Woodside is progressing its Trion project in the Gulf of Mexico which, after merger talks with Santos fell apart, may become a key stepping stone for the company to expand its position in the highly prospective region.
The Trion project is a greenfield development in the Gulf of Mexico’s Perdido Fold Belt and will be among the first oil developments in Mexico’s deepwater, at a depth of 2,500 metres and about 180 kilometres off the coast of Mexico.
Woodside made the final investment decision for a 60 per cent stake in the US$7.2-billion oil development last June, the company’s first North American investment since acquiring BHP’s assets in the region, and is the operator in a JV with Mexican state-owned oil company PEMEX.
Notably, Trion has the potential for future discoveries to be tied back to its infrastructure and facilities.
Nik Burns, Energy Analyst at Jarden, has suggested the Gulf of Mexico could provide Woodside with greater flexibility in LNG supply and increase its options for investment over the medium to long term.
He added: “For Woodside, we expect an increase in focus on inorganic growth, particularly where it expands the company’s LNG production or trading positions.”
In February, the Trion project received approval for its social impact assessment from the Mexican Ministry for Energy. Submitted in May last year, it provides a comprehensive assessment of the project and outlines the ways in which Woodside will manage social impacts.
Woodside Executive Vice President for Projects Matthew Ridolfi said the approval marked an important milestone on the pathway to developing the project.
He noted the social impact assessment would be a critical tool in helping manage the project during the construction phase.
Ridolfi said: “The development of this comprehensive plan will help us to engage more effectively with local communities and better support their needs as we progress this project from construction to first oil.
“It also brings forward opportunities for jobs and economic development.”
Woodside has several other producing interests in the Gulf in close proximity to each other about 195 kilometres off the coast of Louisiana, including the BP-operated Mad Dog and Atlantis projects and the Woodside-operated Shenzi field. Woodside began production from its 72 per cent-owned Shenzi North project last September, ahead of targeted first oil in 2024, with a capacity to produce 100,000 barrels a day of oil and 50 million cubic feet per day of gas.
Woodside Chief Executive Officer Meg O’Neill said that first production from Shenzi North showcased the company was “leveraging existing infrastructure to increase production and provide attractive returns from the Gulf of Mexico business”.
She added: “Taking the project from final investment decision to first oil in 26 months is a great achievement.”
Woodside also achieved first production earlier last year at the $9-billion Mad Dog phase two development, as well as drilling a successful appraisal well in the southwest portion of the Mad Dog field.
Mad Dog phase two has a gross production capacity of up to 140,000 barrels of crude oil per day, through the new semisubmersible Argos floating production platform just 10 kilometres southwest of the existing Mad Dog platform.
O’Neill said at the time that Mad Dog’s second phase demonstrated the ongoing value delivered by Woodside’s merger with BHP’s petroleum business in 2022.
She said: “Mad Dog is one of several low-cost producing assets for Woodside in the region with significant expansion potential and in close proximity to infrastructure and attractive markets.
“This makes the Gulf of Mexico a core component of Woodside’s global portfolio and a key part of our strategy to thrive through the energy transition.”
Woodside has also acquired 12 exploration licences in the Gulf over the past two years, signalling its optionality for both organic and inorganic growth options.
Trion aims for 2028 production
Woodside has estimated peak production from the Trion deepwater field will reach 110,000 barrels a day by 2028, and will target the total production of an estimated 479 million barrels of oil equivalent of oil and gas over the project’s life.
Operations will involve an initial 19 wells and the installation of a floating production unit (FPU), to be connected to a floating storage and offloading vessel with the capacity to hold 950,000 barrels of oil.
The project has shown strong economics, with Woodside expecting an internal rate of return (IRR) greater than 16 per cent and a payback period of less than four years.
At the time Woodside made the final investment decision, Citi Research noted Woodside had made the decision a few months earlier than it had anticipated.
It said: “Equity investors need to have a greater focus on payback and competitive positioning on the cost curve for greenfield projects, particularly oil – we consider the four-year payback to be attractive in this regard.”
O’Neill also downplayed talk of stranded asset risks, saying it was significantly reduced due to the short payback and because two-thirds of the resource was expected to be produced within the first 10 years.
She also pointed to Trion’s lower-than-average expected carbon intensity of 11.8 kilograms of carbon dioxide equivalent per barrel of oil over the life of the field, making it well placed to compete in the global market.
Cost estimation modelling for Trion by S&P Global showed an IRR of 18 per cent in a low oil price scenario of US$60 a barrel of oil and an IRR of 30 per cent in a high price scenario of US$104 a barrel.
Alex Hillman, Lead Analyst at the Australasian Centre for Corporate Responsibility (ACCR), said the futures price for oil in 2028 when Trion will start production indicated it would not produce the 15 per cent return Woodside targets for oil projects.
He said: “Woodside’s Trion plan is based on risky assumptions that will undoubtedly leave investors uneasy.
“Of particular note is Woodside’s bullish assumed oil price that is well above the June 2028 futures price and its low hurdle rates – Woodside is willing to accept lower profits, even after assuming more revenue than peers would.
“Sangomar, the other big oil project Woodside is building at the moment, is now 12 months late and 18 per cent over budget compared to initial guidance provided final investment decision – the crystal ball would say that Trion could follow this path too.
“PEMEX, the joint venture partner in Trion, is in desperate financial straits, and was recently downgraded by Moody’s and Fitch, meaning it is now rated as the worst oil company in Latin America.
“It is not a partner of choice and adds further risk to a project with already-weak economics.”
