The Woodside Energy Group Ltd (ASX: WDS) share price is up around 2% after announcing the approval of the Mexican Trion project.
Woodside is one of the largest oil and gas producers in Australia. It’s planning to become bigger with international expansion.
Woodside’s Mexican Trion plans
The energy giant Woodside has made a final investment decision to develop the large
Trion resource in Mexico. The expected returns from the development “exceed Woodside’s capital allocation framework and deliver enduring shareholder value.”
Woodside said that the first oil is targeted for 2028.
The development is still subject to joint approval and regulatory approval of the field development plan, which is expected in the fourth quarter of 2023.
With this project, Woodside is the operator and owns 60%, while PEMEX Exploracion y Produccion holds the remaining 40%. The forecast total capital expenditure is US$7.2 billion, with Woodside’s share being US$4.8 billion, including ‘capital carry of PEMEX of approximately US$460 million.
The ASX energy share is expected to deliver an internal rate of return (IRR) from this project – an annualised return in percentage terms – of 16%, with a payback of less than four years. The forecast IRR excluding the capital carry is “greater than 19%.” That sort of return could be very beneficial for the Woodside share price.
Woodside said the project will target the development of an estimated 479 million barrels of oil equivalent resource of oil and gas. Woodside said that this is a large, high-quality conventional resource.
The resource will be developed with a floating product unit, with an oil production capacity of 100,000 barrels per day. It will be connected to a floating storage and offloading vessel with a capacity of 950,000 barrels of oil.
Management commentary
Woodside CEO Meg O’Neill said:
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.
Final thoughts on the Woodside share price
Leaving aside the climate change aspect of this project, Woodside is expecting to make solid returns from this development.
Its success could be dependent on what oil prices do over the next two decades, but there are likely still be a lot of petrol-powered cars on the road, which could mean it’s Woodside is able to make good (enough) cash flow.
Woodside isn’t one of the ASX dividend shares at the top of my wishlist, but I can appreciate that greater scale can increase the company’s profitability. I think it might be better to wait for a Woodside share price to be much closer to $30 before buying, if we’re trying to achieve market-beating returns.
