By Sarah Kent 
 

LONDON--Royal Dutch Shell PLC is pressing ahead with plans to develop its Appomattox deepwater project in the Gulf of Mexico, despite the steep drop in oil prices over the last year that has discouraged many companies from moving forward with ambitious and expensive ventures.

The Anglo-Dutch oil company has approved investment to extract 650 million barrels of oil equivalent using a floating oil platform 80 miles offshore Louisiana. Though the company didn't disclose the cost of the project, Marvin Odum, Shell's upstream chief in the Americas, said it was among the biggest given the green light this year.

The decision comes at a difficult time in the oil sector. Lower prices have buffeted companies' balance sheets and eroded capital expenditure. Shell itself has said it would curb its spending over the next three years by $15 billion. It has scrapped plans to build a big petrochemicals plant in Qatar, delayed projects and cut jobs around the world.

However, the Appomattax development remains attractive, even though it lies in deep waters far offshore where costs are high and reservoirs can prove technically challenging. It holds large and concentrated reserves of oil in two proven discoveries that could produce oil for decades. It also has the potential to act as a future hub for two other nearby discoveries.

"The only type of projects that are going to get funding is this type of project," Mr. Odum said. "You really only want to be in the best stuff because it's the best stuff that will truly be competitive."

Shell also pushed aggressively to bring down the project's cost by 20% before giving it the go ahead.

It estimates the break-even price for the Appomattox development at $55 a barrel.

"We think we've hit the sweet spot," Mr. Odum said.

The company is targeting peak production equivalent to 175,000 barrels of oil a day and expects the project to start up around the end of the decade. The volumes build on Shell's current production in the Gulf of Mexico, which averaged 225,000 barrels of oil equivalent a day last year.

Write to Sarah Kent at sarah.kent@wsj.com

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