The Consul at Tampico (Dawson) to the Acting Secretary of State
[Received June 25.]
Sir: I have the honor to refer to my telegram of June 9/4 P.M.80 advising receipt by General Caesar Lopez de Lara of an order to stop drilling operations on wells started without first securing the requisite permit from the Mexican government.
I now beg to enclose herewith, Spanish Text and English translation of the official document under which this order was issued. It is believed by the oil companies that the Mexican government is making this move as the first overt act in its effort to carry out the provisions of Article 27, and as an earnest of the Government’s intention to put said article into full effect despite all contrary protests. The Companies are well aware of the declarations made from time to time by Mexican officials to the effect that the government has no intention to confiscate the properties of foreigners. No one here is deceived by these promises and the specious declarations of good intention conveyed therein, and the referred to order is now submitted as concrete evidence of the truthfulness of this assertion.
Please refer to the second paragraph of the Spanish text, translation of which is as follows:—
“Inasmuch as the political constitution now in force declares that the beds and deposits of oil which are found in the subsoil of the national territory are the property of the Nation; and as the said Constitution denies to the foreign companies the right to obtain [Page 600] concessions to exploit those mineral combustibles until they organize themselves according to Mexican laws; and finally, as the generality of the foreign companies have not been willing to subject themselves to the dispositions contained in the decrees of the Executive relative to the taxes on oil lands and leases; this, (the Executive Power, Tr.) in all justice and meanwhile [until] the Petroleum Law is issued by Congress, has refused to grant permits tending to drill with the purpose of extracting oil to different companies and individuals who find themselves in the circumstances above stated.”
It seems to me the real policy of the Mexican government is clearly and concisely stated in this paragraph, and there is little reason to doubt the intention of that government to force recognition of said obnoxious article and its provisions, against which the several oil companies as well as our own and other governments protest vigorously. In this order is found documentary evidence which specious verbal promises cannot nullify.
The immediate effect on some companies of the cessation of drilling will be to seriously hamper their business. One company in particular which has contracts for Mexican oil with the United States Shipping Board, advises that recent developments in the oil fields clearly indicate the approaching exhaustion of the most prolific of the oil districts—that of the Tepetate field. This company’s production comes from two wells in that field; one of these wells, I am told, has turned to salt water, and the other is in such close proximity that they fear similar development within a very short time. To protect themselves against possible exhaustion they applied for permit[s] to drill other wells, which were not granted because the Company had not complied with the regulations emanating from Article 27.
Precisely for the same reason several other companies are drilling wells without government permits. In no case has this been done arbitrarily or with the idea of questioning the government’s legitimate police powers, but only in pursuance of their policy to do everything they believe they are legally entitled to do, and to emphasize their non-recognition of and unwillingness to comply with any and all governmental acts or dispositions based on and growing out of Article 27 of the Constitution of 1917 insofar as said acts or dispositions refer to properties acquired prior to May 1, 1917.
In pursuance of this policy they concede the government’s right to require permits as a police power and on that basis duly applied for same; but when said permits were withheld on the ground that the applicants had not recognized Article 27 of the Constitution, they believed their rights were infringed and acted accordingly, proceeding with development work as necessity arose.[Page 601]
While dictating the above, word comes that military forces have actually shut down work on a well being drilled at Panuco by the Mexican organization of the Atlantic Refining Company, (an American concern); and that other troops have gone south to carry out the order in the southern oil fields.
Here is an example of the use of government troops in the performance of police powers against foreign interests. Requests for guarantees by the use of government military forces against bandits and banditry are evaded on the score that soldiers cannot be used to perform police duties—see my despatch 689 of May 8, 1919.81
Doubtless the Department is already in receipt of complaints from the main headquarters of American oil companies in the United States against this new act of the Mexican government.
I have [etc.]