U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

1 

77–567 PDF 

" ! COMMITTEE PRINT 

112TH CONGRESS

2d Session 

S. PRT. 

2012

112–43 

OIL, MEXICO, AND THE 

TRANSBOUNDARY AGREEMENT 

A MINORITY STAFF REPORT 

PREPARED FOR THE USE OF THE 

COMMITTEE ON FOREIGN RELATIONS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

DECEMBER 21, 2012 

Printed for the use of the Committee on Foreign Relations 

Available via World Wide Web: 

http://www.gpo.gov/fdsys/ 

COMMITTEE ON FOREIGN RELATIONS

JOHN F. KERRY, Massachusetts, Chairman

BARBARA BOXER, California 

ROBERT MENENDEZ, New Jersey 

BENJAMIN L. CARDIN, Maryland 

ROBERT P. CASEY, JR., Pennsylvania 

JIM WEBB, Virginia 

JEANNE SHAHEEN, New Hampshire 

CHRISTOPHER A. COONS, Delaware 

RICHARD J. DURBIN, Illinois 

TOM UDALL, New Mexico 

RICHARD G. LUGAR, Indiana 

BOB CORKER, Tennessee 

JAMES E. RISCH, Idaho 

MARCO RUBIO, Florida 

JAMES M. INHOFE, Oklahoma 

JIM DEMINT, South Carolina 

JOHNNY ISAKSON, Georgia 

JOHN BARRASSO, Wyoming 

MIKE LEE, Utah 

WILLIAM C. DANVERS, Staff Director

KENNETH A. MYERS, JR., Republican Staff Director

(II)

C O N T E N T S 

Page 

Letter of Transmittal ............................................................................................... v 

Oversight Study ....................................................................................................... 1 

Mexican Oil and Gas: Critical for Mexico’s Prosperity, in Critical Need of 

Reform ................................................................................................................... 2 

Natural Gas: An Emerging Priority ....................................................................... 5 

Considerations in Oil Reform Policy and Politics ................................................. 6 

Transboundary Agreement ..................................................................................... 8 

Why the TBA Matters .............................................................................................

North American Energy Security ........................................................................... 12 

Recommendations for Enhancing U.S.-Mexico Bilateral Cooperation ................ 13 

APPENDIX

Appendix I.— Text of the Agreement between the United States of America 

and the United Mexican States Concerning Transboundary Hydrocarbon 

Reservoirs in the Gulf of Mexico ......................................................................... 17 

(III)

LETTER OF TRANSMITTAL 

UNITED STATES SENATE, 

COMMITTEE ON FOREIGN RELATIONS, 

Washington, DC, December 21, 2012. 

DEAR COLLEAGUES: Energy security is a vital issue for United 

States foreign policy and economic growth. Increases in U.S. domestic oil production are helping relieve our import dependence, 

yet our nation will rely on oil imports for decades to come. 

Strengthening trade with reliable, friendly neighbors Canada and 

Mexico would make a valuable contribution to our future. 

I directed Senate Foreign Relations Committee Senior Staff 

Members Neil Brown and Carl Meacham to assess opportunities for 

enhancing the U.S.-Mexico oil and natural gas relationship. Mexico 

is a reliable trading partner. Yet it continues to struggle to maintain and increase its domestic oil production. Falling quantities of 

Mexican heavy oil available for U.S. Gulf Coast refineries have actually helped lead to increases in Middle Eastern imports to the 

U.S. even as our total imports have fallen. 

Congress needs to understand the obstacles—and opportunities— 

ahead in Mexico’s oil production. Put bluntly, we know that we can 

rely on Mexico as a trading partner, but we do not know the quantity or the quality of oil to expect it to be able to export in the years 

ahead. 

Given domestic political sensitivities about oil within Mexico, the 

bilateral relationship on this topic has struggled. Yet, the newly 

elected President of Mexico has signaled a desire to work together 

on energy issues, and the largest opposition political party joins in 

that call. 

I urge my colleagues, and the Obama administration, to seize today’s opportunity. My staff identified specific areas in shale gas, 

safety enhancement, transparency, and security that represent 

near-term opportunities for bilateral gain. 

I strongly encourage the Obama administration to send the U.S.- 

Mexico Transboundary Agreement, signed in February of this year, 

to Congress and urge my colleagues to pass the agreement. The 

Transboundary Agreement is good for energy security, good for the 

environment, good for U.S. commercial interests, and, most critically, can open the door to bilateral engagement on shared energy 

interests. 

This report provides useful insight on the need and prospects for 

domestic oil sector reforms in Mexico and important recommendations for the U.S. government to take in order to strengthen U.S.- 

Mexico energy cooperation. I hope that you find this report by Mr. 

Brown and Mr. Meacham helpful and look forward to working with 

you on these issues. 

Sincerely, 

RICHARD G. LUGAR, 

Ranking Member. 

(V)

(1) 

OIL, MEXICO, AND THE 

TRANSBOUNDARY AGREEMENT 

Oversight Study 

Senator Richard G. Lugar, Ranking Member of the Senate Foreign Relations Committee, requested senior professional staff members to review opportunities for enhanced U.S.-Mexico engagement 

on oil and gas issues including the U.S.-Mexico Transboundary 

Agreement, which requires Congressional action to take effect. As 

part of that review, members of Senator Lugar’s staff traveled to 

Mexico City in October 2012 to meet with then President-elect 

Enrique Pen ̃ a Nieto’s transition team and leaders from the Mexican Congress, PEMEX, the Mexican energy regulator Comisio ́n 

Nacional de Hidrocarburos, U.S. industry, academic specialists, and 

U.S. officials at Embassy Mexico City.1 This report contains their 

public findings and recommendations. 

Congressional attention to the Mexican energy situation is critical for understanding bilateral issues between our countries and 

for consideration of U.S. energy security. The United States has a 

profound interest in economic prosperity and political stability in 

Mexico, and energy is foundational to both interests. Oil is vital for 

the Mexican federal budget, underwriting both social programs and 

law and order, and the oil industry is an important aspect of broader economic activity. Stability and growth, or lack thereof, in Mexico’s oil and gas sector can directly impact issues of bilateral concern. 

Mexico is also important for U.S. energy security, providing a 

nearby and politically reliable source for oil imports. Recently overtaken by Saudi Arabia, Mexico has been the second largest source 

of oil imports to the United States, with Canada being the largest. 

However, falling Mexican oil production and rising demand led to 

increases in U.S. imports from the Middle East, and maintaining 

the current levels of Mexican oil production, let alone achieving 

rapid growth in production, have a dubious future without reforms.2 Thorough energy security policy in Washington requires 

constant assessment of the Mexican oil industry. If Mexico does not 

reform its domestic energy production situation, the U.S. cannot 

rely on current levels of imports. 

The SFRC staff’s examination was timely because of recent Mexican elections for President and Congress. The newly elected Mexican President, Enrique Pen ̃ a Nieto, campaigned promising to institute energy reforms and has continued that theme since taking office. Reform, or lack thereof, negotiated between the Mexican President and Congress will have consequences for the U.S. energy portfolio and commercial interests. The examination is also timely beVerDate Nov 24 2008 12:03 Jan 02, 2013 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\CARL\MEXICO
2 

cause the United States Congress is expected to review and act on 

the U.S.-Mexico Transboundary Agreement signed in February 

2012, which was ratified in Mexico with a great deal of fanfare and 

also has support of major international oil companies operating in 

the United States. 

MEXICAN OIL AND GAS: CRITICAL FOR MEXICO’S PROSPERITY, IN

CRITICAL NEED OF REFORM

Mexican hydrocarbon resources belong to the Mexican people. 

Popular enthusiasm and national pride is attached to those resources, and many Mexicans directly depend on the existing oil industry for their livelihood and business interests. Crossing into the 

territory of energy sector reform requires political courage on behalf of Mexican politicians. The United States government emphatically recognizes the privileged position of oil in Mexico’s politics. 

Nonetheless, the United States has direct interests in the future 

of oil and natural gas in Mexico. Most important among U.S. interests is enhancing the prosperity of the Mexican people. With strong 

cultural ties and a shared border, the U.S. benefits when Mexico 

grows. Petroleos Mexicanos (PEMEX) has successfully staved off 

years of decreasing oil production and discovered deep water resources, but it has not been able to meaningfully increase production beyond its zone of comfort in shallow water. Without reform, 

Mexico’s oil resources will not be developed in a way that translates into a higher quality of life for Mexicans. 

Mexico is a reliable supplier of oil to the United States. The 

question for U.S. policymakers is what volumes Mexico will be able 

to export in the future. Mexican production dropped by more than 

a quarter in the last decade, leaving U.S. refiners on the Gulf 

Coast geared for heavy oil having to look elsewhere. Venezuelan 

heavy oil production has also collapsed. Canadian heavy crude production is increasing in the oil sands region, but pipeline infrastructure is insufficient. Therefore, in effect, the U.S. has had to increase imports of Middle East crudes in order to make up for shortfalls in Mexico. 

Understanding the likely trajectory of reform in Mexico is necessary to appropriately plan for future volumes and types of crude 

oil traded with the United States, which also will have broader implications for U.S. security and economic growth. Mexican energy 

reforms will determine to what extent Mexico will be part of future 

U.S., and North American, energy security. 

Progress, but can it last? A snapshot of Mexico’s oil sector 

Mexico has a long history of oil production and has prospects for 

a bright future as an oil power, but such an outcome is not guaranteed. Mexico sits atop significant amounts of oil estimated at 10.4 

billion barrels of proven reserves, but that number could more than 

double when unconventional and deep offshore reserves are fully 

proven. The large unconventional Chicontopec area alone is estimated to hold up to 17.7 billion barrels. 

Turning Mexico’s oil resources into prosperity for the Mexican 

people is a tremendous challenge for PEMEX, its 100% state-owned 

3 

national oil company established in 1938 after international oil 

companies were expelled.3

Mexican oil production relies primarily on a few major fields, the 

largest of which (Cantarell) is in steep decline. Oil production in 

Mexico peaked in 2003 at about 3.4 million barrels per day (mbd), 

falling to 2.6 mbd in 2010. That precipitous fall is due primarily 

to the estimated 75% decline in production from the massive 

Cantarell field from its peak. In recent years, Cantarell’s decline 

has been compensated for by the Ku-Maloob-Zaap (KMZ) fields; 

however, many analysts doubt the longevity of current production 

in those fields. 

