VZCZCXYZ0001
RR RUEHWEB

DE RUEHME #3014/01 2841338
ZNR UUUUU ZZH
R 101338Z OCT 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 3541
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC

UNCLAS MEXICO 003014 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC 
STATE FOR L/OES KIM 
STATE FOR EB/ESC MCMANUS AND DUGGAN 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA (ALICE FAIBISHENKO) 
DOE FOR INTL AFFAIRS ALOCKWOOD, GWARD AND RDAVIS 
DOI FOR MMS ORR, TEXTORIS AND KARL 
 
E.O. 12958: N/A 
TAGS: ENRG EPET ECON PGOV MX
SUBJECT: GOM SHARPENS FOCUS ON TRANSBOUNDARY RESERVOIRS - FOCUS ON 
BILATERAL NEGOTIIONS 
 
REF: Mexico 2657 
 
¶1.  (SBU) Summary:  A technical workshop on transboundary reservoirs 
in Cuernavaca October 3-4 was organized to provide senior GOM 
officials with information on possible models for negotiating a 
bilateral treaty with the U.S.  In attendance were numerous academic 
experts and consultants.  The level of engagement and the details of 
the discussion demonstrated the GOM's commitment to follow up 
quickly on their August 20 proposal to initiate bilateral 
negotiations.  GOM and USG officials met on the margins of the 
workshop to discuss potential next steps.  From post's perspective, 
agreeing to open a bilateral dialogue on transboundary reservoirs 
would promote information exchange.  Conversely, not engaging could 
fuel sensitivity about foreign designs on Mexican oil and impede 
efforts to reform the energy sector.  End Summary. 
 
¶2.  (SBU)  Secretary of Energy Georgina Kessel, Foreign Ministry 
Legal advisor Joel Hernandez and approximately twenty other senior 
Mexican officials from the Secretariat of Energy (SENER), Foreign 
Ministry (SRE) and Pemex attended a by invitation only two-day 
workshop on transboundary hydrocarbons October 3-4 in Cuernavaca. 
The only other participants in the workshop were speakers from 
academia and the private sector, Texas Railroad Commissioner Victor 
Carrillo, representatives from MMS and Emboff. 
 
¶3.  (SBU)  The objective of the workshop (which was cosponsored by 
SENER, the Mexican university UNAM, and the Jackson School of 
Geosciences at the University of Texas, Austin) was to offer senior 
Mexican decision-makers information on the international experience 
and best practices for the development of transboundary hydrocarbon 
resources.  An expert on joint development, unitization and 
framework agreements presented a variety of existing models and 
demonstrated how they have been applied in international agreements. 
 
 
USING THE UK-NORWAY MODEL 
------------------------- 
 
¶4.  (SBU)  GOM officials seemed to agree that the Framework 
Agreement between the UK and Norway offers the most appropriate 
model for U.S.-Mexican cooperation in the Gulf.  The Framework 
Agreement is executed between governments, not companies, and is 
intended to cover large tracts. After a discovery is made, this 
expert recommended "unitization" as the method to establish equity 
share in transboundary reservoirs.  (Note: MMS officials and Econoff 
did not offer an opinion on this framework agreement or other parts 
of the discussion.  Legal and technical experts in the U.S. will 
have to consider the UK-Norway model and other agreements carefully 
before determining whether the USG shares the GOM conclusion.  End 
note.) 
 
¶5.  (SBU)  Conference participants asked detailed questions 
regarding the sharing of confidential information and building trust 
during negotiations.  One participant asked whether a reservoir can 
be divided and exploited on both sides, an expert responded that the 
only way to optimally develop a joint reservoir is with a joint 
development plan and one principal operator. 
 
¶6.  (SBU)  Several experts focused on the legal obstacles and 
challenges to negotiating transboundary agreements as well as the 
geological potential for shared resources between the U.S. and 
Mexico in the Gulf.  There was a discussion between participants on 
whether the USG would be in violation of international law if it 
allowed companies to extract hydrocarbons from a joint reservoir 
absent a bilateral treaty.  Senior GOM officials downplayed this 
scenario. 
 
