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Cablegate: Gom Proposes Negotiating Bilateral Agreement On

VZCZCXYZ0000
RR RUEHWEB

DE RUEHME #2657/01 2422115
ZNR UUUUU ZZH
R 292115Z AUG 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 3108
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC

UNCLAS MEXICO 002657

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 KDEUTSCH
DOI FOR MMS ORR, TEXTORIS AND KARL

E.O. 12958: N/A
TAGS: ENRG EPET ECON PGOV MX
SUBJECT: GOM PROPOSES NEGOTIATING BILATERAL AGREEMENT ON
TRANSBOUNDARY RESERVOIRS

1. (U) Summary: During bilateral consultations under the Western
Gap Treaty and the Treaty on Maritime Limits, the Government of
Mexico (GOM) formally proposed opening negotiations with the United
States (USG) on an agreement to regulate the exploitation of
transboundary - both maritime and land - reservoirs. The meeting
with the GOM was positive and open in tone, but raised a number of
questions. Without making any commitments, the US delegation
indicated openness to hold further discussions while asking the GOM
for clarification and additional details. Mexico offered to provide
a more formal proposal in writing within 15 days. Our interlocutors
expressed gratitude that the USG has refrained from commenting on
Mexico's energy reform debate, and asked us to also avoid public
comments on their proposal to negotiate an agreement on
transboundary reservoirs. End Summary.

-----------
Background:
-----------

2. (U) The US and Mexico signed a treaty in 1978 establishing the
maritime boundary between the two countries where the distance
between them did not exceed 400 nautical miles. This treaty, which
entered into force in 1997, left two areas where the distance
between shores was greater than 400 nautical miles: the Western Gap
and the Eastern Gap in the Gulf of Mexico.

3. (U) The US and Mexico signed the Western Gap Treaty in 2000.
This treaty entered into force in 2001 and established the
"continental shelf boundary" between the US and Mexico. The treaty
also establishes a "buffer zone" on either side of the boundary to
take into account possible transboundary reservoirs, in addition to
including notification and consultation provisions about possible
reservoirs in that buffer zone. Under the treaty, the parties are
not to authorize or permit petroleum or natural gas drilling or
exploitation of the continental shelf within the buffer zone for 10
years following entry into force of the treaty. (Note: There is no
treaty delineating the continental shelf boundary for the "Eastern
Gap," nor is there a USG plan to negotiate a treaty on the Eastern
GAP in the near future. This area includes portions claimed by
Cuba. End Note.)

--------------------------------
Updates on Information and Data:
--------------------------------

4. (U) At the request of Mexico, USG and GOM officials held formal
consultations under Articles 4 and 5 of the Western Gap treaty on
August 20 in Mexico City. The GOM requested the meeting to discuss
new information and any developments on the exploration and
exploitation of possible transboundary reservoirs including both
those covered by the Western Gap Treaty and those in other areas of
the Gulf of Mexico (which are not covered by the consultation
provisions in the Western Gap Treaty). The USG delegation was led
by John Kim, Assistant Legal Advisor for Oceans, International
Environmental and Scientific Affairs, Department of State. The GOM
delegation was led by Ambassador Joel Hernandez, Judicial Advisor,
SRE, and consisted of a large and senior level field of officials
(The complete list of participants is in paragraph 13.)

5. (U) The GOM opened discussions by providing a brief overview of
PEMEX seismic data and assessments in the deep waters of the Gulf of
Mexico. PEMEX New Business Development Manager Dr. Luis Macias said
PEMEX assessments have identified some promising geological
structures which could contain cross border reservoirs in the
Perdido Fold Belt area including Hammerhead/Magnanino and
Trident/Alaminos. Macias added that the GOM will be conducting a
campaign for more seismic data in the Perdido Fold Belt and Eastern
Gulf this fall and winter.

6. (U) Kevin Karl from MMS confirmed that most activity along the
U.S. side of the boundary is in the Perdido Fold Belt area, but no
transboundary reservoirs have been identified. Because of poor well
control (i.e., few wells drilled near the boundary) and the lack of
seismic data from the Mexican side of the boundary, the picture
remains incomplete. He added that having access to seismic data
from the Mexican side would help us to complete the picture. The
Mexican side expressed interest in exchanging geological and
geophysical data but emphasized the need to do so through a formal
mechanism set forth in a Memorandum of Understanding (MOU). Despite

later questioning, it remains unclear why the GOM believes an MOU is
necessary in order to provide the USG geophysical data from the
Mexican side. The GOM indicated that the MOU could be legally
binding or not.

7. (U) Karl continued by noting several discoveries in the Perdido
Fold Belt area, but added that only Shell's hub facility at Great
White is moving forward to production at this time. He added that
the average size of reservoirs in the deep waters of the Gulf is
relatively small, approximately 600 acres, compared to the size of a
standard USG lease/block which is 5760 acres. Great White is
considered too distant from the boundary for exploitation of a
transboundary reservoir to occur. The area likely includes
extensive faulting and fracturing, and in combination with formation
conditions, is probably highly compartmentalized making production
more difficult with limited wells. Because of these conditions and
the probable limited size of any transboundary reservoirs, drilling
at the boundary would be necessary for exploitation of any
transboundary resource to occur. Due to the high costs of drilling
in deep water - some wells cost $150 million per well or more - and
the need for additional wells to exploit the resource, other
projects have not moved forward.

