VZCZCXRO2576
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #3098/01 3011611
ZNR UUUUU ZZH
P 281611Z OCT 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 8799
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 03 MEXICO 003098 
 
SENSITIVE, SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC 
STATE FOR EEB/ESC, OES/OPA, L/OES 
DOE FOR INTERNATIONAL AFFAIRS 
NSC FOR ALDY AND WALSH 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV PGOV SENV MX
SUBJECT: US - MEXICO REVIEW SEISMIC; DISCUSS GOM PROPOSAL TO 
NEGOTIATE TRANSBOUNDARY RESERVOIRS 
 
A) Mexico 2445 
B) Mexico 1076 and previous 
 
¶1.  (SBU) Summary: US and Mexican officials held the fourth in a 
series of formal consultations under Articles 4 and 5 of the Western 
Gap Treaty October 19 in Villahermosa, Mexico.  In reviewing Mexican 
seismic data, USDEL found promising structures on the Mexican side 
of the boundary as well as potential for trans-boundary reservoirs. 
Mexican delegation welcomed news that the USG is working to extend 
the ten-year moratorium on oil and gas drilling and exploitation 
within the buffer zone inside the Western Gap.  Mexican delegation 
presented a general outline of a potential treaty on the development 
of trans-boundary oil and gas reserves and will present a draft text 
to the USG soon.  The tone of the meeting was the most positive yet 
in our series of discussions and demonstrated a growing level of 
confidence between the delegations.  End Summary. 
 
¶2.  (SBU) US (State and MMS/Interior) and Mexican (SRE SENER, 
CNH,and PEMEX) officials met at Pemex facilities in Villahermosa, 
Tabasco October 19 for the fourth in a series of formal 
consultations under the Western Gap Treaty.  The first part of the 
meeting focused on viewing Mexican seismic data and discussing the 
possibility of trans-boundary reservoirs.  Leading the discussion, 
Alfredo Guzman of the Mexican National Hydrocarbons Commission (CNH) 
asserted that there is potential for trans-boundary reservoirs - 
especially in the Perdido Fold area of the Gulf of Mexico.  David 
Cooke, MMS Geologist, found that the data showed some promising 
geological structures on the Mexican side of the boundary and the 
potential for trans-boundary reservoirs. 
 
¶3.  (SBU) Both sides expressed concerns that once the Shell 
Oil-operated Great White field on the US side of the boundary goes 
into production late 2009 or early 2010, the Mexican media may again 
raise the "popote effect" - an erroneous claim that wells on the US 
side will siphon off Mexican oil.  The data indicates faulting 
within the Great White field, and demonstrates a structural "low" 
which separates Great White from the prospective structure and other 
prospects on Mexico's side of the boundary.  In addition, once 
production begins, engineers will probably further reduce the size 
of individual reservoirs based on their performance.  Guzman 
suggested the possibility of working together using the seismic data 
to refute possible media reports to the contrary.  The USG will 
raise this again with the appropriate Mexican interlocutors as 
needed. 
 
Update on Deepwater Drilling 
---------------------------- 
 
¶4.  (SBU) GOM officials confirmed that Pemex has contracted a 
deepwater rig for the Perdido Fold Belt area and will begin drilling 
by the end of 2010.  The first Mexican exploratory wells will be 
drilled in the Maximino area November 2010, approximately 45 
kilometers from Great White. 
 
¶5.  (SBU) Kevin Karl, MMS, updated Mexican delegation on US leases 
and activities on blocks close to the US-Mexico maritime boundary. 
He explained that, based on statistics to date, the average 
reservoir size is 500-1000 acres with individual wells draining 
100-400 acres.  Currently the closest wells are being drilled 5.5 
miles from the boundary, which makes drainage from the Mexican side 
highly improbable.  Karl explained that the reservoirs in this area 
of the Gulf can be challenging and have a low recovery factor - 
18-36% depending on which reservoir is being produced and based on 
Shell data.  Flow assurance is a major issue.  He added that we will 
have much more specific information once Great White begins 
production.  Other fields - including Silver Tip and Tobago - will 
commence production at roughly the same time and will be tied back 
to the Perdido Hub facility. 
 
ELEMENTS OF AN AGREEMENT 
------------------------ 
 
¶6.  (SBU) Mexican Legal Advisor Joel Hernandez outlined the Mexican 
concept for a bilateral agreement to govern the development of 
trans-boundary oil and gas reservoirs.  He confirmed that Mexico is 
no longer proposing that the agreement cover both the maritime and 
land boundary, but would instead focus only on the maritime border. 
He explained that, by negotiating now, Mexico hopes to take a 
preventive approach, which could provide legal certainty to would-be 
investors while assuaging unfounded Mexican fears that US drilling 
could drain Mexican resources.  The agreement would authorize 
licensees on both sides of the border (Pemex on the Mexican side and 
commercial entities on the US side) to negotiate unitization 
agreements and joint operating agreements for the purpose of 
 
MEXICO 00003098  002 OF 003 
 
 
developing trans-boundary reservoirs.  He added that, by doing so, 
the framework would promote energy security for North America by 
allowing both sides to take advantage of the resources found on 
their side of the boundary. 
 
¶7.  (SBU) Mexico is working on a proposed text for such an 
agreement, Hernandez continued, and will provide it to us shortly. 
Sam McDonald (State - L/OES) said the US looked forward to seeing 
the Mexican draft, though he explained that the USG did not yet have 
authority to negotiate.  In the text, Hernandez continued, Mexico 
will propose the following process for the development of a 
trans-boundary reservoir: 
a. Notification of possible existence of a trans-boundary 
reservoir[, or of commencement of exploratory activities within a 
certain range of the border]; 
b. Consultation and exchange of information in order to jointly 
determine existence of trans-boundary reservoir; 
c. Negotiation by licensees of a unitization contract; 
d. Negotiation by licensees of an operating agreement for the 
development of trans-boundary reservoir as a unit. 
 
