[Senate Prints 112-43]
[From the U.S. Government Publishing Office]
112th Congress
2d Session COMMITTEE PRINT S. Prt.
112-43
_______________________________________________________________________
OIL, MEXICO, AND THE
TRANSBOUNDARY AGREEMENT
__________
A MINORITY STAFF REPORT
PREPARED FOR THE USE OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
One Hundred Twelfth Congress
Second Session
December 21, 2012
U.S. GOVERNMENT PRINTING OFFICE
77-567 WASHINGTON : 2012
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COMMITTEE ON FOREIGN RELATIONS
JOHN F. KERRY, Massachusetts, Chairman
BARBARA BOXER, California RICHARD G. LUGAR, Indiana
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania MARCO RUBIO, Florida
JIM WEBB, Virginia JAMES M. INHOFE, Oklahoma
JEANNE SHAHEEN, New Hampshire JIM DeMINT, South Carolina
CHRISTOPHER A. COONS, Delaware JOHNNY ISAKSON, Georgia
RICHARD J. DURBIN, Illinois JOHN BARRASSO, Wyoming
TOM UDALL, New Mexico MIKE LEE, Utah
William C. Danvers, Staff Director
Kenneth A. Myers, Jr., Republican Staff Director
(ii)
?
C O N T E N T S
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Page
Letter of Transmittal............................................ v
Oversight Study.................................................. 1
Mexican Oil and Gas: Critical for Mexico's Prosperity, in
Critical Need of Reform........................................ 2
Natural Gas: An Emerging Priority................................ 5
Considerations in Oil Reform Policy and Politics................. 6
Transboundary Agreement.......................................... 8
Why the TBA Matters..............................................
North American Energy Security................................... 12
Recommendations for Enhancing U.S.-Mexico Bilateral Cooperation.. 13
Appendix
Appendix I.-- Text of the Agreement between the United States of
America and the United Mexican States Concerning Transboundary
Hydrocarbon Reservoirs in the Gulf of Mexico................... 17
(iii)
LETTER OF TRANSMITTAL
----------
United States Senate,
Committee on Foreign Relations,
Washington, DC, December 21, 2012.
Dear Colleagues: Energy security is a vital issue for
United States foreign policy and economic growth. Increases in
U.S. domestic oil production are helping relieve our import
dependence, yet our nation will rely on oil imports for decades
to come. Strengthening trade with reliable, friendly neighbors
Canada and Mexico would make a valuable contribution to our
future.
I directed Senate Foreign Relations Committee Senior Staff
Members Neil Brown and Carl Meacham to assess opportunities for
enhancing the U.S.-Mexico oil and natural gas relationship.
Mexico is a reliable trading partner. Yet it continues to
struggle to maintain and increase its domestic oil production.
Falling quantities of Mexican heavy oil available for U.S. Gulf
Coast refineries have actually helped lead to increases in
Middle Eastern imports to the U.S. even as our total imports
have fallen.
Congress needs to understand the obstacles--and
opportunities--ahead in Mexico's oil production. Put bluntly,
we know that we can rely on Mexico as a trading partner, but we
do not know the quantity or the quality of oil to expect it to
be able to export in the years ahead.
Given domestic political sensitivities about oil within
Mexico, the bilateral relationship on this topic has struggled.
Yet, the newly elected President of Mexico has signaled a
desire to work together on energy issues, and the largest
opposition political party joins in that call.
I urge my colleagues, and the Obama administration, to
seize today's opportunity. My staff identified specific areas
in shale gas, safety enhancement, transparency, and security
that represent near-term opportunities for bilateral gain.
I strongly encourage the Obama administration to send the
U.S.-Mexico Transboundary Agreement, signed in February of this
year, to Congress and urge my colleagues to pass the agreement.
The Transboundary Agreement is good for energy security, good
for the environment, good for U.S. commercial interests, and,
most critically, can open the door to bilateral engagement on
shared energy interests.
This report provides useful insight on the need and
prospects for domestic oil sector reforms in Mexico and
important recommendations for the U.S. government to take in
order to strengthen U.S.-Mexico energy cooperation. I hope that
you find this report by Mr. Brown and Mr. Meacham helpful and
look forward to working with you on these issues.
Sincerely,
Richard G. Lugar,
Ranking Member.
(v)
OIL, MEXICO, AND THE
TRANSBOUNDARY AGREEMENT
----------
Oversight Study
Senator Richard G. Lugar, Ranking Member of the Senate
Foreign Relations Committee, requested senior professional
staff members to review opportunities for enhanced U.S.-Mexico
engagement on oil and gas issues including the U.S.-Mexico
Transboundary Agreement, which requires Congressional action to
take effect. As part of that review, members of Senator Lugar's
staff traveled to Mexico City in October 2012 to meet with then
President-elect Enrique Pena Nieto's transition team and
leaders from the Mexican Congress, PEMEX, the Mexican energy
regulator Comision Nacional de Hidrocarburos, U.S. industry,
academic specialists, and U.S. officials at Embassy Mexico
City.\1\ This report contains their public findings and
recommendations.
Congressional attention to the Mexican energy situation is
critical for understanding bilateral issues between our
countries and for consideration of U.S. energy security. The
United States has a profound interest in economic prosperity
and political stability in Mexico, and energy is foundational
to both interests. Oil is vital for the Mexican federal budget,
underwriting both social programs and law and order, and the
oil industry is an important aspect of broader economic
activity. Stability and growth, or lack thereof, in Mexico's
oil and gas sector can directly impact issues of bilateral
concern.
Mexico is also important for U.S. energy security,
providing a nearby and politically reliable source for oil
imports. Recently overtaken by Saudi Arabia, Mexico has been
the second largest source of oil imports to the United States,
with Canada being the largest. However, falling Mexican oil
production and rising demand led to increases in U.S. imports
from the Middle East, and maintaining the current levels of
Mexican oil production, let alone achieving rapid growth in
production, have a dubious future without reforms.\2\ Thorough
energy security policy in Washington requires constant
assessment of the Mexican oil industry. If Mexico does not
reform its domestic energy production situation, the U.S.
cannot rely on current levels of imports.
The SFRC staff's examination was timely because of recent
Mexican elections for President and Congress. The newly elected
Mexican President, Enrique Pena Nieto, campaigned promising to
institute energy reforms and has continued that theme since
taking office. Reform, or lack thereof, negotiated between the
Mexican President and Congress will have consequences for the
U.S. energy portfolio and commercial interests. The examination
is also timely because the United States Congress is expected
to review and act on the U.S.-Mexico Transboundary Agreement
signed in February 2012, which was ratified in Mexico with a
great deal of fanfare and also has support of major
international oil companies operating in the United States.
Mexican Oil and Gas: Critical for Mexico's Prosperity, In Critical Need
of Reform
Mexican hydrocarbon resources belong to the Mexican people.
Popular enthusiasm and national pride is attached to those
resources, and many Mexicans directly depend on the existing
oil industry for their livelihood and business interests.
Crossing into the territory of energy sector reform requires
political courage on behalf of Mexican politicians. The United
States government emphatically recognizes the privileged
position of oil in Mexico's politics.
Nonetheless, the United States has direct interests in the
future of oil and natural gas in Mexico. Most important among
U.S. interests is enhancing the prosperity of the Mexican
people. With strong cultural ties and a shared border, the U.S.
benefits when Mexico grows. Petroleos Mexicanos (PEMEX) has
successfully staved off years of decreasing oil production and
discovered deep water resources, but it has not been able to
meaningfully increase production beyond its zone of comfort in
shallow water. Without reform, Mexico's oil resources will not
be developed in a way that translates into a higher quality of
life for Mexicans.
Mexico is a reliable supplier of oil to the United States.
The question for U.S. policymakers is what volumes Mexico will
be able to export in the future. Mexican production dropped by
more than a quarter in the last decade, leaving U.S. refiners
on the Gulf Coast geared for heavy oil having to look
elsewhere. Venezuelan heavy oil production has also collapsed.
Canadian heavy crude production is increasing in the oil sands
region, but pipeline infrastructure is insufficient. Therefore,
in effect, the U.S. has had to increase imports of Middle East
crudes in order to make up for shortfalls in Mexico.
Understanding the likely trajectory of reform in Mexico is
necessary to appropriately plan for future volumes and types of
crude oil traded with the United States, which also will have
broader implications for U.S. security and economic growth.
Mexican energy reforms will determine to what extent Mexico
will be part of future U.S., and North American, energy
security.
Progress, but can it last? A snapshot of Mexico's oil sector
Mexico has a long history of oil production and has
prospects for a bright future as an oil power, but such an
outcome is not guaranteed. Mexico sits atop significant amounts
of oil estimated at 10.4 billion barrels of proven reserves,
but that number could more than double when unconventional and
deep offshore reserves are fully proven. The large
unconventional Chicontopec area alone is estimated to hold up
to 17.7 billion barrels.
Turning Mexico's oil resources into prosperity for the
Mexican people is a tremendous challenge for PEMEX, its 100%
state-owned national oil company established in 1938 after
international oil companies were expelled.\3\
Mexican oil production relies primarily on a few major
fields, the largest of which (Cantarell) is in steep decline.
Oil production in Mexico peaked in 2003 at about 3.4 million
barrels per day (mbd), falling to 2.6 mbd in 2010. That
precipitous fall is due primarily to the estimated 75% decline
in production from the massive Cantarell field from its peak.
In recent years, Cantarell's decline has been compensated for
by the Ku-Maloob-Zaap (KMZ) fields; however, many analysts
doubt the longevity of current production in those fields.
Large increases in direct and third-party investment in
recent years has enabled PEMEX to halt net decreases in
production, at least temporarily. Importantly, PEMEX also now
reports achieving a 100% replacement rate for reserves,
improving prospects for continued production. Increased
investment also has led to discoveries of large new deep water
resources at Trion, Supremos, and Maximino, achievements of
which PEMEX officials are justifiably proud. Several
interlocutors credited energy reforms passed in 2008 for
enabling those finds by giving PEMEX more flexibility to
partner with international companies on a service contract
basis, building on the shift to reliance on contracting
services to enable investments stretching from the late 1990s.
