812.6363/1022
The Secretary of State to the Chargé in Mexico ( Summerlin )
Sir: Referring to your despatch No. 4279 of September 2, 1921, and your telegram No. 199 of October 26 noon,59 both in relation to the Bill introduced in the Mexican Congress in alleged conformity to the provisions of Article 27 of the Constitution regarding petroleum deposits, the Department informs you that it has given careful consideration to the provisions of the Bill and has the following comments to make thereon:
The first four Articles of the Bill appear to represent an effort to declare the support of Congress for the attempt which seems to have been made in said Article 27 to nationalize petroleum deposits not only in public lands but in lands of private ownership, or, in other words, to deprive private owners of the petroleum deposits in their lands and to vest the ownership of such deposits in the nation, and this without compensation to such private owners. By Article 3 it is provided that these deposits may only be exploited by means of concessions or denouncements.
Article 5 of the Bill excepts from denouncement:
- (1)
- Lands covered by concessions granted by the Federal Government for the express purpose of petroleum development;
- (2)
- Lands in which development work was carried on prior to May 1, 1917, and
- (3)
- Lands with respect to which leases for petroleum development were made prior to May 1, 1917. However, it is added that lessees must declare within a year the portion of the land they desire to dedicate for petroleum exploration and development.
With respect to exception No. 2, Article 5, it may be said that it is not entirely clear that it would afford protection to the owner of a large tract of land with regard to all of such land, when as a matter of fact he had developed petroleum on but a small portion of the land. This seems particularly the case since by Article 8 a petroleum claim is limited so as not to exceed 2000 hectares, and in view of the extensive regulatory powers given by the Bill to the Executive.
Regarding exception No. 3, it may be observed that it would seem to impose upon the owner of the lease the burden of declaring within a year what portion of the land he intends to exploit and of paying the taxes thereupon which, according to Articles 11 and 12 of the Bill, later legislation is to create, or in the alternative, of surrendering the lands not so declared, to be subject to denouncement by others.
[Page 445]Exceptions 2 and 3 seem to represent the views of the Commission which framed the Bill as to the appropriate course to meet the contention that petroleum legislation should not be retroactive so as to injure acquired rights, and thus obviate the objection to depriving owners of private property acquired prior to May 1, 1917, of the rights accorded them by the laws of November 22, 1884, June 4, 1892, and November 25, 1909, the last of which in reaffirmation of the provisions of the law of November 22, 1884, provides that:
“The following substances are the exclusive property of the owner of the soil:
- “(1) Ore bodies or deposits of mineral fuels of whatever form or variety;
- “(2) Ore bodies or deposits of bituminous substances.” (Articled).
Despite the clear and unequivocal provision of these laws that the owner of the surface owns the petroleum deposits, the framers of this Bill have proceeded upon the theory that he does not own such deposits and that only in the cases where petroleum development was carried on in the lands prior to May 1, 1917, or where leases for petroleum development were made prior to that date has he any rights in such deposits which the Mexican Government is bound to respect in any degree, other than the rights of preferential denouncement for a period of two years, and of receiving five per cent of the total production when the deposits are developed by another.
However, by making the exceptions mentioned the framers of the Bill recognized that the rights which the owners of the surface had in the subsoil were property rights in that they could be conveyed and transferred to others. Therefore they involve themselves in the apparent contradiction that property rights capable of transfer are not vested rights which the Mexican Government should protect. They take this view despite the previous legislation of Mexico to the effect that petroleum deposits are owned in freehold by the owner of the soil, which, as before stated, is the clear meaning of the provisions of the said law of 1909, as is especially apparent when the said provisions of Article 2 thereof are considered in connection with Article 1, which provides that certain other substances belong to the nation.
Article 6 of the Bill provides that the owner of lands which are not included in the said subdivisions of Article 5 shall have a preference for two years after the passage of the Act, to denounce petroleum claims in his lands.
It would seem that lessees of such lands would have no preferential rights under the provisions of the Bill.
Article 7 empowers the Executive, with the consent of the Senate, to establish portions of territory known as reserve zones, in which no concession shall be issued for exploiting the subsoil.
The provisions of this Article, if enacted into law, would seem to expose all owners to the danger of the loss of the usufruct of the subsoil and therefore constitute a grave menace to such owners.
Article 13 provides that owners and lessees must obey the dictates of the Federal Government with respect to the amount of production from their properties. This provision appears to subject such owners and lessees to the danger of the arbitrary deprivation for an indefinite period of the right to develop the subsoil deposits.
[Page 446]Article 14 provides that concessions for the development of petroleum may be granted to Mexicans by birth or naturalization, to Mexican companies, and to foreign individuals under the terms fixed by the Constitution and other laws relating thereto.
Reading this Article in the light of the applicable provisions of the Mexican Constitution, it becomes apparent that foreign corporations are barred from concessions and that foreign individuals may only obtain them by conforming to the obnoxious provisions of the Constitution relative to the renunciation of their national rights by foreigners acquiring lands in Mexico.
Article 20 forbids denouncements in the so-called Federal Zones and provides that such areas shall be developed by Federal concessions.
With respect to the practical working of the provisions of Article 27 of the Mexican Constitution regarding the so-called Federal Zones, the Government of the United States is informed that thereunder attempts have been made to assert ownership in the nation of a large amount of property theretofore regarded as of private ownership and that with regard to such property many streams of entire insignificance and with which petroleum properties may be largely intersected have been held to be of public ownership, with the result that in some instances petroleum concessions have been granted therein to others than the owners or lessees of the land, thus decidedly hampering the latter in their operations, and diminishing the value of their subsurface deposits. The views of the Government of the United States on this feature of Article 27 of the Mexican Constitution have heretofore been made known to the Mexican authorities through the medium of your Embassy.
Article 21 forbids the construction of pipe lines for private use and states that companies operating said lines shall convey Government oil at cost and private oil at rates fixed by the Government.
The provisions of the last mentioned Article would seem to represent an attempt to convert existing pipe lines into public carriers without regard to the obligation of contracts.
You will convey the foregoing informally to the appropriate authorities as the views of the Government of the United States which have been communicated to you and you will add that while your Government does not entertain the idea that in view of the pronouncements of the Administration functioning in Mexico that the provisions of Article 27 of the Mexican Constitution are not retroactive, the present Bill, directly opposed as it is to that theory, will be enacted into law, yet it desires to take this occasion to reiterate its position that the rights of American citizens acquired prior to May 1, 1917, in accordance with the laws of Mexico, must not be taken from them by attempted confiscatory legislation, and that the points in the pending Bill which your Government regards as open to this objection and other objections are as outlined above.
I am [etc.]
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