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Transparency Squabble Stalls US-Mexico Oil & Gas Deal

By Jen Alic | Tue, 02 July 2013 22:10 | 0

The US House has ratified an agreement governing oil and gas development along the US-Mexico border, possibly breaking the moratorium on production here and adding in a controversial clause that exempts companies from divulging payments made to foreign governments. 

The US-Mexico Hydrocarbon Transboundary Agreement (TBA) sets up a framework for joint development of oil and gas assets on the shared border in the Gulf of Mexico by US companies and Mexico’s state-run Petroleos Mexicanos (Pemex). 

About 1.5 million acres and an estimated 172 million barrels of oil and 304 billion cubic feet of natural gas are covered by the agreement.

This area could ostensibly be freed up for leasing, as the legislation effectively ends a treatise moratorium on production here.

There is one glitch, however: While the Republican-led House bill passed by a vote of 256 to 171 (with only 28 Democrats voting in favor), there is an alternative bill in the Senate, which does not include the disclosure exemption, and which the Obama administration favors. Before anything is implemented, these two versions will have to come together somehow.

The controversy has to do with the Dodd-Frank Act. The Dodd Frank Act Section 1504 requires US companies to disclose payments to foreign governments, subnational governments and the federal government.

Opponents of the act, which is pretty much everyone making money on government contracts, say it harms the competitiveness of US companies in the face of foreign companies who are not made to stand up to the same scrutiny.

Related Article: Mexican Answer to US Natural Gas Slump

The other argument in favor of the exemption is that Pemex is 100% state-owned and the Mexican government may prohibit the very disclosure required by the Dodd-Frank Act, thus rendering US companies less competitive. Companies who are not required to disclosure payments may have the advantage in winning contracts.

Democrats are worried that it will reverse any progress made towards greater transparency and preventing government corruption, which was the intention of the Dodd-Frank Act in the first place. 

From the White House’s perspective, the House version of the bill “negatively impacts US efforts to increase transparency and accountability,” and while Obama has not said he would veto the bill, the administration is hoping to amend it before it’s implemented.

What they are really concerned about is what this might mean beyond Mexico. It could set a precedent for repealing Section 1504 of the Dodd-Frank Act for other countries, which could harm national interests, as well as shareholder interests. 

Democrats believe the Senate will not pass the House bill without amending this exemption.

The US-Mexico TAP was brokered by the two countries in February 2012, and it’s gotten pretty far, pretty fast. If we can get past this last hurdle, it could be a boon for Pemex. The state-run company is eyeing the deep-water Perdido fold belt, which could have the potential to expand Mexico’s stagnating domestic production.

Related Article: A Surprising New Twist in the U.S. Natural Gas Market

Last summer, Pemex announced a major discovery of crude oil in the Perdido fold belt, with preliminary estimates that the company’s Trion-1 well contained 350 million barrels of oil equivalent (proved). The well is about 39 kilometers south of US waters.

At the time, Pemex noted that the discovery “increased certainty towards the recovery of prospective resources in the Perdido area project which have been estimated at up to 10 billion bbl of oil equivalent, and could potentially allow Mexico to increase its oil production platform in the medium and long-term.”

By. Jen Alic of Oilprice.com

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