House bill would codify Gulf of Mexico drilling deal

Lawmakers took a modest step Thursday toward enacting a year-old agreement between the United States and Mexico that promises to unleash oil drilling along the nations’ maritime boundary in the Gulf.

But a simmering conflict over whether oil companies must disclose what they pay countries in exchange for harvesting crude and natural gas could delay or even derail the measure on Capitol Hill.

At issue is a pact signed by the United States and Mexico in February 2012 that sets the framework for oil and gas development along their Gulf maritime boundary, including the so-called “Western Gap” area. Although Mexico ratified the deal in April 2012, Congress has not acted on it.

The result, said Acting Assistant Interior Secretary Tommy Beaudreau, is oil industry wariness about investing in the region. And without congressional action, the Interior Department might not open bids on drilling rights in the region slated to go on the auction block in August.

Despite industry’s enthusiasm for deep-water development in the Gulf of Mexico, “legal uncertainty” in the Western Gap is suppressing interest, Beaudreau told a House Natural Resources subcommittee hearing on legislation that would implement the deal. “Industry has been reluctant to move forward confidently with exploration in that area,” Beaudreau added.

Bidding for drilling: Western Gulf lease sale set for Aug. 28

The accord is designed to encourage commercial unitization agreements where oil and gas resources that straddle the boundary are effectively divvied up between Mexico’s national oil company, Pemex, and firms working on the U.S. side.

Beaudreau and Carlos Pascual, the State Department’s coordinator for international energy affairs, said the agreement also would encourage continued collaboration between U.S. and Mexican regulators on ways to boost the safety of offshore oil and gas development.

Pascual said the deal and the legislation that would implement it would “accelerate safe and effective development of hydrocarbon resources that cross the U.S.-Mexico maritime boundary.”

That’s especially significant as depletion of Mexico’s onshore and shallow Gulf resources drives Pemex into deeper territory, closer to the boundary area.

Rep. Doug Lamborn, R-Colo., said the U.S.-Mexico deal, “if implemented correctly, is a rare opportunity to expand U.S. energy production, create new American jobs and grow our economy by opening new areas to oil and natural resources development.”

In a rare moment of unity, the oil industry and the Obama administration are eager for Congress to approve the pact. The American Petroleum Institute’s upstream director, Erik Milito, told the House panel that Congress should pass the legislation as quickly as possible.

“This agreement will provide legal certainty to U.S. companies, which will encourage them to invest in new energy development, creating jobs and spurring economic growth,” Milito said. “Swift implementation of the (agreement) is important to providing regulatory certainty and will allow companies to make investments in these boundary areas with the knowledge that there is a framework in place to allow for orderly extraction of these resources.”

While House Republicans are laying the groundwork to advance the legislation through the chamber this year, a provision in the GOP bill that deals with a new foreign payments disclosure rule could be a stumbling block in the Senate.

The House bill would exempt oil companies operating in the border area from the new Securities and Exchange Commission rule requiring disclosure of foreign payments for the rights to extract minerals, oil and gas. An administration draft bill enacting  the treaty did not contain any similar provisions, and Beaudreau said he would be interested in learning more about why House Republicans folded the waiver into their measure.

Human rights activists insist the SEC’s transparency rule could discourage graft, expose bribes and deter corruption in resource-rich nations where oil and mineral wealth isn’t trickling down. But the oil industry, led by API, has vigorously fought the requirement that was mandated by the 2010 Dodd-Frank financial law.

While one of the measure’s biggest champions, Dick Lugar, R-Ind., is no longer in the Senate, his partner on the foreign payments disclosure mandate, Sen. Ben Cardin, D-Md, likely would fight any new efforts to undo it.