After months of speculation, the US and Mexican governments have signed an agreement on transboundary hydrocarbon reservoirs in the Gulf of Mexico. The treaty has been submitted for the approval of both countries' senates; once approved, it will become effective 60 days after notification of approval by Mexico or the United States, whichever is later. Once approved and published, the treaty will take precedence over other applicable legislation in both countries. Although both countries are or will soon be in the middle of presidential and federal congress elections, the treaty is expected to be ratified in 2012.

Apart from the obvious significance of an agreement between the two countries concerning territorial boundaries, the treaty is historic in that it is the first in which Mexico and the United States have reached an understanding on how to exploit and share the benefits of a natural resource in which their ownership is linked.

The treaty has a twofold significance for Mexico. First, it sets the terms under which Mexican state-owned hydrocarbons company Pemex will be allowed, for the first time, to conclude a joint venture for the exploration and exploitation of hydrocarbon reserves - the Mexican Constitution prohibits Pemex from entering into joint development, production sharing or unitisation agreements. Second, the treaty will allow Pemex to move quickly to participate in the development of deepwater or ultra-deepwater projects if hydrocarbon reserves are located within the delimitation line (ie, the maritime boundaries in the Gulf of Mexico, as defined in the 1970, 1978 and 2000 treaties ratified by both countries).

Pemex has indicated that it has no information to confirm the existence of a transboundary field. However, it is unlikely that both countries would take the step of concluding such a treaty without having geological information to suggest the existence of such a field. One of the covenants included in the treaty is particularly significant in this context. It requires the two federal governments to adopt common norms and standards concerning safety and environmental protection for the "activity contemplated under this agreement". Effectively, this means a harmonised system of offshore technical standards for exploration and production in the Gulf of Mexico - it seems highly unlikely that the relevant authorities in the United States(1) and Mexico(2) would agree to harmonise applicable standards only in respect of transboundary reservoirs.

The treaty is a framework agreement that establishes the terms under which the two federal governments will allow their licensed operators to operate through the execution of a unitisation agreement. On the US side, the company in question will be any party licensed to explore or develop a block that shares a reservoir within the delimitation line; on the Mexican side, it will be Pemex-Exploracion y Producción (PEP), Mexico's exclusive licensee. The treaty provides for the following:

  • an annual consultation system to enable the parties to inform each other's government about exploration and exploitation activities within three statute miles of the delimitation line, including the sharing of relevant geological information;
  • the obligation to notify:
    • the existence of a transboundary reservoir within 60 days of the party becoming aware of the likely existence or detection of hydrocarbons during drilling operations within three statute miles of the delimitation line;
    • an exploration plan within 60 days of the party approving such a plan or receiving a plan for approval from its licensee; and
    • a plan for the collection of seismic data, a development or production plan for an area, or a plan to drill a well (the wellhead or borehole or any portion lying within three statute miles of the delimitation line) within 30 days of the party approving such a plan or receiving a plan for approval from its licensee;
  • a system for the determination of a transboundary reservoir by both countries - this includes a provision for forming a joint commission of representatives of the two governments to make such determination in the event of deadlock;
  • the approval of the unitisation agreement proposed by the other party's licensee, provided that such agreement complies with the minimum terms and conditions required under the treaty, including the designation of the unit operator (which could be a joint venture company in which Pemex or any licensee may participate) and the proposed allocation and redetermination of production, on the understanding that both governments have agreed to prepare model unitisation agreements; and
  • inspection rights pursuant to terms to be established by the parties.

Income arising from the exploitation of a transboundary reservoir that is attributable to either PEP or the US licensee and the unit operator shall be taxed in accordance with each country's own legislation and the US-Mexico double tax treaty.

The new hydrocarbons treaty provides for standard dispute settlement mechanisms for international treaties (including provisions on independent experts, mediation, consultation and arbitration) and the right to early termination of the treaty with 180 days' notice.

For further information on this topic please contact Rogelio López-Velarde at López Velarde, Heftye y Soria by telephone (+52 55 3685 3334), fax (+52 55 3685 3399) or email ([email protected]).


(1) The Bureau of Ocean Energy Management and Bureau of Safety and Environmental Enforcement.

(2) National Hydrocarbons Commission, the Ministry of Environment and Natural Resources, the Ministry of the Navy and the Ministry of Labour.