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Reuters: Shell’s new US Gulf leases may pump oil in 6 years

Fri Oct 5, 2007 9:41 PM BST
By Tom Doggett

WASHINGTON, Oct 5 (Reuters) – It could be at least six or seven years before any oil starts flowing into the U.S. market from the new offshore leases Shell (RDSa.L: Quote, Profile , Research) paid the government a record amount to drill on, a senior company official said on Friday.

The Interior Department this week accepted $554.6 million in high bids from Shell Oil for oil and natural gas leases in the deep waters of the central Gulf of Mexico. The bids were the highest amount the company has ever paid for Gulf leases.

Shell will begin almost “immediately” searching for oil on the leased tracts, but even if all goes right, it will be well into the next decade before any crude makes it to market, said Marvin Odum, who oversees Shell’s exploration and production operations in the western hemisphere.

“This stuff takes a while,” Odum told reporters at a briefing in the company’s Washington office. “We could be talking anywhere from a short time frame, from initial stages of exploration to production, (which) might be on the order of six or seven years.”

He said Shell has already lined up to rent the exploration rigs that will search for oil in the leased areas. “We have a number of rigs under contract now. We have options to extend those contracts,” Odum said. “So we’re comfortable with where we are.”

He declined to reveal how much the company plans to spend to develop the leases and how much oil might eventually be produced. Shell now produces about 390,000 barrels of oil a day in the Gulf.

Odum said Shell was willing to pay record money for the leases, in part, because of the stability the United States provides for energy exploration.

Many big oil producing countries, such as Saudi Arabia and Mexico, don’t allow foreign companies to drill on their lands. Meanwhile, other countries with large oil reserves, such as Russia and Venezuela, have increased the royalties companies have to pay or have made it more difficult to search for oil.

Even though the United States has some of the highest oil production costs in the world, it is a safe place to do business, according to Odum.

“Our assessment of stability and predictability clearly has an impact on where we invest,” he said, adding that United States is a market “that we can have a lot of confidence in.”

© Reuters 2007. All Rights Reserved.

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