Kellogg, Frederic P.
The world petroleum 'problem. Mexico,
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1922

THE WORLD
PETROLEUMPROBLEM

MEXICO

FREDERIC R. KELLOGG

The World Petroleum Problem

MEXICO

Address Delivered by
FREDERIC R. KELLOGG
before
THE AMERICAN PETROLEUM INSTITUTE
Together with Debate Between
MR. KELLOGG and
MR. ROBERTO V. PESQUEIRA
Confidential Agent of the Mexican Provisional Government

ASSOCIATION OF PETROLEUM PRODUCERS IN MEXICO,
32 Broadway, New York.

The World Petroleum Problem — Mexico

FOREWORD.
This pamphlet, which contains an address delivered by Mr. Frederic
R. Kellogg before the American Petroleum Institute at its annual meeting
held in Washington, D. C, on November 17th, 1920, together with a
subsequent debate between Mr. Kellogg and Roberto V. Pesqueira, the
Confidential Agent of the Provisional Mexican Government headed by
President de la Huerta, is sent you for the following reasons:
Much publicity has been given to the statement that the Mexican
oil controversy has been settled or is about to be settled, and that the
American oil producers have been forced to accept the principles of the
Carranza confiscatory petroleum decrees. In this connection it has
been repeatedly stated by the Mexican officials, as was done by Mr.
Pesqueira in his two speeches herein contained, that these petroleum
decrees "'are not retroactive or confiscatory," but are equitable and
just, and that Article XXVII of the Mexican Constitution upon which
these decrees were founded, represents a legitimate step taken by the
Mexican nation as a part of the recent revolutionary movement.
It is our belief that the widest publicity should be given to the facts
showing that these representations and claims are without foundation.
Mr. Kellogg's address, in which he covers the entire history of the
controversy, demonstrates that the Carranza decrees were not only
illegal in themselves, but were intended to divest retroactively titles to
petroleum properties which the foreign producers had lawfully acquired
from private landholders, and of which the producers had thus become
the sole owners under the provisions of the Mexican laws existing prior
to the Constitution of 1917.
Mr. Pesqueira's reply demonstrates clearly that he and his associates,
in claiming that these decrees were neither retroactive nor confisca
tory, did so upon the theory not that pre-existing valid rights had
not been violated by the new legislation, but upon the theory that no
such rights existed — which involves a repudiation of the explicit provi
sions of the former Mexican laws and indicates a determination to
persevere in the policy of confiscation.
The justice of our position in this controversy and the propriety of
the request of the U. S. State Department that a treaty protecting
American lives and properties be signed by Mexico, will, we think, be
made clearly manifest by a perusal of the following pages.
New York, February 1, 1921.
ASSOCIATION OF PETROLEUM PRODUCERS IN MEXICO.

The World Petroleum Problem
MEXICO
Address Delivered by Frederic R. Kellogg, Esq., General Counsel of the
Pan-American Petroleum and Transport Co.
In the last act of the "Merchant of Venice," Mistress Portia, after
alluding to the efforts' of a substitute to act in place of a king, added:
"If a king be by, his state empties itself as doth an inland
brook into the main of waters."
I am a substitute tonight for a man who, during the early part of
his life, spent many years in solving the secrets of our then unknown
Western desert country. In later years he gained dominion over the
Mexican jungle. His voice has at all times been steadfastly and cour
ageously raised in defense of America and of American rights here and
abroad; and it is my belief — and it is no mere lip tribute that I wish to
pay — that when the history of the petroleum industry and of America's
foreign commerce is written, there will be found high upon the list of
kings of American pioneers the name of Edward Laurence Doheny.
The subject of petroleum in Mexico needs a few introductory words
as to Mexico itself — a country one-third as large as continental United
States, with every variety of climate and every kind of terraine, with
all classes of natural resources, with widely varied possibilities. It is a
country of gigantic contrasts, with agricultural possibilities sufficient to
feed her population many times over, and yet with many recurrent
famines ; with natural riches unsurpassed by those of any similar terri
tory in the world, and yet with intense poverty as the lot of the greater
part of its inhabitants. It is a land occupied by a people of whom 33
per cent, approximately speaking, are pure-blooded Indians (many of
whom cannot even today speak the Spanish language), by about 12 per
cent, of white people, and by a balance of the population composed of
Mestizos of various grades. Of this entire population over 80 per cent.
are illiterate. Customs and Government.
It would be interesting to follow out in some detail the psychology
and the habits of these people, but time will not permit tonight. To
certain characteristics, however, I would like to call attention. Personally,
they are kindly by nature, taking them individually, and they are most
courteous and hospitable in their demeanor toward each other and to
the casual stranger. That is true not only of the higher ranks of society,
but as to the humble peons themselves. They lack initiative, and have
always lacked it, as the history of their country shows. They have dem
onstrated, under the influence of their strong emotions on many occa-
5

The World Petroleum Problem— Mexico

sions, that their genius can be destructive. They have yet to demonstrate
that it can be constructive.
A very important factor in their psychology which must not for a
moment be overlooked in the discussion of any matter relative to Mexico
is the element of personality which enters into all their dealings between
themselves, and in their dealings with the outer world. The ego plays
a great part in their philosophy; and many matters, which among us are
discussed and decided largely upon abstract principles, are treated by
them from a purely personal point of view.
In government Mexico is a democracy. The constitution which
prevailed prior to the adoption of the Carranza document of 1917 is a
most enlightened instrument, drawn in a scholarly way, and largely
modeled after the Constitution of the United States. But the best piece
of machinery in the world, the most exquisite adjustment of parts which
the ingenuity of man can devise, is useless without the power to move it.
And so in Mexico, where the forms of democracy were perfect, the spirit
of, and education in, democracy have never yet been developed. That
point, together with the predominance of the personal element to which
I have already alluded, leads to the constant recurrence of militarism
in its various forms.
Up to the time of President Diaz there had been a revolution for
every year of the existence of the republic, and, unless I am misinformed,
there never has been up to the present day a real change of administration
of the Federal Government of Mexico without a bloody preliminary.
That is true even so far as the recent election is concerned, for this was
the result of an armed revolution.
Revolutions are always started in the same way, with a cry for the
betterment of the conditions of the common man, and it has never yet
failed to be the result in previous years that the last condition of the
common man was worse than the first.
Montesquieu said in one of his essays that if a nation not fitted for
self-government attempts to govern itself, the result must always be one
of two things— chaos or despotism. Unfortunately, that is the record
of the history of Mexico up to the present time. Chaos only too fre
quently, and despotism always in the intervals between the chaotic
periods. Sometimes it has been a benevolent despotism — a very benevo
lent despotism in certain ways during the reign of President Diaz. (I
use the word "reign" advisedly.) But at other times Mexico has suffered
under a despotism with few, if any, redeeming features.
Hopes of New Day but Spectre of Bolshevism.
At the present time the situation has somewhat changed. There
are hopes of a new day for Mexico. There are some evidences here and
there of a most encouraging nature. Industrially speaking, the conditions
have improved. So far as transportation is concerned, they are much

The World Petroleum Problem— Mexico

better. Peace is largely established throughout the republic at the
present time. Depredations have lessened. But back of all this hopeful
aspect — and it is a hopeful aspect despite what I am now about to say —
there is growing, and becoming more and more distinct every day, the
spectre of Bolshevism. Of course, it is common for speakers to invoke
Bolshevism on many questions, but at the present time, allowing for this
tendency, there nevertheless is in Mexico a situation which, if not handled
by the incoming administration as it should be handled, is fraught with
the gravest danger not only to the foreigners who have entrusted their
enterprises to Mexico's care, but to the Mexican nation itself.
As to what Mr. Obregon may do, we who think we know something
about him have high hopes. We believe him to be a man, a strong man,
a real man, a man who is capable and courageous, a man who more than
almost any other Mexican within the last ten years seems, so far as our
present evidence goes, to have grasped some of the fundamental problems
with which he is to be confronted, and whose utterances lead us to be
lieve that he intends to adopt more enlightened principles as governing
Mexico's dealings with the outside world and with her own problems.
But let me not deal with the realm of prophecy, but come to the
realm of petroleum.
First, a glance at the physical facts. I believe, despite the mournful
utterances of some of President Diaz' ministers, when Mr. Doheny and
Mr. Canfield undertook their, early explorations in Mexico, it is now
conceded that there is oil in Mexico. This oil is found, as you all know,
largely in that tract of land lying along the Gulf of Mexico. There are
manifestations of oil in many other parts ; but, so far as my information
goes, they have not been commercially developed.
The oil in Mexico is found under entirely different conditions than
those which commonly prevail in the United States. I believe there is no
sand, in our use of that term, in any of the oil fields that are now pro
ducing ; and if there had been, I take it that it would have spelled disaster
to the entire district in that region of which I have spoken. For these
giant wells come in with capacities of 100,000, 200,000 or 300,000 barrels
a day, under a combination of water pressure and gas pressure running
as high as 1,085 pounds to the square inch, and they would have run wild
unless they were controlled. But to get the desired production from
them while under control a certain opening of the valve is indispensable ;
and had there been sand present, thrown up with the oil stream, you who
are technically trained are better able than I to say what the results
would have been.
Another interesting fact is that no pump has ever profaned the casing
of any Mexican well. These wells are born into the full virility of their
gigantic powers. They live like giants, straining at the chains that bind
them, and they die as giants should, stricken as by a thunderbolt.

The World Petroleum Problem — Mexico

Properties Purchased by Private Treaty.
The history of the subject, commercially considered, commenced in
1900. Before that time there had been sporadic efforts at development,
in one of which the late Cecil Rhodes of South African fame had a
moderate interest. But these efforts proved futile; and it was not until
1900 that Mr. Doheny and Mr. Canfield went to Mexico and acquired
their first properties. These properties, in common with all other proper
ties which they have ever owned, were purchased by private treaty with
private individuals; and neither they nor any of the other American
companies who have followed in their train in Mexico and who are
now contesting the Carranza decrees, have ever obtained, by concession
or otherwise, one square inch of oil-bearing lands from any government
or government department or other source than from private ownership.
The leading English company has a concession which was granted
to it in the time of President Diaz. It covers a vast area territorially,
but unless I am misinformed, no substantial development has ever taken
place on any part of that concession.
Commencing, as the development did, in 1900, the first important
gusher was brought in in 1904 at the property known as the Ebano prop
erty, some distance back from the seacoast. For a number of years all
the oil produced from this Doheny property was used in Mexico in the
supplying of the railroad system. Some of the petroleum produced by the
English interest was shipped abroad, but this shipment to foreign countries
did not reach a substantial figure until 1911. In 1913 it reached the total
of 26,000,000 barrels to all foreign countries; in 1919, 88,000,000 barrels;
in the first six months of 1920, 60,000,000 ; in the month of September last,
17,500,000 barrels. At the present time these foreign exports are progress
ing at a rate that will spell a total exportation of petroleum in its crude
and refined forms from Mexico of approximately 140,000,000 barrels per
annum. Of this some 70 per cent, will go to the United States, and the
largest part of the balance will go to Great Britain.
There are some three hundred odd producing wells today in Mexico,
of which over two hundred are owned by Americans. Of the total in
vestment in Mexican petroleum enterprises, and in the appurtenances
which are used in connection with them, 97 per cent, belong to foreigners.
These conditions have meant an enormous installation of equipment. The
jungle has been conquered; pipe lines hundreds of miles in length have
been built; standard tankage holding many millions of barrels has been
constructed, and tank steamship tonnage running into the hundreds of
thousands of deadweight tons has been built especially for the Mexican
export trade.
On the first of October there were over 150 tank steamers building
in all parts of the world, of which 120 were building in the United
States of America, largely, if not entirely, for the Mexican trade.

