Transboundary petroleum reservoirs: a recommended approach for the United States and Mexico in the deepwaters of the Gulf of Mexico.

• Author: Urdaneta, Karla

1. INTRODUCTION II. TRANSBOUNDARY RESERVOIRS AND MAIN CONCERNS THAT ARISE III. CURRENT UNITED STATES-MEXICO MARITIME BOUNDARIES IN THE GOM IV. EXPLORATION AND EXPLOITATION ACTIVITIES OF OIL AND NATURAL GAS IN THE GOM V. ENERGY LEGISLATION IN MEXICO AND THE IMPACT OF THE NEW ENERGY REFORM IN THE SECTOR VI. OIL AND GAS LEGISLATION IN THE UNITED STATES VII. INTERNATIONAL LAW OF TRANSBOUNDARY RESERVOIRS. VIII. COMMON STRATEGIES FOR THE MANAGEMENT OF TRANSBOUNDARY RESERVOIRS IX. RECOMMENDATIONS FOR MEXICO AND THE UNITED STATES IN RELATION TO THEIR TRANSBOUNDARY RESERVOIRS X. CONCLUSION I. INTRODUCTION

   The Gulf of Mexico (GOM) contains important reserves of oil and natural gas. Some of these reserves have been exploited and produced by Mexico and the United States during the few last years. However, the exploitation of these resources has been slow because much of this resource base is located in ultra-deep waters of the GOM, where exploitation and production are very risky, and where the required advanced technology has been recently developed.

   In view of this situation, until a few decades ago, there was little conflict between the United States and Mexico regarding the exploitation of oil and natural gas reserves in the GOM. Each country was able to produce those resources located in the adjacent shallow waters of the GOM, far from the maritime boundaries that divide the deep GOM.

   The United States and Mexico have delimited all of their maritime boundaries in the GOM. (1) In 1978, when the United States and Mexico signed the Treaty on Maritime Boundaries, no mention was made regarding the exploration, exploitation, and production of the oil and natural gas reservoirs that could cross their maritime boundaries (i.e., transboundary reservoirs or common deposits). (2) Nevertheless, it was the very issue of transboundary reservoirs in deep-waters of the GOM that delayed the United States' ratification of the Treaty on Maritime Boundaries for almost twenty years, until 1997. (3)

   Because the Treaty on Maritime Boundaries left an area of the Continental Shelf (4) of the GOM (hereinafter the Western Gap) undecided, a new treaty was signed between the two countries in 2001. (5) This new treaty, which covers the Western Gap exclusively, establishes a buffer zone of 1.4 nautical miles on each side of the boundary, in which there is a moratorium of ten years against the exploitation and production of any oil and natural gas. (6)

   Thus, in the GOM there are two treaties that set the maritime boundaries between the United States and Mexico, of which, one contemplates and regulates transboundary reservoirs. The Western Gap is subject to a ten-year moratorium on the exploitation of hydrocarbons, but the rest of the GOM is available for exploitation by each country on its side of the boundary. (7)

   This situation, coupled with other technical, economic, and political factors, has caused transboundary reservoirs in the GOM to be of particular concern to both countries.

   The development of new technologies has allowed for the exploration, exploitation, and production of reservoirs located in deep and ultra-deep waters of the GOM. (8) The physical impediments to developing the deep-water GOM have practically disappeared, and its production is now a matter of necessity and profitability.

   Moreover, the development of deep-water reservoirs of the GOM is important to the energy policies of both Mexico and the United States. Both countries urgently need prompt development and optimization of their hydrocarbons. (9) The reasons behind this necessity are unique to each country as a consequence of their own economic and political landscapes.

