Papers Relating to the Foreign Relations of the United States, 1925, Volume II
The Ambassador in Mexico (Sheffield) to the Secretary of State
[Received December 3.]
Sir: Confirming my telegram No. 252 of today’s date, twelve noon [11 a.m.],31 I have the honor to enclose herewith for the Department’s information the text of a bill regulating the petroleum industry in Mexico, which was passed by the Chamber of Deputies yesterday, as published in today’s El Universal.
I have [etc.]
Petroleum Bill Approved by the Chamber of Deputies, November 26, 1925
- Article 1. The dominium directum of all natural mixtures of hydrocarbons which may be found in deposit, whatever their physical state may be, is vested in the Nation. Petroleum, under this law, is understood to include all natural mixtures of hydrocarbons.
- Article 2. The dominium, directum of the Nation, referred to in the preceding article, is inalienable and imprescriptible, and no work required in the pursuit of the petroleum business may be carried out without the express authority of the Federal Executive granted by the terms of this law and its regulations.
- Article 3. The petroleum industry is a public utility; therefore, it shall have preference over any development of the surface of the land, and in all cases where the necessities of the said industry require it, the development or occupation of the surface shall proceed, with due regard to the proper legal indemnity.
- The petroleum industry includes the discovery, extraction, transportation by pipelines, and refining.
- Article 4. Mexicans by birth or naturalization, as also foreigners and Mexican companies, meeting the requirements of the law regulating section 1 of article 27 of the General Constitution of the Republic and its regulations, may obtain petroleum concessions.
- Article 5. Rights derived from concessions granted in conformity with this law, shall not be transferred in whole or in part to foreign governments or sovereigns, nor shall these be admitted as associates or partners, nor shall any rights of any kind therein be established in their favor.
- Article 6. All matters pertaining to the petroleum industry are of exclusive Federal jurisdiction.
- Article 7. Exploration concessions
give the concessionaire the right to perform the work having to
do with the discovery of oil. The Department of Industry,
Commerce and Labor, shall grant the said concessions and see to
it that the obligations stipulated therein, are complied with in
conformity with the following provisions:
- The concessionaire shall obtain from the owner of the surface of the land, within the first three months of the life of his concession, consent to occupy the lands he may need, and he shall sign with him special contracts in which the form of the indemnity shall be stipulated.
- In case the owner of the surface of the land is opposed, the Secretary of Industry, Commerce and Labor may act as arbitrator, if the explorer and the owner of the land agree thereto. If not, the Federal Executive shall decide as to the occupation or expropriation of the land, in accordance with the needs of the petroleum industry, the concessionaire having previously furnished a bond guaranteeing the indemnity to which the owner of the surface of the land may be entitled for losses and damages.
- The concessionaire shall render to the said Department a quarterly report of the progress of his work and the result of his exploration.
- Every two years the Department of Industry, Commerce and Labor shall call together a board to determine the bounds of the “explored zones” in the Republic. This board shall be composed of a representative of that Department, one from the Department of the Treasury and Public Credit, and another from the petroleum companies. Within two years subsequent to final decision regarding the “explored zones” the exploration concessions in the various locations shall be marked “new zones”.
- The holder of an exploration concession alone may obtain a working concession in the same zone, within the life of the first concession with three months added.
- The concessionaire shall furnish a bond, in proportion to the importance and area of the zone he desires to explore, at the office of the Treasury General of the Nation, within the first month of the life of his concession. The amount of that bond shall be fixed by the Department of Industry, Commerce and Labor.
- The life of the exploration concession shall be from one to five years, at the discretion of the Department of Industry, Commerce and Labor, and in accordance with the area and importance of the zone that is granted.
- The holder of an exploration concession shall have the preference to obtain another in the same zone, provided he shall have complied with all the obligations imposed by this law; and
- Priority of application gives the right of preference, under equal circumstances, over other later applications.
- Lands to be explored, owned by private parties, shall be secured by application to the Federal Executive, who may grant the concession, preferably, to the owner of the surface.
