Memorandum of Conversation, by the Chief of the Division of the American Republics (Duggan)

[Participants:] Señor Dr. Don Francisco Castillo Nájera, Ambassador of Mexico;
The Secretary of State.

The Secretary inquired whether there were any new developments in the oil situation.

The Ambassador replied that the negotiations he was carrying on with the Sinclair interests through Mr. Hurley were progressing very satisfactorily. The Mexican Government had offered to make compensation of $9,000,000 in cash, payable in three equal annual installments, and additional compensation of approximately $5,000,000 payable in twenty or twenty-five million barrels of oil at 25 or 20 cents, respectively, off the market price to be furnished over three to five years. This offer had not yet been accepted by the Sinclair interests but the Ambassador expected a favorable reply this week or next week at the latest. The Ambassador thought this was a generous settlement. The Sinclair interests had finally claimed $13,800,000 as representing actual investment in physical properties. The Mexican Government thought this high: first, because a fire prior to expropriation had destroyed a refinery worth $2,000,000 and secondly, because an oil field claimed to be worth several millions had been proven non-commercial as a result of the drilling of two wells which had been started prior to expropriation. Nevertheless, and in spite of the fact that the Government’s appraisal showed the properties to be worth only $5,000,000, the Government had agreed to pay practically $14,000,000 in order to get a settlement. The Ambassador added that other companies would probably not be treated as generously.

The Ambassador stated that Cities Service and the Standard of California had recently approached the Government to open negotiations. The Government will negotiate with them as soon as the agreement with the Sinclair interests has been signed. The books of these two companies show a value of approximately $2,000,000 for Cities Service, and $3,000,000 for the Standard of California. Negotiation with the latter should be not difficult since it had no oil leases in Mexico and no producing system, only a distribution system. The determination of the value of this distribution system should present no unusual problems.

If agreements were arrived at with Cities Service and the Standard of California, this would leave only the Standard of New Jersey outside of an agreement. The Amabassador said that on two recent occasions, the last time only last Friday, Mr. Hurley had been called [Page 1000] by Mr. Farish, President of the Standard of New Jersey, and asked if he would undertake to represent the Standard in negotiations with the Mexican Government. Mr. Hurley replied that he would consider this if the negotiations he had undertaken on the part of Sinclair succeeded.

The Ambassador also stated that the top officials in Mexico of the Aguila had just been called to New York. He thought this might mean that the Shell, too, was about to get in touch with him to negotiate a settlement.

Dr. Castillo Nájera passed some severe strictures on Mr. Richberg. He did not think that Mr. Richberg had handled the negotiations well. It was impossible for the Mexican Government to know when Richberg was talking for himself and when for the companies.

The Secretary inquired to what extent Richberg was talking for all of the companies. The Ambassador said that he represented all of the companies, including the Shell and Sinclair.

Later, the Ambassador told me that the books of the Standard of New Jersey showed that the physical properties of the Standard were valued at $15,000,000. I inquired whether this included the value of concessions. The Ambassador said that it did not, that if the Standard wanted an agreement, it would have to give up any thought of receiving anything for its subsoil rights just as Sinclair was about to do.

Laurence Duggan