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Mexico Energy Intelligence®

US-Mexico Transboundary Hydrocarbon Agreement (Outlines of Parts I-IV)

March 8, 2013

Baker & Associates, Energy Consultants

5177 Richmond Ave, Ste 525Houston, Texas 77056

(713) 255-0000 Tel

[email protected]

MEI Report No. 100157

© Baker & Associates, Energy Consultants. All rights reserved.

Report updated

March 9, 2013

Market Note

Vol. No. XVIII

_______________________________________________________________________________________________________

MEXICO ENERGY INTELLIGENCE® (MEI) is a commercial and policy advisory service offered by BAKER & ASSOCIATES, ENERGY CONSULTANTS, a management consultancy based in Houston. MEI reports facilitate two‐way communication between Mexican public and private institutions and the global environment. Our reports examine policy, institutional and cultural issues as they affect the operating environment, energy regulation, and government and private investment in Mexico’s energy sector. Reports are distributed principally on a subscription basis.

+1 (713) 255‐0000 MEXICO ENERGY INTELLIGENCE® Page 1 of 9

MEI Market Note No. 121

Houston, March 15, 2012

US‐MEXICO TRANSBOUNDARY HYDROCARBON AGREEMENT

Substance or Symbol?

HE TREATY BETWEEN THE U.S. AND MEXICO regarding cross‐border oilfields is a major diplomatic

accomplishment by the Obama and Calderón governments. This is the first time in the history of either

country that a frame of reference has been proposed in the form of an international agreement

related to the exploration and exploitation of mineral deposits of any kind. The framework will have

relevance for future negotiations with Russia and Canada regarding cross‐border oilfields in the Arctic Ocean.

That said, if the text of the agreement were to have the names of the contracting parties redacted—that is,

omitted from the text—it would be hard to imagine that the agreement was anything more than a template

that had been devised for instructional purposes in a seminar on international petroleum law. Beyond the

abrogation, in Article 24, of the Moratorium Clause of the Continental Shelf Treaty of 2000, there is little to

suggest that the document might refer to the U.S. and Mexico.

The Agreement, dated February 20, 2012, puts in the public record a very rough framework for

negotiating unitization agreements between “licensees” on the U.S. and Mexican sides of the maritime

border in the case that a commercial cross‐border oilfield were discovered. Its implementation will

require changes in law, regulation and attitude on both sides of the border.

This report describes the geophysical and commercial framework of a cross‐border oilfield in general

terms, and asks about the accomplishments and shortcomings of the agreement.

Contents INTRODUCTION ................................................................................................................................................................................. 2

Unprecedented agreement .......................................................................................................................................................... 2 The Logic of a cross‐border oilfield .............................................................................................................................................. 2

BACKGROUND ................................................................................................................................................................................... 3

Mexican Concerns ........................................................................................................................................................................ 4 Lease Sales on U.S. side................................................................................................................................................................ 5 Mexican political calendar ........................................................................................................................................................... 5 Media Event ................................................................................................................................................................................. 5

DISCUSSION ...................................................................................................................................................................................... 6

What is the agreement about? .................................................................................................................................................... 6 Governance under the agreement ............................................................................................................................................... 6 What did the agreement accomplish? ......................................................................................................................................... 7

U.S. GOVERNMENT’S PERSPECTIVE .................................................................................................................................................. 7 MEXICAN GOVERNMENT’S PERSPECTIVE ............................................................................................................................................ 7 GLOBAL INDUSTRY PERSPECTIVE ...................................................................................................................................................... 7

OBSERVATIONS ................................................................................................................................................................................. 7

CONCLUSIONS ................................................................................................................................................................................... 8

Titles and scope of related MEI reports .................................................................................................................................. 9

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_______________________________________________________________________________________________________

MEXICO ENERGY INTELLIGENCE® (MEI) is a commercial and policy advisory service offered by BAKER & ASSOCIATES, ENERGY CONSULTANTS, a management consultancy based in Houston. MEI reports facilitate two‐way communication between Mexican public and private institutions and the global environment. Our reports examine policy, institutional and cultural issues as they affect the operating environment, energy regulation, and government and private investment. As a corpus, they serve as a public record of the Mexican energy sector in a global context. Our reports are distributed principally on a subscription basis.



Houston, April 24; issued Sept. 23, 2012

US‐MEXICO TRANSBOUNDARY HYDROCARBON AGREEMENT (Part II)

A Framework Agreement Based on Limited Consensus

HE TREATY BETWEEN THE U.S. AND MEXICO regarding cross‐border oilfields is a major diplomatic

accomplishment by the Obama and Calderón governments. This is the first agreement for either

country related to the cross‐border exploitation of mineral deposits of any kind. For the U.S., the

framework agreement will have relevance for future negotiations with Russia and Canada regarding cross‐

border oilfields in the Arctic Ocean; and for both countries Cuba will eventually need to be included.

The Agreement, which was approved by the Mexican Senate on April 12, 2012, puts in the public record

a very rough framework for dispute resolution and for the always‐delicate interface between public

policy and the private sector. The Agreement means very different things for the two countries: For

Mexico, it strengthens the energy security of the country by defending Mexico’s rightful economic

interest in any cross‐border oilfield. For the U.S. government, the agreement is expected to facilitate

lease sales of blocks adjacent to the maritime border with Mexico as well as to serve as template in

other negotiations.

The Mexican and international media paid attention to the majority of PRI and PAN Senators who voted,

69 in favor to 21 opposed, to approve the agreement. Little attention was paid to the arguments of PRD

senators and others who wanted to postpone approval and to remit the report to committee for further

review. The present report gives attention to the minority view, and raises issues not considered in the

debate about how the terms of the agreement would be implemented.

CONTENTSSummary ........................................................................................................................................................................................... 2

INTRODUCTION ................................................................................................................................................................................. 3

DISCUSSION ...................................................................................................................................................................................... 4

DEBATE IN THE MEXICAN SENATE ............................................................................................................................................... 4 In Favor of Returning to Committee ........................................................................................................................................ 4 In Favor of Immediate Approval .............................................................................................................................................. 5

LOOKING AHEAD .......................................................................................................................................................................... 5 U.S. Leases Are in Two Dimensions, but the Agreement Defines Cross‐border Fields in Three ............................................. 6 U.S. Side .................................................................................................................................................................................. 7 Mexican Side ........................................................................................................................................................................... 7 Beyond Mexico ....................................................................................................................................................................... 7

OBSERVATIONS ................................................................................................................................................................................. 8

CONCLUSIONS ................................................................................................................................................................................... 8

Exhibit A. Extract from an EIA report on maritime boundary negotiations with Mexico (Sept. 2005) ...................................... 10 Exhibit B Extract of a proposal to SENER regarding best practices in cross‐border fields (Jan. 2008) ....................................... 11 Exhibit C Index (in English) of the transcripts of the meeting of the Senate Energy Committee, March 27, 2012 .................... 13 Fig. 1. “Geographical Area” may hold surprises .......................................................................................................................... 6 Fig. 2 “Geographical Area” is a 3‐dimensional term in the Agreement ....................................................................................... 6 Titles and scope of related MEI reports ..................................................................................................................................... 15

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Exhibit C

TranslationfromtheSpanish:MexicoEnergyIntelligence® Page-i-

TranscriptoftheSenateEnergyCommitteeMeetingofMarch27,2012

CONTENTS

Senator Francisco Labastida (Chairman): Calls meeting to order ...................................................................................... 1

REAPPOINTMENT OF DR. FLUVIO RUIZ TO THE PEMEX BOARD OF DIRECTORS ............................................................... 2

AGREEMENT BETWEEN MEXICO AND THE U.S. REGARDING CROSS‐BORDER HYDROCARBONS ...................................... 5

Senator Pablo Gómez ......................................................................................................................................................... 5

Negotiations to adhere to Law of Agreements and Economic Treaties .................................................................... 5

Exclusion of 9 miles from Texas from Agreement ..................................................................................................... 6

Framework Agreement: Details only in subsequent agreements ............................................................................. 6

But Unification is not obligatory ................................................................................................................................ 7

Dispute resolution in Agreement excludes unification issues ................................................................................... 7

Terms of Agreement are optional for U.S. lease‐holders .......................................................................................... 8

Senators were told to consult the Energy Ministry, as the Foreign Ministry would be unavailable ......................... 8

Fast‐track approval of treaties ................................................................................................................................... 8

Not ratifying the agreement would be worse for Mexico ......................................................................................... 9

Sen. Labastida .................................................................................................................................................................... 9

Sen Rubén Camarillo .......................................................................................................................................................... 9

Protects Mexican rights ........................................................................................................................................... 10

Assures equitable distribution of hydrocarbons...................................................................................................... 10

