890g.6363 T 84/117

The President of the Standard Oil Company of New Jersey (W. C. Teagle) to the Department of State

Dear Sirs: With reference to the Department’s letter of the 9th instant, (its file NE–890–g.6363/226) and to our reply of the 11th instant,46 I beg to enclose for the Department’s information and files copy of the draft convention which was received with a letter from the managing director of the Turkish Petroleum Co., Limited.47

We have given careful consideration to the provisions of this draft convention both as to its practical feature from an operating and business standpoint and the application of the so-called Open Door Policy of the Department. As a result of this study we have cabled Mr. H. E. Nichols, managing director of the Turkish Petroleum Co., Limited, today as per the form enclosed, and a letter has been prepared also to Mr. Nichols in comment upon the various provisions of the draft convention, of which we enclose a copy.47 You will observe that the comments are upon modifications proposed by the Iraq Government Minister of Finance, Sassoon Effendi.

For the Department’s information we might add that Mr. E. H. Keeling, Mr. H. E. Nichols’ assistant, left on the 11th instant for Bagdad to carry on discussions there with representatives of the Iraq Government, and if he used aeroplane he doubtless already has reached Bagdad.

It is proposed that the Open Door Plan in the form already submitted to the Department shall have the sanction of an agreement between the Turkish Petroleum Company, Limited, and its voting shareholders, and it is our view that article 34 of the draft convention enclosed will permit the Turkish Petroleum Co., Limited, to carry that plan into effect.

The proposed letter to Mr. Nichols will go by Saturday’s steamer in order to have our comments, aside from those already transmitted by cable, available to Mr. Keeling, through Mr. Nichols, at the earliest possible moment.

In continuance of our policy in relation to the realization of the Open Door Policy of the Department with regard to Mesopotamia, we are submitting the enclosures with this covering letter in order to enable the Department to express its views with relation thereto. Should the Department have any criticism or suggestion for change [Page 247]relative to the Open Door phase of the matter we shall appreciate very much receiving promptly any such expression from the Department in order that it may be communicated to Mr. Keeling.

Yours truly,

W. C. Teagle
[Enclosure 1—Telegram]

The President of the Standard Oil Company of New Jersey (W. C. Teagle) to the Managing Director of the Turkish Petroleum Company (H. E. Nichols)

Referring to draft convention accompanying your letter September 28th48 so far as American Group is concerned it is essential that Keeling should not agree to any modifications which would in any way detrimentally affect the complete application of the open door policy. Article 32 read in connection with article 34 apparently requires sub-lessees to be British companies. We want privilege of having American companies firms or individuals qualify to do business in Iraq on same terms and conditions as British companies. Article 34 Sassoon’s suggestion would vitiate principle of open door and is absolutely unacceptable. Suggest following phraseology for article 34: “The company shall have the right and is hereby authorized from time to time to underlet or transfer any part or parts of its rights and obligations hereunder with respect to portions of the defined area to any person firm or corporation irrespective of nationality and on such terms as it may think fit.” Add after word “abandonment” last sentence article 35 words “or forfeiture by the company.” Our comments on entire draft will be forwarded by Saturday’s mail.

Teagle
[Enclosure 2]

Draft Convention of September 1923 between the Government of Iraq and the Turkish Petroleum Company Limited

This Convention made the . . . . . . day of . … 1923 between the Government of Iraq (Hereinafter called “the Government”) of the one part and The Turkish Petroleum Company Limited a Company incorporated under the Laws of England whose registered Office is situate at 23, Great Winchester Street in the City of London (hereinafter called “the Company”) of the other part.

