Talos finalizes Zama unitization deal with Pemex

US independent producer Talos Energy finalized the unitization agreement for its giant shallow-water Zama discovery in Mexico following a long-running dispute regarding operatorship with state-owned Pemex.

"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," chief executive Tim Duncan said. "However, we understand how important accelerated first oil from Zama is for the Mexican energy sector."

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 950mn bl of recoverable oil 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 July.

Talos will participate in ongoing development of a production plan over the next six to 12 months with a view to taking a final investment decision next year, but it "continues to evaluate various strategic and legal options."

Talos Energy issued notices of disputes in the third quarter of last year regarding the operatorship designation as well as the equity split assigned by the energy ministry. The operator has not commented on the outcome of those negotiations.

The decision to designate Pemex as operator has been criticized for its cooling effect on investor confidence, particularly given the strain it will put on Pemex's already stretched finances and its lack of experience drilling a reservoir at Zama's depth.

Talos has invested $104mn in the block and these investments are subject to cost recovery under the production-sharing contract.

Under the terms of the unitization agreement, Pemex will operate the field and Talos will maintain a 17pc participating interest in the block.

The block could produce up to 160,000 bl of oil equivalent/d, Talos said, making it the largest exploration and production contract awarded following the 2014 energy reform.

Non-state operators produced 88,655 b/d in February, up by 71pc from 51,960 b/d in February last year, but output remains a marginal proportion of total national output of 1.63mn b/d in the same month.

By Rebecca Conan