3 Ways To Play The Suriname Basin Oil Boom

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Offshore Guyana-Suriname Basin has emerged as one of the hottest, if not the hottest, new oil hotspots in the world today. Back in May, GlobalData conducted a poll to identify oilfields with the best short to medium-term prospects. Not surprisingly, the emerging oil patches of Guyana-Suriname stood out, with 33% of respondents seeing it as the largest growth engine for oil development. Around 22% of respondents viewed frontier African countries like Namibia, Senegal, Tanzania and Mauritania as having strong prospects due to recent offshore discoveries.

“Guyana-Suriname Basin came to attention following the announcement of the Liza-1 discovery well offshore Guyana in 2015,” noted GlobalData.

The Guyana basin, off the northeast coast of South America, is poised to have a major impact on the world oil markets if Exxon Mobil Corp.’s (NYSE:XOM) projection of almost 11 billion barrels of oil in a single section of the basin pans out. ExxonMobil and its American peer, Hess Corp. (NYSE:HES), as well as China’s CNOOC Ltd (OTCPK: CEOHF) have made over 30 significant discoveries in the Stabroek Block, with production beginning in December 2019 from the Liza Destiny FPSO vessel, which by the end of 2022 was producing about 150,000 barrels of oil per day (bpd).

The Suriname basin is not a lightweight, either. The focal point of Suriname’s oil boom is offshore Block 58, comprising 1.4 million ~gross acres in water depths ranging from 2,100 meters, and may hold as much as 6.5 billion barrels of oil resource.

In recent years, Suriname has made progress when it comes to fiscal reforms, including the full removal of fuel subsidies, phasing out of electricity, water and gas subsidies and broadening the value-added tax base. The country’s central government debt has declined from 146% of GDP at the end of 2020 to 92.9% last year, and is projected by the International Monetary Fund to drop below 90% in the current year.

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“The fiscal adjustment that they made was massive. They went from running double-digit fiscal deficits, debt balance astronomically high to where they are today,” said Thomas Jackson, analyst at Oppenheimer & Co.

Here are three ways to play the Suriname oil boom.

APA Corp.

Market Cap: $10.4B

Year-to-Date Returns: -21.7

APA Corp. (NASDAQ:APA) entered the tiny South American country of Suriname after winning bids for Block 53 in 2012 and Block 58 offshore in 2015. Those assets were then transferred to the company in 2021. APA has made five commercial oil discoveries since January 2020, with the most recent coming in February 2023 with the Sapakara South-2 appraisal well. Sapakara South-2 well holds ~200 million barrels of oil, giving the Sapakara discovery at least 525 million barrels of oil resources to be exploited by the two companies. APA also owns a 45% working interest in block 53 off the Suriname coast.

That said, investors hoping that Suriname can replicate Guyana’s success will have to wait a little longer because APA and TotalEnergies are yet to make a Final Investment Decision (FID) on Block 58. Thankfully, they are set to make the FID in the fourth quarter of 2024 with production set to kick off in 2028.

Looking at APA stock, the shares look cheap based on current production only. APA’s current share price works out to a valuation of $33/MBOE compared with $77/MBOE for Devon Corp.(NYSE:DVN), $72/MBOE for Pioneer Natural Resource (NYSE:PXD) and $112/MBOE for Hess Corp. (NYSE:HES). This implies that the shares could have serious upside once the company starts producing crude from its Suriname assets.

APA shares have been selling off after the company announced a non-cash impairment of approximately $145 million to the Moomba Sydney Ethane Pipeline (MSEP). The expected impairment is likely to result in a total writedown of MSEP.

TotalEnergies

Market Cap: $159.5B

YTD Returns: 1.6%

APA Corp. and French oil and gas giant TotalEnergies (NYSE:TTE) are the main operators of the Suriname oil assets. Last month, TotalEnergies’ Chief Executive Officer Patrick said the company could decide on its $9 billion project there as soon as the end of the third quarter. According to Pouyanne, Suriname will make a “significant” contribution to the group’s cash flows when oil revenues start flowing in 2028.

Last month, TotalEnergies announced it is exiting a gas-rich block offshore South Africa because the discoveries are "too challenging to economically develop and monetize," confirming earlier speculation. It was not an easy decision: TotalEnergies had spent at least $400M on the project, using highly sophisticated engineering solutions to drill in one of the fastest ocean currents in the world.

Chevron Corp

Market Cap: $265.8B

YTD Returns: -2.2%

Back in May, Hess Corp. (NYSE:HES) shareholders signed off on its proposed $53B merger with Chevron Corp. (NYSE:CVX) that will give the latter direct exposure to the Guyana-Suriname assets. However, Exxon has moved to block the merger, claiming that Hess should have first given it the opportunity to purchase its stake in the prized Guyana asset and that Chevron structured the deal in a way to bypass Exxon’s right of first refusal if it triggered by a change of control in Guyana. According to Exxon, the Guyana asset is so valuable that the merger would trigger a change of control and give Exxon and CNOOC a right of first refusal to the asset sale. An arbitration panel will now try and determine the real value of Hess' Guyana stake, four people familiar with the matter recently told Reuters.

Currently, Exxon owns a 45% stake in oil-rich Guyana while Hess and China’s CNOOC own a 30% and 25% stake, respectively.

Last month, Hess posted an impressive second-quarter earnings report with its stake in prolific Guyana helping it exceed estimates. The company reported Q2 2024 non-GAAP EPS of $2.62, beating the Wall Street consensus by $0.07 while revenue of $3.26B was good for a robust 40.5% Y/Y growth although it missed the consensus by $30M. Hess's production increased 27.6% to 494,000 barrels of oil and gas per day (boepd), thanks in large part to a 75% year-over-year increase in Guyana to 192,000 bpd, up from 110,000 boepd in the prior-year quarter.