Royal Dutch Shell is pressing ahead with the world’s deepest offshore oil and gas production facility by drilling almost two miles underwater in the politically sensitive Gulf of Mexico.
The move is being viewed in the oil industry as a demonstration of Shell’s confidence that its technology can deliver returns on expensive and risky offshore projects, despite a recent downturn in oil prices.
It comes a day after ExxonMobil said it would start work on a $4bn (£2.6bn) project to develop the Julia oilfield, also in the North American ocean basin, and weeks after BP delayed development of its biggest Gulf of Mexico project – Mad Dog Phase 2 – citing rising costs.
John Hollowell, a Shell executive vice-president, said: “This important investment demonstrates our ongoing commitment to usher in the next generation of deepwater developments, which will deliver more production growth in the Americas. We will continue our leadership in safe, innovative deepwater operations to help meet the growing demand for energy in the US.”
The move comes despite ongoing controversy over offshore exploration – especially in the Gulf of Mexico, where in April 2010 a fire and explosion on the BP Deepwater Horizon rig killed 11 workers and started a leak that took three months to cap. Last month BP said it had paid $25bn (£16bn) of the $42bn it has set aside to cover the damage caused by the spill.
Shell’s Gulf of Mexico field, called Stones, was discovered eight years ago 200 miles south-west of New Orleans and is 2,900 metres (9,500ft) below the sea. Perdido, another Shell site in the region, is currently the world’s deepest offshore well at 2,880 metres below the surface. Meanwhile the company has several other projects nearby, including its 900 metre-deep Mars field, where it is adding new infrastructure, plus its Appomattox and Vito discoveries.
This first phase of the latest project is expected to have annual peak production of 50,000 barrels of oil equivalent per day, from more than 250m barrels of recoverable resources.
Shell added that the whole field has “significant upside potential” and is estimated to contain more than 2bn barrels.
Royal Dutch Shell shares added 20.5p to close at 2242.5p. Last week the company’s chief executive, Peter Voser, unexpectedly announced plans to stand down less than four years into the job as Shell unveiled a 4% increase in first-quarter profits.