Woodside announces final investment decision on Trion

Months earlier than expected, Woodside has announced the final investment decision on what can be the first deepwater development on Mexican waters, the Trion oil project. In June 2023, Woodside has declared its commitment to develop the field and make history in Mexico. It is expected that the operator will submit the Trion field development plan to Mexico's National Hydrocarbons Agency (CNH) for approval by the end of the year.

The Trion field was discovered in August 2012 by Pemex with the Trion 1 well. Located 28 km south of the United States, on the Mexican maritime border, the well is about 180 km off the Tamaulipas coast, in the Deepwater Gulf of Mexico Basin, also known as the Perdido Fold Belt or the Perdido Area. The nearest production hub to Trion 1 well is on the US side of the border, the Shell-operated Perdido Regional Host spar.

In 2015, Pemex started a farm-out process for some oil and gas discoveries, including the Trion field. The national oil company was looking for a partnership that could provide the required experience to support the deepwater developments. In 2017, BHP Billiton, now part of Woodside Energy, signed the Official Award for an exploration and production license contract for the Trion farm-out, CNH-A1-Trion/2016 contract and joint operating agreement (JOA) with PEMEX and the Mexican government through the CNH. The agreement made Woodside operator with a 60% working interest in the field, while Pemex as partner kept the remaining 40%. This was the first farm-out to be finalized by Pemex and the Mexican government since the energy reform.

The exploration and evaluation plan for the field started in February 2018 with the approved plan submitted by the operator to CNH. Since then, the subsurface has been extensively appraised, with six well penetrations undertaken across the field. Recoverable reserves estimates are approximately 471 MMbl of oil (million barrels) and 425 Bscf (billion standard cubic feet) of gas according to S&P Global's E&P data EDIN product.

The development planning activities were already underway in the beginning of 2020. McDermott was contracted to provide a pre-FEED design for the production unit to be installed in the field. On March 2021, the offshore engineering firm DORIS was selected to continue into the next phase of Trion's engineering process, working the subsea umbilical risers and flowlines. Also, a market analysis process to develop a gathering system for the field was opened in March 2023. The gathering system consists of an unprocessed natural gas gathering line running from the Trion field to the Sur de Texas-Tuxpan system.

According to operator's announcements, Trion field is planned to be developed through a semi-submersible 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 950,000 barrels of oil capacity. First production is target by 2028. According to Woodside press release[1] from June 20, 2023, the forecasted total capital expenditure for the project is estimated at USD 7.2 billion. The company expects an internal rate of return (IRR) greater than 15%, considering its 60% equity, and the development of an estimated 479 MMboe of oil and gas. Forecasted IRR released by the company is based on a US$70/bbl brent oil price (real term 2022).

To evaluate project economics at different price scenarios, S&P Global Vantage has modelled the Trion asset development through our cost estimation tool QUESTORTM. Based on operator's guidance, besides the semi-submersible and the FSO vessels, the model includes a total of 24 wells drilled during two phases, in which 12 are production wells, 10 water injection wells, and 2 gas injection wells. Oil production is modelled to be transported via offshore loading system. Gas production is modelled to be re-injected or used onsite, but there is also a potential for commercialization of Trion's gas production and a 140km pipeline is considered to be connected to the Sur de Texas-Tuxpan system. No sales gas is considered in the model yet, but there is an additional upside expected if some portion of it is commercialized in the future.

Trion was modelled with a start date in 2028, reaching a plateau rate of about 90,000 b/d in 2030 and ending production by 2053. Capex is estimated at about USD 7 billion over the life of the project, while opex reaches 11.4 USD/boe. Discounted cash flow valuation analysis is based on S&P Global Vantage's base case oil price scenario of USD 82/bbl (real term 2023), adjusted for oil quality and escalated at 2% every year. Strong viable economics are present in the base case with NPV discounted at 10% higher than 4 billion USD and point forward breakeven price below 40 USD/bbl. IOC's real IRR achieve 18%, while overall project results is about 25% real IRR.

A high and low case scenario were also evaluated considering 104 USD/bbl and 60 USD/bbl for the brent oil price, also adjusted for oil quality and escalated at 2% every year. Project economics are summarized in the table below. It is important to highlight that there are still many assumptions related to the development choices while the development plan is still going to be subjected to the joint venture and regulatory approvals.

Trion development is expected to deliver strong returns according to current valuation assumptions. The project is highly significant in the Mexican upstream market as it can be the first ever deepwater oil development in the country. The farm out allowed the first foreign company partnership with Pemex, which can untap deepwater resources due to the operatorship of an experienced partner and will enable the national oil company to acquire some expertise in deepwater project executions. In addition, sharing the initial high investment will reduce the risk taken by both parties, allowing the project feasibility and the development of the area.

Solutions

To ask questions, see a demo and learn more about QUE$TOR™ please contact ci.support@spglobal.com

For more information regarding well, field & basin summaries, please refer to EDIN

For more information regarding asset evaluation, portfolio view, and production forecasts, please refer to Vantage

[1] Woodside Energy announcement can be found in the company's official web page https://www.woodside.com/media-centre/announcements

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.