House approves resolution to implement 2012 agreement with Mexico; excludes Cuba

In HR 1613, the House approved on June 27 a resolution that authorized the implementation of the 2012 agreement that had been negotiated with Mexico. The Act amends the Outer Continental Shelf Lands Act by adding a new Section 32 that authorizes the Secretary of Interior to implement the terms of any transboundary hydrocarbon agreement that has been entered into by the President and approved by Congress. It also requires that the President promptly submit any such future agreement to the Congress within 180 days.

This is a good start, as the U.S. has never negotiated a cross-border oil agreement. The reference to the time limit for submission to Congress alludes to the year-long delay in the submission of the agreement with Mexico.

The bill goes off-track in two places: the new provisions would cover Canada, Russia, Bahamas and Bermuda, but specifically exclude Cuba. The future of the Gulf of Mexico (including Cuba’s share) should be guided by a goal of a common standards of commerce, safety and environmental protection; so it makes no regulatory or environmental sense to exclude Cuba.

The bill introduces an exemption from Dodd-Frank reporting requirements from oil and gas activities associated with the exploration and production of oil, gas or minerals. In relation to Mexico, however, there will be no payment of “royalties” at all; as any oil produced in a unitization agreement of a cross-border oilfield will be delivered to Mexico as its proportional share of a common resource.

Such payments would be required only were Mexico to adopt a concession system analogous to that employed to regulated US federal lands and waters. Such a system would be applicable to acreage outside of the border region.

In the drawn-out negotiations that began in 2009, Mexico restricted its agenda to cross-border oilfields, and never acknowledged the policy elephant in the room: the E&P by IOCs beyond the border.

At this point, there is no basis for concern about reporting of payments to Mexico, as there will be none. It’s not even certain that industry will accept the assurances of the negotiated, bilateral framework as constituting a framework for commercial development.


HR-1613

Written by

George Baker

Baker & Associates offers niche-market business and policy intelligence related to Mexico's oil and gas, power and chemical industries. Over 1,000 reports have been issued in the last 20 years. Subject matter expert and publisher George Baker, who directs the firm, has carried out consulting assignments starting in the late 1970s at the height of the Oil Boom in Mexico. He brings bilingual and bicultural skill-sets to understanding and responding to challenges of business and public policy, coupled with a deep familiarity with the history and idiosyncrasies of the Mexican operating environment.

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