Talos Energy has hit big with the first pure exploration well drilled by a private operator off Mexico, a find being called significant not just for its billion-barrel volumes but as a key step towards fulfilling the promise of the country’s energy reforms in the upstream sector.

The US independent partnered with Mexican private equity firm Sierra Oil & Gas and UK-listed Premier Oil to become the first consortium to win exploration blocks in the country’s inaugural Round 1.1 in 2015.

Two years later their first probe, Zama-1, logged up to 656 feet of net pay in a gross oil-bearing interval of 1100 feet and was drilled in 546 feet of water by the moored floater Ensco 8503.

In-place resources are estimated by Talos at between 1.4 billion and 2 billion barrels, ahead of pre-drill estimates, while Premier couched the figure as “well in excess” of 1 billion barrels, with resources potentially running into a neighbouring block.

Talos knew that as a small company it had to move early if it wanted to try its hand at exploration in Mexico.

The company credits both the country’s post-reform hydrocarbon policy, as well as the diligent efforts of its geologists and geophysicists, in sniffing out the ultimately hydrocarbon-rich Upper Miocene fairway.

“It’s just one of those rare moments where you have an idea of what something could be… and it unfolded exactly like that story,” Talos chief executive Tim Duncan told Upstream after the find was announced on Wednesday.

According to Wood Mackenzie, in addition to the historic Mexico context, the find was among the biggest shallow-water discoveries in the world in the past 20 years.

“The Zama discovery by Talos is the most important achievement so far of Mexico's Energy Reform,” said senior Latin America analyst Pablo Medina.

“On top of this, Zama is the first find by a private company in Mexico in almost 80 years."

Mexico’s National Hydrocarbons Commission regulator also lauded the size and “importance” of the find.

“We believe this discovery represents exactly what the energy reforms intended to deliver — new capital, new participants and a spirit of ingenuity that leads to local jobs and government revenues for Mexico,” Duncan told Upstream.

The discovery was also a rare bright spot for a global exploration sector that has been battered by low oil prices, reduced activity and a recent string of lacklustre wildcats, with analysts calling it “major”, “significant” and “very positive” for the companies involved.

Premier Oil shares were trading up around 30% in London following the news, while Tudor Pickering Holt also marked the news as a positive read for Riverstone Energy, the private equity parent that invests in both Talos and Sierra. Talos operates with a 35% share, with Sierra on 40% and Premier on 25%.

BMO Capital Markets predicted recoverable volumes of about 400 million barrels, while Tudor Pickering Holt ascribed a value of $850 million, assuming recovery of 25% and value of $2 per barrel.

“This will help investors to remember that investing in E&P is not only about making a directional bet on oil price,” GMP FirstEnergy said in a note.

Next, the company will take about a month to drill to a deeper target at 14,000 feet, after which the rig will return to the US Gulf for work on a company project there.

Appraisal is set to follow next year, and there is still evaluation to be performed on the discovery expected to continue through 2017.

That said, “you’d be hard-pressed not to call it commercial,” Duncan said of the discovery.

“I think you’ll see us talking about a (final investment decision) and an infrastructure decision quickly after 2018.

"It’s shallow water, so I think three to five years after a final investment decision you can expect production.”

While the company is keeping all development options on the table and Mexico has used large floaters for shallow-water discoveries in the past, Duncan reckons there is both sufficient interest in midstream activity as well as hydrocarbon potential to merit new pipeline infrastructure and fixed facilities.