Facilitates orderly and regulated development ....................................................................................................... 10

Provides legal security to participants ..................................................................................................................... 10

Guarantees that operations will be carried out safety and with environmental responsibility ............................. 10

To conclude: We are not inventing the wheel ......................................................................................................... 11

The Agreement is an international treaty ............................................................................................................ 12

The Agreement gives legal certainty ................................................................................................................... 12

The Agreement establishes co‐responsibility for the environment .................................................................... 12

The Agreement gives Pemex leverage to learn from other oil companies ......................................................... 12

The Agreement gives Pemex leverage to learn from other oil companies ......................................................... 13

Chapter 3 of the Agreement promotes efficient use of infrastructure ............................................................... 13

Chapters 4 & 5 provide paths to dispute resolution ............................................................................................ 14

Chapters 6 & 7 deal with inspections regarding safety and the environment .................................................... 14

Asks colleagues to vote in favor of the ratification of this treaty. ........................................................................... 15

Sen. Labastida .................................................................................................................................................................. 16

Sen. Leal Angulo ............................................................................................................................................................... 16

Asks if the theory of cross‐border oilfields requires a new constitutional and legal framework ........................... 16

Senator Juan Bueno Torio ................................................................................................................................................ 18

The point of departure is the suspicion that our reservoirs are protected from being drained side. .................... 18

Treaty establishes stand‐by mechanisms to use in the event of a discovery .......................................................... 20

Sen. Leal Angulo ............................................................................................................................................................... 22

Senate Energy Committee – Session of March 27, 2012

TranslationfromtheSpanish:MexicoEnergyIntelligence®..............................................................................................Page -ii-

A grave defect in the treaty is the lack of a legal foundation by which oil wealth may be divided. ....................... 23

Sen. Bueno Torio .............................................................................................................................................................. 24

Basis of the Agreement to be found in prior treaties with the United States: 1958, 1970, 1978 and

2000 ......................................................................................................................................................................... 24

Sen. Gómez ...................................................................................................................................................................... 26

A trinational ageement on the continental shelf is pending, as the U.S. government does not

recognize the government of Cuba (except, that is, for some situations where agreements are

made). ...................................................................................................................................................................... 28

Senador Fernando Elizondo ............................................................................................................................................. 29

Senator José Antonio Badía ............................................................................................................................................. 32

Cites a university thesis on the “Development of Transborder Fields” (IPN, 2009), noting need for

such treaties for onshore border, as with Guatamala. ............................................................................................ 32

Sen. Labastida .................................................................................................................................................................. 34

The Agreement is possible thanks to the Energy Reform of 2008 .......................................................................... 35

This is the first time that an Agreement is needed ................................................................................................. 35

There is a strong probability that cross‐border fields will be found. ...................................................................... 35

The Agreement defends our national interests. It would be bad for us not to approve it, as the oil

becomes the property of whoever has the best technology and financing. ........................................................... 37

I favor approving the Agreement. ........................................................................................................................... 38

Sen. Gómez ...................................................................................................................................................................... 39

The points of legal uncertainty outnumber the points of certainty. ....................................................................... 39

Before approval, we should require the testimony of the Energy Ministry. ........................................................... 40

Urges chairpersons of the Committees to learn from the U.S. Congress as to the legal form of the

Agreement .............................................................................................................................................................. 40

Sen. Camarillo .................................................................................................................................................................. 41

Sen. Elizondo .................................................................................................................................................................... 41

Sen. Gómez ...................................................................................................................................................................... 42

The U.S. Congress can modify the text of the Agreement depending on the legal treatment it is

given. ........................................................................................................................................................................ 42

The text of a treaty should be confidential until approved by the Senate; but this was not followed. .................. 42

Sen. Labastida .......................................................................................................................................................... 43

Sen. Leal Angulo ....................................................................................................................................................... 43

Voting on two proposals: Sen. Gómez vs. Sen. Camarillo ............................................................................................... 44

Sen. Gómez .............................................................................................................................................................. 44

Sen. Labastida .......................................................................................................................................................... 44

Sen. Gómez .............................................................................................................................................................. 44

Sen. Labastida .......................................................................................................................................................... 44

NATIONAL ENERGY STRATEGY ......................................................................................................................................... 44

Sen. Labastida: Proposes to postpone discussion. .......................................................................................................... 44

Exhibit C

TranslationfromtheSpanish:MexicoEnergyIntelligence® Page1of47

México, D.F., a 27 de marzo de 2012.

