BHP Billiton has given the firmest signal yet that it has moved past its shale oil and gas phase in the US with commitments to help fund two major Gulf of Mexico projects worth an estimated $US20 billion.
It could be up for more than $US8 billion in funding as its share of the two deepwater projects.
The spending decisions by the world’s biggest mining company are the largest since the slide in oil and gas prices started in mid 2014 and indicate an upturn in the industry after three years of deep cost and job cuts, project postponements and asset sales.
Overnight BHP Billiton has been selected by Mexico’s state oil company, Pemex to develop the huge Trion field in the deep waters of the Gulf of Mexico.
It is a ground breaking deal – not only will it cost an estimated $US11 billion – but it will be the first joint venture in the Mexican oil company’s 78-year history.
BHP beat rival BP to the deal after it offered more cash to Pemex up front $US624 million against $US606 million. An initial commitment payment from BHP of more than half a billion US dollars will lift the total cash outlay to well over $US1.1 billion and cover the $US571 million Pemex has spent finding and delineating the field.
“We see attractive potential in Trion and the Perdido trend, and we are pleased to have the opportunity to further appraise and potentially develop this prospective frontier area of the deep-water Gulf of Mexico,” said Steve Pastor, president of BHP Billiton petroleum operations in a statement this morning.
BP won’t weep – this deal comes only days after it signalled the revival of interest in the deep waters of the Gulf with its $US9 billion Mad Dog 2 development which will produce up to 140,000 barrels a day.
BHP is a 23.9% shareholder in this development as well and will contribute $US708 million.
Trion is estimated to hold 480 million barrels of oil and BHP and Pemex will now drill to confirm the extent of the field and work up a development and production schedule. IT is in very deep water – under 2,500 metres of water.
The two companies had submitted offers to partner with Pemex to develop the field, located in the Perdido Fold Belt some 65 km from the Great White Field, being developed on the US side of the Gulf by Shell, BP and Chevron.
Media reports say both companies had tied in the economic offer – both had bid a maximum additional royalty of 4% – but BHP won because its higher cash offer.
BHP will take a 60% stake and will be the operator of the Trion block.
Mexico expects to receive 72.4% of profits from tax, royalties and the total $US1.194 billion paid by BHP. That payment was made up of an initial commitment of $US570 million plus the $US624 million cash.
Mexico also auctioned 10 other deepwater blocks overnight. Six more, larger blocks are on offer in the largely unexplored Salina Basin in the south of the Gulf of Mexico. The bidding process – expected to attract a raft of majors.
BHP operates two fields in the Gulf of Mexico – Shenzi (44%) and Neptune (35%). It holds non-operating interests in three other fields – Atlantis (44%), Mad Dog (23.9%) and Genesis (4.95%). In June BHP recent named the GoM as an area of focus as one of its three main areas of interest in oil andgas. It says it also plans to increase its offshore exploration spend.
BHP shares rose 0.6% yesterday on the ASX to close at $25.18. They ended up 2.7% in London.