   Domestic production of oil and natural gas in the United States has been declining since 1970 as a result of the fact that proven domestic reserves of oil and natural gas are being consumed much faster than new significant sources are being discovered. (10) This situation has worsened during the last few decades, resulting in the United States becoming more and more dependent on importing oil from other countries. Specifically, the United States has relied on Canada, Mexico, Venezuela, Nigeria, Saudi Arabia, and Iraq, among others, for the importation of oil. (11) Because some of these oil-exporting countries are unstable or unfriendly to U.S. interests, President Obama's Administration has announced that the United States should explore ways to reduce foreign imports. (12)

   In contrast, Mexico is relatively stable, and it closely cooperates with the United States on policy issues. (13) Similar to many oil-producing countries, however, Mexico greatly depends on the profits obtained from petroleum production. (14) Funds from the state-owned oil company, Petroleos Mexicanos (Pemex), represent more than forty percent of the federal budget of Mexico. (15) Most of the oil produced by Mexico is exported to the United States. (16) Since 2000, the Cantarell Reservoir has accounted for more than fifty percent of Mexico's oil production, and in that same period, more than eighty percent of the oil produced has gone to the United States. (17)

   However, Mexico's principal producing reservoirs, such as Cantarell, are declining, (18) and although Mexico has a huge number of potential reservoirs, some have not even been explored due to a lack of capital and technology to produce those reserves. (19)

   For both countries, the preservation and optimal use of hydrocarbons, including those located in transboundary reservoirs, are matters of priority and necessity. However, the development of transboundary reservoirs concerns not just one country; it involves different states' interests, each with its own distinct domestic issues.

   The purpose of this Comment is to analyze some of the difficulties that the United States and Mexico must overcome in order to develop their transboundary reservoirs in an efficient manner, and to provide recommendations to that end.

   Part I of this Comment will cover the general notion of transboundary reservoirs, and the implication for the countries involved. Part II will explain the current situation between the United States and Mexico regarding their maritime boundaries in the GOM. Part III will discuss actual development of exploration and exploitation activities for oil and natural gas in the GOM and the potential of these resources. As a backdrop of any agreement that could be negotiated between the United States and Mexico for the development of their transboundary reservoirs in the GOM, Parts IV and V will discuss the energy legislation in Mexico and the impact of recent legal reforms. Parts IV and V will also examine the basic principles of United States law regarding the ownership and development of hydrocarbons. Part VI will examine the international law of transboundary reservoirs. Part VII will review the approaches taken by other countries regarding the development of their common resources. Finally, Part VIII will suggest solutions for the joint development of resources shared by the United States and Mexico in the GOM.

2. TRANSBOUNDARY RESERVOIRS AND MAIN CONCERNS THAT ARISE

   Transboundary reservoirs can be defined as reservoirs (20) or deposits that lie across a boundary line between two or more countries, which can be found in both onshore and offshore territories. (21) Common deposits that extend across international borders have increasingly attracted attention in the international law arena during recent decades due to all of the implications inherent in the exploration, exploitation, and production of common resources. (22)

   The presence of transboundary reservoirs has been a source of discussion and dispute between countries. Such discussions have focused on the exploration, exploitation, and production of resources contained in those reservoirs. There are several examples in this regard: the North Sea Continental Shelf cases; the Iceland/Norway Conciliation-Recommendation on the continental shelf area between Iceland and Jan Mayen Island; the U.K./France arbitration; the Greece/Turkey Aegean Sea Continental Shelf case; the Tunisia/Libya Continental Shelf case; the Australia/Indonesia seabed case; and the Eritrea/Yemen tribunal phase II decision. (23)

   Several key issues regarding transboundary reservoirs most concern the countries that know or presume that some of its resources are shared with another country. Some of these issues include the following:

   * What are the international and domestic rules that govern transboundary reservoirs? If fewer than all the countries sharing common deposits are exploiting those deposits, are they taking resources that belong to another sovereign nation, and, if so, is that a violation of a country's sovereign right? Is there any restraint that can be imposed against the country that is unilaterally exploiting and producing the common deposit? What rights accrue to the country that owns a part of the shared resources but that is not currently producing it?

   * Are all the countries sharing common deposits able to produce those resources at the same time, or does one of the countries have the right to first production of those resources? If one country has the economic resources and technology to exploit and produce those common deposits, and the other does not, how will the production and costs be shared?

   These are some of the questions that have caused most concern to the countries that have experienced these situations.

   In view of this, some countries have mutually agreed upon a way to manage their common deposits in order to avoid the problems caused by disagreement regarding their development. For instance, in 2003, Venezuela and Trinidad & Tobago agreed in a memorandum of understanding to unitize their cross-border fields. (24) In other cases, the countries facing the issue of transboundary reservoirs submitted their differences to arbitration or to the International Court of Justice in order to find a solution. (25)

   In the...