A Review of the Nigerian Energy Industry

OTC 2018: Shell wants deepwater projects at below $40/barrel

OpeOluwani Akintayo

02 May 2018, Sweetcrude, Lagos – Despite oil price rising above $75 per barrel, oil major, Royal Dutch Shell wants its deepwater projects at not more than $40 per barrel or below.

Deepwater projects need to break even at $40 a barrel or preferably lower, said Harry Brekelmans, Shell’s project and technology director, in an interview with Bloomberg TV.

On Monday, Brent crude, the global benchmark, rose to more than $75 a barrel in London.

“You’ve got to think about that 35-40 range,” Brekelmans said at the Offshore Technology Conference in Houston.

“It’s something we want to be very disciplined around because it gives you reassurance that going forward, your portfolio is resilient.”

Shell last week unveiled its long-awaited Vito project in the Gulf of Mexico which will produce 100,000 barrels of oil equivalent a day at its peak at a cost of less than $35 a barrel.

The project was close to getting the go-ahead in 2014 but then had to be re-engineered post-crash.

Project planners managed to bring the costs down by 70 percent, Shell has said, without specifying the overall capital expenditure.

When asked how cutting such huge amount off projects will be possible, Brekelmans explained that such can be achieved by cutting out waste, simplifying the design, buying standardised equipment from suppliers rather than bespoke items.

The new Vito design will recover less oil than the original design but at higher profit margins.

On whether this is sustainable across deepwater globally, Brekelmans said it is — about three-quarters of the cost cuts are “structural,” he said.

“In the end, investors will say, ‘show us, show us, show us,”’ Brekelmans said. “You have to demonstrate how you’re going to sustain it.”

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