Talos Energy Officially Loses Zama Operatorship in Unitization Process

Talos Energy Inc.’s loss of operatorship of its Zama field discovery offshore Mexico was finalized, the Houston-based E&P company said March 28, in what marks the first so-called unitization deal ever in Mexico.

The decision comes several months after Talos filed dispute notices against Mexico’s government for picking Pemex, Mexican national oil company formally known as Petroleos Mexicanos, to run operations for the project over the company’s rival bid.

“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,” Timothy S. Duncan, president and CEO of Talos Energy, commented in a company release on March 28.

The Zama Field, the largest non-Pemex oil find in Mexico in decades, was discovered by Talos and its partners in the Gulf of Mexico in 2017. The Zama discovery is believed to straddle Talos’ block and an adjacent block belonging to Pemex.

In July, Mexico’s energy ministry announced that it had picked Pemex to operate Zama, which Talos disputed arguing that it should continue in its role as the project’s operator given the company’s experience and financial capabilities.

Per the final unitization resolution announced on March 28, Talos will maintain a 17.35% participating interest in the Zama Field. Other partners include Germany’s Wintershall DEA and U.K.-based Premier Oil.

Talos noted in the release that it will also “evaluate various strategic and legal options” but did not go into further detail. Despite the decision, the company still plans reaching a final investment decision (FID) for the project, expected in 2023, according to Duncan.

“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 can be reached,” he said.

Talos 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 an FID.

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Talos has invested approximately $104 million in Zama since 2015 and these past investments are subject to cost recovery under the production sharing contract, according to the release.

The company does not expect any material changes to its 2022 capex guidance as a result of the issuance of the unitization resolution.

Zama was named the 2017 Global Discovery of the Year by Wood Mackenzie, and the field was fully appraised by mid-2019.

An independent third-party reserves auditor estimated the discovered recoverable resource volumes of Zama to be between approximately 735 million and 950 million boe. Zama is projected to produce over 160,000 boe/d once fully developed.

Reuters contributed to this report.