First oil pumped from Stones field in Gulf of Mexico more than 1.8 miles beneath sea surface
September 11, 2016 — Royal Dutch Shell has started production at the world’s deepest underwater oil and gas field, 1.8 miles beneath the sea surface in the Gulf of Mexico.
The first oil pumped from the Stones field, 200 miles south of New Orleans, comes after billions of dollars of investment from Shell over the last three years.
The achievement will anger many climate change campaigners, but will boost annual pay for Shell’s chief executive, Ben van Beurden, under the group’s controversial performance bonus arrangements.
The field is in much deeper water than the Macondo prospect, where six years ago BP’s Deepwater Horizon rig exploded and sank, killing 11 workers and causing environmental disaster.
The latest costly addition to Shell’s production capacity comes despite Van Beurden’s repeated pledges on climate change. In May, he said: “We know our long-term success … depends on our ability to anticipate the types of energy that people will need in the future in a way that is both commercially competitive and environmentally sound.”
Faced with low oil prices and increased pressure from climate change activists, Shell has retreated from some of its most expensive production projects. In the autumn last year, it ditched drilling operations in the Alaskan Artic and abandoned a tar sands project in Alberta, Canada.
But the group has told shareholders it will continue spending heavily on pioneering deep water projects, which will provide a major source of future growth. Announcing production had begun at Stones, Shell said: “Our growing expertise in using such technologies in innovative ways will help us unlock more deep water resources around the world.”
Shell has forecast that its deep water production will increase to the equivalent of more than 900,000 barrels of oil a day by the early 2020s from already discovered, established reservoirs. Major projects the group is working on include Coulomb Phase 2 and Appomattox in the Gulf of Mexico and Malikai off the coast of Malaysia.
Shell began the costly Stones project in 2013, two years after the International Energy Agency (IEA) warned that two-thirds of proven fossil fuel reserves will need to remain in the ground to prevent the earth from warming 2°C above pre-industrial levels – a proposed temperature limit beyond which scientists warn of spiralling and irreversible climate change.
At Stones, oil and gas is pumped from several points on the seabed through flexible riser pipes to a specialised tanker, incorporating a detachable 3,150-tonne buoy. In the event of a hurricane, Shell says the tanker can halt production and sail away safely from the buoy and riser pipes.
Stones will produce the equivalent of about 50,000 barrels of oil a day when ramped up to full capacity at the end of 2017.
Van Beurden’s annual bonus depends, in part, on delivering major new projects on time and on budget. For 2015, he received a bonus of €3.5m, which formed part of an overall pay and pension package worth €5.58m.
Van Beurden has repeatedly insisted he is determined that Shell should play a part in helping the world take action to end global warming.
At Shell’s annual shareholder meeting last year, the board promised a group of activist shareholders, including the Church of England, to better explain how bonus schemes for Van Beurden and others were aligned with its professed ambitions to help tackle climate change. At this year’s meeting, however, activist investors said “clarification is urgently required” on this point.
Shell has stressed that 10% of Van Beurden’s bonus is tied to the group’s “sustainability” performance. However, these incentives target how much energy the group uses, the volume of oil spilt and water usage. They do not focus on what campaigners see as the core concern: how Shell plans to manage its way to a low-carbon global economy.
Meanwhile, 20% of the Van Beurden’s bonus is still tied to delivering major new production projects, such as Stones. A further 30% is linked to the group’s ability to generate cash, while 12% of the bonus depends on production volumes.