It Is Hereby Agreed and Declared by and Between the Government and the Company in manner following:

(1)
The Government hereby grants to the Company on the terms hereinafter mentioned the exclusive right to explore, prospect, drill [Page 248]for, extract and render suitable for trade petroleum and petroleum products, naphtha, natural gases, tar, asphalte, ozokerite and other bituminous minerals and the right to carry away and sell the same and the derivatives and products thereof. (Sassoon thinks that the Iraq Government will probably desire to exclude from the Concession the bitumen of Hit, the bituminous coal of Salahiyah and the other similar substances which, although chemically akin to Oil, are not actually oil and have been worked separately by the inhabitants for centuries past.)
(2)
The period of this Convention shall be 99 years from the date hereof. At the expiration of the said period the Government shall have the right, on giving two years’ previous notice in writing of its intention so to do, to purchase from the Company at a price equal to the replacement value at that date less depreciation, which price shall be agreed or failing agreement settled by arbitration in manner hereinafter mentioned, all the plant buildings stores and property of the Company of every sort in the area hereinafter mentioned but if the Government shall not exercise such right then this Convention shall be continued for a further period of 99 years and so on. (Sassoon (1) considers 99 years much too long and suggests 30 years, with an extension when the pipe-line has been built, (2) thinks it unreasonable that at the end of the term the concession should be renewed if the Government don’t buy the plant, and holds that the plant should revert to the Government free of charge.)
(3)
The area to which this Convention relates (hereinafter called “the defined area”) shall be that shewn on the attached map and shaded blue, except that at … being Holy Places none of the operations mentioned in Article 1 hereof shall be carried on.
Note. Shading to include the Vilayet of Basra as well as the Vilayets of Mosul and Baghdad. (Sassoon thinks that as the Basrah Vilayet formed no part of the original area to which the promise to the T. P. C. referred it should be removed from the concession and form the subject of separate negotiations.)
(4)
The Company shall within six calendar months from the date of this Convention commence a detailed geological survey of the defined area. Copies of reports and maps rendered to the Company by its employees in respect of such survey shall be forwarded to the Government. (Sassoon proposes lapse of the concession if the first sentence is not complied with, and a penalty of £20 per day if the reports and maps are not submitted within three months after the Government has called for them.)
(5)
The Company shall within three years from the date of this Convention start drilling operations working continuously with a minimum of three rigs and in the event of this provision not being [Page 249]complied with this Convention shall become entirely null and void on the date on which the said term of three years expires. (Sassoon proposes an increase in the number of rigs from three to five, and that lapse of the concession under this article (which he is willing should not take place until the Company has been given three months’ notice to comply) shall carry with it forfeiture of the Company’s property in Iraq).
(6)
In every calendar year subsequent to the term of three years hereinbefore mentioned the Company and its successors underlessees and assigns together shall drill at the rate of not less than 10,000 ft. per annum in an efficient and workmanlike manner provided always that any excess drilling over 10,000 ft. in any year shall be credited to the amount of drilling required under this article in subsequent years and provided also that the obligation to drill shall cease when the defined area has been fully tested. (Sassoon wants the figure 10,000 increased, and suggests that as, but for the Turkish Government’s promise covering the whole of both Vilayets, the Government would have liked to divide the concession, the figure 10,000 ft. (or whatever the figure is) should be split between Bagdad and Mosul, so as to make the company liable to drill 5,000 ft. (or more) in each Vilayet. But he suggests that the drilling obligation in each year should cease when production in that year reaches a certain figure. He also wants a penalty stated in this article.)
(7)
Subject to the due fulfilment of article 30 hereof the Company shall maintain in good working order all borings so long as they are productive and shall not do or permit to be done any unnecessary damage to the surface of the lands in or upon which the said borings are situate.
(8)
The Company shall cause to be made and kept at its registered office correct and intelligible plans of all borings workings and operations and shall once a year at its own cost furnish to the Government such number as may be desired not exceeding six of true copies of such plans. The Company shall also render to the Government once a year a report on its operations containing such information as may be reasonably required by the Government. Such plans and information shall be treated as confidential by the Government. (Sassoon proposes a penalty of £20 per day failing submission of plans etc. after 3 months’ notice from Government.)
