394. Telegram 241105 From the Department of State to the Embassy in Venezuela1
241105. Subject: Démarche to Venezuelan President on Oil Nationalizations.
To the Ambassador from the Secretary
1. I have reviewed and approved the instructions developed at your meeting with the Deputy Secretary and the bureaus concerned and accordingly request you to make the following points ASAP to the President of Venezuela.
2. The USG has followed the process of nationalization of oil in Venezuela with great interest and understanding. We remain hopeful of a mutually satisfactory settlement with all of the companies. We appreciate that a continuing, post-nationalization role for the companies is projected, and that Venezuelan oil will continue to flow to the U.S. Because of our joint interests, this is a prospect we welcome and wish to encourage.
3. It does not, of course, follow that our two governments have a common view about appropriate standards of compensation. We do not agree with the standard of compensation set out in the Venezuelan law. At the same time, we recognize and respect the fact that Venezuela differs.
4. We particularly wish to emphasize at this point the importance of negotiating ongoing contractual relations with all companies regardless of size. The President will appreciate the problems that would be posed for the USG should it turn out that the largest producers are given attractive contracts while smaller producers receive very much [Page 1062] less or no contracts at all. We seek equity for all producers. The contracts should be of substantial duration or renewable at the instance of the companies.
5. In our view, deductions from the payments to be made pursuant to the Venezuelan law should be made in an equitable and fair fashion. In particular, in our view:
(A) For some of the companies, outstanding claims for drainage are quite substantial in amount. In light of the facts that drainage was unavoidable, did not give rise to liability at the time it occurred, that at least in certain cases drainage claims had been settled by agreement with CVP for compensation to be amortized over the remaining life of the relevant concession, and our understanding that the GOV uniformly endorsed contracts providing that, in the event of the premature termination of the concessions, drainage claims would lapse, we believe that deductions ought to be nominal.
(B) For all of the companies, there is concern that the bonds received as payment will constitute yet further reduced compensation. In general, it would seem to us unfair if the bonds were of such duration or the rate of interest so low as to reduce compensation significantly.
(C) The requirement that a proportion of the bonds be placed in a guaranty fund should not work so as to further diminish the real compensation afforded the companies.
(D) The failure to provide the companies credit for the bonuses which they paid the GOV for the rights to explore and produce in cases where exploration resulted in commercial finds could generate problems with the companies if significant in amount.
6. For AmEmbassy London: We are also contemplating raising the question of compensation for American holders of overriding royalties. We separately shall ask you to explore with HMG whether it is prepared to make such an approach on behalf of British nationals who are such royalty holders, since we are inclined to raise this with the GOV if HMG would be willing to do so. Details follow septel.
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Summary: The Department instructed the Embassy to present the U.S. position on compensation for the expropriated assets of private oil producers.
Source: National Archives, RG 59, Central Foreign Policy File, D750351–0761. Secret; Immediate; Exdis. Drafted by Schwebel, Fishlow, Farer, and Hart; cleared by Ingersoll, Rogers, Enders, and Leigh; approved by Kissinger. Repeated to Jidda, Kuwait, and London. Ingersoll and Shlaudeman met on October 6; no record of the meeting has been found. (Memorandum from Rogers to Ingersoll, undated; ibid., ARA/NC Records, Lot 76D465, Petroleum Nationalization, Venezuela, 1975) In telegram 9518 from Caracas, September 11, the Embassy reported that in calculating the compensation due to expropriated oil companies the Venezuelan Government intended to deduct depreciation and amortization, workers’ benefits, debts to the Venezuelan Government, the value of oil extracted beyond each company’s assigned reservoirs, and the value of properties which the Ministry of Mines determined were subject to the 1971 Reversion Law. (Ibid., Central Foreign Policy File, D750315–0613) In telegram 10672 from Caracas, October 13, the Embassy reported that the Venezuelan Government made a formal offer of compensation. If the companies did not accept within 15 days, the Venezuelan Government would ask the Supreme Court to determine the amount of indemnification. (Ibid., D750355–0389)
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