US budget paves way for US-Mexico pact approval

barack obama12 December 2013, News Wires – Democrats and Republicans in the US came together to unveil a proposed budget that could keep the oil-producing country from another damaging government shutdown early next year and that has significant implications for the oil and gas industry.

Among the most substantial energy-related budget proposals in an approval of the US-Mexico Transboundary Agreement, which would set up a framework to explore, develop, and share revenue from oil and gas resources that sit along the maritime boundary between the countries in the Gulf of Mexico.

The treaty would open the door for co-operation in the 1.5 million-acre area between US explorers and Mexico’s national oil company Pemex by encouraging commercial unitisation agreements.

The agreement, originally signed by the North American neighbours in 2012, has yet to be ratified by the US legislature. Both the Senate and the House of Representatives approved the treaty earlier in October, but full ratification was stalled due to a provision in the House version that exempted US-based oil companies from disclosing fiscal payments to foreign governments.

The provision was based on a Securities & Exchange Commission rule that was part of the Dodd-Frank transparency laws, but that rule has been struck down, rendering the issue mostly moot.

The new US budget would also give the Secretary of Interior authority to implement the US–Mexico agreement “and any future transboundary hydrocarbon reservoir agreements entered into by the president and approved by Congress”, according to a budget summary (pdf).

If the budget is passed – no sure thing in a Congress known for acrimony and gridlock – the US-Mexico treaty could be ratified before a 17 January deadline.

The proposed budget would also repeal funds used to establish the “Ultra-Deepwater & Unconventional Natural Gas & Other Petroleum Resources Research Programme”, a 10-year research and development programme formed in 2005 as part of the Energy Policy Act that year.

The budget would also make permanent a requirement that states receiving mineral revenue payments “help defray the costs of managing the mineral leases that generate the revenue”, according to the summary.

Another provision in the budget that would cap federal oil and gas royalty pre-payments “limits the amount of interest payable to lessees on royalty over-payments to up to 110% of the amount due”.

The budget proposal would also permanently repeal the federal government’s authority to accept oil through the royalty-in-kind programme to fill the Strategic Petroleum Reserve.

Notably absent from the proposed budget are any measures that would close tax loopholes for oil companies or rescind any subsidies they receive. President Barack Obama has long pushed for such actions.

– Upstream

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