The 2012 Agreement on the Exploitation of Transboundary Hydrocarbon Resources in the Gulf of Mexico: Confirmation of the Rule or Emergence of a New Practice?

By Garcia Sanchez, Guillermo J.; McLaughlin, Richard J. | Houston Journal of International Law, Summer 2015 | Go to article overview

The 2012 Agreement on the Exploitation of Transboundary Hydrocarbon Resources in the Gulf of Mexico: Confirmation of the Rule or Emergence of a New Practice?


Garcia Sanchez, Guillermo J., McLaughlin, Richard J., Houston Journal of International Law


D. State Practice: Agreements Used to Coordinate Development of Transboundary Reservoirs

Once nations agree to jointly develop the transboundary hydrocarbon reservoir(s) or field(s) they can enter into a variety of agreements. The two most commonly used forms of agreements are cross-border unitization agreements and joint development agreements.

1. Cross-Border Unitization

Cross-border unitization is the joint and coordinated exploitation of a transboundary hydrocarbon reservoir by the interested nations so that the reservoir is developed as if it were owned and controlled by a single unit. (127) Cross-border unitization requires an established boundary agreement between the affected governments. (128) Professor Jacqueline Weaver describes the following typical attributes of cross-border unitization:

* Cross-border unitization is only required once a discovery is made.

* The area covered by the unitization agreement is defined by the extent of the individual reservoir or field.

* The two countries collaborate (through a treaty or other international agreement) on issues related to optimum field development (including, for example, safety), but maintain their sovereign rights on each side of the border.

* The groups of licensees prepare a single development plan and a unit operating agreement, which are then subject to the approval of both countries.

* Each license group's share of production and costs is based on the proportionate share (called the participation factor) of the field's oil and gas in place underlying its license, regardless of the physical location of the production facilities. Each licensee pays its taxes and royalties in accord with the terms of its own contract as if its unit share of production had been produced from its own contract area.

* The legal framework maintains two separate sets of regulations and fiscal terms. (129)

In general terms, a transboundary unitization treaty addresses production allocations and costs among tracts; regulation; the cooperative work plan for the field agreed upon by the operating investors; and a dispute-resolution plan. (130) Unitization also requires the licensees on each side of the boundary to enter into a unit operating agreement. This agreement will govern the rights and obligations between the licensees and the selected unit operator, who manages the day-to-day operations of the unit. Both governments must approve these agreements in order to assure that they are consistent with the terms of the treaty. (131)

2. Joint Development Agreements

Another way to develop transboundary hydrocarbon reservoirs is to establish a joint development zone, within which cooperative development of petroleum occurs despite disputes over sovereignty and the delimitation of the boundary between two or more nations. Joint Development Agreements authorize the cooperative development of petroleum resources in a geographic area that has disputed sovereignty, despite the delimitation of the boundary between two or more sovereigns. (132) Although existing agreements vary in structure, key issues in joint development agreements can be identified as being particularly important, as described by Ana E. Bastida:

1) Sharing resources: contractual provisions establish the basis for sharing production. There is overwhelming support for the principle of equal sharing, but there are exceptions. (133)

2) Management of joint development: three categories of management structures have been identified--single State model; two States/joint venture model, and joint authority model.

3) Applicable law: this provision is necessary to clarify which legal regime will apply in the joint development zone. It should include the petroleum licensing regime, laws governing civil and criminal jurisdiction over individuals in the zone, and rules and regulations governing health, safety and environmental issues.

4) Operator and position of contractors: provisions that point out who has the authority to develop rules for selecting contractors to undertake petroleum exploration and exploitation activities on behalf of the two States.

5) Financial provisions: it establishes the taxation regime applied to contractors in the joint develop zone.

6) Dispute resolution: normally, it provides for some sort of internal mechanism of conflict resolution prior to resorting to third party resolution, such as consultation, negotiation, conciliation, and binding commercial arbitration. (134)

There are areas in the Gulf of Mexico where a Joint Development Agreement may be warranted in the future, such as in the portion of the Eastern GOM where maritime boundaries between the United States, Mexico, and Cuba have not been formally delimited. (135) However, the U.S. and Mexico have already agreed to a framework agreement to jointly develop hydrocarbons along most of the maritime boundary between the United States and Mexico in the GOM. (136) This framework agreement, described in the next sections, establishes the procedures to move forward on transboundary unitization in the event that a shared reservoir is discovered.

3. Examples of Transboundary Agreements that Protect the Efficient Exploitation of the Resource

One of the most used models for joint exploitation agreements was the one celebrated by the United Kingdom and Norway in 1965, where the basic principle of joint exploitation was enshrined in Article 4:

   If any single geological petroleum structure or petroleum
   field, or any single geological structure or field of any
   other mineral deposit, including sand or gravel, extends
   across the dividing line and the part of such structure
   or field which is situated on one side of the dividing line
   is exploitable, wholly or in part, from the other side
   of the dividing line, the Contracting Parties shall, in
   consultation with the licensees, if any, seek to reach
   agreement as to the manner in which the structure or
   field shall be most effectively exploited and the manner
   in which the proceeds deriving therefrom shall be
   apportioned. (137)

The same type of provision was contained in the delimitation of the continental shelf agreement between Sweden and Norway in 1968 and between the United Kingdom and Norway of 1965. It is important to note that the latter even made it mandatory to sign a unitization agreement ("shall be concluded") between the licensees on both sides of the border upon the request of the States. (138) Similar clauses and principles were proposed by the Jan Mayen Conciliation Commission between Iceland and Norway, where the commission suggested the adoption of a joint development zone and the unitization of deposits for the overlapping areas of the continental shelf that cross the boundary. (139) Iceland and Norway took the recommendations and in (1981) adopted the Agreement on the Continental Shelf Between Iceland and Jan Mayen. (140)

In the Asian continent, similar provisions have been found regarding the sharing of transboundary resources where the principle of joint development and of agreeing on the most effective method of exploitation is present. For example the 1974 Japan and South Korea Agreement provides in Article XXIII:

   If any single geological structure or field of natural
   resources extends across any of the lines specified in
   paragraph 1 of article II and the part of such structure
   or field which is situated on one side of such lines is
   exploitable, wholly or in part, from the other side of
   such lines, concessionaires and other persons authorized
   by either Party to exploit such structure or field
   (hereinafter referred to as "concessionaires and other
   persons") shall, through consultations, seek to reach
   agreement as to the most effective method of exploiting
   such structure or field. (141)

A similar article is found in the Australia-Indonesia Agreement of 1989:

   If any single accumulation of petroleum extends across
   any of the boundary lines of Area A of the Zone of
   Cooperation as designated and described in Article 1
   and Annex A of this Treaty, and the part of such
   accumulation that is situated on one side of a line is
   exploitable, wholly or in part, from the other side of
   the line, the Contracting States shall seek to reach
   agreement on the manner in which the accumulation
   shall be most effectively exploited and on the equitable
   sharing of the benefits arising from such exploitation. (142)

And then in more detail in the Annex A of the Agreement it states that unitization shall be the rule for this type of resources:

   Where a petroleum pool is partly within a contract area
   and partly within another contract area, but wholly
   within Area A, the Joint Authority shall require the
   contractors to enter into a unitization agreement with
   each other within a reasonable time, as determined by
   the Joint Authority, for the purpose of securing the more
   effective and optimized production of petroleum from
   the pool. If no agreement has been reached within such
   reasonable time, the Joint Authority shall decide on the
   unitization agreement. Without limiting the matters to
   be dealt with, the unitization agreement shall define or
   contain the approach to define the amount of petroleum
   in each contract area, the method of producing the
   petroleum, and shall appoint the contract operator
   responsible for production of the petroleum covered by
   the unitization agreement. The Joint Authority shall
   approve the unitization agreement before approvals
   under Article 17 of this Petroleum Mining Code are
   given. Any changes to the unitization agreement shall
   be subject to approval by the Joint Authority. (143)

The sources of international law presented in this Part show a clear trend on what the State obligations are when they face the natural phenomenon of transboundary resources: they must cooperate to find a method of exploitation where the resources are exploited in an efficient way benefiting and respecting the rights of both States. Exploiting a resource unilaterally without respecting and recognizing the rights of the other parties to the hydrocarbons contained in the field is clearly contrary to the international law sources described in this Part. In following this obligation, most States have chosen to respect the principle of unitization as the most appropriate one for achieving this. Although the general rule is clear, the way States in their bilateral relations have been able to accomplish a joint exploitation of the resource is an important part of the way the norm has developed. As such, the following Part will undertake a detailed analysis of the binational practice between the United States and Mexico in handling transboundary resources in other areas, such as rivers, in order to identify particular ways in which these two nations have dealt with similar issues. Particular attention will be given to the treatment of rivers along the U.S.-Mexico border. Part VI will also have a detailed examination of the substantive provisions and international legal implications of the landmark 2012 Transboundary Agreement. One the key characteristics of this agreement, unlike other existing international cross-boundary hydrocarbon treaties, is that the 2012 Transboundary Agreement allows the parties to exploit transboundary reservoirs unilaterally in the absence of an approved unitization agreement. The final portion of the study examines whether these provisions are compatible with the described existing principles of international law. (144)

IV. U.S. AND MEXICO BILATERAL PRACTICE ON TRANSBOUNDARY RESOURCES

Under international law, bilateral practice can eventually generate a bilateral customary norm that governs the relations between the States in particular matters if the requirements of state practice and opinion juris are met. (145) Mexico and the United States have faced before the challenge of managing transboundary resources. An important example involves the use and distribution of the water contained in several rivers that cross the border. Just as is the case with oil and gas contained in reservoirs, the water in international rivers is the property of both nations. How the water is distributed varies depending on the particular physical elements of the river. Some of these rivers have their origin in Mexican territory and flow to the United States, others have origins in the United States and flow south. Hence the possibility of both nations unilaterally abusing the resources is present. To avoid such a practice, both States decided to rely on established international practice and to create a binational commission that would administer the exploitation of water resources, invest where needed, and decide technical matters. (146) An important aspect of the commission's decisions is that they are final and binding upon both parties. This has been the practice since (1848) and is reflected in several treaties that deal with inland border issues. (147) Some commentators have argued that these binational regimes were "a dramatic turning point in the legal stance of the United States on its sovereign rights concerning water resources. Until that date the U.S. side maintained that it had absolute right to use the water resources in its territory as it wished." (148)

For example the 1906 Treaty for the Rio Bravo, stated explicitly that the neighboring States should share in an equitable way the distribution of the waters contained in the border. (149)

The same principle was adopted in the 1944 U.S. and Mexico Rivers Treaty, where the International Boundary and Water Commission (IBWC) was created and according to Article 2 "shall in all respects have the status of an international body." (150) Furthermore, the Commission was entrusted to regulate and exercise the rights that both States have over the resources:

   The application of the present Treaty, the regulation and exercise
   of the rights and obligations which the two Governments assume
   thereunder, and the settlement of all disputes to which its
   observance and execution may give rise are hereby entrusted to the
   International Boundary and Water Commission. (151)

In other words, the creation of this supranational international body, would exercise the rights and duties of both parties on those resources, resolve all the disputes arising out of their exploitation, and have the final word on their administration. An important aspect of the operation of the IBWC is that its officers and employees are given special diplomatic status to visit both sides of the border freely. (152) In the same vein, the expenses incurred "as agreed upon by the Commission, shall be born equally by the two Governments." (153) The type of economic interests that this joint exploitation regime touches are very diverse, and the Treaty even includes an order of preferences for the Commission to consider. (154) The IBWC has been empowered to construct, operate and maintain storage dams and reservoirs, the first one being the Rio Grande Rectification project in 1933. Regarding the qualification of the head of each section, Article 2 states that it "shall be an Engineer Commissioner;" as a way to ensuring that the IBWC will function in a technical capacity to guarantee the efficient exploitation and distribution of the joint resource, rather than as a political or diplomatic body where other interests might overshadow the efficiency of the regime. (155)

Most scholars agree that the IBWC has been effective in achieving the basic goals prescribed by the treaty regime: avoid conflicts between the States and foster cooperation of the efficient management of the resources. (156) Nevertheless, they also agree there have been some areas where the regime and the Commission could improve their work, such as the quality of the water and facing the challenges of droughts with the expansion of the cities along the border. (157) It may be expected that a treaty that was created in an era where climate change challenges, aggressive industrialization and excessive urbanization in the border were unconceivable, has particular challenges facing these phenomena. But regardless of its flaws, there is a consensus that the basis of the treaty regime can be considered as a successful exercise and a step forward in U.S. and Mexico relations. In fact, the States considered that the IBWC was so effective in achieving its tasks, that in (1970) it was even empowered by both States to establish the international maritime boundary of Mexico and the United States in the first twelve nautical miles. (158) In the words of Professor Jorge Vargas, a former Legal Advisor of the Office of Boundaries and International Waters of the Ministry of Foreign Affairs of Mexico:

   [M]any coastal states in the international community
   started to advance maritime claims over contiguous
   marine areas, such as was the case of Mexico enlarging
   its territory in 1969, both the United States and Mexico
   agreed that since the IBWC was already engaged
   in establishing a more practical and convenient river
   boundary along certain segments of the international
   line, it was only proper to ask that Commission to
   also address the question of establishing the new
   international maritime boundary of a twelve-nautical-mile
   territorial sea in the Gulf of Mexico (starting at the
   center of the mouth of the Rio Grande), and the same
   maritime boundary in the Pacific Ocean (beginning at
   the western most point of the mainland boundary). (159)

The United States and Mexico also agreed to face jointly the challenges concerning environmental protection in their border areas with joint commissions. In 1993 they signed an Agreement that gave birth to the Border Environmental Cooperation Commission (BECC) and the North American Development Bank. (160) The purpose of both institutions is to create the necessary infrastructure to address the environmental consequences of NAFTA by sharing the costs and creating the necessary incentives to attract private parties to join the effort. (161) In its preamble, the Agreement affirmed that both States recognized:

   the bilateral nature of many transboundary
   environmental issues, and that such issues can be most
   effectively addressed jointly ... [and] that there is a
   need to establish a new organization to strengthen
   cooperation among interested parties and to facilitate
   the financing, construction, operation and maintenance
   of environmental infrastructure projects in the border
   region. (162)

One of the interesting aspects of the BECC is that it certifies private parties in order to receive financial aid from the Bank to achieve the goals of the Agreement, and in the process receive observations from NGOs or other private parties interested.

It is also important to note that Mexico and the United States have also signed other bilateral treaties recognizing the joint responsibility and the rights of both States to exploit other resources, such as migrant species and the use of radio frequencies. The United States has also agreed with other nations to manage and exploit resources in a binational or multinational way. An example of such U.S. practice is the 1957 Convention between the United States, Canada, Japan and the former Soviet Union concerning fur seals of the North Pacific Oceans, where the Americans and the Soviets agreed to harvest the living resources and share the products with the other two nations. (163) This treaty even contained in its amended version of 1962 a principle of effectiveness in the "management and the rational utilization" of the resources. (164)

Notwithstanding, the trend of both nations to deal with transboundary resources issues through bilateral commissions, there are a few examples of shared resources that have not been exploited or managed in a binational way. One such example involves possible transboundary gas and oil reservoirs in the Texas and Tamaulipas inland border area. On both sides of the U.S.-Mexico border there are wells already extracting gas from this shared reservoir, 174 wells in Texas and 9 in Tamaulipas, but neither Mexico nor the United States has chosen to address the issue officially. (165) Professor Vargas concludes that "Mexico has not taken any diplomatic steps to bring to the attention of the United States this apparent disproportionate utilization of the natural gas coming from this 'transboundary reservoir,' that seems to run contrary to the international law principles that advocates 'the efficient and equitable exploitation' of the resources contained in any kind of these reservoirs." (166) But regardless of these exceptions, the evidence suggests that in general U.S. and Mexico bilateral practice, when the States have faced the exploitation of transboundary resources in the past, they have built a joint administration and exploitation regime, where the mechanisms chosen include the creation of technical bilateral commissions with enough authority to decide the future of these resources. The fact that this practice began with the management of rivers is consistent with the international practice recognized in some of the ICJ opinions mentioned above. (167)

