Oil and gas production could see boost from budget deal

Oil production in the Gulf of Mexico could increase under the proposed budget deal.

After years of gridlock in Congress, it's refreshing to see any kind of genuine cooperation, especially on the nation's pressing fiscal issues. When the resulting legislation also promises to boost U.S. energy production by opening new areas to exploration and development, it's a reason to be optimistic.

The bipartisan budget deal negotiated by the chairs of the House and Senate Budget Committees includes a provision that would implement a 2012 treaty with Mexico, which creates a set of protocols for dividing up undersea oil and gas reserves that straddle the boundary between the two nations' waters. The framework would allow U.S. companies to partner with Mexican national oil company Pemex to develop oil and gas wells in a 1.5-million-acre region of the Gulf known as the Western Gap.

Treaty's implementation has been delayed for almost two years

The Mexican legislature ratified the deal in mid-2012, two months after it was signed. The U.S. Senate voted to implement the treaty several months ago, but the House initially made its approval contingent on the inclusion of a provision waiving Securities and Exchange Commission rules that require companies to disclose payments made to foreign governments in exchange for oil and gas development rights.

Those regulations have since been invalidated by a federal court and the SEC has indicated that a new rule will be months in the making, clearing the way for the impasse to end. There is also a growing sense of urgency – the agreement must be ratified by the U.S. Congress by January 17, 2014.

At that time, a moratorium on the operation of drilling rigs and oil production equipment will expire. U.S. Senator Ron Wyden has asserted that this would make it "open season" in the Western Gap, allowing Pemex to develop the region's resources without adhering to the mutually agreed-upon rules established by the treaty.

For U.S. energy companies and consumers, this would be a costly failure. The stakes are significant: estimates developed by the U.S. Bureau of Ocean Energy Management indicate that the areas covered by the treaty could contain up to 172 million barrels of oil and 304 billion cubic feet of natural gas.