The World Petroleum Problem — Mexico

Legal Questions Involved.
As to the legal and international questions involved:
At the time that the first commercial development commenced in
1900 there was in force the law of 1892, which itself was founded upon
a law which was passed in 1884. During the development of the industry
and prior to the Carranza Constitution another law, that of 1909, was
passed ; and those three laws, all of which were included in the mining
codes of the Mexican Republic, were the ones that determined the rights
of the individual owners of the various properties acquired. Every, one
of those laws provided specifically (not ambiguously, but unquestionably)
that the right to extract petroleum from beneath a given tract of land
belonged exclusively to the owners of the surface of that land. The
mining policy of the Mexican nation, which was an outgrowth
of that of the monarchy of Spain, was that the minerals which
were included in the royal patrimony in the early days, and in the
republican patrimony later, were metalliferous minerals; and this was
distinctly set forth in all of those laws which, as I say, were the ones
Which determined the rights of the owners of petroleum properties.
During this period .those laws constituted an unquestioned invitation
issued by the Mexican nation to the petroleum world to come to Mexico
and develop the petroleum resources of that country, to invest in lands
and in interests in lands for that purpose, and to expend their millions
and hundreds of millions in the acquisition and construction of the neces
sary facilities, with the distinct assurance that the purchase of the surface
of lands carried with it the exclusive right of petroleum development.
I do not speak merely from my own interpretation of those laws,
because in 1905 certain gentlemen in Mexico conceived the idea it would
be to their advantage to see if the laws could not be changed so that
petroleum could be placed within the national domain, as was the case
with gold and silver. Their influence was sufficient to bring about a
meeting of the Academy of Jurisprudence, a juridical body which con
tained all of the leading lawyers of that Republic — something similar to
the American Association of the Bar today. That Academy met, and for
several days discussed from every point of view the question as to what
rights, if any, the nation had in petroleum, and, if they had none, whether
rights could be acquired by the passage of new legislation; and upon
both of these points the decision was practically unanimous in the nega
tive. The Mexican nation, according to the decision of those Mexican
lawyers, possessed no rights in petroleum under privately owned lands,
and was denied the possibility of acquiring any such rights by any mere
arbitrary change in existing legislation.
Comma's Policy of Seizure.
All went well with the American petroleum producers until 1917,
when the Carranza Constitution was adopted. Mr. Carranza began to be

The World Petroleum Problem — Mexico

an influential factor in political affairs in Mexico in 1913. He previously
had been known, but had not been influential. In 1913 he raised the flag
of revolt. In 1914, 1915 and 1916 he became more and more powerful,
and, as you will remember, in 1915 he was recognized de facto as the
first chief of the Constitutionalist Government by the President of the
United States. With his advent to power, ostensibly for the betterment
of conditions in the Mexican Republic, ostensibly for the purpose of
breaking the chains which had, as he claimed, previously prevented the
growth, development and the increase of prestige of that great nation, he
inaugurated policies which, to the uninitiated, would seem to be hardly
consonant with such ideas. The theory of the predominance of his ego
was applied to property. In short, whatever he wanted — he took. That
is a doctrine which was not confined to him, but was rather emphasized
by him. He took all the great national system of railroads into his own ex
clusive custody, and assimilated unto himself all of the revenues thereof,
quite disregarding the rights or supposed rights of any stockholders,
bondholders, officials, or others who thought that they had something
to do with these various enterprises. The same method was pursued as
to the British-owned railway from Vera Cruz to Mexico City. The
tramways of Mexico City next attracted his observation. They were
quite profitable for awhile — when he took them. The public utilities of
that vicinity also, in his opinion, needed a change of administration. He
found fruitful sources of possible revenue by issuing to his own people
nearly a billion of pesos of paper money, which they were compelled to
take under penalty of severe punishment, and which, when occasion
served, he conveniently repudiated. That seemed to carry things along for
a while. He liked the looks of the Wells Fargo Express enterprise, so
he took that over. On one unfortunate day — not for him — he learned
that two of the great banks in Mexico City had large amounts of gold
specie in their vaults. He accomplished what he was pleased to term a
loan of that specie. In connection with the making of the loan, two
large trucks and a body of soldiers were employed. The cashier eventually
opened the vaults, but not without some protest on his part. If my
information is correct, the stockholders of those banks still have the
receipts for the loan.
It cannot be supposed that a gentleman of his versatility and keen
observation could have omitted to notice the petroleum industry — no,
indeed— but it gave him a little more trouble. In the first place, we were
right at the seacoast, where protection might, as he perhaps thought, be
accorded, if necessary, more readily than in the interior. In the second
place, we were quite a crowd, by that time, of red-blooded Yankees ; and,
even if we were not allowed to carry arms, he did not entirely like our
looks. In the third place, he had the precedent of the Academy of Juris-

10

The World Petroleum Problem — Mexico

prudence before him, and did not quite know how to go about it. But all
these little obstacles were eventually, in his opinion, overmounted by the
¦'happy thought which is due, doubtless, to the ingenuity of Mr. Luis
Cabrera — with whom I should like to spend some minutes in discussing
this matter in this presence — who suggested that an amendment of the
Constitution of Mexico would be the proper thing;
Makeup of the Constituent Congress.
They then devoted a little study to the question of amendment of the
Constitution, and suddenly found that the old Constitution contained
provisions for its own amendment. That was disquieting, because those
provisions were that it could only be amended by the vote of two-thirds
of Congress, accompanied by the action of the majority of the State
Legislatures. Now, that would have meant the election of a new Con
gress by the vote of the entire Mexican people; and as Mr. Carranza
never at any time in this part of his career controlled the votes of the
entire Mexican people, manifestly some new plans must be made in order
to overcome that additional obstacle.
But he was never lacking in resources. He or Mr. Cabrera, or he and
Mr. Cabrera, devised the plan of calling into being something which
they styled a constituent Congress, which was not the real Congress, but
an entirely new department of the government evolved by them. They
issued a decree as to the election of members. That decree is interesting,
for on its face it reveals a great deal of what it might otherwise take
some time to explain.
In the first place, nobody might be elected to the constituent Congress,
which was supposed to represent all Mexico, except such people as had
not in any way, in arms or in any public employment, given any aid or
succor to the enemies of Mr. Carranza. In the next place, nobody (with
one exception) could vote at any such election unless he had lived in the
place at which he cast his vote for six months immediately preceding;
and as most of the innocent bystanders in the Republic had been driven
from pillar to post during this period of six months many of his enemies
were in that class. But, lest in any way he might have overlooked some
body who might have attempted to vote against him, he added another
clause in the decree, to the effect that nobody should be allowed to vote,
even if he had lived six months in any locality unless by his positive acts
they had given aid and assistance to him.
Now, I have heard rumors that in some parts of the United States
various disfranchisement ideas have been promulgated. I may be wrong,
but I think you will agree with me that I am right when I say that what
ever those disfranchisement ideas may have been in this country, they
were very, very crude, compared to Mr. Carranza's methods.
The constituent Congress came into being. It met. It is interesting
— perhaps not conclusive — to notice that it never had a meeting at which
n

The World Petroleum Problem — Mexico

some member of the German Embassy staff was not very close at hand.
It resulted, so far as the petroleum industry is concerned, in the cele--
brated Article 27, of which you may have heard.
I am going to ask you to be a little patient with me this evening,
because I want to treat this subject in such a way that you really will
get as nearly as possible to the bottom of it; and I cannot do it unless
you will allow me to read you some extracts from Article 27, which is
almost a book in itself ; but these extracts are strictly pertinent.
Extracts from Article 27.
So far as petroleum is concerned, it provided that:
"In the nation is vested dominio directo" — (which is fairly trans
latable as "direct dominion" but which does not mean the same thing
in the Spanish language as absolute ownership) — "of solid, mineral fuels,
petroleum and all hydrocarbons, solid, liquid or gaseous."
That is the basis of the entire trouble in Mexico so far as the
petroleum enterprises are concerned.
It provides further:
"The ownership of the nation is inalienable, and may not be lost by
prescription." It then goes on to say that:
"Concessions" — a rather vaguely used term in that connection, but
presumably mining licenses, and presumably also the denouncement
privileges of which we shall speak more anon — "shall be granted by the
Federal Government to private parties or civil or commercial corporations
organized under the laws of Mexico only on condition that said resources
be regularly developed."
That has been /made the basis of a claim — which never yet, fortu
nately for the industry, has been put into active effect — that no reserve
supplies of petroleum lands shall be allowed to any petroleum company,
but that all must be developed at once. You will know what that would
mean without any explanations from me.
It then provides that:
"Only Mexicans by birth or naturalization and Mexican companies
have the right ... to obtain concessions to develop . . . mineral
fuels in the Republic of Mexico."
That alludes to denouncements, of which I shall speak later on.
Again :
"The nation may grant the same right to foreigners provided they
agree before the Department of Foreign Affairs to be considered Mexicans
in respe"Ct of such property and accordingly not to invoke the protection
of their government in respect to the same under penalty in case of
breach" — that is, if you dare communicate with your own government —
"under penalty in case of breach of forfeiture to the nation of the proper
ties so acquired!" 12

The World Petroleum Problem — Mexico

It provides further that:
"Within the zone of one hundred kilometers from the frontiers and
fifty kilometers from the sea coast no foreigner shall under any condi
tions acquire direct ownership of lands and waters."
You already know that the present zone from which production of
petroleum is now being made in Mexico is practically entirely within a
zone of fifty kilometers from the zone of Mexico.
It then provides that:
"Commercial stock companies" — which, of course, include petroleum
companies — "shall not acquire, hold or administer rural properties."
But that is qualified a little, immediately afterward, by the state
ment that:
"Companies of this nature which may be organized to develop
any . . . petroleum may acquire, hold or administer lands" — notice
the effect of the word "hold," applying, as it purports to do, the lands
theretofore acquired — "only in an area absolutely necessary for their
establishments or adequate to serve the purposes indicated which the
Executive of the Union or of the respective State in each case shall
determine." The judgment of the Standard Oil Company, of the Gulf Company,
the Texas Company and ourselves is of no avail as to what property
is adequate for our enterprise. The executive, in the exercise of his
supreme wisdom, alone can determine that fact.
Then it is provided that the Federal and State laws "shall determine
within their respective jurisdictions those cases in which the occupation
of private property shall be considered of public utility."
And note this :
"The amount fixed as compensation for the expropriated property
shall be based on the sum at which the said property shall be valued
for fiscal purposes" — that is, the tax assessment — "in the revenue offices,
whether this value be that manifested by the owner or merely impliedly
accepted by reason of the payment of his taxes on such a basis, to which
there shall be added ten per cent."
Inasmuch as there never has been a time at which land values in
Mexico have been assessed at anything more than really nominal figures,
in deference probably to the power of the great land owners of the coun
try, it follows that all of these petroleum lands — if that claim were en
forced — worth hundreds of millions of dollars, which are assessed, per
haps, for a few thousand pesos in the local revenue offices, could be
expropriated by the payment of that amount, plus 10 per cent., merely
because the owners, not knowing, that this clause would be included in
this constitution, -had not insisted on their assessments being increased.
Lastly, each State and territory shall fix "the maximum area of land
which anyone individually or legally organized corporation may own ;

