Shell Exploration &amp Production Co. (SEPCo) outlined a planlast week to develop its strategic Gulf of Mexico (GOM) assetswhile cutting back on other deep-water projects. The plan includescommencing development on Shell’s 17th GOM project, the Brutus oiland gas play, while cutting up to $1.1 billion in E&ampP costs by2001. Shell’s 17 Gulf projects are the most of any GOM producer.

SEPCo’s main development project in 1999 will be the Brutus oiland gas discovery, located 165 miles southwest of New Orleans onGreen Canyon block 158. SEPCo said last week it plans to build atension 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 siteto produce 100,000 Boe/d and 150 MMcf/d. The TLP will be Shell’sfifth in the GOM and will serve as a hub for future subsea projectsin the area. Production from the asset is expected to begin in2001.

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

“In the 1999-2001 timeframe, PIRA’s Reference Case anticipatesthat gas production growth from deep-water GOM will accelerate,”PIRA said. “By 2001, total deep-water gas production is forecast toreach 4.1 Bcf/d, an annual rate of growth of 0.8 Bcf/d.”

Along with the Brutus development, Shell said it plans todevelop the Angus and Macaroni deep-water projects. Like the Brutusproject, the $200 million Angus facility is located in the GreenCanyon area of the GOM. The water depth is 2000 feet, and ultimaterecovery is estimated at 64 million Boe and 60 MMcf/d. Productionis expected in the second quarter of 1999. Shell owns 80% of theproject, and operates the drilling. Marathon Oil owns the other 20%

The Macaroni project is located 225 miles southwest of NewOrleans in the Garden Banks area of the Gulf. It also has a TLPplatform that drills into depths of 3,700 feet. The $270 millionproject is 100% owned by Shell. Ultimate recovery is estimated at78 million Boe and 65 MMcf/d, with production scheduled to begin inmid-1999.

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

John Norris

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