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Page added on November 19, 2015
Shell finds 100 million oil barrels in deep-water Gulf discovery
Probing one of its recent discoveries in deep waters of the Gulf of Mexico, Royal Dutch Shell found 100 million barrels of oil equivalent buried at its Kaikias field, nearby three of its massive production facilities and a network of subsea pipes, the company said Wednesday.
The one-year-old Kaikias discovery, about 60 miles south of the Louisiana coast in the Mars-Ursa basin, is nowhere near the size of the big-ticket deep-water oil fields that Shell uncovered in that region two decades ago.
But its location near existing oil-production infrastructure make it an attractive bounty for an industry that has had to dramatically rein in exploration spending and project costs as oil prices languish under $45 a barrel. The field would be much cheaper to develop than more remote projects, far removed from the Gulf’s expansive network of pipelines that help ship crude to land.
A 100-million-barrel find “is not a game-changer in the Shell portfolio,” said Rebecca Fitz, senior director at IHS Energy. “But this discovery is completely consistent with what Shell is trying to do from its streamlined exploration program. If you can deliver 100 million barrels of crude oil and have all the infrastructure built, that should be a pretty high value, quick lead-time buyback development.”
Fitz said Shell’s Kaikias find is a good example of the industry’s efforts to retain a place for oil exploration while keeping capital constrained. Shell’s $62 billion acquisition of British gas producer BG Group, which has been developing big pre-salt oil formations off the coast of Brazil, has relieved some of the urgency in Shell’s international hunt for large crude reserves.
Next year, large oil companies are expected to trim their exploration budgets to $25 billion all told, cut in half from 2013 levels, according to energy investment bank Tudor, Pickering, Holt & Co. Big Oil discoveries in recent years have come in at about half of the combined 8 billion barrels they pump each year.
At Kaikias, which is in 4,575 feet of water, Shell found about 300 net feet of oil pay, adding to the bounteous 1 billion barrels trapped under sand and salt formations in the Mars-Ursa basin. Shell has pumped crude from the region since the mid-1990s and expects to produce a peak 100,000 barrels from its relatively new Olympus platform next year.
If Shell decides to develop the Kaikias discovery, it would help refuel production facilities that have seen output decline over the years. The three facilities there, the Mars, the Mars B and the Ursa, have a combined output capacity of about 500,000 barrels a day.
Shell produces the third-largest amount of oil equivalent among the top western publicly traded oil companies, at about 3.08 million barrels a day, and it has the third-largest amount in proved reserves, about 13.1 billion barrels. Exxon Mobil Corp. ranks first and BP second in both measures.
Shell said it was able to keep drilling costs down when it was appraising the Kaikias well, shaving 20 percent off the cost to drill a well last year and completing its appraisal ahead of schedule. It cut costs from both its operations and its supply chain.
The company drilled the well to about 34,500 feet underground, driving its drill bits both vertically and horizontally to avoid some hazardous salt formations. It’s the longest well Shell has ever drilled, though not the deepest.
“It’s a beautiful discovery with good-quality oil in a good-quality reservoir,” said Martijn Dekker, Shell’s vice president for appraisal and hydrocarbon maturation.
“There’s a lot of concern in the industry on generally how we’re going to deal with lower prices, and the way to address that is to reduce our break-even price and reducing our cost basis,” he said. “The Kaikias has definitely demonstrated already we can do that on the drilling side. Our engineering studies are looking at if we can significantly reduce our subsea costs, too.”
Dekker said Shell geologists are reviewing a stream of data flowing from the well, trying to figure out “the size of the pie,” while engineers are trying to figure out ways to reduce subsea infrastructure costs of any future developments in the region.
Earlier this year, the Anglo-Dutch oil major said it has brought down its break-even costs to develop its huge Appomattox field — a project the company sanctioned in July — to $55 a barrel of Brent, the international crude benchmark.