After analyzing all of the different sources of international law that deal with transboundary resources, it is safe to conclude that the obligation to cooperate that arises under the international norms described in Part III is consistent with the binational practice of the United States and Mexico described in the above paragraphs. Both nations have recognized the rights to exploit these resources on both sides of the border, but at the same time have constrained the exercise of these rights by creating binational bodies that seek to manage the resource in the most efficient way for the benefit of both parties. The next Parts of this Article will analyze if this binational practice that enshrines the international norm is followed by both States when in comes to hydrocarbon resources in the GOM. It will begin in Part V with a review of the international treaties that deal with the maritime boundary in the GOM and how these constantly faced the issue of transboundary resources without being able to solve it directly in the treaties. Part VI will analyze the 2012 Transboundary Agreement as the most important effort to deal with the transboundary phenomenon and will highlight the provisions of the Agreement that deviate from international practice and that could generate cooperation problems in the future. Finally, after taking into consideration all these aspects, Part VII will answer the initial question of this Article: Is the treaty consistent with existing principles of international law?

V. DEVELOPMENT OF BOUNDARY TREATIES IN THE GULF OF MEXICO

A. The Treaty of 1978

The first effort of both States to regulate the maritime border areas of the GOM and their continental platforms was the Treaty on Maritime Boundaries between the United Mexican States and the United States of America of 1978. (168) In it, Mexico and the United States treated differently the maritime boundaries of the GoM and the Pacific due to the different geographical realities that the continental platform presented in each: basically because the GOM is a semi-enclosed sea. To delineate the border, the States agreed to employ the equidistance method from twelve nautical miles, the territorial sea, out to 200 nautical miles. The method employed resulted in the existence of two polygons or "gaps" in the Gulf to which the maritime rights of both States overlapped, since they were beyond the 200 nautical miles established in the Convention (the western gap is shared by Mexico and the United States, while the eastern gap is shared also with Cuba), as shown in the following map that was annexed to the 1978 Treaty. (169)

[ILLUSTRATION OMITTED]

Mexico and the United States decided to leave the two polygons outside of the treaty and subject to future negotiations.

The starting points for the equidistance method were the Isles Dernieres from the U.S. side, and the Alacranes Islands north of the Yucatan Peninsula. Years later, Mexican congressmen complained that the negotiators did not consider the sudden disappearance of an island further to the north of the Alacranes Islands, the Bermeja. This island could have given around 15% of additional offshore territory to Mexico. (170) The Bermeja Island appeared in several nautical maps since 1669, it was included in the maps of the independence of Mexico up to the middle of the 20th century. Nevertheless, when the delimitation of the maritime boundary was being negotiated in 1978 the experts determined that the island had submerged 40 meters below the surface to a point that it could not be considered anymore an island. (171) As of today, the sudden disappearance of Bermeja and what caused it is still a mystery.

The Treaty of 1978 was completely silent regarding the existence of shared transboundary resources. This omission was odd because the practice at the international level by other States already showed that as a preventive measure, especially in areas rich in hydrocarbon deposits like the Gulf, States would include in their treaties a clause like the one contained in the UK-Norway 1965 treaty recognizing the need to reach an agreement to exploit the resource in the most effective way. In fact, the 1978 Treaty was explicit in only mentioning the maritime boundary and excluding the concept of a continental shelf. In the single paragraph where the 1978 Treaty mentioned the existence of the seabed and subsoil, it only stated that neither side shall "claim or exercise for any purpose sovereign rights or jurisdiction over the waters or seabed and subsoil" on the other country's side of the boundary, (172) consequently excluding any possibility of exploiting a transboundary hydrocarbon deposit by either side. (173) Professor Jorge Vargas has argued that the purpose of the wording of the article was precisely the exclusion of any type of exploitation without the consent of the other party:

   When this treaty was being negotiated (first in 1976 and
   later in 1978) there was no certainty at that time, based
   on geological and other scientific data, of the existence
   of such a transboundary reservoir either in the Gulf of
   Mexico or in the Pacific. To avoid any possibility that
   Mexico, or more likely the United States (given its
   technological advancement in the exploration and
   exploitation of submarine reservoirs in ultra-deep
   waters), would make any attempt to extract oil or natural
   gas from the other side of the maritime boundary, both
   parties explicitly added this language to Article II of this
   treaty to avoid or reject such claims, or the possible
   exercise of sovereignty rights over natural resources in
   that submarine area. (174)