PEMEX leaders plan to raise production to 2.7 mbd in 2013
and 3 mbd by 2017, requiring up to $38 billion annually in
investment. Near term growth is expected to come primarily from
Chicontopec, a highly complex unconventional onshore project
that is subject of great hope and scorn. Despite years of
development and reportedly $5 billion in investment, the
project is well behind expectations and currently only 70,000
barrels per day are produced, which puts claims of near-term
growth in serious doubt. Over the longer-term PEMEX has set a
goal to increase production to 3.3 mbd by 2024. Achieving that
goal will require significantly more new production than the
difference between the 3.3 mbd goal and today's 2.6 mbd given
expected large declines in KMZ.
Field decline emphasizes the urgent need for Mexico to have
several new projects in the pipeline in order to maintain and
boost production. Skepticism of PEMEX's ability to compensate
for declining fields has led to some dire forecasts. The U.S.
Energy Information Administration has estimated that Mexico
will be a net importer of oil by 2020,\4\ thus also raising
concerns about impacts on its balance of trade. While not
investigated on this StaffDel, that situation highlights the
need for more attention to demand management policies and
continued reform of fuel subsidies.\5\
Mexico needs a diverse portfolio of future oil projects
with staggered capacities over time. PEMEX leaders have
identified such a set of oil development projects, including
deep offshore and the Chicontopec unconventional area, each of
which are complex undertakings with high potential, forming a
growth strategy to complement conventional shallow offshore
projects and investment in enhanced recovery at previous wells.
Some observers point out that privatization of the sector would
bring competition and private investment; however, that
prospect is so remote as to be non-existent and not under even
speculative consideration. Therefore, the question is what
PEMEX can achieve on its own or in partnership with
international companies.
Most interlocutors are skeptical of PEMEX having the
capital or expertise necessary to develop deep offshore fields,
and, probably, the unconventional reserves at Chicontopec.
Analysts point out that PEMEX took over 15 years and more than
20 wells to discover the most recent deep water finds.
Moreover, deep water requires massive investments over many
years, and even the world's largest international oil companies
(IOCs) partner with one another to generate capital and spread
the risk of such investments. PEMEX's capital limitations are
further complicated by the company's large debt burden. On the
other side, proponents of PEMEX's ability argue that they have
gained expertise and dramatically lessened the risks implicit
in development.
PEMEX likely could develop a deep offshore project by
buying technology and expertise through very generous service
contracts with many of the same companies with which the IOCs
contract. However, under current capital and management
constraints,\6\ PEMEX alone is extremely unlikely to have the
resources necessary to undertake multiple massive deep offshore
developments while also investing in conventional oil
production. Moreover, while some technology can be purchased
through service contracts, project management expertise to run
that type of project is not easily acquired.
Therefore, the decision on whether IOCs should be granted
access individually or in partnership with PEMEX to develop oil
in Mexico depends on how much oil the Mexican Government wants
produced and over what span of time. Interlocutors did not
indicate that the expectations of either of the largest
political parties or the Mexican public are conducive to the
long time horizons it would take for PEMEX under current
conditions to fully develop Mexico's oil.
Dealing with this challenge is complicated by the fact that
PEMEX is as much a bureau of the government as it is a company.
In defiance of conventional business sense (of both private
companies and state oil companies), multiple Ministries and a
politically-appointed Board of Directors make key decisions,
including deciding the amount and direction of investment in
exploration and development of future production. It is not
clear that all board members put the interests of the company,
and hence future finances for the Mexican state, at the
forefront of decision making. Having politicians with multiple
constituencies (including the petroleum worker's union and
companies that thrive off the oil supply chain) and short-term
political considerations often make essential decisions is
incompatible with the long-term planning needed in the oil
sector. However, precisely because PEMEX can be a useful tool
for political goals, achieving fundamental structural change is
very difficult.
In sum, the authors agree that reform must happen to
sustain and robustly grow Mexican oil production. The stakes of
doing so are high for the Mexican Government. PEMEX directly
provides 40% of government revenues, including significant
resources transferred to the individual Mexican states.
Decreased oil production has, thus far, been offset by higher
than average global oil prices, but no government budget should
rely so heavily on volatile commodity markets. While some
commentators have argued that the budgetary pain of falling
production would be useful to wean the budget from PEMEX, such
a prospect could have wide repercussions on all programs funded
in the Mexican budget, from poverty alleviation to the rule of
law, let alone broader economic growth.
Natural Gas: An Emerging Priority
While oil provides vital government revenue, lack of
natural gas development threatens to stunt Mexican industry. It
is reported that parts of Mexico could face natural gas
shortages in the coming year. Meanwhile, Mexico sits on a sea
of unconventional natural gas reserves.
The current natural gas situation--which several
interlocutors identified as a ``crisis''--results from Mexican
natural gas being priced artificially low because it is linked
to the U.S. price, which has fallen with the rapid expansion of
shale gas supplies. Yet the impact of U.S. supply on Mexican
prices exists despite the limited physical integration of the
two countries' physical gas markets. When combined with gas
shortages in Mexico, this indicates the need both for more
pipeline connections to the United States and for building out
Mexico's domestic gas infrastructure. Doing so is made
difficult, however, by confusion in the Mexican market where
the downstream natural gas sector has been relatively
liberalized while the upstream remains under the monopoly
control of PEMEX. The lack of an appropriate price signal
drives up demand while, reportedly, causing PEMEX to ``shut-
in'' some conventional production due to lack of profitability.
Several interlocutors pointed specifically to the need for
expedited pipeline construction to connect with Texas. Quick
U.S. federal and state actions to permit pipelines could
helpfully reduce short-term supply pressures in Mexico and help
open new market opportunities for U.S. gas. Long-term economic
growth in Mexico, however, is believed to be better served by
development of its abundant domestic resources. As an analyst
said, ``You cannot build a future in Mexico based on cheap gas
imports from the U.S.''
The United States government estimates that Mexico has one
of the largest shale gas reserves in the world at more than 680
trillion cubic feet (tcf) of technically recoverable reserves,
although Mexico itself uses estimates as low as 140 tcf. Much
of that shale gas is thought to be contained in an extension of
the Eagle Ford formation that is already producing in Texas.
PEMEX reportedly has drilled just a handful of exploratory
wells, and with prices being held down by the United States gas
boom, it has little economic incentive to invest heavily in
shale in its own right, let alone the opportunity cost of that
capital compared to much more lucrative oil. Absent natural gas
pricing reform, it is unlikely that PEMEX will choose to invest
heavily into shale gas.
Awareness of shale gas potential is growing in Mexico; at
the time of the authors' visit, for example, the Mexican
government was hosting a meeting of shale gas experts. Many
interlocutors were carefully watching shale developments in the
United States both in terms of direct job creation and in wider
economic opportunities for power generation, chemicals, and
manufacturing. Development of shale could be particularly
helpful for economic growth in Mexico's northern border region.
The authors found that developing Mexico's shale gas
reserves, as with technologically challenging new oil
frontiers, will require energy reform to galvanize private
investment, technology, and expertise. At the same time, an
additional level of government capacity building will be useful
to aid official understanding in the geology, economics, and
environmental protections necessary for shale production. The
U.S. State Department's Unconventional Gas Technical Engagement
Program is well positioned to enable access to needed
information, if the Mexican Government chooses to participate.
Most interlocutors were optimistic that gas reforms to
allow private investment would come to fruition because natural
gas is generally regarded to be less politically sensitive than
oil. The most common fear of such a reform expressed by
interlocutors was that if gas reform passed separately than oil
reform, it could stunt momentum for the latter. Moreover, it is
highly unlikely that a successful natural gas reform could be
completely delinked from oil. Based on the U.S. experience,
much of the profitability of shale gas comes from associated
high-value liquids co-produced with the gas, so it seems
unlikely that significant private capital will flow if liquids
are not dealt with in reform.
Considerations in Oil Reform Policy and Politics \7\
There is no shortage of ideas for possible reforms both
within PEMEX, the Mexican Government, and outside. As U.S.
Senate staff who have themselves been part of an unpredictable
legislative process, the authors will not speculate on the
exact nature of reforms. Rather, U.S. interest lies primarily
in assessing whether reforms will be meaningful and whether
U.S. companies will continue to have access to provide goods,
services, and investments to the Mexican sector regardless of
the nature of reform.
The key marker for any reform capable of significantly
improving Mexico's oil production horizon is whether that
reform will produce IOC willingness to invest their capital and
expertise. Interlocutors disagreed on the extent to which PEMEX
acting alone or through service contracts can marginally
increase production, but virtually none disagreed that multiple
large-scale investments, particularly in deep water and
Chicontopec onshore, will require external sources of capital
and expertise.
PEMEX itself had recently embraced reform under the
leadership of Juan Jose Suarez Coppel, PEMEX's former head. The
stance of Emilio Lozoya Austin, Suarez Coppel's recently
announced successor as sitting head of PEMEX, will be vital to
understanding what kind of reform the Pena Nieto government is
considering.
Under Suarez Coppel, PEMEX advocated a three step process
by which PEMEX would gain financial autonomy, enable risk-
sharing with IOCs and recapitalize PEMEX (which suffers under
heavy debt burden, including large unfunded employee benefits),
and, eventually, open the sector to concessions putting PEMEX
in direct competition with IOCs. In other words, to undertake
reforms that would move PEMEX to ``run like a business'' rather
than an ``economic development agency,'' as described by a
senior official.
President Pena Nieto has several times echoed the call for
internal PEMEX reform by indicating it might be more like
Brazil's PETROBRAS. While no specifics have been offered,
presumably that refers to the ability of PETROBRAS to directly
raise capital and ceding a portion of government ownership.
