Papers Relating to the Foreign Relations of the United States, 1921, Volume II

812.6363/958

The Chargé in Mexico ( Summerlin ) to the Secretary of State

Mexico , September 2, 1921 .
[Received September 13.]

No. 4279

Sir: I have the honor to forward herewith a copy, in translation, of an article published in El Universal of September 1st which purports to be the report of, and a proposed law prepared by, a majority of the Joint Petroleum Committee of the House of Deputies on a proposed Organic Law for Article 27 of the Mexican Constitution.⁵⁶ The newspaper article states that this opinion will be presented at the first ordinary session of the Chamber of Deputies. The projected law approved by the Senate referred to in the enclosed opinion was transmitted to the Department as an enclosure to the Embassy’s despatch No. 1639 of December 3, 1918.⁵⁷

I have [etc.]

George T. Summerlin

[Enclosure—Translation]

Draft of Petroleum Law Prepared by the Joint Petroleum Committee of the Mexican Chamber of Deputies

Chapter I

petroleum property

Article 1. The following are properties under the dominio directo of the Nation and are subject to the dispositions of this Law:

I. The sources, springs and natural deposits of petroleum.

II. The hydrocarbons which are found in the subsoil or which escape to the surface of the land.

III. The natural deposits of ozocerite and asphaltum.

IV. All mixtures of hydrocarbons of the different groups which owe their origin to natural forces.

Article 2. The dominio directo of the Nation over the substances enumerated in the preceding article is imprescriptible and inalienable. Consequently, private persons, or societies, civil and commercial, formed in accordance with Mexican laws, will enjoy the right to exploit those substances without other limitation than that which public interest may impose.

Article 3. Exploitation of the subsoil will be done by virtue of concessions which will be granted in each case, consequent [upon] previous and appropriate denouncement.

Article 4. The petroleum industry is declared to be a public utility. The petroleum industry will be understood to be the extraction, collection and transportation and the commercial and industrial use of the substances mentioned in article 1.

Article 5. The following are not subject to denouncement:

I. Lands covered by concession-contracts granted by the Federal Government for the express purpose of petroleum exploitation, which contracts shall continue in force except in so far as they may be at variance with Constitutional precepts.

II. Lands in respect of which work of exploitation has been performed, prior to May 1, 1917.

III. Lands with regard to which contracts have been made prior to May 1, 1917, in accordance with law, with the express provision that such lands would be devoted to the exploitation of petroleum, provided that the beneficiaries shall have indicated, within the period of one year counting from the date of the enactment of this law, the portion of land which they desire to dedicate to the exploration and exploitation of petroleum, paying in respect of such portion of land the respective taxes; the remainder or undeclared portion remaining free.

Those holding legal titles in the cases cited in the three preceding sections will be empowered to exploit or to continue the exploitation of their properties, being subject to the other dispositions of this Law.

Article 6. For the period of two (2) years counting from the date of the enactment or promulgation of this law, owners of lands that are not embraced in the preceding article will have preference in respect of denouncements of petroleum properties. If, within the period mentioned, a third person shall present himself for purposes of denouncement, the Secretary of Industry, Commerce and Labor will give notice to the superficiary in order that he may exercise his right of preference within the period fixed by the regulation; in case such superficiary fails to exercise said right, the concession will be granted to the said third person making denouncement.

Article 7. The executive of the Nation is empowered to establish and to declare the portions of territory in which reserve zones should be created, after due ratification by the Senate. With respect to the subsoil which these zones embrace, no concession shall be granted for the exploitation of petroleum, if or until this shall be authorized by a new law.

Article 8. A petroleum property (fondo petrolifero) is the volume in indefinite depth, limited laterally by the vertical planes which pass through the boundaries of a continuous surface extension the form of which is such that it permits, at least, of the installation of a well and of a storage tank of 5,000 cubic-meter capacity, within the regulation distance from the boundaries, at the time the concession is granted. The extension of a petroleum property shall not exceed 2,000 hectares.

Chapter II

rights and obligations of the concessionaire

Article 9. The title which the Executive of the Nation grants in each case to the Concessionaires of a petroleum property will give them the right to extract and to utilize all of the substances to which Article 1 refers, without limitation other than that imposed by the respective regulations. These rights may be mortgaged, transferred, and transmitted by heritage, in the same cases as are authorized by the Common Law in respect of landed properties, the Secretary of Industry, Commerce and Labor, being notified of the operations which are performed.

Article 10. Where the concessionaire of a petroleum property is not also the proprietor of the surface thereof, five per cent of the gross production should be given to the owner of the surface, by way of indemnity, unless there be an agreement to the contrary.

