Mexico: Significant Oil Discovery Increases Industry Momentum
Meet The Law
Mexico's increasingly lucrative hydrocarbons industry has gathered momentum through the fifth largest global oil discovery since 2012. A joint venture led by Houston-based Talos Energy made the discovery in a shallow-water field in southeast Mexico (the Sureste Basin). The field, known as Zama-1, is estimated to contain 1.4bn - 2bn barrels of oil and is the first find by a private company in Mexico in almost 80 years, since before the nationalisation of Petróleos Mexicanos ("Pemex").
Talos, along with Mexico's Sierra Oil & Gas and the UK's Premier Oil (the "Consortium") won Zama-1 as part of Mexico's Licensing Round 1.1 in July 2015, staving off three other bids from international oil and gas majors in what was otherwise a disappointing day for the newly-reformed industry. In the joint venture, Talos acts as operator and holds a 35% stake, while Sierra and Premier hold 40% and 25% stakes respectively.
Under the previous oil and gas legislative framework, joint ventures were only permitted to provide services to state-owned Pemex, but the new licensing regime allows international oil companies to partner in order to meet the minimum financial or E&P expertise thresholds. Please see our previous Law-Now for more information on the thresholds.
Successful bidders in Round 1.1 were awarded Production Sharing Contracts ("PSC"), with one template for individual bidders and one for consortia. Under the terms of the PSC, the Consortium must provide quarterly reports to the Mexican Hydrocarbons Commission and comply with various other work programme and budgetary requirements.
Sierra stated that, under the terms of the PSC for the Zama-1 block, the Mexican government will receive a 68.99% profit share from every barrel produced. Across the whole project this could amount to over 80%, including taxes and fees.
Mexico's oil and gas licensing reform experienced a slow start. In July 2015, at the auction in which the block containing Zama-1 was won, the Talos-led joint venture was the only successful bidder. It took just two of fourteen available fields. Subsequent licensing rounds have proven far more popular, particularly deepwater Round 1.4 (which attracted several international supermajors), and discoveries such as this are likely to raise the profile of the licensing rounds further still.
Ishbel Mackenzie is a contributing author.