(9)
The Company shall take all practical measures to prevent the injurious access of water to the oil-bearing formations and of noxious waste products into the water of Iraq, and if any well be abandoned shall plug it immediately upon the casing being withdrawn.
(10)
In consideration of the privileges herein conceded the Company shall pay to the Government yearly within three months after the end of each calendar year the sum of four shillings per ton of the crude petroleum won from the denned area and saved in field storage tanks or reservoirs by the Company during the preceding calendar year, but for the purpose of this provision the Company shall be entitled to deduct from the gross quantity so won and saved:—
(a)
all water and foreign substances;
(b)
all crude petroleum distributed under Art. 17 hereof;
(c)
all petroleum used for the usual and customary purposes of carrying on the works of the Company [and for domestic consumption in the houses and offices of agents and workmen for the time being employed in and about the borings and premises of the Company;
(d)
the first 1000 tons of petroleum extracted from each well or boring.]49
The Company shall avoid as far as possible all waste of petroleum. (Sassoon considers that the royalty should be on a sliding scale, So as to be commensurate with the Company’s profits. He also asks for the omission of the part in brackets.)
(11)
The Company shall measure all crude petroleum won and saved and the duly authorised representatives of the Government shall have the right to be present at such measuring.
(12)
Any duly authorised representative of the Government shall have the right to examine and test the appliances used for measuring as aforesaid, and if upon such examination or testing any such appliance shall be found to be out of order, the Government may require that the same be put in order by and at the expense of the Company, and if such requisition be not complied with in a reasonable time the Government may cause the said appliance to be put in order, and may recover the expense of so doing from the Company, and if upon such examination as aforesaid any error shall be discovered in any such appliance, such error shall, if the Government so decide, after hearing the Company’s explanation, be considered to have existed for three calendar months previous to the discovery thereof, or from the last occasion of examining the same, in case such occasion shall be within such period of three calendar months, and the royalty shall be adjusted accordingly. (Sassoon suggests that the three months be increased to six in view of the difficulties of travelling.)
(13)
The Company shall keep full and correct accounts of all crude petroleum measured as aforesaid and of all amounts of petroleum [Page 251]distributed to local inhabitants under Art. 17 hereof or used within the defined area under clause (c) of article 10 hereof and the duly authorised representatives of the Government shall have access at all reasonable times to the books of the Company containing such accounts and shall be at liberty to make extracts therefrom and the Company shall at its own expense within three calendar months after the end of each year deliver to the Government an abstract of such accounts for such year and a statement of the amount of royalty due to the Government for such year. Such accounts shall be treated as confidential by the Government, with the exception of such figures therein as it thinks it necessary to publish to the Iraq Parliament.
(14)
If the royalties or any part thereof shown by such accounts to be due, or awarded by arbitration, for any year shall be unpaid for the space of three calendar months after the end of such year, or after the award of the arbitrator, whichever be later, the Government shall have the right to prohibit all export of petroleum and other products by the Company until the sum in question is paid. And if payment is not made within three months after the expiration of the aforesaid three months the Government shall have the right to terminate the Concession, and to take without payment all the property of the Company within Iraq, including the oil collected in the storage tanks and elsewhere. In the event of a dispute arising regarding the amount of royalties to be paid by the Company and this dispute being referred to arbitration, the above penalties shall not take effect, provided the Company pay into Court the amount of royalties in dispute.
(15)
The Company shall if it produces sufficient petroleum in the defined area provide such refinery or refineries as may be necessary for providing the petroleum required for consumption within such area and shall quote the Government and inhabitants of Iraq specially favourable terms for petroleum and products thereof for consumption in Iraq produced within the defined area.
