Since the oil price crashed in 2014 the industry has been scrambling to reduce capex and increase operational efficiency, and that has been achieved through renegotiated contracts, innovative working practices and applying new technology. This improved performance has not happened overnight but has been a gradual step change in the way projects are delivered and operated.
For evidence of this incremental approach there is no better example than Shell’s operations in the Gulf of Mexico (GoM). The way Shell’s own renaissance has taken hold since the oil price drop can be seen in four deepwater projects. It all began with a one-of-a-kind project that was already well underway when the oil price fell, which meant that the company was limited in its approach, through to the latest project where it effectively had a blank piece of paper and could redesign it entirely.
Learning On The job
Shell’s Stones development is the world’s deepest oil and gas project, operating in about 2,896 m (9,500 ft) of water in an ultradeep area of the U.S. GoM. The project started production in September 2016 from a FPSO facility. The FPSO unit connects to subsea infrastructure, which produces oil and gas from reservoirs nearly 9,144 m (30,000 ft) below sea level. Stones is Shell’s second producing field in the Lower Tertiary geologic frontier in the GoM, following Perdido in 2010.
“Even though it was advanced in its execution, we rethought the way we worked, we learnt from technologies being applied elsewhere and we made material improvements on costs,” said Harry Brekelmans, projects and technology director for Shell. “Of course, we benefited from the tailwind created by the changes in the market, by the deflation that took place, but we also made significant improvements in drilling performance. Initially, it took 150 days to drill a typical well, but now we can get the job done in approximately 60 days.”
When it came to Appomattox, Shell had more freedom. The Appomattox development will initially produce from the Appomattox and Vicksburg fields, with first oil by the end of the decade and average peak production estimated to reach about 175,000 boe/d. With the recent completion and arrival of the hull in Texas, and construction of the host platform and fabrication of subsea infrastructure currently underway, Shell’s Appomattox project is more than 65% complete.
It reduced the capital costs of the project by about 25% after the final investment decision. This was after already having achieved 20% cost reductions against initial concepts. “We did this through innovation, competitive scoping and efficient execution,” Brekelmans added. “The platform cost, for instance, was cut by a fifth, by using what we had learnt, and replicated, from previous similar projects. In this case, it was the neighbouring Olympus tension-leg platform that we particularly learnt from. We pushed for further savings by standardising equipment and wells. This is how we cut costs, compromising neither safety, quality nor reliability.”
Next in line was Kaikias, a high-value opportunity in deep water near existing Shell infrastructure in the GoM heartland. Kaikias builds upon Shell’s exploration and development leadership position in the Mars-Ursa Basin. As it moved to develop Kaikias, Shell’s capital efficiency approach had an even greater effect. As well its competitive scoping and efficient execution, it transformed how it interacted with its supply chain.
“The transformation emphasises the importance of partnership and collaboration with contractors,” Brekelmans said. “We simplified the design of new wells and subsea facilities, we adapted existing wells and we applied lessons learnt from earlier work with subsea tie-back projects as well as innovative design features.”
The result was a 50% reduction in costs compared to initial estimates.
Reaping The Rewards
The final project is one on which Shell has yet to make a final investment decision, Vito. “It is a project where we went back to the drawing board in 2015 and configured it again,” Brekelmans said. “It has collaboration and replication at its core, but it also draws on technological innovation. It draws on the impressive improvements in performance that we have been able to develop and sustain in drilling and construction over the past three years.
“Vito is a potential new hub in the Gulf and it would never have got close to a final investment decision without this differentiating approach.”
In this case, the work Shell undertook meant a cost reduction of 70% against initial estimates, for the wells, and the subsea and topside facilities. Innovations on Vito include the use of more compact equipment and standardized structural design.
Brekelmans explained that while it is essential that Shell improves the capital efficiency of all its investments, to be truly competitive, it must drive operational excellence. “This means increasing safety, improving reliability, productivity and efficiency in the way we do maintenance, in our logistics, in production operations, in everything we do,” he said.
The company challenged existing practices, removed unnecessary materials and equipment and rationalized stocking and logistics, Brekelmans said, adding “This meant that we not only increased productivity but achieved overall cost savings of approximately $500,000 per rig per day.
“We also reduced the number of contract marine vessels by about 75%. It is by buying more ready products that we enable a more agile supply response,” he continued. “It is by optimizing our operations and understanding what is truly required, that we can more efficiently design our future projects.”