Shell to spend $1.2 billion to develop new oil field Deep offshore project is in Gulf of Mexico

Shell Oil Co. announced yesterday that it would spend $1.2 billion to bring into production a giant oil field in the Gulf of Mexico, a project intended to push offshore-recovery technology to the deepest levels yet and to create 2,200 jobs, most in Texas and Louisiana, and thousands more among subcontractors in 34 states.

The announcement, made in Houston, was welcome news to the domestic oil industry, which in the past year has seen its drilling activity at the lowest level in decades amid falling prices for crude oil and a slowdown in the rate of increased demand for gasoline and other petroleum products.


The company said that in the first phase of the project, it hoped to recover about 500 million barrels of oil. It intends to begin production in 1996 at a daily rate of about 100,000 barrels of oil and 110 million cubic feet of gas.

"It's a very significant project," said Fred Leuffer, an oil analyst with Bear, Stearns & Co. "It's also going to be very profitable."


Indeed, the domestic oil industry has not seen a project of such size and technological challenge in about a decade and in the gulf in the last 20 years.

Still, Jack E. Little, executive vice president for exploration and production at Shell, said that such quantities would have only a small effect on oil imports. These now total more than 7 million barrels a day and account for about half of U.S. consumption.

The recession, and the slump in oil prices -- which are now near a four-year low, settling late yesterdayat $18.39 for benchmark West Texas intermediate crude -- have led to a prolonged decline in exploration, drilling, refining and related activity, with the loss of about half a million jobs.

Although it was well known within the industry that Shell had been working for years to prepare to develop the field in the Gulf of Mexico, the industrywide slump created uncertainty whether the company would go ahead with such a major project.

Over the last decade, Shell has been a pioneer in offshore development and has taken steps leading toward yesterday's announcement.

Shell struck the huge field, called Mars, in 1989 on a block in the Mississippi Canyon, which is about 130 miles southeast of New Orleans. The company estimates about 700 million barrels of oil can be recovered.

Mr. Little said that by gulf standards, a field that yields 100 million barrels in considered a giant find.

Shell Oil is building another platfrom in the Auger field in the gulf, at a depth of 2,860 feet, and at about the same cost. It estimates it will recover 250 million barrels of oil from the project.


Mr. Leuffer, the Bear, Stearns analyst, said the Mars project would bring twice the oil for about the same investment, making it a very attractive venture for Shell.

He added that it could encourage other companies, notably Amoco, which have found oil in deep water in the gulf, to begin to extract it. And Leuffer said that British Petroleum, which has a 28.5 percent interest in the Shell project, would benefit, too.

"While the potential is very great, the challenge is also very great," Philip J. Carroll, the president of Shell Oil, said at a news conference at Shell's headquarters in Houston.

The development will be watched by the oil industry because Shell will install a tension-leg platform in a depth of 2,933 feet, the deepest offshore recovery platform yet. That is 200 feet more than if New York's two World Trade Center towers stood one atop the other.

Tension-leg platforms, made of steel and concrete, are anchored to the ocean floor by vertical tendons that eliminate up and down motion. Twenty-four production wells are to be placed on the platform.

The technology has been 10 years in the making and could enable companies to begin to get oil out of fields that had been thought too expensive and risky to develop.