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Budget Pact Includes U.S.-Mexico Agreement on Gulf Oil, Gas Development

Legislation to enact a transboundary treaty between the United States and Mexico that governs the development of oil and natural gas resources along the countries' marine boundary in the Gulf of Mexico is part and parcel of the budget deal hammered out this week between House Budget Committee Chairman Paul Ryan (R-WI) and Senate Budget Committee Chairman Patty Murray (D-WA).

The House is likely to vote on the legislation Thursday before leaving for the year, a House leadership spokesman said. Members are not scheduled to return to Washington, DC, until Jan. 6. The Senate is expected to vote on the bill before leaving town next week.

The transboundary agreement would lift the existing moratorium on nearly 1.5 million acres of the Western Gap of the Outer Continental Shelf, making them available for development. The Interior Department's Bureau of Ocean Energy Management estimates that these acres could contain up to 172 million bbl of oil and 304 Bcf of natural gas.

The budget deal did not include a waiver of the Dodd-Frank financial reporting requirements for transboundary producers to disclose payments associated with resource extraction to the United States or foreign governments, as House lawmakers had wanted. The Senate and the House disagreed on this point (see Daily GPI, Oct. 14).

But the dispute over the Dodd-Frank reporting requirement appears moot for now, given that the U.S. Court for the District of Columbia tossed out the reporting requirement. The Securities and Exchange Commission has indicated that it may rewrite the rule, but it's not a top priority.

The deadline for ratifying the transboundary agreement in the United States is Jan. 17. The U.S.-Mexico agreement was first signed in February 2012, and Mexico ratified it in April 2012 (see Daily GPI, Feb. 22, 2012).

Sen. Ron Wyden (D-OR), chairman of the Senate Energy and Natural Resources Committee, applauded the budget pact, saying that the inclusion of the transboundary agreement "is good for American energy security, good for jobs and good for the environment to have rules govern energy development in the Gulf of Mexico."

The Independent Petroleum Association of America (IPAA), which represents independent producers, echoed that sentiment. "We think that [transboundary agreement] is a good sign...It's an important part of the offshore component," a spokeswoman said. She further noted that the IPAA was "happy and encouraged" that the budget negotiators didn't eliminate intangible drilling costs (IDC) for producers.

The IDC is a tax deduction, not a subsidy for producers, that has been in place since 1913. Many producers contend that their businesses would collapse without it.

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