¶7.  (SBU)  Industry and MMS officials clarified that no 
transboundary reservoirs have been discovered in the Gulf of Mexico. 
 They added that currently no exploratory drilling is being 
conducted in leased blocks along the US-Mexico boundary in the Gulf. 
  Mexican officials were not convinced and stressed the need for the 
USG and GOM to work quickly to address potential transboundary 
reservoirs. 
 
Proposed Negotiation with the USG: 
---------------------------------- 
 
¶8.  (SBU)  On the margins of the workshop, SRE Ambassador Joel 
 
Hernandez and a small group of officials from SRE, SENER and Pemex 
who had participated in the August 20 bilateral consultations on the 
Western Gap Treaty (see reftel) met informally with MMS officials 
Kevin Karl, Michael Prendergast, Steve Textoris and Econoff to 
discuss the Mexican proposal to negotiate a Treaty on Transboundary 
Reservoirs with the USG.  The GOM is clearly eager to move forward 
and Hernandez asked how the USG planned to respond to the September 
10 Mexican proposal.  Econoff responded that Washington is reviewing 
the diplomatic note but had several questions: 
 
-- Memorandum of Understanding:  GOM officials clarified that the 
MOU they propose in the diplomatic note would focus on information 
sharing.  Perhaps the information sharing portions of the Western 
Gap Treaty could serve as a model.  Mexico would also like to see 
some type of indication (although the language could be flexible) 
that the MOU would be a first step in a broader negotiation.  We did 
not respond to the Mexican offer to provide us with a first draft of 
an MOU, offering that language like this would have to be crafted 
jointly, but it is possible that the GOM will begin preparing a 
draft nonetheless. 
 
-- Land Border: We mentioned that including offshore and onshore 
reservoirs in a negotiation would complicate the process for a host 
of reasons, including different and various stakeholders. This, 
however, did provide a stepping stone to cross-border renewable and 
alternative energy between the US and Mexico. The Mexicans had a 
number of questions regarding transboundary issues which would best 
be addressed by legal experts in Washington DC. 
 
-- Renewable Energy:  The MMS pursued the DOI AS/LM's interest in 
exploring cross-border and bilateral arrangements for renewable and 
alternative energy.  The Mexicans expressed interest in further 
discussions on this issue. 
 
-- Briefing Industry:  Hernandez requested that the USG and GOM 
coordinate closely before briefing industry on the Mexican proposal 
to negotiate transboundary reservoirs and that both sides refrain 
from meeting with industry until the Mexican energy reform package 
is approved by Congress (i.e. November.)  We agreed that some 
combination of joint and individual briefings with industry may make 
sense. 
 
-- Task Force:  Hernandez was eager to establish a "Task Force" to 
start bilateral discussions on negotiating a possible treaty.  He 
suggested that a Mexican team could travel to Washington in November 
to meet with US experts and continue exploring the ideas and 
clarifying questions on both sides. 
 
-- MMS Briefing: Karl extended an invitation to the GOM to visit MMS 
offices in New Orleans for a briefing on unitization agreements that 
the USG uses.  GOM officials were enthusiastic and agreed to follow 
up. 
 
Comment: 
-------- 
 
¶9.  (SBU)  The timing of the workshop and the urgency that the 
Mexican participants placed on working with the USG on a binding 
bilateral agreement demonstrate that Mexico may believe that either 
a transboundary reservoir has already been discovered or will be 
discovered imminently.  By engaging the USG on this issue, the GOM 
hopes to have a bilateral agreement in place which would commit the 
USG to a unitization agreement before a discovery is made.  From the 
GOM perspective, such an agreement would not only allow resource 
sharing, but could also head off a negative domestic debate about 
the "straw effect", which claims international oil companies on the 
U.S. side of the boundary could siphon off significant oil reserves 
from the Mexican side of the border. 
 
¶10.  (SBU)  Although the issues involved will certainly prove 
complex and difficult, we see value in at least opening a dialogue 
with the GOM on this topic.  A bilateral dialogue could open the 
doors to information exchange and provide us with the seismic data 
that we have long sought from Mexico.  Refusal to sit down and start 
talking about this could fuel Mexican sensitivity about foreign 
designs on Mexican oil and impede efforts to open the Mexican energy 
sector to fuller international participation competition. 
GARZA