----------------------------------
GOM Proposes Bilateral Agreement
on Transboundary Reservoirs:
----------------------------------

8. (U) Ambassador Hernandez proposed that Mexico would be
interested in opening negotiations on a broader bilateral treaty on
exploiting transboundary reservoirs. A mechanism for exchanging
seismic data could be included in those discussions. Hernandez
expressed interest in concluding a bilateral agreement before
January 2011 when the moratorium on drilling in the Western Gap
expires. If we have not reached agreement by that time, he added,
the USG and GOM would have to consider extending the 10-year
moratorium contained in the Western Gap Treaty. Hernandez expressed
interest in negotiating a broad agreement that would apply to all
transboundary reservoirs, including those that may exist on land.
He noted that a bilateral agreement would provide legal certainty
and avoid potential disputes at a later time. He added that no
state should take action on transborder reservoirs that would damage
the interests of the other state.

9. (U) SENER's Juan Carlos Zepeda emphasized the urgency of
beginning negotiations on an agreement. He opined that it would be
a mistake to wait for confirmation of a transboundary reservoir
before discussing the efficient and equitable exploitation of
crossborder resources. Zepeda mentioned several precedents
including unitization agreements between U.S. states, the U.S.
federal and state governments and between other foreign countries
(Norway and the United Kingdom) which could inform the process.

10. (U) Kim expressed appreciation for the Mexican proposal and
responded that, in principle, the US is open to further discussions
on a potential agreement. He noted, however, that in order to
consider any such agreement, the US side would want to gather more
information as to whether there was or likely was a transboundary
reservoir; there would be a need for some type of congressional
authorization for the conclusion of these types of international
cooperative agreements; and an internal process would have to be
undertaken to determine whether such a proposal would be supported
by the United States. Kim added that given the complexity of the
issues that would be raised by any such agreement, it would help
inform the US response if the GOM provided in writing further
details on the proposed mechanism for exchanging data and specific
Mexican ideas regarding cooperative development and what this would
mean for exploration in the buffer zone while an agreement would be
negotiated.

11. (U) Hernandez agreed to provide a more detailed and formal
proposal within the next fifteen days elaborating on its proposal.
Hernandez further proposed that the USG and GOM establish a task
force with a broad mandate to initiate the exchange process and
develop the elements for a possible agreement.

--------------------------------------------
Eastern Gap - Presentation to UN Commission:
--------------------------------------------


12. (U) At the end of the meeting, Mexican Legal Adviser Hernandez
recalled that GOM had made a partial submission to the Commission on
the Limits of the Continental Shelf on its claims for extended
continental shelf in the Western Gap. He said that Mexicowent
before the Commission in April 2008 and made its oral presentation.
The Commission has assigned the GOM submission to a subcommission
that will convene in December 2008. Hernandez added that Mexico
would like to address the Eastern Gap, and reiterated an earlier
request that the GOM apparently had made in October 2006 and again
in 2007 to carry out consultations with the USG on the Eastern Gap.
Recognizing the issues surrounding the US-Cuba relationship, he
noted that his government and Cuba recently had agreed to hold
bilateral consultations on Mexico's submission on the Eastern Gap,
and that GOM was prepared to consult separately with the USG on the
Eastern Gap. He said Mexico would like to make a presentation to
the UN Commission on the Eastern Gap that would not be objected to
by other countries and without prejudice for future agreements on
delimitation.

13. (U) Participants:

US:
John Kim, Assistant Legal Advisor, State/OES
Kevin Karl, Regional Supervisor, Interior/MMS
Steve Textoris, Program Analyst, Interior/MMS
Sigrid Emrich, Energy Officer, US Embassy Mexico City

Mexico:
Ambassador Joel Hernandez, SRE
Alejandro Estivill, Director General for North America, SRE
Victor Manuel Uribe, SRE
Carlos Quesnel, Embassy of Mexico, Washington DC
Alejandro Fleming, SRE
Juan Carlos Zepeda, Director General for Exploration, SENER
Aldo Flores, Director General International Affairs, SENER
Luis Macias, PEMEX
Fernando Lopes Arriaga, PEMEX
--------
COMMENT:
--------

14. (U) The timing of the GOM's proposal for a bilateral agreement
on transboundary reservoirs and the urgency that the Mexican
delegation placed on launching negotiations indicate that the GOM
believes a transboundary reservoir could be discovered soon. By
engaging the USG on this issue, the GOM hopes to head off a
potential political debate at home regarding the "straw" effect, an
erroneous argument that claims wells drilled by international oil
companies on the US side of the boundary could siphon off
significant oil reserves from the Mexican side of the border.
Hydrocarbon resources are protected by the Mexican Constitution,
raising the sensitivity of this issue, particularly as a national
debate over foreign investment in energy projects ensues.

15. (U) The USG has long been interested in Mexican seismic data to
provide a more complete picture of the potential reservoirs in that
section of the Gulf. The GOM's offer to engage with us on this
issue and to share data as part of the negotiating process is a
positive development, and we should seize this opportunity to access
Mexican seismic and geophysical data. At the same time, the GOM's
proposal raises a number of questions including what Mexico
envisions with respect to existing leases and exploration along the
US side of the boundary. We will be able to better evaluate the
GOM's idea once we receive the more detailed proposal. End comment.


GARZA

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