Budget deal opens door to drilling in new Gulf waters

WASHINGTON — Legislation that opens the door to oil and gas drilling in international Gulf waters has cleared Congress, just in time for Mexico’s energy reforms and a Jan. 17 deadline for the U.S. to sign off on the work.

The Gulf of Mexico measure was embedded in a two-year budget deal that cleared the Senate on Wednesday and passed the House last week. President Barack Obama is expected to sign the broad budget legislation soon.

In doing so, he effectively will implement a long-stalled international treaty that was first signed in February 2012 and ratified by Mexico two months later. Under the pact, a moratorium on oil and gas drilling is set to end on Jan. 17, 2014.

The pact sets a framework for oil and gas development along the U.S.-Mexico maritime boundary in the Gulf, including the “Western Gap” area that some energy companies have been eager to explore. The treaty encourages commercial unitization agreements where resources straddling the boundary are divided up, effectively encouraging U.S. companies to partner with Mexico’s Pemex to produce oil and gas in the 1.5 million acre area.

It is not clear how quickly companies could buy oil and gas leases on the U.S. side of the international boundary in the Gulf. While the Interior Department’s Bureau of Ocean Energy Management accepted bids for tracts in the region during an August lease sale, those offerings stayed sealed because the hydrocarbon treaty hadn’t yet been ratified.

Under the formal terms governing that sale, within 30 days after they hydrocarbon treaty enters into force or Feb. 28, 2014 — whichever comes first — the Interior Secretary will decide whether to open the sealed bids or void them.

If Interior Secretary Sally Jewel opts to keep the bids sealed, the next chance for companies to win leases on the U.S. side would come during lease sales planned for March next year.

New options may soon be available on the Mexican side of that maritime boundary too, as the country overhauls energy policies to clear the way for private companies to produce oil and gas in the nation. Two dozen of the country’s 31 state legislatures have now signed off on the sweeping energy reforms, effectively putting a reform bill in front of President Enrique Pena Nieto, who is expected to soon sign it into law.

The hydrocarbon treaty encourages U.S.-Mexico collaboration on environmental safeguards governing offshore drilling in the region and sets up a system of joint inspections, allowing U.S. safety personnel to inspect Pemex facilities involved in transboundary oil and gas operations.

National Security Council spokeswoman Caitlin Hayden called the pact an “important priority.”

“This agreement will establish an environmentally safe and responsible framework to explore, develop and share revenue from hydrocarbon resources that lie in waters beyond each country’s exclusive economic zones,” Hayden said in a statement.

Legislation to ratify the treaty has been on the ropes in Congress, tangled up in a dispute over a now-voided Securities and Exchange Commission rule that would have required companies to disclose what they pay foreign governments to extract oil, gas and other resources.

The Senate passed a clean bill to implement the treaty in October, but a similar House-passed bill went further, including a provision to waive the SEC rule.

Ultimately, oil industry leaders who had pressed Congress to pass a foreign payments exemption dropped their insistence on the waiver after a federal district judge tossed out the SEC rule. Although the commission must rewrite the regulation, which is required under the Dodd-Frank financial reform law, the agency has since indicated a new rule is on a slow track, unlikely to be unveiled before fall 2014.

If the U.S. didn’t ratify the pact before Jan. 17, a moratorium on drilling and production in the boundary area would expire, effectively allowing development on the Mexican side without adhering to the treaty framework. Treaty supporters had said that a missed deadline would have the US. losing out on the chance to help set ground rules for safe oil and gas development in the region.