The 1978 Treaty was ratified by the Mexican Senate the same year it was signed, but the U.S. Senate took more than twenty years to ratify it under pressure from the industry that by then had developed enough technology to do deepwater drilling and was interested in the areas surrounding the pending borderline. (175) In fact, the United States was already auctioning submarine tracts in the Western Gulf of Mexico in 1997 regardless of the fact that the Treaty had not been ratified. Mexico in the same year sent several diplomatic letters to the U.S. Department of State expressing that the actions taken by the Department of the Interior "would be in violation of international law and this would run contrary to resolving the matter in a just and equitable manner." (176) In a subsequent diplomatic note, Mexico took the following position:

   pursuant to conventional and customary international
   law, States are under the obligation of delimiting the
   continental shelf through a [bilateral] agreement and,
   therefore, if no [maritime delimitation] is agreed
   bilaterally, Mexico would object [to] any attempt by the
   United States of acquiring any submarine areas by
   unilateral possession (reivindicacion); the adjudication
   of licenses for the exploration and exploitation of
   hydrocarbons; or the possible acquisition of rights by
   U.S. private companies in the [submarine] areas not yet
   delimited. (177)

This declaration triggered the oil companies' lobbyists in Washington to pressure the Senate to ratify the Treaty. (178) In an industry where the sunken costs and the risks associated with the exploitation are enormously high, legal uncertainty regarding the enforcement of property rights scares away any type of investment. Even though the 1978 Treaty left questions such as transboundary resources unanswered, it removed the uncertainty over maritime boundaries that allowed the oil and gas industry to support the Treaty.

B. The 2000 Treaty

Negotiations began in 1997 to delineate the Western Gap of the Gulf of Mexico, as shown in the map of Annex 1 of the 2000 Treaty: (179)

[ILLUSTRATION OMITTED]

During the negotiation process Mexico continuously declared the importance of preserving and ensuring the efficient exploitation of possible resources contained in the Gap, respecting the international law principles of equity and reciprocity. Due to the fact that there were reports regarding the existence of transboundary resources, Mexico and the United States decided to appoint a binational commission of experts to conduct research on the area. (180) The results showed the existence of a uniform distribution of shared resources in the Gap and consequently the existence of transboundary resources. As such, the Treaty negotiators decided to draft adequate provisions in the agreement to leave no doubt on how the issue was to be handled. (181) The negotiations led to the signing of the Treaty between the Government of the United States of America and the Government of the United Mexican States on the Delimitation of the Continental Shelf in the Western Gulf of Mexico beyond 200 Nautical Miles, where both States decided to recognize the mutual right to exploit the resources but left unanswered the way these would be exploited. (182) In fact, the Treaty established a moratorium for the exploitation of the resources located with a 2.8 nautical mile wide buffer zone along the boundary line of the Gap for ten years. (183) According to Article I of the Treaty the method employed to divide the gap between both nations was equidistance, a continuation of what was employed in the 1978 Treaty. As a result of this approach, Mexico obtained 61.78% of the Gap and the United States the remaining 38.12%, as shown in Annex 2 of the 2000 Treaty. (184)

[ILLUSTRATION OMITTED]

It is noteworthy that, even though the exploitation of the resources was not addressed in the Treaty, the fact that the United States agreed to recognize the rights of both States over these resources and a moratorium for their exploitation, was a positive step in abandoning the possibility of unilateral exploitation from the U.S. side of the boundary.

Another important operative aspect of the 2000 Treaty is the fact that both States committed themselves in Article IV to share the geological and geophysical information of the Western Gap on a regular basis. With such an intention the Parties agreed to meet periodically and exchange reports and to "seek to reach agreement for the efficient and equitable exploitation of such transboundary reservoirs." (185)

In sum, the 2000 Treaty regulated a 2.6 [km.sup.2] area in the Western Gap of the Gulf of Mexico maritime boundary region; it established a moratorium of ten years for the exploitation of the transboundary resources located in them; and most importantly, it recognized the willingness of the parties to exploit transboundary resources in an efficient, equitable and bilateral manner. In this way it temporarily excluded the possibility of any unilateral exploitation until a future agreement was signed or the ten years period had passed.

Due to the importance of this Treaty as a precedent for the 2012 Transboundary Agreement, it is important to identify the intentions of the Parties regarding the question of transboundary resources in comparison to the 1978 Agreement. As mentioned in previous Parts of this study, the declarations of the State representatives are important in the formation of international law because they reflect the expectations of the State in terms of what the content of the international norms are. (186) This is particularly important when it comes to rules of customary international law where opinio juris can be identified by analyzing the representative's views at the time of the negotiation process. Accordingly, the Mexican delegation during the negotiation process of 2000 declared to the Mexican Congress that they were aware that there was an obligation, according to what they considered to be the international norm at the time, to exploit the resources in the form of a joint development zone or through unitization, but that due to the fact that the Mexican Constitution at the time prohibited any type of private participation in the sector and that only PEMEX as a representative of the Mexican State could exploit "national" resources, the delegation was unable to include in the Treaty any mention of unitization or joint development. In the words of Lourdes Melgar, the representative negotiator of the Ministry of Energy of Mexico at the time:

   Mexico, by arguing that its Constitution does not allow
   it to engage in joint exploration and exploitation
   activities with other companies, is contradicting
   international law and the best international practices
   in the sector ... this is a fundamental point to keep in
   mind because we have to prepare the appropriate
   negotiations that allow us to establish joint exploitation
   and unitization agreements regarding transboundary
   resources. And to establish a regulatory agency to
   supervise such an exploration and exploitation of the
   transboundary resources. (187)

