BHP approves new capital expenditure in Gulf of Mexico

BHP has approved $544m (£391.02m) in capital expenditure to execute the Shenzi North oil project in the US Gulf of Mexico, it announced on Thursday.

The FTSE 100 metals and mining giant said the approved expenditure represented a 100% share interest, adding that the project offered “very attractive” returns at a nominal internal rate of return of over 35%, a breakeven of about $25 per barrel, and a payback of less than two years.

BHP would be the operator, holding a 72% share in Shenzi North, while Repsol held the remaining 28% working interest, and was expected to make a final investment decision later in the calendar year.

It said Shenzi North represented the first development phase of Greater Wildling, following exploration success in 2017, with the resource and development plan further refined through ocean bottom node seismic data and analysis.

The project would take advantage of existing infrastructure and production capacity in the nearby Shenzi production facility, with value further enhanced through the recent acquisition of an additional 28% working interest, which took BHP's interest in the field to 72% from 44%.

BHP said the project added two wells and subsea equipment, to establish a new drill centre north of Shenzi, with the capacity to produce up to around 30 million barrels of oil equivalent per day.

Production was expected to begin in the 2024 financial year.

In addition, the BHP board also approved $258m in capital expenditure to move the Trion oil project in Mexico into the front-end engineering design (FEED) phase.

The focus of the studies would be on completion of the engineering, commercial arrangements and execution planning required to progress to a final investment decision from mid-calendar year 2022.

BHP holds a 60% participating interest in, and operatorship of, blocks AE-0092 and AE-0093 containing the Trion discovery located in the deep-water Gulf of Mexico, offshore Mexico.

Pemex Exploration and Production Mexico holds a 40% interest in the blocks.

“Both Shenzi North and Trion are strong growth assets for our business, providing attractive returns from relatively low carbon intensity resources,” said BHP’s president of petroleum operations, Geraldine Slattery.

“Shenzi North is aligned with the petroleum strategy to unlock and deliver further growth options in this key Gulf of Mexico heartland.

“This board decision also marks an important milestone in advancing the Trion development as we continue to work with our partner Pemex towards a final investment decision in calendar year 2022.”

At 1458 BST, shares in BHP Group were down 3.9% in London, at 2,278.5p.