Budget deal gives boost to US-Mexico Gulf treaty

WASHINGTON — Legislation to enact a long-stalled international treaty governing oil drilling along the U.S.-Mexico border in the Gulf is wedged into a new congressional budget deal.

There’s no guarantee the House and Senate will pass the bipartisan budget pact, but by including the treaty provision, lawmakers are putting Congress on a path to ratify the international agreement before a Jan. 17 deadline.

The underlying hydrocarbon agreement, first signed in February 2012 and ratified by Mexco two months later, sets a framework for oil and gas development along the countries’ maritime boundary in the Gulf known as the Western Gap. It would effectively allow U.S. companies to partner with Mexico’s Pemex to produce oil and gas in the 1.5 million-acre area, by encouraging commercial unitization agreements where resources straddling the boundary are effectively divided up.

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 a Securities and Exchange Commission rule requiring companies to disclose what they pay foreign governments to extract oil, gas and other resources. A dispute over that foreign payments waiver provision threatened to jeopardize the treaty’s implementation before Jan. 17, 2014, the deadline for ratification.

Sen. Ron Wyden, D-Ore., has warned that if the U.S. didn’t implement the treaty before the deadline, it would be “open season” in the Western Gap. At that time, a moratorium on drilling and production in the boundary area would expire, effectively allowing Mexico’s Pemex to begin developing the area without following the treaty framework. And, as a result, the United States could lose out on the chance to help set ground rules for safe oil and gas development in the region.

Oil industry leaders who had pressed Congress to pass a foreign payments waiver dropped their insistence on the provision after a federal district judge tossed out the SEC rule. The agency has since indicated a new rule is on a slow track, unlikely to be unveiled before fall 2014.

Oil industry leaders on Wednesday praised the inclusion of the treaty provision in the budget deal. Inclusion of “the U.S.–Mexico Transboundary agreement is a good signal for U.S. producers seeking to develop offshore there,” said Julia Bell, a spokeswoman for the Independent Petroleum Association of America.

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.