Essential Conclusions For Operators in Mexico

Q: What ended up being the final decisions made regarding the rescheduling of milestones in 2021 originally planned for 2020?

A: We have continued to make significant advancements on the Zama project despite what was an extremely tough environment in 2020, which was impacted by the COVID-19 crisis and associated commodity price drop. Despite those hardships, we have continued to progress the project toward its Final Investment Decision (FID), running our project’s Front End Engineering and Design (FEED) in parallel with unitization discussions with PEMEX. We are working hard to reach conclusions on both of those fronts and take the project to its next phase post-FID.

Q: What is your position regarding the most recent announcements made by PEMEX and SENER regarding the distribution of resources within the Zama reservoir?

A: We have published a statement regarding the release where we addressed not only the third-party engineering firm’s viewpoint, but that of Netherland, Sewell & Associates (NSAI) as well. There are different data points out there and negotiations on many key commercial points in the unit agreement are ongoing, including the initial tract participation splits. That said, it is our expectation that the unit agreement will be finalized in accordance with international best practices and will carry standard redetermination provisions. In that case, the initial tract participation will be corrected over time as more data becomes available. So, in summary, the discussions on many points are ongoing and there will be a mechanism to ensure that the “true” tract participation prevails in due course.

Q: Although the original March 26 deadline has passed, what are your current plans and hopes for a unitization of Zama being agreed to in the short term?

A: It is in the best interest of all stakeholders to advance the unitization discussions diligently and commercially, including the Mexican people, the government, investors and job creators. While we have not published any firm dates or deadlines, we trust that we are working as hard as we can to reach resolution and take this project to the next phase.

Q: How has the Zama negotiation impacted investor confidence in the oil and gas sector and what can be done to take this to a win-win resolution?

A: First and foremost, Zama is an incredible asset, not just for Talos, but for the Mexican state and the economy. Its discovery is a great example of the power of private enterprise to unlock new resources and create value in society in numerous ways. For Talos, we have delivered the discovery well with tremendous success, completed the appraisal on-time and under-budget, and are advancing the FEED as rapidly as possible. We are doing everything in our power to bring the project to fruition. That said, the entire industry, investors, stakeholders, and other governments are watching the Zama unitization very closely. They want to see that private enterprises are treated fairly, in accordance with law and best practice, and that Mexico is a good place to do business. It is hard to understate how important this perception is to the future of Mexico’s private energy industry.

Q: How are field development activities progressing in 2021 and adjusting to your significant reduction in investments during 2020? 

A: At Talos, we responded to the COVID-19 and commodity price crisis by scaling back our capital investment budget and stabilizing our core business. That said, our activities around Zama and more broadly in Mexico were not impacted by this. We continued to do everything necessary to advance our assets in the country to the next phase. Capital spending on Zama is expected to be light this year as we wrap up the FEED and unitization discussions, but we are preparing for FID and, thereafter, the start of construction and field development.

Q: How has your relationship with your suppliers and service providers in Mexico been strengthened as a result of weathering and overcoming this tumultuous period in the industry together? 

A: We always aim to treat our service providers of all types with a high degree of trust, care and consideration. The past year was challenging for everyone but this in an industry where adaptability and speed are critical. With a better economic outlook ahead of us, we look forward to continuing to grow those relationships in the country in a more stable environment.

Q: What are the most important aspects of your growth and development strategy and forecasts for 2021? 

A: Talos is focused on numerous potential catalysts as we look forward. First of those is Zama, this is a generational asset that will ultimately provide decades of production and cash flow once it comes online. Another of those is our ability to find future discoveries through exploration investment. For example, we recently announced a major discovery in the U.S. Gulf of Mexico with BP and Chevron. We will aim to enter more projects like that in the coming months that could result in significant discoveries. Finally, we see that the global offshore E&P industry is ready for consolidation, and we believe Talos can achieve significant scale and diversity through mergers and acquisitions. 

Q: What future do you see in Mexico’s deepwater operations and the implications this would have in private investment and collaboration with PEMEX?

A: We continue to believe that Mexico’s offshore energy industry has enormous potential. Clearly the industry interest is there with Super Majors, NOCs and others developing exploration plans and drilling wells. These companies can and will unlock major discoveries in due time, assuming that the business climate remains supportive. Offshore energy, in particular deepwater, is a business that develops slowly and not overnight. However, the potential is significant and could be a major source of job creation, revenue and physical commodity supply for Mexico for decades if successful.

Talos Energy is an American offshore oil and gas company operating on both the US and Mexican side of the Gulf of Mexico. Talos Energy operates Block 7, and discovered the Zama reservoir in 2017, one of the most important discoveries made in Mexico's recent history.