Budget deal opens new swaths of Gulf for oil, gas drilling

The emerging budget deal put together by Congressman Paul Ryan and Senator Patty Murray includes provisions that will open up vast new territories in the western Gulf of Mexico for oil and gas drilling. The bill, which will fund the government through the fall of 2015, approves the U.S.-Mexico Transboundary Hydrocarbons Agreement, originally signed between those two countries in 2012.

The agreement allows for the development of oil and gas reserves that cross national boundaries, and sets up a framework for their joint development. The deal would open up 1.5 million acres, an area that may hold 172 million barrels of oil and 304 billion cubic feet of natural gas, according to the Bureau of Ocean Energy Management (BOEM).

If the Ryan-Murray deal is approved and the treaty goes into effect, U.S. companies will be allowed to partner with Petróleos Mexicanos (Pemex), Mexico’s state-owned oil company. This would be a significant change, as Mexico’s constitution forbids private sector contracts. Mexico is also separately considering a larger overhaul of its energy sector, and on December 10 the Mexican Senate approved of legislation that would allow for production sharing agreements with private companies. The Transboundary Agreement included in the Ryan-Murray deal would only affect areas along the maritime border, known as the Western Gap. (Related article: Russia Readies to Take Shale Oil Lead) 

Mexico already approved the Transboundary Agreement last year, but it has thus far been languishing in the U.S. Congress. At issue was the House’s inclusion of language that would exempt oil and gas companies from a provision in the Dodd-Frank law that requires disclosure of payments to foreign governments. President Obama and Senate leaders opposed the exemption, and in the final version of the Ryan-Murray deal, the exemption was dropped, paving the way for approval.

The Transboundary Agreement has apparently garnered bipartisan support in part because of a January 17, 2014deadline, after which a moratorium on drilling in the Western Gap expires. Sen. Ron Wyden in particular argued that if the U.S. failed to approve the agreement, Pemex could rush in to develop the area without the standards of the treaty to guide responsible development.

The administration also seems to believe that the Transboundary Agreement is a small step to a larger strategy of North American energy security. At a hearing before the Senate Energy and Natural Resources Committee on October 1, the Special Envoy for International Energy Affairs Carlos Pascual argued that the Transboundary Agreement will provide a positive signal to the Mexican government, encouraging them to liberalize their oil sector and thereby allowing private oil companies to make inroads into Mexico. (Related article: Looking North: Mexico and the US)

In an exchange with the Committee Members, he laid out the logic of how the agreement improves U.S. energy security, “The intent, the objective, is to be able to create a hub in North America for energy security…the Transboundary Agreement is the first down payment of the potential that we could see from cooperation between the United States and Mexico. That cooperation in the past was previously prohibited by law. By having this Transboundary Agreement it allows in the interim the ability to create a framework where American companies and Mexican companies can begin to work together to demonstrate the impact that those American companies can have on greater productivity in Transboundary areas. In doing that, we set the foundation for something which is even bigger that can come. How north America together and Mexico and the United States can be a foundation for energy supplies.”

The Transboundary Agreement is buried in the Ryan-Murray deal, tying its fate to the ability of Democrats and Republicans to put together a budget the coming days.

Original article: http://oilprice.com/Energy/Energy-General/Budget-Deal-Opens-up-Parts-of-Gulf-of-Mexico-for-Drilling.html