The same point was emphasized by the head of the Legal Council Office of the Ministry of Foreign Affairs of Mexico, Ambassador Miguel Angel Gonzalez Felix, in the same Congressional hearing:

   When the Western Gap Treaty was being negotiated ...
   the problem of transboundary resources was constantly
   coming up in the discussions.... Once these type of
   resources are confirmed to trespass the boundary into
   the other State, there are two phenomenon present that
   have been emphasized again and again in this hearing:
   the phenomena of the migration of the resource, in
   other words, once one of the parties tries to exploit the
   fields, the resource might migrate to the other side of
   the border; secondly, in addition to migrating, the fact
   that the field is not exploited in a bilateral way, may
   affect the pressure of the field and even make the
   reservoir collapse. (188)

When asked by Congress how the situation had to be resolved by Mexico and what were the international obligations involved, Ambassador Gonzalez Felix was clear in stating that Mexico had a practice, even recognized constitutionally, to work with its neighbors to make the best out of the resources in a bilateral way:

   [W]hen we analyze our Constitution, we find that in the
   sections where it makes reference to borderlines, either
   in the airspace or the sea, the constitution gives
   deference to international law. That is why, just as
   Ambassador Iruegas stated earlier, we have fifteen
   treaties that have as a subject shared resources. We
   have joint airspace with the U.S.; treaties that have to
   deal with borderlines and water inland; the treaty that
   gives life to the IBWC to manage the water in the
   rivers; a treaty that deals with the modulated radio
   frequency at the border. In order words, there are
   multiple examples, that the regime to deal with these
   issues is an international regime. In conclusion: there is
   nothing in our constitution that forbids us to negotiate
   an international treaty and the Constitution itself
   forces us to rely on international law; it forces us to look
   at the international practice ... and when we looked at
   it, we realized that there are only two options, either we
   reach an agreement to be able to exploit and explore the
   resources in a joint way, or we accept an unrestricted
   principle such as the rule of capture.... Mexico cannot
   accept the rule of capture. In the same vein, it has
   always been more beneficial for Mexico in its
   international relations to regulate such phenomenon in
   a bilateral way than accept the existence of unilateral
   acts that could affect us. (189)

The above statements, from the highest Mexican officials negotiating the 2000 Treaty, proves one important aspect of what Mexico thought the appropriate rule of international law to deal with transboundary resources is: the joint exploitation of the resources. This is not only due to what they considered to be the international practice at that time, but because to them, the Mexican Constitution could be interpreted as requiring Mexico to comply with international law when it comes to resolving issues involving its maritime borders. As such, they felt that the international norm to deal with transboundary resources was a joint exploitation regime. Then why did they not include such a norm in the treaty? The answer was provided by the negotiators in the hearing: "among the diplomatic delegation, there were some doubts that it could eventually face a constitutional challenge." (190) During the time of negotiation of the Treaty of 2000, the Mexican Constitution forbade any type of association with private parties. The only authorized company to exploit hydrocarbons was PEMEX. More details regarding the reform of the constitutional framework in Mexico will be provided in Part VI.A, but suffice it to say now that even if at the time there were doubts regarding the possible interpretation of the constitution in the face of a joint exploitation agreement, from the international law perspective the Mexican negotiating delegation had no doubt that the international rule to follow was a joint exploitation agreement. If an international tribunal were interpreting the case, all these declarations could serve as a basis to prove the opinio juris of the State regarding what the customary norm was at the time.

Finally, it is important to note that the 2000 Treaty did not address the existence of shared reservoirs along the rest of the 1978 maritime boundary. The status of the transboundary fields located outside the Western Gap was left unresolved. The only applicable rule was that the States could not claim or exercise for any purpose sovereign rights or jurisdiction over the seabed and subsoil. (191) None of the clear and straightforward rules of the Western Gap, such as that there shall be no exploitation or exploration in the area for ten years, and that the States would seek to reach an agreement consistent with principles that seek an efficient and equitable exploration, were applicable to maritime boundaries outside the Western Gap. Nevertheless, the fact that the States were willing to apply the latter principles to one portion of the GOM reflected a change of policy and of what the international norm was at the time in both States.

VI. 2012 TRANSBOUNDARY AGREEMENT AND ITS IMPLICATIONS UNDER INTERNATIONAL LAW

since the Treaty of 2000 delineating the area beyond national jurisdiction in the GOM and especially after mild energy reforms in Mexico were adopted in 2008, pressure began to build from academic and industry circles in both nations to address the possibility of transboundary reservoirs along the maritime boundary in the GOM. (192) At the end of the decade, Mexico and the United States engaged in the most intensive negotiations to date on this issue. These negotiations culminated on February 20, 2012, when the United States and Mexico signed a bilateral agreement concerning the joint exploration and exploitation of transboundary hydrocarbon structures and reservoirs in the GOM that straddle the maritime boundary between the two nations. (193) Made up of seven chapters and twenty-five articles, the Agreement seeks to encourage the establishment of cooperative arrangements based primarily on the principles of unitization, and leaves open the possibility for the development of cooperative agreements outside the framework established in the document. (194) The application of the (2012) Agreement is limited in scope to those transboundary reservoirs that traverse the maritime boundary of the two nations and which are entirely located beyond nine nautical miles of the coastline of any party thereby excluding reservoirs located within the jurisdiction of the State of Texas. (195) Article (2) defines "Transboundary Reservoir" to mean any reservoir which extends across the delimitation line that is "exploitable in whole or in part from both sides of the delimitation line." (196) The Agreement specifies that if any of its provisions require the modification of a U.S. License existing before notification of the Agreement's ratification, then those provisions of the Agreement will not apply to that License. (197) Below is a map prepared by the U.S. Congressional Research Service in its report of the 2012 Treaty. (198) It shows the boundary line as agreed in the 2012 Agreement, and consistent with the 2000 and 1978 Treaties; furthermore, it shows the gap of the nine miles of the Texas border and geological features of the seabed.