13

The World Petroleum Problem — Mexico

the extent of the area thus fixed shall be subdivided by the owner within
the period set by law. If the owner shall refuse to make the subdi
vision this shall be carried out by the local government by means of ex
propriation proceedings. . . . The owner shall be bound to receive
bonds of a special issue to guarantee payment of the property expropri
ated." Hence after our property, worth hundreds of millions, had been
taken from us for a few thousand pesos we would not even get the few
thousand pesos, but would get bonds of a "special issue" — worth about
$1 per million, if that — in payment for the entire assets !
Carransista Decrees.
Gentlemen, that is Article 27, which has been hailed by disciples of
the school of Lincoln Steffens and of Lenine and Trotzky as being the
highest efflorescence of human wisdom upon the surface of this sick
globe !
You may think I am treating these subjects a trifle frivolously; but
in a little frivolity once in a while there is some mental relaxation from
other states of mind in which we ordinarily live when dealing with these
things. But I may add that, however casual my remarks may have
seemed in substance or in tone, I have not knowingly misstated or exag
gerated a single thing.
In this Article 27 a curious feature is noted. Mr. Carranza and his
satellites, perhaps in their own minds, thought that that would apply to
lands then owned by private owners. But the Constitution did not say
so, although they were unimpeded in drafting it, and, on the contrary,
the Constitution did say that the Constitution itself should be deemed one
of the laws of Mexico, and provided further in Article 14 that no law
should be given any retroactive application to the prejudice of any per
son whomsoever.
This Constitution was adopted in February, 1917, and became effective
in May of the same year. Over nine months passed before any definite
efforts were made by the Carranza government to put it into effect, which
could only be done, of course, hy legislation. In February he began to
issue a series of what proved to be five decrees. Those decrees in sub
stance, minimizing and cutting them down to the lowest possible terms,
are as follows :
(a) That anybody claiming to own petroleum lands must manifest
. . . — that is to say, make a list of them and file it in certain offices.
(b) That they would be allowed to extract petroleum from those
lands if they consented to pay what were frankly termed rentals and
royalties for that privilege.
Of course, although the rentals and royalties were fixed in these
decrees at certain particular figures, there was nothing whatsoever to
14

The World Petroleum Problem — Mexico

prevent their being changed the next day, but there was never any danger
of their being changed downward.
It is an interesting fact, as a commentary upon the way that that
administration did things, to note that not only did Carranza — who took
arms in the first place solely as the apostle of the restoration of the old
Constitution of 1857 — not only did he absolutely .abandon all such ideas
at the time of the new Constitution, not only did he have the new Con
stitution adopted in a wholly illegal and extra-constitutional manner, but
when it came to the making of the detailed laws under which the pro
visions of his Constitution were to be carried into effect he did that also
in an illegal manner, even under the laws of Mexico; for Congress, itself
acting without power to do so, had attempted to give him only one par
ticular power, and that was to make decrees in matters affecting the fiscal
condition of the country. That was a term perfectly understood in Mex
ico as referring to current revenue ; and under the claim of such a power
as that he sought to repudiate absolutely not only the old land title system
of his Republic, but the very meaning, as interpreted by Article 14, of
his own Constitution. He could not wait until his own Congress could
pass such a law, because it was so vicious that he knew that Congress
would not pass it — and it never did.
American Interests Stand Firm.
At the time these decrees were promulgated the American petroleum
interests of the United States found themselves in a position which I
believe is almost unequalled in America's foreign commerce. They had
become targets at which the organized forces of the then existing Mexican
Government aimed all its shafts. We had no arms. We could not use
them there without violating the law of nations, as well as the law of
Mexico, if we had had them. We seemed to be helpless.
But we determined to fight, because we knew that we were morally,
as well as legally, right. We refused to manifest our titles except in a
few instances, and in every such instance the companies that did it
regretted that they had done so. We told Mr. Carranza that we would
not pay the rentals and royalties, because nobody can pay rentals and
royalties on property without admitting that the person to whom they
are paid has a better right to that property than he himself has.
The last day fixed in the first decree arrived, and great was our
stress and anguish of spirit, I can assure you. But we held fast, and
at absolutely the fifty-ninth minute of the eleventh hour Carranza issued
another decree postponing the fatal time. That gave us a pretty good
indication as to where we stood, as to how far he would dare to go in
this matter and as to what our subsequent course should be. And on
four subsequent occasions when the last day came and the crisis arrived
we also stood fast and did not comply with the confiscatory decrees.
Before I go further into the history of this affair I want to make

15

The World Petroleum Problem — Mexico

plain one thing which the average American does not understand and
which his training and methods of thought make it almost impossible for
him to understand; and that is that this whole proceeding had nothing
to do with what in this country we know as the doctrine of eminent
domain. It was not a taking of private property for public use in con
formity with the practice of civilized nations, for in no country in the
world is that sort of thing done without just compensation to the private
individual whose property is taken.
It was exactly the same situation as though a man who had bought
his own house, who had owned it for the years that elapsed from the
beginning of the petroleum industry to the time of this new Constitution,
had been visited by a government officer in the District of Columbia or
in New York or in Massachusetts and had heard that officer say to him :
"You have bought this house and paid for it, and think you own it, but
we have decided to take it over. You will not get repaid for it, but you
will be thrown out unless you agree to pay us whatever rentals we decide
to ask in the future and to accept any conditions which we may impose."
You could not get Americans to understand that situation readily.
They are not used to such things. And that is why it has been so easy
for our opponents to throw upon us the calumny that we are tax dodgers,
that we are attempting to evade the laws of Mexico, and other similar
accusations. At the time of our refusal to manifest we formed what we called
the Association of Petroleum Producers in Mexico. This association
has been charged with being everything that it is not. It is an association
having nothing to do with the commercial aspects of the petroleum
industry whatsoever. The members are banded together solely for the
purpose of endeavoring to maintain American rights in a supposedly
friendly foreign nation by every honest, legitimate and open means. We
have done nothing in the history of our organization that we are afraid
or ashamed to tell you or any other men in the United States, and we
have made no secrets of the things that we have done and the policies
that we have adopted.
We sent negotiators first to Mexico, men who we believed would be
able to bring about a happy solution of this problem, and they were
received in a way that led us and them to believe that the situation was
not so bad as we had at first feared. They were given assurances that
no ordinary man could interpret in any sense other than that justice
would be done ; but these assurances soon proved valueless, and our rep
resentatives were withdrawn.
We brought suits in the Mexican courts, and those suits have been
pending over two years and have never been allowed to come on for final
hearing. We gave as much publicity to this matter as we could, and

16

The World Petroleum Problem — Mexico

we found continually the great difficulty, almost the impossibility, of
making men understand what was happening, not merely to these petro
leum companies, but to America's entire foreign trade and prestige.
American Government's Protest.
We went to our own government; and if any man present has —
which I do not believe is the case — the least doubt as to the correctness,
from the standpoint of international law, of our position, I think that
doubt will be removed by my reading a very short extract from the pro
tests which the State Department, under Secretary Lansing, sent to the
Government of Mexico :
"The United States cannot acquiesce in any procedure osten
sibly or nominally in the form of taxation or the exercise of
eminent domain, but really resulting in confiscation of private
property and arbitrary deprivation of vested rights."
". . . It becomes 'the function of the Government of the
United States most earnestly and respectfully to call1 the atten
tion of the Mexican Government to the necessity which may arise
to impel the American Government to protect the property of its
citizens in Mexico divested or injuriously affected by the decrees
above referred to. . . . The investments of American citizens
in the oil properties in Mexico have been made in reliance upon
the good faith and justice of the Mexican Government and the
Mexican laws."
The document concludes with :
"the formal and solemn protest of the Government of the United
States against the infringement of legitimately acquired American
property rights."
You have to go back to the time of Secretary Evarts when he was
writing notes to General Diaz to parallel that sort of clean-cut straight
American declaration. Secretary Evarts said in those days that "the
first duty of a nation is the protection of the lives and property of its
citizens." "It is a paramount duty," said the Secretary, "and the nation
that fails or neglects to perform it is not worthy to be called by the name
of a nation."
Following this protest of April, 1918, some ten or more protests have
been sent by the State Department, under the administration of Mr. Lan
sing and under the administration of Mr. Colby, all along similar lines;
and I think we are entitled to pride ourselves upon the fact that there
has been no position taken at any time by the Association of Petroleum
Producers in Mexico that has not been absolutely approved by these pro
tests sent by our own Government to the Government of Mexico. That
should be sufficient evidence in the eyes of the American public as tg
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The World Petroleum Problem — Mexico

what sort of a fight we have made, as to what our rights are, and as to
what we should be entitled to for their protection.
Mr. Carranza, after postponing the evil day four or five times,
finally gave it up so far as the direct issue was concerned, and announced
that he would submit the entire matter of petroleum legislation to the
Mexican Congress. He did so, and a bill was prepared and passed one
house, but not both. No legislation has ever passed any Mexican Con
gress since that day governing this question.
But he found, with characteristic ingenuity, that he could give us
more trouble indirectly than he could directly ; and he did so.
In the first place, the public offices were allowed to receive "denounce
ments" — which means "locations" — upon petroleum lands, no matter
whether they were owned by us for many years or not. Even though
the decrees of Mr. Carranza himself, illegally issued under a misconstruc
tion of an illegally adopted Constitution, provided that lands in respect
of which money had been invested for the development and production
of petroleum should be exempt from denouncement, still he took the
fourth lawless step of allowing denouncements of such lands, claiming
that unless a well had actually been brought in or drilling had actually
been done, although we might have paid a million dollars for the property,
yet we had not invested any money toward the production of petroleum
on those lands, and we could not assert our title thereto.
Denouncement of Private Property.
•Today there are a thousand and twenty-nine denouncements filed,
covering a great number of supposed oil-bearing lots owned by American
companies in the Republic of Mexico.
That was followed by a further rule that when a man sought to get
a drilling permit, which ordinarily would be interpreted as a purely
formal matter intended to safeguard a neighborhood from the dangers
of fire or the populace from the dangers of gas, no such drilling permit
would be issued where a denouncement had been filed, however irre
sponsible the denouncer was, and however many years the owner had in
good faith owned the land under the former laws.
Then a further ingenious policy was adopted. It was claimed that
under the Mexican laws the nation had certain rights in the beds of cer
tain large streams, the exact nature of which I will not now discuss.
Based upon that fact, and of course upon a misconstruction of Mexican
laws, the Carranza Government adopted the policy of granting drilling
concessions to their own favorites upon strips of land upon each side,
of so-called rivers and inland depressions in the land where water might
come if £here were any water to come — all without a shadow of right
to do so, At the present time the oil territories of Mexico are threatened
18

