Shell hails bounceback towards deepwater drilling

Financial Times | Anjli Raval | August 12, 2018

Royal Dutch Shell is doubling down on drilling for oil far beneath the oceans, as the energy group eyes a cash bonanza from traditional deepwater projects despite a growing focus on new US shale investments.

Andy Brown, Shell’s head of exploration and production, said the industry was seeing a “bounceback” towards deepwater after a dramatic fall in investment during the market downturn.

“The most excitement at the moment is from the deepwater,” Mr Brown told the Financial Times, saying projects in Brazil, the Gulf of Mexico and West of Shetland in the North Sea were among the most attractive.

His comments come even as Shell and its peers have diverted more funds into short-cycle output, such as investments in US shale fields, aiming to yield production faster and more cheaply than so-called conventional output.

Mr Brown said that while the energy industry liked the flexibility that US shale offered, sentiment had “flipped” back in favour of deepwater — defined as a depth greater than 300m.

The economics of some projects, which once required high crude prices to be profitable, had seen a “transformation”, with cash generation far surpassing that of US shale.

“Deepwater can compete if not demonstrate higher returns because of fundamental cost reduction,” he said. “Break-even prices in deepwater — we are now talking $30 per barrel.”

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