House panel begins US-Mexico trans-boundary treaty discussions

Congressional approval of the 2012 US-Mexico Trans-Boundary Hydrocarbons Treaty would produce significant benefits for both countries, witnesses told a US House Natural Resources subcommittee.

The Energy and Minerals Subcommittee on Apr. 25 examined legislation to accomplish that.

“We are encouraged by the accelerating pace of interest and movement on implementing this agreement,” Carlos Pasqual, special envoy and coordinator for international energy affairs at the US Department of State, told the subcommittee.

He said that HR 1613, which committee member Jeff Duncan (R-SC) introduced a day earlier, would provide “a much needed mechanism to facilitate the responsible and efficient exploration and development of hydrocarbon resources along the US–Mexico maritime boundary.

“As many House Members have stated, it is a ‘win-win’ for the United States and Mexico, and also a winner for North American energy security because it fosters stronger relationships in the development of our shared energy resources,” Pasqual said.

Tommy P. Beaudreau, acting assistant US Interior secretary for land and minerals management, said the bill would make nearly 1.5 million offshore acres now under moratorium under the 1997 Western Gap Treaty available immediately available for leasing.

It also would amend the federal Outer Continental Shelf Lands Act by giving the US Interior secretary power to implement the trans-boundary agreement’s terms, and authority to implement any future trans-boundary hydrocarbons agreement’s terms and establish an approval process for approving such agreements, he noted.

Measure could boost E&D

Beaudreau called the bill “a much-needed mechanism to facilitate the responsible and efficient exploration and development of hydrocarbon resources along the US-Mexico maritime boundary.”

He said it would provide opportunities for US companies. The treaty also provides incentives for Petroleos Mexicanos, Mexico’s national oil company, and US-qualified operators to enter into voluntary commercial agreements to unitize trans-boundary reservoirs, but does not change existing laws or alter current standards, he said.

DOI’s two agencies that regulate offshore oil and gas activity—the US Bureau of Ocean Energy Management, and the US Bureau of Safety and Environmental Enforcement—would assume their respective responsibilities to implement the agreement as authorized, he added.

US Rep. Doug Lamborn (R-Colo.), the subcommittee’s chairman, said the agreement would be a rare opportunity to expand US energy production, create new US jobs, and help grow the economy grow by opening areas for offshore oil and gas development.

Lamborn also said he was disappointed that the Obama administration took more than 1 year since the treaty was signed to transmit something to Congress for consideration.

“We must approach this hearing remembering that approval of this agreement sets an important precedent for similar trans-boundary hydrocarbon agreements we may arrive at with other nations,” Lamborn said. “It is important that we get it right.”

Rep. Rush D. Holt (D-NJ), the subcommittee’s ranking minority member, said Democrats generally support approving the treaty, but added they would like to similar attention given to increasing offshore oil spill liability limits and fines.

API: HR 1613 provides ‘legal certainty’

Three witnesses on a second panel also supported HR 1613, while a fourth expressed qualified approval.

Erik Milito, the American Petroleum Institute’s upstream and industry operations group director, said, “Importantly, this agreement will provide legal certainty to US companies, which will encourage them to invest in new energy development, creating jobs and spurring economic growth.”

The bill also would exempt any related oil and gas development activities in the trans-boundary area from resource extraction reporting requirements under Section 13(q) of the Exchange Act, he continued.

The provision requires companies which the US Securities and Exchange Commission regulates to report payments to foreign governments, sub-national governments, and the federal government on a project-by-project basis, Milito said. API believes the rule puts US companies at a disadvantage to their foreign competitors and should be vacated, he added.

Daniel R. Simmons, regulatory and state affairs director at the Institute for Energy Research, said the treaty’s Article 20 potentially could create a conflict with Section 13(q) if Mexican confidentiality requirements forbid disclosure of such information.

“Because much of the trans-boundary area is deepwater, it would require multi-billion dollar investments to produce the hydrocarbon resources,” he observed. “Any legal uncertainty brought about by disclosure law could easily dissuade American companies from undertaking what is already an expensive decision, in turn reducing opportunities for new jobs for Americans.”

Trans-boundary vs. Law of Sea

Steven Groves, a senior research fellow at the Heritage Foundation, sand the trans-boundary hydrocarbons agreement would be better than the Law of the Sea Treaty, which also awaits congressional ratification, because it’s designed to promote, instead of compel, cooperation between Mexico and the US.

“There is hope within the petroleum industry that the agreement could also lead to needed reforms in Mexico,” he said. “Its dispute resolution procedures are designed to stimulate, rather than stymie, development of trans-boundary reservoirs.”

Athan Manuel, lands protection program director at the Sierra Club, said the environmental organization has mixed feelings about both the bill and the treaty. “We support the idea of increased inspection of rigs operating in US waters. However, we do not support the expansion of drilling into new areas,” he explained.

The Sierra Club also supports energy projects which create new jobs, but believes jobs from renewable energy technology development and increased energy efficiency would be more beneficial than fossil fuel industry employment, he added.

Manuel said the group approves of reforms Salazar instituted at the US Department of the Interior following the Macondo deepwater well accident and blowout in 2010, but is concerned that BOEM and BSEE won’t have adequate funding to do a good job because of pressure to reduce federal government costs. API wrote a letter to the Obama administration expressing similar concerns, Milito said.

Contact Nick Snow at nicks@pennwell.com

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