Foreign payments fight could jeopardize US-Mexico drilling pact

The oil industry is jeopardizing efforts to unlock nearly 1.5 million acres of Gulf of Mexico waters for drilling by aggressively opposing a federal mandate to disclose foreign payments, according to a former State Department official.

At issue is legislation that would implement a one-year-old agreement between the United States and Mexico that sets the framework for oil and gas development along the two countries’ maritime boundary. Although Mexico ratified the deal in April 2012, the U.S. Congress hasn’t cleared it — despite oil companies’ zeal to develop the so-called “western gap” region and bipartisan support for the pact.

The House passed the bill in June, but not before Republican lawmakers gave into oil industry requests and added a controversial provision that could effectively undo a new Securities and Exchange Commission rule that forces publicly traded companies to disclose what they pay other countries to harvest oil and natural gas. The oil industry, led by the American Petroleum Institute, says the rule should be scrapped because it would give their rivals a competitive advantage, as similar disclosure isn’t required for foreign state-owned oil companies or privately held U.S. firms.

But David Goldwyn, the Obama administration’s former special envoy for international energy affairs at the State Department, calls the waiver a “poison pill” that puts the “otherwise uncontroversial” international pact at risk.

“Some proponents of the trans-boundary agreement are hurting their cause by encouraging the anti-transparency provision,” Goldwyn writes in an opinion piece for the Brookings Institute. “In raw political terms, the trans-boundary agreement is important but not at the top of the oil and gas industry’s priority list for Congress, whereas the proponents of transparency are well-organized and gaining momentum. Even the White House announced it could not support the House bill.”

Goldwyn penned the piece with colleagues at his energy intelligence firm: senior adviser Neil Brown and associate Cory Gill.

Although the Obama administration stopped short of a veto threat against the House-passed bill, it labeled the SEC provision “unnecessary” and “extraneous.” And key senators signaled they are unlikely to support similar waiver language in any legislation to enact the hydrocarbon treaty. The Democrat and Republican who lead the Senate Energy and Natural Resources Committee have introduced “clean” legislation to implement the treaty.

Ian Gary, senior policy manager for extractive industries at Oxfam America, which has defended the rule in court, said he believes the Senate will only pass a “clean” bill implementing the U.S.-Mexico agreement.

“If House leaders are serious about US energy security –- rather than just sending a message — they will drop the unneeded secrecy provision to help expedited approval of the U.S.-Mexico agreement,” Gary said.

As it stands, elements of the Securities and Exchange Commission disclosure rule may be in flux. A federal district judge last month ruled for API in vacating the rule and sending it back to the SEC to fix “serious” problems. Although the SEC could choose to reenact a similar measure with additional justification, it is also possible securities regulators could loosen the requirement by adding an exemption for reporting in countries with contradictory bans on payment disclosures.

Mandated by section 1504 of the 2010 Dodd-Frank financial law, the SEC’s transparency rule is meant to discourage graft, expose bribes and deter corruption in resource-rich nations where oil and mineral wealth isn’t trickling down.

“The District Court ruling doesn’t change the facts: The SEC has to implement section 1504, and oil company secrecy advocates have not put forward any evidence that Dodd-Frank required disclosures would cause a problem for American or other companies that would operate in the Gulf of Mexico,” Gary said. “Beyond that, in the three years since Dodd-Frank was signed into law, oil company secrecy proponents have failed to show a single law or contract that would prohibit public disclosures required by section 1504.”

It is not clear how broadly the House-passed waiver would apply. While bill sponsor Rep. Jeff Duncan, R-S.C., has said the exemption would only affect payments tied to oil and gas development along the U.S.-Mexico boundary in the Gulf, disclosure advocates say it would apply to payments under any future hydrocarbon treaties, even if the U.S. isn’t part of the deal. According to the bill text, the SEC reporting requirement would be waived for any “actions taken by a public company in accordance with any transboundary hydrocarbon agreement.”

As Goldwyn notes, these relatively new type of international agreements could come into play as nations at the top of the globe prepare for oil and gas development in Arctic waters.

“Should hydrocarbons development continue in the Arctic, future transboundary agreements with Russia or Canada may be required,” Goldwyn said. “Would it be in U.S. interests to facilitate revenue secrecy in Moscow?”

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