Australia’s Woodside Energy is making a massive bet offshore Mexico at the large, high-quality conventional resource Trion development, which checks key production, climate and financial boxes for both Mexico and partners Woodside and state-owned Petroleos Mexicanos (Pemex).
Trion’s $7.2 billion final investment decision (FID) was announced in June. Woodside’s share is $4.8 billion, including a $460 million capital carry of Pemex. First oil is expected to flow in 2028.
“Although the decision was delayed by a year due to high contracting costs, Trion's sanction is good for Woodside, Pemex and Mexico's upstream as the project will contribute material barrels in the long-term,” Welligence Energy Analytics North America Research Analyst Omar Rios told Hart Energy on Sept. 7.
“This is especially true given exploration results in the Perdido [fold belt] since [Mexico’s] energy reform. Dominated by the majors, no company has been able to replicate the success of Trion so far—a testament to the frontier and complex nature of the basin,” Rios said. “For Woodside, project sanction demonstrates growth in its Americas portfolio from a valuation perspective, which includes assets in Mexico, the deepwater U.S. Gulf of Mexico and Trinidad and Tobago.”
Trion’s production will be processed through a floating production unit (FPU) with a nameplate capacity of 100,000 bbl/d, a Woodside spokesperson told Hart Energy. When Woodside is producing early in the field’s life with no water breakthrough, the FPU will be able to process up to 120,000 bbl/d.
Trion is Woodside’s first major investment decision following its merger in 2022 with BHP Petroleum. Trion was an asset in BHP’s portfolio, and it will be Woodside’s fourth major project in the Gulf of Mexico after Shenzi, Atlantis and Mad Dog, according to details revealed by Woodside CEO Meg O’Neill in August during the company’s quarterly operations and financial webcast.
Trion joint venture (JV) and regulatory approval for a field development plan was recently approved by Mexico’s National Hydrocarbons Commission (CNH), Woodside announced August 30 in a press release.
“We have started executing key contracts including the FPU, engineering procurement and construction contracts and the drilling rig contracts,” O’Neill said.
During the second half of 2023, Woodside plans to progress detailed engineering and procurement across FPU, floating storage and offloading (FSO) and subsea, umbilical, risers and flowlines (SURF); initiate preparations for regulatory permits for execution activities; and continue to award key contracts.
“Our experience to date with the regulatory environment has been positive, including wells, side tracks and regulatory submissions being approved on time by regulators during the appraisal phase,” the Woodside spokesperson said. “We collaborated with the CNH during the drafting of the field development plan to help with alignment prior to submission.”
Win-win for Woodside, Pemex
Trion—located in a water depth of 2,500 m, approximately 180 km off the Mexican coastline and 30 km south of the Mexico-U.S. maritime border—is among Mexico's first deepwater developments.
The Trion JV comprises Woodside’s Mexican affiliate Woodside Petróleo Operaciones de México, S. de R.L. de C.V., the operator with a 60% interest and Pemex’s upstream affiliate Pemex Exploración y Producción (PEP), with the remaining 40%.
The companies will target development of an estimated 479 MMboe of gross 2C, or unrisked, contingent resource (287 MMboe net to Woodside), according to Woodside’s spokesperson.
Trion is expected to contribute to meeting the world's energy needs. Additionally, the Australian company expects Trion will deliver strong returns to its shareholders and economic and social benefits to Mexico.
Woodside views Trion as a disciplined investment that fits its strategic and capital allocation framework and is consistent with the company’s vision to build a low-cost, lower-carbon, profitable, resilient and diversified portfolio.
“Developing Trion delivers value for Woodside shareholders and significant benefits for Mexico including jobs, taxation revenue and social benefits,” O’Neill said. “We have developed a strong partnership with Pemex. They benefit from our deepwater capability and we benefit from their technical input and understanding of the regulatory environment.”
Trion will have an all-in breakeven below $50/bbl. Excluding the capital carry of Pemex, the breakeven is below $43/bbl.
“The investment is expected to deliver an internal rate of return [IRR] greater than 16% with a payback period of less than four years,” according to O’Neill. “The forecast IRR excluding the capital carry is greater than 19%,” she said.
“Trion has an expected carbon intensity of 11.8 kg CO2e/boe average over the life of the field, which is lower than the global deepwater oil average, and will be subject to Woodside’s corporate net equity Scope 1 and 2 emissions reduction targets,” O’Neill said during the recent webcast.
“We have considered a range of oil demand forecasts and believe Trion can help satisfy the world’s energy requirements,” O’Neill said. “Two-thirds of the Trion resource is expected to be produced within the first 10 years after start-up.”
Additionally, Woodside’s targets for greenhouse-gas emissions reduction are unchanged by the Trion FID. The starting base for the target will not be adjusted as a result of the investment decision.
Pemex stands to benefit from additional oil and gas production from Trion as it looks to offset production declines at mature fields as part of its plan to see liquids production exceed the 2 MMbbl/d mark over the near-term.
According to Woodside, Trion is well aligned with Pemex’s plans to grow production. Financially, the development will also be positive for Mexico, a major trading partner with the U.S., which looks to collect some $10 billion in cumulative taxes and royalties.
However, the project is not without its hazards, Wellingence’s analyst warned — especially when it comes to Pemex.
“Pemex remains the most indebted E&P in the world and has significant debt amortizations looming in the short-term, which may place pressures on its ability to finance its part of the project,” Rios said.
Geologically, well productivity remains uncertain. Rios said Trion will also exploit new reservoirs in Mexico's deepwater Lower Eocene.
“Analog fields in the Perdido in the deepwater U.S. Gulf of Mexico can provide valuable insight into Trion's potential. Woodside’s public plans for Trion suggest it is expecting the asset to outperform the historical well performance at the analog fields on the U.S. side of the border,” Rios said.
Trion was initially discovered by Pemex in 2012. In 2017, BHP Petroleum and Pemex inked an agreement to develop the Trion discovery. Following Woodside’s merger with BHP Petroleum, the Australian company continued with the Trion agreement with Pemex.
“[After 2017] we subsequently completed our appraisal program to inform the development. This included three additional well penetrations and acquisition of seismic,” according to Woodside’s spokesperson. “We now have the right development plan and are confident in the cost and execution plan following 30 months of engineering to inform front-end engineering design. We re-tendered following the merger given the prevailing inflationary environment to ensure bids reflected the current market conditions.”
Trion will be developed through an FPU that will be connected to a leased FSO vessel with a Suezmax size hull and a capacity to store 950,000 bbl of oil. Development of Trion will include 18 wells (nine producers, seven water injectors and two gas injectors) drilled in the initial phase. Over the life of the project, a total of 24 wells are planned to be. The forecasted $7.2 billion capital expenditure includes all 24 wells.
Peak spending on Trion is expected in 2025, according to Woodside. And consultancy Wood Mackenzie estimates 80% of the required capex will be spent by 2033, when the field will be on its production plateau.
While Trion is primarily an oil development, there will be some gas available for Mexico’s domestic market, according to the Woodside spokesperson. “The development includes two gas injection wells, and gas that is not reinjected or used on the FPU will be shipped to Mexican markets. There is operational flexibility to increase gas export.”
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