The Gulf of Mexico Is Crucial to Royal Dutch Shell's Future

Royal Dutch Shell is taking an axe to capital expenditures and is undergoing a wave of asset divestments. As a result, its existing projects like the Gulf of Mexico become even more crucial for production growth.

Mar 13, 2014 at 11:38AM

For all intents and purposes, it's crunch time for integrated oil and gas major Royal Dutch Shell (NYSE:RDS-B). That's because the European energy giant is on a self-prescribed path of financial restriction. It's preparing to unload billions worth of assets in the coming years to become a leaner, more efficient company.

As a result, in order to keep investors satisfied with its production levels, Shell will rely heavily on existing projects since it's cutting exploratory expenses going forward. One of Shell's major projects which the company has high hopes for is the Gulf of Mexico. The company is ramping up production there, which is why the Gulf should be a focal point for Shell investors.


Finding life on Mars
Royal Dutch Shell recently started production from the second platform on its Mars development in the deep-water Gulf of Mexico. The platform, known as Olympus, is Shell's seventh, and largest, in the Gulf of Mexico. It's the first one to represent a major expansion of an existing program. Shell has invested heavily in new infrastructure there, and for good reason.

Shell management has warned investors to expect radical changes to the company's business structure coming soon. First and foremost on management's docket is to aggressively cut costs and sell off assets deemed non-critical to the company's future. In particular, new CEO Ben van Beurden set three key priorities for the future. These include restructuring, enhancing efficiency, and aggressive asset sales.

On the topics of disposals and budget spending, Shell intends to divest $15 billion of assets by the end of 2015. It's also going to sharply cut spending. This year, capital expenditures will total approximately $37 billion, down nearly 20% from 2013 levels.

Put simply, Shell needs the Gulf of Mexico to produce in light of the axe it's taking to exploratory spending in the future. Fortunately for the company, the potential of the discovery is very promising. Shell believes its infrastructure upgrades can extend the life of the Mars project to 2050 or beyond. In terms of production, the goal is for the Mars platform to reach a peak of 100,000 barrels of oil equivalents per day in 2016.

That would represent a significant production increase, as Shell produced a total of 237,000 barrels per day in the U.S. last year. On a companywide basis, the potential for the Gulf platform could add 6.5% to the total 1.5 million barrels per day Shell produced last year.

Royal Dutch Shell holds a 71.5% interest in the Mars B development platform, with European energy peer BP (NYSE:BP) operating the remaining 28.5% interest. Shell is wisely adopting BP as a partner, since BP has a well-established presence in the Gulf of Mexico. In fact, in addition to Mars program, BP has made several significant discoveries in the Gulf in recent years, including its Gila well.

Why the Gulf of Mexico is so important
The Gulf of Mexico is the most promising deep-water producing region in the nation. According to the U.S. Energy Information Agency, there are a total of four oil-producing areas in the U.S. that generate at least one million barrels per day. The Gulf of Mexico is one of those four; and, considering how quickly production growth has resumed in the aftermath of the 2010 oil spill, the Gulf's production is even more impressive.

For Royal Dutch Shell, this year represents a crucial time to execute on its Gulf drilling program, considering how drastically Royal Dutch Shell is cutting costs and selling off assets. Shell will have to be extremely efficient this year if it's to generate satisfactory production levels. With billions in divestments over the past couple of years and billions more in store, the Gulf of Mexico represents is best chance to keep upstream results going in the right direction.

The Olympus rig likely got the majority of its parts from 1 company

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!

Bob Ciura owns shares of BP p.l.c. (ADR). The Motley Fool has no position in any of the stocks mentioned. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers