Talos Energy is an example of a classic independent that has a niche, understands its niche and exploits it well. With 85,470 sq km (33,000 sq miles) of seismic in the U.S. Gulf of Mexico and Gulf Coast regions, the company specializes in revitalizing older assets by coupling new technology and additional drilling investment. E&P recently spoke to Talos CEO and president Tim Duncan about the prospect.
E&P: What do you find appealing about these blocks?
Duncan: The variables are the same once you identify the prospect: resource potential, cost, risk and then each company’s return expectations relative to their cost of capital. We might have a higher cost of capital than our global peers but hope to be more efficient. We like the setup of the Miocene-aged traps and how they respond to the geophysics. It is similar to how we have built companies in the U.S. Gulf of Mexico side.
E&P: Since our last article on Talos, has better seismic become available? If so, what are you seeing? What types of reprocessing have you been doing on the older data?
Duncan: We have spent the last year reprocessing the seismic data provided by CNH [Comísion Nacional de Hidrocarburous] as part of the contract, including a reverse time migration effort and a Kirchoff prestack depth and time reprocessing effort, which has provided a significant imaging uplift on our acreage. Due to this uplift we are working with WesternGeco and Ion Geophysical to reprocess additional datasets in shallow water to help tie in more well control to our acreage and look for new opportunities that could become available in future bid rounds or farm-outs.
E&P: Can you provide updates on your progress?
Duncan: Progress has been made on several fronts. Due to the reprocessing efforts we have been able to tighten up our top prospects, and our first well, Zama-1 (which will be the first non-Pemex offshore exploration well in more than 80 years), will spud in the middle of the second quarter, so we are looking forward to that operation. Additionally, we have been able to put an entire portfolio of ideas across the acreage set we have under primary term, which is more than 160,000 acres. It’s a robust portfolio, and by understanding the petrophysical and corresponding geophysical relationships established by the first well, we will be able to high-grade additional opportunities, which could really allow us to build a strong asset base in Mexico and hopefully be an example of what the energy reforms intended. We are also very active in the growing oil and gas community in Mexico, which includes being on the front lines of filing permits and HSE plans, being involved in providing policy feedback, etc. We take the responsibility of being the first operator awarded a license in the reforms very seriously.
E&P: Did you participate in the deepwater bidding? Do you have plans to participate in future rounds?
Duncan: We did not bid in the deepwater rounds since we focused on staying on schedule with our acreage. But it was important to our model, both commercially and geologically, that the sale was active and the block north of us was competitive, and it was. In our view the amount of interest in the bid round and the competitiveness on a block that is geologically on trend with our Block 7 validates our hope that there is tremendous potential offshore Mexico. We will certainly continue to look at opportunities to bid in future rounds.
E&P: What else can you tell us about your future plans for Mexico?
Duncan: The Mexican government has been committed to these reforms by being transparent and trying to encourage participation. Our success starts with a willing government partner. Beyond pushing forward on our acreage and future bid rounds, we hope Pemex, Sener and CNH continue to focus on how to pull more stranded assets to the market. We have noticed there are very attractive assets discovered but maybe not material to Pemex. These assets are waiting on investment and are not creating value without activity, but if they can make it to market in future bid or farm-out rounds, then I think it will cause an already growing industry to accelerate, creating more local jobs and using more of a willing local supply chain. The hope of a growing industry is robust participation, which is what the Mexican reforms need and I think can achieve, and our hope is to be a visible part of the story.
Read the other two regional reports from the April E&P issue: