BHP is set to begin working on one oil project and is starting the design phase of another
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The BHP Group Ltd (ASX: BHP) share price is on watch following news the company has approved the Shenzi North project and an update on the Trion project.
BHP’s Board has approved spending US$544 million to begin work at the Shenzi North project. Simultaneously, BHP has agreed to spend US$258 million on the Trion project’s front end engineering design (FEED) phase.
The BHP share price finished yesterday’s session trading for $53.14 per share.
Let’s take a closer look at today’s news from BHP.
BHP’s big spending
The BHP share price is in the spotlight this morning after the company announced it has put forward capital to start work at its Shenzi North project in the Gulf of Mexico.
The company stated the project will produce 30 million barrels of oil per day, each estimated to be worth approximately US$25.
That leaves the project with an internal returns rate of more than 35%. The company believes its investment in the project will be earned back over 2 years. Production at the project is expected to begin in the 2024 financial year.
BHP owns 72% of the Shenzi North project after it purchased an extra 28% holding for US$505 million last year.
The BHP share price gained 3.4% on the day the purchase was announced.
Repsol holds the remaining 28% of the Shenzi North project. Repsol is expected to make a final investment decision on the project before the end of the year.
BHP also released news of its Trion oil project, based in Mexico.
The company has approved spending US$258 million to begin the project’s FEED phase.
Following a successful FEED process, the company expects to make a final investment decision on the Trion project in the middle of next year.
BHP owns 60% of two blocks at Trion which contain the Trion discovery. It purchased the holding for US$62.4 million in 2016. However, it agreed to pay an additional US$624 million if it was decided the project will move beyond the minimum work program.
BHP also agreed to spend an extra US$570 million on the project’s minimum work contribution.
Commentary from management
BHP’s president operations petroleum Geraldine Slattery commented on the news that might drive the BHP share price today, saying:
Both Shenzi North and Trion are strong growth assets for our business, providing attractive returns from relatively low carbon intensity resources.
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.
BHP share price snapshot
It’s been a good year for the BHP share price. It has gained 23% since the start of 2021. It is also 33% higher than it was this time last year.
However, its fallen 1.7% over the past 7 days.
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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.