REG - Woodside Energy Grp. - Woodside approves investment in Trion development

Woodside EnergyAnnouncement

20/06/2023 08:00

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RNS Number : 2824D  Woodside Energy Group Ltd  20 June 2023

Woodside Energy Group Ltd

ACN 004 898 962

Mia Yellagonga 11 Mount Street

Perth WA 6000 Australia

T +61 8 9348 4000

www.woodside.com (http://www.woodside.com/)

 

ASX: WDS NYSE: WDS LSE: WDS

 

Announcement

Tuesday, 20 June 2023

 

 

WOODSIDE APPROVES INVESTMENT IN TRION DEVELOPMENT

 

Woodside has made a final investment decision to develop the large,
high-quality Trion resource in Mexico. The expected returns from the
development exceed Woodside's capital allocation framework targets and deliver
enduring shareholder value. First oil is targeted for 2028.

 

The development is subject to joint venture approval and regulatory approval
of the field development plan (FDP), expected in the fourth quarter of 2023.
Woodside is operator with a 60% participating interest and PEMEX Exploración
y Producción (PEMEX) holds the remaining 40%.

 

The forecast total capital expenditure is US$7.2 billion (US$4.8 billion
Woodside share including capital carry of PEMEX of approximately US$460
million) with the development expected to deliver strong returns to Woodside
shareholders as well as economic and social benefits to Mexico.1

 

The investment is expected to deliver an internal rate of return (IRR) greater
than 16% with a payback period of less than four years.2 The forecast IRR
excluding the capital carry is greater than 19%.

 

The project will target the development of an estimated 479 MMboe of Best
Estimate (2C) Contingent Resource (100%) of oil and gas (287 MMboe 2C
Contingent Resources, Woodside net economic interest).3 The subsurface has
been extensively appraised, with six well penetrations undertaken across the
field, informing Woodside's understanding of this large, high-quality
conventional resource.

 

The 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.

(1) Woodside share assumes Woodside equity of 60% in Trion. Total capital
expenditure excludes the forecast lease amount for the floating storage and
offloading unit (FSO).

(2) Forecast IRR and payback period assume Woodside equity of 60% in Trion;
includes capital carry of approximately US$460m of capital expenditure for
PEMEX (at Woodside's final investment decision). IRR and the payback period
are a look forward from June 2023 and assume US$70/bbl (real terms 2022) Brent
oil price. Payback period is calculated from undiscounted cash flows, RFSU +
approximately 4 years.

(3) The first potential reserves booking, and reclassification of Best
Estimate (2C) Contingent Resources to Proved plus Probable (2P) Reserves for
the Trion development will only occur following, and is subject to, joint
venture approval and regulatory approval of the FDP. Please refer to "Notes to
petroleum resource estimates" for additional detail, including additional
information for US investors concerning the presentation of resource
estimates.

Woodside's greenhouse gas emissions reduction targets remain unchanged by the
decision to approve investment in Trion.4,5 The starting base for this target
will not be adjusted as a result of the investment decision.

 

Woodside CEO Meg O'Neill said Trion is an attractive addition to Woodside's
portfolio of high-quality producing assets in the Gulf of Mexico.

 

"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%
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 kgCO2-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.6

 

"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 10 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," she said.

 

Energy transition

 

IPCC analysis shows there are a range of future energy transition pathways,
including pathways which are consistent with limiting global temperature rise
to less than 1.5°C and require new supply sources to meet demand.7
Consideration of a range of climate-related factors as a part of the Trion
investment decision gives Woodside confidence that Trion can responsibly fill
that demand.

 

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

(4) Net equity Scope 1 and 2 greenhouse gas emissions reduction target of 30%
by 2030 and net zero aspiration by 2050 or sooner. Target is for net equity
Scope 1 and 2 greenhouse gas emissions, relative to a starting base
representative of the gross annual average equity Scope 1 and 2 greenhouse gas
emissions over 2016-2020 and may be adjusted (up or down) for potential equity
changes in producing or sanctioned assets with a final investment decision
prior to 2021.

(5) Emissions resulting from Trion are subject to Woodside's net equity Scope
1 and 2 greenhouse gas emissions reduction target and its net zero aspiration.
These emissions will be managed in accordance with Woodside's decarbonisation
strategy using the plans and practices disclosed in Woodside's Climate Report
2022. See sections 3.5 and 3.6 of Woodside's Climate Report 2022 for further
information.

