Joint Venture Hits Historic Mexico Oil Discovery

A major offshore discovery led by Talos Energy is the first successful wildcat well drilled by a private company in Mexico in almost 80 years and a milestone for the country’s recently enacted energy reform.

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A joint venture (JV) led by Talos Energy has made a historic and major oil discovery offshore Mexico, the first wildcat discovery in Mexico by a private company in almost 80 years.

The Zama-1 well, situated in 546 ft of water 37 miles offshore Dos Bocas in the state of Tabasco, has discovered an estimated 1.4 billion to 2 billion bbl of light oil in place, according to published reports. The JV considers it the fifth largest discovery in the world over the last 5 years. Pablo Medina, senior analyst in Latin America Upstream at Wood Mackenzie, said it was “one of the 20 largest shallow-water fields discovered globally in the past 20 years.”

The discovery marks a resounding success for Mexico’s energy reform, which was enacted in 2014 and opened the country’s oil and gas sector to foreign investment for the first time since the late 1930s.

A True Exploration Well

Eni made a shallow-water discovery in March, which appraisal drilling has since shown to hold an estimated 1 billion BOE of resources in place. However, the discovery was on acreage explored earlier by Pemex, Mexico’s state oil company. Tim Duncan, president and CEO of privately held Talos, noted that Zama was a true exploration well in waters that had never been explored. The closest well drilled, a dry hole, was more than 12 miles away.

“We believe this discovery represents exactly what the energy reforms intended to deliver: new capital, new participants, and a spirit of ingenuity that leads to local jobs and government revenues for Mexico,” Duncan said.

Medina called the discovery “the most important achievement so far of Mexico’s Energy Reform.”

The Zama-1 well is located on Block 7 of the Sureste Basin, which the Talos JV acquired with Block 2 in the basin in Mexico’s first offshore acreage bidding round in 2015. Ironically, the JV’s bids were the only two successful ones in the round. Twelve of the 14 blocks offered drew no acceptable bids, and public reaction in Mexico was less than enthusiastic.

The well was spudded on 21 May, 2017, using the moored floating drilling rig Ensco 8503. Drilling has reached an initial shallow target depth of 11,000 ft beneath the seabed, with the well encountering a contiguous gross oil-bearing interval of more than 1,100 ft. Initial tests of hydrocarbon samples recovered to the surface contain light oil with API gravities between 28° and 30° and some associated gas.

Deeper Targets To Be Drilled

Talos is setting a liner to protect the discovered reservoirs before drilling deeper objectives to a total vertical depth of 14,000 ft. There are no immediate plans for well testing, but further evaluation will be needed to calibrate the well with the existing reprocessed seismic data to determine future plans and optimal follow-up locations to define the extent of the discovered resource.

“We are eager to begin appraising this discovery and drilling more unique opportunities,” Duncan said. “The future is bright for offshore Mexico for years to come.”

Subsequent to appraisal in 2018 and investment decision-making the following year, production could start in 3 to 5 years beyond that, Duncan said.

Houston-based Talos, the operator, holds a 35% participation interest in the project. JV partners Sierra Oil and Gas, based in Mexico, and Premier Oil, based in the United Kingdom, hold participation interests of 40% and 25%, respectively.

Getting There First

Earlier this year, at the Offshore Technology Conference in Houston, Duncan discussed his company’s strategy at a panel session on bringing upstream projects to final investment decision. As a relatively small company, Talos’ competitive success depends on identifying niches where it can use its exploration expertise to operate in areas that are underexplored or where likely resources have been overlooked, he said.

Discussing its acquisition of the 160,000 exploratory acres offshore Mexico where the company has now made the Zama discovery, Duncan said that the attraction to Talos was Gulf of Mexico acreage that had been little explored and could be acquired relatively cheaply by moving before other companies did.

It appears that Talos and its partners will be nicely rewarded for being first.