Large increases in direct and third-party investment in recent 

years has enabled PEMEX to halt net decreases in production, at 

least temporarily. Importantly, PEMEX also now reports achieving 

a 100% replacement rate for reserves, improving prospects for continued production. Increased investment also has led to discoveries 

of large new deep water resources at Trion, Supremos, and 

Maximino, achievements of which PEMEX officials are justifiably 

proud. Several interlocutors credited energy reforms passed in 2008 

for enabling those finds by giving PEMEX more flexibility to partner with international companies on a service contract basis, building on the shift to reliance on contracting services to enable investments stretching from the late 1990s. 

PEMEX leaders plan to raise production to 2.7 mbd in 2013 and 3 mbd by 2017, requiring up to $38 billion annually in investment. 

Near term growth is expected to come primarily from Chicontopec, 

a highly complex unconventional onshore project that is subject of 

great hope and scorn. Despite years of development and reportedly 

$5 billion in investment, the project is well behind expectations and 

currently only 70,000 barrels per day are produced, which puts 

claims of near-term growth in serious doubt. Over the longer-term 

PEMEX has set a goal to increase production to 3.3 mbd by 2024. 

Achieving that goal will require significantly more new production 

than the difference between the 3.3 mbd goal and today’s 2.6 mbd 

given expected large declines in KMZ. 

Field decline emphasizes the urgent need for Mexico to have several new projects in the pipeline in order to maintain and boost 

production. Skepticism of PEMEX’s ability to compensate for declining fields has led to some dire forecasts. The U.S. Energy Information Administration has estimated that Mexico will be a net importer of oil by 2020,4 thus also raising concerns about impacts on 

its balance of trade. While not investigated on this StaffDel, that 

situation highlights the need for more attention to demand management policies and continued reform of fuel subsidies.5

Mexico needs a diverse portfolio of future oil projects with staggered capacities over time. PEMEX leaders have identified such a 

set of oil development projects, including deep offshore and the 

Chicontopec unconventional area, each of which are complex undertakings with high potential, forming a growth strategy to complement conventional shallow offshore projects and investment in 

enhanced recovery at previous wells. Some observers point out that 

privatization of the sector would bring competition and private investment; however, that prospect is so remote as to be non-existent 

and not under even speculative consideration. Therefore, the quesVerDate Nov 24 2008 12:03 Jan 02, 2013 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\CARL\MEXICO
4 

tion is what PEMEX can achieve on its own or in partnership with 

international companies. 

Most interlocutors are skeptical of PEMEX having the capital or 

expertise necessary to develop deep offshore fields, and, probably, 

the unconventional reserves at Chicontopec. Analysts point out 

that PEMEX took over 15 years and more than 20 wells to discover 

the most recent deep water finds. Moreover, deep water requires 

massive investments over many years, and even the world’s largest 

international oil companies (IOCs) partner with one another to generate capital and spread the risk of such investments. PEMEX’s 

capital limitations are further complicated by the company’s large 

debt burden. On the other side, proponents of PEMEX’s ability 

argue that they have gained expertise and dramatically lessened 

the risks implicit in development. 

PEMEX likely could develop a deep offshore project by buying 

technology and expertise through very generous service contracts 

with many of the same companies with which the IOCs contract. 

However, under current capital and management constraints,6

PEMEX alone is extremely unlikely to have the resources necessary to undertake multiple massive deep offshore developments 

while also investing in conventional oil production. Moreover, while 

some technology can be purchased through service contracts, 

project management expertise to run that type of project is not easily acquired. 

Therefore, the decision on whether IOCs should be granted access individually or in partnership with PEMEX to develop oil in 

Mexico depends on how much oil the Mexican Government wants 

produced and over what span of time. Interlocutors did not indicate 

that the expectations of either of the largest political parties or the 

Mexican public are conducive to the long time horizons it would 

take for PEMEX under current conditions to fully develop Mexico’s 

oil. 

Dealing with this challenge is complicated by the fact that 

PEMEX is as much a bureau of the government as it is a company. 

In defiance of conventional business sense (of both private companies and state oil companies), multiple Ministries and a politicallyappointed Board of Directors make key decisions, including deciding the amount and direction of investment in exploration and development of future production. It is not clear that all board members put the interests of the company, and hence future finances 

for the Mexican state, at the forefront of decision making. Having 

politicians with multiple constituencies (including the petroleum 

worker’s union and companies that thrive off the oil supply chain) 

and short-term political considerations often make essential decisions is incompatible with the long-term planning needed in the oil 

sector. However, precisely because PEMEX can be a useful tool for 

political goals, achieving fundamental structural change is very difficult. 

In sum, the authors agree that reform must happen to sustain 

and robustly grow Mexican oil production. The stakes of doing so 

are high for the Mexican Government. PEMEX directly provides 

40% of government revenues, including significant resources transferred to the individual Mexican states. Decreased oil production 

has, thus far, been offset by higher than average global oil prices, 

5 

but no government budget should rely so heavily on volatile commodity markets. While some commentators have argued that the 

budgetary pain of falling production would be useful to wean the 

budget from PEMEX, such a prospect could have wide repercussions on all programs funded in the Mexican budget, from poverty 

alleviation to the rule of law, let alone broader economic growth. 

Natural Gas: An Emerging Priority 

While oil provides vital government revenue, lack of natural gas 

development threatens to stunt Mexican industry. It is reported 

that parts of Mexico could face natural gas shortages in the coming 

year. Meanwhile, Mexico sits on a sea of unconventional natural 

gas reserves. 

The current natural gas situation—which several interlocutors 

identified as a ‘‘crisis’’—results from Mexican natural gas being 

priced artificially low because it is linked to the U.S. price, which 

has fallen with the rapid expansion of shale gas supplies. Yet the 

impact of U.S. supply on Mexican prices exists despite the limited 

physical integration of the two countries’ physical gas markets. 

When combined with gas shortages in Mexico, this indicates the 

need both for more pipeline connections to the United States and 

for building out Mexico’s domestic gas infrastructure. Doing so is 

made difficult, however, by confusion in the Mexican market where 

the downstream natural gas sector has been relatively liberalized 

while the upstream remains under the monopoly control of 

PEMEX. The lack of an appropriate price signal drives up demand 

while, reportedly, causing PEMEX to ‘‘shut-in’’ some conventional 

production due to lack of profitability. 

Several interlocutors pointed specifically to the need for expedited pipeline construction to connect with Texas. Quick U.S. federal and state actions to permit pipelines could helpfully reduce 

short-term supply pressures in Mexico and help open new market 

opportunities for U.S. gas. Long-term economic growth in Mexico, 

however, is believed to be better served by development of its abundant domestic resources. As an analyst said, ‘‘You cannot build a 

future in Mexico based on cheap gas imports from the U.S.’’ 

The United States government estimates that Mexico has one of 

the largest shale gas reserves in the world at more than 680 trillion cubic feet (tcf) of technically recoverable reserves, although 

Mexico itself uses estimates as low as 140 tcf. Much of that shale 

gas is thought to be contained in an extension of the Eagle Ford 

formation that is already producing in Texas. PEMEX reportedly 

has drilled just a handful of exploratory wells, and with prices 

being held down by the United States gas boom, it has little economic incentive to invest heavily in shale in its own right, let alone 

the opportunity cost of that capital compared to much more lucrative oil. Absent natural gas pricing reform, it is unlikely that 

PEMEX will choose to invest heavily into shale gas. 

Awareness of shale gas potential is growing in Mexico; at the 

time of the authors’ visit, for example, the Mexican government 

was hosting a meeting of shale gas experts. Many interlocutors 

were carefully watching shale developments in the United States 

both in terms of direct job creation and in wider economic opportunities for power generation, chemicals, and manufacturing. DevelVerDate Nov 24 2008 12:03 Jan 02, 2013 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\CARL\MEXICO
6 

opment of shale could be particularly helpful for economic growth 

in Mexico’s northern border region. 

The authors found that developing Mexico’s shale gas reserves, 

as with technologically challenging new oil frontiers, will require 

energy reform to galvanize private investment, technology, and expertise. At the same time, an additional level of government capacity building will be useful to aid official understanding in the geology, economics, and environmental protections necessary for shale 

production. The U.S. State Department’s Unconventional Gas Technical Engagement Program is well positioned to enable access to 

needed information, if the Mexican Government chooses to participate. 

Most interlocutors were optimistic that gas reforms to allow private investment would come to fruition because natural gas is generally regarded to be less politically sensitive than oil. The most 

common fear of such a reform expressed by interlocutors was that 

if gas reform passed separately than oil reform, it could stunt momentum for the latter. Moreover, it is highly unlikely that a successful natural gas reform could be completely delinked from oil. 

Based on the U.S. experience, much of the profitability of shale gas 

comes from associated high-value liquids co-produced with the gas, 

so it seems unlikely that significant private capital will flow if liquids are not dealt with in reform. 

Considerations in Oil Reform Policy and Politics 7

There is no shortage of ideas for possible reforms both within 

PEMEX, the Mexican Government, and outside. As U.S. Senate 

staff who have themselves been part of an unpredictable legislative 

process, the authors will not speculate on the exact nature of reforms. Rather, U.S. interest lies primarily in assessing whether reforms will be meaningful and whether U.S. companies will continue 

to have access to provide goods, services, and investments to the 

Mexican sector regardless of the nature of reform. 

The key marker for any reform capable of significantly improving 

Mexico’s oil production horizon is whether that reform will produce 

IOC willingness to invest their capital and expertise. Interlocutors 

disagreed on the extent to which PEMEX acting alone or through 

service contracts can marginally increase production, but virtually 

none disagreed that multiple large-scale investments, particularly 

in deep water and Chicontopec onshore, will require external 

sources of capital and expertise. 

PEMEX itself had recently embraced reform under the leadership of Juan Jose ́ Sua ́ rez Coppel, PEMEX’s former head. The 

stance of Emilio Lozoya Austin, Sua ́ rez Coppel’s recently announced successor as sitting head of PEMEX, will be vital to understanding what kind of reform the Pen ̃ a Nieto government is considering. 

Under Sua ́ rez Coppel, PEMEX advocated a three step process by 

which PEMEX would gain financial autonomy, enable risk-sharing 

with IOCs and recapitalize PEMEX (which suffers under heavy 

debt burden, including large unfunded employee benefits), and, 

eventually, open the sector to concessions putting PEMEX in direct 

competition with IOCs. In other words, to undertake reforms that 

7 

would move PEMEX to ‘‘run like a business’’ rather than an ‘‘economic development agency,’’ as described by a senior official. 

