VE–18. Memorandum of a Conversation, Department of State, Washington, January 5, 1959.1
SUBJECT
- Effect of Venezuelan Tax Law
PARTICIPANTS
- Mr. Thomas C. Mann—E
- Mr. Maurice Bernbaum—OSA
- Mr. Carl Bartch—OSA
- Mr. Hollis Kannenberg—FSD
- Mr. Craig Stark—E
- Members of the Petroleum Industry
At the request of the Department of State, 38 leaders of the petroleum industry met to discuss the probable effects of the Venezuelan tax decree announced December 19. Mr. Mann opened the meeting with a review of the events leading up to the Venezuelan move and outlined steps taken since then by the Department of State. He described at some length the attitude of the Venezuelan people and government toward the tax decree and cautioned against any overt retaliation on the part of industry. Mr. Mann pointed out that one of the major problems in Venezuela is in attempting to get the Government to speak frankly to its people. Mr. B. C. Schmidt (San Jacinto Petroleum) said that the Junta was under no pressure and that the move was evidently motivated by fiscal goals. It will not be possible to arrive at an exact figure, he said, because the effect will vary with the size of the company. Mr. Mann asked that the companies determine, within a range, what the effect of the cut will be. The newcomers should calculate what the effects in 1958 will be, how long it will take them to recover their initial investment and how the flow of oil in 1959 will be effected. These facts would be complementary to those provided by the established firms. Both groups should understand their case and present it to the Venezuelans in relation to their own company interest. He cautioned against making public and written protests. Private conversations with prominent Venezuelans, as well as with the Government, would be more advantageous and would provide the Department of State with support.
Mr. T.S. Petersen (Standard of California) indicated that the tax decree must increase the Venezuelan tax revenue since his company’s tax bill was due [Facsimile Page 2] within a few weeks. Any company working for [Typeset Page 1240] stockholders, however, will buy where the oil is cheapest. Mr. Mann suggested that we should admit the temporary advantages to Venezuela, but also point out that there will be disadvantages, particularly in the long run, since some Venezuelan oil is high cost and will be gradually displaced. Mr. Petersen stated that his company has been in Venezuela for 30 years and has spent 125 million without finding light oil with the exception of a single recent strike at great depth. The new tax law, he said, may make exploration costs in less desirable areas in Venezuela prohibitive.
This is the sort of experience we should point out to the Venezuelans, Mr. Mann said. He commented that President-elect Betancourt is not anxious to increase production, but on the contrary, feels that too many concessions have already been let. Mr. T. L. Lenzen (Standard of California) suggested that U.S. Ambassadors to other oil countries be informed. Mr. Mann commented that there seems to be close contact between the Venezuelans and the Arabs. Mr. R. C. Sauer (Sohio Petroleum) suggested that we ought to talk about other things; the issue of the contract price and the world price, for example. A depreciation allowance would also be desirable.
Mr. Eugene Rolman (Standard of New Jersey) said that the industry ought to get the door open for talks. There are many knowledgeable Venezuelans, particularly in the Bureau of Mines, he said, and it is to these people that we ought to make our points. The Venezuelans made this decision on political, not economic grounds, he said. Mr. Mann pointed out that we can talk to the Government along technical lines; what the decision means for the long and short run. The industry can help the Department of State in that the Department cannot know how it will affect companies without cooperation. He cautioned against over stating the case. Mr. Holman indicated that many other industries are largely dependent on the oil industry. Mr. Peterson said that he believed that a drop in tax revenue would be taken more easily if we begin now to educate people to the real effect of economic laws. The most dangerous thing to do is to give the impression of retaliation by design, he said. The meeting closed with several companies promising to send in their estimates of the effect of the tax decree within a short time.
- Source: Department of State, Central Files, 831.112/1–559. Confidential. Drafted by Stark.↩