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The case of the Zama field according to Talos

Talos Energy, an oil and gas company engaged in the exploration, development and production of oil and natural gas properties, described the Zama field case as follows.

Initially, on July 15, 2015, a consortium led by Talos received Block 7 (Block 7 Consortium) with a term of 30 years, starting in September 2015, and extendable for two additional five-year terms.

Talos’ (PI) participation interest in Block 7 is 35% and Talos is the operator.

The Block 7 Consortium made a major discovery in Block 7 after drilling Zama-1 in 2017, less than two years after signing a production sharing contract (PSC) for the block with upstream oil and gas regulator Mexico, the National Hydrocarbons Commission (CNH).

Following the discovery of Zama-1, Talos drilled three additional holes to further evaluate the discovery.

Upon completion of the three-well evaluation program, the company determined that the Zama Field likely extended into a nearby offshore block owned by Petróleos Mexicanos (Pemex).

Zama Field

Then, on July 7, 2020, Talos received a notice from the Mexican Secretary of Energy (Sener) instructing the Block 7 Consortium and Pemex to unify the Zama Field.

The Block 7 Consortium and Pemex engaged a third-party reservoir engineering firm to evaluate the initial working interest of the tranche within the Zama field, which concluded that the Block 7 Consortium owns a 49.6% gross working interest in the Zama Field and Pemex owns 50.4 percent.

On July 2, 2021, Sener notified Talos that it had designated Pemex as operator of the Zama unit.

During the third quarter of 2021, Talos submitted Notices of Dispute to the Government of Mexico regarding decisions made by Sener, including the designation of Pemex as operator of an asset yet to be unified.

On the other hand, the Mexican Hydrocarbons Revenue Law establishes that exploration and extraction activities have a zero rate for value added tax (VAT) purposes; all other activities are taxed at 16% VAT.

The 0% rates only apply to contracts between Mexico and state companies or entities, and do not apply to any other contract entered into with third parties, even in the case of exploration and extraction contracts. The income tax rate in Mexico is 30 percent.

 

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