CHAPTER X

THE STRUGGLE BETWEEN GREAT BRITAIN AND THE UNITED STATES IN MEXICO

There is no country in the world where the struggle for oil between Britain and the United States has been so acute as in Mexico. That this country has been for many years in a state of perpetual unrest is because of the fight for oil concessions.

The Standard Oil enjoyed practically a monopoly in Mexico up to the time when the deposits at Tampico were discovered. It was the only firm which sold oil there, so it did not scruple to abuse its position. It imported crude oil, refined it on the spot, and re-sold it at a profit of 600 per cent. Immediately the oil deposits were discovered, Porfirio Diaz, to put an end to this monopoly, granted important concessions to the British firm of Pearson, which shortly afterwards founded the Mexican Eagle. These concessions were the signal for the newspaper campaign which was let loose against Porfirio Diaz in the United States, and for the outbreak of the Maderist insurrection in Sonora and Chihuahua. Rockefeller and Pearson made war on each other with the help of Mexican condottieri. The United States supported Madero, Great Britain Porfirio Diaz.

The Standard Oil subsidized the Maderists. Lane Wilson, formerly Ambassador of the United States to Mexico, actually stated in public, on January 7, 1913, that the movement on behalf of Madero had been paid for by the Standard, and that a document lying in the archives of the State Department at Washington proved it! Manuel Liyo, an official in a high position in the Mexican Ministry of the Interior, stated, before the Committee of the United States Senate, that the brothers Madero had concluded the following treaty with the Standard:--

I. If Madero is made President, he will grant to the Standard all available concessions.

II. He will withdraw all those granted to Pearson.

When Madero was made President, the market price of the Standard rose in Wall Street by 50 per cent. But this triumph did not last long. We are often astonished at the continual changes of front of the United States, which support the feeble Presidents in Mexico and oppose the energetic ones. By 1913 the Daily Graphic and the Vossische Zeitung had discovered the key to this mystery. Ever since Pearson obtained a footing in Mexico the Standard has poured out gold in floods to drive out the British. It wishes to be the sole mistress of those immense oil-fields, which have turned out to be among the richest in the world. Only 54 million acres are being exploited at present, and already Mexico holds the second place in world production. Now the Mexican Minister of Industry and Commerce estimates the area of the oil-fields of that country at 150 million acres. Where will Mexico stand when all this territory is exploited?

To arrest the progress of Pearson, the Standard sent an emissary to Mexico to demand a monopoly of oil exploitation. It offered, in return, the immediate conclusion of a loan of 200 million Mexican dollars. Rockefeller's envoy promised, moreover, that the revolution would die down as though by magic, while, in case of refusal, it would continue until General Huerta was replaced by a more tractable President who would submit to American requirements.

Like his predecessor, Porfirio Diaz, General Huerta refused to make Mexico the vassal of the great trust, and the insurrection redoubled in violence.

Tired of the continual struggles which ravaged their country for the benefit of the two great Anglo-Saxon nations, the Mexicans resolved to profit by the European War to win their freedom for ever. According to the laws of the country (1884, 1892, 1910) the owner of the surface was also the owner of the subsoil. All that a company had to do was to buy the ground and it was at peace with God and man. The Constitution of 1917 disturbed this peace. "The subsoil," it declared, "belongs to the nation." To exploit petroleum deposits a Government permit was required. This permit is only to be granted to Mexicans or to foreigners who consent to submit to the laws of the country as natives, and thus renounce their privileges as foreigners.

As soon as they received word of these new arrangements the British and American newspapers thundered against the unhappy President Carranza, whose fall from power was not long delayed. Taught by his example, his successor attempted a policy of conciliation, but in vain. The present President, General Obregon, is faced with the same difficulties, but holds firm. The Mexican Government hopes to free itself for ever, by means of the Constitution of 1917, from the diplomatic interference which has poisoned its existence. But the Obregon Government, though moderate, is not strong. It is supported by the middle-classes, but has the army and the people against it. Now, for some time, unfortunate tendencies have been shown by the Mexican people. It has just indulged in a Communist Congress, with the object of "grouping all the forces of the proletariat."

