812.6363/6333
Memorandum of Conversation, by the Under Secretary of State (Welles)
The Mexican Ambassador called to see me this afternoon at my request.
The Ambassador commenced the conversation by telling me that he had had two recent interviews with Mr. Patrick J. Hurley in representation of the five Mexican companies affiliated with the Sinclair Company and was to have a further meeting later this afternoon. The Ambassador told me that Mr. Hurley had suggested carrying out the expressed intention of the Sinclair group to undertake negotiations directly with the Mexican Government and to thus separate itself from the Standard and Shell companies, and that the Sinclair group would be willing to accept 30,000,000 barrels of oil from the expropriated properties as full compensation for the value of the Sinclair properties expropriated and as part of the same deal would agree to purchase from the Mexican Government 15,000,000 barrels of oil from the Mexican Government oil fields. The arrangement suggested by Mr. Hurley further contemplated that the 30,000,000 barrels of oil to be paid by the Mexican Government would be paid [Page 711] at the rate of 10,000 barrels a day, increasing up to 40,000 barrels a day when and if the expropriated properties were so managed as to make this greater output possible. Mr. Hurley’s estimate as to the time involved during which such compensation would be made would range from seven to ten years.
The Ambassador told me that he had replied to Mr. Hurley that the amount of compensation in oil suggested by Mr. Hurley was altogether in excess of the value of the properties and had reminded Mr. Hurley that two of the five companies in question had offered some years ago to let the Mexican Government take over their properties for nothing inasmuch as they were alleged to be losing money at the rate of some $2,000,000 a year. The Ambassador had further pointed out to Mr. Hurley, he said, that inasmuch as oil was now selling at approximately one dollar a barrel, this would mean compensation to the Sinclair group amounting to $30,000,000, and would necessarily imply, at the rate of valuation claimed by the foreign companies, the payment of some $300,000,000 to the Standard Oil Company group which was very far in excess of what the Mexican Government believed the proper valuation of the properties of that group to be. The Ambassador finally said that Mr. Hurley agreed that the amount asked was for bargaining purposes and that they could reach an agreement providing for a lesser amount in the way of compensation.
The Ambassador then went on to say that the Mexican Government’s valuation of the foreign oil properties expropriated was nearing completion, and that although the Ambassador had believed that the valuation fixed by the Mexican Government was going to be unduly low, he was relieved to find that it would probably run about $100,000,000.
[Here follows a discussion of the agrarian claims. For portions of the memorandum dealing with this question, see page 660.]
As he was leaving the Ambassador said that three years ago when Mr. George Rublee, who had been in Mexico for some time as representative of the American bondholders group, had finally succeeded in reaching an agreement for resumption of payment on the foreign debt with the Mexican authorities and President Cárdenas had actually instructed the Mexican Secretary of the Treasury, Señor Suarez, to sign the agreement, Ambassador Daniels had gone to the Mexican Secretary of the Treasury to tell him that the Government of the United States was not interested in the agreement inasmuch as a large percentage of the bondholders were not American citizens and that the Government of the United States saw no reason why any payment should be made to the American bondholders for that reason. The Ambassador said that as soon as this information was given to President Cárdenas by Señor Suarez the instructions previously given to sign the agreement were revoked and the whole matter went by the [Page 712] board with resultant prejudice to the already seriously debilitated credit of the Mexican Government.