Illustration; Source: Woodside

Woodside sanctions $7.2 billion deepwater oil project

Australia’s energy giant Woodside has made a final investment decision to develop a deepwater oil project in the Perdido basin in the Gulf of Mexico located 30 km south of the Mexico-U.S. maritime border.

Illustration; Source: Woodside

Back in December 2022, Westwood pointed out that one of the FPS units to watch in 2023 was Woodside’s Trion FPS in Mexico. Citing the need to optimise the development and execution plan, cost, and development schedule, the Australian firm delayed the FID, which was expected in 2022. The company also received confirmation from the National Hydrocarbons Commission (CNH) during the same month that the minimum work programme obligation associated with the Trion licence was completed.

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While announcing the FID for the Trion project in Mexico, Woodside revealed on Tuesday, 20 June 2023, that the first oil is targeted for 2028. This development is subject to joint venture approval and regulatory approval of the field development plan (FDP), which is expected in the fourth quarter of 2023. Woodside is the operator of this project with a 60 per cent participating interest while PEMEX Exploración y Producción (PEMEX) holds the remaining 40 per cent stake.

According to the Australian player, the forecast total capital expenditure is $7.2 billion – out of which $4.8 billion is the firm’s share including capital carry of PEMEX of approximately $460 million –  and the investment is expected to deliver an internal rate of return (IRR) greater than 16 per cent with a payback period of less than four years while the forecast IRR excluding the capital carry is greater than 19 per cent.

The Trion project will target the development of an estimated 479 mmboe of best estimate (2C) contingent resource (100 per cent) of oil and gas, out of which 287 mmboe 2C contingent resources are Woodside’s net economic interest. This resource will be developed through a floating production unit (FPU) with an oil production capacity of 100,000 barrels per day. The FPU will be connected to a floating storage and offloading (FSO) vessel with a capacity of 950,000 barrels of oil.

Meg O’Neill, Woodside CEO, remarked: “Trion is a valuable resource with a mature development concept. Our strong balance sheet and disciplined approach enable us to invest in opportunities such as Trion, expanding our global portfolio and delivering long-term value. The investment is aligned with Woodside’s strategy, exceeds Woodside’s capital allocation framework targets and will be a strong contributor to Woodside’s cash flows, shareholder returns and the funding of future developments in oil, gas and new energy.

“This development leverages Woodside’s proven expertise in deepwater project execution. The project’s tendering process has resulted in approximately 70 per cent of total forecast capital expenditure as lump sum or fixed rates, with key contracts to be progressively executed following joint venture approval. Trion has an expected carbon intensity of 11.8 kg CO2-e/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.”

The decision to approve investment in Trion does not change Woodside’s greenhouse gas emissions reduction targets. The company points out that the IPCC analysis shows there is a range of future energy transition pathways, including pathways that are consistent with limiting global temperature rise to less than 1.5°C and require new supply sources to meet demand. For Woodside, the consideration of a range of climate-related factors as a part of the Trion investment decision offers confidence the project can responsibly fill that demand.

Furthermore, the range of climate-related factors includes project Scope 1 and 2 greenhouse gas emissions, portfolio Scope 1, 2 and 3 lifecycle intensity, climate-related risks and opportunities assessed in accordance with the Taskforce on Climate-related Financial Disclosures, demand resilience including 1.5°C pathways and portfolio free cash flow resilience across the IEA’s Net Zero Emissions (NZE) scenario.

Trion’s carbon intensity below global oil average

The Australian giant believes that Trion is “resilient” in a decarbonising world due to several factors such as its forecast short payback period of less than four years, the fact that two-thirds of the resource is expected to be produced within ten years from start-up, portfolio free cash flow resilience in the IEA NZE scenario and having an expected all-in breakeven less than $50/bbl.

“We have considered a range of oil demand forecasts and believe Trion can help satisfy the world’s energy requirements. Two-thirds of the Trion resource is expected to be produced within the first ten years after start-up. We are developing Trion because we believe it will deliver value for Woodside shareholders and benefit for Mexico, including generation of jobs, taxation revenue and social benefit. We value the ongoing relationship with PEMEX and the support of the Mexican government and regulators,” added O’Neill.

As Trion is expected to have a carbon intensity of 11.8 kg CO2-e/boe over the life of the field, Woodside is adamant that this is below the global deepwater oil average of 15 kg CO2-e/boe and global oil average of 27 kg CO2-e/boe averaged over the period 2022 to 2032. Located in a water depth of 2,500 metres, approximately 180 km off the Mexican coastline, Trion was discovered in 2012 by PEMEX. While BHP Petroleum acquired an interest in 2017, this subsequently became part of Woodside’s portfolio in 2022.

The development of Trion, which is subject to the joint venture and regulatory approval of the FDP, will include the installation of an FPU, an FSO, and 18 wells – nine producers, seven water injectors, and two gas injectors – drilled in the initial phase, with a total of 24 wells drilled over the life of the Trion project. The forecast total capital expenditure of $7.2 billion includes all 24 wells. Woodside elaborates that the gas, which is not reinjected or used on the FPU will be shipped to the Mexican markets.