Center for a New American Security

The United States and Mexico have come to an agreement that would allow both countries to drill for oil and natural gas along their maritime border in the Gulf of Mexico. According to a U.S. Department of Interior press release, the Transboundary Agreement “removes uncertainties regarding development of transboundary resources in the resource-rich Gulf of Mexico” and opens up approximately 1.5 million acres of the U.S. outer continental shelf to exploit the estimated 172 million barrels of oil and 304 billion cubic feet of natural gas. “This agreement makes available promising areas in the resource-rich Gulf of Mexico and establishes a clear process by which both governments can provide the necessary oversight to ensure exploration and development activities are conducted safely,” Secretary of the Interior Ken Salazar said.

The U.S.-Mexico agreement was penned a week after Mexican oil regulators cautioned that Petroleos Mexicanos – or PEMEX, the national oil company – is ill prepared to manage a serious offshore oil spill. According to a February 15, 2012 report from The Wall Street Journal:

The regulator's chief, Juan Carlos Zepeda, said Petróleos Mexicanos has relatively little experience with deep-water drilling, much less with the ultra-deep wells—those at depths exceeding 6,000 feet—that it could tackle as soon as next month. Pemex plans to drill as many as six deep-water wells this year, including the two ultra-deep wells, more than at any time in its history. 

The U.S.-Mexico agreement provides a framework for both countries to conduct joint inspection of the others’ oil rigs in the Gulf of Mexico, in part intended to ensure safety standards are met.  The agreement also allows U.S. companies and PEMEX to jointly develop oil and natural gas reserves in the transboundary region, which could provide an opportunity for U.S. companies with a long history of offshore oil drilling to cooperate and share lessons learned with PEMEX. “Coordination and sharing communications, training, personnel, equipment and technology are essential for safe and productive drilling,” said Jorge Piñon, a former president of Amoco Oil Latin America and a current research fellow at the University of Texas, in an interview with The New York Times on Monday.

In recent years, Mexico’s oil industry has been plagued by a range of technical deficiencies and declining production in its largest and most important oil field, the Cantarell. Oil production there has dipped from about 2 million barrels a day in 2004, to close to 700,000 barrels a day in 2009. Meanwhile, PEMEX officials have cautioned that production is likely to decline by about 15 percent a year through 2015.

The decline in production is in part a symptom of the lack of technical development in Mexico’s oil sector. Mexico’s oil industry has been plagued in recent decades by a constitutional prohibition that restricts foreign oil companies from working with the domestic oil industry, which also prohibits new technology sharing that may otherwise help PEMEX rejuvenate oil production.  

In a 2009 blog post, Joseph S. Nye, Jr. Researcher Seth Myers aptly described the consequences that seem to be playing out today. According to Myers:

One of the unintended consequences of Pemex’s monopoly and the preeminence of Cantarell in the national oil industry has been that Pemex’s technical capabilities have seriously lagged behind the times. Cantarell is an extremely small field for its production capabilities, located in extremely shallow water with very high initial pressure and very low water saturation – by and large, it has been an extremely easy field to develop and produce oil from. As a result, Pemex grew somewhat complacent in terms of developing new drilling capacity – its deep water capabilities beyond 1,000 meters are largely nonexistent and it was forced to close wells in Cantarell when water content reached even minimal levels (96% less than what U.S. wells are capable of handling).

The U.S.-Mexico agreement still has to run domestic traps before it is finalized, but it looks like both countries are on their way to cooperatively developing offshore oil in their respective maritime boundaries of the Gulf of Mexico. Although it is not very clear how the agreement will square with the existing constitutional restriction, the agreement may help PEMEX develop safe technology for offshore drilling in a way that avoids violating that restriction. It will be interesting to see how much production Mexico is able to safely develop, and what effects this could have across the rest of Mexico, considering that oil revenues account for roughly 40 percent of the government’s budget. Despite one’s feelings about the merits of offshore oil drilling, rejuvenating Mexico’s oil production may help bring about more stability – but only if those revenues translate into government programs that help bring about that stability.