However, the PETROBRAS example is a tricky one. On the one
hand, the company has global reach and laudable expertise. On
the other hand, large discoveries of domestic oil in Brazil
have precipitated increased political influence on the
company's affairs.
Given the entrenched interests in keeping PEMEX itself
viable, its key supply contracts in place, its union workers
employed, and its funding for the government budget in place,
it is unlikely that any reform option would significantly
challenge PEMEX's dominance in its current areas of production
onshore and shallow off-shore. However, PEMEX is not currently
producing deep offshore and only marginally producing in
Chicontopec. A frequently discussed legislative option would be
to institute reforms for those two high growth potential areas,
along with unconventional natural gas, so that PEMEX could
concentrate in its zones of expertise.
Any number of management, regulatory, and financial reforms
could be beneficial to Mexico's energy future, but putting oil
production on a sustainable growth path will require IOC
investment and expertise. Many interlocutors expressed that
another incremental reform would not be worth the political
effort; as one observer stated, ``If there's anything we've
learned on energy reforms in Mexico, it is that if reforms are
incremental, they don't work.'' The 2008 reforms, for example,
have received mixed reviews with some proponents pointing to
subsequent deep offshore oil discoveries and opponents
bemoaning politically-appointed but nominally independent board
members lacking in accountability. Politically, however, most
interlocutors credit the 2008 reform with helping to pave the
path of public acceptance for bolder reforms now.
Large-scale IOC investment is likely to come to Mexico if
those companies are able to ``book'' reserves with the U.S.
Securities and Exchange Commission, a financial accounting that
increases the value of the company, which does not exclude
joint ventures with PEMEX. In some jurisdictions, that means
taking ownership and marketing the physical barrels of oil, but
other options may be viable, such as selling the IOC share of
oil to PEMEX at the wellhead so that IOCs never physically take
possession of the oil.
Mexico's need for oil and natural gas reform is widely
acknowledged amongst leaders in Mexico. The primary question
remains whether domestic political conditions will allow reform
to advance. Oil has a privileged status in Mexican identity and
politics akin to the third rail of Social Security in the
United States: it basically works for now, is widely
acknowledged to not work in the future, and any attempts to
reform it may jeopardize a politician's future.
Newly sworn-in President Enrique Pena Nieto campaigned on
reforming the Mexican energy sector and his new administration
appears committed to follow-through on that promise. The
political will to reform is evident; it is less clear whether
President Pena Nieto will garner sufficient support within his
Institutional Revolutionary Party (PRI), including overcoming
possible union opposition, to pass meaningful reform.
Having achieved incremental energy reforms in 2008, the now
opposition National Action Party (PAN) leadership appears
poised to support broader oil and natural gas reform if offered
by the PRI. Previously, some observers had raised concern that
the PAN may hinder reform, as the PRI had done under the
Calderon administration, to frustrate the new Presidential
administration. In addition, some interlocutors indicated that
the leftist Revolutionary Democratic Party (PRD) could attempt
to undermine oil sector reform, including by staging public
demonstrations against any initiative. While the general
contours of political distinctions can be surmised even now,
the exact lines of debate will be determined only when the
government offers the actual scope of their proposed reform
initiative.
It is evident that the current government budgetary
reliance on PEMEX makes it extremely difficult to leave more
capital within the company to make necessary investments. That
will be all the more difficult since President Pena Nieto has
made several campaign promises related to expansion of the
social safety net in Mexico. Reportedly, for example, President
Pena Nieto will reduce PEMEX's 2013 budget by over a billion
dollars compared to expectation. If it is to come, financial
autonomy for PEMEX will likely have to be tied with government
fiscal reform measures.
It is extremely likely that President Pena Nieto will
pursue oil sector reform. Enabling PEMEX to engage in joint,
risking-sharing oil development operations is thought to be an
essential goal of likely legislative proposals pursued by the
Pena Nieto administration, and may be joined by liberalization
in chemicals, refining, and related downstream activity. At the
time of the authors' visit, opinion varied on whether the
administration's reform goals could be accomplished
legislatively or if constitutional amendment would be required,
although the latter is conventional wisdom.\8\ That choice may
ultimately be resolved by vote counting. As a senior PRI leader
said: ``we have the will [for Constitutional amendment], but we
are not sure if we have the votes.''
Transboundary Agreement
The Transboundary Agreement (TBA) provides a bilateral
basis upon which both countries can develop the legal framework
necessary for joint production of oil and natural gas reserves
that extend across our national maritime borders in the Gulf of
Mexico.
Secretary of State Hillary Clinton and Mexican Minister of
Foreign Affairs Patricia Espinosa Cantellano signed the
Transboundary Agreement (TBA), officially called the Agreement
between the United States of America and the United Mexican
States Concerning Transboundary Hydrocarbon Reservoirs in the
Gulf of Mexico, on February 20, 2012, at Los Cabos, Mexico (see
Appendix I for the text of the agreement). The Mexican Senate
ratified the agreement on April 12, 2012, but the Obama
administration has not formally submitted the agreement for
passage in the U.S. Congress.
The TBA was negotiated pursuant to the 2000 Treaty on the
Continental Shelf, which called for the U.S. and Mexico to
establish a mechanism that transboundary oil and gas reserves
would be shared equitably. At the time, concern that companies
would drain Mexican reserves from the U.S. side of the border
was, reportedly, a hot button political issue in Mexico. Upon
conclusion of the 2000 Treaty, the U.S. put a moratorium on oil
and gas exploration on the U.S. side of the maritime border.
It is widely acknowledged in both capitals that the TBA
negotiations moved quickly in order to be completed in time for
the ratification in Mexico prior to 2012 Congressional
elections. Both PAN and PRI political leaders used their
influence to gain support for the TBA, which the Mexican Senate
ratified.
In the United States, the TBA stalled within the Obama
administration despite support by key officials in the
Departments of State and Interior. Prior to completing the
agreement, the Departments of State and Interior participated
in Senate Foreign Relations Committee briefings to discuss
status of the negotiations; however, there was no consultation
on specific text. The SFRC Minority Staff appreciated candid
assessments offered by lead U.S. negotiator Ambassador Richard
Morningstar.
The Obama administration has not taken a position on the
key question of whether the TBA is a treaty or an executive
agreement, although the latter seems the administration's more
likely preference. A treaty would be reviewed by the Senate
Foreign Relations Committee and require the advice and consent
of the Senate, demanding a two-thirds vote, for approval. As
part of the treaty process, the resolution of ratification
would be reviewed and amended in order to provide Congressional
understandings on issues left unclear by the text of the TBA
itself. Additional implementing legislation affecting the
Department of Interior would also be required and need review
by its committees of oversight.
An executive agreement would not require the two-thirds
vote necessitated by a treaty, but instead it would be approved
in the same form as a statute, requiring passage by majority in
both the Senate and the House of Representatives. Legislation
approving the agreement, necessary implementing authorities,
and clarifications regarding certain provisions of the TBA
could be subject to amendment, including by items unrelated to
the TBA itself, thus possibly miring the TBA in other political
fights.
Regardless of whether Congress considers the TBA as a
treaty or executive agreement, Congressional hearings and
thorough examination of the TBA and its implementing
legislative proposals are needed. So far the Obama
administration has declined to officially submit its proposed
implementing legislation to the committees of jurisdiction for
action through regular order.
Congress has a duty and interest in overseeing
international agreements. That holds for the TBA since several
provisions of the TBA invite scrutiny and clarification, even
as the overall agreement is in the interests of the United
States.\9\ For example, TBA Article 16 establishes an ``expert
determination'' that is binding whereas Article 17 establishes
an arbitration mechanism without specifying whether the
arbitration is binding. Both provisions could impact U.S.
federal revenues, among other issues. In another example, the
TBA is intended to improve environmental and safety
protections, but the plain language makes no such guarantee.
Article 19, for example, instructs adoption of common
standards, but that could mean effectively lowering U.S.
standards in the border region if the Interior Secretary is
given unrestricted authority to implement that section.
Why the TBA Matters
The centerpiece of the TBA is the mandate to establish so-
called ``unitization'' agreements by which companies licensed
by the United States and Mexico's state oil company PEMEX would
jointly develop oil and gas reservoirs that have been
discovered to extend across the maritime boundary. In effect,
unitization agreements would work similarly to more well-known
production sharing agreements (PSAs), whereby companies
involved will jointly develop a project in order to spread risk
given that deep water developments will cost billions of
dollars each.
Given PEMEX's lack of experience in deep water, the most
likely outcome is that IOCs licensed by the United States would
operate the developments and utilize infrastructure based on
the United States side of the border, which is more extensive
than that of Mexico near to the area of operation. However, the
United States does have an interest in PEMEX gaining expertise
in operation in deep water in order to improve the integrity of
potential PEMEX operated developments exclusively in Mexican
territory.
A key difference between the unitization agreements
envisioned under the TBA and traditional PSAs is that physical
barrels produced will be allocated to the legal jurisdictions
of the United States and Mexico, presumably in proportion to
the amount of reserves found on their respective sides of the
border. The Mexican barrels, presumably, will be property of
PEMEX as a state entity and the U.S. barrels will be treated
under standard terms of U.S. licensing in the Gulf of Mexico.
It is unlikely that, from the U.S. perspective, the TBA
will meaningfully increase U.S. domestic oil production in the
near term. The maritime border area is deep water and would
require massive investments. Such investments are possible and
should be encouraged by the U.S. government, however, it will
take years to get through regulatory hurdles and normal project
development needs. However, the TBA would unlock the maritime
border region from moratoria, thereby offering long-term
opportunities to increase U.S. domestic production. The TBA
should be seen as a net positive to helping reduce U.S.
dependence on imports from troublesome regions and boosting
domestic economic activity, and therefore the TBA should be
viewed as a benefit for U.S. energy security.
