Talos Energy completes independent resource evaluation of Zama discovery

Talos Energy has announced the finalization of the third-party contingent resource evaluation of the company’s globally recognized Zama discovery commissioned from Netherland Sewell. Talos is the operator of Zama, located offshore 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.

Key highlights of the Netherland Sewell contingent resource evaluation include:

• NSAI’s “Best Estimate” of the 2C gross recoverable resource estimate is approximately 670 million BOE, which is near the high end of the company’s previously guided range;
• NSAI estimates 60% of the total resources of Zama are located on Block 7 in the 2C case. As previously disclosed, the Zama reservoir extends into the adjacent block to the east, owned by Pemex and, therefore, is subject to unitization between the consortium and Pemex;
• NSAI’s “High Estimate” of the 3C gross recoverable resource estimate is approximately 1,010 million BOE, exceeding the high end of the company’s guidance range; and
• High-quality oil accounts for approximately 94% of total resource estimates in both 2C and 3C cases. API gravities average approximately 28 degrees.

Talos engaged Netherland Sewell to complete an independent study following the successful 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 over 1,400 ft of whole core samples, an extended flow test, 185 pressure samples, 60 physical oil samples and 28 well logs. The resource evaluation prepared by NSAI will be the technical basis for “Proved and Probable” reserves to be booked upon the final investment decision (FID).

“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,” Timothy Duncan, Talos President and Chief Executive Officer, said. “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.”

The Zama discovery lies beneath both the consortium’s Block 7 area and Pemex’s block and is thus subject to unitization. On 9 December 2019, the consortium presented a formal notice (Aviso) to Mexico’s Ministry of Energy (SENER) providing technical evidence of the shared Zama reservoir. This required filing marked a significant 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. 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 consortium. Once the CNH confirms the shared nature of the reservoir, SENER would then instruct the consortium and Pemex to present a Unitization Agreement, which is currently being negotiated.

The consortium has done substantial work planning the expected development of the shared reservoir, drawing on Talos’s extensive operating track record in more than 500 ft (approximately 150 m) of water. The preliminary steps of Front End Engineering and Design (FEED) – or pre-FEED – have been completed, and early FEED work has begun to develop the detailed engineering plans for Zama. The development will include two fixed production facilities capable of handling a combined 150,000 barrels of oil per day, plus associated gas. Zama is located in approximately 550 ft of water (approximately 168 m), which would make the Zama platforms, once in place, the deepest production platforms ever installed in the history of offshore Mexico. However, five of the 31 manned facilities currently operated by Talos in the US Gulf of Mexico are located in water depths greater than 550 ft (168 m).

“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,” Mr Duncan said. “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.”