Versión estenográfica de la reunión de trabajo de la Comisión

de Energía, presidida por el C. Senador Francisco Labastida

Ochoa, celebrada en las salas 3 y 4 del piso 14 de la Torre de

Comisiones de este Recinto Parlamentario, el día de hoy.

Senator Francisco Labastida

‐EL C. SENADOR FRANCISCO LABASTIDA OCHOA, Presidente de la Comisión de Energía del

Senado de la República: Señores Senadores, muy buenas tardes.

Tenemos el quórum reglamentario. Si ustedes nos autorizan podemos dar inicio, en

consecuencia, a la reunión de trabajo del día de hoy.

Antes de iniciar formalmente nuestra reunión, quiero saludar, particularmente, a nuestro

compañero Pablo Gómez, quien a partir de esta fecha fungirá como Secretario de esta Comisión.

<2> Como todos ustedes saben, el señor Senador y amigo nuestro, Don Pablo Gómez, es

Senador por el Partido de la Revolución Democrática.

Y le damos también la bienvenida al Senador Leonel Godoy, que no se ha aparecido, porque

tengo la impresión de que está en la Reunión de Hacienda, que está aquí al lado, y que se va a

incorporar en algún momento, pero se suma a partir de hoy a los trabajos de la comisión.

El Orden del Día ha sido distribuido entre ustedes. Si lo consideran así, podemos dar inicio a la

reunión conforme al mismo.

En primer lugar, en la Orden del Día, tenemos la lectura y en su caso la aprobación del acta de la

reunión anterior, la cual también ha sido distribuida con anterioridad, está a consideración de ustedes.

Si lo consideran de aprobare, podemos hacer como lo hemos acostumbrado en esta comisión, darla por

aprobada preliminarmente, dándonos un plazo de 48 horas para que, si encuentran ustedes objeciones

o modificaciones a las mismas, <p.3> sean registradas e informemos cabal y plenamente en la siguiente

reunión de ella.

Bienvenido el señor Senador Eloy Cantú.

‐En cuanto a los asuntos a tratar, como lo hicimos de su conocimiento en la convocatoria,

habremos de analizar y discutir, debatir sobre tres asuntos básicos.

El primero, y eso no significa orden de prelación del debate, es el acuerdo sobre yacimientos

transfronterizos firmados por los Gobiernos de México y de Estados Unidos.

El segundo asunto se refiere a la estrategia nacional de energía.

_______________________________________________________________________________________________________

MEXICO ENERGY INTELLIGENCE® (MEI) is a commercial and policy advisory service offered by BAKER & ASSOCIATES, ENERGY CONSULTANTS, a management consultancy based in Houston. MEI reports cover topics typically not discussed in Mexico. They are intended to facilitate two‐way communication between Mexican public and private institutions and the global environment. Our reports examine policy, institutional and cultural issues as they affect the operating environment, energy regulation, and government and private investment in Mexico’s energy sector. Reports are distributed principally on a subscription basis.



Houston, February 22, 2013

US‐Mexico Hydrocarbon Agreement (Part III)

As written, it will be ignored by both sides

N FEBRUARY 22, 2012, AN HISTORIC AGREEMENT was signed

between the U.S. and Mexico in relation to the joint

administration of any future oil discovery that lay across the

maritime boundary in the Gulf of Mexico. Five weeks later, on March 27th,

the Mexican Senate approved the agreement by a vote of 69 to 21.

The Mexican side was expecting a similar, expeditious treatment of the

agreement in Washington: submission either to the Senate as a treaty for

ratification or to the Congress as an executive agreement for implementing

legislation. In either case, the mandate and authority of the Department of

the Interior would need to be enlarged. A year later—contrary to all

expectations‐‐, the agreement still reposes in filing cabinets and computers.

Departing Sen. Robert Lugar (R‐Indiana) urged the Obama administration to

submit the agreement to congress for approval (see insert).

The present report is the third in a series. It sets forth reasons why, when the agreement is eventually

submitted to the US Congress, it may not be approved. If submitted and approved, the framework of the

agreement is likely to be ignored by both sides. We propose curative amendments for both sides.

