Royal Dutch Shell plc, through its subsidiary Shell Offshore Inc (Shell) announced on 23 May 2019 that production has started at the Shell-operated Appomattox production system months ahead of schedule, opening a new frontier in the deep-water U.S. Gulf of Mexico.
“That Appomattox was safely brought online ahead of schedule and far under budget is a testament to our ongoing commitment to drive down costs through efficiency improvements during execution,” said Andy Brown, Upstream Director, Royal Dutch Shell. “Appomattox creates a core long-term hub for Shell in the Norphlet through which we can tie back several already discovered fields as well as future discoveries.”
Appomattox is Shell’s largest floating platform in the Gulf of Mexico. With a displaced weight of 120,000 tins, it's larger than an aircraft carrier. The Appomattox development will initially produce from the Appomattox and Vicksburg fields, with first oil by the end of the decade and average peak production estimated to reach approximately 175,000 barrels of oil equivalent per day. The Appomattox hull, weighing 40,000 metric tons, is the largest floating production system that Shell has ever built.
In late 2014, as the price of oil tumbled, seasoned engineers drafting plans to build a new deep-water oil and gas project in the US Gulf of Mexico told their younger, more anxious colleagues not to sweat it.
This is a cyclical industry, they said. And the cycle will swing back, like it always does.
The future of the Shell project, Appomattox, seemed to depend on it. The biggest offshore project for Shell in the Gulf of Mexico, and one of the region's deepest, Appomattox would be designed to produce 175,000 barrels of oil and gas equivalent a day, drilling in waters 2,200 metres deep (7,400 feet). But it was initially shaping up to be costly.
By industry standards, this was the kind of project that is vital to energy supplies needed to drive the global economy for decades to come.
"Our models project a massive supply gap around 2025, where demand will outpace supply," says William Turner, a senior analyst at Wood Mackenzie, the research and consultancy firm. "And onshore production just doesn't produce the volumes they do offshore."
But the lower the price of oil, the harder it would be to make Appomattox profitable.
As the oil price continued to fall through 2015, it became clear this was much more than a short-lived downturn.
Industry experts, from analysts to oil company executives to media commentators, began to talk of "the new normal". The grim economic conditions posed a threat not only to Appomattox, but to a Gulf Coast economy heavily reliant on the oil and gas industry.
The Appomattox team had to prove that in the era of low-price oil there was still a place for major projects - and that it was possible to cut costs without compromising safety.
The economic outlook would only get worse. In January 2016, the price of oil fell below $30. This was less than one-third what it was when Appomattox was conceived. Across the offshore industry, investment plans were being scrapped.
And across the Gulf Coast, those who worked on offshore oil production feared for their livelihoods, with good reason. Some 350,000 oil and gas workers were laid off worldwide in the two years following the collapse of the oil price, with job losses near 100,000 in Texas alone.
In neighboring Louisiana, the number of energy workers sank to its lowest in 25 years. The historic downturn caused layoffs from Canada to Brazil, from the North Sea to Malaysia.
The old certainties had fallen away and the Appomattox team knew they had a fight for survival on their hands.
"The one psychological upside is that it becomes absolutely clear to people at all levels and across the supply chain that we have to win this cost-reduction fight if we're going to stay in business," recalls Appomattox Project Manager Marno de Jong.
Project team members at all levels were strongly encouraged to look critically at costs that had previously been unchallenged.
Wells engineering manager Adrian Chesters remembers brainstorming workshops with up to 100 workers, estimating that together they must have had 1,500 years' experience in deep-water operations.
Their brief: to be skeptical of what they knew, to open their minds to new efficiencies and to risk proposing bold, unconventional ideas, while at no time cutting corners on safety.
"Every time someone would have an idea for what we could do to cut costs, we would look at the potential risks," says Chesters. "And if there were safety risks that could not be mitigated, that idea did not go anywhere. Safety was our number one priority."
When it came to reducing cost, there was no single "Eureka!" moment, no silver bullet. The Appomattox team went after all costs irrespective of size - chasing hundreds of ideas for saving money that together might add up to billions of dollars.
Drilling wells, for example, represents one of the steepest costs in a deep-water project - and Appomattox was to have 20 wells. But the wells team managed to halve the typical cost of drilling wells, realizing huge savings.
One key technique they adopted was what is known as batch drilling - several wells drilled at once, in assembly line fashion. The rig drills just through the surface at several locations, then returns to drill the middle section of each well, and so on.
It may seem only a slight modification, but this efficiency led to significant savings in both time and money. This is speedier than the traditional process of building up one well completely, then moving to the next.
This approach made it possible to reduce time spent drilling, significantly cutting expense.
By pulling data along every step of the complex wells process, workers scrutinized the number of minutes and dollars spent on tasks until they had devised the most efficient system possible.
"We celebrated and recognized those people when they delivered," says Chesters. "It's surprising how that lights a fire within the team, an enthusiasm for chasing more ideas that will lower costs."
Another technique involved so-called mattresses. Where new pipelines cross existing pipelines, these concrete mattresses are used to separate and protect the two pipelines.
Although traditionally thought of as standard designs, the Appomattox team found new ways to make them stronger and more effective, reducing by hundreds the number of mattresses needed.
In addition to saving the project nearly $50 million, it meant fewer crane lifts, making the project safer.
"What we found was that many of the efforts to reduce cost also reduced our safety exposure offshore, decreasing the potential for people to get injured," says Mike Dupre, principal engineer for pipelines.
While the project team's focus was to reduce initial capital costs, another priority was to minimize costs over the life cycle of Appomattox and to reduce the environmental impact of powering operations offshore.
Onshore plants and refineries commonly use an ultra-efficient technology called combined cycle power generation, where the heat from a gas turbine exhaust is used to power a steam turbine-driven electric generator.
The Appomattox team would be the first to apply this approach in the Gulf of Mexico, allowing Appomattox to remain well below regulatory nitrogen oxide emission levels while reducing one of the biggest operating expenses: fuel.
It was not all about innovation and processes. People under great pressure to deliver needed encouragement. It was important, for example, to find ways to support contract workers facing uncertain employment prospects.
As the project developed, the offshore industry continued to face a dearth of investment, and things remained gloomy. Large projects such as Appomattox provide essential jobs for many communities on the Gulf Coast. Dupre says that if Appomattox had not gone forward, "some companies might have gone under."
"So then the question is, how do you keep guys motivated to work quickly when they’re going to be out of a job at the end?" says Mark Kite, Shell construction manager for Appomattox.
Contractors and the Shell team worked closely together to reduce costs and maintain efficiency while preserving jobs.
Appomattox has recently celebrated "first oil" – the initial flow of oil from the reservoir beneath the ocean floor to undersea pipelines. Conscious of the project's scale – and of its financial risk – the Appomattox team ultimately reduced costs on the project by over 40% after it was approved for construction.
Marno de Jong believes Appomattox has set a new standard. "The success we had in the development of this project has provided a model for how we find cost savings while building efficiencies into offshore projects of the future," he says.
By Thomas Francis, Americas Editor, Shell