Deep-water giant begins production in Gulf of Mexico field (photos)

By Zain Shauk and Collin Eaton

Royal Dutch Shell said Tuesday it had started up its Olympus platform, the first of several new platforms expected to push Gulf of Mexico oil production to a record level by 2016.

The Olympus platform, located in water 3,000 feet deep about 130 miles south of New Orleans, will eventually add up to 100,000 barrels of oil equivalent per day to production from Shell’s Mars field.

A wave of new projects are expected to come online in the Gulf over the next two years, potentially pushing the region’s daily oil production past its previous peak of 1.8 million barrels per day by 2016, Wood Mackenzie forecasts. The Gulf’s daily production could grow by 180,000 barrels to 1.55 million barrels per day this year alone, according to the Energy Information Administration.

Olympus is the first major project Shell has launched in the Gulf since the partial federal drilling moratorium that lasted three months in 2010 after the worst oil spill in U.S. history, when BP’s Macondo well blew out. And the oil producer plans to follow the newly fired-up project with another later this year and a third in 2016.

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Initially, Shell believed 770 million barrels of oil equivalent could be recovered from the Mars field, but the company said it has exceeded that total. With the addition of Olympus, Shell said it could expand production from Mars to 1.1 billion barrels of oil equivalent.

The company did not disclose the current production rate of the Olympus platform or its construction costs. In 2013, production from the Mars field averaged 60,000 barrels of oil equivalent per day.

The field was discovered in 1989, and the nearby Ursa prospect was discovered in 1991. Together, the Mars-Ursa field is the largest ever discovered in the Gulf of Mexico, with 1.3 billion barrels of recoverable reserves, according to Wood Mackenzie. Production didn’t begin at the field until 1996.

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Olympus will produce from the Mars B region of the field. The project to develop Mars B was funded by Shell and BP. Shell holds a 71.5 percent interest in Mars B, with BP holding the remaining 28.5 percent.

Shell’s next project in the Gulf will fire up later this year 225 miles southwest of New Orleans at its Cardamom discovery, where the company will connects subsea wells to its Auger platform in more than 2,700 feet of water. The Auger was the first platform Shell ever launched into the Gulf, in 1994. The subsea wells in the Cardamom are expected to pump 50,000 barrels of oil equivalent per day at their peak.

The company expects to start producing oil in 2016 from its ultradeep-water Stones field, about 200 miles southwest of New Orleans. That field was discovered in 2005 and sits in 9,500 feet of water. That project is expected to be the deepest-producing platform in the world, located in the Gulf’s largely uncharted lower tertiary region.

“That makes the project more complex — the water depth is significant,” Hollowell said. “But we have a track record of breaking through technological barriers. We’re excited about the new frontier that might develop after” it launches production in the Stones field.

More Gulf oil coming

Anadarko Petroleum Corp’s new Lucius platform is expected to begin producing oil from Gulf waters 7,100 feet deep in the second half of this year, spokesman John Christiansen said in an email. Lucius has the potential to add up to 80,000 barrels of oil production per day to Gulf totals.

Chevron also is expected to start up its $7.5 billion Jack/St. Malo platform, which has a production capacity of 177,000 barrels of oil equivalent per day, this year. Chevron’s $4.1 billion Big Foot platform, which will have a capacity of 79,000 barrels of oil equivalent per day, is expected to start pumping oil in 2015. Shell and Anadarko did not disclose the costs of their platforms.

The largest U.S. offshore region “is an important growth pipeline for Shell and our holdings in the Gulf play an important role in that – not only here but in other parts of the world,” said John Hollowell, executive vice president for deep water for the Shell Upstream Americas division.

In the past two years, the region has become more widely known for its attractive economics. It’s easier to make money there because deepwater wells in the Gulf can flow enormous amounts of oil through fewer wells than operators require in North American shale plays.

Favorable oil prices continue to make the Gulf “an attractive place to invest money,” as well as a region where Shell can leverage its existing infrastructure to continue to add new production, Hollowell said.

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