President Pen ̃ a Nieto has several times echoed the call for internal PEMEX reform by indicating it might be more like Brazil’s 

PETROBRAS. While no specifics have been offered, presumably 

that refers to the ability of PETROBRAS to directly raise capital 

and ceding a portion of government ownership. However, the 

PETROBRAS example is a tricky one. On the one hand, the company has global reach and laudable expertise. On the other hand, 

large discoveries of domestic oil in Brazil have precipitated increased political influence on the company’s affairs. 

Given the entrenched interests in keeping PEMEX itself viable, 

its key supply contracts in place, its union workers employed, and 

its funding for the government budget in place, it is unlikely that 

any reform option would significantly challenge PEMEX’s dominance in its current areas of production onshore and shallow offshore. However, PEMEX is not currently producing deep offshore 

and only marginally producing in Chicontopec. A frequently discussed legislative option would be to institute reforms for those two 

high growth potential areas, along with unconventional natural 

gas, so that PEMEX could concentrate in its zones of expertise. 

Any number of management, regulatory, and financial reforms 

could be beneficial to Mexico’s energy future, but putting oil production on a sustainable growth path will require IOC investment 

and expertise. Many interlocutors expressed that another incremental reform would not be worth the political effort; as one observer stated, ‘‘If there’s anything we’ve learned on energy reforms 

in Mexico, it is that if reforms are incremental, they don’t work.’’ 

The 2008 reforms, for example, have received mixed reviews with 

some proponents pointing to subsequent deep offshore oil discoveries and opponents bemoaning politically-appointed but nominally 

independent board members lacking in accountability. Politically, 

however, most interlocutors credit the 2008 reform with helping to 

pave the path of public acceptance for bolder reforms now. 

Large-scale IOC investment is likely to come to Mexico if those 

companies are able to ‘‘book’’ reserves with the U.S. Securities and 

Exchange Commission, a financial accounting that increases the 

value of the company, which does not exclude joint ventures with 

PEMEX. In some jurisdictions, that means taking ownership and 

marketing the physical barrels of oil, but other options may be viable, such as selling the IOC share of oil to PEMEX at the wellhead 

so that IOCs never physically take possession of the oil. 

Mexico’s need for oil and natural gas reform is widely acknowledged amongst leaders in Mexico. The primary question remains 

whether domestic political conditions will allow reform to advance. 

Oil has a privileged status in Mexican identity and politics akin to 

the third rail of Social Security in the United States: it basically 

works for now, is widely acknowledged to not work in the future, 

and any attempts to reform it may jeopardize a politician’s future. 

Newly sworn-in President Enrique Pen ̃ a Nieto campaigned on reforming the Mexican energy sector and his new administration appears committed to follow-through on that promise. The political 

will to reform is evident; it is less clear whether President Pen ̃ a 

Nieto will garner sufficient support within his Institutional RevoluVerDate Nov 24 2008 12:03 Jan 02, 2013 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\CARL\MEXICO
8 

tionary Party (PRI), including overcoming possible union opposition, to pass meaningful reform. 

Having achieved incremental energy reforms in 2008, the now 

opposition National Action Party (PAN) leadership appears poised 

to support broader oil and natural gas reform if offered by the PRI. 

Previously, some observers had raised concern that the PAN may 

hinder reform, as the PRI had done under the Caldero ́n administration, to frustrate the new Presidential administration. In addition, some interlocutors indicated that the leftist Revolutionary 

Democratic Party (PRD) could attempt to undermine oil sector reform, including by staging public demonstrations against any initiative. While the general contours of political distinctions can be 

surmised even now, the exact lines of debate will be determined 

only when the government offers the actual scope of their proposed 

reform initiative. 

It is evident that the current government budgetary reliance on 

PEMEX makes it extremely difficult to leave more capital within 

the company to make necessary investments. That will be all the 

more difficult since President Pen ̃ a Nieto has made several campaign promises related to expansion of the social safety net in Mexico. Reportedly, for example, President Pen ̃ a Nieto will reduce 

PEMEX’s 2013 budget by over a billion dollars compared to expectation. If it is to come, financial autonomy for PEMEX will likely 

have to be tied with government fiscal reform measures. 

It is extremely likely that President Pen ̃ a Nieto will pursue oil 

sector reform. Enabling PEMEX to engage in joint, risking-sharing 

oil development operations is thought to be an essential goal of 

likely legislative proposals pursued by the Pen ̃ a Nieto administration, and may be joined by liberalization in chemicals, refining, and 

related downstream activity. At the time of the authors’ visit, opinion varied on whether the administration’s reform goals could be 

accomplished legislatively or if constitutional amendment would be 

required, although the latter is conventional wisdom.8 That choice 

may ultimately be resolved by vote counting. As a senior PRI leader said: ‘‘we have the will [for Constitutional amendment], but we 

are not sure if we have the votes.’’ 

TRANSBOUNDARY AGREEMENT

The Transboundary Agreement (TBA) provides a bilateral basis 

upon which both countries can develop the legal framework necessary for joint production of oil and natural gas reserves that extend across our national maritime borders in the Gulf of Mexico. 

Secretary of State Hillary Clinton and Mexican Minister of Foreign Affairs Patricia Espinosa Cantellano signed the 

Transboundary Agreement (TBA), officially called the Agreement 

between the United States of America and the United Mexican 

States Concerning Transboundary Hydrocarbon Reservoirs in the 

Gulf of Mexico, on February 20, 2012, at Los Cabos, Mexico (see 

Appendix I for the text of the agreement). The Mexican Senate 

ratified the agreement on April 12, 2012, but the Obama administration has not formally submitted the agreement for passage in 

the U.S. Congress. 

The TBA was negotiated pursuant to the 2000 Treaty on the 

Continental Shelf, which called for the U.S. and Mexico to establish 

9 

a mechanism that transboundary oil and gas reserves would be 

shared equitably. At the time, concern that companies would drain 

Mexican reserves from the U.S. side of the border was, reportedly, 

a hot button political issue in Mexico. Upon conclusion of the 2000 

Treaty, the U.S. put a moratorium on oil and gas exploration on 

the U.S. side of the maritime border. 

It is widely acknowledged in both capitals that the TBA negotiations moved quickly in order to be completed in time for the ratification in Mexico prior to 2012 Congressional elections. Both PAN 

and PRI political leaders used their influence to gain support for 

the TBA, which the Mexican Senate ratified. 

In the United States, the TBA stalled within the Obama administration despite support by key officials in the Departments of 

State and Interior. Prior to completing the agreement, the Departments of State and Interior participated in Senate Foreign Relations Committee briefings to discuss status of the negotiations; 

however, there was no consultation on specific text. The SFRC Minority Staff appreciated candid assessments offered by lead U.S. 

negotiator Ambassador Richard Morningstar. 

The Obama administration has not taken a position on the key 

question of whether the TBA is a treaty or an executive agreement, 

although the latter seems the administration’s more likely preference. A treaty would be reviewed by the Senate Foreign Relations Committee and require the advice and consent of the Senate, 

demanding a two-thirds vote, for approval. As part of the treaty 

process, the resolution of ratification would be reviewed and 

amended in order to provide Congressional understandings on 

issues left unclear by the text of the TBA itself. Additional implementing legislation affecting the Department of Interior would also 

be required and need review by its committees of oversight. 

An executive agreement would not require the two-thirds vote 

necessitated by a treaty, but instead it would be approved in the 

same form as a statute, requiring passage by majority in both the 

Senate and the House of Representatives. Legislation approving 

the agreement, necessary implementing authorities, and clarifications regarding certain provisions of the TBA could be subject to 

amendment, including by items unrelated to the TBA itself, thus 

possibly miring the TBA in other political fights. 

Regardless of whether Congress considers the TBA as a treaty or 

executive agreement, Congressional hearings and thorough examination of the TBA and its implementing legislative proposals are 

needed. So far the Obama administration has declined to officially 

submit its proposed implementing legislation to the committees of 

jurisdiction for action through regular order. 

Congress has a duty and interest in overseeing international 

agreements. That holds for the TBA since several provisions of the 

TBA invite scrutiny and clarification, even as the overall agreement is in the interests of the United States.9 For example, TBA 

Article 16 establishes an ‘‘expert determination’’ that is binding 

whereas Article 17 establishes an arbitration mechanism without 

specifying whether the arbitration is binding. Both provisions could 

impact U.S. federal revenues, among other issues. In another example, the TBA is intended to improve environmental and safety 

protections, but the plain language makes no such guarantee. ArtiVerDate Nov 24 2008 12:03 Jan 02, 2013 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\CARL\MEXICO
10 

cle 19, for example, instructs adoption of common standards, but 

that could mean effectively lowering U.S. standards in the border 

region if the Interior Secretary is given unrestricted authority to 

implement that section. 

Why the TBA Matters 

The centerpiece of the TBA is the mandate to establish so-called 

‘‘unitization’’ agreements by which companies licensed by the 

United States and Mexico’s state oil company PEMEX would jointly 

develop oil and gas reservoirs that have been discovered to extend 

across the maritime boundary. In effect, unitization agreements 

would work similarly to more well-known production sharing agreements (PSAs), whereby companies involved will jointly develop a 

project in order to spread risk given that deep water developments 

will cost billions of dollars each. 

Given PEMEX’s lack of experience in deep water, the most likely 

outcome is that IOCs licensed by the United States would operate 

the developments and utilize infrastructure based on the United 

States side of the border, which is more extensive than that of 

Mexico near to the area of operation. However, the United States 

does have an interest in PEMEX gaining expertise in operation in 

deep water in order to improve the integrity of potential PEMEX 

operated developments exclusively in Mexican territory. 

A key difference between the unitization agreements envisioned 

under the TBA and traditional PSAs is that physical barrels produced will be allocated to the legal jurisdictions of the United 

States and Mexico, presumably in proportion to the amount of reserves found on their respective sides of the border. The Mexican 

barrels, presumably, will be property of PEMEX as a state entity 

and the U.S. barrels will be treated under standard terms of U.S. 

licensing in the Gulf of Mexico. 

It is unlikely that, from the U.S. perspective, the TBA will meaningfully increase U.S. domestic oil production in the near term. The 

maritime border area is deep water and would require massive investments. Such investments are possible and should be encouraged by the U.S. government, however, it will take years to get 

through regulatory hurdles and normal project development needs. 

However, the TBA would unlock the maritime border region from 

moratoria, thereby offering long-term opportunities to increase U.S. 

domestic production. The TBA should be seen as a net positive to 

helping reduce U.S. dependence on imports from troublesome regions and boosting domestic economic activity, and therefore the 

TBA should be viewed as a benefit for U.S. energy security. 

