OFFSHORE DRILLING:

Shell becomes first to pump in key swath of deepwater gulf

NEW YORK -- Royal Dutch Shell PLC announced the start of operations today at what it called the world's deepest offshore oil and gas rig just hours after President Obama proposed large swaths of the outer continental shelf to petroleum exploration.

Shell said it is now pumping oil and gas from its Perdido platform, a $3 billion project more than two decades in the making that sits over more than 8,000 feet of water about 200 miles off the Texas coast. Company executives say the facility can handle 100,000 barrels of oil and 200 million cubic feet of gas per day, enough energy to light 2 million homes for a year.

The rig sits on a floating, cone-shaped spar as tall as the Eiffel Tower. Shell executives say the deepest well stretches to some 8,000 feet below the mud line but added that the rig can also tap fields lying in shallower strata. Production will initially start from Shell's Great White oil and gas field.

Eventually, Shell plans to use the platform to tap into two other, nearby oil and gas plays, the Tobago and Silvertip fields. The new rig is so isolated that the oil it captures will have to travel by pipeline to its nearest neighbor some 60 miles away.

Despite the massive expense and length of the project -- the initial leases on the fields were finalized in 1996 -- Shell President Marvin Odum said the company moved ahead with it because it knows the project will be profitable. The company used the announcement of Perdido's commencement to emphasize why more offshore areas need to be opened up to the industry.

"It helps you understand why opening more areas to exploration and production is important for us and it can actually be at a scale that makes a difference," Odum said.

Odum called the announcement by the Obama administration that it would allow more offshore exploration and production "a significant and important step forward, something that will surely help us as a country to produce more of our own energy."

Shell officials said they are particularly interested in how the news will affect plans for more production off Alaska. Odum said his company is "technically and physically ready to go" to search for and exploit new finds in Alaska and elsewhere.

Shell said the Perdido is the first project in the Gulf of Mexico to tap the Paleogene, a geologic formation more than 23 million years old. The company says they expect this new ultra-deepwater technology to open up more of this geological structure to the industry in the longer term.

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