UPDATE 1-Shell starts production at Perdido

Wed Mar 31, 2010 6:29pm EDT

Related Topics

* Shell announces start-up of Perdido platform

* Shell's Odum says project pushes technology boundaries

* Company expects project to produce for 20 years

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By Kristen Hays

HOUSTON, March 31 (Reuters) - Royal Dutch Shell (RDSa.L) on Wednesday fired up its newest Gulf of Mexico oil and gas platform in water as deep as five Empire State Buildings, the the world's deepest offshore drilling and production facility.

"We continue to push the boundaries in terms of what's possible to bring reliable energy to this country," said Marvin Odum, president of Shell Oil Co, Shell's U.S. arm.

Perdido can produce up to 100,000 barrels a day of oil and 20 million cubic feet per day of natural gas, with a projected lifespan of over 20 years. It is designed to gather oil and gas from the nearby Great White, Tobago and Silvertip fields near the Gulf's U.S. border with Mexico.

It joins the prolific network of energy infrastructure in the Gulf that provides 27 percent of oil and 15 percent of natural gas production in the U.S.

For a FACTBOX of other US deepwater projects please click on [ID:nN31217799]

Shell's announcement came hours after President Barack Obama unveiled a plan to expand domestic offshore oil and gas exploration and drilling. [ID:nN31367614]

The plan calls for consideration of new areas for drilling in the mid and south Atlantic and the eastern Gulf of Mexico as well as the Arctic off the north shores of Alaska where companies, including Shell, already have leases.

"I think this is a significant and important step forward," Odum said of the plan, adding that more U.S.-produced energy will generate jobs and improve energy security.

Shell is the operator with a 35 percent interest in the project. Partners Chevron Corp (CVX.N) and BP Plc (BP.L) have 37.5 percent and 27.5 percent interests, respectively.

The $3 billion Perdido floats in 8,000 feet (2,438 meters) of water above a thick 300-square-mile ancient layer of rock and salt known as the Lower Tertiary. Geologists estimate the entire trend could hold up to 15 billion barrels of oil.

There have been 18 discoveries in the frontier area, but Perdido is the first platform to pump oil and gas there.

Brazil's Petrobras (PETR4.SA) (PBR.N) aims to be the second, with plans to start up its Cascade and Chinook project about 250 miles south of New Orleans this summer.

Perdido also includes 184 miles of new oil and gas pipelines, constructed by Williams Cos., to gather, process and transport oil and gas. to existing structures because the current pipelines didn't stretch that far from shore.

Shell bought the lease 220 miles south of Galveston in 1996 and discovered oil there in 2002. But technology to extract oil from a reservoir of such extreme temperatures and pressures did not yet exist.

Odum said technological breakthroughs will allow Shell to recover 30 percent to 50 percent of the oil in a reservoir considered unreachable just a few years ago.

"We were buying leases in 8,000 feet of water when industry technology was at 3,000 feet," Odum said. "We believed we had the engineering creativity to solve this problem."

The Lower Tertiary gained much attention in 2006 when Chevron successfully drilled an exploration well more than five miles deep in its Jack field about 270 miles south of New Orleans.

Chevron aims to decide late this year whether to move forward with building a platform that can produce up to 150,000 barrels of oil equivalent per day from the Jack and St. Malo fields, the company said.

Odum and Bill Townsley, Perdido's development venture manager, said on Wednesday that the platform's performance will boost confidence for Shell and other frontier operators.

"It opens the door to the industry," Townsley said. (Editing by Rene Pastor)

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