PEMEX, Talos to Finish Zama Field Work Program

Talos Energy informed the Security Exchange Commission (SEC) about the progress it made with PEMEX regarding the shared development of the Zama Field. Talos warns of possible negative outcomes due to its restrained participation in the project and says it is working with PEMEX to present the working program for the field this month.

In the past week, Talos reported to investors that it may not be appointed as the main operator for several wells previously considered to form part of the Zama field. “We may have limited ability to influence the operations of some non-operated properties and their associated costs,” read the statement.

Talos also reported that the agreement with PEMEX includes a cost recovery feature, where eligible costs related to minimum activities under the work program are recoverable in kind at a rate of 125 percent of future production volume costs. Eligible costs that exceed 60 percent of the current monthly contractual value of hydrocarbons will be recoverable in future periods. Also, royalties will be granted depending on the type of recouped hydrocarbons and adjusted to inflation.

The IOC foresees some factors that may negatively impact the project’s profitability: the conditions of the agreement, PEMEX becoming the operator and available capital expenditure. According to Talos, the biggest difficulty would be the development’s limited capacity to tackle non-operated areas and its costs.

Earlier, Talos and other private sector participants had argued against naming PEMEX as Zama’s main operator, citing the NOC’s poor capacity, experience and resources to properly develop the field, as well as the state-owned company’s track record of mishandling fields in a quest for quick gains. According to Marco Biersinger, Director of Oil and Gas Corporate Finance, Kroll, "PEMEX has on certain occasions shown to prefer bringing wells into production early and may therefore have sacrificed the total recovery volume at its fields." Biersinger emphasized that the goal of any governing team should be to pursue best international practices.

In 2017, Talos Energy was the first private company to find oil in Mexico in 70 years, as it discovered the Zama field. Zama is considered to be one of the most promising shallow water fields in the world. However, it was later found that the reservoir extended into PEMEX’s Uchukil project. While both companies wanted to become Zama’s operator, they failed to reach an agreement, and the energy ministry intervened by appointing the NOC as the sole operator in July 2021 on the back of an independent study that cited PEMEX held a small majority of the field’s reserves.

Many analysts interpreted SENER’s polemic decision as harmful to Mexico’s legal certainty, deeming the topic a consistent and urgent issue. The development of the Zama field stalled due to the disagreement. Nevertheless, following intervention by President López Obrador in October 2022, progress appeared to have been made concerning Zama. Talos subsequently announced that the Joint Development Plan of the Zama Field will be presented to CNH by March 2023, including the terms for the development of both companies.