Benefits of physical barrels of oil produced are potentially much 

greater in relative importance on the Mexican side of the border, 

which is experiencing decline in key fields, and that would be substantially beneficial to U.S. interests in Mexican economic growth. 

As discussed above, Mexico needs new oil production. Developing 

deep offshore production would help diversify the Mexican oil portfolio, providing economic benefit to the Mexican state whether that 

oil is sold for export markets or used domestically. Moreover, having IOCs working with PEMEX to boost domestic Mexican production will provide useful commercial opportunities and, importantly, 

boost confidence that Mexico will have significant oil available to 

11 

export to the United States. As a reliable, proximate, and friendly 

neighbor, Mexican oil imports support U.S. energy security. 

The TBA contains numerous provisions in anticipation of disputes on allocation of resources under a unitization agreement and 

implementation of those agreements. Legal analysis of these provisions is beyond the scope of this report. However, it is apparent 

that lack of clarity on the legal status of the dispute resolution 

mechanisms should be of concern to the U.S. Congress. The Obama 

administration contends that the agreement’s arbitration mechanism is not intended to produce binding decisions, however, that is 

not specifically provided for in the text of the agreement and would 

be different from arbitration mechanisms in many other international agreements. 

The TBA further contains requirements of data sharing and notification of likely reserves between the United States and Mexico, 

opening the opportunity for increased government-to-government 

collaboration on strategic energy policy choices. Mexico and the 

United States are relatively less advanced in effective communication and linkages of our energy systems than we are in less politically-controversial economic areas. Improved ties can improve understanding and galvanize cooperation in often unexpected ways. 

In the immediate term, closer oil sector communication will be beneficial in case of accidents in the Gulf of Mexico or in case of significant disruptions to global oil supplies. 

On issues of environmental protection and safety, the TBA envisions that the U.S. and Mexico in the geographic area under the 

agreement will have common standards and that regulators from 

both countries will have access to oil and gas development facilities 

with the ability to order shutdowns in both jurisdictions if necessary. The Obama administration contends that means that Mexican environmental and safety standards, and enforcement, will 

have to rise to U.S. levels. There is no guarantee that passage of 

the TBA will precipitate systemic improvement in Mexican environmental and safety enforcement, but any improvement is welcome by the Mexican safety regulator and should be welcomed in 

the United States given possible impacts of a spill on U.S. economic 

interests and quality of life. 

Perhaps the most important U.S.-specific benefits of the TBA are 

three-fold. 

First, the TBA will, for the first time, allow U.S.-listed IOCs to 

work in partnership with PEMEX, not including service contracts. 

Many observers are optimistic that the TBA is the metaphorical 

camel’s nose under the tent, paving the way to broader reform in 

Mexico. There is no guarantee of such an outcome, however, failure 

for the U.S. to approve the TBA may put a drag on Mexican domestic energy reform momentum. The TBA helps demonstrate that 

Mexico’s oil patrimony can be protected in a joint production regime with U.S. companies. It was suggested by some senior officials 

that passage of the TBA could help prompt broader domestic energy reform in Mexico. 

Second, it is unlikely that the U.S. maritime border areas would 

be developed without the TBA, whereas a PEMEX official indicated 

desire to begin exploration on the Mexican side of the border. Potential U.S. opponents of the TBA may argue that given PEMEX’s 

12 

limited ability to explore in deep water, the real effect of the TBA 

will be to reduce IOCs’ competitive advantages. In other words, the 

opposition argument could state, the U.S. should simply move forward with exploration since our companies have the capital and 

technology to move more quickly than PEMEX. That criticism neglects the reality that, over the long-term, the IOCs have a greater 

interest in investing throughout Mexican territory than they do in 

a sliver of U.S. area along the maritime border. Therefore, those 

IOCs would not risk enraging the Mexican government by, potentially, draining Mexican resources from U.S. territory. Thus, U.S. 

interests in increased safe and secure domestic oil production along 

the border will be best met with the TBA. 

Finally, passage of the TBA would boost U.S.-Mexico relations on 

energy issues, which have traditionally lagged. Mexican officials 

roundly expressed support for the TBA and expectation for U.S. 

ratification in conversation with the authors. The political impact 

of not approving and implementing the TBA would set back U.S.- 

Mexican relations on energy specifically and more broadly. Each of 

our countries has hot button domestic political issues that take 

courage for political leaders to address. In Mexico, oil is one such 

issue, and members of both the PAN and PRI put their political 

weight behind ratification in Mexico. The U.S. not fulfilling its side 

of the agreement would, therefore, be seen as a violation of trust 

and could erode confidence. In the extreme, although unlikely, if 

Mexico proceeds with domestic energy reforms, U.S. companies 

could be shut out of certain opportunities until the TBA is ratified. 

However, bilateral benefits of approving the agreement do not require immediate passage; U.S. commitment can be demonstrated 

by the Obama administration formally submitting the TBA for 

Congressional approval and commencement of Congressional hearings. 

There is reason to believe that the TBA can receive broad bipartisan backing in Congress. It would benefit bilateral relations, promote domestic oil production, and improve environmental protections in the Gulf of Mexico. Following normal Congressional procedure to ensure the agreement is vetted and implementing legislation is reasoned will benefit each of those goals. External proponents of the TBA will need to increase communication and advocacy to improve the likelihood of Congressional leaders acting on 

the agreement in the 113th U.S. Congress. 

North American Energy Security 

The United States and Canada are radically transforming global 

energy markets. Unconventional oil and natural gas has led to a 

renaissance in North American energy production. Alongside continued growth in renewable fuel and power sources and energy efficiency, the continent is poised to be functionally self-sufficient in 

energy. Mexico should be invited to join in the U.S.-Canada driven 

resurgence. 

The impacts of the North American oil and gas powerhouse reach 

beyond energy markets. Low-priced American natural gas is encouraging job creation, industrial growth, and new trade opportunities. Increasing U.S. domestic oil production and trade with Canada will keep more American dollars at home. Regimes that use 

13 

their oil and natural gas riches for intimidation and coercion, such 

as Venezuela and Russia, are seeing their petro-fueled power eroded. 

Affordable and reliable energy supplies are critical to job creation 

and quality of life for citizens of the United States and for our allies Canada and Mexico. North America has long been a global 

leader in energy innovation, production, and market promotion. 

The geographical proximity of our industrial and population centers with our resource basins, integrated supply and transport 

chains across borders, and cultural closeness of our peoples has encouraged steadily increasing coordination and integration of North 

American energy, transport, and related infrastructure. 

Maximizing the potential for oil and natural gas to promote economic growth and security across the continent will require continual improvement in policy communication, infrastructure rationalization, and regulatory harmonization between the U.S., Canada, 

and Mexico. Canada and the U.S. have largely integrated energy 

systems, but fissures over the Keystone XL pipeline approval process is an example of the need for even greater regulatory coordination. Comparatively, U.S.-Mexico energy coordination and integration is well behind. 

Power sector reforms prompted by NAFTA demonstrate that a 

trilateral effort can have major results. Most importantly, key leaders from both the PRI and PAN in Mexico City are interested in 

making progress. Recently, President Pen ̃ a Nieto wrote: ‘‘Together 

with the United States and Canada, [energy shifts] may well contribute to guaranteeing North American energy independence— 

something from which we would all greatly benefit.’’ 10

RECOMMENDATIONS FOR ENHANCING U.S.-MEXICO

BILATERAL COOPERATION

U.S.-Mexico bilateral cooperation has improved dramatically in 

the last 5 years. Mexican sensitivities regarding their sovereignty 

are still present in government dealings. But today they don’t prevent bilateral cooperation, as they did in the recent past. As evidence in this regard, we have seen a significant increase in Mexico’s efforts to institutionalize and even expand cooperation among 

both civilian and military officials. 

The willingness to improve Mexican cooperation with the United 

States is partly due to the trust developed through the successful 

partnership the U.S. and Mexican governments have built while 

working against drug trafficking organizations. The $1.9 billion 

Me ́rida Initiative through which the United States provides equipment, training, and technical assistance to support the Mexican 

government’s battle against the narcotics trade and transnational 

crime has created a platform for greater bilateral cooperation. 

Today, our two nations work closer than ever before. Yet, there 

are still new areas in which the bilateral relationship should improve. Interlocutors both from the then-existing Caldero ́n administration and senior advisers to then-incoming Pen ̃ a Nieto administration expressed a similar desire to expand cooperation in the bilateral relationship. One senior member of the then-incoming Pen ̃ a 

Nieto administration expressed that it is time to move beyond tourism and drugs, issues which are so prominent in the bilateral agenVerDate Nov 24 2008 12:03 Jan 02, 2013 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\CARL\MEXICO
14 

da today.11 Of course, the development of a contemporary, comprehensive immigration policy ranks high when broadening the 

agenda is discussed. 

The U.S. is well positioned to increase dialogue and cooperation 

on energy security with Mexico (included in renewable power and 

efficiency, which were not part of this review, but which are areas 

where cooperation can move forward without significant political 

obstacles from the Mexican side). Key recommendations include: 

1. The U.S. should approve the Transboundary Agreement. The 

Obama administration should formally submit to Congress proposed implementing legislation and/or resolution of ratification 

for the Transboundary Agreement and request Congressional 

review through regular order. Congress should then quickly establish a timetable for consideration of that proposal and approval of the TBA. 

2. The State Department should integrate oil and natural gas development into the bilateral agenda. U.S. Embassy officials are 

well-versed in energy concerns. The commercial service is already active in promoting business relationships, and some 

agencies are building technical relationships. The newly established Energy and Natural Resources Bureau at the State Department is ably led by a former Ambassador to Mexico, Carlos 

Pascual, and the bureau is well-equipped to lead broad U.S.G. 

cooperation in areas such as shale gas, transparency, trade, 

supply emergency coordination, demand management, and infrastructure integration should the Government of Mexico wish 

to work with the United States. 

3. The State Department should encourage Mexico to partner in 

unconventional natural gas issues. Mexico’s tremendous shale 

gas potential offers it opportunity for local job creation, economic growth, and gains in its balance of trade. For the U.S., 

Mexican development of its shale could offer valuable commercial opportunities, produce additional valuable liquids, and 

strengthen North America’s position in global markets. The 

State Department’s Unconventional Gas Technical Engagement Program is a ready vehicle for improved cooperation. 

4. The administration should encourage Mexican adoption of 

international revenue transparency norms. The Pe ̃na Nieto administration has identified the need for increased government 

transparency and anti-corruption as a priority issue area 

across the government. The energy sector is not immune from 

public suspicion, but it is perhaps more complicated because 

any reform meant to bring international oil company investment must also overcome suspicion of the companies themselves, ingrained since nationalization of the industry decades 

ago. 

An opportunity to directly build confidence in both the government and potential IOC investors would be for the Mexican 

Government to institute strong oil and natural gas revenue 

transparency measures. Public disclosure of revenues received 

by the government from IOCs and PEMEX allow citizens to 

better understand budgetary pressures on the government and 

demonstrate the value that Mexicans receive from IOC investVerDate Nov 24 2008 12:03 Jan 02, 2013 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\CARL\MEXICO
15 

ment. Some countries have also found that revenue disclosure 

also presents useful checks and balances between ministries 

and can help improve tax collection. 

Under the Cardin-Lugar Amendment, Section 1504 of the 

2010 Dodd-Frank Act, IOCs would already have to disclose 

payments with the U.S. SEC if they invest in Mexico (PEMEX 

itself is not covered since it is 100% state-owned and operating 

only within Mexico). Internalizing that process domestically 

within Mexico would compound benefits with essentially no additional cost to IOCs. Additionally, Mexico could work with the 

voluntary Extractive Industries Transparency Initiative (of 

which PEMEX is a supporting company) to build capacity and 

confidence with civil society and industry. 

5. Further enhancing U.S.-Mexico offshore safety coordination 

should be a priority for the Obama administration. An oil spill 

in the Gulf of Mexico is not contained by international boundaries, and the U.S. coast is particularly at risk given circulation patterns. 

Mexico is poorly prepared to enforce offshore safety, which 

would be of particular concern for U.S. coastal communities if 

large scale oil operations are developed in areas of Mexico close 

to the maritime border (as have been recent deep water discoveries). Comisio ́n Nacional de Hidrocarburos (CNH), a Mexican 

safety regulator created in 2008, has only 60 employees and, 

at the time of authors’ visit, had not received scheduled budget 

increases from the Finance Ministry. Most troublingly, CNH 

has not conducted a single offshore platform inspection. As a 

senior official stated, ‘‘We are running safety risks because of 

under investment in this agency [CNH].’’ 

Mexico’s CNH and the U.S. Department of Interior’s Bureau 

of Safety and Environmental Enforcement should enhance cooperation, including U.S. technical and logistical support for 

CNH-led inspections of Mexican offshore facilities, with reciprocal visits to U.S. facilities. Reciprocal visits will be particularly beneficial to build relationships between CNH and IOCs. 

The TBA offers one avenue to pursue such an arrangement, 

but this could directly be accomplished on an accelerated 

timeline given eagerness of CNH leadership. 

6. The State Department should offer technical assistance in pipeline security. Theft of oil is a growing concern and can form a 

dangerous intersection with widespread security concerns related to criminal networks. In 2011, PEMEX detected 1,324 illegal taps. Approximately 3.35 million barrels were stolen that 

year, up a third from 2010, and costing PEMEX over a billion 

dollars. 

7. With Canada, invite Mexico to join a standing process for North 

American energy security planning. Inevitable changes in Mexico’s oil portfolio are significant for North American infrastructure planning. The most obvious change is in volume of oil. 

Yet, the type of oil is also likely to change. Large new deep offshore discoveries contain lighter oil than Mexico’s conventional 

heavy Mayan product, whereas U.S. Gulf Coast refinery capacity is equipped with coking capacity for the heavier oil. If future Mexican exports are likely to be lighter than they have 

16 

been previously, then investments in Gulf Coast refineries and 

infrastructure to connect U.S. and Canadian refineries will 

likely reflect that reality. 

Numerous trilateral initiatives have been focused on energy 

or included energy as a component part. With shifts already 

underway in U.S. and Canadian oil and natural gas production, and the high potential of Mexico, communication on energy security planning should be enhanced and formalized in 

frequent consultations. Consistent with each of their domestic 

planning, the U.S., Canada, and Mexico could jointly analyze 

resource availability, infrastructure needs, and regulatory 

needs to pursue mutually-beneficial strategic planning for 

North American energy. 

To conclude, the potential benefits of the United States and Mexico working more closely on their respective national energy goals 

has never been higher. For the United States, thoroughly understanding Mexico’s oil prospects is also vital for our energy security 

outlook. Mexico’s energy future is in the hands of Mexicans. The 

United States can and should talk plainly, as a friend, and offer 

our robust partnership. 

——————— 

NOTES: 

1 The authors thank Clare Seelke, Curry Hagerty, Marc Humphries, and Angeles 

Villarreal of the Congressional Research Service for their background research. 

The authors also thank R. Chris Davy at the U.S. Embassy in Mexico City for 

his support of the staff delegation. 

2 Total U.S. imports have been trending downward since 2005, but imports from 

some countries are rising. In 2011, the U.S. consumed on average 18.8 million 

barrels of oil each day, down 2 million barrels from 2005. Despite that positive 

trend, the U.S. oil trade balance continues to worsen given increased global 

prices. U.S. Oil Imports and Exports, Neelesh Nerurkar, Congressional Research Service, April 2012. 

3 Mexico’s oil and natural gas challenges are the subject of extensive commentary 

and scholarship. The authors recommend, for example, work by Lourdes Melgar 

of the EGADE Business School, Duncan Wood of ITAM, Miriam Grunstein of 

CIDE, and the Oil in Mexico series led by Amy Myers Jaffe of Rice University 

in partnership with the University of Oxford. 

4 Mexico Country Analysis Brief, United States Energy Information Administration, July 2011. 

5 Gasoline subsidies were reduced during the Caldero ́n administration, but the 

overall cost of subsidy has risen given increased global oil prices. 

6 U.S. energy service contract companies are already active in Mexico. 

7 Given the political sensitivities of energy reform in Mexico, this SFRC report 

is only characterizing prospects for reform, not details. SFRC Members and 

staff wanting more detail should consult with Neil Brown or Carl Meacham. 

8 Article 27 of Mexico’s constitution limits upstream ownership of hydrocarbons. 

9 The authors recommend that Committee Members and staff consult with SFRC 

Minority Staff Chief Counsel Michael Mattler. 

10 ‘‘U.S., Mexico should build on their economic ties,’’ President Enrique Pen ̃ a 

Nieto The Washington Post, November 23, 2012. 

11 Often underappreciated is that Mexico is the second largest trading partner of 

the United States with bilateral trade totaling $460 billion in 2011, up 16% over 

the previous year. 

(17) 

Appendix I.— Text of the Agreement between the United 

States of America and the United Mexican States Concerning Transboundary Hydrocarbon Reservoirs in the 

Gulf of Mexico 

The United States of America and the United Mexican States 

(hereinafter, ‘‘the Parties’’); 

Considering that the maritime boundaries between the Parties 

were delimited by the Treaty to Resolve Pending Boundary Differences and Maintain the Rio Grande and Colorado River as the 

International Boundary signed on November 23rd, 1970 (hereinafter, ‘‘the 1970 Treaty’’) and the Treaty on Maritime Boundaries 

between the United Mexican States and the United States of America signed on May 4th, 1978 (hereinafter,’’ the 1978 Treaty on Maritime Boundaries’’); 

Recalling that the continental shelf in the Western Gulf of Mexico beyond 200 nautical miles was delimited by the Treaty between 

the Government of the United Mexican States and the Government 

of the United States of America signed on June 9th, 2000 (hereinafter, ‘‘the 2000 Treaty on the Continental Shelf’’); 

Bearing In mind that the 2000 Treaty on the Continental Shelf 

recognizes the possible existence of hydrocarbon reservoirs that 

may extend across the continental shelf boundary established in 

that Treaty; 

Recalling also that Article 5, paragraph 1, subparagraph (b) of 

the 2000 Treaty on the Continental Shelf provides that the Parties 

shall seek to reach agreement for the efficient and equitable exploitation of such transboundary reservoirs; 

Desiring to establish a legal framework to achieve safe, efficient, 

equitable and environmentally responsible exploitation of 

transboundary hydrocarbon reservoirs that may exist along the 

maritime boundaries established between the United Mexican 

States and the United States of America in the Gulf of Mexico; 

Recognizing principles that promote equitable and reasonable 

utilization of transboundary resources, and desiring to maximize 

the long term benefits from their exploitation, as well as to protect 

the resources of both Parties; and 

Recognizing that this framework is intended to encourage the establishment of cooperative arrangements based primarily on principles of unitization, and further recognizing that additional cooperative arrangements may be developed outside of the framework of 

this Agreement and that such arrangements may also promote efficient, equitable, and environmentally responsible exploitation of 

transboundary reservoirs, 

Have agreed as follows: 

18 

CHAPTER 1 

GENERAL PRINCIPLES 

Article 1 

Scope 

This Agreement shall apply to cooperation between the Parties 

with regard to the joint Exploration and Exploitation of geological 

Hydrocarbon structures and Reservoirs that extend across the Delimitation Line, the entirety of which are located beyond 9 nautical 

miles from the coastline. 

If any provision in this Agreement would require a Party to alter 

the terms of any License existing as of the date of the last notification provided under Article 22, such provision shall not apply in 

such case. Notwithstanding the foregoing, the Parties recognize 

that It Is in their interest that such Licenses be subject to all terms 

of this Agreement, and shall undertake good faith efforts to bring 

those Licenses under this Agreement. 

Article 2 

Definitions 

For the purposes of this Agreement: 

‘‘Confidential Data’’ means any information or data, including Geological Information, of any type, kind or character, 

whether written or oral, disclosed by one Party to the other 

that Is not publicly available and which Information or data 

has been identified by the disclosing Party as confidentlaI; 

‘‘Construction and Operation’’ means the fabrication, Installation, laying, use, modification, maintenance, repair and decommissioning of Facilities and/or Pipelines; 

‘‘Delimitation Line’’ means the maritime boundaries In the 

Gulf of Mexico delimited in the 1970 Treaty, the 1978 Treaty 

on Maritime Boundaries and the 2000 Treaty on the Continental Shelf, and any future maritime boundary in the Gulf of 

Mexico delimited between the Parties, as agreed; 

‘‘Development’’ means those activities that take place following discovery and delineation of commercial quantities of 

Hydrocarbons, including, but not limited to, geophysical activities, drilling, platform design, fabrication and transportation, 

and installation of all Facilities, whether onshore or offshore, 

surface or subsea, and which are for the purpose of producing 

the discovered Hydrocarbons, whether on or off the Unit Area, 

excluding any activity related to Exploration or Production; 

‘‘Executive Agency’’ means the Agency of the Party designated to carry out the functions specified in this Agreement, 

as each Party may designate from time to time; 

‘‘Expert Determination’’ means the resolution of a dispute by 

an expert in accordance with Article 16 of this Agreement; 

‘‘Exploitation’’ means Development, Production, and all associated activities, including, but not limited to, workover, servicing, completion, maintenance, and decommissioning of wells 

in a Transboundary Unit, including treatment and processing 

19 

of gas or liquids from and/or the injection, reinjection or storage of any substance used for or derived from the aforementioned processes; 

‘‘Exploration’’ means the search for Hydrocarbons Including, 

but not limited to, activities such as: (1) geological and geophysical marine and airborne surveys where magnetic, gravity, 

seismic reflection, seismic refraction, gas sniffers, coring, or 

other systems are used to detect or Imply the presence of Hydrocarbons; and (2) any drilling conducted for the purpose of 

searching for commercial quantities of Hydrocarbons or needed 

to delineate any Reservoir to decide whether to proceed with 

Development and Production; 

‘‘Facility’’ means any equipment, infrastructure or installation used for Exploration or Exploitation including, but not 

limited to, drilling vessels, fixed or floating platforms, platform 

installed drilling rigs, floating production systems, storage 

units, flotels, surface or seafloor well heads, Intra-field gathering Pipelines, Intra-field cables, and all the accessories necessary for well drilling, well logging, well intervention, well repair and well testing and includes any vessel used to transfer 

production from an offshore facility while it Is physically attached to the Facility; 

‘‘Facilities near the Delimitation Line’’ means any Facility 

under the jurisdiction of either Party within a distance of 15 

statute miles from the Delimitation . Line or further for 

transboundary Pipelines, but excluding supply and support 

vessels; 

‘‘Geological Information’’ means geological, geophysical or 

geochemical Information and data resulting from Exploration 

or Exploitation, including, but not limited to, Information from 

drilled wells and interpretations derived from such data, and 

which, subject to its national law, may be disclosed by a Party. 

‘‘Hydrocarbon’’ means all oil and natural gas, regardless of 

form, including any mixture thereof, existing in or derived 

from natural strata; 

‘‘Hydrocarbon Occurrence near the Delimitation Line’’ means 

a detection of Hydrocarbons during drilling operations within 

3 statute miles on either side of the Delimitation Line; 

‘‘Inspector’’ means any person authorized by the competent 

authority of either Party to carry out inspection activities relating to: 

(a) the Construction and Operation of Facilities related 

to a Transboundary Unit; 

(b) any metering system relating to production associated with a Transboundary Unit; 

(c) health and safety; or 

(d) protection of the environment. 

‘‘License’’ means the authorization issued by an Executive 

Agency to carry out Exploitation or Exploration In a given 

area, and for the Construction and Operation of a Facility. The 

term License Includes a ‘‘lease’’ issued by the U.S. Executive 

Agency; 

‘‘Licensee’’ means any person or entity holding a License; 

20 

‘‘Permit’’ means any permit, authorization, consent or approval issued under the law of either Party, relating to the Exploration or Exploitation of Hydrocarbons and/or the Construction and Operation of Facilities and/or Pipelines; 

‘‘Pipeline’’ means a continuous conduit, complete with such 

equipment as valves for flow control, transmission platforms, 

compressor stations, and communications systems, for transporting Hydrocarbons, produced waters or other fluids and 

gases from one point to another, usually from a point in the 

producing field or processing plant to another Pipeline or to 

points of utilization or storage; 

‘‘Production’’ means those activities, excluding Exploration 

and Development activities, for the removal of Hydrocarbons 

from a Transboundary Reservoir, including, but not limited to, 

treatment and processing of Hydrocarbons or other substances, 

the injection, reinjection or storage of any substance used for 

or derived from such activities, enhanced Hydrocarbon recovery activities, transfer and export of Hydrocarbons to shore, 

and all operations associated with well intervention, repair, 

maintenance, servicing, re-completion, and workovers; 

‘‘Reservoir’’ means a single continuous deposit of Hydrocarbons in a porous and permeable medium, trapped by a 

structural or stratigraphic feature; 

‘‘Transboundary Reservoir’’ means any Reservoir which extends across the Delimitation Line and the entirety of which 

is located beyond 9 nautical miles from the coastline, exploitable in whole or in part from both sides of the Delimitation 

Line; 

‘‘Transboundary Unit’’ means a single geological Hydrocarbon structure or Reservoir which extends across the Delimitation Line the entirety of which is located beyond 9 nautical 

miles from the coastline, approved by the Executive Agencies 

for joint Exploration and/or Exploitation pursuant to the terms 

of a unitization agreement; 

‘‘Unit Area’’ means the geographical area described in a 

Transboundary Unit, as set out in the unitization agreement; 

and 

‘‘Unit Operating Agreement’’ means an agreement made between the Licensees and the unit operator that, among other 

things, establishes the rights and obligations of the Licensees 

and the unit operator including, but not limited to, the allocation of costs and liabilities incurred in and benefits derived 

from operations in the Unit Area. 

Article 3 

Jurisdiction 

Nothing in this Agreement shall be interpreted as affecting 

the sovereign rights and the jurisdiction which each Party has 

under international law over the continental shelf which appertains to it. 

21 

Article 4 

Activity Near the Delimitation Line 

1. Within 90 days following the entry into force of this Agreement and annually thereafter, the Parties shall consult on Exploration and Exploitation activities carried out within 3 statute miles of the Delimitation Line. Such consultation shall include the exchange of all relevant and available Geological Information associated with and derived from such activities. 

2. Notwithstanding the consultation set forth in paragraph 1 

of this Article, and subject to its national law: 

a. if either Party is aware of the likely existence of a 

Transboundary Reservoir, that Party shall provide written 

notice to the other Party within 60 days of the date on 

which such Party became aware of such likely existence; 

b. if either Party has approved or its Licensee has submitted for approval a plan for the collection of seismic data 

in an area within 3 statute miles of the Delimitation Line, 

that Party shall provide written notice of such plan to the 

other Party within 30 days of the submission and, as applicable, approval of such plan; 

c. if either Party has approved or its Licensee has submitted an exploration plan applicable to an area within 3 

statute miles of the Delimitation Line, that Party shall 

provide written notice to the other Party within 60 days of 

the submission and, as applicable, approval of such plan; 

d. if either Party is aware of a Hydrocarbon Occurrence 

near the Delimitation Line, that Party shall provide written notice to the other Party within 60 days of the date 

such Party becomes aware of such Hydrocarbon Occurrence; 

e. if either’ Party’s Licensee has submitted a plan to drill 

a well, the wellhead or borehole any portion of which will 

be within 3 statute miles of the Delimitation Line, that 

Party shall provide written notice of such fact to the other 

Party within 30 days of the date such Party becomes 

aware of such plan; and 

f. if any Licensee has submitted a plan for the Development or Production of an area within 3 statute miles of the 

Delimitation Line, the receiving Party shall provide such 

plan to the other Party within 30 days of the acceptance 

of the submission by the receiving Party of such plan. 

Article 5 

Determination of Transboundary Reservoirs 

1. Within 30 days following receipt of a communication 

under paragraph 2 subparagraphs a or d of Article 4, the Parties, through their Executive Agencies, shall initiate consultations with a view to determine whether a Transboundary Reservoir exists. ThExecutive Agencies shall request their Licensees to provide all Geological Information relevant to such deVerDate Nov 24 2008 12:03 Jan 02, 2013 Jkt 000000 PO 00000 Frm 00027 Fmt 6601 Sfmt 6601 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\CARL\MEXICO
22 

termination and shall submit to each other all available Geological Information in their possession. 

2. If the Parties have not reached a determination on the existence of a Transboundary Reservoir within 60 days of the 

deadline for initiating consultations in paragraph 1 of this Article, either Executive Agency may submit the issue to the 

Joint Commission. 

3. During the consultations referred to in paragraph 1 of this 

Article and the pendency of further proceedings under Articles 

14 through 17 of this Agreement, the relevant Executive Agency shall, subject to its national law, deliver quarterly reports 

to the other Executive Agency on Exploration and Exploitation 

activities or operations carried out by Licensees within its jurisdiction in relation to the potential Transboundary Reservoir. 

CHAPTER 2 

EXPLORATION. AND EXPLOITATION OF A 

TRANSBOUNDARY RESERVOIR OR UNIT 

Article 6 

Unitization Agreement 

1. Any joint Exploration and/or Exploitation of a 

Transboundary Reservoir or Unit Area pursuant to the terms 

of a unitization agreement must be approved by the Parties. 

Such joint Exploration and/or Exploitation shall be conducted 

pursuant to the terms of a unitization agreement negotiated 

and proposed by the Licensees and approved by the Executive 

Agencies. The Executive Agencies should develop one or more 

model unitization agreements for use under this Agreement. 

2. The unitization agreement shall include, Inter alia: 

a. The identification of the limits of the Unit Area and 

that of any Transboundary Reservoir; 

b. The Identity of the Licensees and their respective participating interests; 

c. The methodology used to calculate the allocation of 

production; 

d. A development plan for the Exploration or Exploitation of the Unit Area, including the estimated number 

and timing of wells, and a mechanism for delivery and approval of subsequent changes to such plan; 

e. The effective date and term of the unitization agreement; 

f. The Identity and appointment of the unit operator, the 

process for resignation and removal of the unit operator, 

and the process for appointment of a successor unit operator; 

g. Provisions regarding the transfer of interests; 

h. Provisions for an accurate measurement of production; 

i. Procedures for ensuring accurate payments of royalties 

and other proceeds; 

23 

j. Safety and environmental measures to be taken under 

the national laws of each Party; 

k. Provisions for appropriate information sharing between the unit operator and each Party; 

l. Procedures for the redetermination of the allocation of 

production, including a. timetable or the events that trigger such redetermination. 

3. Each Party shall require that, together with the submission of a proposed unitization agreement, its Licensee or the 

Licensees acting together through the unit operator, shall provide all available data required by a Party in order for it to review the proposed unitization agreement, and each Party shall 

ensure that such files and data are available to the other 

Party. 

