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Talos Energy LLC Announces Historic Oil Discovery Offshore Mexico

Houston, July 12, 2017 – Talos Energy LLC ("Talos” or the "Company”) as operator, together with its joint venture partners Sierra Oil and Gas S. de R.L de C.V. ("Sierra”) and Premier Oil Plc ("Premier”), is pleased to announce that the Zama-1 exploration well, offshore Mexico, has discovered oil. Talos holds a 35% participation interest with Sierra and Premier holding 40% and 25% participation interests, respectively. 

The Zama-1 well is the first offshore exploration well drilled by the private sector in Mexico’s history. The well, located in 546 feet (166 meters) of water and approximately 37 miles (60 kilometers) from the Port of Dos Bocas, has reached an initial shallow target vertical depth of approximately 11,100 feet (3,383 meters).

Preliminary analysis indicates:

  • A contiguous gross oil bearing interval of over 1,100 feet (335 meters), with 558-656 feet (170-200 meters) of net oil pay in Upper Miocene sandstones with no water contact 
  • Initial gross original oil in place estimates for the Zama-1 well range from 1.4 to 2.0 billion barrels, exceeding pre-drill estimates, some of which could extend into a neighboring block
  • Initial tests of hydrocarbon samples recovered to the surface contain light oil, with API gravities between 28° and 30° and some associated gas

"This is both a historic and significant discovery, and we could not be more proud of the highly skilled personnel from Mexico and the US who have been working together in a safe and efficient manner to make it a reality,” said Tim Duncan, President and Chief Executive Officer.  "We believe this discovery represents exactly what the energy reforms intended to deliver: new capital, new participants and a spirit of ingenuity that leads to local jobs and government revenues for Mexico. We are eager to begin appraising this discovery and drilling more unique opportunities.  The future is bright for offshore Mexico for years to come.” 

"This success is the culmination of a tremendous amount of work by our technical and operations teams in concert with our consortium partners Sierra and Premier,” Duncan continued.  "The team deserves a great deal of credit for their conviction in this opportunity and their leadership in making Talos the first private sector operator to receive acreage and drill a successful offshore exploration in Mexico following the landmark energy reforms of 2014.”

The well spud May 21, 2017 utilizing the Ensco 8503, a moored floating drilling rig. The Company is currently setting a liner to protect the discovered reservoirs prior to drilling deeper exploratory objectives to a total vertical depth of approximately 14,000 feet (4,267 meters). There are no plans for immediate well testing. Further evaluation will be required to calibrate the well with the existing reprocessed seismic to determine future plans and optimal follow up locations to define the extent of the discovered resource.

During 2015, the Company, together with its consortium partners Sierra and Premier (the "Consortium”), executed two production sharing contracts ("PSCs”) with Mexico’s upstream regulator, the National Hydrocarbons Commission, for Block 2 and Block 7. The PSCs were awarded to the Consortium during the first tender of Mexico’s oil and natural gas fields in over 80 years. Block 2 and Block 7 are located in the Sureste Basin, a prolific proven hydrocarbon province, in the shallow waters off the coast of Mexico’s Veracruz and Tabasco states, respectively. Block 2 and Block 7 contain approximately 162,904 gross acres with numerous high impact prospects in well-established and emerging plays.

ABOUT TALOS ENERGY LLC

Talos is a technically driven independent exploration and production company focused on the exploration, development and acquisition of oil and natural gas properties primarily in the Gulf of Mexico Developed Deepwater and Shelf and on the Texas and Louisiana Gulf Coast, with year-end net proved reserves of over 100 million BOE and production of approximately 30,000 BOE/day net to the Company’s interest. During 2015, we leveraged our technical and operational expertise in the Gulf of Mexico and expanded our acreage position into two shallow water exploration blocks off the coast of Mexico. The Company’s website is located at www.talosenergyllc.com.