Contents SUMMARY ........................................................................................................................................................................................ 2 INTRODUCTION ................................................................................................................................................................................. 3

American Agendas .................................................................................................................................................................. 3 Mexican Agendas .................................................................................................................................................................... 3

BACKGROUND ................................................................................................................................................................................... 4 DISCUSSION ...................................................................................................................................................................................... 5

WHY THE LUGAR SUB‐COMMITTEE URGED SUBMISSION AND APPROVAL OF THE AGREEMENT............................................................................... 5 WHY THE AGREEMENT MAY NOT BE APPROVED IN THE US CONGRESS ............................................................................................................ 6

Potential for a sovereign‐immunity defense against liability in a Macondo‐scale oil spill .............................................................................. 6 No commitment to a US‐licensed operator in command of the unitized area ............................................................................................... 7 Lack of definition of the Mexican treaty administrator .................................................................................................................................. 7 Lack of Mexican public oversight of safety protocols in offshore operations ................................................................................................. 7

WHY THE AGREEMENT, IF APPROVED, MAY NOT BE IMPLEMENTED ................................................................................................................. 8 Lack of incentive for U.S. lease‐holders .......................................................................................................................................................... 8 Lack of interest by Pemex............................................................................................................................................................................... 9 Lack of interest by Mexican authorities in a PSC framework .......................................................................................................................... 9

WHAT NEXT? ................................................................................................................................................................................... 9 US Executive Branch ....................................................................................................................................................................................... 9 US Congress .................................................................................................................................................................................................. 10 Mexican Congress ........................................................................................................................................................................................ 10

OBSERVATIONS ............................................................................................................................................................................... 10 CONCLUSIONS ................................................................................................................................................................................. 11 Appendices ..................................................................................................................................................................................... 12

Fig. 1. Transboundary agreement seen as an insurance policy ............................................................................................................................ 3 Titles of related MEI reports .............................................................................................................................................................................. 13

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Houston, February 22, 2013

[email protected] MEXICO ENERGY INTELLIGENCE® Page 2 of 13

US‐Mexico Hydrocarbon Agreement (Part III)

SUMMARY

A useful perspective on the origin and trajectory of the U.S.‐Mexico Transboundary Hydrocarbon

Agreement may be found by comparing it to an insurance policy. We shall want to consider how

prospective buyers from the U.S. and Mexico understand and ponder the benefits of the terms offered

in the policy.

Before proceeding to each of the questions shown below (Fig. 1), three points of background are in order:

1) In relation to activities of exploration and production, oil companies do not buy insurance

policies to cover the inherent, associated risks. Instead, they self‐insure (as did BP in the

Macondo oil spill of 2010).1

2) The first major oil spill of the

Gulf of Mexico took place in

1979 on account of the blow‐

out of Pemex’s Ixtoc‐1.

3) Pemex invoked a defense of

sovereign immunity and paid

nothing for damages.

Do I need insurance at all?

In a culture of self‐insurance, the

perceived need in DC and Houston for

legal or diplomatic protection is slight;

but in Mexico it is great.

Does the policy protect me?

For U.S. stakeholders, the answer is

‘No’. For Mexican stakeholders the

answer is mostly ‘Yes’.

Can I afford the policy?

Here, the affordability is to be

measured in political terms, that is, in

relation to the political capital

required for the ratification and execution of the Agreement. The answers by the two sides are mixed.

The lack of convergence by the stakeholders on these key questions goes a long way to explaining how a

year should have passed in silence, without action by the Obama administration or the U.S. Congress.

1 In that accident, Transocean insured the rig, but not the costs of civil or criminal liability.

_______________________________________________________________________________________________________

MEXICO ENERGY INTELLIGENCE® (MEI) is a commercial and policy advisory service offered by BAKER & ASSOCIATES, ENERGY CONSULTANTS, a management consultancy based in Houston. MEI reports facilitate two‐way communication between Mexican public and private institutions and the global environment. Our reports examine policy, institutional and cultural issues as they affect the operating environment, energy regulation, and government and private investment in Mexico’s energy sector. Reports are distributed principally on a subscription basis.




US‐MEXICO TRANSBOUNDARY HYDROCARBON AGREEMENT (Part IV)

How to make it work for Pemex and US leaseholders

N PRIOR REPORTS, we have identified omissions and ambiguities associated with the terms and

concepts of the Transboundary Hydrocarbon Agreement (TBA), and we have noted the lack of

legal and environmental protections available to parties of future agreements about the

development of any cross‐border reservoir.

In this report, we change gears, and focus on the ways that a project and its parties could be successful.

