July 12, 2017 / 6:54 AM / 2 years ago

Premier Oil's major Mexican oil discovery boosts shares

MEXICO CITY (Reuters) - Premier Oil’s shares rocketed as much as 38 percent on Wednesday on news it discovered potentially more than 1 billion barrels of oil off the coast of Mexico, a major victory for Latin America’s No. 2 economy since the historic opening of its energy sector.

Premier, which holds a 25 percent interest in the block alongside Talos Energy and Sierra Oil and Gas, said estimates for the Zama-1 well were in excess of 1 billion barrels, which could extend into a neighboring block.

The news of the discovery, in the first shallow-water offshore exploration well drilled by the private sector in Mexico since the country’s 2014 energy sector opening, sent Premier’s shares rocketing as much as 38 percent on the London Stock Exchange and helped the peso strengthen 0.70 percent to 17.785 per dollar.

In afternoon trading in London, Premier Oil shares were up 34 percent at 61.83 pounds.

The find also hands the government of President Enrique Pena Nieto, which ended state-oil firm Pemex’s decades-long monopoly, a key victory as Mexico prepares to embark on fraught trade, security and immigration talks with U.S. President Donald Trump’s administration.

Premier Oil’s Chief Executive Tony Durrant said the discovery “adds materially” to Premier’s portfolio of assets.

“(The) Zama-1 discovery announcement appears about as material as we could possibly imagine at this early stage,” Jefferies analysts wrote in a note.

The project is jointly owned with Talos Energy, which acts as operator and has a 35 percent stake, and Sierra Oil and Gas which holds the remaining 40 percent.

“The Zama discovery by Talos is the most important achievement so far of the Mexico’s Energy Reform. According to our data, Zama is one of the 20 largest shallow-water fields discovered globally in the past 20 years,” said Pablo Medina, an analyst at industry consultancy Wood Mackenzie.

Talos Energy is currently setting a liner to protect the discovered reservoirs, before drilling deeper to a total vertical depth of about 4,200 meters, Premier said.

Pena Nieto championed the energy reform as a way to reverse an oil output slump dating back to 2004 and to kick-start long-lagging economic growth.

Later on Wednesday, Mexico will tender the latest batch of productive areas in the sixth auction open to private and foreign producers since the energy reform.

Separately, Italian oil firm Eni said on Wednesday it was raising its oil estimate at its Amoca field off Mexico that it won as a production-sharing contract in a 2015 tender, to 1 billion barrels of oil equivalent.

Reporting by Arathy S Nair in Bengaluru and Gabriel Stargardter in Mexico City; Editing by Bernadette Baum

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