US and Mexico Sign Accord on Offshore Drilling

Yesterday, the State Department signed an agreement to resolve a long-standing dispute on oil and natural gas leases that straddled the maritime boundaries between the US and Mexico. The result is the creation of a legal framework for US companies to work in tandem with Pemex (Petroleos Mexicanos), the Mexican state-owned oil company, to develop offshore energy projects on roughly 1.5 million acres of the Outer Continental Shelf.

According to a fact sheet released by the State Department, "The Agreement is designed to enhance energy security in North America and support our shared duty to exercise responsible stewardship of the Gulf of Mexico." The Transboundary Agreement, as it is referred to by State, maintains the national sovereignty and regulatory regimes of both countries, but it establishes a joint set of safety protocols that will be applied towards development in the disputed territory. While the accord still requires ratification by lawmakers in both countries, leasing to US companies could begin as early as June and may contain up to 172 million barrels of oil and 300 billion cubic feet of natural gas.

While Mexico is the second largest exporter of oil to the US behind Canada, declining production by Pemex has reduced its standing to the fourth largest oil company in the world despite significant substantial reserves. To improve output, Pemex has sought to expand its ultra-deepwater drilling efforts into areas up to 9,000 feet in depth that are close to the US maritime boundary. Mexico's chief offshore regulator with the National Hydrocarbons Commission has expressed serious concerns about the company's limited deepwater expertise and their ability to respond to a catastrophic incident like Deepwater Horizon. The National Hydrocarbons Commission has a staff of only 60 and has a budget for regulatory activities that is less than 2% of the budget for the Department of Interior's oversight actions. Further complicating cooperative efforts is a constitutional prohibition in Mexico that prevents foreign investment in developing its subsurface minerals and resources, which limits the technical capability of private companies to meet the myriad challenges of operating in deepwater environment.

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