Shell to drill world's deepest offshore oil well

Royal Dutch/Shell said today it will go ahead with the world's deepest offshore oil and gas production project, pushing the boundaries of technology to produce from nearly 3.2km 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 in spite of a downturn in oil prices.

Earlier this week, Exxon Mobil Corp flagged startup for a $4 billion project to develop the Julia oilfield, about 64 km west of Stones in the Gulf's deepest waters.

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.

"We're excited about the opportunity," John Hollowell, Executive Vice President for Deepwater, Shell Upstream Americas, told Reuters in an interview. "We're ready to execute the project."

He declined to disclose the project's cost.

Shell's 100 percent-owned Stones field was discovered in 2005, some 200 miles southwest of New Orleans. It encompasses eight lease blocks in the Gulf of Mexico's Lower Tertiary trend, which is the Gulf's deepest, most challenging and most promising area estimated to hold up to 15 billion barrels of oil.

The Anglo-Dutch company's Perdido platform was the first to start up in the Lower Tertiary in 2010.

Perdido, in 2438m of water, is at present the world's deepest producing offshore project. That is 60 percent deeper than Macondo, the BP well which ruptured in April 2010 in an accident that killed 11 men and spewed crude into the sea for nearly three months.

Stones is deeper than Perdido at 2896m.

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

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