Talos confirms Zama reservoir shared with Pemex

Third-party evaluation showed that 60pc of Mexico's major Zama crude discovery lies within Talos Energy's shallow-water block 7, with the remainder on state-owned Pemex's acreage, the private operator has notified the energy ministry.

The official notification of a joint reservoir by Talos Energy moves deciding how the two companies will share the find — the unification process — one step closer.

"We believe it is in everyone's best interests to maintain the urgency in bringing this project forward, and ensuring it is done so in an efficient way that draws from international best practices is critical to achieve these objectives," Talos Energy's chief executive Timothy Duncan said today.

In 2017, Talos Energy announced a major discovery of up to 800mn bl of recoverable crude equivalent in its shallow-water block 7 with its Zama 1 well that neighbors Pemex acreage. The two companies have been working towards a unitization agreement on the assumption of a shared reservoir since, with a final agreement expected by the end of 2020.

A third-party resources evaluation, carried out by Netherland, Sewell and Associates, at the end of 2019, was one of the key remaining steps towards the unification process.

The independent evaluation pegs gross recoverable resources at between 670mn barrels of oil equivalent (boe) and 1.01bn boe, "exceeding the high end of the company's guidance range," Talos Energy said.

The resource evaluation will be the technical basis for proven and probable reserves to be booked upon the final investment decision.

While Talos Energy completed its appraisal of the Zama discovery earlier last year, Pemex, has yet to drill a well to confirm the joint reservoir despite securing a well drilling permit in February.

Pemex was due to start drilling the Asab well on 28 February but, following delays to installation of the platform, Pemex now plans to start drilling this month.

Talos Energy notified the energy ministry of the joint reservoir on 9 December and oil regulator CNH will now be required to confirm the findings. Then Pemex and Talos will be required to present a unitization agreement that defines the operator and equity splits — the first of its kind in Mexico.

Given the size of the Zama find and its potential contribution to crude output, the industry is watching the unification process closely.

The Zama discovery will contribute a significant portion of independent operator output that is expected to hit 280,000 b/d by 2024.

Talos Energy hopes to continue as operator of the discovery but US diplomatic officials last year criticized alleged attempts by Pemex to take control of operations.

"Talos and its partners in the consortium have made great progress in meeting the milestones required to keep our world class Zama discovery on pace for a 2020 final investment decision if we can conclude unitization discussions soon," Talos Energy said.

The operator has completed the preliminary steps of front-end engineering and design toward developing detailed engineering plans for Zama.

The development will include two fixed production facilities capable of handling a combined 150,000 b/d of crude, plus associated gas. The platforms, at a water depth of 168m, would be the deepest production platforms installed in offshore Mexico.

Talos Energy expects to establish first oil in 2023 and the project is expected to generate $28bn in fiscal revenue for the government, in addition to Pemex's share.

Operator Talos Energy, Sierra Oil and Gas and Premier Oil won development rights for the shallow water block 7 in the first round of tenders overseen by CNH.

President Andres Manuel Lopez Obrador has been critical of companies that won contracts in the auction rounds, alleging a failure to meet pledged production and investment levels.

Mexican independent operators produced 47,000 b/d of crude in November, up by 62pc from 29,100 b/d in the same month a year ago, according to the latest statistics from CNH.

By Rebecca Conan