Mexico, U.S. Reach Landmark Agreement on Deepwater Oil Exploration
Navarro, Carlos, SourceMex Economic News & Analysis on Mexico
In an unprecedented act of cooperation in the energy sector, the US and Mexican governments signed an agreement establishing a framework for US energy companies to work jointly with the state-run oil company PEMEX to develop oil and gas resources in the deep waters of the Gulf of Mexico.
The agreement eases a dispute between Mexico and the US about ownership of reserves along a common boundary in the Gulf of Mexico, potentially opening more than 1 million acres to deepwater drilling. Mexico was extremely concerned that drilling by US companies could siphon off reserves on the Mexican side in what some described as the "efecto popote," or drinking-straw effect (SourceMex, Aug. 6, 2008, and Nov. 12, 2008).
"With this, we are setting aside the old fear that honestly exists among many Mexicans that Mexico's oil could be extracted from the other side," President Felipe Calderon said in announcing the agreement at the at the meeting of foreign ministers of the Group of 20 (G20) industrial and developing countries in Los Cabos in Baja California Sur state on Feb. 20.
The Mexican president added that any common crude-oil reservoirs along the boundary would be exploited jointly and that Mexico would benefit from this arrangement.
Accord ends dispute on reserves ownership
Mexico and the US completed most of the negotiations on the Transboundary Agreement in 2011, but the pact was only formalized with the signatures of Mexican Foreign Relations Secretary Patricia Espinosa and US Secretary of State Hillary Rodham Clinton at the G20 meeting in Los Cabos.
One of the most important benefits of the agreement is an end to the current moratorium on oil exploration and production in the Western Gap portion of the Gulf of Mexico. The US Interior Department estimates that the area contains as much as 172 million barrels of oil and 300 billion cubic feet of natural gas, but these are relatively modest amounts when compared with the potential throughout the Gulf of Mexico.
"These reservoirs could hold considerable reserves that would benefit the United States and Mexico alike," Clinton told reporters in Los Cabos. The accord would also help facilitate joint-exploration arrangements between PEMEX and US oil companies. And, in the absence of joint-exploration agreements, each country has the right to exploit its share of hydrocarbons while protecting the other nation's interests.
The agreement also contains several clauses that allow the two countries to cooperate more closely in preventing and reacting to oil spills. These include creating joint inspection teams to ensure compliance with safety laws and environmental rules. Until now, neither was authorized to oversee the environmental and safety practices of the other, even though oil spills do not respect international borders. The clauses were included in the agreement partly in response to the massive oil spill at the Deep Water Horizon drilling rig in the Gulf of Mexico in April 2010 (SourceMex, May 12, 2010).
"Each of the nations will maintain sovereignty and their own regulatory systems," Interior Secretary Ken Salazar told reporters at the G20 meeting. "But what this signifies, and what may be the most significant part of the agreement, is that we're moving forward jointly with Mexico to ensure we have a common set of safety protocols." Salazar and Mexican Energy Secretary Jordy Herrera Flores were on hand in Los Cabos for the signing of the agreement.
Experts believe the cooperation on safety will especially benefit PEMEX. "Mexico doesn't have the resources to combat a major oil spill, and the United States does," said energy expert Jorge Pinon, a research fellow at the University of Texas. "Coordination and sharing communications, training, personnel, equipment, and technology are essential for safe and productive drilling."
No fast track in Mexican Senate
But the agreement is far from a done deal, since the US and Mexican Senates must ratify the pact. …