Shell, Exxon to Drill Fram Field After Reducing Costs

(Corrects Shell’s share of U.K. output in fifth paragraph.)

Royal Dutch Shell Plc (RDSA) and Exxon Mobil Corp. (XOM) agreed to develop the Fram oil and gas field in the U.K. North Sea after managing to reduce drilling costs.

The partners plan to convert a tanker into a floating production, storage and off-loading vessel, or FPSO, to begin extraction within three years, Shell Vice President Glen Cayley said by telephone. Fram will reach peak output of about 35,000 barrels of oil equivalent a day within two years of starting.

The world’s biggest oil companies have sold or scaled back North Sea operations in recent years as reserves dwindle following more than 40 years of production. While The Hague- based Shell installed a rig at Fram earlier this year, it examined plans to delay the development after U.K. Chancellor of the Exchequer George Osborne raised oil taxes last year.

“We have managed to continue with some focused efforts on cost reduction,” Cayley said, declining to comment on the required investment.

Shell, Fram’s project operator, has spent about $2 billion a year on U.K. projects since 2005. The company, which pumps about 14 percent of Britain’s oil and gas, signed a letter of intent in June with SBM Offshore NV, the biggest supplier of floating oil platforms, to secure the FPSO for the field.

Diamond Offshore Drilling Inc. (DO)’s Ocean Guardian rig began work at Fram in July. About two-thirds of the field’s output will be gas and the rest oil. The deposit holds about 390 million barrels of oil and gas resources in place, according to Shell.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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