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

No. 27

Sir: The Department understands from oral statements made to it by representatives of American oil interests in Mexico, as well as from written communications dealing with specific cases which have recently been forwarded to you for your information, that the Mexican authorities are not only refusing to grant drilling permits to companies which have failed to apply for confirmatory concessions on their pre-constitutional land holdings, but are also declaring such lands to be free lands and are issuing concessions thereon to unrelated third parties. It appears, for example, from your despatch No. 48 of November 8, 1927,17 and its enclosures that while the Mexican authorities have expressed to the interested parties a willingness to obey judicial orders issued in pursuance of appropriate amparo actions, in the absence of such judicial orders the oppositions filed by pre-constitutional owners against third party concessions are uniformly rejected. In this connection your attention is invited to the despatch from the American Consul General in Charge at Tampico, dated October 27, 1927,17 a copy of which was forwarded directly to the Embassy, reporting the receipt of information from Messrs. Alex Smith and Company that in accordance with instructions of the Mexican Department of Industry, Commerce and Labor the Tampico Agency has granted to the “Control de Administración del Petróleo Nacional” permit to drill Ochoa Well No. 2 upon the land of T. J. Fugitt, Ochoa Well No. 3 upon the land of R. E. L. Owen, and Ochoa Well No. 4 on the land of Mrs. E. C. Yates; that the same Department has authorized the granting of a drilling permit to the “Control de Administración del Petróleo Nacional” for Ochoa Well No. 1, being on the property of Lucius C. Warner; and that in respect of the last named property the Control is moving material, setting up boiler, building derrick, et cetera, upon the land in question.

You will readily appreciate that American owners of oil lands acquired by them in good faith prior to the adoption of the Constitution of 1917 are greatly disturbed by what seems to them to be a steadily advancing policy of confiscation. They point out that not only are they deprived of the beneficial use of their lands through nonissuance or cancellation of drilling permits, but that such lands are held out to the public as open to denouncement by unrelated third parties, that concessions are granted thereon to such parties, and that steps are taken by the new concessionaires to commence exploring and exploiting operations.

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While the Department cannot, of course, ignore cases of actual confiscation of validly acquired American owned property, and while it cannot but be concerned at the steps which the Mexican authorities seem to be taking in that direction, it feels that it is far more important at this juncture to endeavor to reach some general agreement with the Mexican Government providing for satisfactory recognition of valid American property rights than to make repeated representations in respect of individual cases arising under the land, petroleum and other laws regulating the provisions of the Constitution. Such individual representations have been almost without exception fruitless in the past, and the irritation which could conceivably follow continued pressure of a similar nature might seriously jeopardize the success of your efforts to effect a general settlement.

In these circumstances the Department is not inclined to instruct you to present individual cases to the Foreign Office at this time. It will, however, bring at once to your attention all such cases as may be submitted to it so that in your discretion they may be used as illustrations to support your general thesis that valid American property rights should not be disturbed. In this connection it is suggested that you give careful attention to the possibility that the Mexican authorities might be prevailed upon to agree that pending the exploration of the general situation which you have entered into with them, no affirmative steps looking to the confiscation or positive impairment of American property rights would be taken. If, for example, you could obtain assurances that during this interval drilling permits could be issued under appropriate reservations to companies which have not applied for confirmatory concessions, a most favorable impression could not but be created in this country, but even if the Mexican authorities were unwilling to go so far it should not be impossible to convince them of the desirability, in the interest of a general settlement, of wholly refraining for the time being from issuing to unrelated third parties exploration and exploitation concessions on American owned lands. Assurances of such a nature would do much to relieve the situation of a present tension and source of embarrassment to the two Governments.

I am [etc.]

Frank B. Kellogg
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