“It’s fair to say that for something like Kaikias, which is leveraging existing infrastructure, we should be able to do better than that,” Dekker said. “But that work is still ongoing.”
28 Comments on "Shell finds 100 million oil barrels in deep-water Gulf discovery"
JuanP on Thu, 19th Nov 2015 7:14 am
Wow! A whole extra day for the world. This is really big news. This proves we will never run out of oil! 😉
SilentRunning on Thu, 19th Nov 2015 9:03 am
As long as we keep making discoveries of oil as fast as we’re using the oil, we’ll never run out. So we need to make a discovery like this every day, or a field 10x bigger every 10 days, etc. Are we? Of course not!
matthewl99 on Thu, 19th Nov 2015 9:28 am
The world consumes 95 millions barrels a day. Will have no effect at all on the market and its not that we will run out but it will eventually reach thew point were it will cost more to retrieve that oil and refine it than it is worth. yes discovery like this seems huge, however it is a grain of sand in the desert of petroleum world we live in.
paulo1 on Thu, 19th Nov 2015 9:39 am
Nice headline, though. Cornies will jump all over it.
Stabilizer on Thu, 19th Nov 2015 9:58 am
100 Million BBLs is a smallish field in the GoM. 100 Million BBLS at today’s oil price of roughly $40 a BBL is $4 billion revenue. To deliver oil to refineries costs about $5 a bbl, averaged over the life of the well. To make a profit they have to be able to sell offshore GoM crude oil for at least $15 a BBL. At $40 they make a tidy profit, albeit less than they make at $100. No surprise, deepwater drilling is still going on and is only limited by hub capacity. Land based “Tight Oil”, wells with 1-2% of the extracting capability of offshore wells, cost about $40 a BBL to get to the refinery. The oil companies are using the cost of land based “Tight Oil” as leverage to slash day rates of offshore deepwater rigs, but only because the offshore drillers were dumb enough to build 160% of the needed number of rigs. Business students take note, this is free market capitalism at work, and at its finest. The free market doesn’t achieve a “fair” price, it achieves the LOWEST POSSIBLE price balancing supply and demand (in the macro sense). The bottom line, consumers of refined products and oil companies are doing well, offshore drillers are doomed.
Stabilizer on Thu, 19th Nov 2015 10:01 am
MATTHEW 199 – VERY TRUE BUT ALSO VERY GLOOMY, IN REALITY WHILE I AGREE YOU ARE 100% ON TARGET, WITHOUT ALTERNATIVE ENERGY OIL WOULD STILL BE THE CHEAPEST SOURCE OF ENERGY FOR MANY DECADES. OIL WILL BE REPLACED BY SOLAR AND WIND FOR ECONOMIC REASONS, AS BOTH ARE ALREADY CHEAPER THAN FOSSILE FUELS AND DECREASING IN COST EVERY YEAR
Davy on Thu, 19th Nov 2015 10:59 am
Stabilizer said – “The free market doesn’t achieve a “fair” price, it achieves the LOWEST POSSIBLE price balancing supply and demand (in the macro sense).” Stabilizer, you forgot to include a whole array of other market distorting variables across the spectrum of markets, regulations, and corruption. There is no pure markets and capitalism at its best. I would also comment fair is probably what we should have with a foundational commodity like oil that maintains a complex global system all of us are deeply dependent on. I am not knocking all of what you are saying as untrue but what you said is only part of the picture.
Davy on Thu, 19th Nov 2015 11:07 am
Stabilizer are you really buying into an open ended statement like this. “OIL WILL BE REPLACED BY SOLAR AND WIND FOR ECONOMIC REASONS, AS BOTH ARE ALREADY CHEAPER THAN FOSSILE FUELS AND DECREASING IN COST EVERY YEAR” Maybe you should reflect on such a brief stab at something very complicated. I have never seen a statement like that where the author could connect the dots to show a mechanism for a solar and wind decoupling from fossil fuels in production, buildout, maintenance, and rebuild after useful life. Those variables along with maintaining and supporting the system that allows people to enter that equation IOW the entire global system run by renewables. How about grow food and supply food inputs. I see little evidence transport can scale up with solar and wind supplied battery power. Stabilizer a statement like you made is a desperate attempt to feel like all will be OK. Closer scrutiny says otherwise.