If President Wilson always maintained a policy of non-intervention towards Mexico--a policy, moreover, which was severely criticized within the United States--his successor at the White House meant to make himself felt there as well as in other parts of the world. President Harding had among his ministers Mr. Fall of New Mexico, who has always interested himself in this question, and who at one time made energetic protests. He demanded that American citizens should not be expelled from Mexico on the simple order of the President of the Republic, and that a Commission should assess, at the earliest moment, the damages suffered by Americans during the Revolution-requirements contrary to the Constitution.

Thus I was not particularly surprised to hear that the Committee of the United States Senate had undertaken to recognize the new Mexican Government only on the condition that the article of the Constitution of 1917 which forbids foreigners to hold mineral rights was not applied to United States citizens.

The Mexican Eagle, however, is undisturbed. Pearson was clever enough, at its formation, to place it under Mexican law. His borings have continued uninterruptedly, while American companies were obliged to suspend operations and wait for Government authority.

Pearson and the Mexican Eagle

The struggle between Pearson and the Standard Oil became at one time so acute that the United States Government acquiesced in the payment by American oil companies operating in Mexico of royalties to bandits and insurgents as though to the established Government. The general insecurity was such that certain American companies paid 1,500 dollars a month to a bandit in the Tampico district on the understanding that he would guarantee not to cut their pipe-lines.

Such a state of affairs could not go on for ever. After many years of conflict the two companies came to a sort of understanding by which they shared the exploitation of oil deposits, and when faced by the hostility of General Carranza's Government they sent a common delegation to the Peace Conference to defend their interests against expropriation by the Mexican Government.

In order to centralize its interests, each of the two groups founded, after a time, a company for the exploitation of the concessions granted to it. It was in this way that the Mexican Eagle was created in 1908, to take up a part of the Pearson interests. Its capital, which was originally 30 million Mexican dollars, was increased to 50 millions in 1911, on the acquisition of the Pearson oil properties in the Tehuantepec region. In 1920 it was 86,277,000 Mexican dollars.

"An institution is the elongated shadow of a man," said Emerson. This definition applies very well to the Eagle, in the success of which the personality of Pearson has been the dominating factor. From the earliest days the difficulties it had to struggle against were considerable. They would have discouraged a man of weaker character and less tenacity. His entire production was destroyed in the disaster at the Dos Bocal well--an enormous gusher which took fire. A fierce price-war was going on at the moment, conducted by Americans with great persistence for many months. Then came the time of unrest and fighting, and of the civil war to drive the British from Mexico.

However, the Eagle remains, triumphant, possessing an immense domain of a million hectares in the richest regions, extending along the borders of the Gulf, in the State of Vera Cruz and the isthmus of Tehuantepec.

Although it holds in reserve the greater part of this domain, its output exceeds 100,000 barrels a day. One of its wells alone produces in six days as much as the Pechelbronn deposits in Alsace yield to France in a year (60,000 tons), and, according to the estimates of British experts, its oil-field at Naranjos is alone capable of producing before its exhaustion a sum of money equal to the whole of the British national debt.

Pearson's war against the Standard Oil was worth while.

1919

The Royal Dutch-Shell Lays Hands upon the Mexican Eagle

Towards 1919 the weak spot about the Mexican Eagle was its isolation among organisms so powerful as the two dominating groups of the world, the Standard Oil and the Royal Dutch-Shell. Isolated producers sometimes lack markets, especially if by their geographical position they are far from great centres of consumption. This was the case with the Mexican Eagle, which, though it remained independent, was nevertheless obliged to submit to the very burdensome competition of the Standard in the sale of its products.

Lord Cowdray held so large a number of shares in the Mexican Eagle that to obtain them was practically to obtain control of the concern. In 1911 the Standard wished to buy them from him; he refused. In 1913 the Royal Dutch suffered the same rebuff. It had only offered him £2 15s. a share when he wanted £3. These shares, which were issued at par--10 Mexican gold dollars, that is, 25.90 francs, or scarcely more than £1--have risen at a phenomenal rate. Their lowest prices were:--

1912 36 francs 1918 83 francs 1919 126 francs 1920 398 francs

And they rose to 712 francs in 1919 and 738 francs in 1920! Since then they have depreciated considerably, as have all oil securities. Skilful manoeuvres on a large scale provoked a panic among holders of Mexican shares, which made it possible to buy them at a low price, and led to important operations on the Stock Exchanges, beginning in December 1921 in New York.