The World Petroleum Problem— Mexico

. by a most serious invasion from this source, as a large number of these
concessions are outstanding.
The worst attack of all was made when Carranza, under the pretense
of protecting the petroleum territory, sent his troops there. Then began
a period which I hope some man of imagination, vision and gifted lit
erary ability will some day. describe; for there is nothing more heroic
and more magnificent, I believe, in the history of American pluck than the
way in which our men on the ground held on. Twenty of them were
killed. Any number of them were insulted, for aggressions were as com--
mon as the falling of leaves before the autumn blasts. Many of them
were injured. Women were attacked. The pay trains were robbed every
day by men wearing the uniform of Carranza and by men who knew —
and could not have known if the people in Tampico who were in the
official world did. not tell them— exactly how much money was in the
possession of every paymaster thus robbed, so that if he gave up part
they demanded the balance and told him how much he had. We asked
them to allow us to use airplanes to send money to our distant camps.
It was refused as something that would be harmful to the "dignity" of
Mexico. We tried other devices, but all of no avail. But those men
held on. If anybody could adequately pay to them the tribute that is
due them it would stir your blood and make you prouder even than you
are now of your country and your countrymen. All honor be to the
undaunted pioneers, say I, who in those days of the war, when every
drop of petroleum was precious beyond belief, never allowed the flow of
it to be stopped, and who in that period. after the war, which for them
was worse than the war itself, also kept steadfast in their courage and
determination never to abandon those properties confided to their care.
Attitude of New Mexican Government.
At Mr. Carranza's death Mr. de la Huerta came into power. At
first he gave utterance to a number of statements which were immensely
encouraging. He said in so many words that the Carranza petroleum
decrees were illegal. He promised justice, and promised it in a way
that was most persuasive to the representatives of the companies who
heard him.
But as time went on a change stole over the spirit of his dream, and
no one knew whence it came. We heard no more as to these laws being
illegal and being about to be stricken off the statute books; and little
is now, I fear, to be hoped for at his hands.
General Obregon, who, unless prevented, will be installed as Presi
dent on December 1, has said on a number of occasions that he believes
it best for the welfare of Mexico that she* should adopt policies which
would lead to the cultivation of better relations with the United States.
Up to the present time all of his utterances have been hopeful. My per-
19

The World Petroleum Problem — Mexico

sonal belief is that if he has the power to do the things which we ask,
or to bring about their being done, they will be done; and justice will
be accomplished so far as the petroleum industry is concerned. It remains
for the future to say whether or not that power will be his.
In the meantime the present Government, as you know, is applying
for recognition — and here a humorous feature exists. Once in a while
a little streak of light illuminates the dullness of the day. They are
applying now for large loans in New York, and seem to be a little sur
prised that they do not get them. Their attitude toward capital reminds
me of a story which you probably have heard, but which is so appropriate
that I am going to repeat it. The story refers to a melodrama which
was presented some years ago. In the first act the villain put arsenic in
the heroine's tea. In the second act he tried to hurl her down into a
chasm 4,500 feet deep. In the third act he endeavored to chain her across
a railroad track before the oncoming night express, running at 84 miles
an hour. In the fourth act he knelt before her and said : "Dearest
Aphasia, why do you deny me your love?"
Principal Arguments of Mexicans.
I desire now to allude briefly to the principal arguments that have
been made by the Mexicans — the Carranzistas, I should say, because it
is unjust to assume or to say that the whole Mexican nation was repre
sented by Carranza. I want to discuss the principal arguments which are
advanced in the propaganda spread throughout the United States and in
Mexico in the effort to show that we are in the wrong and they are in
the right. In the first place, they continually repeat that we are "concession
aires." There is not a word of truth in that, as I have already shown.
In the second place, they say that we are tax dodgers. That is abso
lutely, wholly false. We have paid all our taxes, although those taxes
today run as high as forty per cent, of the value at the well of some of
the heavier grades of oil. The exactions which we would not pay are
the things that they themselves call rentals and royalties.
In the third place, they say that the law of 1884 was the result of
an fntrigue brought about by Lord Cowdray, the head of the great Eng
lish company, in the time that President Diaz was in power.
Mr. John Lind, former Governor of the State of Minnesota, a well-
known man, was called before the Fall committee investigating conditions
in Mexico, and testified upon this point. I want to read you six lines
of what Mr. Lind said under oath before that committee :
"The State in Mexico owned the oil until some time during
Diaz' administration, when Lord Cowdray discovered oil. Then
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The World Petroleum Problem — Mexico

they secured an act of the Mexican Congress relinquishing the
State claim to the oil and real property. Of course, Lord Cow
dray and his organization in Mexico under Diaz were in a posi
tion to virtually dictate, and they did dictate to the Mexican
Government what they wanted, and they got what they wanted."
Senator Fall gave me the privilege of appearing before the com
mittee and testifying upon that subject. It was not very hard to meet
Mr. Lind's statements for the following reasons :
Lord Cowdray did not have a law passed after he discovered oil,
for he never discovered oil. He entered the oil business three or four
years after Mr.-Soheny and Mr. Canfield started in Mexico.
He did not have that law of 1884 passed, because it was passed nine
teen years before he ever had anything to do with the oil business.
The law was not passed as the result of any intrigue by any oil
company because there were not any such companies in Mexico until
sixteen years after its passage.
It was not passed by virtue of any intrigue with President Diaz
because General Diaz was not President when the law was passed!
John Lind is one of the men who have occupied much space in the
public eye during the last few years. He was President Wilson's first
confidential adviser on Mexico, or one of the first. He went to Mexico
and spent many months there supposedly acquainting himself with the
essential facts relative to American rights in Mexico. At the end of
seven years of such acquaintanceship as he may have had he was willing
to swear before one of the great investigating bodies of the United
States to the statements which I have just read. 1
It is easy for men who do not know some of these things to criticize
President Wilson for some of his statements with regard to Mexico ; but
if John Lind was willing to swear to such things as those seven years
after he first became acquainted with the subject, what sort of informa
tion do you suppose he gave President Wilson during the first six months ?
Carransa Doctrine Invoked.
In the next place they invoked what is known generally as the Car
ranza doctrine, which is to the effect that no foreigner is entitled to be
treated better than the citizens of the country in which the foreigner
happens to be. Great stress has been placed on that supposed addition
to international law. I will answer it by two quotations — one from Sen
ator Root's speech before the American Society of International Law
in 1910: "Each country is bound to give the nationals of another coun
try in its territory the benefits of the same laws, the same
administration, the same protection and the same redress for
injury which it gives to its own citizens, and neither more nor
21

The World Petroleum Problem— Mexico

less'; provided the protection which the country gives to its
own citizens conforms to the established standards of civilization.
There is a standard of justice very simple, very fundamental and
of such general acceptance by all civilized countries as to form
a part of the international law of the world. The condition
upon which any country is entitled to measure the justice due
from it to an alien by the justice which it accords to its own citi
zens is that its own system of law and administration shall con
form to this general standard. If any country's system of law
and administration does not conform to that standard, although
the people of that country may be content or compelled to live
under it, no other country can be compelled to accept it as fur
nishing a satisfactory measure of treatment to its citizens."
And in the recent utterances of the State Department in the protest
to which I have alluded the answer is brought down to date as follows :
"The Mexican Government appears to be of the opinion that
so long as a State does not discriminate against foreigners and
in favor of its own citizens, it is entitled to mete out to for
eigners such treatment as it may desire; that foreigners must
submit to their treatment, and that their governments have no
right of interposition to protect them against it, should it be un
duly onerous and unjust, until local remedies have been exhausted
in vain.
"Applying this view to the petroleum situation, the Mexican
Government seems to contend that the decree regulating own
ership of mineral deposits is a matter of internal and territorial
sovereignty applicable to Mexican citizens and foreigners alike,
and therefore that there is afforded no rightful basis for inter
position by the governments of interested foreigners, even though
the result of the decree should be, as was apparently its purpose,
to deprive such foreigners of property rights which they had
legitimately acquired under the laws of Mexico.
"The Government of the United States believes that this
contention of the Mexican Government and the basis upon which
it seems to rest, finds no sound foundation in the principles of
the law and practice of nations which in the past have been
generally accepted by the Governments of the world, and
that it could not, therefore, be fairly called upon to recognize or
acquiesce in them in opposition to the usage of nations. The Gov
ernment of the United States is firmly of the opinion that the
great weight of international law and practice supports the view
that every nation has certain minimum duties to perform with
regard to the treatment of foreigners, irrespective of its duties to
its own citizens, and that in default of such performance it is

22

The World Petroleum Problem — Mexico

the right of the foreign government concerned to enter protest.
Not the least of such duties, as the Government of the United
States believes, is to refrain from measures resulting in confis
cation of the vested property rights of foreigners, acquired in
good faith and in accordance with the laws of the country in
which the property is situated."
One of the principal arguments used against us is to the effect that
we are afraid of the operation of the Mexican laws — the new laws,
so-called — because we are supposed to have weak titles that cannot bear
the light of day.
That argument is purely childish. We either have good titles under
the old law or we have not. If we have good titles, manifestly the effect
of the denouncement theory will be, if it is upheld, to take them away
from us ; and the only question is : Can such things be permitted under .
the usages of international law and civilized justice? If we have weak
titles, they are weak under the old laws, and anybody who is able to find
a man who has a better title can buy it, and the denouncement theory
neither gives him nor takes from him any right which he might be able
to obtain. Regarding the Spanish Grants.
The next argument is based upon the theory that Mexico owned
the oil under the old Spanish law existing prior to the independence of
Mexico. In the 16th century King Philip II issued a decree incorporating
certain minerals into the "royal patrimony." In this decree he drew
careful distinction between metalliferous and non-metalliferous minerals ;
and of course you know that petroleum and coal are non-metalliferous
minerals. It is worthy of note that back in those supposedly dark ages the
King of Spain, the most absolute monarch of his day, was sufficiently
enlightened to provide that wherever that decree might work injustice to
persons who had previously owned such minerals just compensation
should be paid by the Crown of Spain. Three hundred years later Mr.'
Carranza did not have as high a conception of his duty as King Philip
had in the 16th century.
In 1783 a series of so-called ordinances regarding the same subject"
were issued by King Charles of Spain. Those were broader in form
than the prior decrees to which I have alluded; but in 1789 and 1792 it
had become evident to the Crown of Spain that coal, a non-metalliferous
mineral, was an important substance, and that perhaps the language of
the ordinances was broader than it should be. New decrees were issued
providing that, inasmuch as coal was a non-metalliferous mineral, it
should not be considered as included in the subjects which were taken
jnto the royal patrimony. Of course, petroleum had no commercial
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The World Petroleum Problem — Mexico

existence ; but you will observe that the reason which led to the exemption
of coal from the royal patrimony exactly fits the case of petroleum.
Nothing more was done until in the 1880's, when it was claimed that
this ordinance of the King of Spain did not apply to the colonies and
that coal belonged to the nation. Petroleum was not then an important
factor in Mexico. Litigation took place; and to end the controversy, the
Mexican nation, which certainly must be supposed to have known what it
wished to do and to have had exclusive power to do what it thought
was fair and just, amended its own Constitution so as to allow the
Federal Government to issue mining codes. The Federal Government
then issued the mining code which embodies the law of 1884, and which
declared that petroleum did not belong to the nation.
Let us suppose by a flight of the imagination that there had been
some shadow of right or title to that petroleum in the Mexican Govern
ment prior to that time. But how could it, after 36 years had gone by
and after hundreds of millions of dollars had been invested by foreigners
upon its express declaration to the contrary, turn its face toward the
civilized world and say: "This was a mistake. We propose to forget
what we have said and you have done, and to ourselves reap the advan
tage of your industry?"
Such a course would be too absurd for argument among private
individuals. It is also too absurd in the realm of international law.
Again, they say that the laws of the United States afford arguments
in favor of their decrees. They use several illustrations, the first being
our oil leasing bill, which I think they see at last only relates to national
lands and does not purport to touch private rights. They also point to
language in some Supreme Court decisions to the effect that one man
cannot enjoin another from drilling an offset well because he has no
personal property in the petroleum before its extraction. Of course, they
omit to. allude to the balance of the opinions, all of which show that this
principle does not in the least degree controvert the exclusive right of
a landowner to drill his own land.
They also invoke the well-known eighteenth amendment to the Con
stitution of the United States. I am not going to now discuss so delicate
a subject other than to say that it was seriously urged by the present
diplomatic representative of the Mexican Government in Washington at
a meeting at which I was present that the passage of the Volstead law
demonstrated conclusively that the Mexican Government has the right to
confiscate our petroleum lands ! Needless to say, if the American Gov
ernment confiscated breweries and distilleries and the other utensils
with which I am not familiar personally and had turned them over to
someone else and allowed the business of the manufacturing of liquors to
continue, the Mexican Government would have some basis for jts argu-i
?4

