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Feature 070813 Baker

Monday, July 8, 2013

Observations on Oil Agreements with Mexico and Excluding Cuba

By George Baker

On June 27, in HR 1613* (the Outer Continental Shelf Transboundary Hydrocarbon Agreements Authorization Act), the U.S. House of Representatives approved a resolution that authorized the implementation of the 2012 agreement that had been negotiated with Mexico. The Act amends the Outer Continental Shelf Lands Act by adding a new Section 32, which authorizes the Secretary of the Interior to implement the terms of any transboundary hydrocarbon agreement that has been entered into by the President and approved by Congress. It also requires that the President promptly submit any such future agreement to the Congress within 180 days.

This is a good start, as the US has never negotiated a cross-border oil agreement. The reference to the time limit for submission to Congress alludes to the year-long delay in the submission of the agreement with Mexico.

The bill does go off-track in two places: the new provisions would cover Canada, Russia, The Bahamas and Bermuda, but specifically exclude Cuba. The future of the Gulf of Mexico (including Cuba's share) should be guided by a goal of a common standards of commerce, safety and environmental protection; so it makes no regulatory or environmental sense to exclude Cuba.

The bill introduces an exemption from Dodd-Frank reporting requirements from oil and gas activities associated with the exploration and production of oil, gas or minerals. In relation to Mexico, however, there will be no payment of "royalties" at all; as any oil produced in a unitization agreement of a cross-border oilfield will be delivered to Mexico as its proportional share of a common resource.

Such payments would be required only were Mexico to adopt a concession system analogous to that employed to regulated US federal lands and waters. Such a system would be applicable to acreage outside of the border region.

In the drawn-out negotiations that began in 2009, Mexico restricted its agenda to cross-border oilfields, and never acknowledged the policy elephant in the room: the E&P by IOCs beyond the border.

At this point, there is no basis for concern about reporting of payments to Mexico, as there will be none. It's not even certain that industry will accept the assurances of the negotiated, bilateral framework as constituting a framework for commercial development.

* Bill Summary & Status: H.R. 1613: Outer Continental Shelf Transboundary Hydrocarbon Agreements Authorization Act, 113th Congress (2013 - 2014)

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Mexico Energy Intelligence, Energia.com, Houston, TX.  George Baker is the director of Energia.com, a publishing and consulting firm based in Houston.  He can be reached via e-mail at g.baker@energia.com.


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