111. Information Memorandum From the Acting Assistant Secretary of State for Economic Affairs (Katz) to the Under Secretary of State (Irwin)1

Oil Participation Negotiations—Companies to Make Proposal

Esso Executive Vice President Emilio Collado told Jim Akins in confidence yesterday that the oil companies plan to put forth a substantial negotiating proposal in the participation talks. The final decision on the companies’ offer will be taken by the London Policy Group February 10; if approved, (and Mr. Collado said this was only a formality) the proposal will be advanced to the Shah and Saudi Petroleum Minister Yamani next week.

The companies will propose, in simultaneous conversations with the Shah in San Moritz and Yamani in Jidda, that they enter into large new joint ventures with the producing governments in areas carved at least in part from their present concessions. In Saudi Arabia—if Yamani agrees to the company stipulation that he speak only for Saudi Arabia and not for OPEC—the companies will propose surrender of some of their territory in the Empty Quarter, matched by Saudi assignment of some presently unassigned blocks in the same area. A joint operating company would be set up to explore and develop the concession. A similar arrangement would be proposed for Iran, although we do not know in what area. The concession area in Saudi Arabia could be drawn to include some already proven but undeveloped oil fields, and the same arrangement could also be made in Iran.

We believe this is a foresighted move on the part of the companies. It is one we have specifically suggested to them, and it will undoubtedly change the negotiating situation considerably. Consequently, the démarche to set forth our position on the OPEC demands does not seem called for at present.

Neither the Shah nor Yamani, however, is likely to swallow this bait whole. Participation, either in the disguised form which the Shah has suggested or in the OPEC form, would still be more advantageous to the governments than new joint ventures. Even if they included proven oil fields, the joint ventures would involve large capital commitments and a number of years’ development time before they could [Page 270]begin to pay off. Nevertheless, the companies have now done what we and many of their own employees have been urging them to do and are about to take a major step toward a new future.

  1. Source: National Archives, RG 59, Central Files 1970–73, PET 3 OPEC. Secret; Exdis. Drafted on February 8 by Brown and concurred in by Akins. A copy was sent to Davies and Miklos.