US/Mexico Agreement Concerning Transboundary Hydrocarbon Reservoirs

Background: This Agreement would establish a framework for the cooperative exploration and exploitation of hydrocarbon resources that cross the United States-Mexico maritime boundary in the Gulf of Mexico (excluding areas under the jurisdiction of Texas). It would, for the first time, allow leaseholders on the U.S. side of the boundary to cooperate with the Mexican national oil company, Petroleos Mexicanos (Pemex) in the joint exploration and exploitation of hydrocarbon resources. The Mexican market has long been closed to participation by U.S. companies, but a 2008 energy reform law in Mexico opened a window for joint exploration and exploitation with foreign entities as long as it would take place pursuant to an international agreement on transboundary reservoirs. The Agreement would take advantage of that opening. It would also end the moratorium on exploitation along the boundary in the Western Gap and provide U.S. leaseholders with legal certainty regarding the exploitation of transboundary reservoirs along the entire boundary so as to encourage investment.

The Agreement would allow leaseholders on the U.S. side of the boundary and Pemex to explore and exploit a transboundary reservoir as a “unit,” as leaseholders are permitted to do on the U.S. side of the boundary. Unitization – where two or more leaseholders manage the exploration and exploitation of a resource as a unit through a single operator – promotes the rational, efficient production of a resource, reduces waste and the drilling of unnecessary wells (and therefore reduces the corresponding environmental risk).

In cases where a unitization agreement is not reached, the Agreement would ultimately allow for unilateral production by each side, up to the amount of hydrocarbons that exist on its side of the boundary.

In addition, the Agreement provides a carefully calibrated mechanism to resolve disputes regarding the development of specific reservoirs.

Importantly, the Agreement would also establish a system of joint inspections. Each side would regulate activity on its side of the boundary, but would also have the ability, under an inspection system to be developed, to inspect activity that takes place under the Agreement on the other side of the boundary.

In sum, the Agreement provides a much needed mechanism to facilitate the safe and efficient exploration and exploitation of hydrocarbon resources along the maritime boundary and provides new opportunities for U.S. companies.

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Source: U.S. Department of the Interior