(It is proposed that the Company shall address a letter to the Government undertaking to supply oil for local consumption at cost plus 10%. Sassoon wishes the Company to bind itself (1) to erect a refinery as soon as the annual production amounts to say 50,000 tons; (2) not to export until the whole local demand has been met; (3) to quote slightly better terms to the Government than to individuals. Penalty under (1) to be £50 per day if work not begun within a year after said production reached, and concession to lapse, subject to three months’ notice to Company, if work not begun within two years.)
(16)
Any duly authorised representative of the Government shall have the right to any reasonable extent and at all reasonable times to inspect ail operations carried on by the Company. The Company shall on request place at the disposal of such representative a proper [Page 252]person to explain such operations and to afford such information as such representative may reasonably require. (Sassoon wants the Company to contribute say £100 per month to the cost of the inspection.)
(17)
The Company shall furnish to the inhabitants of any locality within the denned area free of cost an amount of oil equivalent to that which they have been hitherto accustomed to take free of cost from such locality. Such amount shall be fixed by agreement between the Company and the Government.
(18)
On the occasion of a state of emergency the Company shall use its utmost endeavour to increase the supply of petroleum and products thereof for the Government to the extent the Government shall require.
(19)
Subject to any general regulations and international conventions which may from time to time be in force the Company may erect and use telegraphic telephonic and radio apparatus and connect the same with the nearest convenient point of the Government systems, provided that where such apparatus is not entirely on the Company’s premises the Company shall obtain the Government’s approval (which shall not be unreasonably withheld) to the plans for the same and provided also that without the previous sanction of the Government such apparatus shall not be used for messages not concerned with the Company’s business.
(20)
The Company may dig sink drive build construct erect lay and operate such pits shafts wells trenches excavations dams drains watercourses factories plants tanks reservoirs refineries pumping stations offices houses buildings wharves and other terminal facilities vessels railways roads ferries bridges tank and other trucks tramways pipe-lines and other erections installations and things of any kind movable or immovable whether of the nature hereinbefore mentioned or not as it may think necessary in connection with its operations hereunder, provided that where the same are not entirely on the Company’s premises the Company shall obtain the Government’s approval (which shall not be unreasonably withheld) to the plans for the same. The Company shall be entitled to use all canals, rivers waterways water power and ports in Iraq on payment of the charges, if any, ordinarily imposed for their like use by other industrial undertakings.
(21)
The Company may occupy such lands as may be necessary for the purposes of its business, upon the following terms:—
(a)
Non-cultivable lands belonging to the Government and not required by them for a reasonable purpose will be granted to the Company free of cost for the period of this Convention.
(b)
Cultivable lands belonging to the Government and not required by them for a reasonable purpose will be granted to the [Page 253]Company for the period of this Convention at a rent to be agreed between the Government and the Company or in default of agreement to be fixed by arbitration in manner hereinafter mentioned.
(c)
Lands owned by private persons shall be acquired by agreement between the Company and the person concerned, and shall be registered in the name of the Company or of its nominee pending the enactment of legislation permitting a foreign company to hold lands in Iraq. The Company shall acquire the whole rights of such persons so as to give the Company a clear title to the land, whether it be mulk or tapu hold. For the purpose of this article the Government will regard the undertaking of the Company as being a work of public utility and, in the event of the Company being unable to come to agreement as to price with the persons concerned, the Government will acquire the land for the Company according to the Law for the time being in force, at the expense in all things of the Company.
(Sassoon thinks the Company’s occupation of land on these terms should be restricted to the defined area.)
(22)
The Company shall be entitled to carry pipe telegraph and telephone lines over under and along any lands, roads, railways or canals where such lands roads railways or canals belong to the Government without paying any compensation, and where they belong to private persons or companies on paying such compensations as may be agreed or failing agreement fixed by arbitration in manner hereinafter mentioned but without any obligation on the part of the Company to purchase the lands over under or along which such lines pass. Where such lines are not entirely over under or along the Company’s premises the Company shall obtain the Government’s approval (which shall not be unreasonably withheld) to the plans for the same. The Company shall repair all damage done to such roads railways and canals by the construction of such lines and furthermore the Company shall give to the said owner one calendar month’s notice in writing of its intention to carry any such lines over, under or along any cultivated lands, roads, railways or canals.
