When it comes to the energy sector, Brazil is often seen as the crown jewel of exploration. The nation’s rich pre-salt and deepwater fields are full of potential, holding billions of barrels worth of crude oil and natural gas. But one little nation in Latin America could be giving Brazil a run for it money, and the venerable Exxon Mobil Corporation (NYSE:XOM) is quickly becoming its dominant player with several massive finds.
While Guyana doesn’t normally come up in the energy conversation, all of that is changing and XOM will be doing all the talking. For XOM investors, it’s exactly what the integrated giant needs to keep the needle moving on it energy production and future cash flows.
Many people would be hard-pressed to find Guyana on the map. But for XOM, that’s amazing news. While many of the energy producers have been courting Brazil and now, once again, Argentina, Exxon has quietly undergone a big exploration project in the small Latin American nation.
Right now, Guyana produces zero crude oil. However, that’s about to change in a big way. The nation has an expansive coastline and, off of its coast, Guyana’s geology is very similar to the formations that made Brazil and Exxon rival Petrobras (NYSE:PBR) kingpins on the continent.
Analysts at Wood Mackenzie now estimate that Guyana to be one of Latin America’s top oil producers by 2026 and produce around 400,000 barrels per day of oil. That’s not a small amount by any means and it’s especially impressive given the size of the nation.
Over the last two years, Exxon has been prospecting off the coast of Guyana. And in that time, the integrated energy giant has made some pretty significant discoveries — five of them in fact, the latest of which could finally put Guyana on the energy map.
A Monopoly on Gyuana Oil
Exxon’s latest success comes from its Turbot-1 well. Drilling down roughly 18,500 feet in nearly 6,000 feet of water, XOM encountered a 75-foot reservoir of high-quality, oil-bearing sandstone — exactly the kind of rock located off of the coast of Brazil. And it’s exactly the kind of rock that Exxon has expertise in drilling. All the practice fracking North America for natural gas is bearing fruit in other ways.
The significance of this find is its proximity to other fields in the Stabroek Block region of offshore Guyana. Exxon operates more than 6.6 million acres in the field and is the principal producer. Hess (NYSE:HES) and China’s Nexen have smaller stakes. Being top dog is a good position to hold. The Liza, Payara, Snoek, and Liza Deep have all turned out to be full of potential. The Liza alone is set to begin production of 120,000 barrels per day of crude in 2020.
Right now, the combined prospects in the nation provide a 2-billion-barrel boost to Exxon’s commercial reserves. But more could be on the way. Turbot is located in the southeastern corner of Stabroek. This means XOM can basically “connect the dots” and move from there towards the north until it reaches Liza field — drilling new wells along the way.
And that’s just what it’s doing. XOM has already stated that it plans on moving its deepwater drillship “along the line” to the Ranger prospect nearby. Exxon will revisit the Turbot again during 2018 to prospect for other pockets of crude oil.
First-Mover Status Once Again for XOM
The real win for XOM is its first-mover status in the nation. Much like its moves into fracking in the continental U.S., Exxon is setting itself up to be the leader in Guyana. And that’s ultimately a good thing. So far, whatever the nation produces, XOM is going to have its hands in it. And that will help turn the tide of lower production and help increase its overall oil cut. Exxon has been desperate in recent years to find more oil reserves — and with Guyana, it has.
For investors, it shows that XOM still has it. When everyone else was looking one way, Exxon made the bold move to buy XTO Energy and start natural gas fracking; it zigged when everyone zagged. No one was looking at Guyana, but Exxon was smart enough to realize that it shared many of the same characteristics as Brazil’s rich energy deposits.
And now it’s reaping the benefits. Those benefits and the production potential will help Exxon’s cash flows and profits for a long time — especially as the company makes more discoveries in the nation.
Bottom Line on XOM Stock
Despite its size, Exxon still is forward thinking and its recent moves in offshore Guyana are proving that.
When it comes to the integrated energy stocks, that’s exactly what investors should be looking for.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
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