Shell bets big on deep-water Gulf drilling
Appomattox, authorized in 2015, is the company’s largest oil platform ever launched in the Gulf of Mexico
The massive Appomattox oil platform sets sail in May from Ingleside as Royal Dutch Shell aims to trigger a new beginning for the deep-water Gulf of Mexico following the recent oil bust.
The massive Appomattox oil platform will set sail in May from a dock in Ingleside en route to the eastern Gulf of Mexico as Royal Dutch Shell aims to trigger a new beginning for the deepwater Gulf of Mexico after the recent oil bust.
Spanning the width of two football fields and weighing 125,000 metric tons — more than the largest aircraft carriers — the Appomattox is Shell’s largest oil platform ever launched in the Gulf. The platform will operate in ocean depths of 7,400 feet, where it is expected to produce up to 175,000 barrels a day of oil equivalent.
“We call it the jewel and the crown of the deep-water business,” said Wael Sawan, Shell’s executive vice president of deep-water.
The multibillion-dollar Appomattox was authorized by Shell in 2015, representing the first major deepwater project approved after oil prices crashed in late 2014. Since then, only two other Gulf platforms have moved forward, including Shell’s Vito project, which was authorized this week. The Vito decision is considered a sign that the long-languishing offshore sector is showing signs of life as oil prices close in on $70 a barrel.
Crude settled at $68.19 a
barrel on Thursday in New York.
“These projects are bets on the future. They’re what we call resilient projects,” Sawan said. “And it comes at a time when the market needs more oil.”
The Appomattox is named after the Virginia courthouse where Confederate Gen. Robert E. Lee surrendered in 1865, essentially ending the Civil War. Sawan said he sees the project as a milestone for an industry that needed to adjust its approach and make deep-water projects affordable in the lower oil price environment.
The U.S. shale industry, especially West Texas’ Permian Basin, is booming with its faster and cheaper projects, siphoning investment from the Gulf of Mexico.
Shell said it cut 20 percent off the price tag before approving the Appomattox in 2015.
An additional 30 percent was cut afterwards. The Anglo-Dutch oil major declined to disclose the project costs but said it sliced billions from the original price. The Vito project will come in about 70 percent cheaper than the original project design, the company said.
The only other Gulf platform project approved since the bust — BP’s Mad Dog Phase 2 project — was authorized only after BP slashed its costs by more than half, from $20 billion down to $9 billion.
The Appomattox was originally designed to profit as long as the international benchmark for oil prices stays above $55 a barrel. That was later reduced to less than $50. Three years later, Shell says it can engineer some deep-water projects to succeed with oil prices even as low as $30 a barrel.
Shell and other companies have moved to simplify platform designs that can be replicated and use standardized components, rather that starting from scratch each time with customized parts and equipment. Shell switched to using four standard well designs worldwide versus dozens previously.
Most energy companies, however, are refusing to build new platforms, instead opting to drill wells near existing platforms and connect them via underwater networks of pipelines and umbilicals. That’s much cheaper, but it also means less oil and gas volumes. Shell is taking that approach with its Kaikias and Coulomb Phase 2 projects in the Gulf, both of which are under construction.
As for the Appomattox, the hull was built in South Korea and shipped to Texas during a multiweek journey that ended in early October — not long after Hurricane Harvey ravaged the area. The topside portions were built in Texas, Louisiana and Alabama, and pieced together in Ingleside.
“I describe it as a giant Lego system,” Shell construction engineer Kelly Bowen said.
The construction employed thousands of people. The platform will house a crew of 180 workers at a time. They will live on the platform in rotations, typically on twoweek shifts.
Shell owns 79 percent of the Appomattox project. The remaining 21 percent is held by a subsidiary of the state-owned China National Offshore Oil Corp., or CNOOC.
Shell was a pioneer in developing the deep-water blocks of the Gulf of Mexico. The company has sizable holdings in the Permian Basin in West Texas but since acquiring the U.K.-based BG Group in 2016 for more than $50 billion, Shell has rededicated itself to the offshore sector.
In addition to the Gulf of Mexico, Sawan said, Shell is expanding in North Sea and waters off Brazil, Malaysia and other countries. But it’s the Gulf of Mexico that Shell truly considers its heartland for deep water, he said.
“It started here and it continues to evolve here,” Sawan said.
Shell drilled with barges in the South Louisiana marshes in the 1930s. In 1962, Shell unveiled the first semisubmersible floating drilling platform, called the the Blue Water 1, which Shell describes as the beginning of deep-water drilling. In 1979, Shell began producing from the first deep-water field at depths of more than 1,000 feet.
Shell’s Stones development in the Gulf, which came online in 2016, is operating at depths of 9,500 feet — the deepest in the world.
Shell is now betting on cost reductions and technological efficiencies to make offshore fields competitive with shale plays.
“The bet was made, and we’re about to start cashing in,” Sawan said.