The World Petroleum Problem — Mexico

ment. But as matters actually stand the prohibition cause will not have
to bear this additional burden.
The "Interventionist" Argument.
In the next place the argument is thundered forth from some of our
American Carranzistas — and there are some — that we are "interven
tionists" and that we are seeking to embroil the United States and Mexico.
I was brought up to think that the term "intervention" meant interfering
in somebody else's affairs, not trying to take care of your own. According
to the Mexican theory, the Carranzista theory, I should say — it is claimed
that because we have the hardihood to protest against their aggression in
our affairs, we are interventionists. That kind of talk is simply the
distortion of a diseased mind, or a mind that thinks other men's minds
are diseased. If a man hits you and tries to take away your pocketbook
you must not repel his efforts, because you will be guilty of undue inter
ference with his affairs. The entry of America into the World War
was very reprehensible, because we interfered with Germany's affairs.
But why waste time discussing arguments like that? The petroleum
industry so far as it is interested in Mexico is not today, never has
been, and I hope never will be, in favor of armed intervention in Mexico.
It has more to lose, perhaps, taking into consideration the nature of its
property, than any other Americans who have gone into that Republic
to develop commercial industries. Armed intervention is unnecessary if
the matter is handled, as I hope it will be by Mexico, or, if not, then with
proper sagacity by the United States.
Lastly, they say that if the United States dares to use even its great
moral power to compel the comparatively small State of Mexico to do
the thing which it ought to do, this will be an act of tyranny and of in
vasion of Mexico's sovereignty ; and further, that if such a thing be done
pursuant to a desire to help what is termed "big business," it becomes
an international crime.
There are two or three thoughts here which I shall ask you to
analyze with me, because they are of vast importance, not only in this
controversy, but to all of you, and to the entire United States.
'Government and Business Morals.
The first thought is that a government, if it is large, merely because
of its size forfeits the international rights which it otherwise would
possess. The second thought is tlyat a government, if it is sufficiently small,
gains by reason of its smallness international rights which it would not
otherwise possess — that it gains a moral right to act immorally.
The third thought is that however clean cut, honorable, fair and
honest may be the manfier in which any big industry may conduct its

?5

The World Petroleum Problem — Mexico

business, if it is big, if it is rich, if it is commercially powerful, it is
doomed to lose the respect which otherwise would be its due, and must
be considered as a presumptive malefactor.
In connection with those arguments, both in Mexico and in the
United States, where we hear plenty of them, you are also very apt to
hear a great deal about the gross materialism and the absence of idealism
of "big business."
There are many officers of corporations, with some of whom I have
come into personal contact, who have been so affected by attacks and
assaults of that nature in this country, wholly independent of Mexico,
that they have become humble, chastened, almost cringing, for fear of
some public outburst against their industry. If their rights are infringed,
they are afraid to say so. They adopt circuitous, devious means of ob
taining redress. Secrecy is the one thing they crave the most; silence is
their highest ambition. Many people, looking at these manifestations of
fear think that things are somehow wrong with such enterprises and grow
to believe that smallness is a merit, greatness is a shame, mediocrity is
commendable, and that commercial success is a crime.
There are concerns in this country — but they are not all big ones —
who doubtless have reasons for secrecy, and good reasons. Some of
them I have met; some of them you know. But there are other concerns
which have dealt fairly by the public — who have given their employes a
square deal — who have given the world a dollar's value for every dollar
they received, who have risked their time, their fortunes, their business
future in the endeavor (and the successful endeavor) to wrest from the
earth treasures which were there, but which no man ever saw before —
who have gained wealth by so doing, but have brought wealth greater
than that which they have gained to a world which needed it.
"Idealism'' in Business.
Among those industries, I believe that the one that I have the honor
to address tonight stands pre-eminent. And to all great enterprises whose
consciences are clean, I say: Why should business, however big, be
afraid of bulk? Why should it be ashamed of success? Why should it
be reluctant to insist upon the protection by its government, if need be
of its clear rights, wrongfully infringed? Why should it be upon the
defensive, as though it expected that some nefarious transaction or course
of conduct was momentarily to be disclosed, instead of standing proudly
erect before the country, and insisting upon itself receiving a square
deal? I believe the time has come for a great deal of talk and action upon
that subject. I believe the time has come for the world to be taught, if
it does not know, that in the great majority of cases, whether business
is small or big, success comes more from honesty than from dishonesty;
from fair dealing rather tbaP from unfair dealing; from brains rathef
26

The World Petroleum Problem — Mexico

than brawnj from the daring and courage of the few rather than from
the efforts of the many ; from the originality, the inventiveness and the
high imaginings of the leaders, rather than from the service, however
strenuous, however faithful, however diligent, of the followers. I believe
the time has come when the world must be taught that without great
commercial enterprises a nation is today a dead nation; that great com
mercial enterprises mean successful, efficient commercial enterprises;
that efficiency means self -protection ; that success means the acquisition
of wealth and of bulk if it continues through the years. I believe the
world should be made to realize that these things are not wrong, but are
in every way commendable, and that wealth thus realized is not a badge
of shame, but is the outward and visible manifestation of that efficiency
without which no true success can exist. And if, in that connection, one
is heard to talk of idealism, there should be no hesitancy in making it
plain that "idealism" is a word of many meanings. There is an idealism
of art; there is an idealism of poetry; there is an idealism of the pro
fessional life; there is an idealism of pure ethics. But the commercial
world cannot take any such code of ideals exactly as written, and transfer
it into its own operations. It has its own idealism, and that idealism
must be of such a nature that it permits commerce, and successful com
merce, to exist. And if any man shall propound to you a code of alleged
idealism which criticizes the making of money, which teaches that wealth
is a disgrace, which teaches that success is a sin, the man who does that
is no true friend of his country, because any such supposed idealism is
not idealism at all but a false and noxious thing; and if it thrives suffi
ciently it will throttle and stifle the entire commercial life of the nation
and of the world.
What are you men who have clear consciences in the business world
going to do ? Will you remain quiet until attacked or will you endeavor
to teach the world that big business honestly and successfully conducted
is a national asset as well as an individual advantage?
If I have succeeded in finding the words for which I have sought,
I have by this. time made it plain to you that our record is clean in the
controversy with Mexico, for I have answered everything of importance
that I know of which anybody has advanced to the contrary. I hope I
have made it plain to you that our rights were absolute, and under the
moral law and international law are absolute today, as to those properties
which we lawfully acquired before this Carranzista epidemic struck
suffering Mexf~o. I hope I have made it plain to you that the taking
away or attempted taking away of those rights was absolutely unjustified
by the law of man or the law of nations.
"How Is This Country Interested?"
How is this country at large interested in this affair?
27

The World Petroleum Problem — Mexico

It is unnecessary to speak in this presence about the importance to
America of the continuance of the Mexican oil supply, and at a reasonable
price. I shall pass that. But there are two other thoughts that I do want
to call your attention to, and the first is this :
There is a moral question involved in this entire transaction. The
Eighth Commandment was not limited to individuals. It either is of force
in this world today or it is not. If it is not, it is time we knew it. If
it is, this international effort is as morally reprehensible as the effort of a
single individual would be. I do not believe that the American public
are likely, if they once can understand the facts, to reach any other than
that conclusion with regard to the situation.
In the second place, what about our foreign commerce? Is there any
enlightened man today in this country who would for a moment disagree
with the statement that foreign commerce is absolutely essential to the
life of a nation? Present events are confirming that beyound the possi
bility of dispute. How are you to have foreign commerce? By getting
men to go abroad, by getting men to put their money into it, to risk their
business future in it, to give their lives to it, to take the personal risk
which it so frequently involves, and which it did involve in the earlier
and the latter history of Mexican petroleum development. Men can and
will do these things if they know that when they have made a success
they will be allowed to enjoy it free from arbitrary interference on the
part of others who have lacked the initiative themselves to bring about
those results. If, however, this Carranza confiscatory precedent is once
successfully established, and the word goes through South America and
Europe and Asia that the American nation is an "easy mark," that it re
pudiates its own people; that, as William Jennings Bryan said, "The man
that goes south of the Rio Grande River does so at his own risk," that
Americans cannot look to their government for protection, no matter how
honorable their enterprises may be, no matter how sincerely beneficial
they may be to the nation as a whole— if that precedent is to be estab
lished, and it is to be known of men, will our foreign commerce continue,
or will it wither and die? But with the principle once established that an
American is an American at home and abroad, that he is entitled to the
kindly consideration of his government as long as he behaves himself
and acts legally, wherever he may be, there will be no nation, no matter
whatever the future may have in store, that will cause America to take a
subordinate position in the foreign commerce of the world.
What Is to Be Done?
One word more and I am through. "What is the thing to do now?"
has probably been in your minds as you have listened to my long address.
Must we declare war on Mexico? Must we again involve our boys in
tragedies such as those of the great war? It is not necessary. It was
not necessary when Secretary Evarts sent that note to President Diaz

28

The World Petroleum Problem— Mexico

at the time Americans were being shot and American property was being
plundered. It will not be necessary as long as the Mexican or any other
government is made to understand, not merely by words but by that
indefinable something which must be back of all words, unless they are
to be vain and futile things, "Thus far shalt thou go, and Jtio farther !"
There is in that suggestion no policy of bullying of small nations, no
swaggering, swashbuckling attitude toward the world. It is a policy of
peace, for your true fomenter of war is not the man who insists upon
righteousness, but the man who encourages the wrongdoer in his wrong
doing. It is a policy of respect by the American nation for its own
honor and for the rights of its citizens. It is a policy which was ex
pressed better than any American public man has expressed it by the
great Mexican liberator, Benito Juarez, when he said, "Respect for the
rights of others means peace."
I do not want you to leave this room with any misapprehension on
one great point, and this is why I have left this sentence to the last.
I have argued the situation before you from every standpoint that I
thought important, and I have dwelt to a considerable extent upon the
duties of the American Government to its own citizens, but I do not
believe that this point of view is the most vital one, because I do not
believe that this controversy will have to be settled in that way. I
believe that the better class in Mexico today is realizing that she has
taken a false step ; that if the course of confiscation is continued she is in
danger of placing herself where Secretary Bayard, in the time of President
Cleveland, put other aggressive nations, saying: "They have placed
themselves outside the pale of civilized intercourse." I believe that in
Mexico itself today there is a powerful body of public opinion among the
higher classes, and also an attitude of mind of President-elect Obregon,
which I am hopeful will lead to a speedy and tranquil solution of this
matter at a not distant day. But if these hopes shall be disappointed,
is this nation willing to abandon those of its children who have tried not
merely to advantage themselves, but to advance the prestige and the
commercial powers of this nation by developing in a foreign and sup
posedly friendly country a commodity of which this nation today has
need? "Mexico's Side of the Petroleum Question"
The complete address of R. V. Pesqueira on "Mexico's Side of the
Petroleum Question" follows:
Permit me to express my appreciation to your honorable president
for the very courteous manner of according me the privilege of addressing
you on a subject so near to the heart of every Mexican.
Not only as a Mexican representative but as a Mexican citizen I
requested the privilege of addressing you in the hope of giving you a
29

