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Landmark upstream deal for GOM deep waters

Exploration in the Gulf of Mexico’s Western Gap, which straddles the US/Mexico maritime border, may soon get under way following a landmark deal agreed on 20 February

The agreement, signed by US secretary of state Hillary Clinton and Mexico’s President Felipe Calderon, was negotiated last year and will lift the moratorium on exploration in the 1.5 million-acre area. The Western Gap ban was imposed because of uncertainty over ownership of the area’s resources.

Under the terms of the deal, US firms will be able to collaborate with Pemex, Mexico’s national oil company, to explore the region and bring any discoveries into production. It also includes a legal framework for developing reservoirs that lie within both countries’ jurisdictions. And there is an arrangement allowing US and Mexican regulators to carry out joint safety inspections, a move prompted by the tightening of US offshore safety regulations following the 2010 Deepwater Horizon disaster.

Speaking at the signing ceremony, held on the sidelines of a ministerial meeting of the G20 in Los Cabos, Mexico, Clinton said: "These reservoirs could hold considerable reserves, but they don't necessarily stop neatly at our maritime boundary. This could lead to disputes. The agreement we are signing will help prevent such disputes." She added: "This agreement creates new opportunities for our businesses. US energy companies will be able – for the first time – to collaborate with Pemex."

But Calderon, mindful of Mexico’s long history of resource nationalism, said: "This agreement was negotiated under the principle of respecting sovereign rights. Mexican oil wealth is, and will continue to be, held by Mexicans."

US secretary of the interior, Ken Salazar, described the agreement as a “win-win” for the US and Mexico. It certainly is for Mexico. The pact offers it the chance to revitalise its offshore sector, which has been hindered by years of under-investment and a lack of expertise. A clause in the Mexican constitution that restricts the role foreign firms can take in the oil and gas sector has also hampered development. That restriction was eased, in part, in 2008, with the introduction of incentive-based operating contracts for foreign firms.

Mexico derives about 33% of its federal budget – an estimated $90 billion in 2008 – from oil and gas. But oil production has been in decline since 2005, and there have been few substantial discoveries since then. According to BP, production peaked in 2004, at 3.82 million b/d. By 2010, that had dropped to just over 2.96 million b/d.

The country’s flagship field, Cantarell, in the Bay of Campeche, is indicative of the sector’s troubles. When it was brought into production in 1981, Cantarell held oil-in-place reserves of 35 billion barrels. It hit peak production of 2.1 million barrels a day (b/d) in 2003, but output went into steep decline shortly afterwards. In November, the field produced just 400,587 b/d. The Ku-Maloob-Zaap field, which lies to the northwest of Cantarell has, in part, compensated for this decline, producing 842,519 b/d in November 2011.

Mexico hopes its highly prospective Gulf of Mexico play, including the Western Gap, will help it reverse its declining oil output. Pemex estimates its sector of the Gulf could hold 29 billion barrels of oil equivalent and has announced a five-year exploration programme aimed at tapping some of this potential. This year, the firm plans to drill six to seven deep-water wells, two of which will spud in ultra-deep waters. From 2013, the plan calls for eight wells a year.

But the Western Gap is not thought to be prolific – the US Geological Survey believes the area holds about 172 million barrels of oil.

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