The U.S.-Mexico Transboundary Hydrocarbon Agreement: Pending Issues
George Baker, Mexico Energy Intelligence, 713-255-0000, g.baker@energia.com
Overview
The U.S.-Mexico Transboundary Hydrocarbon Agreement, signed February 22, 2012, represents the first such
agreement covering mineral rights for either country. It is the result of low-profile discussions in meetings since
2009 that have been held in Cuernavaca, Villahermosa, New Orleans, Mexico City and Washington, DC.
Discussions were attended by representatives of the U.S. State, Energy and Interior Departments (with input from
industry and academic sources), and, on the side of Mexico, by representatives of the Foreign and Energy Ministries
and Pemex.
Assuming that a cross-border oilfield that has geological continuity and is deemed commercial, the agreement, which
covers only such fields nine or more miles offshore, could play out in two ways:
1) A unitization agreement will fail, the Mexican side will not agree to a single operator with full authority
on both sides of the border (and which, on account of its lack of experience, cannot be Pemex); in this
case, the U.S.-side operator will proceed independently, with substantial opportunity costs compared to
the economic efficiency of a unitized field.
2) A unitization agreement will be negotiated with corresponding changes in not only in Mexican legislation
and regulations but also in relation to the nation’s Petroleum Narrative.
The presentation will explain the architecture of cross-border oilfield administration, and focus on the critical issue
of a unified authority under a single operator. Reference will also be made to the resistance that will be encountered
arising from the restrictions of the Mexican Petroleum Narrative, as well as by the objections of some Mexican
senators who have asked legitimate questions, such as the following: What is the intended role of the Hydrocarbons
Commission (CNH) in the administration of the Agreement? And, How is Mexico supposed to negotiate a crossborder agreement within the initial nine (9) miles of the maritime border that extends eastward from Brownsville?
Methods
The terms and concepts of the Agreement were examined in relation to a) international practices regarding crossborder oilfields, b) Mexican petroleum legislation, c) Pemex deepwater drilling record and capabilities, c) Mexican
regulatory institutions, d) the debate on cross-border oilfields in the Energy Forum of 2008 and e) Mexico’s
Petroleum Narrative, which prohibits the participation of third parties in Mexico as producers of oil and gas on a
market basis.
May 30, 2012
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George Baker, The U.S.-Mexico Transboundary Hydrocarbon Agreement: Pending Issues (Abstract for USAEE
North America Conference)
Results
1) The Agreement is a very incomplete document, one that falls short of setting forth a framework for the
development of a real-world, commercial discovery. The “falling short” reflected the practical, theoretical
and ideological limits of what the two sides could agree on.
2) Nevertheless, the Agreement is an important agreement to negotiate in the probable case that a cross-border
oilfield is discovered and determined to be commercial.
3) Ideally, the Agreement at some point in the future could be used as the template for a common Gulf of
Mexico accord that includes Cuba.
Conclusions
By intent, the preliminary agreement was meant as a template could be applied globally to any cross-border mineral
negotiations between two or more countries.
The agreement, as written, cannot be implemented without additional text and a change in Mexican law and
regulations. There will also need to be a change in the Mexican Petroleum Narrative; but this challenge will be made
more difficult by virtue of Pemex’s opposition and by the inexperience of the new government that will come into
office on Dec. 1, 2012.
Nothing further will be done to tinker with the terms of the Agreement until a commercial discovery is made that
establishes a cross-border oil or gas field.
References
Data sources included interviews with regulators as well as with persons who were familiar with the negotiations
(sources who have requested anonymity). The author also draws on his prior publications on this topic (WORLD
OIL, August 2007), in addition to an industry report that was issued on March 27, 2012.
Mexican sources include the transcript of the hearing on April 12, 2012, of the Energy Commission of the Mexican
Senate in relation to the approval of the cross-border agreement, as well as the Memorandum of the Foreign Ministry
of March 12, 2012, concerning the rationale of the treaty.
A paper was presented by Miriam Grunstein, “Cross-Border Reservoirs: The Fine Line between Fear and
Cooperation,” to the Texas Energy Trade Mission, Aug. 27, 2008.
During the Senate Debates on Energy Reform, there was a special session on June 5, 2008, on cross-border
oilfields. http://www.senado.gob.mx/reforma_energetica/content/foros/foro8.htm
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