Benefits of physical barrels of oil produced are
potentially much greater in relative importance on the Mexican
side of the border, which is experiencing decline in key
fields, and that would be substantially beneficial to U.S.
interests in Mexican economic growth. As discussed above,
Mexico needs new oil production. Developing deep offshore
production would help diversify the Mexican oil portfolio,
providing economic benefit to the Mexican state whether that
oil is sold for export markets or used domestically. Moreover,
having IOCs working with PEMEX to boost domestic Mexican
production will provide useful commercial opportunities and,
importantly, boost confidence that Mexico will have significant
oil available to export to the United States. As a reliable,
proximate, and friendly neighbor, Mexican oil imports support
U.S. energy security.
The TBA contains numerous provisions in anticipation of
disputes on allocation of resources under a unitization
agreement and implementation of those agreements. Legal
analysis of these provisions is beyond the scope of this
report. However, it is apparent that lack of clarity on the
legal status of the dispute resolution mechanisms should be of
concern to the U.S. Congress. The Obama administration contends
that the agreement's arbitration mechanism is not intended to
produce binding decisions, however, that is not specifically
provided for in the text of the agreement and would be
different from arbitration mechanisms in many other
international agreements.
The TBA further contains requirements of data sharing and
notification of likely reserves between the United States and
Mexico, opening the opportunity for increased government-to-
government collaboration on strategic energy policy choices.
Mexico and the United States are relatively less advanced in
effective communication and linkages of our energy systems than
we are in less politically-controversial economic areas.
Improved ties can improve understanding and galvanize
cooperation in often unexpected ways. In the immediate term,
closer oil sector communication will be beneficial in case of
accidents in the Gulf of Mexico or in case of significant
disruptions to global oil supplies.
On issues of environmental protection and safety, the TBA
envisions that the U.S. and Mexico in the geographic area under
the agreement will have common standards and that regulators
from both countries will have access to oil and gas development
facilities with the ability to order shutdowns in both
jurisdictions if necessary. The Obama administration contends
that means that Mexican environmental and safety standards, and
enforcement, will have to rise to U.S. levels. There is no
guarantee that passage of the TBA will precipitate systemic
improvement in Mexican environmental and safety enforcement,
but any improvement is welcome by the Mexican safety regulator
and should be welcomed in the United States given possible
impacts of a spill on U.S. economic interests and quality of
life.
Perhaps the most important U.S.-specific benefits of the
TBA are three-fold.
First, the TBA will, for the first time, allow U.S.-listed
IOCs to work in partnership with PEMEX, not including service
contracts. Many observers are optimistic that the TBA is the
metaphorical camel's nose under the tent, paving the way to
broader reform in Mexico. There is no guarantee of such an
outcome, however, failure for the U.S. to approve the TBA may
put a drag on Mexican domestic energy reform momentum. The TBA
helps demonstrate that Mexico's oil patrimony can be protected
in a joint production regime with U.S. companies. It was
suggested by some senior officials that passage of the TBA
could help prompt broader domestic energy reform in Mexico.
Second, it is unlikely that the U.S. maritime border areas
would be developed without the TBA, whereas a PEMEX official
indicated desire to begin exploration on the Mexican side of
the border. Potential U.S. opponents of the TBA may argue that
given PEMEX's limited ability to explore in deep water, the
real effect of the TBA will be to reduce IOCs' competitive
advantages. In other words, the opposition argument could
state, the U.S. should simply move forward with exploration
since our companies have the capital and technology to move
more quickly than PEMEX. That criticism neglects the reality
that, over the long-term, the IOCs have a greater interest in
investing throughout Mexican territory than they do in a sliver
of U.S. area along the maritime border. Therefore, those IOCs
would not risk enraging the Mexican government by, potentially,
draining Mexican resources from U.S. territory. Thus, U.S.
interests in increased safe and secure domestic oil production
along the border will be best met with the TBA.
Finally, passage of the TBA would boost U.S.-Mexico
relations on energy issues, which have traditionally lagged.
Mexican officials roundly expressed support for the TBA and
expectation for U.S. ratification in conversation with the
authors. The political impact of not approving and implementing
the TBA would set back U.S.-Mexican relations on energy
specifically and more broadly. Each of our countries has hot
button domestic political issues that take courage for
political leaders to address. In Mexico, oil is one such issue,
and members of both the PAN and PRI put their political weight
behind ratification in Mexico. The U.S. not fulfilling its side
of the agreement would, therefore, be seen as a violation of
trust and could erode confidence. In the extreme, although
unlikely, if Mexico proceeds with domestic energy reforms, U.S.
companies could be shut out of certain opportunities until the
TBA is ratified. However, bilateral benefits of approving the
agreement do not require immediate passage; U.S. commitment can
be demonstrated by the Obama administration formally submitting
the TBA for Congressional approval and commencement of
Congressional hearings.
There is reason to believe that the TBA can receive broad
bipartisan backing in Congress. It would benefit bilateral
relations, promote domestic oil production, and improve
environmental protections in the Gulf of Mexico. Following
normal Congressional procedure to ensure the agreement is
vetted and implementing legislation is reasoned will benefit
each of those goals. External proponents of the TBA will need
to increase communication and advocacy to improve the
likelihood of Congressional leaders acting on the agreement in
the 113th U.S. Congress.
North American Energy Security
The United States and Canada are radically transforming
global energy markets. Unconventional oil and natural gas has
led to a renaissance in North American energy production.
Alongside continued growth in renewable fuel and power sources
and energy efficiency, the continent is poised to be
functionally self-sufficient in energy. Mexico should be
invited to join in the U.S.-Canada driven resurgence.
The impacts of the North American oil and gas powerhouse
reach beyond energy markets. Low-priced American natural gas is
encouraging job creation, industrial growth, and new trade
opportunities. Increasing U.S. domestic oil production and
trade with Canada will keep more American dollars at home.
Regimes that use their oil and natural gas riches for
intimidation and coercion, such as Venezuela and Russia, are
seeing their petro-fueled power eroded.
Affordable and reliable energy supplies are critical to job
creation and quality of life for citizens of the United States
and for our allies Canada and Mexico. North America has long
been a global leader in energy innovation, production, and
market promotion. The geographical proximity of our industrial
and population centers with our resource basins, integrated
supply and transport chains across borders, and cultural
closeness of our peoples has encouraged steadily increasing
coordination and integration of North American energy,
transport, and related infrastructure.
Maximizing the potential for oil and natural gas to promote
economic growth and security across the continent will require
continual improvement in policy communication, infrastructure
rationalization, and regulatory harmonization between the U.S.,
Canada, and Mexico. Canada and the U.S. have largely integrated
energy systems, but fissures over the Keystone XL pipeline
approval process is an example of the need for even greater
regulatory coordination. Comparatively, U.S.-Mexico energy
coordination and integration is well behind.
Power sector reforms prompted by NAFTA demonstrate that a
trilateral effort can have major results. Most importantly, key
leaders from both the PRI and PAN in Mexico City are interested
in making progress. Recently, President Pena Nieto wrote:
``Together with the United States and Canada, [energy shifts]
may well contribute to guaranteeing North American energy
independence--something from which we would all greatly
benefit.'' \10\
Recommendations for Enhancing U.S.-Mexico
Bilateral Cooperation
U.S.-Mexico bilateral cooperation has improved dramatically
in the last 5 years. Mexican sensitivities regarding their
sovereignty are still present in government dealings. But today
they don't prevent bilateral cooperation, as they did in the
recent past. As evidence in this regard, we have seen a
significant increase in Mexico's efforts to institutionalize
and even expand cooperation among both civilian and military
officials.
The willingness to improve Mexican cooperation with the
United States is partly due to the trust developed through the
successful partnership the U.S. and Mexican governments have
built while working against drug trafficking organizations. The
$1.9 billion Merida Initiative through which the United States
provides equipment, training, and technical assistance to
support the Mexican government's battle against the narcotics
trade and transnational crime has created a platform for
greater bilateral cooperation.
Today, our two nations work closer than ever before. Yet,
there are still new areas in which the bilateral relationship
should improve. Interlocutors both from the then-existing
Calderon administration and senior advisers to then-incoming
Pena Nieto administration expressed a similar desire to expand
cooperation in the bilateral relationship. One senior member of
the then-incoming Pena Nieto administration expressed that it
is time to move beyond tourism and drugs, issues which are so
prominent in the bilateral agenda today.\11\ Of course, the
development of a contemporary, comprehensive immigration policy
ranks high when broadening the agenda is discussed.
The U.S. is well positioned to increase dialogue and
cooperation on energy security with Mexico (included in
renewable power and efficiency, which were not part of this
review, but which are areas where cooperation can move forward
without significant political obstacles from the Mexican side).
Key recommendations include:
1. The U.S. should approve the Transboundary Agreement. The
Obama administration should formally submit to Congress
proposed implementing legislation and/or resolution of
ratification for the Transboundary Agreement and
request Congressional review through regular order.
Congress should then quickly establish a timetable for
consideration of that proposal and approval of the TBA.
2. The State Department should integrate oil and natural gas
development into the bilateral agenda. U.S. Embassy
officials are well-versed in energy concerns. The
commercial service is already active in promoting
business relationships, and some agencies are building
technical relationships. The newly established Energy
and Natural Resources Bureau at the State Department is
ably led by a former Ambassador to Mexico, Carlos
Pascual, and the bureau is well-equipped to lead broad
U.S.G. cooperation in areas such as shale gas,
transparency, trade, supply emergency coordination,
demand management, and infrastructure integration
should the Government of Mexico wish to work with the
United States.
3. The State Department should encourage Mexico to partner in
unconventional natural gas issues. Mexico's tremendous
shale gas potential offers it opportunity for local job
creation, economic growth, and gains in its balance of
trade. For the U.S., Mexican development of its shale
could offer valuable commercial opportunities, produce
additional valuable liquids, and strengthen North
America's position in global markets. The State
Department's Unconventional Gas Technical Engagement
Program is a ready vehicle for improved cooperation.
