812.6363/2339

The Chargé in Mexico (Schoenfeld) to the Secretary of State

No. 4617

Sir: I have the honor to refer to the last sentence of my confidential telegram No. 264 of July 14, last, reporting that no information [Page 186]was available in Mexico City as to the reason for the decision of certain petroleum companies not to proceed with their original intention of drilling petroleum wells on preconstitutional properties without the drilling permits for which they had applied and which had been refused by the Mexican Government.

I am now informed that the initial step in the reversal of this program was taken by the Huasteca Petroleum Company as the result of a visit to New York of one of its Mexican Counsel, who argued that the decision of this and other companies to drill without permits amounted to a conspiracy against the Mexican Government. The argument of this Mexican lawyer apparently sufficed to cause at least a temporary hesitation on the part of this company which was followed by certain other companies, particularly those which had not secured judicial decisions covering such operations, as was the case with some of them. This visit to New York took place about the beginning of July and about the same time, in fact on July 1, the Secretary of Industry, Señor Morones, informed a representative of the American company above mentioned that the Government intended, “come what may”, to prevent, by force of arms if necessary, the drilling of wells on preconstitutional lands which had not been made the subject of petitions for confirmation of rights. In view of these facts, and in view further of the onset of the rainy season, which made drilling operations in any case more difficult than usual, the companies apparently decided to defer proceeding with their original plan of drilling without permits. Such a decision was also facilitated somewhat by the general overproduction of petroleum elsewhere than in Mexico which eased the pressure upon the companies to continue maximum production.

For the moment, therefore, the petroleum situation is stationary, though there is much anxiety among representatives of the companies in Mexico regarding future developments. Some of them feel that great progress has been made since the time when the Mexican Government uttered dire threats of destruction for failure to comply with retroactive and confiscatory features of legislation affecting the industry; but this feeling does not serve to allay the anxiety of the companies as to the course they should follow in the future. Others seem to think their principal hope lies in the possibility that the Mexican Government itself, under the pressure of financial necessity and in the presence of the firm resistance of the United States Government to its confiscatory policy, will find means of abrogating the objectionable features of the existing law and thereby enable the industry to revive.

I have [etc.]

H. F. Arthur Schoenfeld