New Bipartisan Budget Deal Gives Green Light To U.S.-Mexico Deepwater Oil Drilling

As part of the proposed bipartisan budget deal announced this week, deepwater oil and gas exploration could proceed in parts of the Gulf of Mexico along the shared maritime border between the U.S. and Mexico.

The budget deal, proposed by House Budget Committee Chairman Paul Ryan, R-Wis., and Senate Budget Committee Chairwoman Patty Murray, D-Wash, would restore about $63 billion in automatic spending cuts and prevent the threat of another partial government shutdown early next year.

The legislation also would implement the 2012 U.S.- Mexico agreement concerning hydrocarbon reservoirs in Gulf of Mexico waters shared by the U.S. and Mexico. The measure, praised by its backers for providing certainty in the offshore drilling industry, would open up oil and gas reservoirs – estimated to be around 172 million barrels of oil and 304 billion cubic feet of natural gas – across 1.5 million acres of the outer continental shelf.

“It’s a step in the right direction and it will add to oil supply,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago told Bloomberg News. “It’s another reason that oil will be relatively cheap. The Gulf of Mexico is not as critical as it used to be, so the price impact will be limited.”

In October, the Senate passed a bill to implement the joint agreement, but the House bill would give companies operating under the pact waivers from a Dodd-Frank law, which forces U.S. companies to disclose payments from foreign governments. The biggest beneficiaries of the pact would be Shell, Chevron and Anadarko, as the Gulf of Mexico has become one of the most profitable prospects in the world, analysts observed.

“The industry is looking for access to additional resources and there’s nothing better than getting access right in the Gulf of Mexico. This is basically our home court. We have the technology, people, the knowledge, the infrastructure, everything. It’s right in our backyard.” Fadel Gheit, an analyst at Oppenheimer & Co. in New York, told Bloomberg.

U.S. government data shows that domestic crude oil production rose to a 25-year high in large part due to the combined use of  horizontal drilling and hydraulic fracturing, commonly known as "fracking," that have unlocked supplies trapped in shale formations in places like Texas and North Dakota.

By the end of the year, data predictions show that output from the Gulf of Mexico will make up a total of 17 percent of total U.S. production, down from 20 percent in 2012.

While the agreement was praised by industry insiders, some legislators are still undecided on the budget deal. In Louisiana, hard hit by the Deepwater Horizon oil spill in 2010, many lawmakers made clear that they were still reviewing the deal carefully.

Jennifer Dunagin, spokeswoman for newly elected Rep. Vance McAllister told the New Orleans Times-Picayune newspaper that the congressman is still reviewing the budget and "trying to see how it will impact Louisiana."

Environmental groups have been relatively silent on the budget deal's inclusion of the U.S.-Mexico drilling pact, instead focusing on how it restores funding to parks and environmental protection measures.

"Without this deal, funding for non-defense discretionary programs within the Environmental Protection Agency and Department of Interior would have been 18 percent below 2010 levels, adjusted for inflation," Scott Slesinger of the Natural Resources Defense Council said in a statement, according to the Hill.

“This deal means the public will have greater environmental protection, better parks and more modernized sewage and water facilities," Slesinger said.

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