887.2553/4–2351

Memorandum of Conversation, by James Newton of the Petroleum Policy Staff

Participants: Colonel Guillaumat, Director of Fuels
Mr. Gabriel Rosaz, French Embassy
Department: Mr. Edwin G. MolinePED
Mr. Richard FunkhouserNEA
Mr. James NewtonPED

Invited to expose the views of the French Government regarding a new agreement between the IPC and the Iraq Government, Mr. Guillaumat first mentioned the importance of Iraqi oil to France and French interest in maximizing Iraqi production. He had, however, called to ascertain what views on a settlement in Iraq the United States Government now entertained, particularly in view of the recent Aramco settlement in Saudi Arabia. Mr. Moline said that the United States Government had not altered its previous views, but that, in the light of the Aramco settlement, it was now clear that a new agreement with Iraq of the same magnitude was inevitable and that the key to reading a satisfactory agreement seemed to be increased production. As regards the IPC big inch pipeline the United States Government likewise had not changed its views, and there had been no decision within the Government to alter the rate of licensing despite some criticism on the matter. Any slow down in the rate of pipe delivery, Mr. Moline explained would be due to production problems [Page 305]and probably would not delay completion of the pipeline beyond schedule.

With regard to steel for the pipeline, Colonel Guillaumat mentioned French anxiety lest pipeline delivery delays occasion an unfortunate reaction in Iraqi public opinion but expressed his view that the delivery delay was not yet serious. With regard to the Basra concession Colonel Guillaumat explained the delays which had occurred in developing this field and said that these factors would afford the company an excuse valid until next January. He felt, however, that the company should begin producing as early as possible. Mr. Moline concurred and said that while the delay was probably excusable one reached the point where meeting only minimum contractual obligations was not likely to satisfy a highly critical Government. It was his view that IPC would have to promise substantially more than minimum requirements. Colonel Guillaumat said that he hoped that a substantial increase in Basra production would be achieved but mentioned that the French Government was somewhat concerned about the lasting powers of any new agreement, noting that the Iraqis were renewing their demands for increased benefits although IPC-Iraqi negotiations had been concluded only as recently as last August. Mr. Moline noted that the settlement did not apply to Basra and Mosul.

Mr. Moline said that the whole Iranian problem might have been avoided had an imaginative offer been made before the situation was allowed to degenerate and indicated that, in view of the situation in Iran, an early, generous settlement in Iraq was necessary. Colonel Guillaumat said that it was the French Government’s desire to see a settlement in Iraq worked out as rapidly as possible.

Mr. Moline said that he did not understand the French concern over American proposals involving changes in the corporate structure of IPC. Colonel Guillaumat explained that the IPC was not like Aramco when the parent companies were of the same nationality, but a company where several national interests were involved. If the IPC were transformed into a profit-making company, returns would presumably be made in dividends payable to the shareholders. The French were not interested in dividends but in oil. Too, if the reorganization were to take place, the French dividends would be subject to foreign (U.K. or Iraqi) regulations.

Mr. Funkhouser inquired whether French interests had attempted to work out a formula with other IPC parent companies. Colonel Guillaumat said they had but without success and indicated that the French company might lose its right to buy oil at cost. Mr. Moline said he thought the cost of production concept need not be a barrier as regards Iraqi oil for it could be very flexible. Imposition of new taxes would, for example, add to production costs and the Iraqis might get their share in that fashion. Colonel Guillaumat said that [Page 306]that, in effect, was what American companies had proposed. Mr. Moline said he thought that the principle of equal participation ought to be recognized and that this should be generally on a 50–50 basis without specific relation to Saudi Arabian revenues. The alternative as proposed by the French would present the difficulty of having to publish Saudi Arabian royalty rates and get comparisons on a cents per barrel basis. Colonel Guillaumat said that the application of the other complex Aramco formula would be impossible but Mr. Funkhouser asked whether a profit-sharing formula would not be a more stable solution and royalties more flexible than a specific per ton rate. Mr. Moline pointed out that Venezuelan revenues were not specifically known. They varied from year to year and on a per barrel basis probably exceeded the Saudi Arabian returns.

Colonel Guillaumat said the solution would be more easily applied by a profit making company and anyway the French feared that discussions prior to reaching a settlement along these lines would be too lengthy. Mr. Moline said the problem was that of convincing the Iraqis that they would be getting a fair deal. Colonel Guillaumat said he thought Middle East Governments would never accept a reduction in revenues which might occur under a profit-sharing formula, particularly if prices rose. Mr. Moline said that a price formula reflecting the increasing importance of Middle East oil was needed and that although it might be difficult to attain, the alternative, with the problems they would create, would be even less attractive.

On two other matters, the bulk terminals in French West Africa and the refinery licenses, Colonel Guillaumat had no comment to make. As the conversation ended he indicated that IPC inter-company talks were scheduled to begin in London this week.

  1. This memorandum was drafted on May 10.