Pemex operatorship could hurt Zama results: Talos

Designating Mexico's state-owned Pemex as operator of the giant shallow-water Zama discovery could harm performance of the asset, Talos Energy said.

"We caution that such designation may potentially result in material delays, underperformance, insufficient access to capital or adverse consequences as compared to our expectations for such a project should we have been designated as operator," Talos Energy said in its second quarter results report.

In 2017 Talos Energy with its partners Premier Oil and Sierra Oil and Gas — since acquired by Wintershall DEA — announced the Zama discovery of up to 800mn bl of recoverable crude equivalent in its shallow-water block 7 that neighbors Pemex acreage. But after more than two years of pre-unitization negotiations the parties failed to reach an agreement and the energy ministry designated Pemex as operator last month.

The decision, a blow to independent operators that won exploration and production contracts following the 2014 energy reform, chimes with the government's policy to restore Pemex's dominance over the oil and gas industry.

"We are committed to preserving and optimizing the value of our Zama asset for shareholders and we are evaluating all commercial and legal options at our disposal," Talos chief executive Tim Duncan said the results call today. Duncan did not elaborate on the measures the company was pursuing citing the "sensitivity and evolving status," of the situation.

While Talos "has not 100pc given up on Zama," the operator did confirm it is looking for new exploration opportunities in the Gulf of Mexico.

Industry watchers have cast doubt on Pemex's technical ability to develop the reservoir — Pemex has never developed a discovery at this depth — as well as its financial capacity amid constrained budgets following the Covid-19 pandemic. Pemex has already fallen well short of its priority field targets and crude output has fallen by 6.7pc to 1.68mn b/d in June from 2018 when President Andres Manuel Lopez Obrador took office.

Given the importance of Zama's output in stabilizing declining crude production, any delays could have a significant impact on Mexican production.

Talos reported a loss of $125.8mn in the second quarter, compared with a $140.6mn loss in the prior-year period.

By Rebecca Conan