Talos Energy Inc. and Talos International Holdings SCS have submitted Notices of Dispute to Mexico’s government over decisions taken by Mexico's Ministry of Energy (SENER), including the designation of Petróleos Mexicanos (Pemex) as operator of the yet-to-be unitized Zama oil field.
Talos said the decision is potentially damaging to the company as an investor and as operator of CNH-R01-L01-A7/2015 (Block 7) offshore Mexico, and constitute violations of the 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 notices provide the opportunity for an initial phase of negotiation and consultation between the parties to come to a “fair and mutually beneficial agreement,” and avoid further legal action, including international arbitration, Talos said.
Over the last 3 years, since the signing a pre-unitization agreement, Talos has worked constructively with Pemex and SENER to finalize a unitization and unit operating agreement for Zama field that follows international best practices, it said.
On July 2, Talos was notified by SENER that it had designated Pemex as operator of the Zama unit days after Pemex’s letter to the regulator stating its case for operatorship (OGJ Online, July 6, 2021).
After being awarded Block 7 in Mexico's Round One in 2015, the Talos-led consortium discovered Zama field in 2017. Upon completion of the appraisal program, the technical view was that the Zama discovery constitutes a shared reservoir that extends outside of the boundaries of Block 7 and into the neighboring PEMEX AE-0152-Uchukil block. Under Mexican law, a shared reservoir requires the contract holders of the two blocks to create a unit in which they will jointly develop the entire reservoir instead of each developing their own side.
The Talos-led consortium has invested almost $350 million in Zama, drilling the Zama discovery well followed by three successful appraisal wells. In contrast, Talos said, Pemex delayed for several years drilling a confirmation well on the neighboring contractual area to provide complementary geological data, and ultimately canceled all plans to drill weeks being designated operator of Zama.
Talos said its completed Front-End Engineering and Design study estimates that the project could generate over $30 billion in total revenue for Mexico in addition to Pemex’s own share of the revenues and profits of its ownership interest.
