Deepwater can compete with shale, Woodmac says after PowerNap FID

Deepwater oil and gas developments can compete with shale, energy intelligence groups Wood Mackenzie has said following Shell’s FID for the PoweNap project in the Gulf of Mexico on Thursday.

Olympus Platform / Image source: Shell
Olympus Platform / Image source: Shell

As Offshore Energy Today reported on Thursday, Shell will develop the PowerNap deepwater oil development as a subsea tie-back to its Olympus production hub, which started production in 2014.

Michael Murphy, Wood Mackenzie’s research analyst, Gulf of Mexico said Shell’s PowerNap sanction reflected a broader trend of Majors embracing subsea tie-backs that offer quicker paths to first oil and attractive returns.

“We estimate the PowerNap field to have a development breakeven in the low $30’s per barrel (bbl),” Murphy said. Shell itself said the breakeven would be below $35 a barrel.

Murphy has reminded that the FID comes on the heel of Shell bringing the Kaikias subsea tie-back online in 2018, with an estimated development breakeven in the low $30’s/bbl, and BP entering into the Nearly Headless Nick tie-back expected to come online by the end of 2019, just a year after discovery.


Related: Shell takes FID for deepwater project in Gulf of Mexico


“Recent exploration in the region has demonstrated how Majors in the deepwater Gulf of Mexico have adapted a complementary strategy of pursuing traditional large prospects, in addition to infrastructure-led exploration,” Murphy said.

“With internal rate of returns above 30% and development breakeven in the low-to-mid US$30’s, the sanctioning of subsea tie-backs is proving that deepwater can compete with tight oil.”

Shell discovered PowerNap in 2014. The field is located in the south-central Mississippi Canyon area approximately 240 kilometers (150 miles) from New Orleans in about 1,280 meters (4,200 feet) of water.

The Shell-operated (71.5%) Olympus production hub is co-owned by BP Exploration and Production Inc. (28.5%). Production at Olympus began in 2014.

PowerNap production will be transported to market on the Mars pipeline, which is operated by Shell Pipeline Company LP and co-owned by Shell Midstream Partners, L.P. (71.5%) and BP Midstream Partners LP (28.5%).


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