The World Petroleum Problem — Mexico

truthful account of the Mexican side of the petroleum question. ' I regret
that, owing to my unpreparedness and the lack of tiirfe, and lack of
knowledge of your language, I shall not be able to do full justice to my
subject. I am not a lawyer. It is' beyond my power to present the case
from the Mexican point of view in the same masterly fashion brought
into play by the other speaker in presenting, the viewpoint of his chief.
You might have gained the impression that Mr. Kellogg was voicing the
opinion of all the American companies operating in the Mexican oil
fields, but the fact remains that not all companies belong to the associa
tion. There are very important companies that do not belong to the
association, and not all members of the association share the radical
views expressed and graphically described by 'this legal representative.
In trying to make a case the speaker mentioned robberies suffered by
paymasters of the companies, blaming the Mexican officials for those acts.
Can we not in turn blame the companies' employes for combining in
league to . commit those robberies ?
There has been an unfortunate loss of life in Mexico during the
many years of civil war. Believe me or not. Americans were safer under
those conditions than even the natives of Mexico. Those unfortunaje
things are unavoidable even in countries wholly at peace, and you should
not lose sight of the fact that the Mexican situation has improved rapidly
following the very short period under the leadership of the new govern
ment headed by President de la Huerta, and a group of young men of
high ideals.
We have suppressed gambling along the Mexican border, and we
have all manner of facilities to welcome the American who may wish to
go to Mexico to work honestly. Our officials along the boundary line
are courteous and affable and friendly and the people of that section
have become fully aware of the change. We desireMo avoid all hindrances
to the conclusion of our work so well begun.
General Obregon, who will take over the presidency of Mexico on
the first of December, is conceded by Mr. Kellogg to be a real man. So
no apologies are needed for him. As no reason could be offered to place
Obregon in a questionable light, the tactics of politicians had to be used
by the ever-resourceful speaker.
Personal Conference Urged.
I beg to inform you that Mexican capital, as well as French and
Italian, is now taking a serious interest in Mexican oil and that some
corporations are already organized with the intent to insure for them
selves a share of the production in which American capital has been
so successful. It seems that they did not find the situation so desperate
nor our Mexican laws so arbitrary as some seem to think.
A spirit of real friendship and a desire to settle all controversies in-
30

The World Petroleum Problem — Mexico

spired me on reaching this country. A number that are present here
are well aware that I have honestly and in good faith offered to suggest
to the companies how to work for the adjustment of difficulties, and
I have invited Americans to Mexico for personal conference between
them and my government. I have the absolute certainty that once my
proposition is accepted we may be able to discuss with the heads of
the oil companies, with men able to understand the limits of their own
rights and the attitude of my government in order to safeguard the
future interests of Mexico, the petroleum question will be definitely ar-'
ranged. But so long as the petroleum companies trade with the Mexican
Government, as they have been so far, through the one medium of sub
ordinate and interested lawyers whose main aim is to prolong the duration
of the difficulties which constitute the basis for their employment they
will reach no understanding.
Notwithstanding that that is evidently and logically true, I was
answered with the suggestion that I confer with some attorney.
Some references were made to the late President Carranza as being
a despoiler. This is not the place where I may discuss the policies of a
President of my country, but I cannot see, from the framing of our
constitution, right through to his last decree, wherein, as they would have
you believe, appears the work of a despoiler. On the contrary, his acts
have been the result of a conscientious conviction. However, the revolu
tion and the rapidity with which it succeeded furnish conclusive proof
that the people of Mexico were not in full accord with the policies of the
government. My distinguished audience has heard a series of insulting arguments
against Mexico. Here you have arguments in her defence (exhibiting
a book). I will not read them, for I suspect that I would unnecessarily
weary you thereby. Furthermore my mission in this country is not to
argue, but to see justice in this matter, putting aside sophistry as well as
the play of words and jargons of lawyers.
Article 27 and Mexican Taxes. v
I will simply reiterate what I have already stated on different occa
sions : Article 27, in so far as it refers to the petroleum question, is "not
retroactive, nor can it be considered as such.
Although these are but minor details, I wish to give you a few
figures, really authentic, regarding Mexican taxation on oil exports,
which will ans,wer for themselves the often repeated assertion about our
exorbitant taxation.
The average Mexican stamp taxes in U. S. cents per barrel from
1917, when the tax was first applied, to date, are as follows :
Light crude, 11 cents a barrel.
Fuel oil, 8.7 cents a barrel.
Heavy crude, 5.7 pent? a barrel. 31

The World Petroleum Problem — Mexico

The present tax will run about as follows :
Light crude, 18 cents.
Fuel oil, 13 cents.
Heavy crude, 8.5 cents.
And yet in the last few weeks you have probably read statements
to the effect that we are collecting $1 for every barrel of oil exported.
We have no income tax, no excess profits tax, not even an Eighteenth
Amendment; and the taxes above named represent practically all our
entire revenue from the petroleum industry, which is second only to that
of the United States.
Do well managed American companies lose money by operating in
Mexican oil fields? Ask Mr. Doheny, the Standard Oil Company, the
Texas Company, the Gulf Company, the Sinclair Company, the Island
Company, to mention only a few. Ask conservative companies like the
Tide Water Company, who, notwithstanding crowded conditions, are
nevertheless at this time getting into Mexican oil fields. It is unfor
tunate that other American interests are not represented as they should
bs in Mexico, wrongfully influenced by various propaganda.
Do not think, however, that the petroleum industry is the only
important link between the Mexican people and the American people. Do
you realize that the cotton industry of some of your Southern States
is almost wholly dependent upon Mexican labor for existence? Do you
realize the equally important role that our labor plays in the construction
and maintenance of your roads? Do you not believe that the interests
of these enterprises who have been friendly to our course, and the mining
• interests which believe in and trust us, should be considered ? As I
stated before, we can count, even among American oil operators, people
who believe with us in the brilliant future of Mexico.
Conditions for Exploitation of Oil.
The conditions for the exploitation of the petroleum of Mexico are
incomparably cheaper and more profitable than those of any other
country in the world. While the average daily production of American
fields per well is a little over five barrels, according to the U. S. Geo
logical Survey, the average daily production of each Mexican well is
eleven hundred and ninety barrels. I beg to remind my audience that
only two days ago it was stated that no Mexican well had been profaned
by a pump, and I beg to call attention to the well known fact that such
a profanation entails an additional cost of about 40 cents per barrel in
California. Our production this year will be about 140,000,000 barrels, and we
hope it will continue to increase ; for, notwithstanding the gloomy picture
and the terrible predictions made to the American public by Mr. Doheny
in connection with present conditions and the future conditions in Mexico,
every day sges fresh investments in Mexican fields.

32

The World Petroleum Problem — Mexico

Mr. Doheny, it is true, is and should be considered one of the suc
cessful pioneers in the petroleum industry of Mexico. He is not exactly
what one would class as a friend of Mexico, but he is undoubtedly a
brilliant business man. He has spent large sums of money in the Mexican
oil fields ; but has not Mexico repaid Mr. Kellogg' s employer many times
over for all he has spent and risked? Any one of you can easily answer
this question. The stock exchange and the income tax returns will tell
the story. With this in mind, Mexico is at a loss to understand the unfriendly
attitude of Mr. Kellogg and those who share his views.
Mr. Kellogg spoke of the Eighth Commandment. I will remind him
that there is also a commandment with regard to ethics among neighbors.
This policy of defaming my country and obstructing its struggles
toward betterment calls to my mind an eloquent melodrama — for I have
my melodrama also, Mr. Kellogg — which I will relate in just a few
words. I. The villain, who is a member of an honorable family, in
vites himself to the house of the heroine.
II. The villain makes himself at home in the heroine's house,
and grows fat.
III. The villain cashes in on her inheritance, and, when he
finds the heroine insists on retaining what the heroine cannot
afford to lose, the villain runs to father and family to complain
of the heroine's harsh treatment and bad faith.
IV. It is not yet known, but as it is usual for modern melo
dramas to end well, the poor heroine and the audience are won
dering what the father and brothers will think and do.
And so the matter stands, gentlemen. We are waiting with interest
to see what the father and brothers will think and do.
Repudiation or Confiscation Denied.
My mission in this country at this time, however, is not that of
arguing, but that of arranging. We want to arrange this question, which
might prove to be inimical to the carrying on of the plan of improvement
and progress which my Government has undertaken, and which it has
begun to perform with unquestionable success. Just as I am not a
lawyer, neither am I a diplomat. Up to the time of my arrival, my
speech had been clear.
With all my strength I have tried to break through what you call
red tape, hoping for a man-to-man talk. In my letter to your Secretary of
State, given to the press on October 29, Mexico indignantly denied any
thought of repudiation or confiscation, standing ready and willing to
adjust and pay every obligation in due accord with justice and interna
tional law. We declare to the world that no one of our laws shall ever
be given a retroactive effect, nor shall we ever shame our sovereignity
33

The World Petroleum Problem — Mexico

by confiscation of legitimate rights in private property. What more can
be justly asked? We declare than Mexico is ready and willing to submit
to an arbitration tribunal every difference of every kind, character, and
nature whatsoever that might possibly arise between the sovereign
Government of the United States and its people and the sovereign Gov
ernment of Mexico and its people, and the decision shall be conclusive
and effective.
Thus we reach out the hand of honorable friendship; and I say to
you that if it is not accepted, the reason for refusal will not be founded
in the ill faith of the Mexican Government. Hundreds of thousands of
dollars have been spent in poisoning public opinion both in the United
States and in Mexico. My people look forward in friendship to a great
peaceful development in our country in conjunction with the capital,
genius and brains of this great country. We want your good will. I
assume you must want our good will. My. people are a proud people and
an honest people. There is no length to which we will not go in dignity,
in honor, in upright self-respect, to meet the principles and ideals of this
country; but I know my people well. I promise you that the sovereign
Government of Mexico, representing the people of Mexico, will never
accede to a condition or a situation where a small group of especially
privileged gentlemen who know exactly what they want shall dictate
the terms and conditions upon which relations between the two countries
shall be resumed. "Mexico" — Concluding Addresses
The revised complete transcript of the concluding addresses of
Messrs. Kellogg and Pesqueira, including dialogue between Mr. Kellogg
and Valentine R. Garfias, of the Petroleum Department of the Mexican
Government, follows:
Mr. Kellogg— Mr. Pesqueira, I ask you to remain. Will you do me
that favor? If you will be so kind, you will do me a great personal
favor. My reason for asking you to remain is that I want to ask you
some questions.
(Mr. Pesqueira took a seat in the audience.)
Mr. Kellogg— Will you do me the great favor to come in front, Mr.
Pesqueira ?
(Mr. Garfias indicated that Mr. Pesqueira could not comply with the
request.) Mr. Kellogg— Is this gentleman one of the speakers, Mr. President?
Mr. Garfias— As a Mexican, I believe it is not fair to ask Mr.
Pesqueira, who is unprepared, to answer any questions that an attorney
might put to him at this time.
Mr. Kellogg— I will retire in favor of any practical oil man who
is familiar with the Mexican question and situation and let him put the
34

