818.6363 Am 6/65
The Secretary of State to President Harding
The President: The undersigned, the Secretary of State, to whom was referred the Resolution adopted by the Senate on February 14 (calendar day, February 22), 1921, requesting the President, “if not incompatible with the public interests, to transmit to the Senate such data and information as he may have relating to the acquisition of what is known as the Amory oil concession to certain subjects of Great Britain in Costa Rica, the time and manner of the acquisition of such concession, its extent, and the present status of the controversy between the Governments of Great Britain and Costa Rica relative to the same, including particularly a copy of a letter—if such is in the possession of our Government—written by a British subject to a certain Doctor Urribo in Costa Rica, purporting to give certain facts relative to the acquisition of said concession; also such data and information as may be available touching another oil concession known as the Pinto–Greulich concession,15 the time and manner of its acquisition, its extent, and its present status. Secondly, such data and information as may be available relative to the visit of Mr. Bennett, [Page 653] British minister, to Costa Rica lately made, and the note which he dispatched to the Costa Rican Government demanding an adjustment of the Amory oil concession and certain other claims of British subjects,” has the honor to report as follows:
The several requests of the Senate embodied in Senate Resolution No. 460 of February 22, 1921, refer particularly to two contracts relating to petroleum rights in Costa Rica, namely, the Amory concession and the Pinto–Greulich concession. The two contracts refer to different areas; and it is understood that no conflict would exist between their respective provisions, if or when they are in effect. It is believed, accordingly, that, instead of following the order of the requests embodied in the Senate Resolution, it will conduce to a clear presentation of the subject to arrange information relating to the Amory concession in one section of this report and to gather corresponding information relating to the Pinto-Greulich concession in another and separate section.
A contract, known as the Amory Oil Concession, was signed on May 6, 1918, by the Minister of Fomento for the Costa Rican Government, and by Miguel D. Ferrer, attorney for Messrs. John M. Amory and Son of 52 Broadway, New York. The contract was approved by the Executive on May 7, 1918, referred to the Costa Rican Congress on May 14, 1918, and published in the Official Gazette on May 16, 1918. The contract was approved by the Congress of Costa Rica and by the Executive on June 25, 1918, and was published as a law of Costa Rica in the Official Gazette on June 26, 1918. This action was taken by the Costa Rican authorities during the so-called Tinoco administration.
The contract in question as set forth in the translation forwarded by the American Legation at San José on July 6, 1918,16 provides (Article II) that the concessionaire shall be entitled for a period of twelve years to investigate or cause to be investigated the territories in the provinces of Cartago, Alajuela, Heredia and San José with the object of discovering petroleum deposits, and shall have the exclusive right during such period and within such territory to locate and survey or cause to be located and surveyed the deposits which it desires to work, and during the life of the contract, which by Article XV is to remain in force for fifty years, to develop and exploit or cause to be developed and exploited the petroleum deposits within the territories granted and which may have been located, surveyed and explored by him or for his account.[Page 654]
By Article IV, of the contract, the concessionaire is granted the right to lay and operate pipe lines and pumping stations; to transport petroleum by land and by sea; to erect and operate refineries; to build and operate wells, acqueducts, roads, railroads, tramways, canals, wharves, lighthouses, warehouses, engineering and repairing shops, telephones, electric plants and transmission lines, as may be required or useful for the extraction, transportation and handling of petroleum and allied substances; to use and occupy the public roads and the vacant or national lands, as may be required for such purposes, but without prejudice to third parties; to use the rivers, streams and water courses for the installation and operation of hydraulic and electric plants, as required for the purposes of the undertaking; and to cut timber and use building material on the national lands for the same purpose.
Article VII of the concession fixes the royalty to be paid the Government at 25 cents per metric ton on hydrocarbons exported or sold, and by Article VIII, the concessionaire agrees to furnish oil for the railways of the Government and available natural gas for the public buildings.
By Articles X and XII, the concessionaire is exempted from duties and taxes except “National taxes payable by the public in general.”
Under Article XI, the concessionaire is granted the right to mine, and to use, for the purposes of the concession and to send and export, any coal which he may find within the territories granted.
Article XV provides that at the end of the before mentioned period of fifty years the “deposits and sources and all national lands occupied in accordance with this contract, shall revert to the Republic as its property.” It is, however, provided by this Article that, if at the expiration of the fifty year period the Government desires or intends to grant further petroleum concessions in the areas comprised in this contract, the concessionaire shall have a preferential right to a new contract. The concessionaire is given by Article XVII the right to transfer the concession to a corporation to be known as Central Costa Rica Petroleum Company and undertakes to organize such corporation within four years from the official publication of the concession.
