Talos disappointed as operator role for giant Mexican field goes to Pemex

Houston-based Talos Energy has been disappointed by a decision from the Mexican government to confirm Pemex as the operator of the Zama offshore field following a unitisation dispute.

Talos Energy informed on Monday it has received the final Unitisation Resolution (UR) from Mexico’s Ministry of Energy (SENER) regarding the development of the Zama field offshore Mexico. Among other things, the UR affirms the appointment of Pemex as the operator of the unit.

Zama is a shared reservoir that extends from the Talos-operated Block 7 to neighbouring Pemex AE-0152-Uchukil Asignación in the Cuencas del Sureste, in the Bay of Campeche in Mexico. Unitisation of the Zama field was required after a determination that the field is located within both the Talos-operated block and the adjacent Pemex-operated block and provides for joint development of the entire reservoir instead of each party developing its own block.

Considering that Pemex and Talos did not see eye to eye when it comes to the unitisation, SENER in July 2021 designated Pemex as the operator of the Zama unit, much to the disappointment of Talos. The company then decided to explore all legal and strategic options to resolve the situation. In September 2021, Talos filed Notices of Dispute to the Government of Mexico over decisions taken by SENER.

Now, with this new, affirmed decision, Talos will maintain a 17.35 per cent participating interest in the Zama field, and the company anticipates submission of a Unit Development Plan for approval by the working interest partners within 6-12 months, a critical step before the parties can make a Final Investment Decision (FID) in 2023.

Talos said it will participate in activities related to reaching FID, while also continuing to evaluate various strategic and legal options. The company does not expect any material changes to its 2022 capital expenditures guidance as a result of the issuance of the UR.

Talos, as the operator and 35 per cent partner in the Block 7 lease, discovered the Zama field in 2017 as the first private sector consortium to enter Mexico following the country’s major energy reforms. Named the 2017 Global Discovery of the Year by Wood Mackenzie, the Zama field was fully appraised by mid-2019.

An independent third-party reserves auditor estimated the discovered recoverable resource volumes to be between approximately 735 – 950 million barrels of oil equivalent, and Zama could produce over 160,000 barrels of oil equivalent per day once fully developed. Talos has invested approximately $104 million in Zama since 2015 and these past investments are subject to cost recovery under the Production Sharing Contract.

Talos President and Chief Executive Officer, Timothy S. Duncan, stated: “We are very proud of our operational leadership in Mexico’s private energy sector and of our accomplishments thus far with our world-class Zama discovery.

“We are disappointed that despite our consistent track record of success, safety and progress we were not provided the opportunity to retain our role as operator for the benefit of the project. However, we understand how important accelerated first oil from Zama is for the Mexican energy sector and all of the company’s stakeholders and we will work with the urgency required to finalise the Unit Development Plan so FID can be reached.”