BHP Billiton’s (BHP) Petroleum division is an important contributor to the company. The division contributed ~30.0% to BHP’s overall EBITDA (earnings before interest, tax, depreciation, and amortization) in 2016.
BHP outbids BP
The world’s largest oil companies have recently been bidding for Mexico’s offshore oil deposits. Eight out of ten exploration blocks were distributed in competitive bidding. The companies that took up these blocks included ExxonMobil (XOM) and Chevron (CVX).
BHP outbid BP (BP) for a 60% stake in the Trion field with a $624 million offer and a royalty of 4%. The Trion field was discovered in the Gulf of Mexico in 2012. Estimates have placed the field’s crude oil reserves at 485 million barrels.
The Mexican state oil company, Pemex, will partner BHP to develop this oilfield. Pemex estimates an $11 billion investment in order to successfully develop Trion. The initial investment in the project is expected to begin next year. Commercial production isn’t expected until 2022.
In line with strategy
Commenting on this development, Steve Pastor, BHP’s president of operations for petroleum, said in a press release, “This opportunity aligns with our strategy of owning and operating Tier-1 assets and provides an opportunity for BHP Billiton to leverage its industry leading deep-water drilling, development, and operational expertise to create value in Mexico.”
Note that BHP has been deferring development activity in petroleum to maximize value. To read more about BHP’s Petroleum division and its outlook, read The Importance of BHP’s Petroleum Division.
For those interested in BHP and other oil companies such as Chevron, ExxonMobil, and Occidental Petroleum (OXY), petroleum volumes and production outlook are the key variables to watch, apart from oil prices (USO). CVX, XOM, and OXY account for a combined 35.0% of the Energy Select Sector SPDR ETF (XLE).