Papers Relating to the Foreign Relations of the United States, 1920, Volume III
812.6363/667
The Chargé in Mexico ( Hanna ) to the Secretary of State
[Received April 29.]
Sir: With reference to the Embassy’s telegram No. 79, dated March 20, 4 P.M., summarizing a presidential decree authorizing the granting of concessions for developing oil lands on Mexican national territory, such as federal zones, banks and beds of rivers, streams, lakes and lagoons, I have the honor to enclose, herewith, [Page 206] copy of the decree in reference as published in Diario Official of March 19, 1920, together with a translation of the same. It has not been practicable to furnish the Department with this translation at an earlier date but a translation was forwarded to the Department by the Consulate General in this city with its despatch No. 2010, of March 24, 1920.38
I have [etc.]
Executive Decree of March 12, 1920, Establishing Regulations for the Granting of Petroleum Concessions on National Territory
Considering:
- 1.
- That according to the postulates of article 27 of the Political Constitution in force, the dominium directum over petroleum and other hydrocarbons, solid, liquid, or gaseous, which may be found on the surface or in the subsoil of the national territory, vests in the Nation;
- 2.
- That in the federal zones, beaches and bottoms of seas, rivers, creeks, lagoons, estuaries, and marshes, the Nation has dommium directum over the surface as well as over the subsoil;
- 3.
- That the regions now recognized as oil-bearing are crossed by numerous rivers, creeks, estuaries, lakes, and marshes under federal jurisdiction, the petroleum exploitation of which, when granted to individuals or to companies organized under Mexican law, is capable of producing large revenues for the National Treasury from rents and a just and equitable participation as stipulated in the concession;
- 4.
- That such petroleum regions are under intense exploitation, to such an extent that the rapid exhaustion of their oil deposits is certain, as is occurring in the region known as “Chinampa” without yielding to the Nation the just returns which would have belonged to it, had there been permitted the drilling of wells in the federal zones of rivers, creeks, estuaries, etc., under federal jurisdiction which cross the same in all directions;
- 5.
- That, moreover, according to paragraph 6 of article 27 of the Political Constitution in force, the Federal Government is empowered to grant concessions covering deposits of petroleum and other hydrocarbons, solid, liquid, or gaseous, provided that regular work for the exploitation thereof is conducted; and
- 6.
- That petitions which have been presented for drilling in the federal zones of rivers, creeks, etc., in the region now recognized [Page 207] as petroleum-bearing, are already very numerous, and that it is deemed necessary that such petitions should receive consideration in behalf of the interests of the Public Treasury as well as of the petitioners;
Therefore, the Department of Industry, Commerce, and Labor is authorized to grant such concessions in the name of the Executive, subject provisionally, and until such time as the Congress of the Union shall enact the petroleum law, to the following
General regulations which shall govern concessions which this Department of Industry, Commerce, and Labor shall grant for the exploitation of petroleum and other hydrocarbons which may exist in the subsoil of the federal zones, beaches and bottoms of rivers, creeks, lagoons, estuaries, etc., of the national territory:
I. Concessions for the exploitation of petroleum and other hydrocarbons in the federal zones, beaches and bottoms of rivers, creeks, estuaries, lagoons, etc., may be granted only to Mexicans by birth or naturalization or to companies organized under Mexican law.
II. The foregoing requirement being fulfilled, the following order of preference shall apply in obtaining these concessions:
- 1.
- Those legally authorized to exploit the petroleum claims bordering on the federal zones.
- 2.
- The owners of the adjoining land, when concession for the exploitation of the subsoil of such lands has not been granted.
- 3.
- The exploiters or owners of lands located less than two kilometers from the federal zone, who can show that they possess an area sufficient to establish the storage tanks and other installations necessary for the exploitation of the subsoil in the portion of federal zone granted to them.
III. The duration of concessions shall be 10 years.
IV. The petitions for obtaining these concessions shall be published and handled in the same manner as that established for the denouncement of petroleum lands.
V. As regards concessions requested by companies or individuals who do not possess the right of preference under the foregoing articles, the maximum length of federal zone to be granted to them for exploitation shall not exceed 10 kilometers.
VI. Federal-zone strips respecting which there may exist some contract, concession, or legitimate permission for the temporary occupation thereof, shall not be granted for exploitation.
VII. Concessionaires shall present within a period of six months from the date of the concession a plan of the zone granted in accordance with the limits fixed in the concession.
[Page 208]VIII. The concessionaires shall drill, within five years from the date of their concession, at least one well for each two kilometers, or fraction of over one kilometer of zone granted. The first of these wells shall be completed within the first year of the life of the concession.
The obligation of the concessionaires, in respect to each of the wells mentioned, shall be discharged with the completion of one productive well, or with the drilling of one well to the mean depth of the productive wells in the immediate vicinity.
IX. The location of wells and of the installations needed for the drilling thereof, shall be subject to the approval of the Department of Industry, Commerce, and Labor. All installations shall be temporary in character, and they shall be removed as soon as possible without injury to the progress of the work.
