Talos CEO speaks out as Zama drama unfolds

After months of stalled discussions, Talos Energy and Mexican state oil company Pemex are breaking the silence on their failure to agree on unification for the Zama field, a deal that is now long overdue.

Tim Duncan, CEO of the Houston-based upstream player, put an end to almost two years of relative reticence from Talos on the dispute to state that the firm is not on board with the pending agreement as it stands.

“Our situation is a proxy for everything you don’t want to see happen, which is investing under a certain set of conditions, developing an asset that had a specific amount of value, to not knowing exactly what you have, due to government action," he was quoted as saying by Bloomberg.

Potentially hosting 850Mboe (million barrels of oil equivalent), Zama is the largest discovery made to date by a private company in Mexico, facilitated by the 2013-14 energy reforms, and considered one of the 10 largest oil discoveries in the country's history.

Duncan countered comments from Mexican President Andrés Manuel López Obrador (AMLO) in recent weeks, suggesting Talos wants to take control of operations and saying, “Talos is willing to move forward and not continue to fight over operatorship as long as it has a leading role.”

AMLO claimed in July that, under the law, the party with the largest share of potential reserves will have ownership. “And they want, being a minority, to have the operation and that cannot be done, it is illegal.”

But who has the largest share?

The president and the national oil company’s E&P unit (PEP) are basing the takeover on a Ryder Scott study last year which found that 50.4% of the potential oil reserves were in Pemex territory, according to Bloomberg.   

This conflicted with an earlier study Talos that commissioned from Netherland, Sewell & Associates, a report widely accepted within the industry, that gave Talos and its partners 59.6%. 

But the share being offered to Talos is only a fraction of the findings from either report.

After a first round of unification talks between Pemex and Talos broke down in March 2021, energy ministry Sener took over and handed operatorship to Pemex’s upstream unit PEP in July 2021. PEP received an 82.65% stake and Talos 17.35%.

Hydrocarbons regulator CNH must still sign off on a final agreement, approved by all stakeholders, before the development can advance, and in the last month, it appears unification talks have apparently failed.

Ultimately, it seems little has changed from Talos' perspective since the start of the dispute in February 2020, when CFE Sergio Maiworm told BNamericas, “All we're trying to do is move forward to achieve first production during this administration.”

The company has placed singular importance on moving past the dispute and getting oil flowing, stating in its latest quarterly report, it was "actively working" with Pemex and its two private partners, Premier Oil (owned by Harbour Energy) and Sierra Oil (owned by Germany's Wintershall) on the area's development plan, which it still expects to present by March 2023 at the latest.

The case has also become central to the strategy deployed by the president to raise national production to 2Mb/d (million barrels of crude per day), compared with output of 1.702Mb/d in June, according to Pemex.

All parties recognize that further legal wrangling over Zama makes it harder to achieve that goal, set for when AMLO’s term expires on October 1, 2024. 

Once the development plan is approved by hydrocarbons commission CNH, "the parties will then move toward FID [final investment decision] later in 2023," Talos said in its Q2 report.

Talos had not responded to BNamericas’ request to update the situation as of press time, but Maiworm, speaking in 2020, said the unification agreement should come down to independent, professionally established data.

In its fight, he said, “The only thing [Pemex] will accomplish is to spend additional dollars, which they probably don’t have to spend.”