BHP Billiton (BHP) has moved further to exploit the Trion discovery in Mexico in what is a ground-breaking deal for the country and which will BHP become the first foreign company to do a deal with the country to develop hydrocarbon assets.
The company revealed at the weekend that it had executed a contract with the Mexican state owned PEMEX Exploration & Production Mexico to complete work on the significant discovery.
The move follows company’s successfully bid on the Trion project resource three months ago that, once fully appraised, is expected to be in the top 10 fields discovered in the Gulf of Mexico in the last decade.
The agreement includes a commitment to deliver a Minimum Work Program, which consists of drilling one appraisal well, one exploration well and the new seismic data on the discovery.
BHP Billiton CEO, Andrew Mackenzie, said the partnership was the beginning of a new chapter in business relations between BHP Billiton and Pemex.
“It is an honour to be the first foreign company to partner with the people of Mexico in developing their significant petroleum resources for mutual benefit,” Mr Mackenzie said.
Steve Pastor, BHP Billiton President Operations Petroleum, said the Trion agreement was consistent with the Company’s focused approach to conventional oil exploration and development of high quality deepwater oil prospects.
"We have a long history as a top operator in the Gulf of Mexico and we are excited to bring our operational expertise to the partnership with Pemex,” Mr Pastor said.
On December 5, 2016, BHP announced that it submitted the winning bid to acquire a 60% participating interest in and operator rights over the exploration blocks containing the Trion discovery located in the deep-water Gulf of Mexico offshore Mexico.
PEMEX Exploration & Production Mexico will retain a 40% interest in the blocks. Pemex estimates the gross recoverable resource to be 485 million barrels of oil equivalent.
BHP’s bid for Trion includes an upfront cash payment of $US62.4 million and a commitment to a Minimum Work Program (estimated at another $US320 million).
Should BHP and Pemex agree to progress the project beyond the Minimum Work Program, BHP would be required to fulfil the commitment to invest the remainder of the $US570 million Minimum Contribution, which includes the Minimum Work Program spend.
BHP Billiton would also carry Pemex for an additional $US561.6 million on future project costs, which is the remainder of the $US624 million cash contribution submitted in the bid (the upfront cash payment of $US62.4 million was paid at closing).
Should the project progress to full development and production, both BHP Billiton and Pemex would pay the Mexican Government an additional royalty of 4% on revenues, also committed in the bid.
BHP shares fell 1.4% on the ASX on Friday to end the week at $25.34.
