Talos Energy Faces Challenges in the Development of the Zama
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Talos Energy Faces Challenges in the Development of the Zama

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Karin Dilge By Karin Dilge | Journalist and Industry Analyst - Thu, 03/23/2023 - 10:19

Talos Energy faces a tight deadline to submit a development plan for the Zama oilfield by the end of March 2023. The company's situation has been further complicated by SENER’s ruling to assign PEMEX as the operator with controlling ownership of the reservoir. This has led to negotiations between the parties, which must be resolved before a final investment decision can be made to move forward with joint development.

Among the issues that need to be resolved are operatorship, commercial terms and redetermination. Talos and its partners, Harbour Energy and Wintershall DEA, are best positioned to handle the initial development of the project, as PEMEX lacks experience in building the necessary production and marketing infrastructure in a water depth of 165m.

A renegotiation of the commercial licenses is needed, with Talos having a production-sharing contract with cost recovery, while PEMEX's license does not. An evaluation of well and production data is also a must, according to George Baker, Managing Principal, Baker & Associates, to assess relative ownership of the reservoir, along with the commercial terms for the use of PEMEX's existing pipeline and gas processing infrastructure.

According to Baker, "no oil or gas will come from the Zama reservoir during this presidency." The report also includes an annotated title list of reports since 2012 on topics related to the Transboundary Hydrocarbon Agreement, Round 1.1, Block 7, Zama, unitization, and redetermination.

According to analysts sourced by MBN, “regulatory inexperience” and the government’s current “PEMEX-centric vision” have contributed to the underdevelopment of the Zama field.  Similarly, a former country manager for a Mexican oil company, in conversation with EINNews, noted that “the opportunity cost to the State from foregone royalty payments has been in the hundreds of millions of dollars—and counting. The cost to Talos and its partners is also hundreds of millions of dollars both in sunk costs and delayed income.” 

From a production standpoint, the worst-case scenario has already been realized, with the dispute causing Zama’s development to stall indefinitely. More than half a decade on the initial discovery and single barrel has yet been extracted, prompting Duncan to complain that, were it not for the delays caused by the disputes, Zama would already be producing this year.

It has been estimated that development of Zama will require between US$4 billion and US$5 billion over the next 30 years. It appears the NOC is not ready for this, however. "PEMEX has not yet planned investment for Zama in its budget, its capital expenses continue to be limited and the government is using the company's extraordinary revenue to support subsidies, boosting the president's popularity," John Padilla, consultancy IPD Latin America's Managing Director, commented.

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