Talos Halts Legal Proceedings Against Mexican Government

US-based oil producer Talos Energy has  suspended arbitration proceedings brought against the Mexican government following the July 2021 ruling by SENER, which named PEMEX operator of the lucrative Zama shallow water oil field originally discovered by Talos. Talks are expected to continue over the coming weeks as Timothy Duncan, CEO, Talos Energy expressed his optimism that a deal can be reached to grant Talos greater participation in the prolific field.

"Talos continues to have constructive dialogue with PEMEX on how we can move this project toward a final investment decision in the most commercially attractive way,” said Duncan. 

Following crunch talks between President López Obrador and the US ambassador to Mexico, Ken Salazar, Reuters sources suggest that the prospect has been raised that Talos’ consortium might still hold sway in the field’s technical and commercial development, even if PEMEX is to remain the site’s operator. The Houston-based firm maintains its vast experience in shallow water projects puts it in the best position to guarantee profitability. Talos are now set to submit a development plan for the approval of the interested partners, a crucial step before a final investment decision can be made in 2023. 

Zama represented the first unification case between PEMEX and a private operator. After the two parties failed to reach an agreement, SENER ruled in favor of the NOC. The decision was seen by many as another example of the government of President López Obrador freezing out the private energy sector, while Talos argued the resolution was a direct violation of the United States-Mexico-Canada (USMCA) trade agreement and a further bilateral investment treaty. In Sept. 2021, Talos took the first step toward legal proceedings, filing notices of dispute under the USMCA. The dispute notices provided the opportunity for a negotiation and consultation phase between the parties in an attempt to resolve the dispute prior to an international arbitration claim. 

While not ruling out the resumption of legal proceedings, Talos spokespeople voiced their desire to work in good faith toward a fair and mutually beneficial agreement with the Mexican government.  As it stands, Talos holds a 17.35 percent stake in the 850MMboe field after the unification with PEMEX’s neighboring block. 

Having already sunk US$350 million into the project, Talos believes they are entitled to a greater share. Furthermore, the company cites its "consistent track record of success, safety and progress" and more secure finances as reasons why it is better placed to move forward with the development of Zama. In contrast, Talos points out PEMEX’s limited experience operating in waters of depth greater than 152m. The Houston outfit is already the largest independent operator in the US Gulf of Mexico producing on average 64Mb/d. Once up and running, Talos puts Zama’s potential production at 160Mb/d, which would generate an estimate of US$30 billion in revenue for the Mexican government.