Mexico’s Biggest Private Oil Find Will Be Operated by State-Owned Pemex

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Mexico’s energy ministry has designated Petroleos Mexicanos as the operator of the country’s largest oil discovery by private companies, in the latest sign of the government’s nationalist approach to the energy industry.

The Zama field, discovered in 2017 by a private consortium led by Talos Energy Inc., will be operated by the state-owned producer, according to a statement by Talos on Monday. The resolution ends a long-standing conflict between Pemex, as the state company is known, and the Houston-based producer over the field in Mexico’s Campeche Bay, which contains as many as one billion barrels of oil equivalent.

Talos said it was “very disappointed” with the decision and will explore “legal and strategic options” regarding Zama. The company added that the energy ministry had informed Talos of its “sudden” decision only three days after the driller received a letter directly from Pemex arguing for operatorship. Talos shares fell more than 8% on Tuesday after the announcement.

Mexico’s Biggest Private Oil Find Will Be Operated by State-Owned Pemex

The dispute over Zama has been dragging on for years after it was discovered that the field shared the same reservoir as one belonging to Pemex. Many have viewed it as a bellwether for Mexico’s energy industry, potentially setting a precedent for the state oil behemoth to lay claim to other private companies’ discoveries in the country.

In 2018, the two parties signed a preliminary agreement to share information and undertake a unification of the joint area.

In May, Talos announced that Pemex had the majority share of Zama, with 50.4%, citing a study commissioned by both parties. Talos had initially said that the Houston-based company and its partners held a 59.6% stake in the shared reservoir, based on an independent study by Netherland, Sewell & Associates last year. Talos’s partners in the consortium are Wintershall DEA and Premier Oil Plc.

New Reality

The decision to rescind Talos’s operatorship of Zama is indicative of the new reality for international and private oil companies under the government of President Andres Manuel Lopez Obrador. His government has sought to roll back the 2013-2014 energy reforms that opened Mexico to private drilling, and wants to return much of the energy sector to Pemex. One of his first moves as president was to suspend new crude auctions, which had lured the world’s biggest oil companies to Mexico.

Major producers that once flocked to the country are now considering other options, and the decision to award Zama operations to Pemex will create more tension with the U.S. over the North American trade deal, said John Padilla, managing director of consultancy firm IPD Latin America.

“Everyone was waiting to see what would happen” with this decision, he said in a phone interview. “It will put increased pressure on the U.S. to become much more vocal. That’s precisely what many companies are going to take a look at.”

A further concern is whether Pemex has the resources and skills to operate the field, said Padilla.

So far, Talos has undertaken the full investment while Pemex has yet to drill a single well after it canceled plans to drill an appraisal well in June. And its safety record is under question following a fire near Pemex’s Ku-Maloob-Zaap offshore platform complex on Friday, sparked by a gas leak.

“It doesn’t make Mexico and Pemex look good,” Padilla said. “Following the accident of Ku, its only going to raise further questions of safety, but also their capability to manage a type of project in substantially deeper water than anything they’ve ever done, and a formation in which they’ve had no successful track record in.”

Spokespeople from Mexico’s energy ministry, Pemex and Talos didn’t respond to requests for comment.

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