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House Approves Budget Deal Allowing for Development Along U.S.-Mexico Boundary in Gulf

The House Thursday overwhelmingly voted out a compromise budget deal that, among other things, enacts a treaty that would pave the way for oil and natural gas development along the U.S.-Mexico boundary in the Gulf of Mexico.

The budget agreement, which was negotiated by Senate Budget Committee Chairman Patty Murray (D-WA) and House Budget Committee Chairman Paul Ryan (R-WI), cleared the House by a 332-94 vote, with support coming from both sides of the aisle. The agreement now heads to the Senate. Minority Whip John Cornyn (R-TX) said he expects the measure to pass the Senate, despite mounting opposition from Republicans. President Obama applauded the House passage of the budget deal and will likely sign it into law before the end of the year, assuming the Senate approves it.

Moderate Democrats and Republicans have expressed hope the budget compromise will put an end to the showdowns over spending, which resulted in a shutdown of the federal government for more than two weeks in October.

The U.S-Mexico 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 those acres could contain up to 172 million bbl of oil and 304 Bcf of natural gas.

The budget deal does not require producers that develop oil and gas resources along the U.S.-Mexico boundary in the Gulf to disclose payments associated with the resource extraction to the United States or foreign governments. The Securities and Exchange Commission (SEC) in 2012 adopted a rule requiring producers to report payments (seeDaily GPI, Aug. 23, 2012).

But the U.S. Court for the District of Columbia tossed out the reporting requirement (see Daily GPI, July 5). The SEC has indicated that it may rewrite the rule, but it's not a top priority at this time.

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).

The Independent Petroleum Association of America (IPAA), which represents independent producers, expressed a sigh of relief that the budget negotiators left their tax breaks intact. The IPAA is "happy and encouraged" that the budget negotiators didn't eliminate intangible drilling costs (IDC) for producers, as well as other tax breaks, a spokeswoman for the group said.

The IDC is a tax deduction that has been in place since 1913. Many producers contend that their businesses would collapse without it.

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