Talos seeking talks with Mexican government on Zama unitization dispute

Sept. 6, 2021
The company is seeking to resolve the dispute amicably through consultations and negotiations.

Offshore staff

HOUSTONTalos Energy and Talos International Holdings SCS have submitted Notices of Dispute to Mexico’s government over decisions taken by the country’s Ministry of Energy (SENER) on the Zama oilfield discovery in the Gulf of Mexico.

These included the designation of Pemex in early July as operator of the field, which extends across two still-to-be unitized blocks, days after sending SENER a letter stating its case for operatorship.

Talos said the decisions could be damaging, as an investor and as operator of block 7, and that SENER’s actions also constitute violations of an agreement between the US, the United Mexican States and Canada (USMCA) and the bilateral investment treaty between the United Mexican States and the Belgo-Luxembourg Economic Union (BLEU-BIT).

The company added that it was seeking to resolve the dispute amicably through consultations and negotiations, and would continue to engage with representatives of the government to achieve “a fair and mutually beneficial agreement.”

The Notices of Dispute, Talos hopes, will lead to an initial phase of negotiation and consultation between the parties. If successful, this would avoid the need for further legal action, including international arbitration.

Since signing the pre-unitization agreement, the company added, it had been working with Pemex and SENER to finalize a unitization and unit operating agreement for Zama that follows international best practices.

Talos and its partners discovered Zama in 2017. On completion of the appraisal campaign, technical reviews concluded that the discovery comprised a shared reservoir that extends into Pemex’s neighboring AE-0152-Uchukil block.

Under Mexican law, Talos noted, contract holders of a shared reservoir must create a unit in which they will jointly develop the entire reservoir instead of each developing their own side.

The Talos-led consortium has to date spent almost $350 million on Zama, drilling the successful exploratory well and the three subsequent appraisal wells for full delineation of the field.

According to the company, various statements from Pemex executives and Mexican government officials asserted that Pemex would drill a confirmation well on its contractual area to provide complementary geological data.

However, the well was repeatedly delayed for several years, with Pemex finally cancelling plans to drill a few weeks before being designated by SENER as Zama’s operator.

Talos’ completed FEED study estimates that the project could generate over $30 billion in revenue for Mexico, aside from Pemex’s own share of the revenues and profits via its ownership interest in the field.

Under its proposal, the platforms would be installed in around 550 ft (170 m) of water, the deepest for a fixed facility in Mexican waters. Talos pointed out that it operates multiple platforms at these and greater water depths in US waters.