File No. 812.512/2062
Before leaving, Messrs. Pani and Nieto, with the approval of
President Carranza, handed them a signed memorandum embodying the
interpretations and modifications of said decrees which the Mexican
Government has made or will make as a result of their conferences
here. I enclose copy and translation of this memorandum as published
to-day.
I have been kept fully informed by Mr. Garfield of the progress of
the negotiations, but have taken no part in them. Mr. Pani gave a
dinner in honor of Messrs. Garfield and Rhoades the night before
they left Mexico, which I attended, and after which various features
of the case were discussed informally. Mr. Pani affected to think
the question definitely settled. As I had not read the memorandum
above mentioned, which was signed and given to them after dinner, I
refrained from any except most general observations.
Messrs. Garfield and Rhoades had suggested in writing to Messrs. Pani
and Nieto that the proposed new petroleum decree, which it is
understood will embrace the modifications, etc., covered by the
memorandum herewith, should contain as a preamble the following
declarations:
Mr. Pani promised to study this proposal and indicated a willingness
to incorporate all except the realty important part relating to
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the recognition of
legitimately acquired rights, etc. But, of course, even the part he
approves of may be disapproved by President Carranza. In fact, it is
clear to me that the Mexican Government is not willing to yield a
particle on the question of principle and that if the American
companies accept the law, even as modified as per the memorandum
herewith, they will yield and renounce all rights and titles which
they may have heretofore acquired. The whole intent of this
legislation by decree is to give effect to Article 27 of the 1917
Constitution, and the negotiations of Messrs. Garfield and Rhoades,
while productive of certain clarifications in the matter of
interpretation and of certain modifications in practice and taxation
favorable to the interests of their clients, have not served in any
way to remove the great obstacle to a definitive settlement of this
question.
Mr. Garfield will proceed directly from the meeting at Houston to
Washington and will report fully to the Department as to his
negotiations here and the deliberations of the companies’
representatives at Houston.
[Enclosure—Translation]
Official announcement of modifications to the
petroleum land tax law and to the decrees of May and
July1
(We publish below the memorandum which Messrs. Alberto J. Pani,
Secretary of Industry, Commerce and Labor, and Rafael Nieto,
Undersecretary of the Treasury and Public Credit, gave to the
press, relative to the negotiations with the Mexican Government
conducted by Messrs. Nelson O. Rhoades and James R.
Garfield.)
Messrs. James R. Garfield and Nelson O. Rhoades, representatives
of the following oil companies,
- Huasteca Petroleum Co.,
- Mexican Petroleum Co.,
- Compañía Petrolera Pan-Americana,
- Tuxpan Petroleum Co.,
- Doheny & Bridge,
- Chiconcillo Petroleum Co.,
- The Texas Company of Mexico,
- Richard E. Brooks,
- Pánuco Transportation Co., S. A.,
- Standard Oil Company of New Jersey,
- Compañía Transcontinental de Petróleo, S. A.,
- The Veracruz Mexican Oil Syndicate, Ltd.,
- International Petroleum Co.,
- Southern Oil & Transportation Co.,
- Tampico Navigation Co.,
- Scottish Mex. Oil Co.,
- Compañía Petrolera Tal Vez, S. A.,
- Producers Terminal Corp.
- Pánuco Oil Co.,
- The National Oil Co.,
- The National Ship Co.,
- Mexican National Oil Co.,
- John F. Penrose,
- Penrose & Riler,
- Compañía Mexicana de Petróleo “El Aguila”, S. A.,
- Island Oil & Transport,
- Compañía Metropolitana de Oleoductos, S. A.,
- Compañía Mexicana de Petroleo “La Libertad”, S. A.,
- “La Atlántica”, Compañía Mexicana
- Productora y Refinadora de Petróleo, S. A.,
- Pánuco Boston Oil Co.,
- Port Lobos Petroleum Corp.,
- Cortez Oil Corp.,
- Adrian Petroleum Co., Inc.,
- Aguada Petroleum Corp.,
- Victor Petroleum Corp.,
- Penn-Mex. Fuel Oil Co.,
- Freeport & Mexican Fuel Oil Corp.,
- Mexican Sinclair Petroleum Corp.,
- James A. Weir,
- C. F. Ireland,
- Compañía Terminal de Lobos, S. A.,
- Mexican Gulf Oil Co.,
- Compañía de Petróleo “La Corona”, S. A.,
- New England Fuel Oil Co.,
- New England,
- Union Oil of Mexico, S. A.,
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have held various conferences with the
undersigned, in which the following questions were discussed:
The decree of February 19 last fixing taxes on oil lands and oil
leases; that of May 18 this year extending the period for the
presentation of the manifestations prescribed and outlining the
manner in which they should be made up; and lastly, the two
decrees of the 8th instant relative to the title tax and the
regulations governing the denouncement of petroleum claims.
As a result of the conferences, held with Messrs. Garfield and
Rhoades in representation of the oil companies listed, we the
undersigned make known that the President of the Republic has
approved the following interpretations and modifications with
respect to the provisions of the decrees under
consideration:
I. The Decree of February 19, 1918,
Establishing Taxes on Oil Lands and Oil
Leases
1. For the collection of the tax prescribed in Article 2 of this
decree, it is understood that the rents fixed are in national
gold, and if any other class of money is stipulated in leases or
transfers, the same shall be reduced to national metallic gold
in conformity with existing Treasury rulings.
2. The royalties referred to in Article 3 of the same decree, are
the percentages of production payable by the exploiters to
middlemen or landowners, in kind or in cash; or, the amount of
money stipulated in the contracts as payable on each barrel (or
other unit of measure) of oil extracted or produced.
