812.6363/476

The Consul at Tampico ( Dawson ) to the Acting Secretary of State

No. 716

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.]

Claude I. Dawson
[Enclosure 1—Translation]82

The Mexican Acting Secretary of Industry, Commerce, and Labor ( Vasquez Schiaffino ) to the Mexican Acting Secretary of War and Navy

Subject: He is advised of the resolution of the Citizen President of the Republic to suspend the drilling of oil wells which is being carried on by some companies without permit from the Executive Power. It is requested of him that the military forces lend their aid to the petroleum inspectors with the purpose of suspending such operations and there are suggested to him the means and form in which the procedure must be carried out in cooperation with this Department.

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 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], in all justice and until the petroleum law is issued by Congress, has refused to different companies and individuals who find themselves in the circumstances above stated permits to drill with the purpose of extracting oil.

But some oil companies, disobeying the general dispositions of the Government, and even against the expressed and definite prohibition [Page 602] of this Department, dictated as the result of a resolution of the Citizen President of the Republic, have begun to drill wells to extract oil from the subsoil of the lands of which they are the owners and of those which they have under lease in the regions of Tepetate and Chinampa, of the Cantones of Ozuluama and Túxpam, in the State of Vera Cruz.

In order to prevent at once such disobedience and violation of the dispositions now in force relative to this matter, the Citizen President of the Republic has deemed proper to resolve that use be made of the public force, and with that object in mind he has seen fit to direct that this Department communicate with the Department of War and Navy in your very worthy charge, as I have the honor of doing today, requesting the assistance and aid of the Federal forces which operate in the Huasteca Veracruzana, that the operations now being unlawfully carried on may be suspended and their continuation prevented.

With this object in view, this Department begs to suggest to you the following:

1.
That immediately and by telegraph you kindly issue your orders to the Chief of the Military Operations in the Huasteca Veracruzana, that he arrange with the Chiefs [of Inspectors] of the Agencies of Petroleum in Tampico and Túxpam, whose offices are located at Calle de la Morena Number 20, and Avenida Hidalgo Number 34, Túxpam, Ver., in order that one or two petroleum inspectors, employes of this Department, shall go, on the date agreed on, to the regions of Tepetate and Chinampa, and those other regions where drilling of wells might be in progress without due authorization from the Federal Executive. The said Agencies already have knowledge of the places where these operations must be suspended.
2.
That the said Chief of the Military Operations in the Huasteca issue his orders to the respective chiefs of the forces that guard the camps of Tepetate, Chinampa, Juan Casiano, Naranjos, etc., that with the escort which they may deem sufficient they accompany the petroleum inspectors commissioned for this purpose to the different places where the rebel companies are conducting operations related to the petroleum industry without due authorization and that they proceed to suspend immediately such operations.
3.
That the said petroleum inspectors, in accordance with the instructions already given them by this Department, make out a record or act of the suspension of such operations, which they will sign in company with the Military Chiefs that accompany them and assist in the suspension of the operations. Of said records copies will be sent to that Department in your worthy charge as well as to this Department.
4.
The Military Chiefs that assist in the suspension of the operations being carried on without due authorization, or those who may act for them in the command of the forces of the different regions, will keep guard of the camps and avoid and prevent the suspended operations from being renewed until this Department advises the Department of War and Navy that the operations may be resumed. [Page 603] and that in turn issues the corresponding orders to the military authorities entrusted with the fulfillment of this resolution of the Citizen President of the Republic.

Thanking you in advance for the orders and dispositions which you may kindly dictate in order to carry out this Accord of the Citizen First Magistrate of the Nation, I take pleasure in reiterating to you the assurances of my attentive consideration and particular appreciation.

Constitution and Reforms. Mexico, May 16, 1919.

The Subsecretary in Chargé of Office,
J. Vasquez Schiaffino
[Enclosure 2—Translation]83

Instructions Issued by the Department of Industry, Commerce, and Labor to the Chiefs of Inspectors of the Agencies of Petroleum in Tampico and Túxpam, May 17, 1919

In order to make clear to you all that relates to the operations which must be suspended, we wish to state that they include all those which deliberately have as their immediate object the drilling of oil wells, the installation of pumps and casings for transportation of oil and tanks for its storage, but not comprising the works which are preparatory to the establishment of refineries, pump stations, or storage or pipe lines for the installation of which those interested may be endeavoring to secure the appropriate authorization of the Government.

Finally, we recommend to you that in the records to which Clause 3 of the resolution of the Citizen President84 refers, there should be stated with the largest number of details possible the state or conditions in which the operations were at the moment of being suspended,—this in order to be able to verify, in case it should become necessary, the fact that the operations were not continued after having been suspended.

  1. Not printed.
  2. Not printed.
  3. Substituted for file translation.
  4. Substituted for file translation.
  5. See paragraph numbered 3 of the preceding enclosure.