TRANSBOUNDARY RESERVOIRS - A WINDOW OF OPPORTUNITY

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