Talos, Pemex given 120 days to unify Zama discovery

(Updated with a statement from Talos Energy dated Thursday, 9 July.)

U.S. based exploration and production company Talos Energy and Mexican state-owned oil and gas company Pemex have been given 120 days to reach some kind of unification agreement regarding the massive Zama oil field.

The huge Zama discovery – which holds potentially 670 million recoverable barrels large – is the largest in Mexico by a private company in decades.

The issue for Talos, which won the offshore Zama block back in 2015, is Pemex’s claim that the oil in Zama bleeds into the Pemex-operated neighbouring block.

Mexico’s Ministry of Petroleum (SENER) said on Wednesday that it instructed Pemex and Talos to come up with a unification agreement to develop the Zama reservoir together in a way that would maximize its value. According to SENER’s statement, the two companies were given 120 days to resolve their issue.

In that time frame, the parties must deliver what is called a unitization and unit operating agreement (UUOA) to SENER for approval.

The UUOA will be the governing document of the unitized consortium over the life of the Zama field, addressing such topics as initial participating interests, roles of the parties, and reimbursement of exploration and appraisal costs spent to date, as well as a redetermination mechanism for adjusting the initial participating interests as additional technical data is collected.

These elements, according to Mexican regulation, should be based on standard industry practices for unitization agreements from around the world.

It is worth noting that Pemex and Talos both claim that the oil find lies mostly on its own block but Pemex has not drilled any exploratory wells on its side, unlike Talos. According to Wood Mackenzie, nearly two-thirds of the Zama discovery lies in Talos’ block.

Under SENER’s instruction, the shared deposit, split in the CNH-R01-L01-A7/2015 licence operated by Talos and Pemex’s AE-0152-Uchukil licence, will be unified into a singular area as seen on the map.

To remind, Talos’ partners in the licence are Wintershall Dea and Premier Oil.

If the two firms do not come to an agreement, the energy ministry will decide which company will run Zama operations. If, on the other hand, they do reach an agreement – this will be the first discovery in Mexico developed between the state-owned company and a private one under a unification procedure.

The shared deposit has an approximate area of ​​26.7 square kilometres and is located in shallow waters of the Gulf of Mexico 58 kilometres off the coast of Tabasco. The oil production derived from the unification is scheduled for the first half of 2024.

Talos president and CEO Timothy S. Duncan said: “We are encouraged by the progress that SENER, CNH, and Hacienda have made on the Zama unitization process despite these difficult times, they have worked with transparency and in the interest of accelerating value creation through the Zama discovery.

“We have continued to invest in the front-end engineering and design work despite the recent pullback in commodity prices, so we can remain on pace to submit timely development plans. We are highly confident that the Zama field can make a material contribution towards the goal of increasing Mexico’s oil production under the current Administration.

“We look forward to working closely with Pemex to quickly finalize a fair and mutually beneficial agreement for all parties involved”.

It is worth reminding that Talos Energy and Pemex signed a pre-unitization agreement regarding Zama back in the fall of 2018.

Photo by Cris DeWitt (Image shared with photographer’s permission)