* To develop offshore project to drill almost 3km down
* Targets first production in 2016
* Confidence in offshore development despite weaker oil
* Ultra-deep wells on avg 11.5 times more effective than
By Andrew Callus and Kristen Hays
LONDON/HOUSTON, May 8 Royal Dutch/Shell
said on Wednesday it will go ahead with the world's deepest
offshore oil and gas production project, pushing the boundaries
of technology to produce from nearly 2 miles (3.2 km) down in
the Gulf of Mexico.
Coming three years after the Macondo oil spill disaster,
Shell targets first production by 2016, demonstrating confidence
in big offshore projects in spite of a downturn in oil prices.
Earlier this week, Exxon Mobil Corp flagged startup
for a $4 billion project to develop the Julia oilfield, about 40
miles (64 km) west of Stones in the Gulf's deepest waters.
But last month, BP decided to delay development of
its biggest new project there, Mad Dog Phase 2, citing tough
market conditions and rising costs, raising questions about the
possibility of wholesale project cancellations.
"We're excited about the opportunity," John Hollowell,
Executive Vice President for Deepwater, Shell Upstream Americas,
told Reuters in an interview. "We're ready to execute the
He declined to disclose the project's cost.
Shell's 100 percent-owned Stones field was discovered in
2005, some 200 miles southwest of New Orleans. It encompasses
eight lease blocks in the Gulf of Mexico's Lower Tertiary trend,
which is the Gulf's deepest, most challenging and most promising
play estimated to hold up to 15 billion barrels of oil.
The Anglo-Dutch company's Perdido platform was the first to
start up in the Lower Tertiary in 2010.
Perdido, in 8,000 feet (2,438 meters) of water, is at
present the world's deepest producing offshore project. That is
60 percent deeper than Macondo, the BP well which ruptured in
April 2010 in an accident that killed 11 men and spewed crude
into the sea for nearly three months.
Stones is deeper than Perdido at 9,500 feet (2,896 meters).
Production during the first phase of Stones is expected to
peak at 50,000 barrels of oil equivalent (boe) per day, Shell
said, but the project is multi-phase, and is estimated to have 2
billion barrels of oil equivalent in place.
The lure of offshore development is a strong one, despite
the expense and risk.
"Ultra-deep" wells, drilled in water at least 1.5 km (4,500
feet) deep, and often into several more kilometres of rock to
the reservoir below, accounted for around half of all the
world's new discoveries in the first half of last year.
Data from analysts at IHS shows the average ultra-deep
exploration well adds 140 million boe to reserves, making them
11.5 times more effective than an onshore rig. At $100 a barrel,
that amounts to $14 billion worth of oil per discovery - enough
to repay almost half of Shell's capital spending budget this
Shell will build a floating production, storage, and
offloading (FPSO) vessel and subsea infrastructure. It will be
the company's first in the Gulf of Mexico, and the second to
operate there after Brazil's state-oil company Petrobras'
Cascade/Chinook vessel about 30 miles (48 km)
northeast of Stones.
Shell's FPSO's capacity will be about 60,000 boepd, close to
the expected output from the development.
FPSOs are common in offshore oil provinces that lack
extensive seabed pipeline networks, like Brazil and West Africa.
Petrobras has a fleet of FPSOs in Brazil, and Exxon Mobil has
one of the world's largest FPSOs in offshore Angola. Shell
operates seven FPSOs globally, including two in Brazil,
Producers have mostly favored moored platforms in the Gulf
of Mexico because of the well-developed pipeline infrastructure.
But as deeper fields further from shore are developed in
areas without pipeline infrastructure, the storage and tanker
offtake model offered by FPSOs - mostly converted tankers
themselves - is being considered more widely.
FPSOs also can be disconnected from pipes that connect to
seabed wells and move out of the way when hurricanes approach,
much like drillships.
Shell had new pipelines built to move oil and gas production
ashore from Perdido, which is 220 miles (354 km) south of
Galveston. But for Stones, the company will have a gas pipeline
and let the FPSO handle crude production and movement.
"Topography comes into play, and water depth. We kind of
roll all them together and decide on the right development
concept," Hollowell said.
Modern FPSOs can "weathervane" in the wind and tide to
reduce stress on the structure and keep it intact.
Shell's will be moored using a lightweight combination of
polyester rope and chain. It will the first FPSO in the world to
combine a system of riser pipes that dampen the impact of
movement during flow with a disconnection ability during bad
weather allowing it to sail to a safe area.
At a later stage, a new generation of super-efficient sea
floor pumping technology will be used.