Shenandoah FID Makes Waves in US Gulf

Companies involved in the cutting-edge Shenandoah project in the deepwater US Gulf of Mexico formally sanctioned development at the ultra-high-pressure field as they welcomed a new partner into the fold. Tel Aviv-listed Navitas Petroleum, the largest interest holder in the project, confirmed Thursday that a final investment decision (FID) has been taken at Shenandoah, which is due to start up in 2024 (OD Aug.2'21). Meanwhile, Blackstone-backed operator Beacon Offshore Energy has sold a 20% interest in the project to HEQ Deepwater, a newly formed joint venture between private equity firm Quantum Energy Partners and longtime US Gulf player Houston Energy. The farm-down will help Beacon and Navitas -- both relative newcomers to the Gulf -- reduce some of the financial risk associated with a project that relies heavily on unproven and costly technology. Fresh Infrastructure Shenandoah's FID is a key milestone for what is now just the second sanctioned project to target oil and gas in the high-pressure, high-temperature Lower Tertiary play, where reservoir pressures can exceed 20,000 psi (20k). The project will add fresh infrastructure to an undeveloped area in Walker Ridge, rich with other 20k discoveries, including Equinor’s Monument find (EIF Dec.16'20). Wood Mackenzie estimates Monument and two other discoveries -- Yucatan and Coronado -- hold combined reserves in excess of 300 million barrels of oil equivalent and says that each “now have a higher chance of commerciality.” Shenandoah holds an estimated 281 million boe. The planned floating semisubmersible platform is designed to produce 80,000 boe/d at peak. Project Financing Navitas estimates the full project will cost a total of around $1.8 billion to bring on line. The partners managed to secure nearly $900 million in project financing led by investment bank Societe Generale out of Houston, Energy Intelligence understands. Israeli financial markets contributed a significant portion of the financing, according to a source familiar with the negotiations. Woodmac senior research analysts Mfon Usoro said in a note Thursday that the consultancy expects a rate of return for Shenandoah of 37% and noted that carbon emissions intensity in the US Gulf “is one of the lowest worldwide.” “Even with net-zero goals, both oil and gas companies and the global capital market still see value in high-return, low-emission oil and gas projects,” she said. Contract Award While the Shenandoah sanction was widely expected and is little more than a formality for the partners, the FID itself is a big deal for Transocean, which will supply a high-specification newbuild rig for the development. Transocean has noted Beacon’s provisional contract for drillship Deepwater Atlas for the better part of a year, but has refrained from booking it as backlog until FID was finalized (OD Jul.6'20). The firm contract is worth at least $252 million to Transocean. It includes a $30 million mobilization fee and “a significant performance bonus,” the company said Thursday. It said development drilling will be carried out in two phases starting in the third quarter of 2022. The first will comprise the drilling of several wells over 255 days using dual blowout preventers (BOP), each rated to 15,000 psi. The rig will then return to the shipyard for about two months for the installation of a single 20k-rated BOP -- a crucial piece of equipment that will allow the ultra-high-pressure wells to be completed in the second drilling phase, which will last about nine months. Other 20k Projects While the contract is a win for Transocean, analysts noted that the company will need to find follow-on work for the rig once the Shenandoah project is complete. Investment bank Piper Sandler said the initial contract will likely return 15%-20% of the roughly $1.1 billion in capex Transocean has spend on the Deepwater Atlas. Transocean, which is also supplying a similar rig to Chevron for its Anchor development -- poised to be the industry’s first 20k project when it starts up in 2023 -- lost out on the Gulf’s next significant 20k opportunity when TotalEnergies opted to hire a drillship from Valaris to drill wells for its North Platte project (OD Aug.6'21). North Platte is expected to see FID later this year. Affiliates of Beacon and Blackstone now own around 31% of Shenandoah, while Navitas now holds 49%. Luke Johnson, Houston