4. The administration should encourage Mexican adoption of
international revenue transparency norms. The Pena
Nieto administration has identified the need for
increased government transparency and anti-corruption
as a priority issue area across the government. The
energy sector is not immune from public suspicion, but
it is perhaps more complicated because any reform meant
to bring international oil company investment must also
overcome suspicion of the companies themselves,
ingrained since nationalization of the industry decades
ago.
An opportunity to directly build confidence in both
the government and potential IOC investors would be for
the Mexican Government to institute strong oil and
natural gas revenue transparency measures. Public
disclosure of revenues received by the government from
IOCs and PEMEX allow citizens to better understand
budgetary pressures on the government and demonstrate
the value that Mexicans receive from IOC investment.
Some countries have also found that revenue disclosure
also presents useful checks and balances between
ministries and can help improve tax collection.
Under the Cardin-Lugar Amendment, Section 1504 of the
2010 Dodd-Frank Act, IOCs would already have to
disclose payments with the U.S. SEC if they invest in
Mexico (PEMEX itself is not covered since it is 100%
state-owned and operating only within Mexico).
Internalizing that process domestically within Mexico
would compound benefits with essentially no additional
cost to IOCs. Additionally, Mexico could work with the
voluntary Extractive Industries Transparency Initiative
(of which PEMEX is a supporting company) to build
capacity and confidence with civil society and
industry.
5. Further enhancing U.S.-Mexico offshore safety coordination
should be a priority for the Obama administration. An
oil spill in the Gulf of Mexico is not contained by
international boundaries, and the U.S. coast is
particularly at risk given circulation patterns.
Mexico is poorly prepared to enforce offshore safety,
which would be of particular concern for U.S. coastal
communities if large scale oil operations are developed
in areas of Mexico close to the maritime border (as
have been recent deep water discoveries). Comision
Nacional de Hidrocarburos (CNH), a Mexican safety
regulator created in 2008, has only 60 employees and,
at the time of authors' visit, had not received
scheduled budget increases from the Finance Ministry.
Most troublingly, CNH has not conducted a single
offshore platform inspection. As a senior official
stated, ``We are running safety risks because of under
investment in this agency [CNH].''
Mexico's CNH and the U.S. Department of Interior's
Bureau of Safety and Environmental Enforcement should
enhance cooperation, including U.S. technical and
logistical support for CNH-led inspections of Mexican
offshore facilities, with reciprocal visits to U.S.
facilities. Reciprocal visits will be particularly
beneficial to build relationships between CNH and IOCs.
The TBA offers one avenue to pursue such an
arrangement, but this could directly be accomplished on
an accelerated timeline given eagerness of CNH
leadership.
6. The State Department should offer technical assistance in
pipeline security. Theft of oil is a growing concern
and can form a dangerous intersection with widespread
security concerns related to criminal networks. In
2011, PEMEX detected 1,324 illegal taps. Approximately
3.35 million barrels were stolen that year, up a third
from 2010, and costing PEMEX over a billion dollars.
7. With Canada, invite Mexico to join a standing process for
North American energy security planning. Inevitable
changes in Mexico's oil portfolio are significant for
North American infrastructure planning. The most
obvious change is in volume of oil. Yet, the type of
oil is also likely to change. Large new deep offshore
discoveries contain lighter oil than Mexico's
conventional heavy Mayan product, whereas U.S. Gulf
Coast refinery capacity is equipped with coking
capacity for the heavier oil. If future Mexican exports
are likely to be lighter than they have been
previously, then investments in Gulf Coast refineries
and infrastructure to connect U.S. and Canadian
refineries will likely reflect that reality.
Numerous trilateral initiatives have been focused on
energy or included energy as a component part. With
shifts already underway in U.S. and Canadian oil and
natural gas production, and the high potential of
Mexico, communication on energy security planning
should be enhanced and formalized in frequent
consultations. Consistent with each of their domestic
planning, the U.S., Canada, and Mexico could jointly
analyze resource availability, infrastructure needs,
and regulatory needs to pursue mutually-beneficial
strategic planning for North American energy.
To conclude, the potential benefits of the United States
and Mexico working more closely on their respective national
energy goals has never been higher. For the United States,
thoroughly understanding Mexico's oil prospects is also vital
for our energy security outlook. Mexico's energy future is in
the hands of Mexicans. The United States can and should talk
plainly, as a friend, and offer our robust partnership.
--------------
Notes:
\1\ The authors thank Clare Seelke, Curry Hagerty, Marc Humphries,
and Angeles Villarreal of the Congressional Research Service
for their background research. The authors also thank R. Chris
Davy at the U.S. Embassy in Mexico City for his support of the
staff delegation.
\2\ Total U.S. imports have been trending downward since 2005, but
imports from some countries are rising. In 2011, the U.S.
consumed on average 18.8 million barrels of oil each day, down
2 million barrels from 2005. Despite that positive trend, the
U.S. oil trade balance continues to worsen given increased
global prices. U.S. Oil Imports and Exports, Neelesh Nerurkar,
Congressional Research Service, April 2012.
\3\ Mexico's oil and natural gas challenges are the subject of
extensive commentary and scholarship. The authors recommend,
for example, work by Lourdes Melgar of the EGADE Business
School, Duncan Wood of ITAM, Miriam Grunstein of CIDE, and the
Oil in Mexico series led by Amy Myers Jaffe of Rice University
in partnership with the University of Oxford.
\4\ Mexico Country Analysis Brief, United States Energy Information
Administration, July 2011.
\5\ Gasoline subsidies were reduced during the Calderon
administration, but the overall cost of subsidy has risen given
increased global oil prices.
\6\ U.S. energy service contract companies are already active in
Mexico.
\7\ Given the political sensitivities of energy reform in Mexico,
this SFRC report is only characterizing prospects for reform,
not details. SFRC Members and staff wanting more detail should
consult with Neil Brown or Carl Meacham.
\8\ Article 27 of Mexico's constitution limits upstream ownership of
hydrocarbons.
\9\ The authors recommend that Committee Members and staff consult
with SFRC Minority Staff Chief Counsel Michael Mattler.
\10\ ``U.S., Mexico should build on their economic ties,'' President
Enrique Pena Nieto The Washington Post, November 23, 2012.
\11\ Often underappreciated is that Mexico is the second largest
trading partner of the United States with bilateral trade
totaling $460 billion in 2011, up 16% over the previous year.
Appendix I.-- Text of the Agreement between the United States of
America and the United Mexican States Concerning Transboundary
Hydrocarbon Reservoirs in the Gulf of Mexico
The United States of America and the United Mexican States
(hereinafter, ``the Parties'');
Considering that the maritime boundaries between the
Parties were delimited by the Treaty to Resolve Pending
Boundary Differences and Maintain the Rio Grande and Colorado
River as the International Boundary signed on November 23rd,
1970 (hereinafter, ``the 1970 Treaty'') and the Treaty on
Maritime Boundaries between the United Mexican States and the
United States of America signed on May 4th, 1978
(hereinafter,'' the 1978 Treaty on Maritime Boundaries'');
Recalling that the continental shelf in the Western Gulf of
Mexico beyond 200 nautical miles was delimited by the Treaty
between the Government of the United Mexican States and the
Government of the United States of America signed on June 9th,
2000 (hereinafter, ``the 2000 Treaty on the Continental
Shelf'');
Bearing In mind that the 2000 Treaty on the Continental
Shelf recognizes the possible existence of hydrocarbon
reservoirs that may extend across the continental shelf
boundary established in that Treaty;
Recalling also that Article 5, paragraph 1, subparagraph
(b) of the 2000 Treaty on the Continental Shelf provides that
the Parties shall seek to reach agreement for the efficient and
equitable exploitation of such transboundary reservoirs;
Desiring 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 established between the
United Mexican States and the United States of America in the
Gulf of Mexico;
Recognizing 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; and
Recognizing that this framework is intended to encourage
the establishment of cooperative arrangements based primarily
on principles of unitization, and further recognizing that
additional cooperative arrangements may be developed outside of
the framework of this Agreement and that such arrangements may
also promote efficient, equitable, and environmentally
responsible exploitation of transboundary reservoirs,
Have agreed as follows:
CHAPTER 1
GENERAL PRINCIPLES
Article 1
Scope
This Agreement shall apply to cooperation between the
Parties with regard to the joint Exploration and Exploitation
of geological Hydrocarbon structures and Reservoirs that extend
across the Delimitation Line, the entirety of which are located
beyond 9 nautical miles from the coastline.
If any provision in this Agreement would require a Party to
alter the terms of any License existing as of the date of the
last notification provided under Article 22, such provision
shall not apply in such case. Notwithstanding the foregoing,
the Parties recognize that It Is in their interest that such
Licenses be subject to all terms of this Agreement, and shall
undertake good faith efforts to bring those Licenses under this
Agreement.