A copy of a translation of the contract as published in the Official Gazette of June 26, 1918, is enclosed with this report.17
With respect to the request in the Senate resolution for a copy of a letter, if such is in the possession of this Government, written by a British subject to a certain Doctor Urribo in Costa Rica, purporting to give facts relative to the acquisition of the Amory Concession, [Page 655] it may be said that the Department of State has in its files what purports to be a copy of a letter addressed by one Saturnine Restrepo to a certain Doctor Eduardo Uribe, dated May 21, 1918. This letter appears to have been mailed while the granting of the Amory Concession was under consideration in the Costa Rican Congress. While it is not known that Saturnino Bestrepo was at the time or is now a British subject, it would seem probable that the letter a copy of which is in the files of the Department of State is the one referred to in the Senate resolution. The Department of State understands that the letter was published and widely circulated in August, 1919, in a pamphlet entitled “Which”, prepared by Lincoln G. Valentine, but since it is a private communication and not in the possession of this Government, it has not seemed proper to attach a copy to this report.
The interests that are now in control of the Amory Concession would seem to be indicated by the following excerpt from an address by Mr. D. Elliott Alves, President of the British Controlled Oilfields, Ltd., at a general meeting of the shareholders of the company at Montreal, Canada, December 28, 1920, as published in the London Times of January 6, 1921:
“The Government concession granted by this Republic (Costa Rica) covers approximately 6000 square miles. Drilling outfits have already reached Port Limon for distribution to drilling sites, but the considerable drilling operations and development which had been planned have been seriously prejudiced by the action of the present Government, who have issued a decree annulling the concessions which were granted under the former Government. It is believed that foreign oil interests have intrigued to this end, and the action of the present Government has necessitated the stoppage of all operations for the time being. The company are vigorously defending their position, and the directors are gratified to be able to report that the company are receiving the powerful support of the British authorities, and as the directors are advised by our local representatives that the action of the present Government is entirely unconstitutional, it is believed the Company’s interests will not be seriously prejudiced.”
It may also be of interest in this connection to quote certain published statements made by Mr. D. Elliott Alves relative to the organization and policy of the British Controlled Oilfields, Ltd:
“Machinery has already been created, as I had occasion to mention at a previous meeting, which places the whole of the oil supplies which may be obtained from this vast chain of territories, should they each, or, in fact, any number of them, prove of the value anticipated, absolutely under British control.
“A voting trust has been created, which will be permanent, and the result of which will be that, no matter who may acquire controlling share interests, however financially powerful they may be, can ever divert a single barrel of oil from national or Imperial requirements. [Page 656] For all time in some instances, and in others for the full life of the concessions, adequate supplies of oil, we may confidently assume, should the fields develop at the ratio we are led to believe they will, will be at the disposal of either the Imperial Government or the nation.”
On July 20, 1920, the Costa Rican Congress passed an act declaring null and void all acts of the Tinoco Administration, with certain exceptions, between January 27, 1917, and September 2, 1919. The act was repassed over the President’s veto on August 11, 1920, and, embodied in Decree No. 41, dated August 21, 1920, was published on August 22, 1920, in the Official Gazette.
The circumstance that the persons to whom the Amory concession was nominally granted were of American nationality raised the question of the support which might properly be given to the undertaking by this Government. The company holding the Amory concession, in its communications to the Department of State, persistently concealed the participation of foreign interests in the project. The Department of State, however, declared publicly some time prior to the negotiation of the Amory concession that it would not consider any claims of American citizens arising from a business transaction with the Tinoco Administration as worthy of its diplomatic support.18 The attitude assumed by the Department of State toward the Amory concession was based upon its general policy toward a usurping, revolutionary regime in Costa Rica which was never recognized by this Government and which passed out of existence on September 2, 1919.
With respect to the present status of the discussion between the Governments of Great Britain and Costa Rica relative to the Amory Concession, it may be said that there was published in the Diario Del Comerdo of San José, in the issue of August 27, 1920, the text in Spanish of various notes exchanged between representatives of the British Government and officials of the Costa Rican Government. Notes from the British Consulate at San José on the subject were dated July 13, 1920, August 11, 1920, August 24, 1920, and a note from the Minister for Foreign Affairs of Costa Rica was dated August 19, 1920. A note on the same subject from the British Consulate at San José dated September 20, 1920, and the reply of the Costa Rican Government, dated September 29, 1920, were published in the Official Gazette of October 5, 1920. It is understood that the representatives of the British Government in Costa Rica addressed further communications on the same subject to the Costa Rican Government on December 27, 1920, January 9, 1921, and February [Page 657] 24, 1921; and that, on February 14, 1921, the Minister for Foreign Affairs of the Costa Rican Government and the British Minister at San José signed an agreement providing that certain questions relative to the Amory Concession should be submitted to the arbitration of the Spanish Minister at San José; that the decision of the arbiter should be made within thirty days following the agreement, and that the agreement should be ratified by the Costa Rican Congress within fifteen days. The question proposed for submission to arbitration is understood to have been stated substantially as follows:
“If the declaration of nullity of said contract should be upheld according to Clause ‘B’ of Article I of the law dated August 21, 1920, or if, in accordance with the fundamental charter of Costa Rica and the established principles of international law, this invalidity should not be held to apply to an agreement made in good faith, since the declaration of nullity is contrary to the constitution of the Republic.”
