Royal Dutch Shell plc Reaches New Gulf of Mexico Milestone

With three major projects slated to come online in the Gulf of Mexico over the next three years, Shell has a big runway for growth in the region.

Feb 7, 2014 at 6:00PM

With its fourth-quarter oil and gas production down 5% year over year, Royal Dutch Shell (NYSE:RDS-A) is turning to the U.S. Gulf of Mexico as one of the main contributors to production growth over the next few years.

Shell commences production from Olympus platform
On Tuesday, the company announced it has begun production from its Olympus platform, its seventh and largest floating deep-water platform in the Gulf of Mexico. The platform, which is located roughly 130 miles south of New Orleans in water depths of 3,000 feet, is being used to develop the Mars B field, which is operated by Shell with a 71.5% interest alongside partner BP (NYSE:BP), which holds the remaining 28.5% interest.

With the addition of the Olympus platform, Shell expects to recover as much as 1.1 billion barrels of oil equivalent from the Mars B field, up from an initial estimate of 770 million barrels of oil equivalent. Combined with existing subsea wells, export pipelines and a shallow-water platform, Olympus will also prolong the life of the field until at least 2050, Shell reckons.

Production from the Mars B field commenced in 1996 and ramped up to an average of 60,000 barrels of oil equivalent per day (boe/d) last year. With the addition of the Olympus platform, Shell expects total production from Mars B to reach an estimated peak of 100,000 boe/d.

Shell's growth runway in the Gulf
First production from Olympus marks a major milestone for Shell, as it is the company's first major project in the region since the Obama administration implemented a moratorium on Gulf drilling in 2010 following BP's Deepwater Horizon disaster. As it aims to boost oil and gas output and meet its stated cash flow target by 2015, Shell is eager to commence production from its Gulf of Mexico deepwater projects, which it views as a "core growth opportunity."

In addition to Mars-B, the company continues to make progress in developing the Cardamom field, an ultra deepwater project located in water depths of 26,000 feet that is being developed using a new subsea system tied back to the Auger tension-leg platform. Cardamom, which is owned 100% by Shell, is expected to begin producing oil this year with an estimated peak production capacity of 50,000 boe/d.

Shell has also begun work on the Stones development, another ultra deepwater project located in the Gulf of Mexico's uncharted lower tertiary geologic trend at water depths of 9,500 feet. The project will initially be developed using two subsea production wells tied back to a Floating Production Storage and Offloading (FPSO) vessel and host facility, with six additional wells and multiphase pumping to be added in the second phase. Production from Stones is expected to commence in 2016, with an estimated peak production capacity of 50,000 boe/d.

Other companies in the Gulf of Mexico
Shell is just one of a handful of companies ramping up activity in the Gulf of Mexico. Peer Chevron (NYSE:CVX) also has a wave of projects set to come online this year, including Jack St. Malo, Big Foot, and Tubular Bells, which will allow the company to more than double its 2012 deepwater Gulf production level of 125,000 boe/d.

Tubular Bells, in which Chevron holds a 42.86% interest, will also be one of the key drivers of near-term production growth for Hess (NYSE:HES), which serves as the project's operator with a 57.14% working interest, along with its assets in North Dakota's Bakken shale and Norway's Valhall field. The project is expected to begin producing in the third quarter of this year, boosting Hess' net production by roughly 25,000 boe/d.

Similarly, Anadarko (NYSE:APC) expects to bring online its Lucius and Heidelberg projects in the second half of this year and in 2016, respectively. Both facilities will have a production capacity of 80,000 barrels of oil per day, contributing significantly to Anadarko's existing Gulf of Mexico production, which has already grown significantly after its Caesar/Tonga project began producing oil in March of 2012.

The bottom line
With Gulf of Mexico oil production expected to surpass its previous peak of 1.8  million barrels per day by 2016, Shell finds itself well positioned in the region. If the company can ramp up Gulf production as expected, it should be able to meet its cash flow target by 2015, which should allow it to moderately increase its hefty dividend. Investors should keep an eye on any company announcements regarding delays that could materially impact the start-up dates for the Mars B, Cardamom, and Stones projects.

While Shell and its integrated oil peers struggle to offset declining production from mature fields, one energy company continues to mint profits. Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information