Shell plc SHEL, the British energy major, has proceeded with the Final Investment Decision (“FID”) on a waterflood project at its Vito deepwater field, located in the U.S. Gulf of Mexico. Shell Offshore Inc., a subsidiary of Shell, has taken the FID on the project to enhance the production capacity at the deepwater field. The project involves injecting water into the hydrocarbon reservoir.
Waterflood is a secondary recovery method where water is injected into the hydrocarbon formation. The injected water repressurizes the reservoir by pushing the oil toward adjacent production wells.
For this project, three water injection wells were drilled as pre-producers. This implies that these wells were drilled initially for producing oil but were later converted into water injection wells. Shell plans to begin the water injection process to displace the additional oil in 2027.
The company highlighted that the waterflood process has proved to be beneficial for its Gulf of Mexico operations. Shell is a prominent deep-water oil and gas operator in the U.S. Gulf of Mexico region. Management believes that the new investment will contribute to additional production of high-margin, lower-carbon barrels and maximize the potential of the Vito field. The company has stated that the waterflood project is estimated to increase the recoverable resources at Vito by 60 million barrels of oil equivalent (boe).
Discovered in 2009, the Vito field is located at a water depth of over 4,000 feet. It is located approximately 75 miles toward the south of Venice, LA, and 10 miles to the south of the Mars tension-leg platform (TLP), operated by Shell.
Notably, SHEL has one of the lowest greenhouse gas intensities in oil production globally. The original Vito host design was refined and simplified in 2015. This resulted in the reduction of CO2 emissions over the lifetime of the facility by around 80%. Furthermore, it aided in cost reduction by more than 70% as compared to the original host design concept.
In April 2018, Shell and Equinor made a FID to move forward with the development of Vito. SHEL owns a 63.11% stake in the field, and the remaining 36.89% is held by Equinor. The first oil from the field was achieved in February 2023. The British energy major plans on stabilizing liquids production at 1.4 million barrels per day through 2030.
Zacks Rank and Key Picks
Currently, SHEL carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the energy sector are SM Energy SM, The Williams Companies Inc. WMB and MPLX LP MPLX. SM Energy presently sports a Zacks Rank #1 (Strong Buy), while The Williams Companies and MPLX carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
SM Energy is an upstream energy firm operating in the prolific Midland Basin and the South Texas regions. For 2024, the company expects its production to increase from the prior-year reported figure, signaling a bright production outlook.
The Williams Companies is a premier energy infrastructure provider in North America. The company’s core operations include finding, producing, gathering, processing, and transporting natural gas and natural gas liquids. Boasting a widespread pipeline system of more than 33,000 miles, Williams is one of the largest domestic transporters of natural gas by volume.
MPLX LP owns and operates a wide range of midstream assets. The partnership's midstream assets include oil and natural gas gathering systems and transportation pipelines for crude, natural gas and refined petroleum products. MPLX is least exposed to commodity price fluctuations as it generates stable fee-based revenues. Furthermore, it surpasses its industry peers in terms of distribution yield, reflecting its commitment to returning capital to its unitholders.
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