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

[Extracts] No. 239

Subject: Venezuelan Policy of Refusing New Oil Concessions and its Relation to Recent Publicity and to the Bogotá Conference1

Sir: I have the honor to refer to previous telegrams on this subject and to report that there have recently appeared in Caracas newspapers several United Press and Associated Press dispatches which have attributed to official and unofficial sources in the United States certain statements concerning the world need for oil and the possibility of reaching a multilateral agreement at Bogotá for increased production from Western hemisphere reserves.

i. description of recent publicity

One of these dispatches attributed to Congressman Short2 a statement that the oil policy of Venezuela is “strictly and basically nationalistic”.

On March 2, 1948, the semi-official El País published an interview with the Minister of Development, Juan Pablo Perez Alfonso, in which the Minister made specific reference to Congressman Short’s statement. A summary of this interview, the substance of which was transmitted in the Embassy’s telegram no. 169 of March 4, 1948,3 is enclosed.3 The Minister defends what he calls the “wise nationalism” of the Venezuelan Government which he compares to alleged nationalistic policies of the United States. He is quoted as saying in substance that Venezuela will not consider the granting of any new oil concessions because of the difficulty of using additional income to purchase needed farm and industrial machinery and because of the need for [Page 757]conservation. The Minister also made vague reference to Venezuela’s possible collaboration with other American States in the exploration and study of Venezuelan natural resources; he may have had in mind a distinction between operations of a purely exploratory character and actual production which would deplete reserves. Summary of an El País editorial supporting the Minister is enclosed.4

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ii. background of the policy of no new concessions

As the Department knows, the only important restriction imposed by Venezuelan law and practice at this time on increased exploration, production and exportation of oil is the current Accíon Democrática policy of refusing to grant additional concessions similar to those under which the oil companies now operate. This is not a new policy; since the Revolution of October 1945 concessions previously granted by the régimes of President Medina and its predecessors have been recognized, but no new ones have been given.

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iii. the effect of this policy on production

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The three so-called “large” companies (Creole, Mene Grande and Shell) currently produce about 94 percent of the oil. They are now going ahead with exploratory programs in respect of unproven acreage and with programs to increase production in proven areas. An informed official of one of these companies has informed the Embassy that the “large” companies will be fully occupied by this task for the next three to five years; and he estimates that within five years the total national production will have increased about 20 percent. This estimate is a conservative one since it assumes that no large fields will be found within the present concession areas and that no new areas will be made available for development.

On the same assumption that no new production will be found and no new areas opened to exploitation, the same official estimates that in five years Venezuelan oil production will level off and begin to decline. Meanwhile, the principal impediments to higher production and more extensive development of the present concession areas continue to be the shortage of Venezuelan labor and the difficulty of obtaining steel pipe and other materials which are under United States export control—not the policies or practices of the Venezuelan Government.

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In sum, the policies and practices of the Venezuelan government cannot yet be said to have seriously impeded exploratory or development [Page 758]operations. If, for the next period of three to five years, no new areas are made available, the energies of the “large” companies will nevertheless have been more or less fully occupied in developing the acreage which they already have. The same thing will be true of some of the “small” producers.

For the immediate present, then, the problem is not so much one of expanding exploration and production operations but rather one of opening the way for a few “small” operating companies and new arrivals to begin or to expand activities—to add their capital and energies to those of the better-established companies, whose task for the next few years is already laid out so that exploratory operations in unproven areas can be speeded up.

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v. recommendations

It is entirely possible that the Venezuelan Government, either now or at some time in the near future, will consent to open up additional acreage to development; it may seek agreement of the companies to arrangements which will be more favorable to the government than are the terms of the 1943 law. Since the private companies must individually decide under what conditions they will risk their capital, this phase of the question should continue to be the subject of direct negotiations between the companies and the government. The Embassy should, at the same time, attempt to create an atmosphere conducive to expanded operations by the companies on a basis fair to them and to the Venezuelan Government alike.

It is also possible that the Venezuelan Government may wish, as a condition precedent to agreements for additional development, to obtain one or more concessions from the United States such as, for example, preferred treatment in respect of the receipt of United States machinery. The possible phase of the problem should, of course, be the subject of government-to-government negotiations which should be related to the question of the terms and conditions under which new acreage will be made available to the companies and perhaps related also to various other industry problems.

These suggestions are tentative only since the Embassy, in the absence of instructions in respect of the Department’s decision concerning multilateral discussion of the problem at Bogotá, has not considered it prudent to discuss the problem with the Venezuelan authorities.

In respect of the possibility of multilateral discussions at Bogotá, the Embassy’s views continue to be those expressed in its airgram A–56 of January 15, 1948.6

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vi. comments concerning publicity

Venezuela is now the world’s largest exporter of oil with a current production in excess of 1,300,000 barrels a day. It was a valuable source of supply to us in the last war and a cooperative ally. It is the only nation in Latin America which permits large-scale production and exportation of oil by private companies. In the face of determined Communist opposition and at some political risk, the Venezuelan Government recently made possible the successful conclusion of an industry labor contract which is substantially fair to the industry and to labor alike, and which preserves intact the management prerogatives of the companies. It has recently concluded a series of agreements for the sale to United States and United Kingdom companies of a large part of the government’s royalty oil; while these agreements permit the government to make sales to third parties, they will doubtless make available to the United States substantial quantities of oil.

In sum, the Venezuelan Government feels that its oil policy, considered either on its merits or on a basis of comparison with the policies of other Latin American countries, is entitled to something other than the published criticism of United States sources. As the Department knows, one Venezuelan official attributed to the Department the press statements referred to in the first part of this despatch. For these reasons—and because a continuation of uncontrolled discussion in the press may cause misunderstanding and make a settlement of the problem more difficult—the Embassy has telegraphed the Department that further public discussion of Venezuelan policy is undesirable.

Respectfully yours,

For the Chargé d’Affaires
Thomas C. Mann

Second Secretary of Embassy
  1. For documentation on the Ninth International Conference of American States, Bogotá, Colombia, March 30–May 2, 1948, see pp. 1 ff.
  2. Dewey Short, of Missouri.
  3. Not printed.
  4. Not printed.
  5. Not printed.
  6. Not printed.