Mexico decides Pemex will operate Zama field instead of Talos Energy

Mexican energy ministry Sener has designated state-owned oil giant Pemex as the operator of the promising Zama discovery in Burgos basin. 

The decision came after protracted and unsuccessful unitization talks with US E&P firm Talos Energy.

In a statement addressed to Pemex CEO Octavio Romero Oropeza and Talos legal representative Francisco Javier Noyola, energy minister Rocío Nahle said an internal investigation examining the companies’ financial and operational competences had concluded that Pemex’s E&P subsidiary PEP was the best option to “guarantee the short-term development of the Zama field, under conditions of technical feasibility.”

According to Gonzalo Monroy, managing director of consultancy firm GMEC, Sener failed to follow international best practices and appears to have tilted its hand in favor of Pemex, while dismissing Talos’ counterarguments.

“Talos had also presented an independent study that showed that the majority of the resources were in its area, same as with Pemex, which presented another study stating the opposite. Given this disagreement, it would be expected that a third study would be conducted or that further negotiations take place,” Monroy told BNamericas.

Instead, “Sener has given the nod to Pemex while practically ignoring arguments by Talos.”

Even when it comes to evaluating comments by Mexico’s hydrocarbons commission (CNH), which was asked by Sener to issue an opinion on the unitization agreement, “Sener cherry-picked only those comments pertaining to Pemex being qualified to become operator” even though CNH had conducted a comparative analysis of the two firms, said Monroy.

Sener’s document cites PEP director Ángel Cid Munguía, who stated that Pemex had the financial capacity to develop the project and also had an independent evaluator confirm that the majority of Zama’s resources (50.43%) were found in the company’s concession.

“Pemex has infrastructure to receive, condition, storage, distribute and export crude located only 70km away from the field in the Dos Bocas maritime terminal,” Munguía was cited as writing.

According to Monroy, while Mexican law gives Sener power to make a final decision when two parties have failed to hash out a unitization deal after a set period, Talos could choose to take the case to international arbitration courts arguing the ministry did not follow best practices during its assessment.

The decision marks a crucial step in the unitization of two neighboring areas, Talos’ A7 contract and Pemex’s AE-152-Uchukil concession. Nahle said the companies would have to present within 30 days a joint development plan for the area, which has been stuck in the exploration phase since the unitization issue arose.

It also marks the first time ever in Mexico that a unitization deal is struck between a state-owned firm and a private player.

In 2017 a Talos-led consortium discovered Zama in what was the biggest Mexican oil discovery by a private company in decades. 

The area holds an estimated 700Mb (million barrels) of crude oil and is considered the most promising discovery by a private company since the 2013-14 reforms opened Mexico’s oil and gas sector.

As BNamericas reported previously, in March Talos said that Sener would propose the unitization terms as Talos and Pemex had failed to reach an agreement within the timeline set by the regulator. Earlier this year, the company pushed back against Pemex’s claims that a majority of Zama was located within its concession.

The claim is based on a study by a reservoir engineering firm hired by both parties that concluded Talos held 49.6% of the discovery, while 50.4% was found to be in Pemex-operated areas. 

Pemex published the findings as part of its 2020 annual report.

“We believe the recent third-party analysis underestimates relevant data obtained during the appraisal campaign,” Talos CEO Tim Duncan said in late May. 

Duncan said the definitive split would likely be established through a re-determination process and he also cited an independent evaluation paid for by Talos last year that found the firm held 59.6% of Zama.