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Royal Dutch Shell Moves To Increase Investment In U.S.


Posted: Apr 08, 2010 08:19 AM by Eric Fox

Royal Dutch Shell (RDS.A, RDS.B) is accelerating its investment in the United States to meet its interim and long-term production goals outlined at a recent strategy update. The company is investing in both the onshore and offshore areas here, as it pursues multiple exploration and development projects.

Royal Dutch Shell hopes these and other investments will enable the company to reach daily production of 3.5 million barrels oil equivalent (BOE) by 2012, an 11% increase from current production.

Gulf of Mexico
Royal Dutch Shell has been active in the Gulf of Mexico for many years, and currently has 370,000 BOE of net production here.

The cornerstone of growth in the Gulf of Mexico is the newly-constructed Perdido facility, located 200 miles offshore in approximately 1.5 miles of water. The facility consists of a floating production platform attached to a spar that is moored to the ocean floor with cables and other attachments.

The Perdido spa will serve as infrastructure to develop three offshore oil fields – the Great White, Tobago and Silvertip Fields. These fields are spread over nearly 30 square miles, and the facility is designed for peak production of 100,000 BOE per day.

Royal Dutch Shell owns 35% of Perdido, with Chevron Corp (NYS:CVX) and BP (NYSE:BP) owning 37.5% and 27.5%, respectively.

Gulf of Mexico Exploration
The company is also active on the exploration front, and highlighted its successes in the Gulf of Mexico in 2009. The company participated in a successful well at the Vito prospect in July 2009, and then followed that up with a successful appraisal well in March 2010. Anadarko Petroleum (NYSE:APC) and Statoil ASA (NYSE:STO), have a 20% and 25% interest in the Vito prospect, respectively.

North American Unconventional
Royal Dutch Shell is also jumping on the unconventional resource bandwagon, and has built up a large acreage position in North America. The company has done this through joint ventures and acquisitions, accumulating several million prospective acres and 21 Tcfe of potential reserves.

Royal Dutch Shell has leased up 150,000 net acres in the Eagle Ford Shale, a booming unconventional resource play in south Texas. The Eagle Ford Shale has several different productive areas, including ones that produce dry gas as well as natural gas liquids and oil.

In the Haynesville Shale, Royal Dutch Shell signed a joint venture with EnCana (NYSE:ECA) to jointly develop acreage. The joint venture will operate as many as 25 rigs in 2010.

The Bottom Line
The onshore and offshore United States is fertile ground for Royal Dutch Shell and the rest of the exploration and production industry, as they seek to increase production to meet the demands of both investors and energy consumers. (To learn more, see our Oil And Gas Industry Primer.)

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog – Stock Market Prognosticator.

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