This week’s Interview of the Week is with Timothy Duncan, President and CEO of Talos Energy, where we discuss the company’s historic Zama discovery in Block 7. Talos Energy is a Houston-based E&P company, specializing in asset optimization on both sides of the Gulf of Mexico.
Q: How is Talos capitalizing on its experience in the US side of the Gulf of Mexico to expand its portfolio in Mexican waters?
A: Talos has honed its exploration skills in the US Gulf of Mexico for decades and the results of that process are achievements like the Zama discovery. The successes, and even failures, that we have had in the past on the US side fuel our ability to continue to find and develop material discoveries like Zama. Our portfolio of prospects in Mexico gives us a richer, more diverse corporate portfolio that will allow us to optimize capital allocation, which is the key to building value in the upstream oil and gas industry. Mexico gives us a range of prospects, geological risk and production time frames to choose from.
The key advantage of being a first mover is having less initial competition, which enabled Talos to secure these incredible opportunities in Block 7 and Block 2. Had we waited for even one year to enter the Mexican upstream space, we would not have been able to compete with many of the current players who have much lower cost of capital.
Q: What capabilities does Talos bring as an operator into its consortium with Sierra Oil & Gas and Premier Oil?
A: With the level of success that we have been fortunate to have so far in Mexico, we have shown everyone that Talos is a partner that can contribute significantly to any aspect of the upstream sector. From prospecting to drilling to governmental relations, Talos has demonstrated the ability to create value in Mexico and the US. Very little of our process or technology involves intellectual property or methods unknown to the rest of industry. What Talos brings consistently, though, is an entrepreneurial spirit, a focus on excellence and a strong sense of urgency. These values truly power our achievements in Mexico.
In our role as operator, Talos takes the lead in all aspects of the consortium, from geology and geophysics to reservoir engineering, legal and commercial negotiations, drilling operations and field development planning. Our partners certainly contribute with their specific skills and a wide range of experience, and all of that comes together to allow us to develop such an important discovery.
Q: How will the merger between Talos Energy and Stone Energy impact Talos?
A: With the merger between Talos Energy and Stone Energy, our company has acquired more scalability for its operations and a stronger balance sheet to position itself as a partner of choice on both sides of the Gulf of Mexico. We hope to leverage that position not only into asset deals but potentially also other corporate transactions with companies looking for the right partner they can trust to execute the program they have begun.
Q: What led to the significant discovery in Zama-1?
A: The key to success at Zama was to do our homework ahead of time. That started with developing a reprocessed seismic dataset that focused on the Lower Pliocene through the Miocene regionally. Once we had a good handle of the regional and then local structural picture, then we could make some well-educated estimates of the pore pressures that would be encountered in the drilling of the well. In the execution of the well, our pore pressure estimates turned out to be very helpful in safely drilling a sparsely-drilled new area.
Q: How does the 1.4-2 billion boe discovery in Zama-1 impact Talos’ reserves portfolio and its future activities in Mexico?
A: At this moment, the oil discovered at Zama is classified as a contingent resource instead of a reserve. Once a final investment decision has been completed and the development plan has been approved by the government, these resources will migrate into reserves and will have a significant impact on Talos. The biggest impact will be the cash flow that will enable further growth of the company.
The Zama discovery did not change the original workplan for the block; we had always envisioned drilling Zama and using a discovery as a hub for future developments, both inside and outside the block. Besides the first-mover advantage that Zama gives us in the area, it demonstrates the validity of our amplitude-based approach to exploration in that area and proves the potential of significant new areas and plays in the basin.
We see some interesting geological and geophysical relationships between Block 7 and Block 2, but we continue to believe that Block 7 validates our approach to exploration in both areas in the Miocene and Pliocene intervals. Given this information, we are encouraged by what we see in Block 2 and expect to begin drilling there soon.
Talos is intently focused on appraising the Zama discovery in 2018, continuing into 2019. To accomplish this, Talos is working with PEMEX and the government to get to a final investment decision, and ultimately first oil, as soon as possible.
Q: What is the role of Talos Energy as a member of AMEXHI?
A: Talos serves on the board of AMEXHI and sees AMEXHI as a key organization in the development of the upstream oil and gas sector in Mexico. It has a critical role in allowing the government to interact with industry in a transparent way. AMEXHI already has demonstrated how it can leverage the strengths and expertise of its members to enrich the regulatory and policymaking processes in Mexico, most notably in the development of the critical unitization guidelines in late 2017.
Q: In your opinion, what are the remaining legal, fiscal, operational and technical challenges operators face in Mexico?
A: Generally, things have gone better than we could have expected. In our view, one of the most important efforts the Mexican government can make in the near future is to continue to help PEMEX reach its ultimate potential by removing many of its institutional obstacles and help it streamline its decision-making process. With a stronger, more entrepreneurial PEMEX, the entire industry would grow and flourish much more quickly. Other than PEMEX, Mexico needs to continue to strengthen its supply chain and service company capabilities to enable world-class operating performance in the country.
Q: How can Mexican service companies become a strategic ally of Talos in the Gulf of Mexico?
A: The best way for a Mexican service company to work closely with Talos is to consistently and reliably provide industry best practices with accountability and an innovative spirit. Talos values partners who are unafraid to continually bring their best ideas to the table and break from traditional local practices to create outstanding results. Anyone who wants to work closely with Talos should never tell us, “that is the way we have always done it.”
This is an excerpt from the 2018 edition of Mexico Oil and Gas Review. If you want to get all the information, plus other relevant insights regarding this industry, pre-order your copy Mexico Oil and Gas Review or access our digital copy.
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