We identify four options for the selection of an operator for a unitized reservoir: an IOC alone, a joint

operatorship with Pemex, a Pemex‐contracted operator, and Pemex alone. In the discussion (and in Fig.

5) we discuss some of the advantages and disadvantages of each option.

Our general conclusion is the TBA is an exercise of thinking through the elements of an equity‐based,

joint venture. Its value transcends consideration of cross‐border reservoirs. The exercise stretches the

imagination of both sides to visualize how such a venture could be structured for success, not only for

deepwater but onshore as well.

Contents SUMMARY ..................................................................................................................................................................... 2 INTRODUCTION ............................................................................................................................................................. 3 BACKGROUND ............................................................................................................................................................... 4

Energy Hearings of 2008 .............................................................................................................................................................. 5 Our prior reports on the Transboundary Hydrocarbon Agreement ............................................................................................. 6

DISCUSSION ................................................................................................................................................................... 6 THE MOVING PARTS OF A JOINT OPERATING AGREEMENT ..................................................................................................... 6

Framework agreement ........................................................................................................................................................... 6 Unit Agreement ...................................................................................................................................................................... 7 Unit Area ................................................................................................................................................................................. 7 Allocation and Redetermination ............................................................................................................................................. 7

OPTIONS FOR SELECTING AN OPERATOR ............................................................................................................................. 8 US licensee as unit operator ................................................................................................................................................... 9 Joint unit operator .................................................................................................................................................................. 9 Pemex to hold public tender to select operator ..................................................................................................................... 9 Pemex to serve as the operator on the Mexican side ........................................................................................................... 10

MARKETING PRODUCTION ............................................................................................................................................. 10 OBSERVATIONS ............................................................................................................................................................ 11 CONCLUSIONS ............................................................................................................................................................. 11

Fig. 1 The 2008 transboundary amendments to the Petroleum Law ....................................................................... 5 Fig. 2 Key terms and concepts in a cross‐border unitization agreement .................................................................. 6 Fig. 3 What is to be allocated? .................................................................................................................................. 7 Fig. 4 Allocation, not location, determines ownership .............................................................................................. 8 Fig. 5 Options for the selection of a unit operator .................................................................................................. 10 Titles of related MEI reports ................................................................................................................................... 12

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US‐MEXICO TRANSBOUNDARY HYDROCARBON AGREEMENT (Part IV)

Its significance transcends transboundary reservoirs

INTRODUCTION

HE DEEPWATER AREA OF THE MEXICAN PORTION OF THE GULF OF MEXICO is the largest

unexplored petroleum province yet known to exist, in the same league as the Arctic Circle. At

present, the outlook for the exploration of this province is not good. Why?

1) The pace of exploration by Pemex alone is too slow. At the rate of 2 or 3 wells annually, it will

take decades to cover the 500,000 square kilometers of prospective acreage.

2) The cost is too high and the risk is too great for one company to bear alone.

3) The high cost is out of alignment with the government’s social programs: At US$150 million

dollars each, any given well would pay for most, if not all, of the salaries of Mexico’s primary

school teachers.

4) There is a high opportunity cost in forgoing the experience of oil companies who have proven

records as efficient managers of deepwater fields.

5) There is a second opportunity cost, equally high, which affects the development of both onshore

and offshore reservoirs. It is Mexico’s forgone participation in the continuing, global

conversation about the structure and management of joint‐ventures.

6) The current legal regime in Mexico that excludes petroleum mineral rights from commerce

destroys economic value.

With this general picture in view, the US‐Mexico

Transboundary Hydrocarbon Agreement of 2012 takes on a

different light. The significance of the agreement has little to

do with the likelihood that a cross‐border reservoir will ever

be discovered and developed; the significance is found in the exercise of imagining a joint development

with a deepwater‐qualified oil company. This exercise will force all parties to visualize how a joint

project between Pemex and another company could succeed, not only offshore but onshore as well.

The exercise is important in its own right, as it encourages a new discussion in Mexico about the scope

and meaning of public oversight of upstream operations. The National Hydrocarbons Commission (CNH)

was created as a sub‐product (one could say) of the Energy Reform of 2008. It was conceived as an

agency that would address the poorly‐understood challenge of incorporating global standards and

practices in regulating Mexico’s national oil company and in overseeing Mexico’s oil patrimony.1

1 See MEI Market Note 128, “What Should the CNH Tell the Next Government?” (May 10, 2012). The advice was this: Repeal the CNH Act of 2008 and draft a new law for CNH 2.0.

