Source: Financial Review Date: Oct 11 2016
BHP Billiton is gearing up for a potential bid to enter the highly promising deepwater Mexican oil exploration sector just as some investors are questioning whether it would be better off using some of its petroleum budget to secure resources through acquisition.
The mining giant is understood to have a team of 40 to 50 staff working on a possible bid for exploration acreage in waters close to the US border, and for a stake in the large, undeveloped Trion field where state oil company Pemex is seeking partners to help fund an estimated $US11 billion development cost. Bids are due for both on December 5.
Sydney fund managers were briefed on the Mexican ambitions on Monday as part of a wider roadshow by BHP's petroleum management led by president operations Steve Pastor, which kicked off last week in London.
Investors welcomed the interest in the Mexican assets given BHP's expertise and complementary oil and gas business on the US side of the Perdido belt, which straddles the ocean border between the two countries.
"They do have some competitive advantages in deep water Gulf of Mexico and I think Mexico does represent a natural extension of their knowledge in the US part of the Gulf," Neil Boyd-Clark at Arnhem Investment Management.
But some investors are less convinced about the expensive, higher-risk exploration campaign that BHP has embarked on in Trinidad, where its first well, costing up to $US200 million, found gas instead of the hoped-for oil.
"Mexico could be interesting but I think they need to be thinking a little bit more outside the box – some of these undeveloped resources in bigger companies or companies with balance sheet pressures is probably where the better opportunities will be," said Tom Richardson at Watermark Funds Management.
Mr Richardson pointed to last month's $US2 billion deal by Anadarko Petroleum to buy Freeport McMoRan's Gulf of Mexico assets as the sort of deal he'd like to see BHP doing, or even Karoon Gas' proposed acquisition of two oil fields from Petrobras in Brazil.
"Expensive exploration is obviously risky," he said, referring to the Trinidad drilling. "There are enough barrels discovered that aren't looking to be developed in this market and potentially they'd be getting more bang for their buck if they were buying undeveloped resources."
BHP is one of 10 oil and gas companies including CNOOC, Shell and Chevron that have pre-qualified to take part as operators in Mexico's deepwater auction, which follows historic energy reforms in the country that have opened up the sector to foreign companies for the first time since 1936.
The company is understood to be still examining the geology of the blocks on offer and the terms and conditions that will apply for petroleum operations in Mexico to decide whether to proceed with a bid.
For the Trion oil field, reported to hold as much as 485 million barrels of oil equivalent, BHP would be potentially up against five heavyweight rivals: BP, Shell, Chevron, ExxonMobil and France's Total. The final terms and conditions applying to this venture are expected next week.
BHP's Mexican, offshore US and Trinidad exploration programs are all part of a strategy to re-weight the petroleum portfolio more towards conventional oil, where the major sees a more favourable outlook for prices than for gas. It is understood to have closely examined the Great Australian Bight, where BP on Tuesday decided to scrap a $1.4 billion drilling program, but decided the exploration risk was too high.
BHP shares gained 1.7 per cent on Tuesday to $23.80, lifted by a jump in crude oil price after Russia said it was willing to join OPEC to help stabilise the oil market.
Mr Boyd-Clark said the overall driver of both exploration and M&A had to be to add resources in the most cost-effective way.
"Given oil prices where they are and given BHP is constructive on demand for oil over the next couple of years I think there is a case to say that adding hydrocarbons to your reserve base would make sense," he said.
"The objective is you add hydrocarbon molecules in the most cost effective fashion so you want to do things that are going to generate value for shareholders. It's wherever you can add value."
>>>Join the LinkedIn Group to meet more offshore Mexico players.
