Zama’s Uncertain FutureBy Antonio Trujillo | Tue, 09/28/2021 - 11:41
Industry analysts are questioning the future of the Zama oil reservoir, at odds in development strategy between Talos and the federal government.
In 2017, Houston-based Talos Energy, a renowned oil & gas company with operations in the Gulf of Mexico discovered the Zama oil reservoir in the southeast basin of the Gulf, approximately 60 km off the coast of Tabasco. At the time, a myriad of analysts and media outlets nicknamed the discovery as one of the largest and most important oil discoveries in Mexican waters in over twenty years. Today, four years after its discovery, not a single barrel has been extracted. According to analysts, the resource nationalism of the federal government, coupled with “regulatory inexperience,” and the “PEMEX-centric orientation of the current government in Mexico,” have all but stopped and prevented the development of Zama.
Last July, as reported by MBN, Mexico’s Ministry of Energy elected PEMEX as the sole operator of this disputed oil field. A turbulent year of negotiations on part of Talos Energy proved in vain when, instead of splitting operations, PEMEX was given preference of the reservoir. At the time, the Ministry´s reasoning cited the NOC´s expertise and its nearby infrastructure.
Considering Talos’s US$350 million in investments, the company stated “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. [We] remain committed to maximizing value for its shareholders from its Zama asset and will explore all legal and strategic options to do so.”
In order to deal with the decision, Talos Energy has appealed to the US-Canada-Mexico free trade agreement in a highly criticized strategy. Talos accuses PEMEX of engaging in unspecified violations of the agreement, following the company’s Sept. 3 advice to its regulators and investors that it would look to take action against decisions that “cause loss or damage to the Company.”
Analysts are wondering whether Talos Energy has the necessary influence on the country’s industry to push for a decision reversal. A legal dispute is likely but without favorable results for Talos, and the Mexican oil trade association has repeatedly stated its “commitment to Mexico.” Moreover, the worst-case scenario according to experts, is that Zama’s development stalls indefinitely.
A former country manager for a Mexican oil company told EINNews 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.”