VZCZCXRO0712
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1076/01 1051825
ZNR UUUUU ZZH
P 151825Z APR 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 6106
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC

UNCLAS SECTION 01 OF 04 MEXICO 001076 
 
SENSITIVE, SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC 
STATE FOR EEB/ESC, OES/OPA, L/OES 
DOE FOR INTERNATIONAL AFFAIRS 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV PGOV SENV MX
SUBJECT: US - MEXICO DISCUSS GOM PROPOSAL TO NEGOTIATE 
TRANSBOUNDARY RESERVOIRS 
 
A) Mexico 635 
B) 08 Mexico 2657 
C) 08 Mexico 3014 
 
¶1.  (SBU) Summary:  US and Mexican officials held the 
third in a series of formal consultations under Articles 
4 and 5 of the Western Gap treaty and regarding 
transboundary oil and gas reservoirs more generally March 
31 in New Orleans.  For the US side, the primary 
objective of the discussion was to gather more 
information regarding the GOM's September 2008 diplomatic 
note proposing to negotiate a bilateral treaty on 
transboundary reservoirs along the land and maritime 
boundary, to exchange views on the legal and policy 
issues involved, and the internal process that would have 
to be completed before the USG could enter into treaty 
negotiations.  The Mexican side was disappointed that the 
United States could neither agree to begin formal 
negotiations nor to establish a formal working group at 
this time.  During the time that a treaty would be 
negotiated, Mexico proposed, as interim measures, 
extending the moratorium on drilling along the buffer 
zone in the western gap of the Gulf of Mexico.  The US 
side made no substantive commitments but expressed 
willingness to meet again after, among other things, it 
held consultations with industry and other stakeholders. 
End Summary. 
 
¶2.  (SBU) US (State, Interior and Energy) and Mexican 
officials held consultations under Articles 4 and 5 of 
the Western Gap treaty on March 31 in New Orleans.  The 
USG delegation was led by John Kim, Assistant Legal 
Adviser for Oceans, International Environmental and 
Scientific Affairs, Department of State.  The Mexican 
side fielded a large and relatively senior delegation led 
by Ambassador Joel Hernandez, Judicial Advisor, SRE. 
(The complete list of participants is in paragraph 15.) 
 
Updates on Operation, Information and Data 
--------------------------------------------- --------- 
 
¶3.  (SBU) Kim opened the meeting by welcoming the 
Mexicans to New Orleans and acknowledging the importance 
of the bilateral relationship, as reflected in recently- 
completed and upcoming high-level visits by USG officials 
to Mexico.  He referenced the September 2008 diplomatic 
note proposing to negotiate a bilateral treaty on 
transboundary reservoirs along the land and maritime 
boundary.  He noted that since the last bilateral 
consultations in August 2008, the USG side had studied 
and considered certain legal issues raised by the Mexican 
proposal, reviewed international precedents, and had 
brought other relevant USG agencies such as the 
Department of Energy into the discussion.  Kim emphasized 
that the USG was serious about discussing the legal, 
technical and policy aspects of the Mexican proposal, but 
still had many questions for the Mexican side. 
 
¶4.  (SBU) MMS provided an overview of its regulatory 
authorities and management activities in the Outer 
Continental Shelf, and an update on recent activities in 
the Gulf of Mexico.  GOM officials were particularly 
interested in the domestic regulatory authorities 
governing federal/state and federal/federal unitization. 
Mike Prendergast (MMS GOMR), noted that Great White in 
the Perdido Fold Belt would begin operations in 2010. 
The project is a phased development and will eventually 
involve 19-35 wells.  Although Great White will be the 
closest production facility to Mexico yet, the wells are 
over 5 miles from the boundary with average drainage of 
100 to 400 acres per well.  Kevin Karl, MMS GOMR, 
emphasized that no transboundary reservoirs have been 
confirmed to date.  Given the high degree of faulting in 
the area, he anticipated that any potential transboundary 
reservoirs likely would be relatively small. 
 
¶5.  (SBU) Pemex New Business Manager Luis Macias briefed 
on two seismic campaigns the Mexican parastatal had 
conducted in the Perdido Fold Belt area and the Eastern 
Gap.  Due to a misunderstanding about the USG permitting 
process, Pemex elected to stop shooting seismic data 6 
miles from the boundary in both areas.  The GOM is 
currently evaluating the data and offered to share the 
data with the USG once this process is complete.  Macias 
noted that Mexico would be interested in having the USG 
 
MEXICO 00001076  002 OF 004 
 
 
share similar data from the US side. 
 
¶6.  (SBU) On the Eastern Gap, Hernandez mentioned that 
GOM officials would travel to Havana within two weeks to 
learn about the content of the Cuban presentation to the 
Commission on the Limits of the Continental Shelf.  He 
reiterated his offer that Mexico would be willing to 
serve as a bridge between the USG and Cuba and that in 
the long term the three countries could perhaps discuss 
the possibility of a maritime boundary delimination 
treaty.  Kim thanked the Mexican side and agreed to take 
the offer back to Washington.  He also thanked the 
Mexican delegation for keeping the USG informed about 
their travel to Cuba and their presentation before the 
Commission.  Renee Orr, MMS Washington DC, added that 
current USG policy is to not to auction blocks within 2 
blocks or six miles of the Eastern gap. 
 
