Foreign Relations of the United States Diplomatic Papers, 1937, The American Republics, Volume V

812.6363/2945: Telegram

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

Mexico, July 7, 1937—3 p.m.
[Received 8:30 p.m.]

179. My 177, July 6, 5 p.m. Lockett⁴² learns confidentially from General Sanchez Tapia⁴³ that proposed petroleum decree is now at Presidency awaiting signature and therefore its publication may be expected at any time. The General stated that in accordance with the Bucareli Treaties⁴⁴ the American and Mexican Governments had recognized Mexico’s rights of ownership of the subsoil and at the same time the inherent right to tax petroleum production. He believed that the petroleum companies would fare much better in the future if the Government were a “partner” in the development of the subsoil. With the Government receiving a portion of the production it would have a direct interest in encouraging production instead of withholding it as in the past few weeks. It would also be to the Government’s interest to effect rapid and just settlement of labor difficulties. Under the new decree the Government would give every assistance to the petroleum companies in an effort to secure as large a production as possible. There should be no objection to the new decree as production would increase rapidly. The Government’s royalty would be 10 percent of gross wellhead production up to 1000 cubic meters, 12½ percent from 1000 to 2000 cubic meters, 15 percent from 2000 cubic meters payment to be made in petroleum. Royalties are to be applicable to all production from the day on which the decree becomes effective including that from confirmatory concessions. Failure to do as required under the new law will cause the subsoil rights to revert to the Government. It is believed work requirements under the new decree will be applicable to confirmatory concessions but this is as yet unconfirmed.

Indications are that petroleum companies are preparing to oppose the signature of the decree as they consider it a heavy burden. The Government’s royalty should run from 4 to 5 million barrels a year. It is not yet definite whether the new decree will apply to the National Petroleum Administration.

Boal

42. Thomas H. Lockett, Commercial Attaché.
43. Rafael Sanchez Tapia, Mexican Secretary for National Economy.
44. Proceedings of the United States-Mexican Commission Convened in Mexico City, May 14, 1923 (Washington, Government Printing Office, 1925), pp. 53 and 59.