Meet The Appomattox, Shell's Multibillion Dollar Bet On The Future Of Oil
For all the good news in the oil business these days, its long-term future remains uncertain. The rise of electric vehicles, the potential for stricter climate regulation and the volatility introduced by fracking all pose threats to the industry. But oil companies still need to place their wagers on the future of energy, and in a few weeks Shell is placing a big one on the Appomattox Deepwater Platform, which sets sail soon from the Texas coast.
Until very recently, the age of exploring for oil deep in the ocean looked like it had possibly come to an end. Crude was too cheap to justify the massive expense and significant risk involved with deep-water projects. Offshore oil service companies were going bankrupt, and international oil giants were canceling offshore projects. Shell was meanwhile building the Appomattox.
“These projects are bets on the future,” Shell’s Wael Sawan, who leads the company’s global deep-water business, said on a tour of the platform last week. Shell is putting the finishing touches on the platform at a time when the oil industry is still reeling from a worldwide downturn. But, Sawan told reporters, “irrespective of where the oil price is, you will make money with an Appomattox for a long time to come.”
The sheer size of the Appomattox, an island of steel, pipes and machinery, speaks to that confidence. From a distance, the men moving in and out the metal are so dwarfed by the structure, they look like bees in a steel hive.
The Appomattox weighs 85,000 tons, contains six and a half football fields’ worth of floor space and displaces more ocean water than an aircraft carrier.
But the most important number for Shell is this one: The Appomattox has the potential to produce 175,000 barrels of oil a day.
“The production of certain countries around the world is what you have here,” Sawan said.
But, there are some numbers the company does not want to share.
It won’t say how many billions of dollars the platform cost to construct. And it won’t say exactly what the price of oil needs to be to make it profitable, though it has floated between $30 and $50 per barrel.
One reason the company might not disclose these numbers is because the success of this project depends on some things that are outside the company’s control.
Over the last few years, major oil companies have focused not on the ocean, but on land – drilling and fracking for massive reservoirs of oil in shale formations. The biggest one is right here in Texas.
It’s not cheap to get oil from shale, but it’s a lot cheaper than drilling offshore. That means companies can make money quicker and not worry as much about the long-term outlook for the industry.
Estimates vary wildly on what electric vehicles will mean for the future of oil, but most people agree demand for gasoline will shrink – though, it’s unclear when. It could be in five years; it could be in 30.
Either way, the Appomattox is set to produce oil for the next 40 years. So, at the very least, Shell has confidence that there will be a market for the stuff for a long time to come.
“It is almost impossible to see any scenarios where you will not continue to have significant oil demand into the future,” Sawan said.
Safety and cost
The explosion at BP’s Deepwater Horizon oil rig eight years ago killed 11 people and sent crude spewing into the Gulf of Mexico for 87 days. Since then, the environmental and safety risks of offshore drilling have received a lot of attention, presenting a challenge to companies working offshore. They need to show they’ve slashed costs to make their businesses profitable, all while promising that cost-cutting efforts won’t increase risk the environment – or the workers staffing the rigs.
A job for generations
Shell’s Todd Coulon says it takes a different breed of person to work on a rig. Workers usually spend two weeks on and then two weeks off the rigs.
“You’ve got to have a real strong counterpart at the house to take care of what’s going on when you’re away for 14 days,” he said.
Coulon will serve as the equivalent of the platform’s captain when the Appomattox sets sail. He’s been working at Shell for decades, starting on a platform called the Auger, where his son now works.
“It’s amazing when you think about it,” he said. “When I started on Auger 20-something years ago, he wasn’t even born yet ... and recently he went and started working on Auger and they started sending me pictures of me back then.”
He thinks it’s possible his grandkids might work the Appomattox decades from now, because the need for oil will still be with us. Shell executives clearly agree.
Shell Oil recently announced plans for more offshore projects, but it’s also intimated that it’s not going all-in on an oil-only portfolio.
Last year, Shell bought one of the biggest electric car charging companies in Europe, suggesting the oil giant wants to be prepared, no matter what the future of energy holds.