Talos Disappointed as SENER Chooses Pemex to Operate ZAMA Oilfield

Talos Energy Inc. (TALO) has received a notification from Mexico’s Ministry of Energy (SENER) stating that Petróleos Mexicanos (Pemex), the Mexican state-owned petroleum company, has been designated to operate the 700 million barrel Zama oilfield.

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Three days ago, Talos received a letter from Pemex arguing for operatorship of the Zama oilfield.

Shares of Talos Energy, an offshore oil and gas company focused on the exploration and production of oil and natural gas along the U.S. Gulf Coast and the Gulf of Mexico, have jumped 81% over the past year.

Notably, Talos was chosen as the first private operator in Mexico when it was awarded Block 7. The company’s drilling efforts at the exploratory well resulted in the discovery of the Zama field in 2017. (See TALO stock chart on TipRanks)

Following the discovery, TALO continued to invest in its exploration work and drilled three more wells. TALO has significant experience in operating in the Zama region and has maintained a superior track record in its operations.

The company said that it was very discouraged by the unexpected decision meted out by the ministry.

According to the National Hydrocarbons Commission (CNH), Zama requires a total investment of $700 million, and Talos has already committed more than $100 million.

Besides the investments in Zama, TALO has also worked towards its development over the past six years, in sync with the goals of the Mexican economy.

The company is determined to evaluate all legal and strategic alternatives to maximize value for its shareholders from its Zama investment.

In May, Talos expressed concerns over the third-party analysis that said that the Block 7 consortium led by Talos held 49.6% of the gross interest in Zama whereas Pemex held 50.4%.

In a company press release, TALO’s CEO Timothy S. Duncan said, “As you will recall, Talos engaged Netherland, Sewell & Associates to prepare an independent evaluation last year which concluded that the Block 7 consortium holds 59.6% and Pemex holds 40.4% of the gross interest in Zama, respectively. Regardless of the ITP established in the final UUOA, we expect that the true percentages will ultimately be realized through the re-determination process, which is a standard component of any unitization agreement and a global best practice, and other factors.”

Northland Securities analyst Subash Chandra recently maintained a Buy rating and the price target of $22 (36.7% upside potential) on the stock.

Chandra expects TALO to report a loss of $1.49 per share for the second quarter of 2021.

Overall, the stock has a Strong Buy consensus rating based on 3 unanimous Buys. The average Talos Energy price target of $19.67 implies 22.3% upside potential from current levels.