When, in contracts made prior to May 1, 1917, the royalty is
stipulated as payable on the basis of a specified amount of
money per barrel or other unit of oil, the 50 per cent thereof
payable to the Nation shall be collectible in metallic
currency.
3. Independently of whether the royalties stipulated in leases
are called for in kind or in cash, the Department of the
Treasury and Public Credit is empowered to collect the 50 per
cent of the royalties corresponding to the nation, in one or the
other; it being understood, naturally, that when collection is
made in kind, the exploiter’s interests will not be injured in
any way.
4. Exploited claims, referred to in Article 4 of the said decree,
are understood to be—with respect to the “manifestations”
only—those on which there is at least one oil well producing an
amount which is commercially profitable.
The royalty referred to in this article shall be calculated on
actual and not on potential production.
5. The transfer transactions referred to in Article 10 of the
decree under consideration, are understood to be those made
after the date of promulgation of the said decree and which
originate directly or indirectly from contracts entered into
prior to May 1, 1917.
6. The obligation imposed by Article 11 of the decree in
question, to the effect that the royalty corresponding to the
nation, when payable in kind, shall be delivered at one of the
exploiter’s storage tanks to be specified by the Department of
the Treasury and Public Credit, has for its sole purpose that of
assuring the fulfilment of the accidental requirements of the
public service, without injury of any kind to the exploiter.
7. For the purposes of Article 12 of the decree of February 19,
1918, the tax value of oil at Mexican ports of shipment shall be
determined by deducting from the quotations published in the
stock exchange bulletin of New York, the actual transportation
cost from shipping ports to New York City.
II. Decree of May 18, 1918, Extending the Period Fixed by Article
14 of the Decree of February 19 Last for the Presentation of Manifestations
and Specifying the Manner of Preparing Them
8. The time limit fixed under Article 1 of this decree, within
which parties interested shall present their manifestations to
the Department of Industry, Commerce and Labor, is extended to
the 15th of August next, inclusive.
9. The manifestations which foreign companies may present shall
be received, and these companies shall have at their disposal
the entire time required for denouncement procedures, for the
purpose of organizing subsidiary or allied companies to which
shall be granted titles to the claims denounced, thereby
observing the provisions of Article 27 of the present
Constitution, which expressly states that concessions for the
exploitation of the natural resources of the subsoil, shall be
granted only to persons or companies organized under the laws of
Mexico.
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III. Decree of July 8, 1918, Containing Regulations Governing
Article 14 of the Decree of
February 19, 1918
10. The date beginning with which oil claims may be denounced on
free land, to which reference is made in Article 1 of this
decree, is changed also to August 15 next, inclusive. The
corresponding changes of the dates stipulated in the other
articles of this decree are also made, taking into account the
extension of fifteen days more granted for the presentation of
manifestations and for the denouncement of claims.
11. With reference to the provision in Article 6 of this decree
and in a manner analogous to that indicated in Article 5, that
land shall be declared to be free which may have been covered by
a manifestation but which may not have been denounced by the
party making the manifestation, who is entitled to preference,
within two months following the date of presentation of the
declaration to the Department of Industry, Commerce and
Labor.
12. Article 30 shall be modified in the sense that the Department
of Industry, Commerce and Labor may pardon any faults incurred
by the tardy denouncer, covered by Article 26, when satisfactory
proof is presented to show that such faults were due to reasons
of force majeure.
13. The community lands referred to in Articles 34 and 35 of this
decree, are those which up to May 1, 1917, had not been leased.
Those which may have been legally leased may be denounced by the
last cessionary and other middlemen, on condition that they
shall previously have been covered by manifestation. Article 34
shall be modified in this sense.
14. Article 43 shall be modified as follows:
The concessionaires may at any time request a reduction
in their claims; the claims of which they are relieved
shall be staked off and new titles issued to cover the
same, canceling the previous titles. The new titles
shall not in these cases be subject to the title
tax.
15. The concessionaire of a claim on ground which has not been
leased, shall pay the tax prescribed in Article 4 of the decree
of February 19, 1918; that is, five pesos yearly per hectare and
5 per cent of the actual production of the wells drilled within
the claim, it being well understood that the rental shall be
paid even though the claim is not operated.
16. A fine shall be imposed for failure to comply with the
obligations prescribed in Article 47 of from 50 to 1,000 pesos,
according to the gravity and frequency of the offense of
non-compliance with these obligations, this without prejudice to
the right of the Department of Industry, Commerce and Labor to
have the land staked out and the corresponding plans made, at
the expense of the concessionaire of the claim.
17. The concessionaires shall also be subject to a fine of from
50 to 1,000 pesos, depending on the condition of the claim, for
failure to comply with the obligation provided for in Article 48
of this decree.
18. Article 50 shall be modified in line with the new reading of
Article 43.
19. Failures to comply with the obligations covered by Articles
47 and 48, shall no longer be considered as a cause for
cancelation, and such failures shall be penalized as
hereinbefore indicated, when such failures are not due to
reasons of force majeure, duly proven.
Article 53 shall be changed in this sense.
IV. Decree of July 8, 1918, Which Adds to Fraction 101 of Article 14 of
the Federal Stamp Tax Law of 1906
20. The title tax fixed by the decree stated shall be reduced to
three pesos per hectare.
21. In payment of the title tax, the credits which the petroleum
companies have against the Mexican Government under the loans
they have made to it for the Panuco River dredging work, shall
be accepted.
Mexico, the twenty-ninth day of July, one thousand nine hundred
and eighteen.
Secretary of Industry, Commerce and
Labor,
A. J. Pani
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rubric]
Undersecretary of the Treasury and Public
Credit,
Rafael Nieto
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