- Article 8. Operation concessions
entitle the concessionaires to extract and use the oil. The
Department of Industry, Commerce and Labor shall grant the said
concessions and see that the obligations therein stipulated are
complied with in conformity with the following provisions:
- The concessionaire shall arrange with the owner of the surface of the land regarding the indemnity to which the said owner may be entitled, in the manner set forth in the previous article, without any interruption in the operating work, when the concession shall have been granted by the Department of Industry, Commerce and Labor.
- When the concessionaire and the surface owner fail to agree regarding the indemnity and compensation to which the owner would be entitled for losses he may have to bear on account of the exploitation of the oil, the Department of Industry, Commerce and Labor must intervene as arbitrator in accordance with the previous [Page 534] section in connection with section 2 of article 7, and shall see to it that those indemnities and compensations be not less than those which have been on an average granted by the oil companies to the owners of the surface of the land in the last 10 years; but in no case shall such compensation be less than the equivalent of 5 percent of the production.
- Within the operative zone the concessionaire shall have the right to establish all the installations that are required for the extraction, transportation, and storage of the oil.
- Outside of the granted zone, the holder of a working concession shall have the right to obtain concessions for the laying of pipe lines, construction of roads, and use of the Federal waters by complying with the provisions of the laws on the subject.
- Working concessions in a “new zone” shall give the concessionaires during such time as shall be set by the board of representatives, referred to in section IV of the previous article, the right to obtain a rebate on the production tax which shall be fixed by the same board at the same time that it determines the bounds of the prospective zone.
- The operation of a granted zone cannot be interrupted except for just cause to be determined by the Department of Industry, Commerce and Labor.
- In the zone granted for exploration purposes, working concessions can be granted only to the holders of the first concession.
- The Federal Executive shall regulate the operation of the wells so as to prevent their premature exhaustion; and
- The life of a concession shall not exceed 30 years. At the expiration of that term the concessionaire who shall have fulfilled all his obligations may obtain a new concession for the same zone.
- Article 9. The Department of Industry, Commerce and Labor shall grant concessions to lay pipe lines for “public use” and “private use”. Those for “public use” shall be used to transport oil belonging to any person soliciting transportation and those for “private use” shall be used for the transportation of the oil belonging to the concessionaire.
- Concessions shall be subject to the following provisions:
- Concessions for pipe lines for public use shall be granted to any person meeting the requirements stipulated in Article 4.
- Concessions for pipe lines for public use give the right to import free of duty anything required for the laying of the pipe lines and for the occupation and expropriation, in conformity with the stipulations of section 2 of article 7.
- Concessions for pipe lines for private use shall only be granted to the holder of an exploration, working or refining concession.
- Concessions for pipe lines for private use shall entitle the holder to obtain a right of way for these and for water pipe lines.
- Pipe lines shall meet the conditions established by the operating regulations.
- The construction of pipe lines to carry petroleum directly to vessels on the open sea shall not be permitted.
- Operators of pipe lines must carry the oil belonging to the Federal Government to the extent of 20 percent of the pipe line’s capacity.
- The Department of Industry, Commerce and Labor shall issue periodically tariffs for the transportation of oil by pipe line after having granted a hearing to the interested parties.
- Article 10. The Department of
Industry, Commerce and Labor shall grant concessions for the
establishment of refineries and plants for the use of gas, in
accordance with the following provisions:
- They shall be granted to parties meeting the requirements stipulated in article 4.
- Concessionaires shall be subject to the health, safety and police regulations for the preservation of the life and health of the employees, workmen and residents; and
- The plants which may hereafter be erected in the country for refining petroleum or using gas, shall enjoy free entry of everything necessary for their installation, and such other privileges as the Executive may grant in accordance with law.