(23)
Nothing in this Convention shall limit the right of the Government to make and maintain throughout the defined area such roads tramways railways telegraph and telephone lines as shall be expedient and to obtain from the said defined area such stone earth and other materials as may be requisite for making or maintaining the said works and to pass at all times over and along such works; provided always that the powers reserved under this article shall be exercised in such a manner as not to interfere with the rights of the Company under this Convention.
(24)
The Government or any person authorized by it in that behalf shall have full liberty to search for and get any substances [Page 254]other than those the subject of this convention in upon or under the lands comprised within the defined area provided always that the rights hereby reserved shall be exercised in such a manner as not to interfere with the rights of the Company under this Convention and provided also that fair compensation shall be paid by the Government or the person so authorized, as the case may be, for all loss or damage which the Company may sustain in consequence of the exercise of the said reserved rights. In any concession which it grants for such reserved rights the Government will bind the concessionaire to pay such compensation to the Company.
(25)
The Company may appropriate for any purpose connected with its business the water within the Kingdom of Iraq and may collect the same for the purposes of the Company’s business but so as not to prejudice reasonable navigation or to deprive any lands, houses, or watering places for cattle of a reasonable supply of water.
(26)
The Company may take away upon payment of the usual charges if any from lands or forests the property of the Government any surface soil timber clay ballast lime or building stone and similar non-metallic materials that may be necessary for its operations within the defined area.
(27)
No other or higher taxes impositions duties fees or charges whether government or municipal shall be imposed upon the Company or upon its property or privileges or employees than those ordinarily imposed upon the property or privileges or employees of other industrial undertakings, nor shall any taxes impositions duties fees or charges whether government or municipal be imposed upon the underground works or underground property of the company or upon the substances granted by this convention before their removal.
(28)
The Company shall be entitled to import into the Kingdom of Iraq free of all duties and fees of every sort all materials machinery plant stores and equipment (except provisions and other articles required for the personal use of its employees) which it may require in connection with its operations and to export the same before or after use and all products the subjects of this convention free of all duties and fees of every sort, provided it complies with the usual customs regulations.
(29)
The employees of the Company shall so far as possible be subjects of the Government but managers engineers chemists drillers foremen mechanics and other skilled workmen clerks and domestic servants may be brought from elsewhere. The entry of all foreign personnel into Iraq shall be subject to the immigration laws for the time being in force.
(30)
The Government bind themselves to take all reasonable measures to secure the carrying out of the objects of this agreement to protect the safety of the property of the Company and of its employees and agents.
(31)
The Government shall not during the currency of this convention enter into grant or confirm any agreement licence or concession which may unreasonably prejudice or conflict with the rights of the Company hereunder.
(32)
The Company shall be and remain a British Company registered in Great Britain and having its principal place of business within His Majesty’s dominions and the Chairman shall at all times be a British subject. The memorandum and Articles of Association of the Company shall be revised to embody such provisions of this Convention as the Government may require.
(33)
The Company shall be at liberty to form under the English Companies Acts one or more subsidiary companies for the working of this Convention should it deem this to be necessary. Any such subsidiary Company shall in respect of the area in which it operates enjoy all the rights and privileges granted to the Company hereunder and assume all the engagements and responsibilities herein expressed. (Sassoon thinks his Government will demand that the working company shall be registered in Iraq because of the special juridical privileges enjoyed there by companies registered in England. He even suggests that failure to form such a company should result in forfeiture of the concession.)
(34)