The agreement appears to have been rejected by the Costa Rican Congress on March 7, 1921, by a vote of 24 to 10.
It is understood that Mr. Percy Bennett has been appointed British Minister at San José; that he arrived at San José on December 4, 1920, and that he assumed his official functions on December 6, 1920.
Various notes addressed by British representatives at San José to the Costa Rican Government have been published in the Official Gazette and are hereinbefore referred to in connection with the question of the present status of the controversy between the Governments of Great Britain and Costa Rica relative to the Amory Concession.
The contract known as the Pinto–Greulich Concession was signed on September 23, 1915, by Dr. Enrique Pinto F., Minister of Fomento for the Costa Rican Government, and Dr. Leo. J. Greulich of New York. The contract was approved by President Alfredo Gonzales and referred to the Costa Rican Congress. After a prolonged discussion and the insertion of many modifications, Congress approved the modified contract on August 12, 1916.
The legislative decree No. 51 embodying the approval of Congress was sent to the Executive and on August 21, 1916, the Executive returned the contract disapproved.
It appears that the President’s veto message was signed by him alone, and did not bear the signature of the Minister of Fomento. For this reason it was contended by the President of Congress, in a [Page 658] letter to the President of the Republic, on September 5, 1916, that the veto was void, and therefore the Legislative Decree No. 51, had become a law without executive approval. This view was combated in a letter from the President of the Republic to the President of Congress, dated September 6, 1916. (Official Gazette, No. 5, 8, September 7, 1916.)
On October 28, 1916, the President of the Republic issued Executive Decree No. 5, calling a special session of Congress for November 6, 1916, to consider among other things, the veto in question. (Official Gazette, No. 101, October 29, 1916).
Congress met under this call, and on November 6, 1916, received a message from the President stating, in effect, that he considered the contract in question to be dangerous for the future of the Nation and failing to meet its true interests, but added that if Congress did not concur, its “constitutional ratification” would be the “last word in the matter.” (Official Gazette, No. 108, November 7, 1916).
The President’s message was referred to the same Committee which reported on the contract, and that Committee made a further report concluding that said Legislative Decree No. 51, had become a law of the Republic, without the Executive approval. The Committee’s conclusion seems to have been based upon the absence from the veto of the signature of the Minister of Fomento. (Official Gazette, No. 109, November 8, 1916). The last-mentioned report of the Committee was confirmed by Congress on November 10, 1916, by a vote of 30 to 4. The contract, after this second vote of Congress, was duly published in the Official Gazette, No. 113 of November 12, 1916.
The contract in question provides (Article X) that the concessionaire shall have the exclusive right for the term of four years from the publication of the contract in the Official Gazette to explore or cause to be explored all oil deposits in the Provinces of Limon, Puntarenas and Guanacaste and during such period and within such territory to locate and measure or cause to be located and measured the deposits which he desires to work during the term of the contract and that the presentation to the Minister of Fomento during the year following the publication of the contract of plans of surveys would reserve to the contractor the deposits comprised within the limits of such surveys, not to exceed, however, a total area of 4,000 square kilometers, and that the contractor should have the exclusive right to exploit all such deposits and that the sub-soil rights to the deposits should be his exclusive property during the term of the contract. This article further provides that the surface rights should be retained by the owner, but, “with the exception of those which may be necessary for the enterprises of the contractor.”[Page 659]
The term of the contract is set forth in Article XV as 50 years from the date of the publication of the law approving the contract, at the end of which period it is provided that the “deposits, springs and national lands which may have been occupied” will become the property of the State. It is, however, provided by this Article that if at the expiration of the 50 years the contractor should desire to continue the exploitation he shall have a preferential right to a new contract and to continue to occupy the national lands.
Article XVI of the contract obligates the contractor to organize within a year a corporation to be called “the Costa Rica Oil Corporation” and to transfer to that company all the rights and privileges of the contract. He is prohibited, however, by this Article from making such a transfer to a foreign State or Government, and in Article XIII it is provided that “the present contract will become extinct and the Government can so declare it affirmatively [administratively]” inter alia, “if it be transferred, be it by means of sale, lease, mortgage, or any other means, to any of the syndicates at present existing, or which later on might exist, for the exploitation of commerce of petroleum, excepting with the previous consent of the Executive Power”.
