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Pemex doesn't have the funds, capacity or infrastructure required to operate the field, says Larry Rubin. Pemex doesn't have the funds, capacity or infrastructure required to operate the field, says Larry Rubin.

US organization urges Mexico to reconsider decision on Zama oil field

Decision sends a message to investors that there is a lack of legal certainty in Mexico, warns Larry Rubin

A business and community organization that represents United States interests in Mexico has urged President López Obrador to reverse a federal government decision to award control of a huge oil discovery to state oil company Pemex.

The Energy Ministry awarded Pemex the rights to operate the nearly 700-million-barrel Zama field in the Gulf of México, which was discovered in 2017 by a consortium comprising Texas-based Talos Energy, Premier Oil of the United Kingdom and Germany’s Wintershall DEA.

The three companies have already invested US $325 million in the development of the field but in a move described as being close to an expropriation by former hydrocarbons deputy minister Lourdes Melgar, the federal government has seized control of Zama, claiming that just over half of it is on acreage owned by Pemex.

Speaking at a virtual press conference, the president of the American Society of Mexico asserted that the state-owned company doesn’t have the funds, capacity or infrastructure required to operate the field. Larry Rubin warned that the field could be abandoned in the medium term if Pemex takes control of it.

“…[That] would be a loss for the competitiveness of Mexico, not just for Talos, which decided to bet on the country,” he said.

“… It would be a big loss for the country,” Rubin said, adding that the organization he heads believed that the private companies’ right to control the field would be respected.

He called on López Obrador to return the operation rights to Talos and asserted that the government’s decision would send an unequivocal message to investors that there is a lack of legal certainty in Mexico.

“We believe that American investors are here to create jobs and opportunities for small and medium businesses. That’s why we want a stable legal framework and for free enterprise and the creation of opportunities in Mexico to be respected,” the American Society chief said.

Giving Pemex control of the field could even delay Mexico’s economic recovery from the pandemic, said Rubin, who is also a trade ambassador for the Confederation of Industrial Chambers and the Mexico representative of the United States Republican Party.

“… We believe that the best way is to work together on projects that can’t be developed [by one company] alone,” he said.

The likelihood of López Obrador overturning the Energy Ministry’s decision would appear to be extremely slim given that he is a staunch energy nationalist who is aiming to boost Pemex’s participation in an oil sector that was opened up to foreign and private companies by his predecessor. The president previously denied that Pemex was planning to take over Zama after a 2019 report by news agency Reuters asserted as much.

Pemex has more than US $100 billion in debt but claimed last month that it has the financial capacity to operate the field. The state oil company has also said that it has infrastructure near Zama – located off the coast of Tabasco – to receive, store and export crude. However, the depth of the field, at 168 meters, is deeper than most of Pemex’s shallow-water projects in the southern portion of the Gulf of Mexico.

Houston-based energy expert Miriam Grunstein described the decision to give control of the field to Pemex as a political move. 

“They wanted to give Pemex the medal, but it will come at a high cost,” she told Reuters, explaining that Zama’s other stakeholders could take legal action if the field fails to operate successfully under the state oil company’s management.   

Talos – which won the exploration and production rights for the area where Zama is located at a 2015 oil field auction and commissioned an independent study that found that 60% of the deposit was on its acreage – said Monday it was “very disappointed with [the energy ministry’s] sudden decision …”

The company, which has significant experience developing fields at similar depths to Zama, also said it would explore all its legal and strategic options to maximize value for its shareholders.

With reports from El Economista and Reuters 

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