Shell to develop world's deepest offshore oil well

(REUTERS) - Royal Dutch/Shell will go ahead with the world's deepest offshore oil and gas production project, pushing the boundaries of technology to produce from almost three kilometres down in the Gulf of Mexico.

Coming three years after the Macondo oil spill disaster, Shell targets first production by 2016, demonstrating confidence in big offshore projects despite a downturn in oil prices.

Earlier this week, Exxon Mobil flagged startup for a US$4 billion (S$5 billion) project to develop the Julia oilfield, also in the Gulf.

But last month, BP decided to delay development of its biggest new project there, Mad Dog Phase 2, citing tough market conditions and rising costs, raising questions about the possibility of wholesale project cancellations.

"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," said Mr John Hollowell, Executive vice-president for Deepwater, Shell Upstream Americas.

Shell's 100 per cent-owned Stones field was discovered in 2005 some 322km south-west of New Orleans.

It encompasses eight lease blocks in the Gulf of Mexico's Lower Tertiary geologic trend which produced the Anglo-Dutch oil company's Perdido development.

Perdido, at 2.85km below the surface, is at present the world's deepest producing offshore well, almost twice as deep as Macondo, the BP well which ruptured in April 2010 in an accident that killed 11 men and spilled crude into the sea for weeks.

Stones is deeper again, at 2.89km.

Production during the first phase of Stones is expected to peak at 50,000 barrels of oil equivalent (boe) per day, Shell said, but the project is multi-phase, and is estimated to have 2 billion barrels of oil equivalent in place.

The lure of offshore development is a strong one, despite the expense and risk.

"Ultra-deep" wells, drilled in water at least 1.5km deep, and often into several more kilometres of rock to the reservoir below, accounted for around half of all the world's new discoveries in the first half of last year.

Data from analysts at IHS says the average ultra-deep exploration well adds 140 million boe to reserves, making them 11.5 times more effective than an onshore rig. At US$100 a barrel that amounts to US$14 billion worth of oil per discovery - enough to repay almost half of Shell's capital spending budget this year.

FPSO FIRST

Shell will build a floating production, storage, and offloading (FPSO) vessel and subsea infrastructure. It will be the company's first in the Gulf of Mexico, and the second to operate there after Petrobras' Cascade/Chinook vessel.

FPSOs are an increasingly common sight in newer oil provinces, but Shell and others have traditionally used moored platforms in the Gulf of Mexico because of the well-developed pipeline infrastructure.

But as fields are developed deeper and further from land, pipelines are becoming an expensive option, and the storage and tanker offtake model offered by FPSOs - mostly converted tankers themselves - is being considered more widely.

Modern FPSOs can "weathervane" in the wind and tide to reduce stress on the structure and keep it intact.

Shell's will be moored using a lightweight combination of polyester rope and chain. It will the first FPSO in the world to combine a system of riser pipes that dampen the impact of movement during flow with a disconnection ability during bad weather allowing it to sail to a safe area.

At a later stage, a new generation of super-efficient sea floor pumping technology will be used.