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Shell Eyes Future Growth, Takes Stakes in Three BP Pipelines in GOM

Houston's Shell Midstream Partners LP has acquired stakes in three of BP plc's pipeline systems, two that carry crude oil and one for natural gas, to expand its reach in a discovery-heavy area of the eastern Gulf of Mexico.

Shell Midstream Partners LP said it has taken a 10% interest in both Proteus Oil Pipeline Co. LLC and Endymion Oil Pipeline Co. LLC, as well as a 1% interest in Cleopatra Gas Gathering Co. LLC.

"This acquisition builds on our corridor pipeline strategy in the Gulf of Mexico," said Shell Midstream CEO John Hollowell. "Our sponsor, Shell Pipeline Co., is currently building the Mattox pipeline to serve the recently sanctioned Appomattox platform. Proteus and Endymion will connect the Mattox pipeline to onshore markets, creating a new corridor line, which will transport all of Appomattox's volumes once it comes online toward the end of the decade.

"Proteus also connects to the Thunder Horse platform, which is a key development field for BP and ExxonMobil. In addition to Thunder Horse, Proteus is also currently connected to the Noble Energy Inc. operated Thunder Hawk platform. This acquisition will deepen our footprint in the Eastern Gulf of Mexico, an active area with a number of discoveries currently under appraisal."

Shell already is one of the most active operators in the GOM deepwater. The Stones development ramped up in September as the world's deepest offshore oil and gas project to date. Appomattox has an estimated 650 million bbl of resources. The Cardamon deepwater discovery in Garden Banks Block 427 began producing from the Auger tension leg platform two years ago.

Producing assets in the U.S. offshore also include Perdido, a floating production facility with a host spar in Alaminos Canyon Block 857 that began operating in 2010. Production also is slated to begin within a few years in the Jurassic Norphlet formation.

Shell did not disclose the acquisition price for the three pipeline stakes, but it said the transaction would be immediately accretive to unitholders.

Proteus, a 71-mile crude oil pipeline with a 425,000 b/d capacity, provides access to the Mississippi Canyon area from the BP-operated Thunder Horse and Thunder Hawk platform to the Proteus SP 89E Platform. Noble Energy's Big Bend and Dantzler fields also are tied back to the Thunder Hawk platform.

Endymion, an 89-mile crude oil pipeline with a 425,000 b/d capacity, provides access to Mississippi Canyon also and is connected to the Louisiana Offshore Oil Port's Clovelly storage with access to multiple markets.

Cleopatra, a 115-mile natural gas gathering pipeline in the southern part of Green Canyon, offers access to the Atwater Valley, Walker Ridge and Lund areas, which are considered some of the hottest plays in the deepwater. Cleopatra currently is connected to the Holstein, Atlantis, Neptune, Shenzi and Mad Dog platforms. The system also is to transport new volumes from the Mad Dog 2 field once it comes online. BP sanctioned Mad Dog Phase 2, estimated to cost $9 billion, in early December.

The Energy Information Administration last February noted that eight oil and gas fields came online in the U.S. offshore last year, four were slated to start up this year and two more are to ramp up in 2017, all signs that offshore output should hit record highs in 2017. Production was expected to average 1.63 b/d in 2016, contributing 18% of total domestic crude production. Output is seen averaging 1.79 million b/d in 2017 and hit 1.91 million b/d by the end of the year, when it would account for 21% of domestic production.

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