890g.6363 T 84/190
The Associate General Counsel of the Standard Oil Company of New Jersey (Guy Wellman) to the Chief of the Division of Near Eastern Affairs, Department of State (Dulles)
[Received December 19.]
Dear Mr. Dulles: Since my return from London on Tuesday last, Mr. Dodge told me of his recent conference with you and your inquiry regarding the phraseology of Article 34 of the proposed concession from the Iraq Government to the Turkish Petroleum Company, with particular reference to the subleasing plan.
In order to ensure the adoption of the plan against any objecting minority shareholder of the Turkish Petroleum Company, we proposed that the elements of the subleasing plan should be embodied in the draft concession as a condition of the grant. This suggestion was adopted, and Mr. Keeling at Bagdad was instructed to endeavor to bring this about by agreement with the Iraq Government. While we have not been advised as to the definite acceptance of this suggestion by the Iraq Government, the proposed draft concession contains, in Articles 5 and 6, the definite obligation of the Turkish Petroleum Company to select its twenty-four plots of eight square miles each not later than the third 31st of October after the date of the convention, and to construct a pipe line as soon as it shall become commercially justifiable. In Article 6 it is also stipulated that the Company shall, not later than four years after the date of the convention, and annually thereafter, carry out the provision of offering not less than twenty-four plots of eight square miles each, “subject to the provisions of Article 34 hereof,” for competitive bidding between all responsible corporations, firms and individuals without distinction of nationality. The other provisions regarding the right of the prospective operator to select plots, and of the furnishing of geological information, together with the provision of 30% of the capacity of the Company’s pipe line for the transportation of oil on subleases at a cost not exceeding ½ of one anna per barrel per mile, are included. The sublease shall bind the operator of each plot to drill not less than 1500 feet during the three years after the execution of the sublease, and thereafter not less than 500 feet each year until the plot shall have been fully tested.
With reference to Article 34, the Iraq Government has consistently insisted, as a matter of national dignity, that it must have some supervision over the transfer, by way of subleases, of the area covered by the concession. We have continued our insistence that the phraseology of Article 34 should be retained, whereby the right of rejection [Page 240] of a sublessee by the Iraq Government should be limited to the objection of the proposed sublease on the ground that it would be prejudicial to Iraq political independence or territorial integrity, or that the sublessee is an unreliable person. The Iraq Government has served, in effect, an ultimatum that it must have the right of rejection of a sublessee upon reasonable grounds, and that the other restrictions above-referred to which we proposed must be deleted. The other three groups acquiesced in this change, and the American Group, as a matter of necessity, has also consented to the following phraseology:
“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 denned area on such terms as it may think fit, provided always that the Company shall not transfer its obligations under article 5 hereof, and that the Company shall give the Government written notice of any intended underletting or transfer, and the Government shall have the right on reasonable grounds, to be stated in writing, within 60 days of receipt of such notice, to notify the Company in writing that they object to such proposed underletting or transfer, and if such notification be given the Company shall not proceed with such underletting or transfer; and provided also that the Company shall accept full responsibility to the Government for the performance by underlessees and transferees of all obligations due hereunder.”
In view of the provision of Article 6 requiring that a sublease be made to a person without restriction as to nationality, there is no objection to be feared on the ground of nationality, at least so far as Americans are concerned.
It is also to be noted that the Turkish Petroleum Company must guarantee to the Iraq Government the performance by each sublessee of all the provisions of the concession applicable to the subleased area in question. Hence, a trivial objection on the ground of lack of financial responsibility or operating experience could hardly be raised by the Iraq Government.
While Article 34 is not in exactly the form which I personally would select in order to avoid any delays or complications in the operation of the sub-leasing plan, yet it is essential to recognize that this concession, if granted, is coming from a sovereign government which may properly insist upon some degree of supervision of transfers of the territory under the subleasing plan. In fact, it is also to be noted that in almost all cases of concessionary grants, the right of transfer of the grant or any territory under it is subject to the approval of the granting government.
The concession was, when I left London on the 8th instant, still under discussion at Bagdad by Mr. Keeling on behalf of the Turkish Petroleum Company, with the Iraq Government.
[Page 241]Mr. Nichols has given me his personal assurance that Mr. Keeling has been instructed that, if the phraseology of Article 34 as above-quoted be adopted, it must be with the concurrent adoption of Articles 5 and 6 which embody, as conditions of the concession, the provisions for carrying out the subleasing plan of the Company.
With best wishes [etc.]