(6) Wood Mackenzie Emissions Benchmarking Tool. The global deepwater oil
average is 15 kgCO2-e/boe and global oil average is 27 kgCO2-e/boe averaged
over the period 2022 to 2032.

(7) For further information, please refer to slide 10 of the supporting
presentation, titled 'Global oil demand through the energy

transition'.

1.5°C pathways and portfolio free cash flow resilience across the IEA's Net
Zero Emissions (NZE) scenario.

 

Woodside believes that Trion is resilient in a decarbonising world, because of
several factors including its forecast short payback period of less than four
years, the fact that two-thirds of the resource is expected to be produced
within 10 years from start-up, portfolio free cash flow resilience in the IEA
NZE scenario and it having an expected all-in breakeven less than
US$50/bbl.8,9 Trion is expected to have a carbon intensity of 11.8 kgCO2-e/boe
over the life of the field, below the global deepwater oil average of 15
kgCO2-e/boe and global oil average of 27 kgCO2-e/boe averaged over the period
2022 to 2032.10

 

About Trion

 

Trion is located in a water depth of 2,500 m, approximately 180 km off the
Mexican coastline and 30 km south of the Mexico/US maritime border. Trion was
discovered in 2012 by PEMEX. BHP Petroleum acquired an interest in 2017 which
subsequently became part of Woodside's portfolio in

2022. Development of Trion, which is subject to 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 US$7.2 billion includes all
24 wells. Gas that is not reinjected or used on the FPU will be shipped to the
Mexican markets.

 

The Trion Asociación (Trion Joint Venture) comprises Woodside Petróleo
Operaciones de México, S. de R.L. de C.V. (60%, operator) and PEMEX
Exploración y Producción (40%).

 

Teleconference

 

A teleconference providing an overview of the Trion development and a
question-and-answer session will be hosted by Woodside CEO and Managing
Director, Meg O'Neill, on Tuesday, 20 June at 09:00 AWST / 11:00 AEST / 20:00
CDT (Monday, 19 June 2023).

 

We recommend participants pre-register 5 to 10 minutes prior to the event with
one of the following links:

 

·      https://webcast.openbriefing.com/wds-investor-update-2023/
(https://webcast.openbriefing.com/wds-investor-update-2023/) to view the
presentation and listen to a live stream of the question-and-answer session

 

·      https://s1.c-conf.com/diamondpass/10031447-ha5d6w.html
(https://s1.c-conf.com/diamondpass/10031447-ha5d6w.html) to participate in the
question-and- answer session. Following pre-registration, participants will
receive the teleconference details and a unique access passcode.

 

An investor presentation follows this announcement and will be referred to
during the conference call. It will also be made available on the Woodside
website (www.woodside.com (http://www.woodside.com/) ).

 

 

 Contacts:
 INVESTORS                                         MEDIA

 Matthew Turnbull (Group)   Rohan Goudge (US)      Christine Forster

 M: +61 410 471 079         M: +1 (713) 679-1550   M: +61 484 112 469

                                                   E: christine.forster@woodside.com (mailto:christine.forster@woodside.com)

(8) Source: IEA World Energy Outlook (2022). Net Zero Emissions (NZE) is an
IEA scenario consistent with 1.5ºC warming.

(9) Expected all-in breakeven excluding the capital carry is approximately
US$43/bbl.

(10) Wood Mackenzie Emissions Benchmarking Tool. Refer to slide 11 of the
supporting presentation for further information.

 

Sarah Peyman (Australia)

M: +61 457 513 249

 

E: investor@woodside.com (mailto:investor@woodside.com)

 

This announcement was approved and authorised for release by Woodside's
Disclosure Committee.

 

Please refer to the attached briefing pack for important information and
further details about matters discussed in this announcement.

 

A copy of the briefing pack "Woodside approves investment in Trion
development" has today been submitted to the FCA National Storage Mechanism
and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

 

A copy of the associated transcript for the teleconference providing an
overview of the Trion development will also be submitted to the National
Storage Mechanism shortly following the conclusion of the teleconference and
will be available for inspection at the same location.

 

Forward looking statements

 

·      This announcement contains forward-looking statements with
respect to Woodside's business and operations, market conditions, results of
operations and financial condition, including, for example, but not limited
to, statements about expectations regarding long-term demand for Woodside's
products, timing of completion of Woodside's projects, expectations regarding
future capital expenditures, future results of projects, future returns on
investment, operating activities, production and financial results of the
Trion project and expectations regarding the achievement of Woodside's net
equity Scope 1 and 2 greenhouse gas emissions targets. All forward-looking
statements contained in this announcement reflect Woodside's views held as at
the date of this announcement. All statements, other than statements of
historical or present facts, are forward-looking statements and generally may
be identified by the use of forward-looking words such as 'guidance',
'foresee', 'likely', 'potential', 'anticipate', 'believe', 'aim', 'estimate',
'expect', 'intend', 'may', 'target', 'plan', 'forecast', 'project',
'schedule', 'will', 'should', 'seek' and other similar words or expressions.

