The transboundary agreement that would allow Mexico and the US to jointly explore and produce hydrocarbons in the western part of the Gulf of Mexico (GoM) has won Senate approval.

The action is a step toward opening nearly 1.5 million acres that are currently under moratorium, removing legal uncertainty caused by maritime border issues. Senators approved the bill Saturday, without amendment and by unanimous consent, as the government shutdown loomed. The move came more than a year after government officials from both countries signed the agreement and Mexico ratified the deal.

The legislation authorizes the secretary of the interior to implement the terms of the agreement. These include approving unitization agreements and related arrangements for the exploration, development, or production of oil or gas from transboundary reservoirs and geological structures; disclosing necessary E&P information concerning the transboundary reservoir or geological structure that may be considered confidential, privileged, or proprietary information; and “accepting and taking action not inconsistent with an expert determination under the agreement.”

The House passed its version of the bill in June. A key difference between the two is the House version exempts oil and gas companies from a Dodd-Frank Wall Street Reform and Consumer Protection Act provision requiring them to disclose payments made to a foreign government.

“The agreement signed by the Obama Administration and Mexico specifically provides what royalty payments Mexico would receive from energy developers,” according to the legislative digest for the bill. “However, under [Dodd-Frank], companies that commercially develop oil, natural gas, or minerals are required to disclose payments made to a foreign government. This could create a potential conflict because Mexico has yet to decide how [it] will collect royalties and could potentially set regulatory measures that prohibit disclosure of payments.”

Whether the House and Senate can reach agreement on the two versions remains to be seen. Moreover, US District Judge John D. Bates issued a ruling in July that forces the Securities and Exchange Commission (SEC) to revamp the payment disclosure rules. Among the rationale was that the SEC rejected without reason industry requests for waivers in countries prohibiting payment disclosure. These countries included Angola, Cameroon, China, and Qatar.

“The [SEC] could have limited the exemption to the four countries cited by the commentators or to all countries that prohibited disclosure as of a certain date, fully addressing this concern,” Bates said in the decision concerning the case of American Petroleum Institute vs. SEC and Oxfam America Inc. “More fundamentally, given the proportion of the burdens on competition and investors associated with this single decision, a fuller analysis was warranted.”

Information from the Bureau of Ocean Energy Management shows the GoM acreage could hold up to an estimated 172 MMbbl of oil and 8.6 Bcm (304 Bcf) of natural gas.

Currently, areas within 2.3 km (1.4 miles) of the boundary are under moratorium, and companies for the most part have avoided bidding on blocks in the area given legal uncertainties concerning the boundary despite the potential for hydrocarbon finds. Tommy Beaudreau, acting assistant secretary for the Bureau of Land and Minerals Management, told the committee that despite the more than US $23 billion invested in leases by the oil and gas industry, leasing in the transboundary areas has been muted.

The transboundary pact has garnered bipartisan support.

“The agreement encourages joint development of shared reservoirs and individual development by US and Mexican companies. Further, the agreement gives legal certainty to US companies to explore joint ventures with Mexico’s national oil company, requires joint safety inspection teams, and calls for the adoption of common safety and environmental standards,” US Senate Committee on Energy and Natural Resources Chairman Ron Wyden, D-Oregon, said in a prepared statement on the agreement for an Oct. 1 hearing.

“It is the hope that, through this agreement and the proposed energy reforms in Mexico, that the energy revolution the US is currently experiencing can extend throughout the Western Hemisphere. This would make our region more competitive and less reliant on politically tumultuous states for obtaining energy.”

During the hearing, Sen. Lisa Murkowski, R-Arkansas, voiced her support for the agreement.

“I view this agreement as an important step toward greater North American energy security. The Congressional Research Service says that the US and Canada are joined at the well when it comes to energy, and I believe we should strive for the same relationship with Mexico,” Murkowski said. “Though we are strong trading partners and tied economically, more cooperation and integration [are] necessary to reach this goal.”

Contact the author, Velda Addison, at vaddison@hartenergy.com.

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