Memorandum of Conversation, by the Chief of the Petroleum Division (Loftus)

Participants: [Department of State:]
Mr. Braden
Mr. Wright
Mr. Braddock
Mr. Rayner
Mr. Loftus
Standard Oil Company:
Mr. Orville Harden
Mr. George Koegler
Mr. William Haley

Mr. Harden, who had requested the appointment with Mr. Braden, stated that his company had been advised by their representative in Brazil that the Gulf Oil Corporation was willing to negotiate with one of the Brazilian refining concessionaire groups on the basis of contributing the total dollar requirements of refinery construction costs in the form of cruzeiro debentures. It was to be anticipated that the other Brazilian concessionaire groups would demand the same terms. In fact the group which had been negotiating with the Gulf (namely Ypiranga81) had informed the Jersey representatives that the only terms Ypiranga would consider involved the contribution of total dollar cost requirements on cruzeiro debenture basis with no provision for the subsequent convertibility of the debentures into an equity interest if the laws should be modified so as to permit such conversion.

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Mr. Harden stated that he regarded this proposal as most unsatisfactory and threatening to the future of oil operations in every foreign country. If Standard were forced to accept it because of action by Gulf, Standard would do so with great reluctance. Before making any decision, however, he wanted the advice of the State Department about whether there would be any objection to negotiations along the lines indicated.

Mr. Braden and Mr. Wright made it clear that the Department was exerting every effort to obtain a liberalization of the laws governing petroleum operations in Brazil and hoped that problems such as this would not continue to arise. In the meanwhile, however, while it was to be regretted that any American company should be required by circumstances, arising out of nationalistic legislation in Brazil, to enter into such an unsound business deal, there was no basis upon which the Department could object to the Gulf Oil Corporation accepting the proposed terms. If such acceptance were to set the pattern for other crude supply contract arrangements in Brazil this would be unfortunate, but the Department could not ask the Standard Oil Company to refrain from meeting the only terms that appeared likely to be acceptable to the Brazilian concessionaires.

Mr. Harden asked if there was anything the Department could do with respect to the situation in Brazil. Mr. Loftus stated that we were considering one more effort to persuade the Brazilians to reconsider and liberalize their governing legislation before the present refinery arrangements should be finalized. There could be no assurance, however, that this would be successful.

As an instance of how the Department is prepared to use its negotiating strength to promote conditions favorable to American trade and investment abroad, Mr. Braden stated the firm position which he had taken in opposition to the extension of an Ex-Im Bank loan to Chile for oil development purposes. Mr. Koegler asked if it might not be possible to indicate at the present time to Brazil that a similar attitude would be taken toward Brazilian applications for Ex-Im credit unless laws antagonistic to the entry and activity of American nationals were modified. Mr. Braden and Mr. Wright stated that any such indication in advance of the receipt of specific credit requests from Brazil would be impossible.

There was some discussion of the legislation governing petroleum exploration and development in Brazil and of the work which the Department and the Embassy at Bio have been and are doing in this regard. It was reported by the company officials that the Standard Oil Company had submitted a written proposal to the Brazilian authorities outlining the range of terms under which the company would be willing to undertake exploratory operations in Brazil.

  1. São Paulo Ipiranga, oil developing company that appears to have collaborated with Gulf Oil Company in marketing plans.