The World Petroleum Problem — Mexico

questions, if anything in my mentality is supposed to be dangerous to
Mr. Pesqueira.
Several members — No questions.
Mr. Garfias — I thank you, gentlemen; I thank you.
Mr. Kellogg — I also want to take this opportunity of giving Mr.
Pesqueira the fullest opportunity to ask questions either of myself or of
any of our associates who are here today, for there are a number of
them; and we place ourselves and our records unqualifiedly at his dis
position; and if he believes that that should be done by a lawyer rather
than by himself, the same offer holds true as to any man whom he may
select, either of the Mexican bar or of the United States bar, or any
practical man not a lawyer. And if Mr. Pesqueira would like to be
informed now as to any point upon which he thinks any of us can give
him any information, we are here ready and more than willing to have
him do so. Concluding Remarks of Mr. Kellogg
The revised complete transcript of the concluding remarks of Mr.
Kellogg follows:
While the legal profession seems to be somewhat out of favor with
the last speaker, I detect some evidence of legal training in his remarks;
for it is a fundamental principle of a certain part of the bar of this coun
try that when you have no case, the best plan is to abuse your adversary ;
and I am extremely surprised to find that after Mr. Pesqueira has asked
the permission of this assemblage to correct alleged misstatements in my
remarks, he has in the course of his half-hour's carefully prepared written
address, not only wholly failed to correct any misstatements but in addi
tion he has not even pointed to any statement which I made and which
he wishes you to consider as -erroneous. There is absolutely no answer
suggested in anything which he has said either to any of the fundamental
points by which the American oil producers in Mexico find themselves
aggrieved today or to the many minor matters to which I attended.
It is to me literally an astounding situation. I think that those of
you who were so good as to listen to my previous address will bear me
out when I say that I tried to deal solely in facts ; and wherever possible
referred to official records. I avoided personalities, as far as possible J
eschewed generalities. If I failed, I am at least ignorant of the particular
instances in respect of which I have failed.
I have taken up with you in detail the Carranza petroleum decrees.
I have read to you the exact language of Article 27, which is at the basis
of all the difficulties that now exist between Mexico and the United
States as far as the oil question is concerned. I have referred to the
history of the earlier laws relative to petroleum, both in Spain and in
Mexico. I have analyzed the decisions of the United States Supreme
35

The World Petroleum Problem — Mexico

Court to which Mr. Pesqueira has referred in a previous statement which
he sent out. I have been permitted by your patience to trace each step
in the development of the Carranza campaign of confiscation, and of our
resistance to his efforts And, above all, I have shown you by specific
quotations just what the United States State Department thinks of the
situation in all of its various aspects. I have done everything I know
how to do to help you gentlemen to consider the merits of our case on
the basis of the underlying facts — and not upon theories or mere gen
eralities ; and I now find that the principal point of Mr. Pesqueira's argu
ment in reply to this array of facts (aside from two or three sentences
of which I am going to speak directly) is a personal attack upon Mr.
Doheny and myself.
I shall answer that part of it which alludes to Mr. Doheny, but before
doing so I desire to call your attention to the fact that Mr. Pesqueira,
having affirmatively asked permission to answer my argument, and then
after two days of preparation not even having tried to do so, has placed
himself and his government in the position of practically confessing that
no answer exists so far as the principal questions are concerned.
Let me now ask why it is that Mr. Doheny and Mr. Walker and
myself and others have been held out to the world as enemies of Mexico?
Solely because we would not submit to the Carranza confiscation scheme
and permit the people with whom we were associated to commit financial
suicide. We have never — and I ask Mr. Pesqueira to correct me if I am
wrong — we have never committed one act of aggression against Mexico
or any of her citizens at any time since this trouble began. Mr. Doheny's
reputation among all who know him has been that of a man who has for
years been a true friend of Mexico, a man who has numbered among his
most valued friends many of the leading citizens of Mexico; a man who
has offered to do anything a man can do toward helping with his own
financial resources the reconstruction of a country which has suffered
so long from internecine war ; a man who brought to light in that country
sources of wealth never before known, from which these gentlemen have
recently stated that they expect to, collect taxes to the extent of 54,000,000
pesos, or $27,000,000 per year (this is their statement to financial men in
New York) ; a man who has raised the wages of the laborers of the
Mexican oil districts from 20 centavos, or 10 cents a day, to 5 and 6
pesos, or $2.50 and $3 a day ; a man whose name is' not only respected
and revered by those employes, who have frequently, with the greatest
loyalty and sometimes even with heroism, taken care of his properties
when the difficulties between Mexico and the United States have com
pelled the Americans to temporarily retire from the field; a man whose
greatest boast in this world is that he has been able to attract to himself
men who the more they know him love him the better. There is no act

36

The World Petroleum Problem — Mexico

and no deed of Edward L, Doheny, or of anybody who has ^endeavored
to represent him, which can justly be pointed to today as an act of hos
tility, of unfairness, of mendacity regarding Mexico, or to its disad
vantage, or that of any of its officials or citizens, except that Mr. Doheny
and his associates have dared to stand up for their rights.
I challenge Mr. Pesqueira and anybody in Mexico or here to point
to one act of wrong or to one misstatement of fact that Edward L.
Doheny or anybody who has had the honor and privilege of being asso
ciated with him has ever done or made contrary to truth and right and
justice, and I will make the same challenge, and it stands good until it
is answered, with respect to any of the other pioneer oil producing com
panies of Mexico. Joint Debate Suggested.
And, gentlemen, for you men in the petroleum business are not
ordinarily deceived by generalities, but demand the truth — until one or
more facts are given to you what can you think of mere general state
ments of enmity on the part of Edward L. Doheny toward Mexico?
y You of the American Petroleum Institute have here a great func
tion which you can perform.
Let me ask you, Mr. Chairman and members, whether it can be
arranged that a real joint debate shall take place under your auspices
between those who approve of the doctrine of American rights in Mexico
and those who believe Mexico's attitude has been honorable and fair?
Let either side produce any speakers, and as many speakers as the circum
stances and time will permit, so that the world can have a full, thorough
and searching inquiry as to what the facts really are.
There is not now, and there never has been since the beginning
of this controversy, anything but the most heartfelt and sincere desire on
the part of the American oil producers to have the American public, the
Mexican public and the world know the truth, and if there is any plan
that can be suggested by any man which is better calculated than the one
I have thought of to bring out that truth once and forever, let it be
followed out.
Answering some of the things which Mr. Pesqueira has spoken of,
he alludes to the fact that I do not represent all of the American oil com
panies now operating in Mexico and that other companies are operat
ing there that do not belong to the association of which our company is
a member. He is quite correct. But, gentlemen, the companies who do
not belong to the association — some of them, one in particular — are today
endeavoring to obtain rights with reference to properties which my com
pany believes it bought or owned or leased in accordance with the laws
of Mexico fourteen years ago. Those gentlemen, and some other gen
tlemen since they began to cultivate the friendship of those who believe
37

The World Petroleum Problem — Mexico

in the Carranzista doctrine of confiscation of the property of others have
been making much in the public press of their belief that the laws of
Mexico were honest and fair and in every way favorable to the petroleum
industry and should be adopted by the other companies.
Why shouldn't they make that statement, since their future to a sub
stantial extent (in their own opinion, as evidenced by their own acts)
depends upon the doctrine of confiscation and " repudiation of the rights
of the parties who acquired these properties honestly under the preceding
laws of that country?
I deliberately withheld any allusion to this the other night because
I wished to leave the room with the feeling in my own mind, which feeling
I hope was also felt in your minds, that I had done nothing to increase
the friction unfortunately existing between the two countries, or that I
had added anything to the flame of discontent which burns in the minds
of many concerning Mexico today; and I would not have alluded to it
now if Mr. Pesqueira had not made the statement to which I have just
referred. Is Carranza Doctrine to Continue?
Mr. Pesqueira has talked of taxation and has said that Mr. Doheny
has been amply repaid for his efforts and his time and money which he
has invested in Mexico. In other words, Mr. Pesqueira, and those who
believe as he seems to believe, advance the theory that because they think
Mr. Doheny has been paid amply for the work and the risk which he
undertook, the time has come when they may say "That is all you will
be allowed to get; we will now take your property from you so that you
can get no more."
If the titles which we bought and if the lands which we acquired
were honestly and legally bought — and so far I have heard no suggestion
to the contrary (and if there is any let us know it) — and if the operations
and development of these properties were fairly conducted toward the
Mexican employes and the Mexican public and the rest of the world, who
is there who has the right to say (except so far as legitimate taxation is
concerned) how much money shall be made by the men who risk their
lives, their fortunes and their whole careers in the endeavor to bring to
the surface a source of wealth that the preceding Mexican officials had
professed to scorn?
Has Mr. Pesqueira the right to say to Mr. Doheny how much he
shall make out of this lawful effort? And, if so, by what God-given man
date has he acquired that right? Has the Mexican nation, which is bound
to comply with the rules of international law which have been recog
nized for hundreds of years, gained, by its own fiat, such privilege? If
so, it is time the world should know it; because if so, such a right will
not long be confined to the Mexican Government alone, and our foreign
commerce will soon find its operations limited by the desires and per-

38

The World Petroleum Problem — Mexico

sonal wishes of the officials of the nations with whom we come in con
tact; and we shall not only be left remediless but will find ourselves
denounced by persons like this as the enemies of those countries if we
dare to stand up man fashion for those things which we believe to be
our rights.
Is that good American doctrine? If so, I am badly informed, because
I never heard of it except from Mexican sources. I do not wish to use
the word "Mexican." It occasionally slips from my mouth without my
intending to use it. I want to use the expression "Carranzista." And I
want to call attention, as bearing upon Mr. Pesqueira's seeming personal
approval of the Carranza idea, to the fact that Mr. Pesqueira for years
was a trusted official of the Carranza Government, being its financial
representative in Texas, and toward the end of Mr. Carranza's career,
animated doubtless by a high sense of duty, he felt it desirable to take
steps toward helping to eliminate Mr. Carranza from public life. I do
not blame Mr. Pesqueira for his belief in and adherence to the Carranza
doctrine. He was a Carranzista. The question that interests me is not
that, but it is this : Is the existing government of Mexico or the future
government going upon record as approving and continuing to enforce the
Carranzista doctrine of confiscation? That is the question; not one of
personalities, not one of what the dead have done, but what the living
are to do. That is the point in which every American petroleum man and
every citizen of the United States has a right to be interested and in
which he is interested; and to find that out here and now is the object
of certain questions I am going to put to Mr. Pesqueira and through htm
to the government he represents, and they are these :
Four Questions Asked.
What do you mean by non-retroactive? That is the first question.
The second question is : Do you, or does your government, admit that
American oil companies, who had bought or' leased lands in Mexico prior
to May 1, 1917, had the exclusive right, free from governmental license
or interference, to extract petroleum from those lands?
The third question is this : If you admit that those rights existed
prior to May 1, 1917, do you believe that the Constitution adopted in that
year and the series of Carranza decrees took from the American producers
any parts of the rights they had thus acquired?
The last question is : // you do believe that those rights were thus
affected, what does the Republic of Mexico intend to do about it?
So far as in me lies, those four questions penetrate to the heart of
the matter. It is all very well for Mr. Pesqueira to say "Our laws will not have
any retroactive effect," but let me go back to the days of Mr. Carranza
and Mr. Cabrera and recall to you that Mr. Cabrera, in a statement that
he made, advanced the theory that the doctrine of non-retroactivity as
39

