The Ambassador in Paraguay (Frost) to the Secretary of State

No. 1797

Sir: I have the honor to refer to my despatch No. 1624 of December 9, 194331 reporting that Mr. A. C. Rubel, Vice President of the Union Oil Company of California was expected to visit Paraguay in mid-January in order to reach an agreement with the Paraguayan Government respecting petroleum exploration and exploitation in the Paraguayan Chaco.

Mr. Rubel arrived at Asunción on January 26, and immediately called to establish contact with the Embassy, accompanied by Mr. Chester Cassel, who as previously reported has remained in Paraguay since the departure of Messrs. E. B. Noble and Max Krueger.32 Mr. Rubel informed me that he had discussed his plans thoroughly with the Department prior to departing from the United States.

In accordance with my understanding of the Department’s desires I did not arrange Mr. Rubel’s contacts with the Paraguayan officials; but he secured an early interview with the Paraguayan Minister of Public Works, Captain Ramón Martino. Through the latter he subsequently also conversed with Finance Minister Rogelio Espinoza, who had held conversations with him and with Mr. Butler Sherwell, Vice President of the Manufacturers’ Trust Company in New York City last June. Mr. Rubel then proceeded in a privately chartered plane to Fort Camacho, the Paraguayan military headquarters in the Chaco, where he was cordially received and entertained by Colonel Andino and the officers of the Chaco garrison. As Messrs. Noble and Krueger had previously done, he made an excellent impression, and [Page 1469] can probably count on the support of the very important and influential Chaco army units. Today he is proceeding by plane to Puerto Casado, on the Paraguay River, 460 kilometers north of Asunción, whence a narrow gauge railway runs westward 160 kilometers into the Chaco toward Camacho. Supplies, equipment and transportation in general to an exploration base at Camacho would enter via Puerto Casado and the railway owned by the Casado interests.

Mr. Rubel has thus established the fact in the minds of the Paraguayan officials that he is ready to give prompt action, and has awakened the active personal interest of the Paraguayan Army and the transportation companies on the Paraguay River and the Casado properties. He has further informed the Minister of Public Works that he has despatched seismographic apparatus and crew from Peru via the Straits of Magellan to Buenos Aires, where it will be arriving within two or three weeks. (He tells me that the second seismographic apparatus which Mr. Noble spoke of despatching from the United States could not possibly be secured in less than six to eight months.)

Mr. Rubel’s proposal to the Paraguayan Government is for exclusive exploring rights in the entire Chaco for two years, at the end of which time he would release any 20% of the area which he selects. At the end of another two years he would release another 20%, and so on up to a total of ten years; before which time the Union Oil Company would have selected those areas which it would desire permanently to exploit, if any. When exploitation begins, 10% of the gross profits will be retained by the Company each year to amortize its exploration and prefatory drilling expenditure. The net profits would then be divided 35% to the Paraguayan Government and 65% to the Union Oil Company.

I asked Mr. Rubel if this percentage basis were not a novelty in Latin American petroleum concession contracts and he answered in the affirmative. He stated that he wished to have the Paraguayan Government continuously interested in the amount of profits made by the Company, so that it would assist the Company in regulating labor troubles, transportation difficulties, etc. He stated that his company would need to expend about $1,250,000 during the next eighteen months or two years in its projected explorations on a line straight westward from Camacho to the Bolivian border, and that it is not prepared to make this outlay unless it has a definite agreement with the Paraguayan Government for eventual permanent exploitation. The details of this agreement can be left until later but some commitment incorporating the conditions indicated above must be a condition precedent.

I have had two opportunities to discuss the matter privately and informally with the Minister of Hacienda, Dr. Espinoza, and found to [Page 1470] my astonishment that the Department’s airgram of July 10 offering to place the Paraguayan Government in contact with a consortium, which offer was transmitted by this Embassy in a formal note to the Foreign Office on July 24, had never been communicated to the Ministry of Finance. It seems probable that the Paraguayan Government has not given it serious consideration, but will now do so. The Minister of Finance volunteered the opinion that the reconnaissance work thus far done by the Union Oil Company does not entitle it to expect a definite agreement.

I should be glad to know whether the Department’s offer to place the Paraguayan Government in contact with a consortium still stands.

Respectfully yours,

Wesley Frost
  1. Not printed.
  2. Geologists of the Union Oil Company.