The Woodside Energy Group Ltd (ASX: WDS) share price will be one to watch on Tuesday.
That's because some big news has been announced by the energy giant this morning.
Why is the Woodside share price on watch?
The Woodside share price is on watch on Tuesday after the company released an update on the Trion resource in Mexico.
According to the release, a final investment decision to develop the large, high-quality Trion resource in Mexico has been made. Woodside has a 60% participating interest in the resource.
Management highlights that the expected returns from the development exceed Woodside's capital allocation framework targets and deliver enduring shareholder value. First oil will be targeted for 2028.
Massive cost, massive returns
The forecast total capital expenditure is a massive US$7.2 billion, with Woodside's share coming to US$4.8 billion.
Despite this mammoth price tag, the company expects the investment to deliver an internal rate of return (IRR) greater than 16%, with a payback period of less than four years.
The project will target the development of an estimated 479 MMboe of best estimate (2C) contingent resource (100%) of oil and gas. Woodside notes that as the subsurface has been extensively appraised, with six well penetrations undertaken across the field, it has a good 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.
To put that into context, Woodside delivered production of 520,000 barrels a day during the first quarter.
'A valuable resource'
Woodside's CEO Meg O'Neill believes Trion will be an attractive addition to Woodside's portfolio of high-quality producing assets in the Gulf of Mexico. 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.
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.
The Woodside share price is up 17% over the last 12 months.