The World Petroleum Problem — Mexico

applicable to petroleum meant that the Mexican Government, as an act
of mercy and of grace, would not hold us to account for the value of the
petroleum we might have extracted from those lands before May 1, 1917.
Let me recall to you that Mr. Pesqueira in a recent statement has made,
even more emphatically than today, the declaration that those laws to
which I have alluded were not retroactive. Does he know — and if so,
what did he mean — that today there are 1,029 denouncements filed under
the Carranza decrees, of which the largest portion have been filed since
the end of the Carranza administration; and that there is today in force
a rule in the department which prevents the men who thought they were
the owners of those lands from being allowed to drill upon them as long
as these denouncements remain outstanding? If he does know that, what
is his interpretation of the word non-retroactive? He says no property
has been confiscated. What does he mean by confiscation? The property
is there, and under the existing rulings the men who believed they had
the lawful and moral right to it as owners cannot enjoy it without
making arrangements with those third parties who have seen fit to file
denouncements under the Carranza decrees.
The company I represent, out of eighty-four lots in a certain district
has had thirty- four denounced; it was denied drilling permits on three
lots. It has been compelled to make terms with those who were permitted
to file denouncements before it was permitted to drill on certain of those
lots. Has the Carranza doctrine of confiscation been applied retroactively
to our company or has it not? And if it has not been retroactively
applied to our company, what is the meaning of the word retroactive,
unless Mr. Cabrera's pleasant theory be accepted ?
It is in this careless use of general terms, my friends, that the greatest
danger lies to the good relations beetween Mexico and the United States
so far as the petroleum question is concerned.
I am going to ask your indulgence while I read a sentence from an
article that appeared yesterday in the New York Commercial, written by
a Mexican citizen:
"One of the most dangerous defects of the Spanish race, which
has become a legitimate heritage of the Mexicans, is an inordinate
love of rhetoric. Sufficient proof of this is to be found in the
fact that, owing to this desire to solve by means of literary effu
sions the very serious conflict that has been provoked by the
change in the ownership of petroleum lands, Mexican nationality
stands today in imminent danger of being wrecked."
I am one of those who believe, and I think there are others in this
room so believe, that plain speaking clears the air. I do not believe in
generalities. I take no stock in theories. I want facts. You want facts,
and the one underlying question of fact in the oil situation in Mexico is

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The World Petroleum Problem — Mexico

this : Does the present government or any future government of Mexico
intend to adopt and itself continue to enforce the confiscatory policy of
the Carranza Constitution and decrees? Until that question is answered
not by general statements of non-retroactivity, but by a statement as to
what non-retroactivity means in their opinion, by a definite admission or
denial that American companies had the rights which I have alluded to
before the promulgation and adoption of this constitution, we will be
only wandering in the fog with no hope of escape. One word from the
gentleman who represents the present Government of Mexico can settle
that question once and forever, so far as the American petroleum industry
is concerned. What Is New Government's Attitude?
I say one word. He may need more, for answers must also be given
to these questions :
Will you stop the reception of further denouncements, whether bv
Americans who believe in the Carranzista doctrine, or by Mexicans, upon
lands that have, been honestly acquired by American oil companies for
oil purposes before May 1, 1917?
Will you stop the granting of so-called Federal zone drilling con
cessions, which are in the same illegal class as these denouncements?
Will you stop the proceedings under the denouncements and the
concessions already outstanding?
Will you allow us to drill our properties without asking the leave
of those gentlemen who have seen fit to assert a better right than we
possess, and who have based that alleged better right upon the Carranza
decrees and the constitution of 1917?
Those are the underlying points. Until we get rid of them there
never will be harmony between the Mexican Government and the Amer
ican petroleum companies that have gone there. There can be no har
mony. We want to know why five months have elapsed since Mr. de la
Huerta" first made his statement that the Carranza decrees should be
derogated, without one thing having been done to derogate them; and
why during that period many additional denouncements have been re
ceived and additional concessions have been issued in respect to lands
which we own?
What are we to expect from these things? Is that what is meant
by friendship by Mexico to American interests abroad? There is, of
course, a desire Jor the better relations which Mr. Pesqueira has so pleas
antly alluded to; but let us find out first whether his idea of "better
relations" involves the thought of Mexico's freedom to confiscate our
lands. The time has come when it is not only the privilege, but it is
the duty, of those who represent the present and the future Mexican
Government to take the world into their confidence and let us know
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The World Petroleum Problem — Mexico

what we may expect, so that the cloak of generalities may be removed
and we may get the exact facts and an accurate prognosis of the future.
Before I. close, let me once more ascend into the realm of art. Mr.
Pesqueira evidently approves the idea suggested by me in my first speech
of a melodramatic illustration of the situation. I rather like the sketch
of the play which he read, to you. It so happens that, with very slight
alterations, it will serve as a perfect analogy to the position which will
exist if the present or any future government, in Mexico shall decide
to adopt as its own the Carranza confiscatory policy, and if then, in
answer to our protests, it should suggest either of the courses to which
Mr. Pesqueira has alluded in his speech. As thus modified, the scenario
of our revised melodrama will read as follows :
»
I. The villain enters the heroine's house and possesses himself
of her jewels.
II. He is about to make his escape despite her shrieks of pro
test, when the father and brothers enter — accompanied, possibly,
by a policeman.
III. The villain, finding his egress barred, smiles brightly upon
the assemblage, and says that he is perfectly willing to compro
mise on a fifty-fifty basis.
IV. As this suggestion seems to meet with an unsympathetic
response from the male relatives, and also from the policeman,
a brilliant thought strikes him and he states that he has found the
true solution of the difficulty — to wit, arbitration.
Curtain.
That, gentleman, although there are many other points, comprises
the substance of what I wish to say.
Concluding Remarks of Mr. Pesqueira
The concluding address of Mr. Pesqueira follows:
It is very difficult for me to address such an important and distin
guished gathering in English, because I have indeed a very small com
mand of that beautiful language ; but since I have been serving my coun
try I have been in worse dangers than this, so you will have to excuse
my errors. It is not a personal question with me — the discussion of Mexico, and
this question of oil. I do not discriminate at all against these gentlemen
personally. Some of them whom we have been fighting so terribly are
charming gentlemen whom I count as some of my best friends. We dine
together and we run around together; so it is not a personal question at
all. I am representing a country, and I think I am representing a just
cause. That is the reason why I have the nerve to fight and tell the
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The World Petroleum Problem — Mexico

It is utterly unjust and unfair to accuse me of double-dealing and
double-crossing Carranza or anybody else. The reason why I have been
fighting, and fighting hard, for many years, money and influence, is
because I am clean, and I have been clean. There is nothing in my life
that can be reproached, because my business has been to be clean. I
served Carranza, not because he was Carranza, not because it was a per
sonal affair at all. I started to fight when I was four years old. My first
impression was when my father was in jail to be executed because he
was trying to get better conditions for Mexico. But this question of aie
Carranza decrees and the Carranza Government has been so confused
and talked about so frequently that I think I am entitled to request a
little forebearance of patience to explain the matter to .you a little bit.
Article 27 of our constitution does not deal solely with oil. Probably
it is the smallest issue in Article 27. Article 27 is called the Carranzista
article. It is far from that. It is a tremendous aspiration of the Mexican
people. There are embodied in Article 27 all their hopes for betterment,
for happiness, and for progress. Concessions in Mexico.
A few facts will tell you the story. There was a time in Mexico
when concessions were very popular. It was not a flattery to my gov
ernment; it was a shame; but some of you wealthy gentlemen got to
Mexico, very easy and very nice, and found unscrupulous employes
armed by some grafter, under the ministers or somebody else, with au
thority to grant concessions of land, involving hundreds of thousands
and millions of acres of land; and the method and the process of acquir
ing that land will stand as a shame for both parties — for Mexico and for
the men who took those concessions.
The system was this : — In Mexico, unfortunately, the laws are. very
imperfect, like I imagine they are everywhere else. We had a lot of
national land, and this land was to be given in concessions to a surveying
concern that was going to survey the land, and in payment for this land
they were going to receive a third part of the land issued and sell the
rest. The majority of those surveys were performed in the easy chairs
of an office, putting the maps together, and seeing where there was land
around, and then giving out title for the rest, and the people who had
got in there had to fight to get back their titles. I happen to know the
facts of the case because our property had to be fought for the twenty
years before we had a right to take it back from very powerful people;
and that is the case in every part of the country. You take the Indians,
the poor Indians who have small patches along the sides of the towns.
They have been expelled from their small patches, and that is what
created the insurrection of the Yaquis— and the insurrection of the Mayas,
and everyone else. I am a landowner. I have one of the biggest lands
in Mexico, and at the same time I admit it is wrong. Why? Because
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The World Petroleum Problem — Mexico

these lands that were not bought, that were given away, were not even
paying taxes. While a small man was made to pay terribly to keep his
land, the big land owner did not pay anything. We happened to pay
because we were enemies of the Government. The consequence is that
Mexico saw in the equitable settlement of the land question the hope,
and the only possible hope; and now this nasty oil, that we all love
because so many benefits come from it, has come in our way to complicate
things. We have no trouble with the landowners in Mexico. It is not true
that we have trouble down there. Just one little incident is going to
prove it to you.
The Terrazza family are known all over the world as the largest
landowners in Mexico. Their property runs into the millions of acres
of land. I met Mr. Terrazza just a few weeks ago in New York, and
he referred to my interview with him in California about two months ago
in which I tried to explain to him where he was wrong in trying to keep
these enormous tracts of land, creating the hate and the distrust of the
people, instead of inviting capital into the country and giving our people
a chance to work. It impressed him so much that that man, two months
afterward, told me : "Mr. Pesqueira, you are right. We are going to
divide the lands, and we are going to give the people a chance."
"Necessary to Nationalise Oil."
That is one case, gentlemen. I could repeat many, many incidents of
the same nature; but, as has been said before, my time here is very
limited, too limited to go into the merits of the legal side of Article 27.
I showed you purposely an enormous book that I have been reading, in
which very clever American and Mexican lawyers defend the legality
of Article 27; but if you want to know something practical about it, this
is the phase of the situation :
To realize, to accomplish what we were trying to get for the benefit
of our country, it was necessary to make this nationalization of oil; but
is not that the general tendency of the countries of the world, to protect
themselves, to nationalize resources of this kind and issue licenses for
their development? Have not Mr. Sinclair and other big oil companies,
big operators in this country, submitted to the Senate of the United
States a similar, or, in fact a harsher, resolution than that, in which it was
proposed that no foreigners should have a share in the oil of this coun
try? That is a national tendency. It is bound to come. The wealthy
man, to be able to keep on, will have to give other people a chance. We
have never been able to adjust our legislation. We have never meant
to take an acre of land from anybody. We are not trying to confiscate;
and if they say we have confiscated, where is that confiscation? Are
they not buying every day more land, more land? This question is one
that we have got to adjust to give the people what they have; but why

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The World Petroleum Problem — Mexico

should we bind the whole country for just one part of our country and
for one part of our industry? There is where these gentlemen of the
oil industry in Mexico have been unfair. They have not given us a chance
to do that when we have invited them to adjust the matter, not with
clerks that have not any power, but with the heads of the company, who
can give rights and receive them, who can put the cards on the table,
as you say, and thrash these things over. That is what we have been
expecting and wanting them to do, and they have refused to do so.
Gentlemen, it is not personal with me; but I feel that our cause is
a very good cause, and with the help of this institute if some time you
have a chance to see our side, we are going to win.

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