675. Memorandum of Conversation, Washington, April 29, 1971, 5 p.m.1 2

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DEPARTMENT OF STATE
Memorandum of Conversation

DATE: April 30, 1971

SUBJECT: U.S.-Venezuelan Petroleum Relations

PARTICIPANTS: Mr. Peter Flanigan, The White House
Ambassador Robert McClintock, Caracas

COPIES TO:
U - The Under Secretary
E - Mr. Trezise
ARA - Mr. Meyer
Ambassador McClintock

I called on Mr. Peter Flanigan at 5 p.m., April 29, to discuss oil and gas policy as between the United States and Venezuela.

Mr. Flanigan commenced the conversation by saying that the United States had been grievously disappointed at the cavalier treatment accorded U.S. petroleum interests in Venezuela by the Congress of that country when it retroactively increased the tax on the oil and iron mining companies and tore up contracts as between the government and the companies which had by mutual agreement fixed, tax reference values. Mr. Flanigan said that as a result of these actions there was now little prospect of according Venezuela hemispheric preference; and that probably in the near future there would be announced a general acceptance of Canadian petroleum and gas without limitation by the United States. On the question of Venezuelan natural gas, Mr. Flanigan thought that there might be charges of expropriation in violation of concessionary agreements leading perhaps to a decision by the United States, if proper compensation were not offered by Venezuela, to refuse to accept Venezuelan natural gas into the United States market.

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In a lengthy conversation, I pointed out that, although United States had reason to feel that we had been harshly treated, at the same time the Venezuelans were a proud and sensitive people who might in fact be driven to more extreme measures such as outright nationalization of the petroleum industry unless we stepped carefully.

On the specific question of the nationalization of natural gas, I told Mr. Flanigan that legislation has been introduced into the Venezuelan Congress which will provide for such nationalization. However, as a practical matter I had received repeated assurances from the Minister of Mines and Hydrocarbons that the American oil companies would be permitted to use natural gas for reinjection and secondary recovery and for their needs in operating refineries. Thus, for the present at least the gas being “nationalized” was that of relatively small percentage of the total which is now being flared. For example, I had just had lunch with representatives of the Gulf Oil Company who told me that of all the gas they produce in Venezuela only 10% is being flared.

As for the larger reserves of natural gas which would be nationalized, I did not know what proportion might lie in reservoirs not held by the oil companies under their concessions or how much natural gas might properly be regarded as the property of the companies under the concessions. If this latter category of gas were nationalized then arose the question of due compensation. Only after Venezuela had (a) expropriated and (b) failed to pay due compensation would the question arise of what retaliatory action the United States might take. Mr. Flanigan concurred in this analysis but said he thought that if there were expropriation without compensation the United States should most certainly prohibit the import of Venezuelan natural gas into the United States.

We both agreed that in such case there would be no market for Venezuelan liquefied natural gas.

In an aside, Mr. Flanigan said that the United States was [Page 3] already looking closely at the Algerian gas situation and that the Phillips Petroleum Company was examining ways and means to take legal action against communing companies (i.e. El Paso Gas) which were buying Algerian LNG from the Algerian Government from areas where Phillips had previously had a concession.

When I endeavored to suggest that possibly over the long range we might be better off in dealing with Venezuela to work out a system of joint ventures which might include a slight token participation by the International Finance Corporation as a surety that neither side would breach the agreement, Mr. Flanigan expressed the view that on recent form no one could expect the Venezuelan Government or Congress to live up to long term commitments.

Given this analysis, I said the best thing for me to do was to return to Venezuela and keep my mouth shut. I did feel, however, that, given our increasing need for both petroleum and natural gas, there was a long range mutuality of interest between Venezuela and the United States which would be the responsibility of politicians, oil executives and diplomats to safeguard and sponsor.

  1. Source: National Archives, RG 59, Office of North Coast Affairs, Records Relating to Venezuela: Lot 76 D 465, PET 17–2. Secret; Limited Distribution Only. Drafted on April 30 by Ambassador McClintock. Copies sent to the Undersecretary, Trezise, Meyer, and McClintock.
  2. President’s Assistant Peter Flanigan stated that Venezuela’s increase in taxes on U.S. oil and mining companies meant there was little chance of giving Venezuela hemispheric preference for oil exports to the Untied States. Flanigan also stated that the United States might refuse to accept Venezuelan national gas into the United States.