In dispute with government over Zama, Talos says looking for growth beyond Mexico

Mexico City — Talos Energy is not renouncing to its Zama discovery in Mexico after the authorities granted operatorship to state oil Pemex, but it is already looking for other growth opportunities which include places outside the Gulf, executives said Aug. 4.

"We have not 100% given up on Zama; we are doing absolutely everything given the circumstances to maximize value to shareholders, but we are going to keep looking for areas to replace it," CEO Timothy Duncan said during the company's second-quarter results call.

Mexico's Energy Secretariat, or SENER, on July 5 appointed Pemex as the operator for the 1 billion-barrel shallow water Zama Field, which extends into Pemex's Uchukil 0152 block. Talos has said it was very disappointed with SENER's decision, considering its significant investments in Zama during the six years of its ownership.

Talos has drilled multiple appraisal wells at Zama, while Pemex has not conducted any activity on its side of the reservoir, data from the National Hydrocarbons Commission shows. Early in June, the commission announced Pemex had cancelled the drilling of Asab 1, an exploratory well meant to provide more information on the nature of the shared reservoir in Pemex's side.

Houston-based Talos won the block where Zama is located during the first auction organized by the prior Mexican administration of President Enrique Pena, which opened the sector for private investment for the first time after seven decades of Pemex monopoly. When it discovered Zama in 2017, Talos was the first private company to strike oil in over seven decades. After SENER's decision to grant operatorship of Zama to Pemex, Talos said it would consider all its options, legal or commercial to maximize value for its investors.

The decision to grant operatorship to Pemex was seen in Mexico as part of a series of moves by the administration of President Andres Manuel Lopez Obrador to give preference to the state company in an attempt to restore its dominance. The moves go against the existing regulatory framework that promotes liberalization and are being fought in courts.

Mexico's change in policy has come at a time when other countries, like Brazil, Guyana and Suriname have decided to attract more foreign capital to develop their resources. Multiple oil discoveries are being developed or planned in these countries, which are expected to attract billions of dollars in the next decade.

New opportunities

Duncan, meanwhile, said Talos would find new opportunities either inside its own portfolio or through mergers and acquisitions.

BP's recent Puma West discovery shows the potential of the eastern side of the deepwater US Gulf of Mexico, where Talos also owns blocks, Duncan said. Sited in the prolific Green Canyon area 131 miles offshore Louisiana, Puma West was drilled to total depth of 23,530 feet and has encountered oil pay in a high-quality Miocene reservoir. The find is located west of BP's producing Mad Dog field, in a neighborhood with several large fields, including Occidental Petroleum's Caesar-Tonga.

Talos is also looking for M&A opportunities outside the Gulf, where it can either obtain bulk production or greenfield projects, Duncan said. While he did not specifically mention where Talos is looking, He highlighted the good results other companies have had by developing a portfolio with greenfield projects, like Hess in Guyana.