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Deepwater Drilling Under Way, Says Shell Exec

A U.S. unit of Royal Dutch Shell plc is back to work in the Gulf of Mexico (GOM), CFO Simon Henry said Thursday. ExxonMobil Corp. also said Thursday that it began drilling a new well in the GOM a few weeks ago.

Shell has applied for eight permits to drill in the GOM under the more stringent rules enacted by the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM), Henry told financial analysts during a conference call. Of the 10 approved by BOEM to date, Shell has snagged two.

"We had eight applications in, including two new exploration plans," Henry explained. "Two plans now have been approved. Cardamom was approved, and the Appomattox permit has been deemed complete. It hasn't been approved, but it is considered complete. Those are the only ones for new drilling."

In March Shell gained the first federal approval to launch Cardamom Deep, the first new deepwater exploration plan in the GOM (see Daily GPI, March 22).

"Drilling is under way," Henry said. "We started drilling three weeks ago and we are drilling exploration wells now."

Last June front-end engineering and design of a field development plan to bring Cardamom onstream was begun. As many as eight production wells are expected to flow through Shell's Auger tension-leg platform in Garden Banks Block 426. The Cardamom well is being drilled by the Noble Jim Thompson semi-submersible rig.

The Appomattox prospect, in more than 7,000 feet of water in the Mississippi Canyon, was discovered by Shell in early 2010. Shell already had drilled two wells in the prospect to more than 25,000 feet below the seabed, the first encountering 530 feet oil pay, the next 380 feet. Shell has an 80% operating interest in the prospect; Nexen Inc. holds the remaining stake.

Separately, Henry said, the producer was granted approval early this year to drill an existing well at its Perdido Development, and Shell is "also about to drill" there. Shell and 12 other GOM producers were given the go-ahead in January to continue working on existing projects as long as the projects were in compliance with the revised BOEM rules (see Daily GPI, Jan. 4).

The Perdido Development ramped up last year just weeks before the Deepwater Horizon accident (see Daily GPI, April 5, 2010). Called the world's deepest offshore drilling and production facility, the first producing platform in the promising Lower Tertiary Trend is able to produce annual peak production of more than 200 MMcf/d of gas and 100,000 b/d of oil.

In addition to its permitted drilling, Henry noted that Shell has five floating drilling units in the GOM, and it is drilling workovers and some completions off of some platforms.

"Of the floaters we've got that are already new-regulation ready, one is close, one has been taken to Brazil for awhile," he said. "We are getting back to work, but it's still slow progress."

Shell had already estimated that 50,000 boe/d of expected production in the GOM would be lost that "otherwise would have been achieved without the moratorium," he said. Even though drilling in the GOM is restarting, "we won't change the 50,000 boe/d losses...and we would like to see the rest of the applications approved as well."

Shell's net profit in the first quarter jumped 60% from a year ago to $8.78 billion from $5.48 billion. Group revenues rose to $114.84 from $88.03 billion. Shell's clean current cost of supplies, which strips out gains or losses from inventories and other nonoperating items, was $6.29 billion in 1Q2011, compared with $4.82 billion in 1Q2010.

"We continue to make good progress in implementing our strategy, improving near-term performance, delivering a new wave of production growth, and maturing the next generation of growth options for shareholders," said CEO Peter Voser.

The CEO said new asset sales and cost savings programs have been announced as part of Shell's focus to continuously improve and enhance performance. Shell sold $3.2 billion of noncore assets in the latest quarter, including the sale of some tight gas assets in South Texas for $1.8 billion.

Total oil and gas production in the latest quarter was 3.504 million boe/d, down 3% from a year ago. Production in the quarter increased by 230,000 boe/d from new field start-ups and the continuing ramp-up of fields, which more than offset the impact of field declines, Shell said. Liquefied natural gas sales volumes totaled 4.42 million tons in 1Q2011, 4% higher than in the year-ago period.

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