4. Each Executive Agency shall approve, approve with modifications or reject the proposed unitization agreement within 

120 days of its receipt. Either Executive Agency may extend 

this period, provided that the total additional period for consideration shall not exceed 120 days. If after the end of the latest 

period applicable for consideration by an Executive Agency either Executive Agency has not approved, approved with modifications, or rejected the proposal, the unitization agreement 

shall be deemed to be rejected. At any point during the period 

contemplated under this paragraph either Executive Agency 

may refer the issue to the Joint Commission for its consideration within the remaining portion of the period. 

5. Any amendment to an approved unitization agreement 

shall be subject to approval by the Executive Agencies. Each 

Executive Agency shall approve, approve with modifications or 

reject any proposed amendment within 30 days of its receipt. 

Either Executive Agency may extend this period provided that 

the total additional period for consideration shall not exceed 30 

days. If after the end of the latest period applicable for consideration by an Executive Agency either Executive Agency has 

not approved, approved with modifications, or rejected the proposal, the unitization agreement shall be deemed to be rejected. At any point during the period contemplated under this 

paragraph either Executive Agency may refer the issue to the 

Joint Commission for its consideration within the remaining 

portion of the period. 

Article 7 

Management of a Transboundary Reservoir Prior to the 

Formation of a Transboundary Unit 

1. If it is determined as a result of consultations pursuant 

to paragraph 1 of Article 5 or following further proceedings 

under Articles 14 to 17 of this Agreement that a 

Transboundary Reservoir exists, and a unitization agreement 

has not been approved by the Parties, each Party shall take 

steps to facilitate Exploitation of the Transboundary Reservoir 

as a Transboundary Unit. Such facilitation shall include a prohibition by each Party on the commencement of production of 

such Transboundary Reservoir for a period from the date of deVerDate Nov 24 2008 12:03 Jan 02, 2013 Jkt 000000 PO 00000 Frm 00029 Fmt 6601 Sfmt 6601 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\CARL\MEXICO
24 

termination of the Transboundary Reservoir to the end of the 

final period for consideration contemplated in paragraphs 2 

through 5 of this Article, as applicable. If production of a 

Transboundary Reservoir has already commenced, the relevant 

Party shall take steps it deems appropriate under national law 

to provide that ongoing production does not unduly prejudice 

implementation of this Agreement. 

2. If, six months following the date of determination of a 

Transboundary Reservoir or, alternatively, an earlier date on 

which the relevant Licensees have each notified the Executive 

Agencies that they have decided not to enter into a unitization 

agreement or a subsequent date agreed by the Executive Agencies in order to provide additional time for the Licensees to 

pursue a unitization agreement, a unitization agreement has 

not been approved: 

a. each Party shall require its Licensee, within 60 days, 

to submit a proposed unitization agreement and associated 

Unit Operating Agreement to each Executive Agency; and 

b. the Executive Agencies shall, within 30 days, jointly 

determine an estimate of the recoverable Hydrocarbons in 

the Transboundary Reservoir, under the original conditions of such Reservoir, on each side of the Delimitation 

Line, and jointly determine the associated allocation of 

production. 

3. If the Executive Agencies are unable to reach the determination set out in paragraph 2 subparagraph b of this Article, 

such determination shall be referred to Expert Determination. 

4. Following the receipt of both unitization agreements and 

associated Unit Operating Agreements under paragraph 2 subparagraph a of this Article, or the expiration of such period 

without the receipt by the Parties of both unitization agreements, and determination of the allocation of production under 

paragraph 2 subparagraph b or paragraph 3 of this Article, the 

Executive Agencies shall have 90 days to approve one of the 

submitted unitization agreements and associated Unit Operating Agreement, or an alternative unitization agreement and 

Unit Operating Agreement developed by the Parties. If no unitization agreement and associated Unit Operating Agreement 

has been approved at the end of this 90-day period, the Issue 

shall be referred to the Joint Commission for consideration. If 

no unitization agreement and associated Unit Operating 

Agreement has been approved within 90 days of submission of 

the issue to the Joint Commission, Exploitation of the 

Transboundary Reservoir may proceed pursuant to paragraph 

5 of this Article. 

5. Should any Party or Licensee fail to sign a unitization 

agreement or Unit Operating Agreement, as applicable, approved by the Executive Agencies or the Joint Commission 

within 60 days of its approval, or should the Executive Agencies or the Joint Commission fail to approve a unitization 

agreement and an associated Unit Operating Agreement, each 

Party may authorize its Licensee to proceed with Exploitation 

of the relevant Transboundary Reservoir subject to the determination of the recoverable Hydrocarbons pursuant to paraVerDate Nov 24 2008 12:03 Jan 02, 2013 Jkt 000000 PO 00000 Frm 00030 Fmt 6601 Sfmt 6601 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\CARL\MEXICO
25 

graph 2 subparagraph b or paragraph 3 of this Article and any 

plan for joint management of the Transboundary Reservoir,Including any provisions agreed governing redetermination and metering, as may be agreed between the Parties. Such 

plan may contain provisions for the resolution of disputes pursuant to Article 16. In the event ofsuch Exploitation, Parties 

will exchange production data on a monthly basis. 

6. The Joint Commission shall endeavor to resolve issues related to the allocation of production of a Transboundary Reservoir not otherwise addressed in this Article. 

Article 8 

Allocation of Production 

1. The Executive Agencies shall require the unit operator, on 

behalf of the Licensees and 60 days prior to the commencement 

of production from a Transboundary Reservoir, to initiate consultations on the allocation of production to each side of the 

Delimitation Line by submitting a proposal for the allocation 

of production for approval by the Executive Agencies to be applied from first production. The Executive Agencies shall, prior 

to any decision not in agreement with the proposal, jointly consult with the unit operator. 

2. Each Executive Agency shall ensure that all relevant and 

available information from the Unit Area related to the proposal Is made available in a timely manner to the other Executive Agency. 

3. If the Executive Agencies are unable to reach agreement 

on this initial allocation of production within 30 days from the 

date of the initiation of consultations In accordance with paragraph 1 of this Article, the matter shall be addressed by the 

Joint Commission. 

Article 9 

Redetermination of the Allocation of Production 

1. Any redetermination of the allocation of production of a 

Transboundary Reservoir shall be conducted pursuant to the 

unitization agreement or as agreed pursuant to Article 7 paragraph 5. The Parties shall endeavor to ensure that provisions 

for redetermination shall provide for fair and equitable allocation of production of each Transboundary Reservoir. Such 

terms shall be contained in the unitization agreement and 

shall be applicable over its full term. 

2. Each Executive Agency shall ensure that, subject to national law, all relevant and available Information related to a 

redetermination of allocation of a Transboundary Reservoir is 

made available in a timely manner to the other Executive 

Agency. The Executive Agencies shall, prior to any decision not 

in agreement with a redetermination proposal from a unit operator, jointly consult with the unit operator. 

3. If the Executive Agencies are unable to reach agreement 

on any redetermination of the allocation of production within 

60 days following the initiation of a process for redeterminaVerDate Nov 24 2008 12:03 Jan 02, 2013 Jkt 000000 PO 00000 Frm 00031 Fmt 6601 Sfmt 6601 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\CARL\MEXICO
26 

tion as contemplated under paragraph 1 of this Article, the 

matter shall be addressed by the Joint Commission. 

CHAPTER 3 

OPERATING AGREEMENT 

Article 10 

Unit Operator 

1. The Executive Agencies shall ensure that a unit operator 

for a Transboundary Unit Is designated by agreement between 

the Licensees. The designation or change of the unit operator 

shall be subject to the approval of the Executive Agencies. 

2. The unit operator will act on behalf of the Licensees. 

Article 11 

Unit Operating Agreement 

1. Each Executive Agency shall require its Licensees to enter 

into a Unit Operating Agreement for the Exploration or Exploitation of a Transboundary Unit In accordance with this Agreement. 

2. The Executive Agencies shall require that the Licensees 

submit an executed Unit Operating Agreement prior to the approval of the unitization agreement. 

3. In case of a conflict between the Unit Operating Agreement and the unitization agreement, the unitization agreement 

shall prevail, or between the unitization agreement and this 

Agreement, the provisions of this Agreement shall prevail. 

Article 12 

Facilities near the Delimitation Line 

1. The Parties shall use their best efforts to facilitate cooperation between Licensees In activities related to the Exploration and Exploitation of a Transboundary Unit, including the 

facilitation of access to and use of Facilities near the Delimitation Line, and shall not prevent or impede such cooperation by 

unreasonably withholding necessary Permits. 

2. The use of Facilities near the Delimitation Line may include, inter alia, access to and interconnection with a Pipeline 

and physical access to Pipeline capacity and, where appropriate, to Facilities supplying technical services incidental to 

such access. 

3. The Parties shall facilitate, subject to their respective national law, access to Facilities for workers engaged in any activities related to a Transboundary Unit. 

Article 13 

Fiscal Terms 

Income arising from the Exploitation of Transboundary Reservoirs shall be taxed in accordance with the legislation of the 

27 

United Mexican States and the United States of America respectively, as well as the Convention between the Government of the 

United States of America and the Government of the United Mexican States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital, 

signed on September 18th, 1992, as amended (and as may be 

amended in the future), or any Convention superseding that Convention as the Parties may enter into in the future. 

CHAPTER 4 

INSTITUTIONAL ARRANGEMENTS 

Article 14 

Joint Commission 

1. A Joint Commission shall be established no later than 90 

days after entry into force of this Agreement to assist the Executive Agencies in administering this Agreement. 

2. Each Party, through Its Executive Agency, shall appoint 

one representative and one alternate representative to the 

Joint Commission. Each Party may provide assistance,Including experts, to its representative as it deems necessary. 

3. In exercising Its functions, the Joint Commission may establish working groups or expert groups, seek the advice of 

non-governmental groups or Individuals, and take such other 

actions as the Parties may agree. 

4. The Joint Commission should endeavour to adopt its rules 

of procedure no later than 90 days after it Is established. 

5. The Joint Commission shall be the competent body to examine any dispute or other matter referred to it by either Executive Agency relating to the interpretation and Implementation of this Agreement, or any unforeseen issues arising under 

this Agreement. 

6. If the Joint Commission is unable within 60 days to resolve all differences concerning the allocation of production 

pursuant to Article 8, or the reallocation of production pursuant to Article 9,either Party may submit the dispute for Expert 

Determination. If the Joint Commission Is unable within 60 

days to resolve all differences related to the determination of 

a Transboundary Reservoir pursuant to paragraph 2 of Article 

5, and relevant data Is available from a well in the prospective 

Transboundary Reservoir on each side of the Delimitation 

Line, either Party may submit the dispute for Expert Determination. 

