Shell Drives Down Deepwater Costs Through Collaboration, Digitalization

As Shell embarks on a journey toward an energy transition, the company is working to keep costs low while embracing digitalization and collaboration.

Continued improvement through upcycles is needed for future success, according to the company.

Despite some recent divestments in Norway and the U.K., where the North Sea is the heartland of Shell’s operations, the company still has interests in 50 fields, 30 production platforms, two FPSOs and 30 subsea installations.

“We have had some tough years, but I’m pleased to say that there are new FIDs [final investment decisions] here,” said Andrew Brown, upstream director for Shell.

Among the FIDs was the go-ahead to construct an FPSO, the first new manned installation for Shell in the northern North Sea in almost 30 years. The Penguins Field currently processes oil and gas using four existing drill centers tied back to the Brent Charlie platform.

Redevelopment of the field, required when Brent Charlie ceases production, will see an additional eight wells drilled. The wells will be tied back to the new FPSO vessel, and natural gas will be exported through the tie-in of existing subsea facilities and additional pipeline infrastructure.

Continuous improvement

The industry is entering an upcycle. Brown said it has been relatively straightforward to improve during the downcycle, but the new scenario presents different challenges.

“We are taking out operating costs,” he said. “We are taking 45% out of the development costs on our new projects. What we did in the North Sea is part of our Fit for the Future program. However, our challenge is to improve through the upcycle. I think only that will give us the resilience to allow us to succeed in the cycles that will follow.”

Brown highlighted three deepwater projects in the U.S. Gulf of Mexico—Appomattox, Kaikias and Vito.

“We have managed to build the six hubs we have in the Gulf of Mexico by working in an integrated fashion from exploration through to operations,” he said. “We are drilling and have been completing one well a week in the last three months. This sees a resurgence in this deepwater environment. Our projects there are not only below $40 a barrel; we are now down at $30 breakeven.”

Steps to lower costs

The Appomattox development will initially produce from the Appomattox and Vicksburg fields. First oil is expected by the end of the decade with average peak production estimated to reach about 175,000 boe/d.

For this project, “we have taken 30% out of the cost since FID. We built the hull cheaper, we built the topsides cheaper, [and] we put the subsea infrastructure in place cheaper. But quite significantly, we drilled cheaper. We’ve taken two-thirds out of the cost of the deepwater wells on Appomattox.”

In addition to the cost reductions, Shell has reduced the cycle time from discovery to production. At the Kaikias development, which was brought online in second-quarter 2018, startup was achieved four years after discovery.

“Working with TechnicFMC, we redesigned the subsea installation and again took 30% out the cost of the project from FID to startup,” Brown said.

Another cost saving has come from reducing the scope of deepwater projects with what Shell calls competitive scoping. Brown used the Vito development as an example.

“Anything that did not deliver a return in two years, we took it out of the scope of the project,” he said, adding costs for Vito fell 70% from what was expected in 2014. “We achieved this through the partnership with our supply chain. I think that partnership is the core of what we’re going to make sure we do in the future.”

Driven by data

Growth in collaboration is one part of the drive for increased efficiency. But digitalization is equally important. “I fundamentally think digitalization will transform the way we optimize and make more efficient our operations,” Brown continued.

For digitalization, data are king. Shell’s portfolio has more than 100 petabytes of data, which is equivalent to more than 3 billion books.

However, “we have not used the data most sensibly,” Brown said.

An effort is underway to change that.

“Working with our colleagues, we are creating a subsea, subsurface data universe that will help us understand more about the subsurface but also to optimize the surface facilities. We have 7,000 pieces of equipment connected to our smart connect,” Brown said. “This will start to transform the way we look at and manage our assets and ensure that we keep our costs down.”

At the Nyhamna facility in Norway, Shell has developed a digital twin that allows the company to better understand the facility and test operations and maintenance plans, he said.

But the process is not without challenges.

“This whole visualized journey is exciting, but it is going to challenge leadership. It is going to challenge us to use data in a very different way and challenge us to develop data scientists and the youth that can make this happen,” Brown said. “If we can do that, well we can take this business to the next level of performance. It is not good enough for us to survive into transition. We are going to have to thrive through the energy transition.”