Article 2
Definitions
For the purposes of this Agreement:
``Confidential Data'' means any information or data,
including Geological Information, of any type, kind or
character, whether written or oral, disclosed by one
Party to the other that Is not publicly available and
which Information or data has been identified by the
disclosing Party as confidentlaI;
``Construction and Operation'' means the fabrication,
Installation, laying, use, modification, maintenance,
repair and decommissioning of Facilities and/or
Pipelines;
``Delimitation Line'' means the maritime boundaries
In the Gulf of Mexico delimited in the 1970 Treaty, the
1978 Treaty on Maritime Boundaries and the 2000 Treaty
on the Continental Shelf, and any future maritime
boundary in the Gulf of Mexico delimited between the
Parties, as agreed;
``Development'' means those activities that take
place following discovery and delineation of commercial
quantities of Hydrocarbons, including, but not limited
to, geophysical activities, drilling, platform design,
fabrication and transportation, and installation of all
Facilities, whether onshore or offshore, surface or
subsea, and which are for the purpose of producing the
discovered Hydrocarbons, whether on or off the Unit
Area, excluding any activity related to Exploration or
Production;
``Executive Agency'' means the Agency of the Party
designated to carry out the functions specified in this
Agreement, as each Party may designate from time to
time;
``Expert Determination'' means the resolution of a
dispute by an expert in accordance with Article 16 of
this Agreement;
``Exploitation'' means Development, Production, and
all associated activities, including, but not limited
to, workover, servicing, completion, maintenance, and
decommissioning of wells in a Transboundary Unit,
including treatment and processing of gas or liquids
from and/or the injection, reinjection or storage of
any substance used for or derived from the
aforementioned processes;
``Exploration'' means the search for Hydrocarbons
Including, but not limited to, activities such as: (1)
geological and geophysical marine and airborne surveys
where magnetic, gravity, seismic reflection, seismic
refraction, gas sniffers, coring, or other systems are
used to detect or Imply the presence of Hydrocarbons;
and (2) any drilling conducted for the purpose of
searching for commercial quantities of Hydrocarbons or
needed to delineate any Reservoir to decide whether to
proceed with Development and Production;
``Facility'' means any equipment, infrastructure or
installation used for Exploration or Exploitation
including, but not limited to, drilling vessels, fixed
or floating platforms, platform installed drilling
rigs, floating production systems, storage units,
flotels, surface or seafloor well heads, Intra-field
gathering Pipelines, Intra-field cables, and all the
accessories necessary for well drilling, well logging,
well intervention, well repair and well testing and
includes any vessel used to transfer production from an
offshore facility while it Is physically attached to
the Facility;
``Facilities near the Delimitation Line'' means any
Facility under the jurisdiction of either Party within
a distance of 15 statute miles from the Delimitation .
Line or further for transboundary Pipelines, but
excluding supply and support vessels;
``Geological Information'' means geological,
geophysical or geochemical Information and data
resulting from Exploration or Exploitation, including,
but not limited to, Information from drilled wells and
interpretations derived from such data, and which,
subject to its national law, may be disclosed by a
Party.
``Hydrocarbon'' means all oil and natural gas,
regardless of form, including any mixture thereof,
existing in or derived from natural strata;
``Hydrocarbon Occurrence near the Delimitation Line''
means a detection of Hydrocarbons during drilling
operations within 3 statute miles on either side of the
Delimitation Line;
``Inspector'' means any person authorized by the
competent authority of either Party to carry out
inspection activities relating to:
(a) the Construction and Operation of
Facilities related to a Transboundary Unit;
(b) any metering system relating to
production associated with a Transboundary
Unit;
(c) health and safety; or
(d) protection of the environment.
``License'' means the authorization issued by an
Executive Agency to carry out Exploitation or
Exploration In a given area, and for the Construction
and Operation of a Facility. The term License Includes
a ``lease'' issued by the U.S. Executive Agency;
``Licensee'' means any person or entity holding a
License;
``Permit'' means any permit, authorization, consent
or approval issued under the law of either Party,
relating to the Exploration or Exploitation of
Hydrocarbons and/or the Construction and Operation of
Facilities and/or Pipelines;
``Pipeline'' means a continuous conduit, complete
with such equipment as valves for flow control,
transmission platforms, compressor stations, and
communications systems, for transporting Hydrocarbons,
produced waters or other fluids and gases from one
point to another, usually from a point in the producing
field or processing plant to another Pipeline or to
points of utilization or storage;
``Production'' means those activities, excluding
Exploration and Development activities, for the removal
of Hydrocarbons from a Transboundary Reservoir,
including, but not limited to, treatment and processing
of Hydrocarbons or other substances, the injection,
reinjection or storage of any substance used for or
derived from such activities, enhanced Hydrocarbon
recovery activities, transfer and export of
Hydrocarbons to shore, and all operations associated
with well intervention, repair, maintenance, servicing,
re-completion, and workovers;
``Reservoir'' means a single continuous deposit of
Hydrocarbons in a porous and permeable medium, trapped
by a structural or stratigraphic feature;
``Transboundary Reservoir'' means any Reservoir which
extends across the Delimitation Line and the entirety
of which is located beyond 9 nautical miles from the
coastline, exploitable in whole or in part from both
sides of the Delimitation Line;
``Transboundary Unit'' means a single geological
Hydrocarbon structure or Reservoir which extends across
the Delimitation Line the entirety of which is located
beyond 9 nautical miles from the coastline, approved by
the Executive Agencies for joint Exploration and/or
Exploitation pursuant to the terms of a unitization
agreement;
``Unit Area'' means the geographical area described
in a Transboundary Unit, as set out in the unitization
agreement; and
``Unit Operating Agreement'' means an agreement made
between the Licensees and the unit operator that, among
other things, establishes the rights and obligations of
the Licensees and the unit operator including, but not
limited to, the allocation of costs and liabilities
incurred in and benefits derived from operations in the
Unit Area.
Article 3
Jurisdiction
Nothing in this Agreement shall be interpreted as
affecting the sovereign rights and the jurisdiction
which each Party has under international law over the
continental shelf which appertains to it.
Article 4
Activity Near the Delimitation Line
1. Within 90 days following the entry into force of
this Agreement and annually thereafter, the Parties
shall consult on Exploration and Exploitation
activities carried out within 3 statute miles of the
Delimitation Line. Such consultation shall include the
exchange of all relevant and available Geological
Information associated with and derived from such
activities.
2. Notwithstanding the consultation set forth in
paragraph 1 of this Article, and subject to its
national law:
a. if either Party is aware of the likely
existence of a Transboundary Reservoir, that
Party shall provide written notice to the other
Party within 60 days of the date on which such
Party became aware of such likely existence;
b. if either Party has approved or its
Licensee has submitted for approval a plan for
the collection of seismic data in an area
within 3 statute miles of the Delimitation
Line, that Party shall provide written notice
of such plan to the other Party within 30 days
of the submission and, as applicable, approval
of such plan;
c. if either Party has approved or its
Licensee has submitted an exploration plan
applicable to an area within 3 statute miles of
the Delimitation Line, that Party shall provide
written notice to the other Party within 60
days of the submission and, as applicable,
approval of such plan;
d. if either Party is aware of a Hydrocarbon
Occurrence near the Delimitation Line, that
Party shall provide written notice to the other
Party within 60 days of the date such Party
becomes aware of such Hydrocarbon Occurrence;
e. if either' Party's Licensee has submitted
a plan to drill a well, the wellhead or
borehole any portion of which will be within 3
statute miles of the Delimitation Line, that
Party shall provide written notice of such fact
to the other Party within 30 days of the date
such Party becomes aware of such plan; and
f. if any Licensee has submitted a plan for
the Development or Production of an area within
3 statute miles of the Delimitation Line, the
receiving Party shall provide such plan to the
other Party within 30 days of the acceptance of
the submission by the receiving Party of such
plan.
Article 5
Determination of Transboundary Reservoirs
1. Within 30 days following receipt of a
communication under paragraph 2 subparagraphs a or d of
Article 4, the Parties, through their Executive
Agencies, shall initiate consultations with a view to
determine whether a Transboundary Reservoir exists.
ThExecutive Agencies shall request their Licensees to
provide all Geological Information relevant to such
determination and shall submit to each other all
available Geological Information in their possession.
2. If the Parties have not reached a determination on
the existence of a Transboundary Reservoir within 60
days of the deadline for initiating consultations in
paragraph 1 of this Article, either Executive Agency
may submit the issue to the Joint Commission.
3. During the consultations referred to in paragraph
1 of this Article and the pendency of further
proceedings under Articles 14 through 17 of this
Agreement, the relevant Executive Agency shall, subject
to its national law, deliver quarterly reports to the
other Executive Agency on Exploration and Exploitation
activities or operations carried out by Licensees
within its jurisdiction in relation to the potential
Transboundary Reservoir.
CHAPTER 2
EXPLORATION. AND EXPLOITATION OF A
TRANSBOUNDARY RESERVOIR OR UNIT
Article 6
Unitization Agreement
1. Any joint Exploration and/or Exploitation of a
Transboundary Reservoir or Unit Area pursuant to the
terms of a unitization agreement must be approved by
the Parties. Such joint Exploration and/or Exploitation
shall be conducted pursuant to the terms of a
unitization agreement negotiated and proposed by the
Licensees and approved by the Executive Agencies. The
Executive Agencies should develop one or more model
unitization agreements for use under this Agreement.
2. The unitization agreement shall include, Inter
alia:
a. The identification of the limits of the
Unit Area and that of any Transboundary
Reservoir;
b. The Identity of the Licensees and their
respective participating interests;
c. The methodology used to calculate the
allocation of production;
d. A development plan for the Exploration or
Exploitation of the Unit Area, including the
estimated number and timing of wells, and a
mechanism for delivery and approval of
subsequent changes to such plan;
e. The effective date and term of the
unitization agreement;
f. The Identity and appointment of the unit
operator, the process for resignation and
removal of the unit operator, and the process
for appointment of a successor unit operator;
g. Provisions regarding the transfer of
interests;
h. Provisions for an accurate measurement of
production;
i. Procedures for ensuring accurate payments
of royalties and other proceeds;
j. Safety and environmental measures to be
taken under the national laws of each Party;
k. Provisions for appropriate information
sharing between the unit operator and each
Party;
l. Procedures for the redetermination of the
allocation of production, including a.
timetable or the events that trigger such
redetermination.
3. Each Party shall require that, together with the
submission of a proposed unitization agreement, its
Licensee or the Licensees acting together through the
unit operator, shall provide all available data
required by a Party in order for it to review the
proposed unitization agreement, and each Party shall
ensure that such files and data are available to the
other Party.
4. Each Executive Agency shall approve, approve with
modifications or reject the proposed unitization
agreement within 120 days of its receipt. Either
Executive Agency may extend this period, provided that
the total additional period for consideration shall not
exceed 120 days. If after the end of the latest period
applicable for consideration by an Executive Agency
either Executive Agency has not approved, approved with
modifications, or rejected the proposal, the
unitization agreement shall be deemed to be rejected.
