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Shell Cleans Up Deep-Water Drilling Agenda

April 12, 1999
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Shell Cleans Up Deep-Water Drilling Agenda

Shell Exploration &amp Production Co. (SEPCo) outlined a plan last week to develop its strategic Gulf of Mexico (GOM) assets while cutting back on other deep-water projects. The plan includes commencing development on Shell's 17th GOM project, the Brutus oil and gas play, while cutting up to $1.1 billion in E&ampP costs by 2001. Shell's 17 Gulf projects are the most of any GOM producer.

SEPCo's main development project in 1999 will be the Brutus oil and gas discovery, located 165 miles southwest of New Orleans on Green Canyon block 158. SEPCo said last week it plans to build a tension leg platform (TLP) to drill beneath 2,985 feet of water. Total project cost is around $900 million, including pipeline cost, but excluding leasing cost. At peak rates, Shell expects the site to produce 100,000 Boe/d and 150 MMcf/d. The TLP will be Shell's fifth in the GOM and will serve as a hub for future subsea projects in the area. Production from the asset is expected to begin in 2001.

Although many in the industry are skeptical of GOM production in the near future, (See NGI, March 15), a recent study by PIRA Energy Group, a New York-based energy consulting firm, suggests deep-water drilling could offset any drop-off shallow-water drilling may experience.

"In the 1999-2001 timeframe, PIRA's Reference Case anticipates that gas production growth from deep-water GOM will accelerate," PIRA said. "By 2001, total deep-water gas production is forecast to reach 4.1 Bcf/d, an annual rate of growth of 0.8 Bcf/d."

Along with the Brutus development, Shell said it plans to develop the Angus and Macaroni deep-water projects. Like the Brutus project, the $200 million Angus facility is located in the Green Canyon area of the GOM. The water depth is 2000 feet, and ultimate recovery is estimated at 64 million Boe and 60 MMcf/d. Production is expected in the second quarter of 1999. Shell owns 80% of the project, and operates the drilling. Marathon Oil owns the other 20%

The Macaroni project is located 225 miles southwest of New Orleans in the Garden Banks area of the Gulf. It also has a TLP platform that drills into depths of 3,700 feet. The $270 million project is 100% owned by Shell. Ultimate recovery is estimated at 78 million Boe and 65 MMcf/d, with production scheduled to begin in mid-1999.

Contrary to these developments, however, Shell has reinforced its dedication to cutting E&ampP costs. Phil Watts, CEO of SEPCo, said the company has already divested $800 million of non-strategic assets in 1999 as part of a push to cut $1.1 billion from the balance sheet by 2001. Besides the sale of assets, Watts said the savings will be achieved through risk sharing and strategic equity dilution. Shell did not comment further on its cut-back plan.

John Norris

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