Shell asserts lasting commitment to deepwater Gulf of Mexico
Since the beginning of the U.S. shale revolution, circa 2003, producers have been drawn to the value of the nation’s copious onshore resources. Rising prices, depleting reserves and strong demand drove U.S. producers to the emerging shale market, as it picked up speed in the early 2000s.
After the 2014 oil price collapse, producers became more affixed to the idea that development of their onshore assets would make the most of their companies’ capital and get them the best returns. Subsequently, many operators put the brakes on their offshore assets—particularly in deep water, where operations generally come with significantly higher risk and cost—to save money during the downturn.
Because of the steep costs associated with developing resources in deep water, much of the offshore oil-and-gas sector has been slow to mount a comeback. Although prices have trended upward through late 2017 and much of 2018, many companies are making the decision to withdraw further from deepwater expansion.
ConocoPhillips, for instance, made the decision to exit deepwater exploration, for the time being, to free up millions in capital. Likewise, Noble Energy divested its deepwater GOM assets earlier this year. “The sale of our Gulf of Mexico business represents the last major step in our portfolio transformation. This has been done to focus our go-forward efforts on those assets that will rapidly grow our cash flows and margins, primarily the U.S. onshore business and the Eastern Mediterranean,” Noble Energy Chairman, President and CEO David Stover said in a release. “Going forward, we are concentrating the company’s exploration capabilities on higher-impact opportunities that can drive substantial long-term value creation.”
However, as one of the GOM’s leaders in deepwater production, Shell argues that such challenging development is still a viable option with “tremendous opportunity.” The company says it is committed to the long-term development of its deepwater portfolio, and that it is in a position to continue capitalizing on its GOM operations. “This remains a heartland for U.S. energy production,” said Rick Tallant, Shell’s V.P. of production, Deepwater Gulf of Mexico. “Our operations, here in the Gulf of Mexico, account for more than 50% of Shell’s oil and gas production in this country.”
INVESTING IN DEEP WATER
The supermajor reportedly operates five significant deepwater and ultra-deepwater GOM production hubs (Auger, Olympus, Perdido, Ursa and Stones); three fixed platforms (Enchilada, Salsa and West Delta); several subsea production systems, and one of the largest contracted drilling rig fleets in the region. Additionally, the company is an active partner in two non-operated projects that are producing in the GOM.
The ultra-deepwater Stones project, which started production in September 2016, is the world’s deepest. Situated about 200 mi southwest of New Orleans, La., the FPSO vessel operates in approximately 9,500 ft of water, producing from reservoirs that lie nearly 30,000 ft below sea level. Similarly, Perdido is the deepest spar platform in the world. Moored in approximately 8,000 ft of water, it is the second-deepest production hub, after the Stones development.
With such a considerable foothold in the deepwater oil-and-gas sector, Shell has used its position to develop new innovations that will continue to strengthen the offshore industry, making the development of its GOM assets safer, more economical and more environmentally secure. Its researchers, engineers and R&D professionals are continually working to develop new, innovative technologies related to 3D printing, robotics, analytics and digital transformation.
A SOLID FOUNDATION FOR GROWTH
According to Shell, its deepwater projects are on track to reach a daily production rate of more than 900,000 boed by 2020. Additionally, since 2014, the company says it has achieved a reduction in unit development costs (UDCs) and unit operating costs (UOCs) of approximately 45%.
This year, Shell took FID on its 11th deepwater project in the GOM. Vito, which is scheduled to start production in 2021, has been strategically designed to cut costs considerably. According to the company, the project’s 2015 redesign saw a cost reduction of more than 70% from the original concept. With an anticipated break-even price of less than $35/bbl, Vito is expected to reach peak production of about 100,000 boed, making a pointed contribution to the company’s regional growth.
Another major milestone took place this year for Shell’s deepwater GOM operations. In May, its Appomattox semisubmersible set sail from Ingleside, Texas, headed for its final destination in the GOM, where it is expected to start production by the end of next year. The giant platform, which is the company’s largest floating production system ever, overcame numerous hurdles, as its development plan was formulated initially during a time when the oil price was upwards of $100/bbl. Overcoming all obstacles, Shell says it has achieved a more-than-30% cost reduction since the project took FID in 2015.
EXPLORATION & PRODUCTION
Shell continues to invest in deepwater exploration throughout the Gulf of Mexico. In May, the company reported another major find in Mississippi Canyon Block 612, about 170 mi offshore. The Dover well—which reportedly was drilled to a depth of 29,000 ft, MD, in 7,500 ft of water, and encountered more than 800 net ft of pay—is the company’s sixth discovery in the Norphlet geologic play. The well is situated just south of Appomattox (about 13 mi), opportunely positioning it as a potential tieback.
Also in May, Shell announced the start of production from the first phase of its Kaikias subsea development. The project is situated in approximately 4,500 ft of water in the Mars-Ursa basin. Since taking FID in early 2017, the company says it was able to reduce project costs by about 30%, subsequently lowering the project’s forward-looking break-even price to less than $30/bbl. Kaikias is expected to reach an estimated peak production of approximately 40,000 boed, according to Shell.
Through its near-field exploration efforts, the company says it is equipped for further expansion in the deepwater GOM. Its established deepwater hubs are well-positioned for the addition of subsea tiebacks that will support the major’s plans for continued output growth.
A FIRST-HAND LOOK
Recently, Shell invited World Oil to visit its Olympus platform, more than 130 mi offshore New Orleans, to get a first-hand look at one of its most important GOM assets, as well as a glimpse into what life is like for the 192 employees living and working offshore to keep it in operation.
Although Shell’s Auger platform is considered the world’s first tension leg platform (TLP), Olympus is one of its largest. Second only to the new Appomattox platform. Olympus, which is situated in about 3,100 ft of water, is an extension of the Mars B development. Its sister platform, Mars (about half the size of Olympus), can be seen about a mile away from any one of its 40 stories, Fig. 1.
Crew members aboard the massive 120,000-ton structure are generally on a two-week shift, Fig. 2. During that time, employees spend all their time at sea. The platform accommodates its crew with their own living quarters, a gym, two control rooms (Fig. 3), a recreation room, and a galley that is stocked weekly. From an outside perspective, it can be likened discernibly to a floating metropolis, straight out of a science fiction novel.
Olympus features 24 well slots and a self-contained drilling rig. It serves as a process hub for several deepwater discoveries, including West Boreas and South Deimos. Together, the Olympus and Mars platforms reportedly will deliver an estimated resource base of about 1 Bboe. To date, Mars field—which started production in 1996—has produced over 700 MMbbl of oil. The field’s added infrastructure has extended its life to at least 2050.
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