[ILLUSTRATION OMITTED]

A. Ratification Process

The ratification processes on each side of the border show a stark contrast in what the State authorities were expecting about the treaty regime as well as which national interests were in play. The level of debate that was undertaken by each congress with regard to the 2012 Transboundary Agreement is illustrative of these contrasting visions. The Mexican Senate spent only a few days debating its general terms, without discussing particular provisions and avoiding the criticism of the opposition party (Party of the Democratic Revolution, PRD), and the debate was heavily dominated by praises by the Ministry of Foreign Affairs, which professed that the Agreement would secure Mexico's natural resources from being extracted by the foreign companies on the other side of the border. (199) On the U.S. side, it took almost two years for the 2012 Agreement to be ratified. Debate in the United States was focused on the suspected inability of Mexico to engage in efficient exploitation practices, the problem with the Mexican State-centered regulatory regime, the concerns over the ability of PEMEX to be a good partner, and the comments from experts on the benefits of the Agreement in case energy reform in Mexico was implemented. (200) In other words, while in Mexico the Agreement was seen as a victory over the abusive northern neighbor and the negative aspects of the regime were left aside, in the United States there were serious doubts that the Agreement could be implemented correctly due to the inefficiency of the state oriented policies of Mexico. The debate was such in the United States that the Agreement was not ratified until Fall of 2013, just days after the Energy Reform in Mexico that allows foreign investment in the sector had already been approved at the constitutional level. (201)

Debate in the Mexican Senate was cursory with just a few noteworthy exceptions. For example, Mexican Senator Pablo Gomez (PRD) questioned why the minority report that was voted on by the Mexican Senate Committee on Foreign Affairs was never presented to the Committee on Energy. He also wondered why there was no discussion concerning which authority would be assigned as the Executive Authority representing Mexico, the National Hydrocarbons Commission (referred to as CNH, the Spanish acronym of the autonomous regulatory agency that regulates upstream oil and gas operations in Mexico), or more directly by the executive branch through the Ministry of Energy. (202) He also asked what would be the compensation owed to Mexico for the fields that are already being exploited that could contain transboundary resources or that the (2012) Agreement leaves space for unilateral exploitation if the licensees and the Parties cannot reach an agreement. (203)

On the other side of the political spectrum Senators Rosario Green (a former Secretary of Foreign Affairs), Ruben Camarillo and Francisco Labastida (the PRI candidate who lost the 2000 presidential election) defended the Agreement and avoided answering Senator Gomez's questioning. They argued that the Agreement was in full conformity with international practice by adopting the unitization procedures as the general rule and that it was of the highest importance that it be adopted and implemented before the moratorium of the 2000 Treaty expired in order to avoid exploitation from private companies on the U.S. side. (204) At the end of the discussion only six Senators commented on the Agreement. (205) There was no expert present in the hearing, and it was ratified by 60 votes in favor, 21 against, and only one abstention. (206) It was also noteworthy that the Ministry of Foreign Affairs in its Description of the Agreement prepared in lieu of the Senate debate mentioned that the Mexican State considered unitization the most efficient method to exploit the resources and that this complied with international law:

   Adhering to the international practice in those cases
   when there are transborder hydrocarbon reservoirs
   between two or more States, the governments of Mexico
   and the United States decided to adopt the method of
   "unification of reservoirs" (unification de yacimientos)
   as the proper mechanism for the exploration and
   exploitation of the transborder reservoirs existing
   between both countries, because this mechanism offers
   the best utilization and efficiency of the transborder
   reservoir. (207)

The ratification process on the U.S. side was not as smooth as the one in Mexico City. It was highly politicized, and it faced difficult negotiations between government branches. The mere fact that the Mexican Senate took only three months to ratify the 2012 Agreement after its signing, and the U.S. Senate took until October 2013 to discuss it and the House took until late December 2013 to adopt federal legislation implementing it, shows a stark contrast of the two ratification processes. The congressional debate in the United States was mainly focused on the inability of Mexico to be an efficient party of the regime, but domestic political factors also affected the discussion. One hurdle involved a question of transparency in the reporting of oil production revenues. Before the Senate had taken up consideration of the Agreement, the U.S. House of Representatives in April 2013 approved a bill (H.R 1613) that would implement the Agreement as federal law, but would exclude the obligation under the Dodd-Frank Act that requires companies to notify and make public all payments made to foreign governments. (208) The White House rejected publicly this proposal and threatened to veto the bill, since it would undermine transparency and accountability in international energy operations. (209)

After months of legislative inaction, in October 2013, the Energy Committee of the House of Representatives held a hearing on the Agreement and on the discussions in Mexico regarding its Energy Reform. (210) In the hearing, several experts presented encouraging opinions on possible energy reforms in Mexico under consideration by President Enrique Pena Nieto, and contended that the reforms would ensure the supply of energy in North America, would make PEMEX a more reliable partner, and would facilitate the implementation of the Agreement. Finally, in December 2013, a couple of days after major energy reforms were adopted at the constitutional level in Mexico, the U.S. Congress and Senate approved the 2012 Agreement as part of the Bipartisan Budget Act of 2013. (211) The threat of presidential veto was removed, because the final version of the bill did not contain any disclosure exceptions to the Dodd-Frank Act.

