Shell Buys US Gulf Project From Exxon

Royal Dutch Shell confirmed it has acquired a new deepwater exploration project in the Gulf of Mexico from Exxon Mobil in an area prospective for the emerging Lower Tertiary play. The prospect, dubbed “Abilene,” is located in the Walker Ridge area near several existing discoveries, just south of Beacon Offshore’s planned Shenandoah development. Shell said it had acquired Exxon’s 100% interest in the eight leases comprising Abilene in a deal that closed on Aug. 26. The deal underscores Shell’s continued interest in deepwater exploration at a time when drilling budgets have been slashed industry-wide. Low-Carbon 'Heartland' Shell has long considered the Gulf of Mexico a “heartland” and is the largest single oil and gas producer in the prolific region. The company operates nine deepwater platforms in the Gulf and is expected to bring a 10th, Vito, on line next year (OD Apr.25'18). The Gulf also fits well within Shell’s evolving strategy around lowering emissions. The company has noted in the past that offshore barrels are some of the lowest-carbon sources of crude supply. The Gulf is also a region where operators have managed to carve out substantial cost reductions over the past five years, and Shell’s oil assets there are believed to be a focal point for the company as it looks to reduce upstream spending, reportedly by 30%-40% (OD Sep.21'20). Shell produced 359,000 barrels of oil equivalent per day in the Gulf in 2019, representing about 54% of the company's total US production that year (OD Jun.6'19). Exxon Exit For Exxon, the sale of the leases comes as the company looks to divest most of its properties in the Gulf as it focuses the bulk of its exploration and development dollars in places like Guyana and Brazil. Exxon has been marketing its production assets in the Gulf, unsuccessfully, for almost two years (EIF Sep.18'19). Most industry watchers believe Exxon prefers to keep its exploration portfolio, but the deal with Shell suggests certain exploration assets may find their way to the market. An Exxon spokesman told Energy Intelligence the decision to sell Abilene “is consistent with our strategy to evaluate our upstream portfolio and opportunities for growth, restructuring or divestment, or exit depending on fit with strategic business objectives” (OD Jun.28'19). Exploring the Lower Tertiary As for the asset itself, it’s unclear when Shell intends to start drilling. Abilene is an Inboard Paleogene prospect several miles south of a discovery called Yucatan North. Shell initially drilled Yucatan North and made a discovery there in 2013, but later let the lease lapse due to what it saw as better opportunities elsewhere. The Yucatan North blocks were picked up by another company in a later lease sale and are now operated by private player Beacon Offshore. Beacon recently acquired the Shenandoah project from LLOG Exploration and is believed to be quickly moving ahead on development, with a projected start-up date as early as 2023 (OD Jul.28'20). It was not immediately clear if Abilene is a so-called “20k” prospect, with ultra-high pressures and temperatures, like the other discoveries in the Shenandoah “mini-basin” (OD Jul.6'20). Shell has not had much experience drilling 20k wells. It participated in its first last year, a Chevron-led probe called Kingsholm that is believed to have been unsuccessful (OD Jun.3'19). The acquired leases are Walker Ridge Blocks 275, 274, 318, 229, 230, 231, 185 and 186, according to US records. A sales price was not disclosed. Luke Johnson, Houston