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Cablegate: Transboundary Reservoirs - a Window of Opportunity

VZCZCXRO4702
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2445/01 2292312
ZNR UUUUU ZZH
P 172312Z AUG 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 7930
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 02 MEXICO 002445

SENSITIVE, SIPDIS

STATE FOR WHA/MEX, WHA/EPSC
STATE FOR EEB/ESC (MCMANUS AND DUGGAN)
STATE FOR L/OES (MCDONALD) and OES/OPA
D FOR LOURDES CUE
DOE FOR A/S SANDALOW, G.WARD AND A.LOCKWOOD
MMS FOR RENEE ORR

E.O. 12958: N/A
TAGS: ECON ENRG EINV PGOV SENV MX
SUBJECT: TRANSBOUNDARY RESERVOIRS - A WINDOW OF OPPORTUNITY

1. (SBU) Summary: Energy Secretary Georgina Kessel told Ambassador
Pascual August 13 that the Mexican proposal to negotiate a bilateral
treaty on trans-boundary reservoirs provides a window of opportunity
for the US and Mexico to engage constructively on the sensitive
topic of oil production. Negotiations would support both countries'
efforts to enhance energy security by allowing Mexico's state owned
oil company PEMEX to engage in strategic alliances with
international oil companies (IOCs) and exploit potential vast
reserves in the Gulf of Mexico. She added that Mexico will respond
to the July 7 USG diplomatic note by requesting a meeting on seismic
data in Villahermosa, Tabasco. Kessel wants to use cooperation on
trans-boundary as a way to engage international oil companies in
developing Mexican reserves, opening a door to IOCs in Mexico's
petroleum sector. End Summary.

2. (SBU) The Ambassador's August 13 call on Secretary Kessel led to
a candid discussion on a broad range of bilateral energy topics.
Kessel's Chief of Staff Carlos Petersen, Director General for
International Affairs Aldo Flores, and Econoff also participated in
the meeting. This cable reports on Mexico's proposal to negotiate a
bilateral agreement on potential trans-boundary reservoirs. Other
topics discussed during the meeting, including renewable energy and
energy efficiency, will be reported septel.

3. (SBU) Secretary Kessel emphasized that the US and Mexico should
both consider North American energy security as the primary
motivation for negotiating a bilateral treaty on potential
trans-boundary reservoirs. She noted that declining Mexican oil
production was making the US more dependent on other sources of oil,
especially Venezuela. Mexico has potential vast oil reserves in the
Gulf of Mexico, she asserted, but PEMEX does not have the technical
capacity to exploit these deep water sites. Moreover, the energy
reform bill passed in 2008 does not allow PEMEX to engage in the
types of strategic alliances necessary to gain this capacity.
According to Kessel, IOCs operating on the US side of the border
would also benefit from a bilateral treaty. These companies are
currently reluctant to explore in areas near the boundary due to the
legal uncertainty they could face if a trans-boundary reservoir is
discovered. Flores added that the legal certainty of a treaty would
prevent irritants and setbacks in bilateral cooperation on energy
topics.

4. (SBU) The Ambassador asked what Mexico hopes to achieve through
negotiation. Kessel responded that Mexico's 2008 energy reform
creates a window of opportunity. Publicly, the GOM will emphasize
that the negotiations allow Mexico to defend its natural resources.
Kessel explained the sensitivity of energy issues in Mexico, noting
that many Mexicans consider oil a part of the country's DNA. Some
Mexicans are concerned about the "straw effect" - the over-hyped
argument that an IOC operating on the US side of the boundary could
drain Mexican oil reservoirs. A treaty would address these concerns
and avoid any unnecessary irritants between the two countries.

5. (SBU) Kessel acknowledged that internally the GOM sees a
bilateral treaty as an opportunity for PEMEX to engage in strategic
alliances and gain much-needed technical expertise in deepwater
drilling. Kessel said Mexico's seismic data indicates that there is
a strong likelihood that trans-boundary reservoirs exist, but
reservoirs can only be confirmed by actual drilling.

6. (SBU) The Ambassador raised the US position regarding rule of
capture (whereby the entity that "captures" a resource owns that
resource), and Kessel clearly understood this long-standing US
position. Flores noted that Mexico does not recognize the rule of
capture and that international practice supports the Mexican
proposal for a bilateral treaty. He added that over 30
international agreements on trans-boundary resources have been
negotiated and added that these agreements help to avoid unnecessary
conflicts. Flores commented that there is a precedent for the US
and Mexico. The two countries negotiated a bilateral treaty on
boundary waters and have discussed trans-boundary reservoirs under
the Western Gap Treaty.

7. (U) Kessel acknowledged the July 7 US diplomatic note requesting
a meeting to analyze Mexico's seismic data. She said Mexico would
soon respond to our note by proposing a bilateral in Villahermosa,
Tabasco.

COMMENT:
--------

8. (SBU) Secretary Kessel's comments show that while the GOM will
portray negotiations on trans-boundary reservoirs to the Mexican

MEXICO 00002445 002 OF 002


public as an effort to defend the country's natural resources, the
government sees a treaty as an important opportunity for PEMEX to
work with IOCs and gain expertise in deepwater drilling. For the
first time in decades, the door to the USG's constructive engagement
with Mexico on oil has opened a crack. It would be in our interests
to take advantage of this opportunity. Engaging with Mexico would
allow us to establish closer ties with Mexican counterparts in the
hydrocarbons sector and would add a deeper understanding of
positions and policies on both sides. If bilateral discussions
later promote a further opening of Mexico's oil sector, it will
benefit both governments and commercial interests.

PASCUAL

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