Article 11. The taxes imposed upon the petroleum industry in accordance with the respective fiscal legislation will be paid by all corporations, societies or private individuals who are engaged in the industry under reference, whatever may be the character of the rights which they may have over the sources which they exploit. Consequently, for the purposes of this legislation, all of the exploiters of petroleum and its derivatives shall be in equal conditions.

Article 12. The taxes referred to in the preceding article shall be of two kinds: One territorial and the other upon the production of the well or wells which have been sunk on the property.

The first tax will have a lower rate, which will be fixed annually by the respective law governing revenues and the unit whereof shall be the area of one hectare. The other tax will be upon the production obtained from the wells, and the amount of said tax will be fixed annually by the respective law governing revenues.

Taxes upon production will be payable in specie or money, as the Executive of the Nation may elect and in accordance with the fiscal value which, in this connection, the Secretary of Hacienda and Public Credit may determine.

The respective regulation will specify the form of payment with regard to specie.

The product of the taxes imposed by virtue of this Law shall be apportioned in the following manner:

• Sixty per cent to the Federation.
• Twenty per cent to the State within the territory of which are situate the property or properties in reference; and
• Twenty per cent to the Municipality within the jurisdiction of which the property or properties may lie.

Where the lands appertain to different jurisdictions, the Secretary of Hacienda and Public Credit will make the allocation of the product of the taxes proportionately to the area of the lands which may lie in each jurisdiction, according to the location of the wells and the production thereof.

Article 13. The exploiters of petroleum properties are obliged to subject themselves to the dispositions which the Federal Government may dictate in connection with the regulation of the production of petroleum, in accordance with the requirements incident to the public interest.

Chapter III

general provisions

Article 14. The concessions for the exploitation of petroleum and its derivatives shall be granted to Mexicans by birth or by naturalization and to Mexican societies, and to foreigners, in accordance with the terms embodied in the Constitution and other pertinent laws.

Article 15. In cases of controversy, the Tribunals of the Nation are competent to assume jurisdiction in the cases which treat of the following matters:

I. Opposition to denouncements or to the issuance or the rectification of titles of petroleum properties.

II. Nullity of titles of petroleum properties.

III. Expropriation, for cause, of petroleum exploitations.

IV. Rights of way for pipe lines and other rights of way.

V. Offences resulting from infractions of this law; and

VI. Offences which place the lives of laborers of a petroleum exploitation and of the inhabitants of the vicinity in danger.

Article 16. The provisions of the Civil Code of the Federal District relative to common property will be applicable with regard to everything not provided in this Law.

Article 17. The Executive of the Nation will issue the Regulations for this Law, including the provisions relative to denounce merits, to the formation of the Register of Petroleum Property, to the exploitation of petroleum and its derivatives, and to other complementary matters, as he may deem necessary.

Article 18. A petroleum concession shall be forfeited for any one of the following causes:

I. For failure to pay the respective taxes.

II. For not having begun exploitation work two years after the concession has been granted, except as provided in Article 13; and

III. For not complying with the Regulations which may be issued by the Executive of the Union.

Article 19. Persons having interest in petroleum concessions granted previously to May 1, 1917, must adjust their respective concessions or contracts, to the terms of this Law, within the period of one year counting from the date of the promulgation of this Law.

Article 20. In respect of national lands of common use, such as Federal zones of the seas, rivers, arroyos, lakes, lagunes [ponds], tide-creeks and sea-marshes, the beds and depths thereof, national and neighborhood roads, lands belonging to the National Treasury, and properties manifested and abandoned which have an industrial value, denouncements will not be admitted for petroleum exploitation.

Exploitation of lands just referred to will be granted by means of contracts consummated by the Executive and subject to the approval of the Senate, where by reason of such contracts a public service ensues and the results are beneficial in character.

Article 21. In the future concessions for the construction of pipe-lines for private use will not be granted. Those undertaking work of this nature are obliged to transport, at cost, the Nation’s petroleum; in accordance with a tariff duly approved by the Secretary of Industry, Commerce and Labor, they must also transport petroleum which is the property of private enterprises.

Article 22. The petroleum industry is within the purview of Federal jurisdiction and therefore will be governed only by the laws which the Congress of the Nation may enact.

Transitory

Article 1. The discoverer of petroleum deposits which lie outside of the States of Chiapas, San Luis Potosí, Tabasco, Tamaulipas and Veracruz, will enjoy the privilege of only paying ten per cent of the territorial tax, for the period of ten years subsequently to the date of such discovery, but no waivure is effected as to the due payment of other taxes fixed by the laws.

Article 2. This Law will begin to govern one month after its promulgation.

56. Only that part of the article which contains the draft of the proposed law has been printed.
57. Foreign Relations, 1918, p. 772.