PEMEX Chosen to Run Important Zama Oil Field

The Mexican government elected national oil company PEMEX as the sole operator of the disputed Zama oil field discovery over a consortium led by Talos Energy, the US-based company that first discovered it. Talos and PEMEX have been negotiation for more than a year regarding which company would operate and how the potential reserve would be split.

Zama, the first important oil discovery following the liberalizations of the 2014 Energy Reform intersects with two oil blocks. One of these blocks was awarded to the consortium in a 2015 auction, whereas the other was awarded to PEMEX. The deposit has been estimated to hold 700 MMBOE, therefore, both sides have attempted to prove the majority could be found within their respective blocks since its 2017 discovery.

A letter from Mexico’s energy ministry SENER dating July 2 awards the block to PEMEX, citing the NOC’s expertise and nearby infrastructure as its key advantages. SENER furthermore cites a third-party study that claims PEMEX would have a small majority of the oil. Talos Energy presented a different study that claimed that 60 percent of the energy would be within the limits of its own block. At 168 meters, the field lies deeper than the majority of PEMEX’s offshore developments but at the same depth of much of Talos’ portfolio.

“After six years of significant investments in Zama and the Mexican economy, as well as the delivery of a Zama development plan that is credible and in line with the objectives of Mexico, Talos is very disappointed with SENER's sudden decision to award operatorship to PEMEX, especially in light of the timing under which the award occurred,” Talos said in a statement, referring to the over US$350 million of investments the company made so far. “Talos remains committed to maximizing value for its shareholders from its Zama asset and will explore all legal and strategic options to do so,” the company added.

It is difficult to see SENER’s decision outside of the wider policy direction of the López Obrador government, which aims to undo much of the 2014 Energy Reform in order to bolster PEMEX and CFE while discouraging private participation.

SENER’s decision is thus likely to be challenged, especially considering Mexico’s renewed international commitments through the USMCA. In an interview with MBN, Talos Energy CEO Timothy Duncan highlighted the importance of SENER’s decision for the faith investors will have in Mexico. “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,” he said.