7. If the Joint Commission Is unable within 60 days to resolve all differences concerning any dispute referred to It by 

the Executive Agencies relating to the interpretation and implementation of this Agreement that is not addressed in paragraph 6 of this Article or referred to It under paragraphs 4 or 

5 of Article 6 or paragraph 4 of Article 7,either Party may resort to the dispute settlement provisions In Articles 15 or 17. 

The Joint Commission will have 30 days in which to consider 

28 

the final recommendation in any arbitration Instituted pursuant to Article 17. If the Joint Commission is unable to resolve 

any remaining differences within that time, the dispute will be 

returned to the Parties. 

8. The Parties will refrain from action with regard to any 

dispute referred to the Joint Commission or to Expert Determination or dispute resolution under this Agreement where it 

is reasonably foreseeable that such action would prejudice the 

Implementation of any decision related to the dispute until the 

dispute resolution procedures are complete. 

CHAPTER 5 

SETTLEMENT OF DISPUTES 

Article 15 

Consultations and Mediation 

1. The Parties shall make every effort to resolve any disagreement relating to the Interpretation and Implementation 

of this Agreement through consultations as rapidly as possible. 

Either Party may initiate consultations through a written request to the other Party. Unless the Parties otherwise agree, 

the Parties shall consult within 20 days of delivery of the request. 

2. If the Parties do not resolve a disagreement that is not 

subject to Expert Determination within 120 days of the delivery of the request for consultations, either Party may refer the 

disagreement to arbitration pursuant to Article 17 within 30 

days. 

3. The Parties may also agree to submit any disagreement 

relating to the Interpretation and Implementation of this 

Agreement to non-binding mediation by a neutral third party 

In addition to, or In lieu of, the procedures set out in this Article and In Article 17. 

Article 16 

Expert Determination 

1. The Joint Commission shall, within 180 days of the adoption of its rules of procedure, establish arrangements for the 

appointment of the expert and terms of engagement, including, 

in particular, provisions governing compensation and the protection of confidentiality. 

2. In the event a dispute is submitted to Expert Determination and the Joint Commission has not established the arrangements set out in paragraph 1 of this Article: 

a. each Party shall, within 30 days of the date of submission of the dispute and at Its own expense, choose an appointing expert. 

b. the appointing experts shall, within 30 days, appoint 

the expert and determine the terms of engagement of the 

expert, including compensation, according to prevailing 

standards and strict protections of Confidential Data. 

29 

c. In such circumstances the costs of Expert Determination shall be shared equally by the Parties. 

3. Each Party shall promptly provide all information In its 

possession, or that it has the legal authority to obtain from Its 

Licensees, that exists and is required by the expert in order to 

reach a decision. 

4. The Parties shall ensure that the expert will maintain the 

strictest Impartiality and transparency. All communications 

between a Party and the expert, in any form, other than Confidential Data, shall be provided to the other Party. 

5. The Parties shall provide that, within 90 days of the expert’s appointment, the expert will provide a preliminary decision to the Joint Commission together with a detailed explanation of how the decision was reached. Thereafter, there will 

be a period of 60 days, or such other period as the Joint Commission may agree, from the date that the preliminary decision 

is communicated to the Joint Commission during which either 

Party may seek clarification and/or make further submissions 

to the expert for his consideration. The final determination of 

the expert along with a detailed explanation shall be communicated in writing to the Joint Commission within 30 days of 

the end ofthis period. 

6. Notwithstanding paragraph 5 of this Article, the Parties 

shall provide that referrals to the expert under Article 7 paragraph 3 shall be resolved within 30 days of their receipt by the 

expert and that the expert’s determination shall be provided 

directly to the Executive Agencies. 

7. Expert Determination proceedings will be confidential. Except as required by either Party’s domestic law,the Parties 

shall treat, and shall ensure that the expert treats, any information provided for the determination, any written and oral 

communications related to the determination, and both the 

preliminary decision and final decision as confidential. 

8. Notwithstanding paragraphs 4 and 7 of this Article, upon 

any preliminary determination by the expert that a 

Transboundary Reservoir exists, all information used by the 

expert in reaching such determination and all information provided to the expert after such date with respect to such 

Transboundary Reservoir shall be provided to both Parties. 

Such information shall be maintained as confidential by the 

Parties pursuant to the terms of this Agreement, subject to national law. 

9. Determinations of the expert shall be final and binding on 

the Parties. 

Article 17 

Arbitration 

If any dispute regarding the interpretation and Implementation 

of this Agreement that is not subject to Expert Determination cannot be resolved by the Joint Commission or through consultations, 

either Party may submit the dispute to arbitration. 

30 

The Joint Commission shall, within 180 days of the adoption of 

its rules of procedure, establish an arbitration mechanism for the 

implementation of this Article. 

CHAPTER 6 

INSPECTIONS, SAFETY, AND 

ENVIRONMENTAL PROTECTION 

Article 18 

Inspections 

1. Subject to applicable national law, each Party shall, under 

procedures to be developed and agreed under this Agreement, 

have the right to inspect Facilities in a Unit Area approved 

pursuant to this Agreement. 

2. To enable Inspectors of each Party to safeguard their respective interests with respect to safety, environmental and fiscal matters, the Executive Agencies shall develop specific procedures, subject to national law, for: 

(a) consultation among Inspectors of each Party; 

(b) timely access to Information relevant to Inspection 

activities; and 

(c) physical access to Unit Areas for the purpose of inspecting activities therein under a joint inspection regime, 

including access to metering systems, wherever located. 

3. The Inspectors of each Party shall act In cooperation and 

consult with Inspectors of the other Party to achieve compliance with applicable safety and environmental standards. 

4. An Inspector of one Party may, with regard to Facilities 

located in the Unit Area, request an Inspector of the other 

Party to exercise his or her powers to ensure compliance with 

the applicable safety and environmental standards and requirements whenever It appears that circumstances so warrant. In the event of any disagreement between the Inspectors 

of the Parties, or the refusal of the Inspector of one Party to 

take action at the request of the Inspector of the other Party, 

the matter shall be referred to the Executive Agencies. 

5. If it appears that it Is necessary for the purpose of averting risk to life or serious personal injury or significant damage 

to the environment, and that circumstances do not permit the 

Inspectors to consult with the Executive Agencies, the Inspector with jurisdiction over the activities giving rise to such risk 

shall, as authorized under national law, order the immediate 

cessation of any or all operations upon the request of the other 

Inspector. Immediately thereafter, but not more than 4 hours 

following the ordered cessation of activity, the Inspectors shall 

notify the Executive Agencies of such action and the reasons 

therefore, and the Executive Agencies shall Immediately consult regarding actions necessary to address the risk. Nothing 

in this paragraph shall prevent the right of each Party to authorize the resumption of operations of the relevant Facilities. 

31 

Article 19 

Safety and Environmental Protection 

1. The Parties shall adopt, where appropriate, common safety and environmental standards and requirements applicable 

to activity contemplated under this Agreement. In any event, 

the Parties shall strive to ensure that their respective standards and requirements are compatible where necessary for the 

safe, effective, and environmentally responsible Implementation of thisAgreement. 

2. The Executive Agencies shall develop procedures for the 

implementation of this Article. 

3. The Parties recognize the Importance of their existing 

international obligations with respect to oil pollution preparedness, response, and cooperation, and are to review their Implementation of such obligations in light of the activity contemplated under this Agreement In order to ensure an appropriate framework for ongoing cooperation. 

CHAPTER 7 

FINAL CLAUSES 

Article 20 

Confidentiality 

To the extent consistent with their national laws, the Parties 

shall maintain confidential, and obligate their Licensees to maintain confidential, all Confidential Data and other Information obtained from the other Party or its Licensees in accordance with this 

Agreement. 

Article 21 

Amendments 

1. This Agreement may be amended at any time by mutual 

written agreement of the Parties. 

2. Amendments shall enter into force in accordance with the 

procedure established under Article 22 of this Agreement. 

Article 22 

Entry into force 

The Parties shall so notify each other in writing when the 

necessary internal procedures have been completed to bring 

this Agreement into force. This Agreement shall enter into 

force 60 days after the date of the later notification. 

32 

Article 23 

Termination 

1. This Agreement may be terminated by mutual written 

agreement or by either Party at any time upon 180 days written notice to the other Party. 

2. Notwithstanding termination of this Agreement, unless 

otherwise agreed by the Parties: 

a. the provisions of this Agreement shall continue to 

apply to any unitization agreement, Unit Operating Agreement, or other agreement entered into under this Agreement and in effect at the time of termination, for the duration of such agreement, and to any such agreement submitted to or otherwise under review by the Parties pursuant to this Agreement at the time of termination, for the 

duration of such agreement; 

b. the provisions of this Agreement shall continue to govern the relationship between the Parties with respect to 

any unitization agreement,Unit Operating Agreement, or 

other agreement entered into under this Agreement and in 

effect at the time of termination for the duration of 

suchagreements; 

c. the provisions of this Agreement shall continue to 

apply to any License issued by a Party after entry into 

force and prior to termination of this Agreement; 

d. the provisions of this Agreement shall continue to 

apply to the Exploitation of any Transboundary Reservoir 

undertaken pursuant to paragraph 5 of Article 7; and 

e. the obligations of the Parties set forth in Article 20 

concerning confidentiality shall continue to apply. 

3. Upon any notice provided under paragraph 1 of this Article, the Parties shall initiate consultations for the development 

of a new agreement to address the joint exploration and exploitation of transboundary reservoirs. 

Article 24 

Termination of the Moratorium on Hydrocarbon Activity in the 

Boundary Area in the Western Gap of the Gulf of Mexico 

Upon entry into force of this Agreement, the period of any moratorium on the authorization or permitting of petroleum or natural 

gas drilling or exploration of the continental shelf within the 

boundary ‘‘Area’’ as established by Article 4, paragraph 1, of the 

2000 Treaty on the Continental Shelf and extended by any subsequent exchanges of notes shall be terminated. 

Article 25 

Relationship with other Agreements 

With the exception of Article 24, nothing in this Agreement shall 

affect the rights and obligations of the Parties with respect to other 

international agreements to which they are both party. 

33 

Done at Los Cabos on the twentieth day of February of two thousand and twelve, in the English and Spanish languages, both texts 

being equally authentic. 

For the United States of America: 

HILLARY RODHAM CLINTON

Secretary of State 

For the United Mexican States: 

PATRICIA ESPINOSA CANTELLANO

Minister of Foreign Affairs 

Æ