouyanne stated:
“a lack of confidence in understanding the reservoirs discovered to date, driven by a mismatch between what seismic data shows and the results of the delineation wells.”
This is complicated by large amounts of natural gas being found in many of the discoveries. Environmentally damaging flaring, which is a major industry producer of carbon emissions, is not an option for emission-sensitive oil companies seeking to significantly reduce damaging carbon discharges from their operations. For that reason, TotalEnergies, as the operator, must find an alternate means of disposing of the gas produced adding to the costs and complexities associated with developing as well as operating oilfields in Block 58.
Rising uncertainty as to the volume of commercially exploitable oil in place and growing complexities associated with field development are weighing on whether a FID will be eventually made by TotalEnergies and Apache. Those concerns are amplified by the fact that will take anywhere between $6 billion to $10 billion to bring Block 58 to production, which is a significant investment for an unproven offshore region.
The strict fiscal conditions attached to developing deepwater offshore oil acreage in Suriname, which are not as favorable as the terms secured by Exxon Mobil in neighboring Guyana, are also impacting that decision. The Block 58 production sharing contract gives Suriname state-controlled Staatsolie a 20% participation right, but it is unclear whether the national oil company possesses the necessary capital to exercise that clause. Cost recovery oil from Block 58, which is the petroleum that can be used to recoup development and operating capital, is capped at 80% and ring-fenced to the development area. There is also a 6.25% royalty payable on the petroleum produced and sold which incidentally is more than three-times higher than the 2% applied to the neighboring Stabroek Block in offshore Guyana.
Those headwinds have already delayed planned first oil from Block 58 by at least two year with analysts estimating it will not occur until 2027, compared to 2025 in earlier forecasts. There is also the potential for the growing risks surrounding Block 58 to derail Suriname’s oil boom and much anticipated petroleum windfall altogether. TotalEnergies CEO Pouyanne, in the company’s February 8 2022 earnings report, indicated the FID may not even be made during 2023 because of the substantial risks identified, especially with earlier appraisal drilling not finding the volumes of recoverable oil anticipated. If that occurs, it will potentially herald the end of Suriname’s nascent oil boom before it truly begins.
It is not, however, all doom and gloom, with the latest announcement by Apache indicating that Block 58 potentially possesses the substantial oil potential initially believed. On February 8, 2023, the U.S. based driller announced the second successful flow test at the Sapakara South oil discovery in Block 58. The Sapakara South-2 appraisal well encountered 118 feet, or 36 meters, of net oil pay with flow testing indicating a resource of over 200 million barrels of oil in place.
Apache CEO John J Christmann stated:
“Results from the SPS-2 drilling and flow tests are consistent with our pre-drill expectations, confirm our geologic, geophysical, and reservoir models, and, importantly, add substantial resources towards a potential development”
This is particularly good news considering TotalEnergies reasoning for delaying the Block 58 FID. The positive news regarding the Sapakara South-2 appraisal well came on the back of the flow testing of the Sapakara South-1 well. While Apache in a November 16, 2021 media release described it as a successful test it did not appear to confirm the reservoirs and volume of oil resources anticipated. The Sapakara South-1 appraisal well identified 98 feet, that is 38 meters, of net oil pay with a single reservoir containing an estimated 325 million to 375 million barrels of oil in place. Evaluation drilling in Block 58 is continuing with two appraisal wells planned for the Krabdagu discovery. Apache indicated that the Krabdagu-2 well was being drilled at the time of its announcement and stated that the Krabdagu-3 well will be spudded later in the month.
The considerable uncertainties surrounding Block 58 are weighing on the outlook for Suriname’s fledgling oil boom. A recent slew of sub-commercial discoveries underscore the reason behind TotalEnergies decision to delay the FID, originally expected during 2022, especially with offshore Suriname being an unproven and risk as well as highly regulated are in which to operate. The latest flow testing at Sapakara South does, nevertheless, ease the emerging concerns surrounding the viability of developing Block 58 and bring it to production. For these reasons, Suriname likely will not see first oil before 2027 and perhaps even later, with still no clear commitment from TotalEnergies and Apache that they will proceed with developing Block 58.
By Matthew Smith for Oilprice.com
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Matthew Smith
Matthew Smith is Oilprice.com’s Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…
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