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Production underway at Shell's Kaikias project in deepwater Gulf of Mexico

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Production underway at Shell's Kaikias project in deepwater Gulf of Mexico

Royal Dutch Shell PLC unit Shell Offshore Inc. said production at the first phase of a subsea development project in the Gulf of Mexico is underway about one year ahead of schedule.

Cycle time from discovery to production for the Kaikias phase-one subsea development project is less than four years, the company said in a May 31 news release.

Kaikias, in the Mars-Ursa basin about 130 miles from the Louisiana coast, has an estimated peak production of 40,000 barrels of oil equivalent per day.

Since making the investment decision in early 2017, cost reductions of about 30% cut the forward-looking, break-even price to less than $30 per barrel. These cost savings, however, will not be reflected in either earnings or cash flow in the next five years as the project is expected to produce over multiple decades, Shell said.

Amid the recent rebound in oil prices, Shell is banking on an improvement in the offshore sector. In the latest offshore Gulf of Mexico lease sale held March 21, Shell Offshore spent $22.9 million on 16 blocks. On May 24, the company announced a new discovery near its Appomattox platform while also moving ahead with developing the deepwater Vito project in the Gulf of Mexico. With a current estimated, recoverable resource of 300 million barrels of oil equivalent, Vito is slated to begin producing oil in 2021 and is expected to reach peak production of approximately 100,000 boe/d.

Shell operates and owns 80% of the Kaikias project. The remaining 20% is owned by MOEX North America LLC.