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Shell Eyes Low-Cost Oil Projects In The Gulf Of Mexico

Dec. 18, 2018 7:06 AM ET

Summary

  • Enormous reductions in development costs have made new upstream oil projects in the US Gulf of Mexico quite economical.
  • Royal Dutch Shell plc expects the Vito field to break even in a low pricing environment.
  • Commentary on where these cost reductions are coming from, with an eye on third-party pricing deflation in the offshore space.

Royal Dutch Shell plc (NYSE:RDS.A) (NYSE:RDS.B) is investing in upstream projects that are capable of earning a decent return in most oil pricing environments. The US Gulf of Mexico is one of the energy giant’s core upstream plays for this reason. In May 2018, Royal Dutch Shell plc reached first-oil at the Kaikias project in the Gulf of Mexico a year ahead of schedule. Reducing the Kaikias project’s total development costs by 30% allowed Royal Dutch Shell plc to announce that it will break even on that endeavor when realizing just $30 per barrel of oil sold. Next year, the Appomattox development in the US GoM is expected to reach first-oil and Royal Dutch Shell plc has already achieved major cost savings at that project. Farther out, the Vito development in the US GoM is expected to achieve first-oil by 2021. Let’s dig in.

Project overview

The Vito development seeks to commercialize 300 million barrels of oil equivalent in recoverable resources, mostly crude, that Shell located back in 2009. In 2010, appraisal activity helped prove the viability of the Vito oil discovery. When appraisal activity was completed in 2013, it became clear that it was worthwhile trying to figure out how to monetize the Vito field. As things stand today, the Vito field is home to 300 million barrels of recoverable barrels of oil equivalent. Most of that is represented by crude oil, and this field covers four exploration blocks in the Mississippi Canyon area of the Gulf of Mexico.

In April 2018, Shell announced that the partnership was moving forward with developing the Vito field. Shell owns 63.1% of this venture and Equinor ASA (NYSE:EQNR) owns the remaining 36.9% stake. The new production platform, a four-column semi-submersible floating production unit, that the venture is using to develop the Vito field will have the capacity to support the production of 100,000 barrels of oil per day and 100 MMcf/d of natural gas.

FULL ARTICLE

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