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Petroleum News: Shell group chooses subsea pipelines over FPSO for offshore Perdido development

Vol. 12, No. 32  Week of August 12, 2007

Ray Tyson
For Petroleum News

Shell and partners Chevron and BP have opted for subsea pipelines, rather than what might have been the Gulf of Mexico’s first-ever floating, production, storage and offloading system or FPSO, to transport production to shore from their “ultra-deepwater” and highly acclaimed Lower Tertiary oil discoveries in Alaminos Canyon’s remote Perdido Foldbelt.

Shell spokeswoman Sarah Andreani recently told Petroleum News that “full consideration” was given to “several production system alternatives,” including an FPSO, which generally employs shuttle tankers to move production to market.

“In the end, key drivers influencing the decision to select a spar (offshore production facility) and pipelines included the desire to have a high well count with full drilling, completion and sidetracking capability from a low cost platform drilling rig along with the existence of a significant pipeline transportation network with available capacity,” she explained.

Williams said it has firm agreements with the Perdido owners to provide gathering, processing and transportation services over the life of the reserves.

“Building critical infrastructure for producers in strategic hubs is central to our plans for creating value in the deepwater Gulf of Mexico,” said Alan Armstrong, president of Williams’ midstream gas gathering and processing business.

Williams will invest $480 million

Williams plans to invest roughly $480 million in its Perdido Norte Project, which the company said it would own and operate. The investment includes a total of 184 miles of pipeline and expanded natural gas processing capacity. Pipeline construction would begin in January 2008, the company said, adding that the expected date for the pipelines and additional processing capacity to be ready to receive production is around the turn of the decade.

With the Perdido Norte Project, Williams will have invested approximately $1.7 billion in deepwater Gulf of Mexico gathering and processing infrastructure since 1997. The company’s previously disclosed capital spending guidance included the 2007 and 2008 portion of the planned expenditures for the Perdido project.

Williams said it would tap general operating funds to finance the project.

Williams’ portion of the Perdido project would originate at the floating production facility the producers plan to construct in roughly 8,000 feet of water about 220 miles south of Galveston, Texas.

Under terms of the deal, Williams said it would begin collecting “volume based” fees for services it provides when production begins. The Great White, Silvertip and Tobago fields are expected to be the source of initial production. By design, Williams’ facilities would have capacity to accommodate future production from other Perdido Foldbelt prospects and from potential tie-ins along the new pipeline route, Williams said.

Williams’ design includes 107 miles of natural gas gathering pipeline, with the capacity to transport around 265 million cubic feet per day of production. The pipeline would extend from the producers’ floating production facility to Williams’ existing Seahawk gathering system. Seahawk connects at Brazos block 538 with a Williams Transco-operated pipeline that transports natural gas to the company’s Markham, Texas, processing plant.

Oil component to move 150,000 bpd

The crude oil transportation component of Williams’ new installation is designed to move 150,000 barrels per day of production to Gulf Coast refineries via the company’s planned pipeline and through capacity on an existing, third-party system. Williams’ 77-mile, oil pipeline route runs from the producers’ floating production facility to the Hoover Offshore Oil Pipeline System. Through an agreement with a unit of ExxonMobil Pipeline Co. Williams can deliver the oil to HOOPS for transportation of oil from the offshore interconnect to onshore refineries, Williams said.

To accommodate the new production the company expects on its Perdido Norte Project, Williams said it also plans to significantly increase daily capacity at its Markham gas-processing plant. The company said it would expand gas capacity at Markham to more than 500 million cubic feet per day from the existing 300 million level.

The 10,500-mile Transco pipeline moves natural gas from the Gulf Coast to 12 Southeast and Atlantic Seaboard states, including major metropolitan areas in New York, New Jersey and Pennsylvania.

“Williams’ Perdido Norte Project will provide our customers in some of the nation’s largest metropolitan markets, with the opportunity to access this significant new source of supply,” said Phil Wright, president of Williams’ interstate gas pipeline business.

In addition to the Perdido Norte Project, Williams’ current deepwater Gulf of Mexico projects include expansion of Discovery’s system with Williams’ Tahiti pipeline project for Chevron’s Tahiti discovery in the central region, and installation of export oil and gas pipelines for Chevron’s Blind Faith discovery in the eastern region in Mississippi Canyon blocks 695 and 696.

In addition, Williams owns and operates gathering and processing facilities — onshore and offshore — from Markham to Mobile, Ala.

In late October the Shell group announced plans for the so-called Perdido Regional Development Host, asserting then that the group would be the first to produce from the Lower Tertiary zone, the Gulf of Mexico’s hottest deepwater play with billions of barrels of potential oil reserves stretching hundreds of miles through Alaminos Canyon in the west through Keathley Canyon and Walker Ridge to the east.

Another group, consisting of Oklahoma’s Devon Energy and Brazil’s Petrobras, has announced plans to develop Lower Tertiary discoveries in Walker Ridge, and is said to be considering the FPSO option. The companies anticipate a 2009 startup.

Plans to develop both the Walker Ridge and Alaminos Canyon discoveries were not disclosed until after positive results were released from a crucial Lower Tertiary production test conducted on the Jack discovery in Walker Ridge.

FPSOs common alternative to expensive pipelines

FPSOs are commonly used around the world as a transportation alternative to expensive pipelines. The U.S. Minerals Management Service approved their use in the Gulf of Mexico more than five years ago, but thus far there have been no takers.

Shell operates the Perdido Regional Development with a 35 percent interest, followed by Chevron with a 37.5 percent stake and BP with a 27.5 percent interest.

Separately, Shell operates the Great White discovery with a 33.34 percent interest, followed by Chevron with a 33.33 percent interest and BP with a 33.33 percent stake. Great White, among the first Lower Tertiary discoveries in the U.S. Gulf, is located on Alaminos Canyon blocks 812, 813, 814, 857, 900 and 901. Shell drilled a total of five wells at Great White, with the most recent spud occurring in March 2004. The original well was drilled to a vertical depth of 14,405 feet. An appraisal well was drilled to a true vertical depth of 15,035 feet in 2002.

Tobago is located on Alaminos Canyon block 859 in about 9,600 feet of water. Chevron owns 57.5 percent along with its co-owners Shell, the operator, with 32.5 percent and Canada’s Nexen with 10 percent. The discovery well was drilled in 2004 to a total depth of 18,510 feet. A sidetrack well was drilled to 18,425 feet.

Silvertip, on Alaminos Canyon Block 815, is 60 percent owned by Chevron and operated by Shell with a 40 percent interest. Chevron drilled the AC 815 No. 1 discovery well in August 2004 in roughly 9,200 feet of water to a total depth of 14,778 feet.


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