Asset/portfolio management

Talos Loses Operatorship of Zama to Pemex

Mexico’s Ministry of Energy has completed the unitization resolution between the blocks that share the Zama reservoir.

A final investment decision for Zama is expected in 2023.

Talos Energy is being replaced as operator of the Zama field offshore Mexico following the final unitization resolution from the nation’s Ministry of Energy. It affirms the appointment of state-controlled Pemex as the operator of the Zama unit. The decision was required after it was determined that the field is located within both the Talos-operated Block 7 and an adjacent Pemex-operated block and provides for joint development of the entire reservoir instead of each party developing its own block.

“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,” said Talos Chief Executive Timothy Duncan. “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 finalize the unit development plan so FID [final investment decision] can be reached.”

As the Zama subsurface became better defined, Pemex made claims it was the rightful operator of the field, despite an independent assessment that said about 60% of the resource was located within Block 7. Pemex later commissioned its own third-party assessment, which found 50.43% of the reservoir was in the adjacent Pemex-controlled block.

Talos submitted notices of dispute last September to the Mexican government over decisions of the energy ministry, including awarding Pemex operatorship of Zama prior to unitization. Talos said that decision constituted violations of the agreement between the US, the United Mexican States, and Canada and the Bilateral Investment Treaty between the United Mexican States and the Belgo-Luxembourg Economic Union.

Talos will maintain a 17.35% 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 to12 months. A FID for Zama is expected in 2023. Talos will participate in activities related to reaching FID, while also continuing to evaluate strategic and legal options.

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. An independent third-party reserves auditor estimated the discovered recoverable resource volumes to be up to 950 million BOE, and Zama could produce more than 160,000 BOED once fully developed.

Talos has invested approximately $104 million in Zama since 2015. The company's past investments are subject to cost recovery under the field’s production- sharing contract.