US and Mexico Sign Gulf Oil-Drilling Deal

| Feb. 24, 2012 |

Published by Minyanville

The United States and Mexico have signed a landmark deal allowing their companies to develop oil and gas reservoirs in a disputed area of the Gulf of Mexico.

The 1.5 million acres in the Gulf straddle the two nations’ maritime borders, causing concern that drilling there would create tension between the nations as there would be legal uncertainty over the rights to the resources. Negotiations began last year, following a joint commitment made in May by US President Barack Obama and his Mexican counterpart, Felipe Calderón.

"These reservoirs could hold considerable reserves ... but they don't necessarily stop neatly at our maritime boundary,” said US Secretary of State Hillary Clinton in Los Cabos, Mexico. “This could lead to disputes… The agreement we are signing today will help prevent such disputes… American energy companies will be able—for the first time—to collaborate with [Mexican oil monopoly] Pemex.”

Mexican Finance Minister José Antonio Meade told London’s Financial Times: “[The deal] creates a framework in which whatever drilling is done on either side of the border is carried out in a context in which there is no uncertainty about who has the right to what.”

The deal will resolve certain issues, such as who earns royalties on oil extracted from either side of the Gulf, and intends to protect both US and Mexican interests.

The US government estimates the resources to total some 172 millions barrels of oil and the gas equivalent of 52 million barrels of oil. Pemex is more hopeful, hoping to tap into 29 billion barrels of crude equivalent in the area. The company’s Director of Exploration Carlos Morales told Reuters that Pemex intends to drill six or seven new wells in the region this year and eight new wells annually for the next five years.

Deepwater drilling in the Gulf of Mexico, however, awakens the specter of the April 2010 Deepwater Horizon disaster that killed 11 BP (BP) workers and spewed more than 4 million barrels or oil into the sea.

The deal does include a plan for joint safety inspections by the two countries’ regulators, but Mexican authorities are concerned that Pemex does not have sufficient safeguards in place to move into so-called ultra-deep drilling.

In the US, Obama is keen to increase domestic oil production as gas prices rise driven by tension between Washington and Iran. According to the US Energy Information Administration, Mexico was the second-largest source of US oil imports in 2010. In turn, oil earnings account for 32% of Mexico’s government revenue.


Price raises eased in the first half of February, pulling the annual inflation rate down to 4.01%, just a whisker above the Mexican Central Bank’s 4% target. Authorities are not concerned about the figures.

“It was very low,” Central Bank Governor Agustín Carstens said. "Really, it could have been lower were it not for outside factors like commodity prices as well as a Mexican drought.”

He expects inflation to stabilize between 3% and 4% over the next couple of years, with growing of similar figures, “if the US economy continues to show more encouraging signs of growth," Carstens qualified. Few analysts are expecting a change in the benchmark interest rate.