Kenz300 on Thu, 19th Nov 2015 11:09 am
The world will transition away from all fossil fuels…..
it must if we are to have any hope of dealing with Climate Change.
All Fossil fuel companies need to transition to “ENERGY” companies and embrace safer, cleaner and cheaper alternative energy.
Wind Power Now Cheaper Than Natural Gas for Xcel, CEO Says – Renewable Energy World
http://www.renewableenergyworld.com/articles/2015/10/wind-power-now-cheaper-than-natural-gas-for-xcel-ceo-says.html
GregT on Thu, 19th Nov 2015 11:25 am
A SMALL PERCENTAGE OF OIL WILL BE REPLACED BY SOLAR AND WIND IN ELECTRIC POWER GENERATION, BUT ELECTRICITY WILL NEVER DO FOR US WHAT FOSSIL FUELS DO.
There fixed it for you.
Lawfish1964 on Thu, 19th Nov 2015 12:22 pm
Woo-hoo, 11 more days to party!
Boat on Thu, 19th Nov 2015 1:17 pm
Of course the world depends on oil for fuels. I think you discount the effect of nat gas, solar and wind being used and will be used in the production and processing of oil. Along with technology like CHP at refineries.
J-Gav on Thu, 19th Nov 2015 1:29 pm
Might be enough to keep the eco-system holcaust business going for a while longer.
BobInget on Thu, 19th Nov 2015 2:01 pm
Off, off shore needs $60 break even.
No mention as to cost.
Keep in mind the 36,000 ft exploratory well STARTS one mile beneath the sea surface.
Dredd on Thu, 19th Nov 2015 4:41 pm
“Shell finds 100 million oil barrels in deep-water Gulf discovery”
Who dumped those oil barrels there?
Oil-Qaeda is still funding junk “science” (Shell finds 100 million oil barrels in deep-water Gulf discovery).
dooma on Thu, 19th Nov 2015 7:53 pm
This article is akin to “wiggling” a race car to get the last out of the tank.
makati1 on Thu, 19th Nov 2015 7:56 pm
Oil will soon be the least of our worries…
http://www.doomsteaddiner.net/blog/2015/11/18/beware-the-tides-of-march/
or:
http://www.washingtonsblog.com/2015/11/understanding-the-power-contest-between-aristocracies.html
or:
http://thearchdruidreport.blogspot.com/2015/11/the-heresy-of-technological-choice.html
THE HERESY OF TECHNOLOGICAL CHOICE
Weather, war and/or ignorance/denial will kill us long before there is no oil available at any price.
dooma on Thu, 19th Nov 2015 9:14 pm
Yes I tend to agree with you makati1.
The world has never been a peaceful place.
And I truly believe that we are unfortunately “overdue” for another worldwide war. The teams have been picked via religious lines. Killing is okay if you are doing it for your righteous God.
apneaman on Thu, 19th Nov 2015 9:44 pm
https://www.youtube.com/watch?v=THDamlNsuuA
rockman on Thu, 19th Nov 2015 9:51 pm
Guys – I understand your comments about size of the Shell discovery. But you need to understand that it’s much larger then the average size of the oil fields that have produced all the oil we recovered to date. The size of this field or a 1 billion bbl field discovery is not relevent with respect to PO. It’s the collective volume of the production from all the new wells drilled this year, next year and every year in the future. You’ve seen the chart depicting how much oil has been found yearly for the last 40+ years. The Shell discovery adds just one tiny slice to this year’s column.