The Company shall have the right from time to time to underlet or transfer any part or parts of its rights and obligations hereunder with respect to portions of the defined area on such terms as it may think fit. (Sassoon wants each transfer to be subject to the approval of the Iraq Government, but is willing that it should be laid down that this approval shall not be unreasonably withheld and shall not be subjected to conditions not contained in the concession.)
(35)
The Company shall have the right to abandon permanently such of its own and its subsidiary companies’ rights under this convention as are not at the time outstanding in any transferee other than a subsidiary company upon giving three months’ notice in writing of its intentions so to do and this convention shall in respect of such rights absolutely determine on the date fixed for such determination in such notice, and the Company shall thereupon be entitled, but not obliged, to remove free of all taxes and duties all its plant buildings stores material and property of every sort provided that for a period of 3 months from the receipt of such notice the Government may purchase the same at a price equal to the replacement [Page 256]value at that date less depreciation, which price shall be agreed or failing agreement settled by arbitration in manner hereinafter mentioned. After such abandonment the Government shall take the place of the Company in relation to the Company’s transferee other than subsidiary companies. (Sassoon thinks that when the Company gives notice of abandonment it should give its reasons; that the Government should then have the right to refer the adequacy of the reasons to arbitration; and that if the arbitration finds the reasons inadequate the Company’s property shall be forfeited.)
(36)
No failure or omission by the Company to carry out or perform any of the stipulations, covenants or conditions of this Convention shall give rise to any claim or be deemed a breach of this Convention to the extent that the same arise from any of the following causes viz:—the act of God, the act of the Government of Iraq, restraint or restriction of princes, governments, peoples or authorities embargoes prohibitions insurrections pirates wars strikes or combinations or [of] workmen epidemics floods accidents caused by inundations or working stoppages or obstructions of railways transportation facilities or pipe-lines accidents to or breakdown of steamers lighters or other vessels or to machinery or plant eruptions landslips earthquakes fire all dangers or accidents of the seas lakes canals or rivers and the navigation or loading of steamers lighters or other vessels of whatever nature even when due to the negligence default or error in judgment of the pilot, master mariners or other servants of the ship owners or the stevedores or any other persons or any cause of force majeure or event not within the control of the company of whatever description whether similar to the causes hereinbefore enumerated or not; and if for any of the causes aforesaid the performance of any of the obligations or the exercise of any of the rights under this convention is delayed the period of such delay, together with such period as may be necessary for the restoration of any damage done during such period of delay, shall be added to the periods fixed by this convention. If as a result of any arbitration the Arbitrator or Arbitrators should find that there has been any breach by either party hereto of any provision of this Convention, or any failure by either party to fulfill its obligations hereunder, the Arbitrator or Arbitrators may except as hereinbefore otherwise provided award damages against the party in default.
(37)
If any dispute shall arise between the Government and the Company concerning the interpretation of any of the articles of this Agreement, the same shall be referred to the arbitration of two persons, one of whom shall be chosen by each party, and of a referee who shall be chosen by the arbitrators before proceeding to arbitration. The decision of the arbitrators or in the case of a difference [Page 257]of opinion between the arbitrators the decision of the referee shall be final. Such arbitration shall be held in Baghdad or London as may be agreed by the parties and in default of such agreement the place of arbitration shall be Baghdad.
(38)
All notices required to be given hereunder to the Government shall be deemed to be duly given if sent by registered post to the . . . . . . . and all notices required to be given hereunder to the Company shall be deemed to be duly given if sent by registered post to the office in Baghdad for the time being of the Company, and every such notice whether given to the Government or the Company shall be deemed to be received one day after the date of posting.

In Witness etc.

New Articles. Sassoon wants

1.
an article binding the Company to show due diligence in maintaining production.
2.
an article reserving the right of the Government and its subjects to subscribe up to 20% of the total capital of the Company.
3.
an article allowing the Government to nominate a director.
  1. Neither printed; Department’s letter of the 9th now filed under 890g.6363 T 84/113.
  2. Letter not printed.
  3. Letter not printed.
  4. Letter not printed.
  5. On the file copy the section here enclosed by brackets is roughly enclosed by penciled braces; it is evidently the omission desired by Sassoon.