 

·      Forward-looking statements are not guarantees of future
performance and are subject to inherent known and unknown risks,
uncertainties, assumptions and other factors, many of which are beyond the
control of Woodside, its related bodies corporate and their respective
officers, directors, employees, advisers or representatives.

 

·      Details of the key risks relating to Woodside and its business
can be found in the "Risk" section of Woodside's most recent Annual Report
released to the Australian Securities Exchange and London Stock Exchange, and
in Woodside's most recent Annual Report on Form 20-F filed with the U.S.
Securities and Exchange Commission and available on the Woodside website at
https://www.woodside.com/investors/reports-investor-briefings
(https://www.woodside.com/investors/reports-investor-briefings) .
(https://www.woodside.com/investors/reports-investor-briefings) You should
review and have regard to these risks when considering the information
contained in this announcement.

 

·      Investors are strongly cautioned not to place undue reliance on
any forward-looking statements. Actual results or performance may vary
materially from those expressed in, or implied by, any forward-looking
statements.

 

Climate strategy and emissions data

 

·      Further information as to Woodside's climate strategy, including
details regarding the calculation of Woodside's greenhouse gas emissions, is
set out in Woodside's Climate Report 2022 available on the Woodside website at
https://www.woodside.com/sustainability/climate-change
(https://www.woodside.com/sustainability/climate-change) .
(https://www.woodside.com/sustainability/climate-change) All greenhouse gas
emissions data in this announcement are estimates, due to the inherent
uncertainty and limitations in measuring or quantifying greenhouse gas
emissions, including those uncertainties set out in the GHD Assurance Report
contained in Woodside's Climate Report 2022. There may be differences in the
way third parties calculate or report greenhouse gas emissions compared to
Woodside, which means third party data may not be comparable to Woodside's
data.

 

·      Woodside "greenhouse gas" or "emissions" information reported are
net equity Scope 1 greenhouse gas (GHG) emissions, Scope 2 GHG emissions
and/or Scope 3 GHG emissions, unless otherwise stated. For more information on
emissions data refer to Woodside's Climate Report 2022.

 

·      There are inherent limitations with scenario analysis, including
the limitations set out in Woodside's Climate Report 2022 and its it difficult
to predict which, if any, of the scenarios might eventuate. Scenario analysis
relies on assumptions that may or may not be, or prove to be, correct and that
may or may not eventuate and scenarios may also be impacted by additional
factors to the assumptions disclosed.

 

Additional information for US investors concerning resource estimates

 

 

 

 

 

·      The United States Securities and Exchange Commission (SEC)
permits oil and gas companies, in their filings with the SEC, to disclose only
Proved, Probable and Possible Reserves, and only when such Reserves have been
determined in accordance with SEC guidelines. Woodside includes estimates of
quantities of oil and gas using certain terms, such as "Proved plus Probable
(2P) Reserves," "Best Estimate (2C) Contingent Resources," "Reserves and
Contingent Resources," "Proved plus Probable," "Developed and Undeveloped,"
"Probable Developed," "Probable Undeveloped," "Contingent Resources" or other
descriptions of volumes of reserves, which terms include quantities of oil and
gas that may not meet the SEC's definitions of Proved, Probable and Possible
reserves, and which the SEC's guidelines strictly prohibit Woodside from
including in filings with the SEC. These types of estimates do not represent,
and are not intended to represent, any category of reserves based on SEC
definitions, and may differ from and may not be comparable to the same or
similarly-named measures used by other companies. These estimates are by their
nature more speculative than estimates of Proved reserves, and accordingly are
subject to substantially greater risk of not being recovered by Woodside. In
addition, actual locations drilled and quantities that may be ultimately
recovered from Woodside's properties may differ substantially. US investors
are urged to consider closely the disclosures in Woodside's annual report on
Form 20-F for the most recently completed year and its other filings with the
SEC, available from Woodside at https://www.woodside.com.
(https://www.woodside.com/) These reports can also be obtained from the SEC at
www.sec.gov. (http://www.sec.gov/)

 

Notes to petroleum resource estimates

 