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The significance of the Transboundary Agreement has little

to do with the development of transboundary reservoirs

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www.energia.comMexico Energy Intelligence®

100156 110Feb 22, 13 U.S.-Mexico Transboundary Hydrocarbon Agreement (Part III)

This report, the third in a series, examines the outlook for approval andimplementation of the Agreement of 2012. A year later, the Obamaadministration has not formally sent it to the Congress, on the grounds that thepolitical timing is not yet right. The report observes that there are reasonsassociated with the language of the agreement that will likely give congresscause for concern. One of these is the apparent unwillingness of the Mexicanside to commit to a single unit operator for a unitized field; a second concerninvolved the ability of Pemex to invoke sovereign immunity in the event of an oilspill.

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110512 34Nov 05, 12 Panel Presentation on the US-Mexico Transborder Hydrocarbon Agreement

One of the panels at the national conference of the US Association for EnergyEconomics (USAEE) concerned the US-Mexico Transboundary Agreement of2012. Panelists were Juan Carlos Zepeda, Lourdes Melgar and George Baker.For a summary of the panel discussion and selected slides, see USAEEDIALOGUE (January 2013):http://dialogue.usaee.org/index.php?option=com_content&view=article&id=218:panel-presentation-on-the-us-mexico-transborder-hydrocarbon-agreement&catid=56:volume-21-number-1&Itemid=837

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100124 58Apr 24, 12 US-Mexico Transboundary Hydrocarbon Agreement (Part II)

This report examines problematic aspects of the Transboundary Agreement,paying particular attention to the objections and concerns of the minory ofsenators who voted against immediate approval (69 in favor, 21 against). Sen.Pablo Gómez (PRD), who was the principal voice of the opposition, asked aboutwhy the CNH had not been designated at the executive agency that wouldrepresent the Mexican government in the administration of the Agreement.Another question concerned the omission from the agreement of the first 9 milesthat the US said were under Texas jurisdiction. An outline of the debate is ExhibitC.

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100121 09Mar 19, 12 US-Mexico Transboundary Hydrocarbon Agreement: A New Face for Pemex’sIncentive Contract?

Until 2012, neither Mexico or the U.S. had signed a cross-border agreementrelated to petroleum. Lease auctions of blocks continuous with Mexico on theU.S. side received no bids. The agreement provides a scaffolding of publicoversight for the unitization of cross-border fields and for the eventual formationof a joint operating agreement between "licensees" on both sides. At this stage,the agreement is limited to sharing information, not risk.

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100113 318Jan 26, 12 Pemex's Hybrid Contracts: How Pemex tropicalized global contract models

This report examines the Pemex upstream outsourcing since 2003 for oil and gasproduction, starting with the Multiple Service Contract of 2003-05. The reportdiscusses three common legal models that contributed to the Pemex hybrid:Farm-out, Production Sharing Contract (PSC) and Incremental Oil Contract. Thereport concludes that the farm-out model is the closest to Pemex's hybridcontract, as it confers on the contractor a legal, revenue interest in production.

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755 87Apr 29, 10 Toward a Hybrid Oil Fiscal System in Mexico


May 25, 10•

080107 22Aug 01, 07 Mexico Ponders Cross-Border Strategy for Deepwater GOM Fields

This article by George Baker concerns the institutional and regulatory limitationsin Mexico and the U.S. for the development of protocols for the unitization,metering and taxation of cross-border fields. WORLD OIL (Aug. 1, 2007).

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110512 34Nov 05, 12 Panel Presentation on the US-Mexico Transborder Hydrocarbon Agreement

One of the panels at the national conference of the US Association for EnergyEconomics (USAEE) concerned the US-Mexico Transboundary Agreement of2012. Panelists were Juan Carlos Zepeda, Lourdes Melgar and George Baker.For a summary of the panel discussion and selected slides, see USAEEDIALOGUE (January 2013):http://dialogue.usaee.org/index.php?option=com_content&view=article&id=218:panel-presentation-on-the-us-mexico-transborder-hydrocarbon-agreement&catid=56:volume-21-number-1&Itemid=837

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100124 58Apr 24, 12 US-Mexico Transboundary Hydrocarbon Agreement (Part II)

This report examines problematic aspects of the Transboundary Agreement,paying particular attention to the objections and concerns of the minory ofsenators who voted against immediate approval (69 in favor, 21 against). Sen.Pablo Gómez (PRD), who was the principal voice of the opposition, asked aboutwhy the CNH had not been designated at the executive agency that wouldrepresent the Mexican government in the administration of the Agreement.Another question concerned the omission from the agreement of the first 9 milesthat the US said were under Texas jurisdiction. An outline of the debate is ExhibitC.

