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MEI Market Note No. 121 - US-Mexico Transboundary Hydrocarbon Agreement

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The treaty between the U.S. and Mexico regarding cross‐border oilfields is a major diplomatic accomplishment by the Obama and Calderón governments. This is the first time in the history of either country that a frame of reference has been proposed in the form of an international agreement related to the exploration and exploitation of mineral deposits of any kind.

For the U.S. the framework will have relevance for future negotiations with Russia and Canada regarding cross‐border oilfields in the Arctic Ocean; and for both countries Cuba will eventually need to be included.

The Agreement, dated February 20, 2012, puts in the public record a very rough framework for negotiating unitization agreements between "licensees" on the U.S. and Mexican sides of the maritime border in the case that a commercial cross‐border oilfield were discovered.

This report offers two interpretations about how the agreement would be implemented in Mexico: by means of the existing Pemex service contract or by a new framework that would require changes in law, regulation and institutional mandate on both sides of the border.

The report describes the geophysical and commercial framework of a cross‐border oilfield in general terms, and asks about the accomplishments and shortcomings of the agreement.

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