874.2553/1–2550

Memorandum of Conversation, by Mr. Richard Funkhouser of the Office of African and Near Eastern Affairs

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Subject: Standard of New Jersey Decision to Terminate Exploration Operations in Egypt

Participants: Messrs. Sherman, Pannill and Ruedeman, Standard Oil Company of New Jersey
ANE—Mr. Berry
ANE—Mr. Burns
ANE—Mr. Funkhouser
ANE—Mr. Nelson
PED—Mr. Moline

Mr. Sherman reviewed the history of SONJ exploration activities in Egypt and the Company’s difficulties with Egyptian Mining Laws and License–Lease forms. (Details are available in reports from Cairo.) Mr. Sherman stated that if the difficulties over the Law and License–Lease forms had been settled last year, as had been promised, SONJ would still be operating in Egypt. However, since the original difficulties with Egyptian laws and mining legislation began, the world situation with respect to oil had drastically changed. Even if the Egyptian Government were now to write their mining legislation to the complete satisfaction of Standard of Jersey, the company would not change its plans to terminate all exploration operations.

Due to the world surplus oil conditions, dollar short markets and more profitable oil areas in the world such as Canada and the Persian Gulf, Standard was shutting down their exploration operations in over half a dozen foreign countries. Included were the Bahamas, Santo Domingo, Cuba, Ecuador, Costa Rica, Guatemala and the Peruvian mountains area. Mr. Sherman added that the Peruvian case was particularly embarrassing, since the Peruvian Government had [Page 16]finally passed mining legislation which was to the complete satisfaction of the company.

Mr. Sherman further added that Creole Petroleum Corporation which had 37 exploration rigs in Venezuela before the war was now reduced to 7. Staff of Creole, largest producing oil company in the world, had been reduced this year from 20,000 to 16,000 with another 4,000 cut imminent. Therefore, it was obvious that in reviewing those areas which were marginal from Standard’s viewpoint, Egyptian exploration would be one of those terminated.

Liquidation would come after Standard had spent $15,000,000 over a 12-year period and had finally in 1949 completed its first successful well. Standard had had to drill this well with only the promise of government officials that a license would be granted. SONJ later found itself in the uncomfortable position of making an oil discovery without holding title to the land.

Mr. Ruedeman then read an open cable which the company had despatched to Cairo. The purpose of the cable was to counter charges made by Director of Mines and Quarries Abu Zeid in private and probably in official circles that the company had never made their position clear and that provisions of proposed mining legislation were not unsatisfactory for foreign oil companies. The cable refuted point by point the allegations made by Abu Zeid and called attention to the long history of fruitless negotiations and to the fixed position from which the company had never waivered.

Mr. Funkhouser stated that the Department viewed the termination of such important private industry operations in the Near East with great concern, particularly since it came at a time when the government was endeavoring to make conditions abroad attractive to US private enterprise. It was felt that this corpse of private enterprise would warrant coronary study by those officials working on Point 4. It also appeared that there were two courses of action open to the government: (a) If Egyptian legislation were inequitable, the Department could endeavor to persuade the Egyptian Government to make such changes as would be necessary to attract American capital. However, since Standard had stated that regardless of the changes made the company would not return to active operations, the US Government and the company would be put in an embarrassing position should the Egyptian Government make any such changes advocated. Standard officials agreed that no action along this line would help their case. (b) The second course of action would be to attempt to harvest whatever profit could be gleaned from this not unspectacular development. (The termination of an oil company’s activities just after finding oil would be publicized for the news that it obviously was.) Mr. Funkhouser stated it would be advantageous for the company and [Page 17]the US Government to make certain that an accurate report and honest understanding of the situation reached the Egyptian officialdom and public as well as the public in other parts of the Middle East. For that reason, Mr. Funkhouser stated that an approach such as contained in the Standard cable might damage the company’s reputation in Egypt and reflect on the prestige of Standard and other American oil business in the area. It was felt that rather than give a technical and detailed analysis of the company’s objections to Egyptian law which would in turn serve to force the Egyptian Government to counterattack in order to justify their position, it was suggested that a simple statement be made to the effect that in view of the changed world oil picture characterized by surplus oil conditions, dollar short markets, Standard was forced to terminate its Egyptian operations, and other marginal operations in order to concentrate on areas with better oil prospects and more favorable conditions. In other words, if the company wished to maintain public favor to protect its Egyptian marketing operations, it would be useless to criticize Egyptian legislation. Putting the blame where it principally belonged, i.e. the fact that Standard did not need the oil, was cutting back all over the world in marginal territories, and was having difficulty selling for dollars what oil they already possessed would be the best way to salvage any local sympathy and understanding available. Such a presentation might also serve to impress Near East States with the need for increased local efforts to develop conditions attractive to foreign capital.

Although these Standard representatives stated that Mr. Hoskins, their Middle East consultant, fully agreed with this position, that their open cable was not intended to be a press despatch, that Standard would leave publicity up to their officials in the field who obviously agreed with this approach, they, nevertheless, appeared to return to the position set forth in their cable in their subsequent arguments. Mr. Pannill could not effectively be moved off the position that Abu Zeid criticism of the company and of company procedures should not be refuted point by point for the record. Mr. Burns and Mr. Moline endeavored to phrase the Department’s position more succinctly in order to impress Mr. Pannill with the fruitlessness of engaging in debate over technicalities of the Egyptian regulations, if the company had no intention of continuing operations, Mr. Sherman agreed that all had the same point of view and that Mr. Pannill who was sailing for Cairo early next month for consultations with Messrs. Anderson, Walters, and Owens of SONJ would convey the Department’s views to the field. Mr. Funkhouser stated that the Department would cable the results of this meeting to the Embassy and that Embassy officials would be more than glad to cooperate with the company on this problem in every way possible. Mr. Sherman appreciated the close cooperation [Page 18]which Standard had with the Embassy and it was agreed that those in the field would be in the best position to handle this delicate problem. Standard officials were warmly thanked for making their special trip to Washington.