Mexico oil reform advances with first private well in 80 years

Alex Nussbaum 5/23/2017

NEW YORK (Bloomberg) -- For the first time in almost 80 years, a private company has sunk a new offshore oil well in Mexican waters -- the latest step in the country’s drive to allow foreign competitors back into its energy markets.

A joint venture of London-based Premier Oil Plc, Houston’s Talos Energy LLC and Mexico’s Sierra Oil & Gas began drilling the well May 21, Premier said in a statement Monday. It’s the first offshore exploration well to be launched by anyone other than state-run monopoly Petroleos Mexicanos since the country nationalized its oil industry in 1938.

The Zama-1 well, in the Sureste basin off the state of Tabasco, holds an estimated 100 million to 500 MMbbl of crude, Premier said in the statement. Drilling is expected to take up to 90 days to complete, at a cost to Premier of $16 million. The three companies won rights to the prospect in 2015, in the first round of bidding after Mexico voted to open its ailing oil industry to private investment.

“As the first non-Pemex well to be drilled since the opening up of Mexican waters as part of the country’s energy reform process, this well will be keenly watched by the industry," Elaine Reynolds, an analyst at London-based Edison Investment Research Ltd., said in a note to clients Tuesday. The structure of the basin suggests the project has “a high geological chance of success."

Given the implications for the Mexican market, Zama is “one of the most interesting exploration wells to be drilled in the sector this year," said Charlie Sharp, an analyst at Canaccord Genuity Ltd., in another note.

Closely held Talos is the operator of the well and owns a 35% stake in the venture. Sierra holds 40% and Premier, 25%, according to Premier’s statement.

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