Given the current objective for the Mexican government in rapidly reverting Mexico’s oil production decline, Zama should, in principle, be a priority field for development.

The initial capital cost estimate is of $1.8 billion to $2 billion range, considering fixed platforms, dry wellheads and Mexico’s shallow water depth should be relatively straightforward. As an operator, Talos Energy (Talos) has established offshore experience and will be well suited to operate Zama once a unitisation agreement is reached.

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Figure: Planned crude oil development by key investments. Credit: GlobalData.

During 2019 Pemex has been focusing on 22 priority fields, of which 18 have approved development plans. The development of these 22 new fields could, in principle, add at their peak approximately 700,000 barrels per day (bpd) to Mexico’s crude oil production and are the cornerstone for reaching the target of 2.4mmbd in 2025.

However, only two fields, Ixachi and Xikin, have started development and are producing as of December 2019. Indeed, Pemex’s awarding strategy of using a closed bidding process with pre-selected smaller local services providers is not producing the expected results. It is claimed that some of these local providers do not have the required expertise in managing large integrated development projects. As a result, these fields will most certainly suffer delays in their start date and their aggregated peak will possibly be less than the expected 700,000bpd.

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Without an agreement on the unitisation and operatorship of Zama, its first production date will be delayed and the field will not contribute with new production helping revert the domestic oil decline. Currently, the consortium has finalised the independent resource evaluation of Zama and is continuing the unitisation discussions while simultaneously moving forward with its front-end engineering and design (FEED) work in anticipation of a 2020 FID milestone.

Looking among Mexico’s top priority fields for development in shallow water, Zama has the lowest capital expenditures $3.87 per barrels of oil equivalent (boe) with the highest estimated recoverable reserves of 641 million barrels of oil equivalent (mmboe).

Besides the potential delay in declaring an FID for Zama, this situation will be a benchmark on the manner in which Pemex can lead future negotiations in joint developments and to how the government values the role of international operators.