¶8.  (SBU) Hernandez said that the GOM would borrow ideas for the 
proposed text from a variety of existing bilateral agreements as 
well as the US-Mexico bilateral experience in other areas. 
Hernandez provided a general outline of elements that they planned 
to include in their proposed text - including elements of a 
unitization agreement; guidelines on apportionment and 
reapportionment; guidelines for operating agreements; regulations 
for the use of facilities near the delimitation line; creation of a 
joint commission to examine issues referred by either government, 
and provisions for dispute settlement.  For the Joint Commission, 
Hernandez pointed out that the US and Mexico have some good examples 
to draw on.  The US-Mexico Boundary and Water Commission, for 
example, could be the model of a technical body that advises the 
governments. 
 
¶9.  (SBU) Hernandez added that Mexico believes negotiating a treaty 
would facilitate cooperation and enhance the profitability of small 
fields by using existing infrastructure on the US side of the 
boundary.  Although the agreement would only apply to reservoirs 
that physically straddle the boundary, Hernandez explained that it 
would facilitate the development of broader trans-boundary fields. 
Operators on both sides of the boundary could develop these fields 
using collection facilities constructed on either or both sides of 
the border. 
 
¶10.  (SBU) Turning to the Western Gap Treaty, Hernandez proposed 
that the US and Mexico extend the moratorium on oil and gas drilling 
and exploitation in the 2.8 nautical mile buffer zone (Article IV, 
paragraph 1) until a bilateral agreement on trans-boundary 
reservoirs enters into force.  He added that Mexico is concerned 
also about exploitation activities outside the Western Gap area.  He 
proposed that the buffer zone be extended beyond the Western Gap to 
cover the entire maritime boundary.  He noted that such an interim 
agreement would preserve both countries' rights until a 
trans-boundary agreement is negotiated. 
 
¶11.  (SBU) McDonald responded that it is the intention of the 
Executive Branch to extend the moratorium in the Western Gap, and 
that State is already consulting with the Senate on this.  Brian 
Duggan (State - EEB/ESC) offered a proposed visit by State 
Department Energy Coordinator David Goldwyn as an opportunity to 
rollout the extension of the moratorium.  Both sides agreed to work 
together to coordinate the timing and potential deliverables for 
that visit.  Duggan also noted that State and MMS had developed a 
mechanism to review applications for petroleum pipelines that cross 
our international border, resolving regulatory ambiguity that should 
enhance the GOM's ability to auction service contracts near the 
border.  MMS Renee Orr offered to make staff available to train 
officers from SENER and the Hydrocarbons Commission on all aspects 
regulating industry in a transparent manner.  In response to the 
GOM's request to expand the moratorium to apply to the entire 
maritime boundary, McDonald explained that the legal and policy 
considerations were more complicated, in part because the USG has 
already leased blocks along the border in other areas of the Gulf of 
Mexico. 
 
¶12.  (SBU) McDonald requested that as the USG and GOM continue their 
technical discussions, both sides refrain from making any public 
comments about possible negotiations.  Hernandez agreed. He added 
that the GOM has told the Mexican Congress that Mexico has proposed 
negotiations to the USG, but has not and would not share any details 
of bilateral discussions. 
 
 
MEXICO 00003098  003 OF 003 
 
 
¶13.  (U) Participants: 
 
US: 
-Sam McDonald, L/OES, State 
-Brian Duggan, Energy Producer Country Affairs, EEB, State 
-Andrew Dowdy, Deputy Director, WHA/EPSC, State 
-Renee Orr, Chief, Leasing Division, Offshore Energy and Minerals 
Management, MMS 
-Kevin Karl, Regional Supervisor, Office of Production and 
Development GOMR, MMS 
-Dave Cooke, Deputy Regional Supervisor, Resource Evaluation, GOMR, 
MMS 
-Sigrid Emrich, Deputy Economic Counselor, US Embassy Mexico 
 
Mexico: 
-Ambassador Joel Hernandez, Legal Advisor, SRE 
-Nicolas Guerrero Peniche, Legal Affairs, SRE 
-Alfredo Guzman, National Hydrocarbons Commission 
-David Madero, Director General for Exploration, SENER 
-Leonardo Beltran, International Negotiations, SENER 
-Enrique Puchet Canepa, Legal Affairs, SENER 
-Guillermo Zuniga, SENER 
-Juan Julian Ramirez, SENER 
Jose Antonio Escalera, Deputy Director for Exploration, PEMEX 
-Fernando Lopez Arriaga, PEMEX 
-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 
-Trinidad Martinez Vazquez, PEMEX 
-Carlos Quesnel, Embassy of Mexico, Washington DC 
 
¶14.  (SBU) Embassy Comment: The Mexicans see an agreement on 
trans-boundary reservoirs as an important opportunity for PEMEX to 
work with IOCs and gain expertise in deepwater drilling.  For the 
first time in decades, the door has opened a crack to the USG 
engaging constructively with Mexico on oil.  Since the Mexicans 
first made the proposal to engage in negotiations August 2008, both 
sides have developed a better understanding of each other's policies 
and practices and a level of confidence that could spill over into 
other areas of cooperation.  If bilateral discussions later promote 
a further opening of Mexico's oil sector, it could benefit both 
governments and commercial interests.  Given Mexico's political 
calendar, we should make a decision on whether to negotiate the 
proposed agreement before the focus on the 2012 Presidential 
elections and energy topics become taboo once more. 
 
¶15.  (U) USDEL cleared this cable. 
 
Feeley