U.S. oil firm Talos Energy has filed notices of dispute to the Government of Mexico over decisions taken by Mexico's Ministry of Energy ("SENER"), which awarded the rights to the Zama offshore oil discovery to the Mexican national oil company Pemex.
Talos made a large oil discovery its Zama prospect in its Block 7 offshore Mexico in 2017. It was subsequently determined that the oil field stretched into a nearby offshore block owned by Pemex, setting the stage for the unitization talks on how to share the field to start.
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 two companies failed to reach a deal on how to share the giant Zama field and on who will lead its development, meaning the final decision was to be made by SENER. In July, SENER picked Pemex to run the shared oil find.
In a statement on Friday, Talos said: "These decisions, which include the recent designation of Petróleos Mexicanos ("PEMEX") as the operator of a yet-to-be unitized asset, cause loss or damage to the Company as an investor and as the operator of CNH-R01-L01-A7/2015 ("Block 7") in offshore Mexico. The actions by SENER also constitute violations of the Agreement between the United States of America, 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")."
According to Talos, the notices of dispute provide the opportunity for an initial phase of negotiation and consultation between the parties in an attempt to resolve the controversy.
"If successful, this would avoid the need for further legal action, including international arbitration. Talos will diligently seek a fair and mutually beneficial agreement and will continue to engage in good faith with the institutionally appointed representatives of the Government of Mexico," Talos said.
Talos's President and Chief Executive Officer Timothy S. Duncan said: "Despite SENER's current designation of PEMEX as the operator of the Zama field, we are still hopeful that a negotiated outcome that fully respects the rule of law is achievable. The filing of these Notices of Dispute, along with the concrete, mutually beneficial proposals we have presented to PEMEX and Mexican authorities in the past, demonstrates our commitment to maximize value for all stakeholders, including Mexico.
"We respectfully call upon the Government of Mexico to engage with Talos in meaningful negotiations and consultations considering the full body of evidence regarding the ideal operatorship structure for Zama and the safeguarding of our rights as a foreign investor."
$30 billion in revenue
According to the U.S. oil firm, the Talos-led consortium has so far invested almost $350 million in Zama, drilling the exploratory well that resulted in the discovery of the field followed by three successful appraisal wells allowing for complete delineation of the field.
"The Company's operated efforts between 2017 and 2019 were under budget, ahead of schedule and without any safety incidents. In contrast, despite the statements from PEMEX executives and Mexican government officials asserting that PEMEX would drill a confirmation well on their neighboring contractual area to provide complementary geological data, PEMEX repeatedly delayed the well for several years until ultimately canceling all plans to drill it just a few weeks before SENER designated PEMEX as the operator of the yet-to-be-finalized unit," Talois said.
"Talos has consistently demonstrated its commitment to the optimal development of the field, having advanced a complete Front-End Engineering and Design study, which is now investment ready. Talos 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 their ownership interest in Zama," the company said.
"The platforms that are required to be installed at Zama will be the deepest facilities ever installed in Mexico, at approximately 550 feet (170 meters) of water. Talos is very experienced in these situations and currently operates multiple platforms at these and greater water depths. Talos remains committed to maximizing value for its shareholders from its Zama asset and will continue to explore all strategic and legal options to do so," the company said.