News Commentary: Bill Introduced to Approve Transboundary Hydrocarbon Agreement with Mexico

HOUSTON, APRIL 20, 2013—For the past year and two months, the Obama administration has waited for the right moment to present the framework agreement for the development of cross-border oil reservoirs. The agreement had been negotiated with Mexico during 2010-11 and was signed on February 20, 2012. In December 2012, a report was issued by a sub-committee of the Senate Foreign Relations Committee that argued for the submission and approval of the agreement with Mexico (the so-called Lugar Report).

Natural-Resources-Committee

In relation to the submission of the agreement, during the first four months of 2013, there were no visible signs of life in the State Department. Impatient with the lack of progress, Congressman Jeff Duncan (of South Carolina) said: “We’re choosing to act instead of allowing the Administration to continue dragging its feet on energy development.” Rep. Duncan asserts. H.R. Bill 1613 would authorize the implementation of the agreement by amending the Outer Continental Shelf Lands Act of 1953.

Arguments offered in favor of this measure include the following:

  1. Lifting of the drilling moratorium of the so-called Western Gap
  2. Provides a framework for the safe management of transboundary resources
  3. Provides for certainty to oil companies who would lease blocks adjacent to the border
  4. Adds to energy and job creation
  5. Furthers energy reform in Mexico
  6. An additional step toward energy independence of the Western Hemisphere.

In a series of four MEI reports on this topic (outlines attached), we have called attention to omissions and concerns in the present language of the agreement. The chief concern is the unwillingness of the negotiators to commit to a definition of “unit operator,” that is, the commercial organization that is responsible for making decisions regarding investments, technology and the general deployment of capital on both sides of a unitized reservoir.

We have expressed concern on the Mexican side there is the default assumption that Pemex will be in charge of the reservoir in Mexican waters, and someone else on the U.S. side. In this framework the treaty is one to coordinate information flows, but not to put in place a unity of command for the efficient operation of a cross-border oilfield.

A dark reading between the lines of the text of the agreement would be that the framework agreement provides for unitization of a reservoir but in name only.

On the bright side, some say that the sub-text is about an agreement to negotiate in good faith. In the present case, the article of agreement about which agreement is most needed—namely, the role and authority of the IOC operator—is currently missing from the agreement. That so, the US Congress could approve the agreement, and then, later, find out what it is to which the legislators had agreed.

Click Web ID 403 Cross-border Agreement (Outlines) to download.

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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