Investing in Mexican U.S. Oil Relations

Brian Hicks

Written By Brian Hicks

Posted October 3, 2013

Mexico holds more than ten billion barrels of proven oil reserves, yet oil production is sinking low as its oil fields begin to dry up. What the nation needs now is investments from outside sources to fund new technology that will allow exploration into fields that are currently beyond its resources.

And it’s the U.S. who stands to help make that happen.

On Tuesday, the Senate heard legislation regarding efforts by the U.S. and Mexico to jointly develop offshore oil and gas reserves along the maritime border in the Gulf of Mexico.

Offshore Oil RigIf the effort fails and a pact to govern oil drilling along the maritime border is not enacted, many say it will harm the relationship between the two neighboring nations.

An agreement, called the Transboundary Hydrocarbons Agreement, was signed by both countries and ratified by Mexico in 2012, but the U.S. has yet to move forward with it. The agreement would bring economic prosperity to the U.S. and further aid the growing North American energy supply that stretches from Canada’s oil sands straight down into Mexico.

Mexico, meanwhile, could start to see some of the prosperity the energy revolution has brought to the U.S. And Mexican President Enrique Peña Nieto has even bigger plans for Mexico, as he pushes for reform to allow Petróleos Mexicanos (Pemex), Mexico’s state-run oil company, to open up to foreign investment.

The Issue

But the debate in the U.S. lingers on.

The two sides have always had to negotiate how to divvy up resources along the maritime border and split economics. In 2000, a moratorium was placed on drilling in the region to allow for a plan to be developed.

Since then, the U.S. has expanded its explorations and has inched closer to the maritime border. Concerns that the U.S. would inevitably siphon out oil that belonged to Mexico are becoming a pressing matter.

That brings us full circle and puts the agreement between both sides at the forefront.

The uncertainty in the region hurts both sides, as companies are reluctant to tap reservoirs without any legal certainty and regulations surrounding them.

If an agreement can be reached and the moratorium lifted, both nations could jointly develop the estimated 172 million barrels of oil and the 304 billion cubic feet of natural gas in the region, according to the Christian Science Monitor.


There is just one problem: Congress

The ongoing government shutdown is just going to make Mexico wait that much longer for an answer. But Congress has been sitting on this thing for about a year now anyway, so maybe it won’t make that much of a difference.

The Transboundary Hydrocarbons Agreement has stalled for one main reason: the House-passed version exempts oil and gas companies from publicly disclosing any payments to foreign governments. The Senate feels this information should be required.

Tuesday, the Senate Energy and Natural Resources Committee met to try and move forward on the agreement – the same day our government decided on a shutdown.

I guess it’ll still be sitting on the table when everyone returns to work. It’s an important piece of legislation both for the economies and because it would force Mexico to uphold the same environmental standards as the U.S; Pemex is not known for having a great safety record.

If Congress does move forward on the agreement, it will be a test for Mexico to truly open up Pemex to outside investors.

But if Congress does not ratify the agreement by January 17, 2014, the moratorium expires and both sides lose out on a mutually beneficial agreement to drill. Instead, they’ll both likely pass on the opportunity.


If the U.S. does decide to get in gear and make this agreement a reality, we would see a lot of U.S. companies emerge as partners with Pemex to begin developing and producing in the near term. Those same partnerships would then likely extend past the maritime border and into the heart of Mexico, where its reserves are plentiful.

Opportunity is knocking for North American energy that would extinguish all doubts companies have in working in the maritime border region today.

Mexico would be working closer than ever with the U.S. And all of North America would reap the benefits.

But Congress has been mulling over this thing for well over a year now. And now it’s not mulling over anything.

It’s time to get back to work and make it happen.


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