831.6363/1383: Airgram

The Chargé in Venezuela (Flack) to the Secretary of State

A–12. My telegram No. 1409, December 29, 9 p.m.48 and final paragraph Department’s 856 December 26, 8 p.m.49 Before returning to New York on December 31, Lieb of Standard told me he approved proposed draft of petroleum law in present or substantially similar form. He expressed opinion that this would benefit industry as a whole, due to more stable conditions expected to ensue, and eliminate constant bickerings between companies and Venezuelan Government.

Hamilton and Greer of Gulf are now in United States.

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British Minister told me recently that Shell, while having minor objections of its own on certain points, would under no circumstances break off negotiations if these were not met, and he expects Shell will consent to adoption of law along lines drafted, considering this will be beneficial to the industry.

Sinclair of Consolidated orally expressed his satisfaction with developments here before leaving prior to Christmas.

Case and Brown of Socony are expected here shortly, accompanying Sheldon when he returns on January 8.

Boylan, local manager of Caracas Petroleum Company, expressed gratification at evidence of inclusion in draft of certain points made by Alfred Meyer, president of the company, in conversations with Thornburg.50 Boylan added that while proposed law was somewhat onerous to his company, this did not apply to operations being carried on for it by Texas Company, but to individual holdings now greatly reduced and that if Texas, Socony, etc., could adopt new law, his company would be able to carry on. He mentioned that in his opinion certain rebates provided for pipe lines to seaports would tend to reduce the increased royalty burden.

Lieb informed me when here that after adoption of new law the Venezuelan Government plans to undertake the following:

Revision of Customs Regulations
Revision of various taxes
Propaganda campaign with pictures showing benefits companies are bringing to Venezuela.

He said that ensuing simplification of procedure when these measures were in force would enable considerable reduction in personnel payrolls in future operations and would thus offset increased costs to operating companies so that net increase would probably not exceed 1–2 cents per barrel of crude. A further offset against increased costs would be stabilized concessions and absence of law suits. He said that in any case the increased costs would be much less than in the industry in the United States.

Reliable confidential information reveals that discussions are now in progress in high Venezuelan Government quarters which may lead to adjustment in the conversion tax downward, thus aiding the smaller companies including Pantepec. Also in case of Pantepec possible contractual adjustments with Standard may help. There is no Pantepec representative here at present. Buckley’s attitude has not gained any added good will for Pantepec in Venezuelan Government quarters.

It is my judgment that the advantages which the adoption of the new law will apparently provide for the petroleum industry in Venezuela as a whole, will thus be beneficial to the smaller companies and [Page 809] to non-operating companies such as Caracas and Pantepec which derive their income from properties operated by others. On the basis of information at hand, although some minor aspects of the draft are still being considered, it will provide clear titles after adoption, eliminate points of disagreement about past questionable concessions and thus create an atmosphere for healthy development in which the long range interests of all groups will be better served.

Because of the complex and diverse aspects of the oil industry, it does not appear possible to draft a law which would fit all interests perfectly, but it seems axiomatic that if the industry as a whole benefits, its components likewise benefit. In addition, special consideration is being given to aiding the smaller companies if a downward revision of the conversion tax can be accomplished.

The Minister of Fomento51 has been taking an increasingly active part in the completion of the draft law and apparently this role has the official approval of Dr. Manrique52 regardless of his earlier contributions toward an amicable agreement and any personal feelings he may have.

Curtice53 informs me that President Medina has no intention of calling a special session of Congress to consider the draft law until a majority of the companies have indicated their willingness to adopt the draft.

  1. Not printed.
  2. Foreign Relations, 1942, vol. vi, p. 754.
  3. Max Thornburg, Petroleum Adviser.
  4. Eugenio Mendoza.
  5. Gustavo Manrique Pacanins, Attorney General of Venezuela.
  6. Arthur Curtice, American engineer and technical consultant of the Venezuelan Government.