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Talos receives extension and approval for additional exploration offshore Mexico Block 7

Talos Energy has announced that it has received a two-year contract term extension as well as regulatory approvals for additional exploration activities on Block 7, located in the offshore portion of Mexico’s prolific Sureste Basin. Talos is the operator of Block 7 in a consortium with its partners Sierra Oil & Gas, a Wintershall DEA company, and Premier Oil.

On 4 September 2019, the National Hydrocarbons Commission of Mexico (CNH) granted a two-year term extension under the consortium’s production sharing contract for offshore Mexico Block 7, the first such extension granted to a private company in offshore Mexico. On 9 September 2019, the CNH approved the consortium’s modified exploration plan for Block 7. The extended contract term, in combination with the expanded plan, allows the consortium to evaluate additional exploration prospects on the block in the future following the successful appraisal of the globally recognized Zama discovery that was completed earlier this year.

The consortium has identified multiple potential exploration targets on Block 7, including the Xlapak and Pok-A-Tok prospects, among others, with typical gross unrisked resources ranging between 75-150 million BOE each. The prospects are amplitude-supported oil prospects targeting similarly aged sands as those seen in the drilling campaign related to the Zama discovery and subsequent appraisal. The additional identified inventory is within close proximity of Zama, potentially allowing for significant development cost synergies if successful. Due to the recent high level of activity on Block 7, the consortium has already fulfilled the minimum work commitments that would otherwise be required for extension, and any future exploration activities would benefit from cost recovery mechanisms under the Block 7 contract terms. As a result, the modified exploration plan and related approvals provide the consortium with significant optionality for future evaluation of additional, material exploration prospects within the block. The Block 7 production sharing contract requires the consortium to relinquish approximately half the acreage on Block 7 upon obtaining the two-year term extension, but the Block 7 modified exploration plan, approved by CNH, retains the acreage covering all of the consortium’s identified potential exploration targets.

“The recent CNH approvals have provided Talos and its partners with the flexibility to continue optimizing the potential of Block 7,” Timothy Duncan, Talos President and Chief Executive Officer, said. “The consortium has significantly over-delivered on its commitments under the production sharing contract, and these approvals will give us the opportunity to continue to successfully develop the country’s resources. We are excited about the additional potential of these prospects, all of which could be incremental to our world-class Zama discovery, the first by the private sector in Mexico’s history. Finally, we believe these approvals, in combination with the significant increase in industry activity, are yet another indicator of the tremendous potential of the basin in the future.”

Because the consortium’s Zama asset has already been discovered and appraised, it does not require any extension from the CNH in order to proceed to final investment decision (FID) and thereafter to development. After rapidly completing the Zama appraisal program safely and under budget, the consortium is continuing its Zama unitization discussions with Pemex while simultaneously moving forward with its front-end engineering and design work in anticipation of a 2020 FID milestone.

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