CONTACT: INQUIRIES OF THE COMPANY


Houston

Brian Kennedy

+1.713.353.5402

brian.kennedy@fticonsulting.com


Mexico City

Pablo Zárate

+52.1.55.4107.9795

pablo.zarate@fticonsulting.com

 

Zama Discovery FAQs


Operational Information

1. Who is the Operator?  Talos Energy

2. What is the current status of the well? Currently Talos is setting a 9 7/8” liner to protect the discovered reservoirs. Once this has been completed, Talos will begin drilling deeper objectives.

3. What are the key dates for the operation? The well was spudded May 21, 2017 and the objective was initially reached on July 2, 2017. The total days spent to drill and evaluate the well was 55.

4. What rig drilled this well? The ENSCO 8503 is a moored floating drilling rig.


Geological and Resource Information

1. What has been discovered to date? Over 1,100 foot [335 meter] gross contiguous pay section was encountered in the main Upper Miocene objectives, with net pay of approximately 660 feet [200 meters].  The rock properties appear to be of excellent quality.  P90 and P10 gross OOIP calculations currently range between 1.4 and 2.0 Billion BOE, including a portion that possibly extends off the block. This estimate is on the high end of our pre-drill estimates.

2. What age is the discovery? Upper Miocene

3. What type of hydrocarbons were discovered? Zama contains light oil, with API gravities ranging from 28 to 30 with some associated gas. 

4. Have resources already been discovered on Block 7? No; in contrast to the developments at Amoca and Hokchi, which were awarded in Round 1.2, Block 7 was a true exploration effort, as there were no wells ever drilled on or near the block. The closest well to the Zama prospect is a dry hole, approximately 20 km away. 


Forward Plans / Capex & Timing

1. What is next for this well? Once casing is run and cemented across the discovered reservoirs, Talos will begin drilling to test deeper objectives by the end of July and then suspend the well for future utility.

2. When will Talos begin appraising the discovery? Talos and its partners will begin the process of analyzing the data from this well in detail to determine the next appropriate steps and then weigh those options against other opportunities on Block 7. We expect an active drilling program in 2018.

3. When will Zama begin producing? At what rates will it produce? At this stage, it is too early to know the first production date or peak production rates, as significant appraisal and engineering and design work must be done first. Typical timeframes for discoveries in this water depth is three to five years after FID, though many factors outside the control of the consortium will determine the actual outcomes.  However, getting to the FID point will be our top priority.

4. How much capital will the consortium invest in developing Zama? Until further appraisal wells are drilled, it is too early to determine the development capital required for Zama, including the number of wells to be drilled, platforms to install, or workers to hire – but it will be a significant project.

5. How many workers will be employed by the Zama discovery? See question 4.


Other Exploration Opportunities

1. How big is Block 7?  Block 7 is over 122,000 acres.  The consortium also owns Block 2 from Round 1.1, which is over 48,000 acres.  The consortium has reprocessed the 3-D seismic on both blocks as it calibrates the Zama discovery to other opportunities.

2. Are there other opportunities on Block 7? The discovery at Zama makes a number of other prospects on the block, both shallow and deep, look attractive. The consortium will be working with the government to modify the existing exploration plan and gain the necessary permits to drill those opportunities in the future.

 

Fiscal Terms

1. What is the profit oil to the Mexican government in Block 7?  The Mexican government will receive 68.99% of the profits on the oil, once the consortium recovers its capital and operating expenses. Additionally, while the royalty to the Mexican government is variable, at a $65/bbl oil price, the government would receive 10% of the revenues, before cost recovery and profit oil. There is no royalty on natural gas until the price exceeds approximately $5/mcf.

2. Has the consortium satisfied its Minimum Work Program commitment? Talos will be working closely with the CNH to deliver all the data from the Zama well as soon as possible. In doing so, the Consortium expects that it will have satisfied its Minimum Work Program commitment offered in the Round 1.1 bid. 

3. How long is the Exploration Period of the PSC? The initial term of the Exploration Period is four years, but the consortium has the option to extend the Exploration Period by two years with the commitment of drilling another well on the block.

4. How much of the block has the consortium preserved with this well? Assuming the MWP has been satisfied, the consortium will only relinquish a portion of the block at the end of the four year term; it should also reasonably expect, with the depth of other opportunities on the block, to receive a two year extension of the Exploration Period.





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