B. Preamble and the Guiding Principles of the 2012 Transboundary Agreement

An important aspect of the 2012 Agreement is the recognition of some of the principles discussed in previous Parts of the study that reflect international practice and the possible existence of a binational customary norm between the United States and Mexico. The preamble of the Agreement states that the intention of the parties during the negotiation of the treaty, including the 2000 Treaty, was to establish a "legal framework to achieve safe, efficient, equitable and environmentally responsible exploitation of transboundary hydrocarbon reservoirs that may exist along the maritime boundaries." (212) In the same vein, they affirmed that by signing the Agreement the parties are recognizing the "principles that promote equitable and reasonable utilization of transboundary resources, and desiring to maximize the long term benefits from their exploitation, as well as to protect the resources of both Parties." (213) The recognition that these are the guiding principles of the Agreement has particular legal effects for its interpretation because they reflect the object and purpose of the Agreement. As noted in the Vienna Convention on Treaties, the parties, the institutions created by the Agreement and any future tribunals are bound to interpret it in light of these principles. (214) In practice, this can have important effects for the negotiation of particular contracts between the licensees or the States: any legal agreement, be that a licensee from a government to exploit a field or a joint venture between companies, that deals with the way a transboundary field is to be exploited must try to maximize the exploitation of the resources in a safe, equitable and environmentally responsible way. How do you identify the most efficient method for exploiting the resources? How do you measure efficiency, or an environmentally responsible method? Would efficiency be related in terms of the best interest of the State or in terms of the best commercial interest of the licensees? What would happen if a method of exploitation is efficient in economic terms, but it is less environmentally responsible or if its safety protocols are dubious? How would a tribunal or the institutions created by the Agreement answer these questions? These questions are not resolved by the text of the Agreement. It is important to note that in the offshore energy industry what might be considered efficient to the State might not be considered as such by an international consortium of oil companies, as exemplified by the words of Judge Jessup in the North Sea Case:

   It has been stated that "the oil industry is strictly
   international" and in many of the explorations in the
   continental shelf in the North Sea the interests of one
   petroleum company are not confined to a single
   national sector and are frequently blended in a group or
   consortium which may contain as many as a dozen
   separate companies. The same drilling rigs, barges or
   platforms are chartered to operate first in one national
   sector and then in another.

   ....

   However, the interests of the petroleum companies are,
   of course, not identical with those of the Governments
   of the several States. The latter are concerned with the
   national revenue to be derived from fees, taxes, royalties
   or profit-sharing, with increases in national productivity,
   and also with the impact on the national balance of
   payments if imports of fuels to meet domestic needs are
   eliminated or reduced by the production of natural gas
   in the State's portion of the continental shelf. (215)

The parties to the 2012 Agreement, by not providing a specific definition of the terms listed in the preamble--efficient, equitable, environmentally responsible--have left the terms open to interpretation, and consequently leave open the possibility that the regime could develop in an unexpected way that affects the interests of one or both States. This is important to note particularly considering that Mexico and the United States have different understandings of the nature of these resources: for Mexico these are property of the State and they should be exploited in a way that maximizes the profit for the government; in the United States they are resources that should be exploited by private parties in the most efficient way that benefits the citizens of the United States and ensures the efficient supply of energy to the United States under a national security paradigm. (216)

Despite these potentially destabilizing features, the 2012 Agreement provides a valuable framework for the two nations to move forward when transboundary hydrocarbons are located. As mentioned in Part V that described the 1978 and 2000 Treaties, it took more than thirty-four years for the United States and Mexico to come to terms in the way both nations were to going to handle the issue of transboundary resources in the Gulf of Mexico. All this despite the fact that they had already a well-settled binational practice that dealt with water resources along the terrestrial border. For this reason, even with the described ambiguities and difficulties that will be explained below, the 2012 Agreement is a step forward in U.S.-Mexico relations.

C. Reporting Requirements and Information Sharing

Article 4 of the 2012 Transboundary Agreement sets up several reporting requirements for activities conducted near the maritime boundary. Generally, written notice must be provided if either party is aware of the existence of a transboundary reservoir or if a licensee has submitted an exploration plan within three nautical miles of the boundary. (217) If a licensee has submitted a plan for "Development" or "Production" of an area within three miles of the boundary, parties must go beyond just a written notice and must provide the plan to the other party. (218)

D. Determining the Existence and Allocation of a Transboundary Reservoir

Article 5 sets up the framework for determining whether a transboundary reservoir exists. The Agreement requires the parties to consult each other in order to determine the existence of a transboundary reservoir and to share geological information provided for by their licensees which may be relevant to the determination of whether a transboundary reservoir exists. (219) In case the parties fail to reach an agreement on the existence of a transboundary reservoir, this Article, in conjunction with others, sets up the framework in which the determination may be made by a Joint Commission (220) or Expert Determination. (221)

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