Mexican Proposal 
---------------- 
 
¶7.  (SBU) Turning to the GOMs September 2008 diplomatic 
note proposing to negotiate a treaty concerning potential 
transboundary reservoirs, Hernandez explained the reasons 
behind the Mexican proposal and the timing.  He noted 
that there are concerns in Mexico about the potential 
"straw effect" - that international oil companies on the 
US side of the boundary will 'suck' up oil from the 
Mexican side of the boundary.  Once production begins at 
the Great White facility, he expected these concerns to 
be voiced again.  He added that transboundary reservoirs 
had come up during the energy reform debate in Mexico, 
that the Mexican Congress had taken an interest, and that 
this resulted in provisions in the energy reform bill 
which allow the GOM to negotiate a treaty regulating 
transboundary reservoirs.  Hernandez pointed out that the 
moratorium in the buffer zone in the Western Gap treaty 
will expire in January 2011 and that this gave both sides 
an interest to discuss transboundary issues. 
 
¶8.  (SBU) Hernandez suggested both sides take what he 
called a preventative approach by negotiating a framework 
agreement which would stipulate what each country would 
do in the event that a transboundary reservoir was 
discovered.  Pointing to the growing international 
practice of cooperative exploration and exploitation of 
transboundary resources, Hernandez cited the Norway - 
Iceland agreement (recently signed but not yet in force) 
and the UK-Norway Framework Agreement as possible models 
for a framework agreement on unitization.  According to 
Hernandez, a framework agreement could include the 
following elements: 
--Guiding principles which could be used to lead to 
identification of a transboundary reservoir; 
--Specific criteria for operation of a deposit as a unit; 
--Prohibition of the exploitation of any reservoir that 
may extend to the continental shelf of the other party; 
--A process for notification, exchange of information, 
and consultations on the identification and scope of any 
transboundary reservoir and the potential for exploiting 
it; 
--Recognition of apportionment of revenues; 
On regulatory issues, Hernandez foresees each operator 
following the regulatory framework in effect on the side 
of the boundary on which the operator is operating. 
 
¶9.  (SBU) Hernandez emphasized that the GOM was eager to 
begin serious discussions and would like to establish a 
formal bilateral working group as soon as possible.  He 
offered to have the GOM prepare a draft text of an 
agreement as the basis for discussion.  In response to 
Kim's questions, Hernandez made clear that Mexico wants a 
free-standing framework agreement, as opposed to 
amendments to the current boundary treaties.  He also 
agreed that there was no need to negotiate a separate MOU 
on information exchange (as Mexico had proposed in August 
2008) since this would be covered in the framework 
agreement.  Moreover, he thought discussion of an MOU 
could detract from and delay the start of negotiations on 
the framework agreement. 
 
¶10.  (SBU) At the outset, Kim pointed out that any 
negotiations on a treaty covering transboundary land 
reservoirs seemed particularly inappropriate at this 
time, since we were not aware of any data or information 
 
MEXICO 00001076  003 OF 004 
 
 
regarding transboundary reservoirs on the land boundary, 
and if there were any, negotiations over them likely 
would involve agencies not represented in New Orleans, as 
well as private landowners and state authorities.  He 
suggested focusing any bilateral discussions on a 
unitization agreement on the maritime boundary in the 
Gulf of Mexico which, in any case, seemed to be of most 
interest to both sides.  Hernandez did not object to this 
suggestion. 
 
¶11.  (SBU) At Kim's request, Hernandez and other members 
of the Mexican delegation also detailed the domestic 
legal parameters under which Mexico was operating.  He 
noted that the Mexican president was empowered to sign 
and the Congress to ratify a treaty on transboundary 
reservoirs.  SENER Chief Legal Advisor Alejandro Fleming 
added that there were no legal limitations to Pemex 
entering into a joint venture with an international oil 
company and exploiting a transboundary reservoir on both 
sides of the boundary.  He added that 'transboundary 
reservoirs' are not defined in Mexican law, and that the 
GOM could seek a broader definition that goes beyond 
individual reservoirs and includes transboundary fields. 
In short, Hernandez confirmed that any unitization 
agreement would not run afoul of Mexico's constitutional 
prohibitions. 
 
