Talos Confirms Zama Resources

January 7, 2020

(Photo: Talos Energy)
(Photo: Talos Energy)

Talos Energy, upon completion of third-party contingent resource evaluation of the company's Zama discovery offshore Mexico, said best estimates are near the high end of its previously guided range, and noted it aims to achieve a final investment decision (FID) for the development in 2020 and first oil in 2023.

One of Mexico’s largest oil discoveries of the last two decades, the Zama field is believed to hold 670 million barrels of recoverable oil, according an independent evaluation by oil and gas reserves auditing and consulting firm Netherland, Sewell & Associates, Inc. (NSAI), Talos said in an announcement on Tuesday.

Talos is the operator of Zama, located in 168 meters of water in the southern Gulf of Mexico, and holds a 35% working interest in Block 7 in a consortium with its partners Sierra Oil & Gas, a Wintershall DEA company, and Premier Oil.

Houston-based Talos said NSAI's "best estimate" of the 2C gross recoverable resource estimate is approximately 670 million barrels of oil equivalent (MMBoe), which is near the high end of the company's previously guided range.

The Zama discovery lies beneath both the consortium's Block 7 area and Petróleos Mexicanos' (Pemex) block and is thus subject to unitization, and NSAI estimates 60% of the total resources of Zama are located on Block 7 in the 2C case.

NSAI's "high estimate" of the 3C gross recoverable resource estimate is approximately 1,010 MMBoe, exceeding the high end Talos' guidance range.

High quality oil accounts for approximately 94% of total resource estimates in both 2C and 3C cases. API gravities average approximately 28 degrees.

Following the 2019 appraisal of the Zama asset, NSAI used a full geological data set collected from four successful reservoir penetrations, including a down-dip test to confirm an oil-water contact. In addition, the data set included more than 1,400 feet of whole core samples, an extended flow test, 185 pressure samples, 60 physical oil samples and 28 well logs.

The resource evaluation will be the technical basis for Proved and Probable reserves to be booked upon the FID.

Talos President and Chief Executive Officer Timothy S. Duncan said, "It was important to have Netherland Sewell conclude their independent contingent resource report by year-end 2019, and we are happy to see that the results of their evaluation exceed our previously guided resource range. With this step completed, we will continue to advance the project engineering and design work while also finalizing unitization procedures. As we complete these activities in the coming months, we look forward to another year of progress for Zama in 2020."

On December 9, 2019, the Zama partners presented a required formal notice (Aviso) to Mexico's Ministry of Energy (SENER) providing technical evidence of the shared Zama reservoir and marking a step to move the Zama project as soon as possible to FID, and, eventually, to first oil, which is expected within three years after FID, Talos said. The filing of the Aviso will move the unitization process forward by allowing SENER to seek the technical opinion of the National Hydrocarbon Commission (CNH) on the data presented by the Zama partners. Once the CNH confirms the shared nature of the reservoir, SENER would then instruct the consortium and Pemex to present a Unitization Agreement, which Talos said is currently being negotiated.

According to Talos, the consortium has done substantial work planning the expected development of the shared reservoir, including completed preliminary steps of front end engineering and design (FEED) – or pre-FEED – have been completed, and the beginning of early FEED work to develop the detailed engineering plans for the project. The development will include two fixed production facilities capable of handling a combined 150,000 barrels of oil per day, plus associated gas.

Duncan said, "Talos and its partners in the consortium have made great progress in meeting the milestones required to keep our world class Zama discovery on pace for a 2020 FID if we can conclude unitization discussions soon. Doing so will allow us to establish first oil in 2023.

"The Zama project alone could generate approximately $28 billion of fiscal revenue to Mexico's government – in addition to Pemex's share of Zama – and will drive a significant amount of local job creation and positive social impact across the supply chain of this project. We believe it is in everyone's best interests to maintain the urgency in bringing this project forward, and ensuring it is done so in an efficient way that draws from international best practices is critical to achieve these objectives."



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