In addition to an obligation to invest certain sum of money within specified periods and to develop certain portions to guarantee fulfillment of his obligations, the contractor promises in Article V to pay to the Costa Rican Government and to private persons who have ceded him their rights 15¾ per cent of the value of the substances extracted from the soil by virtue of the contract, and it is set forth that this value shall be the average price obtained by the company during each year for the crude product at the mouth of the well. The contractor agrees to furnish free of cost, crude petroleum which the Government may desire to use in operating existing Government railroads, and gas for the lighting of Government and municipal buildings and schools.
A copy of a translation of the contract, as published in the Official Gazette of November 12, 1916, is enclosed with this report.19
Following the official publication of the law approving this contract, a contract was signed on December 23, 1916, under which the interests represented by Mr. Henry F. Sinclair undertook to acquire the shares of Mr. Lincoln G. Valentine and his associates in the Costa Rica Oil Corporation, which had been formed and had taken over the contract as provided therein. This contract was based on the proviso that legal opinion should hold that the concession was valid in all respects. Apparently satisfied on this point, the Sinclair interests thereafter organized the Sinclair Central American Oil [Page 660] Corporation for the purpose of carrying out the agreement of December 23, 1916, the concession remaining vested in the Costa Rica Oil Corporation.
It is understood that steps were immediately taken to begin exploration in accordance with the terms of the contract. A complete geological expedition, consisting of twenty technical men and the necessary laborers, was organized; and this expedition, in charge of Dr. Donald F. MacDonald, formerly geologist of the United States Geological Survey and of the Panama Canal Commission, began work in Costa Rica on March 7, 1917. It is also understood that during the year 1917, in addition to the geological work, the company caused eight pits to be sunk in the concession area from which small amounts of petroleum were collected, and that, in July, 1917, the company, having received preliminary reports from its geologists, commenced to assemble material and supplies for the purpose of drilling a deep well. For about a year, the War Trade Board, in connection with its control of exports during the war, prevented the exportation of the necessary drilling equipment and supplies; but as soon as the exportation order was obtained materials and supplies appear to have been shipped to Costa Rica and to have arrived in that country about December 15, 1918. The first well was commenced at Talamanca near Uscari on March 8, 1919. This well was commenced eight months before the expiration of the time required under the terms of the concession for the commencement of exploitation work. A small amount of oil was found in this well at a depth of 618 feet and it was drilled to a depth of 1100 feet when the casing collapsed. Such material as could be saved was moved to a nearby spot where a second shaft or well was started on June 1, 1920, which was drilled to a depth of 1318 feet when the casing again collapsed. A small amount of oil was encountered in this well at 688 feet.
Steps were immediately taken to select a new site and on November 27, 1920, this was fixed at Cahuita. The company states that it has completed the construction of a camp at this locality.
The company reports that it has completed the survey of the 4000 square kilometers which it is entitled to retain and has notified the Costa Rican Government that it relinquishes all rights in the Provinces of Puntarenas and Guanacaste and that the area it retains occupies a belt along the Atlantic coast extending from the Panaman to the Nicaraguan boundary.
The contract stipulates that the contractor must expend during the first two years, that is, between November 12, 1916, and November 11, 1918, a sum of 200,000 colones in exploration and during the next three years, which period expires November 11, 1921, the sum [Page 661] of 250,000 colones in exploration or exploitation. The company reports a total expenditure of 308,009 colones during the first two years, which expenditure has been acknowledged by the Costa Rican Government by the return of the bond deposited by the company. Between the beginning of the second period and October 1, 1920, the company reports expenditures for exploration and exploitation of 1,580,898 colones.
On October 25, 1920, the Minister of Fomento addressed a communication to the Costa Rica Oil Corporation calling upon the company to submit a general and complete report of its operations and negotiations since November 12, 1916, suggesting that the acquisition of the control of the Costa Rica Oil Corporation by the Sinclair Central American Oil Corporation was a violation of the contract, notwithstanding the fact that the ownership of the concession was and is vested in the Costa Rica Oil Corporation, and indicating that the Government believed that the requirement that the company begin exploitation within three years means that the company must produce and market Costa Rican oil within that period. This communication was published in the Official Gazette of October 30, 1920. The reply of the Costa Rica Oil Corporation to this communication, dated November 8, 1920, was also published in the Official Gazette.
There was published in the Official Gazette of December 16, 1920, a Resolution passed by the Costa Rican Congress on August 16, 1920, recommending to the Government that it begin an action as soon as possible in the Costa Rican courts for the cancellation of the Pinto-Greulich contract.
It may be added that the Department is informed that a controversial question has arisen between the owners of the Pinto Greulich Concession and certain other American concerns regarding the ownership of subsoil products in lands which fall within the limits of the concession, these subsoil products being claimed by these concerns under grants said to antedate the concession.