On February 20th, the governments of the U.S.A and Mexico entered into an important agreement concerning transboundary hydrocarbon reserves in the Gulf of Mexico (the "Treaty"). The Treaty puts into place a framework for the "safe, efficient, equitable and environmentally responsible exploitation of transboundary hydrocarbon reserves" through the execution of unitisation agreements. Whilst not yet ratified, the Treaty has been submitted for approval by the senates of both Mexico and the U.S.A and marks the end of decades of negotiation between the two countries regarding oil rights in the area. It is expected to be ratified later this year.

The Treaty is significant in that it sets out the terms by which Pemex, the Mexican state-owned oil company, will be able to enter into joint ventures for the exploitation and exploration of hydrocarbon reserves for the first time and makes an area of more than 1.5 million acres of the U.S Outer Continental Shelf more accessible for exploration and production activities. The area is estimated to contain reserves of up to 172 million barrels of oil and 304 billion cubic feet of natural gas and the Treaty ends a moratorium on exploiting such reserves which would otherwise remain in place until 2014.

Under the Treaty, both governments must inform each other about exploration and exploitation activities occurring within three miles of the maritime border in the Gulf. Once a reserve is identified, production will be prohibited until both sides reach an agreement on whether the reserve is a cross-border reserve and agree the terms of a unitisation agreement to determine how production from the reserve will be divided. The Treaty contains incentives for oil and gas companies to jointly develop cross-border reserves, however, in the event that joint development cannot be achieved, the Treaty sets out a process by which American companies and Pemex can individually develop resources either side of the maritime border while protecting each nation's interests.

The Treaty represents a major step forward in energy relations between the two countries and has been described by Secretary of State Hillary Clinton as an agreement which will "advance energy security in our hemisphere and help us handle our energy resources more responsibly".

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

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The original publication date for this article was 04/04/2012.