Talos wins only small stake in Mexico's Zama block

US-based E&P player Talos Energy said it will maintain a 17.35% participating interest in the promising block 7 in Mexico's Zama field as part of a final unitization ruling announced on Monday. 

Among other things, the final unitization resolution (UR) that Talos received from energy ministry Sener upholds the appointment of national oil company Pemex as the operator of the shallow water area in the Gulf of Mexico, a decision initially made last July.

The 17.35% given to Talos falls well below the percentage of the resources estimated to be in block 7, for which a Talos-led consortium won the concession in 2015, where earlier estimates saw Talos receiving an interest of much closer to 50%. 

Talos, as operator and 35% 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.

Zama was subsequently named the 2017 global discovery of the year by Wood Mackenzie and the field was fully appraised by mid-2019. Talos said it has invested approximately US$104mn in Zama since 2015 and these past investments are subject to cost recovery under the production-sharing contract.

Unitization of the Zama field was required after it was determined that the field was located within both the Talos-operated block 7 and an adjacent Pemex-operated block, AE-0152-Uchukil. The ruling provides for joint development of the entire reservoir instead of each party developing its own block, Talos explained in a statement. 

The latest independent study, carried out by Texas consultancy Ryder Scott, estimated the recoverable resource volumes discovered to be between approximately 735Mboe and 950Mboe (million barrels of oil equivalent) and that Zama could produce over 160,000boe/d once fully developed. 

Ryder Scott also determined that the Pemex-operated block contained 50.4% of the field, a stake that Talos has accepted.

However, Talos submitted a notice of dispute in September 2021 after Sener ruled to give Pemex operator status in July, arguing that this tiny difference in the amounts on either side of the limit between the blocks does not justify making Pemex the operator, given the amount of time and investment Talos has already put into development. 

In a statement, Talos president and CEO Timothy S. Duncan said, "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.”

However, he added, “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.” 

Duncan also said Talos understands the strategic importance Zama holds for Mexico’s energy sector, saying the company and the other project stakeholders …  “will work with the urgency required to finalize the unit development plan so FID [Final Investment Decision] can be reached." 

The impact of the Talos-Zama dispute is likely to send ripples around the domestic O&G sector, with private players now on higher alert that Pemex could step in to attempt to wrest operator status when deposits are considered sufficiently large to be of strategic interest to Mexico.