The Ambassador in Mexico ( Sheffield ) to the Secretary of State

No. 2401

Sir: I have the honor to refer to my telegram No. 272 of June 15, 5 p.m., reporting the issuance of an order by the Department of Industry, Commerce and Labor, on June 8, 1926, signed by Minister Morones, prescribing special conditions governing the issuance of provisional permits for drilling oil wells on lands, the acquired rights of which have not been fully proven by the applicant companies. A copy and translation of the order in question, which were furnished me by the representative of an American oil company, are transmitted herewith. It appears that the order has been circularized among all oil companies in Mexico and has not as yet been made public.

A meeting of the representatives in Mexico of the Oil Producers’ Association took place today and it was agreed that a protest should be made against the order, the enforcement of which would, in their judgment, put an end to oil drilling by foreigners in Mexico. Before taking action, however, it is their intention to obtain the adhesion [Page 678] to this position by individuals and companies not members of the association, in order that the action may represent unanimously all oil producers in Mexico.

I submit as of considerable significance the remark which was made to a member of the Embassy by the representative of one of the American companies to the effect that this order was further evidence of the intention of the Mexican authorities to confiscate foreign oil properties, which the Mexican Government considers would be fully justified by the terms of the order.

I have [etc.]

James R. Sheffield

Order Issued June 8, 1926, by the Mexican Department of Industry, Commerce, and Labor

Special conditions governing provisional permits to drill petroleum wells on lands the acquired rights to which have not been fully proved by the petitioning companies.

The permits shall be essentially provisional, and shall be subject to the beneficiaries proving legally their rights within the period indicated for this purpose in each case, which can never extend beyond December 31 of the current year.
In order that these permits may be issued, the petitioning company or person must first execute a bond for an unlimited amount, to the satisfaction of this Department, to guarantee the value of the petroleum which may be extracted from the wells drilled under these permits, if the beneficiary should not succeed in fully proving the legality of his rights within the period indicated for this purpose.
If, as a result of the provisions of the foregoing articles, the permits should be canceled, the beneficiary thereof shall be obliged to refund the value of the petroleum which may have been extracted under the permit, and if he does not do so, the Department shall realize upon the bond furnished, making use of the compulsory economic authority, to which the bondsmen must expressly submit.
These permits are authorized for the sole purpose of not interrupting petroleum exploitation, and they shall be continued in their provisional character until the rights of the beneficiaries are legally proved; and it shall be stated in the permits that their issuance confers no rights whatsoever upon the beneficiaries, and that by the mere use thereof the beneficiaries signify their absolute conformity to all the conditions enumerated in this order.

L. Morones
  1. File translation revised.