At any point during the period contemplated under this
paragraph either Executive Agency may refer the issue
to the Joint Commission for its consideration within
the remaining portion of the period.
5. Any amendment to an approved unitization agreement
shall be subject to approval by the Executive Agencies.
Each Executive Agency shall approve, approve with
modifications or reject any proposed amendment within
30 days of its receipt. Either Executive Agency may
extend this period provided that the total additional
period for consideration shall not exceed 30 days. If
after the end of the latest period applicable for
consideration by an Executive Agency either Executive
Agency has not approved, approved with modifications,
or rejected the proposal, the unitization agreement
shall be deemed to be rejected. At any point during the
period contemplated under this paragraph either
Executive Agency may refer the issue to the Joint
Commission for its consideration within the remaining
portion of the period.
Article 7
Management of a Transboundary Reservoir Prior to the
Formation of a Transboundary Unit
1. If it is determined as a result of consultations
pursuant to paragraph 1 of Article 5 or following
further proceedings under Articles 14 to 17 of this
Agreement that a Transboundary Reservoir exists, and a
unitization agreement has not been approved by the
Parties, each Party shall take steps to facilitate
Exploitation of the Transboundary Reservoir as a
Transboundary Unit. Such facilitation shall include a
prohibition by each Party on the commencement of
production of such Transboundary Reservoir for a period
from the date of determination of the Transboundary
Reservoir to the end of the final period for
consideration contemplated in paragraphs 2 through 5 of
this Article, as applicable. If production of a
Transboundary Reservoir has already commenced, the
relevant Party shall take steps it deems appropriate
under national law to provide that ongoing production
does not unduly prejudice implementation of this
Agreement.
2. If, six months following the date of determination
of a Transboundary Reservoir or, alternatively, an
earlier date on which the relevant Licensees have each
notified the Executive Agencies that they have decided
not to enter into a unitization agreement or a
subsequent date agreed by the Executive Agencies in
order to provide additional time for the Licensees to
pursue a unitization agreement, a unitization agreement
has not been approved:
a. each Party shall require its Licensee,
within 60 days, to submit a proposed
unitization agreement and associated Unit
Operating Agreement to each Executive Agency;
and
b. the Executive Agencies shall, within 30
days, jointly determine an estimate of the
recoverable Hydrocarbons in the Transboundary
Reservoir, under the original conditions of
such Reservoir, on each side of the
Delimitation Line, and jointly determine the
associated allocation of production.
3. If the Executive Agencies are unable to reach the
determination set out in paragraph 2 subparagraph b of
this Article, such determination shall be referred to
Expert Determination.
4. Following the receipt of both unitization
agreements and associated Unit Operating Agreements
under paragraph 2 subparagraph a of this Article, or
the expiration of such period without the receipt by
the Parties of both unitization agreements, and
determination of the allocation of production under
paragraph 2 subparagraph b or paragraph 3 of this
Article, the Executive Agencies shall have 90 days to
approve one of the submitted unitization agreements and
associated Unit Operating Agreement, or an alternative
unitization agreement and Unit Operating Agreement
developed by the Parties. If no unitization agreement
and associated Unit Operating Agreement has been
approved at the end of this 90-day period, the Issue
shall be referred to the Joint Commission for
consideration. If no unitization agreement and
associated Unit Operating Agreement has been approved
within 90 days of submission of the issue to the Joint
Commission, Exploitation of the Transboundary Reservoir
may proceed pursuant to paragraph 5 of this Article.
5. Should any Party or Licensee fail to sign a
unitization agreement or Unit Operating Agreement, as
applicable, approved by the Executive Agencies or the
Joint Commission within 60 days of its approval, or
should the Executive Agencies or the Joint Commission
fail to approve a unitization agreement and an
associated Unit Operating Agreement, each Party may
authorize its Licensee to proceed with Exploitation of
the relevant Transboundary Reservoir subject to the
determination of the recoverable Hydrocarbons pursuant
to paragraph 2 subparagraph b or paragraph 3 of this
Article and any plan for joint management of the
Transboundary Reservoir,Including any provisions agreed
governing redetermination and metering, as may be
agreed between the Parties. Such plan may contain
provisions for the resolution of disputes pursuant to
Article 16. In the event ofsuch Exploitation, Parties
will exchange production data on a monthly basis.
6. The Joint Commission shall endeavor to resolve
issues related to the allocation of production of a
Transboundary Reservoir not otherwise addressed in this
Article.
Article 8
Allocation of Production
1. The Executive Agencies shall require the unit
operator, on behalf of the Licensees and 60 days prior
to the commencement of production from a Transboundary
Reservoir, to initiate consultations on the allocation
of production to each side of the Delimitation Line by
submitting a proposal for the allocation of production
for approval by the Executive Agencies to be applied
from first production. The Executive Agencies shall,
prior to any decision not in agreement with the
proposal, jointly consult with the unit operator.
2. Each Executive Agency shall ensure that all
relevant and available information from the Unit Area
related to the proposal Is made available in a timely
manner to the other Executive Agency.
3. If the Executive Agencies are unable to reach
agreement on this initial allocation of production
within 30 days from the date of the initiation of
consultations In accordance with paragraph 1 of this
Article, the matter shall be addressed by the Joint
Commission.
Article 9
Redetermination of the Allocation of Production
1. Any redetermination of the allocation of
production of a Transboundary Reservoir shall be
conducted pursuant to the unitization agreement or as
agreed pursuant to Article 7 paragraph 5. The Parties
shall endeavor to ensure that provisions for
redetermination shall provide for fair and equitable
allocation of production of each Transboundary
Reservoir. Such terms shall be contained in the
unitization agreement and shall be applicable over its
full term.
2. Each Executive Agency shall ensure that, subject
to national law, all relevant and available Information
related to a redetermination of allocation of a
Transboundary Reservoir is made available in a timely
manner to the other Executive Agency. The Executive
Agencies shall, prior to any decision not in agreement
with a redetermination proposal from a unit operator,
jointly consult with the unit operator.
3. If the Executive Agencies are unable to reach
agreement on any redetermination of the allocation of
production within 60 days following the initiation of a
process for redetermination as contemplated under
paragraph 1 of this Article, the matter shall be
addressed by the Joint Commission.
CHAPTER 3
OPERATING AGREEMENT
Article 10
Unit Operator
1. The Executive Agencies shall ensure that a unit
operator for a Transboundary Unit Is designated by
agreement between the Licensees. The designation or
change of the unit operator shall be subject to the
approval of the Executive Agencies.
2. The unit operator will act on behalf of the
Licensees.
Article 11
Unit Operating Agreement
1. Each Executive Agency shall require its Licensees
to enter into a Unit Operating Agreement for the
Exploration or Exploitation of a Transboundary Unit In
accordance with this Agreement.
2. The Executive Agencies shall require that the
Licensees submit an executed Unit Operating Agreement
prior to the approval of the unitization agreement.
3. In case of a conflict between the Unit Operating
Agreement and the unitization agreement, the
unitization agreement shall prevail, or between the
unitization agreement and this Agreement, the
provisions of this Agreement shall prevail.
Article 12
Facilities near the Delimitation Line
1. The Parties shall use their best efforts to
facilitate cooperation between Licensees In activities
related to the Exploration and Exploitation of a
Transboundary Unit, including the facilitation of
access to and use of Facilities near the Delimitation
Line, and shall not prevent or impede such cooperation
by unreasonably withholding necessary Permits.
2. The use of Facilities near the Delimitation Line
may include, inter alia, access to and interconnection
with a Pipeline and physical access to Pipeline
capacity and, where appropriate, to Facilities
supplying technical services incidental to such access.
3. The Parties shall facilitate, subject to their
respective national law, access to Facilities for
workers engaged in any activities related to a
Transboundary Unit.
Article 13
Fiscal Terms
Income arising from the Exploitation of Transboundary
Reservoirs shall be taxed in accordance with the legislation of
the United Mexican States and the United States of America
respectively, as well as the Convention between the Government
of the United States of America and the Government of the
United Mexican States for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with respect to Taxes on
Income and Capital, signed on September 18th, 1992, as amended
(and as may be amended in the future), or any Convention
superseding that Convention as the Parties may enter into in
the future.
CHAPTER 4
INSTITUTIONAL ARRANGEMENTS
Article 14
Joint Commission
1. A Joint Commission shall be established no later
than 90 days after entry into force of this Agreement
to assist the Executive Agencies in administering this
Agreement.
2. Each Party, through Its Executive Agency, shall
appoint one representative and one alternate
representative to the Joint Commission. Each Party may
provide assistance,Including experts, to its
representative as it deems necessary.
3. In exercising Its functions, the Joint Commission
may establish working groups or expert groups, seek the
advice of non-governmental groups or Individuals, and
take such other actions as the Parties may agree.
4. The Joint Commission should endeavour to adopt its
rules of procedure no later than 90 days after it Is
established.
5. The Joint Commission shall be the competent body
to examine any dispute or other matter referred to it
by either Executive Agency relating to the
interpretation and Implementation of this Agreement, or
any unforeseen issues arising under this Agreement.
6. If the Joint Commission is unable within 60 days
to resolve all differences concerning the allocation of
production pursuant to Article 8, or the reallocation
of production pursuant to Article 9,either Party may
submit the dispute for Expert Determination. If the
Joint Commission Is unable within 60 days to resolve
all differences related to the determination of a
Transboundary Reservoir pursuant to paragraph 2 of
Article 5, and relevant data Is available from a well
in the prospective Transboundary Reservoir on each side
of the Delimitation Line, either Party may submit the
dispute for Expert Determination.
