Q&A: Shell says deepwater business still robust
Houston, 7 March (Argus) — The global deepwater business remains robust and will help meet demand growth for decades to come as producers lower costs. Wael Sawan, Shell's executive vice president for deepwater, spoke with Argus Media on the sidelines of the CERAWeek conference in Houston to discuss the company's future and opportunities.
Which are Shell's top priority deepwater projects?
If you think about projects under construction in the Gulf of Mexico, it is projects such as Appomattox that is going to be a material addition to our position. We have taken a final investment decision (FID) on the Kaikias as well. We have Coulomb, which is a smaller tieback opportunity into the Na Kika platform, operated by BP.
We also have in Brazil a number of opportunities — some of them came out of the BG acquisition. That suite of opportunities I will argue is absolutely critical for us. There are a number of opportunities, which are not yet in the FID, which we continue to pursue. We are also hoping to be in a position to be taking a FID on Vito in the Gulf of Mexico and we hope to be in the position to FID Bonga southwest in our Nigerian operation.
In the exploration side, we are very active. We have a number of rigs drilling in the Gulf of Mexico. We are pursuing opportunities in Brazil, following our wins there and we hope in a few years we will be drilling in Mexico.
How much will the US contribute to Shell's total deepwater output?
The US Gulf of Mexico is just less than 30pc and I suspect it will stay around a third or so level.
And Brazil will be the other big one, roughly the same amount as well, maybe a bit higher than that. And then Malaysia and Nigeria, part of what we define as the deepwater business, will make up the rest. The two big ones — in the 70-80pc of the overall — are Brazil and the US Gulf of Mexico. Depending upon what we discover in Mexico that will be a different addition to the total.
Where does deepwater fit in amid rising shale output and talk of peak demand?
We are still of the conviction that shale has a role to play, as does deepwater. The question really is who has the most attractive shale acreage and who has the most attractive deepwater.
In the deepwater space, we fundamentally still believe that — irrespective of when peak oil [demand] happens, irrespective of the most aggressive or the most conservative view — the call on oil production is going to continue well into the next several decades.
We are shifting away from the north of $10bn infrastructure projects to more digestible $3bn-$5bn projects that allow us to be able to invest that money, see the return before we put further investment. That builds resilience to our business as does the improvement in cycle times.
Are deepwater investments bottoming out?
I will talk from the position which I know best, which is Shell's position. We have not in any way registered a decline.
We have tried to stay balanced for the past few years, despite the drop in oil price, in our investment in deepwater. We have tried to maintain that consistency with our investible capital dollars. The amount that has gone into infrastructure has been much the same and we foresee it continuing for many more years at roughly the same levels.
Is there room for further cost reductions?
It depends on the project, but we have seen some projects, for example, in the 30pc range, others in the 50pc range.
Vito, one which we are hopeful to FID, has seen a 50pc improvement. What is more important is: Do we see further improvement? We strongly believe there is more to go. Irrespective of what happens in escalation in the overall supply chain, we believe that the levers of control that we still have around the choices we make, the standardization, replication, the application of data, the technologies, the way we run our business. If you asked me three years ago, could we get to the point we are today, especially in three years, I would have said never. The organization has responded. We have a whole number of ideas we have in the funnel at the moment which we are looking to mature.
But the extent of cost reductions will be less progressively? More like 5-10pc?
I would hope not. If I just imagine some of the technologies that we are incubating what they will look like, they will be radically transformative in our business.
We are also seeing many of our suppliers move in to technology, into design, to develop a concept, design it and then move it to construction. All of that is going to be a significant value enhancement for the business. I hope it is not 5-10pc — that should be the minimum.
What are the biggest challenges for the deepwater industry?
Our challenge is to continue to market ourselves in a way that is going to attract the top young talent that is out there. We need to be able to both attract and retain and absolutely unlock the potential of the people. That to me is still the number one challenge we grapple with as a business.
The second challenge we see — I think we are overwhelmed right now by the number of opportunities we see in deepwater. We need to be selective as to where we go, we have to be selective with the limited capital we have to spend. And the third and the final one, is making sure that the supply chain is healthy. I do not think we are at all pleased when the operators are making money when the supply chain is struggling. We need a balance where we no longer create a waste in the system, but the supply chain is robust and resilient.
Are you worried about the oil price?
I have been in this industry for 20-plus years. And the one thing I have learned is — do not look at the oil price.
Build your business irrespective of what you think the oil price is going to be. Because what I know for sure is that we are going to get the oil price wrong. If we can focus our energy as a deepwater business on driving the most resilient projects, the lowest breakeven prices, if we can focus on the best returns then when oil prices are low we are the last ones standing and are able to create the cash to survive through the downturn. We are trying to take the mindset that is agnostic of the oil price.