German oil company DEA Deutsche Erdoel AG is set to get a stake in the giant Zama offshore oil discovery in Mexico through the acquisition of Sierra Oil & Gas, an independent Mexican oil and gas company.
Sierra holds interests in a portfolio of six exploration and appraisal blocks in Mexico, including the world-class Zama discovery made by Talos in July 2017.
DEA’s Chief Executive Officer Maria Moraeus Hanssen said: “The acquisition of Sierra will allow DEA to achieve materiality in the highly strategic and competitive Mexican upstream market and provide us with a high-quality exploration and appraisal portfolio in one of the world’s most sought-after offshore basins, as well as a strong team. The transaction also underlines our confidence in the future of Mexico’s energy industry. Upon completion of the planned merger of DEA and Wintershall, this acquisition will further strengthen Mexico as a core region for the combined company, which will become one of the major players in Mexico.”
Sierra holds a 40% non-operated working interest in Block 7, containing a significant part of Zama, one of the largest shallow water discoveries in the past 20 years globally.
As a whole, DEA says, Zama is estimated to hold 400 million to 800 million barrels of recoverable oil equivalent and expected to start production by 2022/23.
In addition, Sierra owns non-operated interests in five “highly prospective” exploration blocks. Sierra’s exploration blocks cover approximately 9,400 square kilometers in the core part of Mexico’s Sureste basin.
$2 billion investment over five years
DEA, working on its own merger with Wintershall, currently operates the onshore Ogarrio oil field, in partnership with Pemex, and holds interests in exploration blocks in the Tampico Misantla and Sureste Basins. Following the acquisition of Sierra, DEA will hold interests in one onshore production block and ten exploration blocks, including the Zama discovery.
In a separate statement, Sierra Oil & Gas said the combined portfolio is expected to require capital investments of more than 2 billion US dollars over the next five years.
With this agreement, Sierra said, DEA AG commits to participate in the drilling of 9 offshore exploration wells and to the development of Zama, which is expected to provide a significant contribution to oil production growth in Mexico in the near term.
The transaction is expected to be completed during the first half of 2019, subject to regulatory approvals. LetterOne, DEA’s parent company run by the Russian billionaire Mikhail Fridman, will fully finance the transaction.
Juan Manuel Delgado, Country Manager for DEA’s Mexican business, said: ”As a long-term strategic investor with extensive international oil and gas experience, DEA is fully committed to contributing to the development of Mexico’s oil and gas sector. We are excited to work with our joint venture partners in Block 7 on delivering first oil from Zama on an expedited timetable and to being actively involved in unlocking the significant production potential of the Sureste basin.
Ivan Sandrea, CEO of Sierra Oil & Gas, commented: “We are very pleased to have secured an experienced and well capitalized industrial investor that brings valuable technical talent and international know-how into our organization. Our drilling program for 2019, which has taken years to plan, involves three appraisal wells in Zama and four exploration wells in other blocks, making Sierra one of the most active players in Mexico next year.”
Worth noting, the news comes just a day after the operator of the Zama, Talos, announced that the Zama-2 appraisal had started, marking the start of Zama discovery appraisal program, which will consist of three reservoir penetrations, including two wells and one sidetrack.