* To develop offshore project to drill almost 3km down
* Targets first production in 2016
* Confidence in offshore development despite weaker oilprices
* Ultra-deep wells on avg 11.5 times more effective thanonshore -IHS
By Andrew Callus
May 8 (Reuters) - Royal Dutch/Shell will go aheadwith the world's deepest offshore oil and gas productionproject, pushing the boundaries of technology to produce fromalmost three kilometres (1.9 miles) down in the Gulf of Mexico.
Coming three years after the Macondo oil spill disaster,Shell targets first production by 2016, demonstrating confidencein big offshore projects despite a downturn in oil prices.
Earlier this week, Exxon Mobil flagged startup for a$4 billion project to develop the Julia oilfield, also in theGulf. But last month, BP decided to delay development ofits biggest new project there, Mad Dog Phase 2, citing toughmarket conditions and rising costs, raising questions about thepossibility of wholesale project cancellations.
"This important investment demonstrates our ongoingcommitment to usher in the next generation of deepwaterdevelopments, which will deliver more production growth in theAmericas," said John Hollowell, Executive Vice President forDeepwater, Shell Upstream Americas.
Shell's 100 percent-owned Stones field was discovered in2005 some 200 miles southwest of New Orleans. It encompasseseight lease blocks in the Gulf of Mexico's Lower Tertiarygeologic trend which produced the Anglo-Dutch oil company'sPerdido development.
Perdido, at 9,365 feet below the surface, is at present theworld's deepest producing offshore well, almost twice as deep asMacondo, the BP well which ruptured in April 2010 in an accidentthat killed 11 men and spilled crude into the sea for weeks.Stones is deeper again, at 9,500 feet (2,896 meters).
Production during the first phase of Stones is expected topeak at 50,000 barrels of oil equivalent (boe) per day, Shellsaid, but the project is multi-phase, and is estimated to have 2billion barrels of oil equivalent in place.
The lure of offshore development is a strong one, despitethe expense and risk.
"Ultra-deep" wells, drilled in water at least 1.5 km (4,500feet) deep, and often into several more kilometres of rock tothe reservoir below, accounted for around half of all theworld's new discoveries in the first half of last year.
Data from analysts at IHS says the average ultra-deepexploration well adds 140 million boe to reserves, making them11.5 times more effective than an onshore rig. At $100 a barrelthat amounts to $14 billion worth of oil per discovery - enoughto repay almost half of Shell's capital spending budget thisyear.
FPSO FIRST
Shell will build a floating production, storage, andoffloading (FPSO) vessel and subsea infrastructure. It will bethe company's first in the Gulf of Mexico, and the second tooperate there after Petrobras' Cascade/Chinook vessel.
FPSOs are an increasingly common sight in newer oilprovinces, but Shell and others have traditionally used mooredplatforms in the Gulf of Mexico because of the well-developedpipeline infrastructure.
But as fields are developed deeper and further from land,pipelines are becoming an expensive option, and the storage andtanker offtake model offered by FPSOs - mostly converted tankersthemselves - is being considered more widely.
Modern FPSOs can "weathervane" in the wind and tide toreduce stress on the structure and keep it intact.
Shell's will be moored using a lightweight combination ofpolyester rope and chain. It will the first FPSO in the world tocombine a system of riser pipes that dampen the impact ofmovement during flow with a disconnection ability during badweather allowing it to sail to a safe area.
At a later stage, a new generation of super-efficient seafloor pumping technology will be used.
BP (BP.)
