Shell Finds Profitable Deep Water Oil Field in Gulf

Published December 31, 2015

Royal Dutch Shell found 100 million barrels of oil equivalent buried at its Kaikias field in deep waters of the Gulf of Mexico. At current oil prices, the field would not be worth developing under normal circumstances, however, it is close to three of Shell’s massive production facilities and a network of subsea pipes, making the working the field worth the effort. 

Current low oil prices, make most deepwater oil production unprofitable. As a result, most companies, including Shell have sharply curtailed deep water exploration and production.

Location Key to Profitability

The Kaikias discovery, located approximately 60 miles south of the Louisiana coast is relatively small compared to some of the deep-water oil fields Shell uncovered in the area two decades ago. Still, its location near existing oil-production infrastructure makes it worth developing compared to 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 in an interview with “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 tie-back development.”

In the face of the lowest prices seen in more than a decade, large oil companies are trimming their exploration budgets, possibly reducing investment by as much as $25 billion in 2016, half their 2013 levels, reports energy investment bank Tudor, Pickering, Holt & Co. 

By developing its Kaikias discovery, Shell would help refuel production facilities experiencing declining activity in recent the years. Shell’s three nearby facilities, the Mars, the Mars B and the Ursa, have a combined output capacity of about 500,000 barrels a day. 

FuelFix reports, Shell produces the third-largest amount of oil equivalent among the top publicly traded Western oil companies. It produces about 3.08 million barrels of oil equivalent a day, and at approximately 13.1 billion barrels, has the third-largest proved reserves. Exxon Mobil Corp. ranks first and BP second in both measures.

Cost Savings

Shell said it was able to keep drilling costs down, shaving 20 percent off the cost to drill a well last year and completing its Kaikias appraisal ahead of schedule. It also cut costs from both its operations and its supply chain.

“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.

H. Sterling Burnett, Ph.D., ([email protected]) is the managing editor of Environment & Climate News.