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100121 09Mar 19, 12 US-Mexico Transboundary Hydrocarbon Agreement: A New Face for Pemex’sIncentive Contract?

Until 2012, neither Mexico or the U.S. had signed a cross-border agreementrelated to petroleum. Lease auctions of blocks continuous with Mexico on theU.S. side received no bids. The agreement provides a scaffolding of publicoversight for the unitization of cross-border fields and for the eventual formationof a joint operating agreement between "licensees" on both sides. At this stage,the agreement is limited to sharing information, not risk.

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100113 318Jan 26, 12 Pemex's Hybrid Contracts: How Pemex tropicalized global contract models


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755 87Apr 29, 10 Toward a Hybrid Oil Fiscal System in Mexico

This report examines the logic for and against the Technical Service Agreement(TSA) as an oil fiscal system in the light of the intent by Pemex to offer a hybridfiscal system that offers partial cost recovery and a per-barrel service fee that istied to indirect market indicators. The report asks about the considerations infavor of as well as against the adoption of a Service Agreement as a country’spetroleum fiscal system.

May 25, 10•


This article by George Baker concerns the institutional and regulatory limitationsin Mexico and the U.S. for the development of protocols for the unitization,metering and taxation of cross-border fields. WORLD OIL (Aug. 1, 2007).

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100121 09Mar 19, 12 US-Mexico Transboundary Hydrocarbon Agreement: A New Face forPemex’s Incentive Contract?

Until 2012, neither Mexico or the U.S. had signed a cross-borderagreement related to petroleum. Lease auctions of blocks continuous withMexico on the U.S. side received no bids. The agreement provides ascaffolding of public oversight for the unitization of cross-border fields andfor the eventual formation of a joint operating agreement between"licensees" on both sides. At this stage, the agreement is limited to sharinginformation, not risk.

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100111 319Feb 02, 12 Pemex's Farm-Out Program: How to Evaluate Its Efficiency?

This report proposes that the term "farm-out" best captures the sense ofMexican energy policy since 1992 in power, gas and the upstream. Thereport examines alternative approaches to evaluating the success of thedecade-old farm-out program in Pemex E&P, a program that, to date, hasyet to be evaluated by Pemex's board or auditors from the government(SFP) or Congress (ASF). The report provides several optics by which thesuccess of the program may be evaluated.

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100074 25Jan 14, 11 Deepwater Safety for Pemex: Guidelines of the HydrocarbonCommission

On Jan. 11, 2011, Mexico’s National Hydrocarbons Commission (CNH)published its Resolution No. 12.001/10, which covers the safetyprecautions, standards and training that Pemex should develop for itsdeepwater operations. The guidelines reflect a close study of the situationat the BP Macondo well in relation to the blowout in 2010. This reportcomments on the strengths and weaknesses of these guidelines.

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This article by George Baker concerns the institutional and regulatorylimitations in Mexico and the U.S. for the development of protocols for theunitization, metering and taxation of cross-border fields. WORLD OIL(Aug. 1, 2007).

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Sep 23, 2012+1 (713) 255-0000

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736 110May 31, 08 Deepwater Motivations: The Logic of Partnerships

The logic of partnerships in deepwater ventures responds to the interestsnot only of the oil companies but also to those of society: all parties wantnew oil supplies and optimized value-generation. In Mexico's case, Pemexhas told the government that it cannot develop the deepwater areas of theGulf of Mexico alone. The current energy debate hinges largely on this onestatement. A new window into the debate in Mexico is offered by theexperience of IOCs for whom such associations are routine.

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679 113Oct 25, 04 Pemex's future production in deepwater: What is Plan B?

This report reviews the arguments and rhetoric heard in Mexico throughoutthe Fox administration that favor strategic associations for deepwaterproduction. Such arguments have not been convincing in the Congress.Pemex, meanwhile, is advancing its knowledge of deepwater basins, andits conversations with oil companies are leading to an understanding of thetechnological challenges ahead. What, then, are Pemex's plans A and B?

Sep 12, 06•

Sep 23, 2012+1 (713) 255-0000

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