X. Concessionaires shall pay—
1. An annual rental of 100 pesos per kilometer, or fraction thereof, of federal zone granted;
2. A share in the daily production of petroleum taken from the wells drilled in the zone granted, which shall vary as follows:
| For the first 1,000 cubic meters or less of daily production | 5% |
| Over 1,000 and up to 2,000 cubic meters | 10% |
| Over 2,000 and up to 5,000 cubic meters | 15% |
| Over 5,000 cubic meters | 20% |
To determine the share corresponding to each month, an estimate will be computed of the average daily production during that month.
XI. The Government is entitled to exact its share either in cash or in kind. For the payment in cash, the petroleum shall be valued at the place of production.
If the Government desires to receive its share in kind, the concessionaires shall be obliged only to hold it in storage in their tanks for 15 days following the day of the settlement.
XII. Should the concessionaires not extract during a given month an amount of petroleum equivalent to 50% of the producing capacity of their wells, the Government may extract for its account the share to which it is entitled, based on the said producing capacity.
XIII. For the foregoing purpose, the Government inspectors shall measure each month, in the presence of employees of the concessionaires, the producing capacity of the wells.
XIV. The concessionaires shall guarantee the fulfillment of their obligations by means of a deposit of 1,000 pesos for each kilometer or fraction over 500 meters, of federal zone granted. This deposit [Page 209] shall be returned to them when the first productive well is brought in, which shall serve, as well as all others which may thereafter be drilled, as a guaranty for the fulfillment of their obligations.
XV. The time limits stipulated in the concession shall be suspended in case of accident or of force majeure, which may directly and absolutely impede compliance with the obligations stipulated; and the Department of Industry, Commerce, and Labor may in such case extend such periods for the time it may consider necessary.
In order that concessionaires may avail themselves of this grace, they shall present evidence to the said Department, with necessary proofs, respecting the accident or the force majeure which may have prevented or prevents compliance with their obligations. Notice and proofs to the Department regarding the case of force majeure shall be presented within one month from the date of such accident.
XVI. Concessionaires shall be entitled to establish pipe lines to carry the petroleum from the wells to storage stations, as well as to establish, along the waterways comprising the zone granted, the necessary wharves for the exploitation, under such conditions as may be established by the Departments of Communications and Public Works, of Hacienda and Public Credit, and of War and Marine.
XVII. The Department of Industry, Commerce, and Labor, through its inspectors, may examine the books relating to the exploitation of the wells covered by these concessions whenever it may deem expedient.
XVIII. In case an imperious public necessity demands, the concessionaires obligate themselves to sell to the Federal Government the production of their wells at a price to be fixed in the manner stipulated in article XL
XIX. In respect to all that is not specially provided for in these regulations, concessionaires shall be subject to all the laws, regulations, and administrative rulings governing the petroleum industry.
XX. Concessionaires shall carry on the exploitation of the federal zones, without prejudice to the navigation and common use to which they may be destined. They shall be obligated to pay indemnification for injuries occasioned, under the federal laws governing the matter.
XXI. In no case may concessionaires mortgage, transfer, or in any manner make over the concessions, or any of the rights and privileges therein contained, to any foreign company, government, or state, nor admit them as partners, any transaction of this nature which may be made being null and void. Neither may they transfer the concessions to any individual or corporation, without the previous consent, in writing, of the Department of Industry, Commerce, [Page 210] and Labor, this being a permanent obligation for all the companies which might later acquire the rights granted by the concessions.
XXII. Concessionaires shall have the preferred right, upon the termination of the life of their concession, to renew the same for the time and under the conditions which the Federal Executive may deem expedient.
XXIII. The Department of Industry, Commerce, and Labor shall punish the offenses of concessionaires which do not merit the annulment of their concessions, with fines varying between 100 and 1,000 pesos, according to the gravity and frequency of the offenses.
XXIV. The Department of Industry, Commerce, and Labor may administratively declare the annulment of the concessions for any of the following reasons:
- 1.
- Because at the expiration of the life of a concession the same is not renewed;
- 2.
- Because concessionaires do not make the payments prescribed in article X of these regulations;
- 3.
- Because they do not drill within the periods and under the conditions stated in article VIII;
- 4.
- Because they ask protection from a foreign government, transfer the concession to it, or admit it as a partner. In any of these cases, the concessionaires shall lose to the Nation all their installations;
- 5.
- Because, in the exploitation of the zone granted, they defraud in any manner the fiscal interests.
In case of annulment, concessionaires shall lose the guaranty deposit, in case it shall not have been returned, as well as the wells being drilled and those that are productive, which they shall deliver to the Government for immediate utilization.
The Department of Industry, Commerce, and Labor, before making the declaration of annulment, shall give to the interested parties a period of not less than 60 days for their defense.
XXV. The stamps to be affixed to the concessions shall be paid for by the concessionaires.
Constitution y Reformas.