1.         Woodside is an Australian company listed on the Australian
Securities Exchange, the New York Stock Exchange and the London Stock
Exchange. Woodside reports its Proved (1P) Reserves in accordance with SEC
regulations, which are also compliant with SPE-PRMS guidelines, and prepares
and reports its Proved plus Probable (2P) Reserves and Best Estimate (2C)
Contingent Resources in accordance with SPE-PRMS guidelines. It reports all of
its petroleum resource estimates using definitions consistent with the 2018
Society of Petroleum Engineers (SPE)/World Petroleum Council (WPC)/American
Association of Petroleum Geologists (AAPG)/Society of Petroleum Evaluation
Engineers (SPEE) Petroleum Resources Management System (PRMS).

 

2.         The Trion petroleum resource estimate is effective 1 June
2023 at standard oilfield conditions of 14.696 psi (101.325 kPa) and 60
degrees Fahrenheit (15.56 degrees Celsius) and has not been adjusted for risk.

 

3.         The project will target the development of an estimated 479
MMboe of Best Estimate (2C) Contingent Resource (100%) of oil and gas (287
MMboe 2C Contingent Resources, Woodside net economic interest). The potential
reclassification of the estimated 479 MMboe from Best Estimate (2C) Contingent
Resources to Proved plus Probable (2P) Reserves will only occur following, and
subject to, joint venture approval and regulatory approval of the FDP.

 

4.         'Contingent Resources' are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable from known
accumulations, but the applied project(s) are not yet considered mature enough
for commercial development due to one or more contingencies. Contingent
Resources are estimated and reported in accordance with SPE-PRMS guidelines
and may include, for example, projects for which there are currently no viable
markets, or where commercial recovery is dependent on technology under
development, or where evaluation of the accumulation is insufficient to
clearly assess commerciality. Contingent Resources are different from, and
should not be construed as, Reserves. Contingent Resources estimates may not
always mature to Reserves and do not necessarily represent future Reserves
bookings. Contingent Resource volumes are reported at the 'Best Estimate'
(P50) confidence level. Best Estimate (2C) Contingent Resources are not
compliant with SEC regulations. The SEC prohibits disclosure of oil and gas
resources, including Contingent Resources, in SEC filings. However, Australian
securities regulatory authorities allow disclosure of oil and gas resources,
including Contingent Resources.

 

5.         Woodside reports its petroleum resource estimates inclusive
of all fuel consumed in operations. The Best Estimate (2C) Contingent
Resources of 479 MMboe (gross) and 287 MMboe (net) targeted during the licence
term include an estimated 15 MMboe and 9 MMboe of fuel consumed in operations
respectively.

 

6.         For this project, the reference points are the custody
transfer points which are: for oil, the outlet connector of the FSO
off-loading hose; and for gas, the inlet to the connecting residue gas
pipeline.

 

7.         Woodside applied both deterministic and probabilistic
methods for this estimation of Contingent Resources. Statistical aggregation
of uncertainty distributions has been used up to the project level.

 

8.         'MMbbl' means millions (10(6)) of barrels of natural gas
liquids, oil and condensate at standard oilfield conditions of 14.696 psi
(101.325 kPa) and 60 degrees Fahrenheit (15.56 degrees Celsius). 'MMboe' means
millions (10(6)) of barrels of oil equivalent. Natural gas volumes are
converted to oil equivalent volumes via a constant conversion factor, which
for Woodside is 5.7 Bcf of dry gas per 1 MMboe. Volumes of natural gas
liquids, oil and condensate are converted from MMbbl to MMboe on a 1:1 ratio.

 

9.         The estimates of petroleum contingent resources are based on
and fairly represent information and supporting documentation prepared by, or
under the supervision of, Mr Ben Stephens, Woodside's Vice President Reserves
and Subsurface, who is a full-time employee of the company and a member of the
Society of Petroleum Engineers. Mr Stephen's qualifications include a Bachelor
of Engineering (Petroleum Engineering) from the University of New South Wales,
Australia, and 19 years of relevant experience.

 

10.        Quantified Resources In accordance with the Guidelines
regulating the procedure to quantify and certify the Reserves of the Nation
issued by the National Hydrocarbons Commission of the United Mexican States,
available in Spanish at:
https://cnh.gob.mx/media/18296/lineamientos-que-regulan-el-procedimiento-de-cuantificacion-y-certificacion-de-
reservas-de-la-nacion.pdf, the petroleum resources estimates will undergo the
required certification process when and as established thereunder.

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