Feds debate long-delayed U.S.-Mexico oil pact

Top Obama administration officials and senators on Tuesday warned that relations between the United States and Mexico could be harmed if America fails to enact a long-stalled pact to govern oil drilling along the countries’ maritime border in the Gulf of Mexico.

Mexico ratified the February 2012 agreement last year, but it has been bogged down in the United States by a dispute over whether oil companies should be forced to reveal what they pay foreign countries for drilling rights.

The pact would set a framework for oil and gas development along U.S. and Mexico’s maritime boundary in the Gulf, including the so-called Western Gap area. It would effectively allow U.S. companies to partner with Mexico’s Pemex to produce oil and gas in the area, by encouraging commercial unitization agreements where energy resources straddling the boundary are effectively divided up.

“This is a huge opportunity to be able to advance competitiveness” for North American energy, Ambassador Carlos Pascual told the Senate Energy and Natural Resources Committee.

“It would provide the legal certainty companies need to invest in … lease blocks along the boundary and, where appropriate, jointly explore the reservoirs,” Pascual said. “Both sides would gain from reciprocal arrangements. The agreement would allow U.S. inspectors to join Mexican inspectors on their rigs and vice versa.”

The Senate energy panel on Tuesday was considering two bills to enact the pact:

  • A Senate measure, sponsored by Sen. Ron Wyden, D-Ore., the energy committee chairman, and the panel’s top Republican, Lisa Murkowski of Alaska, that would implement the pact, without touching the foreign payments rule.

Wyden on Tuesday made a plea for Congress to advance a “clean” treaty bill, lest the foreign payments fight sink the whole deal. Let’s “not get bogged down in matters that are simply not relevant to the agreement,” Wyden said. “I’m going to do everything I can to pass this agreement quickly and cleanly.”

Wyden stressed the “urgency” of the issue, given that a moratorium on drilling and production in the Western Gap is set to expire in January 2014. After that, Pemex can begin developing oil and gas resources along the boundary area, without the framework established by the U.S.-Mexico hydrocarbon agreement.

“If nothing is done, come Jan. 17, it is open season, first come first serve,” Wyden said. “You don’t get the kind of thoughtful approach that this kind of agreement brings.”

Murkowski mused whether U.S.-Mexico relations could be harmed if Congress doesn’t enact the treaty and the United States effectively walks away from the deal.

“We have been sitting on it now for a year,” Murkowski said of the agreement. “How will we be viewed by our neighbors to the south if we fail to act?”

Pascual noted energy reforms underway in Mexico make U.S. action “particularly critical” right now.

“Not to move forward is sending the wrong signal to Mexico at exactly the wrong time,” Pascual said. “There’s a risk that if we do not pass this . . . it would be seen as the United States has reneged on its commitment.”

Shale boom: Eagle Ford’s future might lie in Mexico’s demand

Tommy Beaudreau, the acting assistant secretary for land and minerals management, said legal uncertainty surrounding oil development in the border region has kept energy companies at bay.

“Industry has been reluctant to move aggressively into those areas,” Beaudreau said, noting that just 14 of 379 available blocks on the U.S. side of the boundary have been leased.

The Bureau of Ocean Energy Management has said the areas covered by the treaty could contain 172 million barrels of oil and 304 billion cubic feet of natural gas.

“It is clear that the industry as a whole would like to look at these prospective areas and determine what’s there,” said Erik Milito, upstream director for the American Petroleum Institute. “Given the Gulf of Mexico is a very mature area, it’s areas like this that would allow the United States to enhance its energy security.”

Any oil and gas royalties paid to the federal government for development unleashed by the treaty’s enactment would eventually be shared with Gulf Coast states, under a 2006 law. Sen. Mary Landrieu, D-La., an advocate for more robust revenue sharing, said her support for the hydrocarbon treaty bill hinged on the issue.

Oceana vice president Jacqueline Savitz said the conservation group is concerned about safety standards that would apply under the treaty. Existing standards “aren’t strong enough” even in U.S. waters, and it’s unclear that Mexico would abide by the same requirements, she said.

Also on FuelFix:

Mexico moves to relax decades-old grip on oil