¶12.  (SBU) Kim thanked the GOM for their useful 
clarifications of its proposal, especially as to the 
nature or elements of the unitization agreement the GOM 
had in mind.  He highlighted the constraints posed by 
current U.S. domestic law and practice.  For example, he 
noted that the Secretary of Interior would need to obtain 
statutory authority to enter into a joint cooperative 
agreement with the GOM regarding unitization 
arrangements.  Also, he noted that current MMS leases 
along the boundary do not contain any limitation on the 
ability of lessees to extract resources from their lease 
block, in accordance with the rule of capture.  When 
Renee Orr, MMS Leasing Division Chief referenced the 
'rule of capture', it was clear that GOM officials were 
not comfortable with the application of this rule. 
Hernandez and Aldo Flores both argued that the 
international practice did not support adherence to a 
rule of capture, but rather cooperative development and 
exploitation of straddling oil and gas reservoirs. 
 
¶13.  (SBU) Also, Kim explained that the USG would have to 
go through its Circular 175 procedure in order to obtain 
authority to negotiate this treaty, and that this 
authority could require several weeks or possibly months 
to complete.  The USG could not agree to a formal working 
group to work on a draft treaty until the C-175 authority 
was granted.  Kim noted that, among other things, the USG 
would need to consult with stakeholders, including 
industry, about the Mexican proposal. 
 
¶14.  (SBU) Hernandez noted that the GOM would like to 
have a framework agreement in force before the drilling 
moratorium in the buffer zone authorized under the 
Western Gap Treaty expires in January 2011, but 
recognized that this would be unlikely.  As an interim 
measure, he suggested extending the moratorium, within 
the Western Gap region, beyond 2011, and asked the USG 
when would be an appropriate time for the GOM to make a 
formal request to such effect.  Hernandez further asked 
whether MMS could bar our lessees with lease blocks along 
the maritime boundary from exploiting any reservoirs 
within 1.4 nautical miles of the boundary unless and 
until an agreement with Mexico was in place.  Kim said 
that the US delegation would further consider these 
questions back in Washington. 
 
¶15.  (U) Participants: 
 
US: 
John Kim, Assistant Legal Advisor, L/OES, State 
Matthew McManus, Division Chief, Energy Producer Country 
Affairs, EEB, State 
Sigrid Emrich, Deputy Economic Counselor, US Embassy 
Mexico 
Renee Orr, Chief, Leasing Division, Offshore Energy and 
Minerals Management, MMS 
Brad Blythe, Physical Scientist, Leasing Division, MMS 
Kevin Karl, Regional Supervisor, Office of Production and 
 
MEXICO 00001076  004 OF 004 
 
 
Development GOMR, MMS 
Mike Prendergast, GOMR Chief of Staff, MMS 
Dave Cooke, Deputy Regional Supervisor, Resource 
Evaluation, GOMR, MMS 
Timothy H. Baker, Office of the Solicitor, DOI 
Rhiannon Davis, Office of American Affairs, DOE 
 
Mexico: 
Ambassador Joel Hernandez, Legal Advisor, SRE 
Alejandro Estivill, Director General for North America, 
SRE 
Carlos Quesnel, Embassy of Mexico, Washington DC 
Alejandro Fleming, Legal Advisor, SENER 
Juan Carlos Zepeda, Director General for Exploration, 
SENER 
Mr. Dante San Pedro, Advisor to the Undersecretary for 
Hydrocarbons 
Aldo Flores, Director General International Affairs, 
SENER 
Luis Macias, PEMEX 
Fernando Lopez Arriaga, PEMEX 
Xavier Antonio, Advisor to the Legal Counsel, PEMEX 
Jos Luis Herrera, Head of the International Legal 
Affairs Unit, PEMEX 
 
¶16.  (SBU) Comment:  Since the Obama Administration was 
inaugurated in January, GOM officials have been eager to 
return to the most recent iteration of a Mexican proposal 
to negotiate a treaty on potential transboundary 
reservoirs.  Mexico historically has sought an agreement 
concerning transboundary reservoirs along the maritime 
boundary.  After highlighting the 'popote' effect -- 
which warns of International oil companies sucking up 
Mexican oil from the US side of the boundary - to secure 
a deep energy reform, the GOM must now deal with the 
public fallout.  GOM officials realize that once the 
Great White production facility near the border goes into 
operation in 2010, public concerns in Mexico will be 
rekindled and would like bilateral negotiations to be 
well underway before this occurs. 
 
¶17.  (SBU) The tone of the discussion was frank and 
positive, and useful information was exchanged.  GOM 
officials were clearly disappointed that the USG could 
not commit to formal negotiations, but likely will push 
for a follow on meeting.  This topic will not go away, 
and we should expect the Mexican side to raise it to 
senior USG officials regularly.  Although the USG has 
further work to do before making any decision on whether 
or not to pursue negotiations, it would be in our 
interests to keep the dialogue with Mexico open.  Cutting 
off discussions might fuel Mexican concerns that 
international oil companies are already stealing Mexican 
oil.  Engaging with Mexico will allow us to build closer 
ties and gain a deeper understanding of Mexico's 
sensitive hydrocarbons policy.  Eventually this may lead 
to a further opening of Mexico's energy sector, an 
outcome which would be a welcome development for US 
energy security and commercial interests. 
 
¶18.  USDEL cleared this cable. 
 
BASSETT