7. If the Joint Commission Is unable within 60 days
to resolve all differences concerning any dispute
referred to It by the Executive Agencies relating to
the interpretation and implementation of this Agreement
that is not addressed in paragraph 6 of this Article or
referred to It under paragraphs 4 or 5 of Article 6 or
paragraph 4 of Article 7,either Party may resort to the
dispute settlement provisions In Articles 15 or 17. The
Joint Commission will have 30 days in which to consider
the final recommendation in any arbitration Instituted
pursuant to Article 17. If the Joint Commission is
unable to resolve any remaining differences within that
time, the dispute will be returned to the Parties.
8. The Parties will refrain from action with regard
to any dispute referred to the Joint Commission or to
Expert Determination or dispute resolution under this
Agreement where it is reasonably foreseeable that such
action would prejudice the Implementation of any
decision related to the dispute until the dispute
resolution procedures are complete.
CHAPTER 5
SETTLEMENT OF DISPUTES
Article 15
Consultations and Mediation
1. The Parties shall make every effort to resolve any
disagreement relating to the Interpretation and
Implementation of this Agreement through consultations
as rapidly as possible. Either Party may initiate
consultations through a written request to the other
Party. Unless the Parties otherwise agree, the Parties
shall consult within 20 days of delivery of the
request.
2. If the Parties do not resolve a disagreement that
is not subject to Expert Determination within 120 days
of the delivery of the request for consultations,
either Party may refer the disagreement to arbitration
pursuant to Article 17 within 30 days.
3. The Parties may also agree to submit any
disagreement relating to the Interpretation and
Implementation of this Agreement to non-binding
mediation by a neutral third party In addition to, or
In lieu of, the procedures set out in this Article and
In Article 17.
Article 16
Expert Determination
1. The Joint Commission shall, within 180 days of the
adoption of its rules of procedure, establish
arrangements for the appointment of the expert and
terms of engagement, including, in particular,
provisions governing compensation and the protection of
confidentiality.
2. In the event a dispute is submitted to Expert
Determination and the Joint Commission has not
established the arrangements set out in paragraph 1 of
this Article:
a. each Party shall, within 30 days of the
date of submission of the dispute and at Its
own expense, choose an appointing expert.
b. the appointing experts shall, within 30
days, appoint the expert and determine the
terms of engagement of the expert, including
compensation, according to prevailing standards
and strict protections of Confidential Data.
c. In such circumstances the costs of Expert
Determination shall be shared equally by the
Parties.
3. Each Party shall promptly provide all information
In its possession, or that it has the legal authority
to obtain from Its Licensees, that exists and is
required by the expert in order to reach a decision.
4. The Parties shall ensure that the expert will
maintain the strictest Impartiality and transparency.
All communications between a Party and the expert, in
any form, other than Confidential Data, shall be
provided to the other Party.
5. The Parties shall provide that, within 90 days of
the expert's appointment, the expert will provide a
preliminary decision to the Joint Commission together
with a detailed explanation of how the decision was
reached. Thereafter, there will be a period of 60 days,
or such other period as the Joint Commission may agree,
from the date that the preliminary decision is
communicated to the Joint Commission during which
either Party may seek clarification and/or make further
submissions to the expert for his consideration. The
final determination of the expert along with a detailed
explanation shall be communicated in writing to the
Joint Commission within 30 days of the end ofthis
period.
6. Notwithstanding paragraph 5 of this Article, the
Parties shall provide that referrals to the expert
under Article 7 paragraph 3 shall be resolved within 30
days of their receipt by the expert and that the
expert's determination shall be provided directly to
the Executive Agencies.
7. Expert Determination proceedings will be
confidential. Except as required by either Party's
domestic law,the Parties shall treat, and shall ensure
that the expert treats, any information provided for
the determination, any written and oral communications
related to the determination, and both the preliminary
decision and final decision as confidential.
8. Notwithstanding paragraphs 4 and 7 of this
Article, upon any preliminary determination by the
expert that a Transboundary Reservoir exists, all
information used by the expert in reaching such
determination and all information provided to the
expert after such date with respect to such
Transboundary Reservoir shall be provided to both
Parties. Such information shall be maintained as
confidential by the Parties pursuant to the terms of
this Agreement, subject to national law.
9. Determinations of the expert shall be final and
binding on the Parties.
Article 17
Arbitration
If any dispute regarding the interpretation and
Implementation of this Agreement that is not subject to Expert
Determination cannot be resolved by the Joint Commission or
through consultations, either Party may submit the dispute to
arbitration.
The Joint Commission shall, within 180 days of the adoption
of its rules of procedure, establish an arbitration mechanism
for the implementation of this Article.
CHAPTER 6
INSPECTIONS, SAFETY, AND
ENVIRONMENTAL PROTECTION
Article 18
Inspections
1. Subject to applicable national law, each Party
shall, under procedures to be developed and agreed
under this Agreement, have the right to inspect
Facilities in a Unit Area approved pursuant to this
Agreement.
2. To enable Inspectors of each Party to safeguard
their respective interests with respect to safety,
environmental and fiscal matters, the Executive
Agencies shall develop specific procedures, subject to
national law, for:
(a) consultation among Inspectors of each
Party;
(b) timely access to Information relevant to
Inspection activities; and
(c) physical access to Unit Areas for the
purpose of inspecting activities therein under
a joint inspection regime, including access to
metering systems, wherever located.
3. The Inspectors of each Party shall act In
cooperation and consult with Inspectors of the other
Party to achieve compliance with applicable safety and
environmental standards.
4. An Inspector of one Party may, with regard to
Facilities located in the Unit Area, request an
Inspector of the other Party to exercise his or her
powers to ensure compliance with the applicable safety
and environmental standards and requirements whenever
It appears that circumstances so warrant. In the event
of any disagreement between the Inspectors of the
Parties, or the refusal of the Inspector of one Party
to take action at the request of the Inspector of the
other Party, the matter shall be referred to the
Executive Agencies.
5. If it appears that it Is necessary for the purpose
of averting risk to life or serious personal injury or
significant damage to the environment, and that
circumstances do not permit the Inspectors to consult
with the Executive Agencies, the Inspector with
jurisdiction over the activities giving rise to such
risk shall, as authorized under national law, order the
immediate cessation of any or all operations upon the
request of the other Inspector. Immediately thereafter,
but not more than 4 hours following the ordered
cessation of activity, the Inspectors shall notify the
Executive Agencies of such action and the reasons
therefore, and the Executive Agencies shall Immediately
consult regarding actions necessary to address the
risk. Nothing in this paragraph shall prevent the right
of each Party to authorize the resumption of operations
of the relevant Facilities.
Article 19
Safety and Environmental Protection
1. The Parties shall adopt, where appropriate, common
safety and environmental standards and requirements
applicable to activity contemplated under this
Agreement. In any event, the Parties shall strive to
ensure that their respective standards and requirements
are compatible where necessary for the safe, effective,
and environmentally responsible Implementation of
thisAgreement.
2. The Executive Agencies shall develop procedures
for the implementation of this Article.
3. The Parties recognize the Importance of their
existing international obligations with respect to oil
pollution preparedness, response, and cooperation, and
are to review their Implementation of such obligations
in light of the activity contemplated under this
Agreement In order to ensure an appropriate framework
for ongoing cooperation.
CHAPTER 7
FINAL CLAUSES
Article 20
Confidentiality
To the extent consistent with their national laws, the
Parties shall maintain confidential, and obligate their
Licensees to maintain confidential, all Confidential Data and
other Information obtained from the other Party or its
Licensees in accordance with this Agreement.
Article 21
Amendments
1. This Agreement may be amended at any time by
mutual written agreement of the Parties.
2. Amendments shall enter into force in accordance
with the procedure established under Article 22 of this
Agreement.
Article 22
Entry into force
The Parties shall so notify each other in writing
when the necessary internal procedures have been
completed to bring this Agreement into force. This
Agreement shall enter into force 60 days after the date
of the later notification.
Article 23
Termination
1. This Agreement may be terminated by mutual written
agreement or by either Party at any time upon 180 days
written notice to the other Party.
2. Notwithstanding termination of this Agreement,
unless otherwise agreed by the Parties:
a. the provisions of this Agreement shall
continue to apply to any unitization agreement,
Unit Operating Agreement, or other agreement
entered into under this Agreement and in effect
at the time of termination, for the duration of
such agreement, and to any such agreement
submitted to or otherwise under review by the
Parties pursuant to this Agreement at the time
of termination, for the duration of such
agreement;
b. the provisions of this Agreement shall
continue to govern the relationship between the
Parties with respect to any unitization
agreement,Unit Operating Agreement, or other
agreement entered into under this Agreement and
in effect at the time of termination for the
duration of suchagreements;
c. the provisions of this Agreement shall
continue to apply to any License issued by a
Party after entry into force and prior to
termination of this Agreement;
d. the provisions of this Agreement shall
continue to apply to the Exploitation of any
Transboundary Reservoir undertaken pursuant to
paragraph 5 of Article 7; and
e. the obligations of the Parties set forth
in Article 20 concerning confidentiality shall
continue to apply.
3. Upon any notice provided under paragraph 1 of this
Article, the Parties shall initiate consultations for
the development of a new agreement to address the joint
exploration and exploitation of transboundary
reservoirs.
Article 24
Termination of the Moratorium on Hydrocarbon Activity in the Boundary
Area in the Western Gap of the Gulf of Mexico
Upon entry into force of this Agreement, the period of any
moratorium on the authorization or permitting of petroleum or
natural gas drilling or exploration of the continental shelf
within the boundary ``Area'' as established by Article 4,
paragraph 1, of the 2000 Treaty on the Continental Shelf and
extended by any subsequent exchanges of notes shall be
terminated.
Article 25
Relationship with other Agreements
With the exception of Article 24, nothing in this Agreement
shall affect the rights and obligations of the Parties with
respect to other international agreements to which they are
both party.
Done at Los Cabos on the twentieth day of February of two
thousand and twelve, in the English and Spanish languages, both
texts being equally authentic.
For the United States of America:
Hillary Rodham Clinton
Secretary of State
For the United Mexican States:
Patricia Espinosa Cantellano
Minister of Foreign Affairs