By Sarah Kent
LONDON--Royal Dutch Shell PLC is pressing ahead with plans to
develop its Appomattox deepwater project in the Gulf of Mexico,
despite the steep drop in oil prices over the last year that has
discouraged many companies from moving forward with ambitious and
expensive ventures.
The Anglo-Dutch oil company has approved investment to extract
650 million barrels of oil equivalent using a floating oil platform
80 miles offshore Louisiana. Though the company didn't disclose the
cost of the project, Marvin Odum, Shell's upstream chief in the
Americas, said it was among the biggest given the green light this
year.
The decision comes at a difficult time in the oil sector. Lower
prices have buffeted companies' balance sheets and eroded capital
expenditure. Shell itself has said it would curb its spending over
the next three years by $15 billion. It has scrapped plans to build
a big petrochemicals plant in Qatar, delayed projects and cut jobs
around the world.
However, the Appomattax development remains attractive, even
though it lies in deep waters far offshore where costs are high and
reservoirs can prove technically challenging. It holds large and
concentrated reserves of oil in two proven discoveries that could
produce oil for decades. It also has the potential to act as a
future hub for two other nearby discoveries.
"The only type of projects that are going to get funding is this
type of project," Mr. Odum said. "You really only want to be in the
best stuff because it's the best stuff that will truly be
competitive."
Shell also pushed aggressively to bring down the project's cost
by 20% before giving it the go ahead.
It estimates the break-even price for the Appomattox development
at $55 a barrel.
"We think we've hit the sweet spot," Mr. Odum said.
The company is targeting peak production equivalent to 175,000
barrels of oil a day and expects the project to start up around the
end of the decade. The volumes build on Shell's current production
in the Gulf of Mexico, which averaged 225,000 barrels of oil
equivalent a day last year.
Write to Sarah Kent at sarah.kent@wsj.com
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