Pemex rejects Talos claim to majority of 670 MMboe Zama field

By Amy Stillman and Lorena Rios on 1/29/2020

MEXICO CITY (Bloomberg) - Mexico’s government-owned oil company just laid claim to most of the country’s biggest private discovery, putting it on a collision course with the U.S. firm that made the find five years ago.

Petroleos Mexicanos Chief Executive Officer Octavio Romero Oropeza said the majority of the giant Zama field is probably the property of the state during President Andres Manuel Lopez Obrador’s daily press conference on Wednesday. The problem is that the U.S. firm Talos Energy Inc. says it has a 60% stake in the discovery it made with partners in 2015.

“In Pemex’s analysis, we consider that we have the largest portion of the field,” said Romero. “Independently of who has what, Pemex will drill exploratory wells to confirm this information.”

The Mexican company is in talks with Talos and the Energy Ministry over the agreement that would see it receive a share of the production from Zama, known as a unitization agreement. He also said he sees production from Pemex’s Asab well, which is adjacent to Zama, starting production in 2021.

Earlier this month, Talos said that 60% of Zama’s total resources are located in block 7, the area that was won in Mexico’s first competitive oil auction by Talos, Wintershall DEA’s local subsidiary Sierra Oil & Gas and Premier Oil Plc, according to an independent study it undertook by Netherland, Sewell & Associates Inc. The evaluation put Zama’s reserve estimate at 670 million barrels of recoverable oil equivalent.

Pemex will need to verify the information after presenting the results of its drilling plan, Alma America Porres Luna, a commissioner of the National Hydrocarbons Commission, said during an energy conference in Mexico City on Wednesday. “What is planned is for Pemex to drill the Asab well and we are waiting for it to be drilled,” she said.

Pemex and the Talos-led consortium are meant to negotiate who will be operator and how revenues will be split, but the decision could be made by the energy ministry if the parties don’t come to an agreement.

The challenges for private oil investment have grown under Lopez Obrador’s administration, which has sought to dial back the energy reforms of the previous center-right government. Under Lopez Obrador, Mexico has sought to strengthen the debt-laden Pemex and suspended competitive oil auctions and joint venture agreements with Pemex that would have allowed it to share the burden of developing Mexico’s oil territory.

Investors have warned that if the Zama unitization agreement isn’t reached it could have reverberations in the oil sector. Premier Oil is seeking to sell its stake in Zama.

International oil companies will do the “bare minimum” of investment on current oil contracts if the outcome of the Zama deal is perceived as negative for the private sector, said Ferris Hussein, a Carlyle Group managing director focused on global infrastructure and energy opportunities, speaking in Mexico City on Tuesday.

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