It’s been a few years of soul-searching for Tim Duncan, the CEO of Talos Energy. The Houston-based oil company has long specialized in the shallow waters of the Gulf of Mexico off Louisiana and Texas. Yet the oil bust that began in 2014 has made the region deeply unpopular. Facing dwindling prospects for big new finds offshore, companies have instead flocked to the Permian basin of west Texas, where layer upon layer of oil-saturated rock promises decent returns even at stubbornly low oil prices.
“We resisted the temptation to join the land race onshore,” says Duncan. But Talos did go somewhere new: Mexico.
In 2015 they hooked up with U.K.-listed Premier Oil and Sierra Oil & Gas to bid for one of the first prospects offered up by Mexico under the historic oil sector reforms spearheaded by President Enrique Pena Nieto. The grand hope: that the prolific oil trends in U.S. waters extended south of the border.
Earlier this year the partners spudded the Zama-1 well, the first in 80 years not drilled by state monopoly Pemex. Sure enough, they found as much as 2 billion barrels of oil trapped in a layer of porous Miocene-era sandstone hundreds of feet thick. Zama has turned out to be “multiples of what we thought,” says Duncan, similar in size and quality to fields that were discovered in the U.S. gulf back in the late 1970s and early ‘80s.
Sitting under just 550 feet of water (one tenth the depth of recent deepwater discoveries on the U.S. side), Zama will be relatively cheap to develop, and highly profitable even at $45 oil. “It’s too big and too shallow to be concerned about the economics,” says Duncan, 44. Oil consultancy WoodMackenzie says Zama is one of the 20 biggest new fields discovered in the past 2 decades.
Duncan won’t speculate on eventual production volumes, but fields of this size commonly produce in excess of 100,000 barrels per day. After the consortium recoups development costs, Mexico will receive royalties and taxes totalling about 80% of all oil and gas produced — to be worth more than $1 billion a year. Premier Oil says they expect commercial production from Zama in about 5 years.
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