Bud's Offshore Energy (BOE)

As I understand it:

1. The Zama field, with estimated reserves of ~700 million barrels, has a common reservoir that underlies Talos Block 7 and a contiguous Pemex block.
2. Talos drilled the discovery well and 3 delineation wells. Pemex has not drilled a well.
3. The companies were unable to concur on the terms of a unit agreement.
4. A third party study for the purpose of initial tract participation, determined that Pemex has a 50.4% share of the reserves. Talos has criticized this study. A previous study had determined that the Talos group has 59.6% of the reserves.
5. On July 2, 2021, the Mexican Ministry of Energy (SENER) selected Pemex as operator. Talos is disputing that decision.

Thoughts:

• One of the few energy policy mistakes that the US has not made is the formation of a national oil company. There have been attempts, most notably the 1975 Senate proposal to establish the Federal Oil and Gas Corporation or FOGCO. (I’m not making this up!).
• When Mexico’s national oil company is one of the competitors, SENER shouldn’t be determining the unit operator. Instead, an arbitration or independent review process should be established.
• Pemex appears to have been largely a Zama field passenger to date. The discovery well and all delineation wells were drilled by Talos. If the “rule of capture” applied, Talos would be proceeding with development and Pemex would be negotiating with very little leverage.
• If Mexico wants to discourage foreign investment in their offshore sector, this is a good way to do it.

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