- Article 11. Oil concessions to land, the surface of which is owned by the Nation, shall be granted in the form prescribed by this law, and the concessionaire shall pay the proper indemnity for the use of the surface, in accordance with the regulations that may be issued for that purpose, in addition to the percentage which the Federal Treasury shall have of the gross production, as stated in the concession. It shall be stipulated in the concession that the public services are not to be interfered with.
- Article 12. Concessions granted by the Executive of the Nation, in accordance with previous laws, shall be confirmed without any cost whatsoever, subject to the provisions of this law through the concessions that the said law authorizes.
- Article 13. The following rules
shall be observed with respect to claims filed in accordance
with the provisions of the decrees of July 31, and August 8 and
- If title has not yet been issued, and no objection has been raised during the claim proceedings, the oil concession shall be granted in accordance with the provisions of this law; and
- If objection was raised, and title has not yet been issued, and the controversy is settled in accordance with the decrees of July 31, and August 8 and 12, 1918, the concession shall be granted, under the terms of this law, to the party obtaining it.
- Article 14. Oil rights derived from
previous laws shall be confirmed without charge, by concessions
granted in accordance with this law, in the following manner:
- To owners of the surface, or parties entitled thereto, who commenced their oil work before the first of May, 1917, and those who declared to the Federal Government before the said date, that they owned land intended for oil operations, for a term of 50 years, counting from the date when these rights were officially recognized.
- To parties having contracts for the right to exploit the subsoil, or their assignees under contracts made before the first of May, 1917, who started their work for oil before said date, and those who declared before the said date to the Federal Government that they owned land intended for oil operations, but only for the time that may be lacking to complete the terms fixed in their respective contracts.
- To owners of pipe lines and refineries who may at present be operating under a concession or license issued by the Department of Industry, Commerce and Labor in all that relates to the said concessions or licenses, but the said term shall never exceed 50 years.
- Article 15. Confirmation of the rights shall be applied for within one year from the date when this law goes into effect, when that time shall have expired the said rights shall be deemed to have been renounced, and rights whose confirmation has not been applied for shall not have any effect whatever against the Federal Government.
- Article 16. The Federal Executive may designate reserve zones in free lands.
- Article 17. Causes for the
forfeiture of an oil concession are:
- Failure to perform the regular work in the manner prescribed by this law.
- Violation of the provisions of article 5; and
- Failure to furnish the bonds required under sections II and VI of article 7.
- Article 18. Violation of this law and its regulations that do not involve forfeiture of the concession shall be punished by the Federal Executive by fines of from 100 to 5,000 pesos.
- Article 19. All acts of the oil industry shall be deemed to be mercantile. Insofar as they are not provided for by this law they shall be governed by the Commercial Code and supplementary by the provisions of the Civil Code of the Federal District.
- Article 20. Taxes payable by the oil
industry may be exacted by the Federal Government from the
concessionaires, in cash or in kind, as may best suit the needs
of the nation. [Page 537]
- The taxes payable by the oil industry, in accordance with the laws on the subject, shall be paid by all corporations, companies, or private persons engaged in said industry regardless of the kind of rights they have over the deposits which they are working.
- Therefore, for the purposes of this law, all explorers and exploiters of oil and its derivatives shall be on equal footing.
- In the discretion of the Executive, taxes payable by the oil industry may be paid in kind or in cash in accordance with the value that may be quoted on the date when the payment is made.
- The proceeds of the oil taxes, with the exception of
the export duty, which is devoted to the payment of the
foreign debt, shall be distributed as follows:
- 93 percent to the Federation;
- 5 percent to the State within which boundaries the property or properties are located;
- 2 percent to the municipality under whose jurisdiction the property lies.
- The share due to the States and Municipalities shall be paid by the parties (causantes) directly to the State itself, in accordance with the monthly statement of the Department of Finance.
- Article 21. The Federal Executive is empowered to make all the provisions necessary for the execution of this law.
- Article 1. This law shall go into effect from the date of its promulgation.
- Article 2. All prior regulations inconsistent with this law are repealed.
- Article 3. Regulations in force shall continue until new regulations are issued under this law.