As far as it’s value to Shell it’s definately will make the board happy. But understand Shell doesn’t get the revenud from 100 million bbls: the govt gets around 13 to 16 million of those bbls depending on the royalty. Which also stands as a reminder that our citizens, thru our govt, are participants in providing fossil fuels which will be burned creating the GHG that is causing climate change. Remember climate change is a collective efforts with our citizens and govt playing the largest role.
I can only make a wild guess but in simplistic terms field will probably earn Shell a 2 to 3 to 1 return on their investment. Some might not beleive it but that’s really damn good for a Big Oil these days. And that’s based on $45/bbl oil. When the field starts producing in the next 4 to 6 years the price could be better…maybe much better.
dooma on Thu, 19th Nov 2015 9:56 pm
Nice choice apneaman.
What has always spooked me is the hymn “Onward Christian Soldiers”.
Got assult rifle? check
Got Bible/Koran? check.
Okay then sanctioned killing is not a bad thing anymore. In fact, it is honourable.
Truth Has A Liberal Bias on Fri, 20th Nov 2015 12:38 am
Every 10 years or so we find a coupe weeks worth.
shortonoil on Fri, 20th Nov 2015 8:54 am
The security checks in the forums are not legible, I triied 10 times before I gave up
Ted Wilson on Fri, 20th Nov 2015 12:05 pm
4,575 feet of water + 34,500 feet under the water and that’s going to have total depth of 39,075 feet.
Wow, a drilling marvel. And they are drilling both horizontally and vertically. How much energy did they spend in this drilling.
Does this point that all the onshore fields are already tapped and only offshore fields are available.
Soon every oil company will do this type of drilling and will involve a huge cost, meanwhile the cost of renewable is slowly coming down.
Already both Wind & Solar power are cheaper than Oil and if all our transport runs on Electricity, there will not be anymore drilling for such fields except for using Oil for Plastics.
Kenz300 on Fri, 20th Nov 2015 2:45 pm
The world is in transition away from fossil fuels……
Oil is used in transportation today but the future will be electric vehicles, bicycles and mass transit……
Every major auto maker is in the process of developing a battery electric vehicle or has already released one. As battery costs continue to fall electric vehicles will come down in price and pick up market share.
Time to divest from fossil fuels……. they are the buggy whips of the future.
rockman on Fri, 20th Nov 2015 6:18 pm
Ted – I couldn’t find the details but I doubt it will be horizontal. Cost: Last DW GOM well I consulted on for Devon was a 34,000′ drill hole in a bit deeper water depth: $148 million.
Energy: I don’t have time to run an estimate but the EROEI is much better then you would guess. That’s typical of all DW fields because of those high costs you mention. No company can afford to spend that much money unless the reserve potential was much higher then an onshore well.
BTW: the big energy cost for a DW well is the rig’s electrical generation. Also in addition to drilling the rig is a huge vessel that powers itself with fossil fuels. As do all the all the support vessels.
rockman on Sat, 21st Nov 2015 6:42 am
Paulo – Just wasted a good bit of time searching for what I would consider a very illustrative chart: global heritage field production. IOW how much of the current daily oil production is coming from fields discovered, let’s say, in the last 10 years, compared to what % of the current 90+ mm bopd is coming from all the older fields. I can only make a guess but globally 70%+ is heritage production which is very far down its depletion cycle. But that’s the good news: by the time most fields have produced the majority of their reserves their decline rate has decreased significantly…just a few % per year. That’s why globally I would never expect anything resembling a “cliff” even if there were no new fields discovered.
The same true with the US with the exception of the shales. Of course with their high decline rates without new wells they look more cliff-like. But we’ll still have our slowly declining heritage production. Thus as long as prices stay low we’ll see a fairly sharp drop due to the shales but we’ll return to the slower pre-shale decline rate.
antaris on Sat, 21st Nov 2015 8:55 am
Rock doesn’t that slower pre shale decline rate extrapolate to zero in about 18 years in the USA ?