In June 1919 Deterding offered Lord Cowdray £6 a share; he accepted. The Shell Transport took one million, the Royal Dutch a million and a half.

If Pearson consented to get rid of the controlling interest which he had in the vast undertaking founded by his genius and perseverance, it was by reason of the enormous sums which had to be found before the immense resources contained in the oil-bearing properties of the Mexican Eagle could be turned to account. It can only handle 111,000 barrels a day, whereas, since the discovery of the oil-fields of Zacamixtle and Naranjos, its production could be increased, if it were desired, to 700,000 barrels a day, that is, about 110 million litres or 110,000 tons a day. In order that non-specialists may understand the importance of such a yield, we may say that one gallon contains 4.546 litres, one barrel (36 gallons) contains 163.655 litres, and that six barrels represent one ton. The Eagle's first well, which gave, to begin with, 100,000 barrels a day, thus yielded a daily production of 16,000,000 litres or 16,000 tons of oil. And it continued to yield large quantities--diminishing progressively, be it understood--until November 1919, when it was invaded by salt water.

The Shell intends to spend several millions within the next five years in order to triple the output of the Eagle. Very shortly the development of its installations will allow of its refining 140,000 barrels daily, and it is clear that, some time hence, the enormous figure of 200,000 barrels daily will be reached, that is, 5 million barrels a month against the present 2-1/2 million. The Shell's engineers will not push its exploitation to the maximum possible, for they wish to make the Eagle last half a century.

In acquiring control of the Compania Mexicana de Petroleo El Aguila (the true name of the Eagle) the Shell had in view simply to ensure a sufficiency of liquid fuel for the British Navy. For the Mexican Eagle will soon hold one of the first positions among the world's producers. Before long it will furnish, by itself alone, one-third of the Mexican production. The capital of the Shell was increased in 1919 simply with the object of hastening the development of the oil-fields it controls. In view of the considerable increase in Britain's need of petroleum we may believe that patriotism was Lord Cowdray's motive also. However it may be, the negotiations were concluded in June 1919, and it was a master-stroke on the part of the Royal Dutch-Shell group, for its position was greatly strengthened by this association, which increased its production of oil by 50 per cent. Moreover, the Royal Dutch-Shell made a very successful deal, since the shares bought at £6 each are now worth double on account of the increase of capital at par in January 1920 and the new increase in January 1921 under the same conditions, that is, one new for two old shares at par. Since the Mexican Eagle came under the control of the great Anglo-Dutch trust it has benefited by the incomparable selling power of the Shell: the great shipping companies, the Pirrie and the Furness-Withy groups, and the Argentine railways immediately concluded with it important contracts for the supply of oil. And this alliance brings the Eagle practically unlimited financial resources.

Financial Results of the Mexican Eagle for Eleven Years

------+----------------+--------------+--------------+-------- Year. | Gross Profits. | Net Profits. | Sinking Fund | Dividend. | | | and Reserves.| ------|----------------|--------------|--------------|-------- | $ | $ | $ |Per cent. 1911 | 1,974,000 | 874,000 | 194,000 | 8 1912 | 5,703,000 | 4,265,000 | 2,920,000 | 8 1913 | 10,488,000 | 8,166,000 | 3,551,000 | 8 1914 | 13,005,000 | 9,689,000 | 5,857,000 | 8 1915 | 14,676,000 | 11,215,000 | 6,562,000 | 8 1916 | 18,082,000 | 17,064,000 | 8,259,000 | 16 1917 | 20,521,000 | 12,948,000 | 6,922,000 | 20 1918 | 28,857,000 | 15,860,000 | 19,830,000 | 25 1919 | 36,868,000 | 29,508,000 | 11,050,000 | 45 1920 | 59,453,000 | 54,659,000 | 8,952,000 | 60 1921 | 81,982,000 | 69,083,000 | 34,879,000 | 30 ------+----------------+--------------+--------------+-------

The balance-sheets of the Mexican Eagle are expressed in Mexican gold dollars. The Mexican dollar, which, on the gold basis, is worth about half a dollar, was equivalent, at the rate of exchange of January 1, 1921, to:--

8.50 francs. 2s. 9d. 0.495 dollar.

Present Position of the Petroleum Industry in Mexico

Almost the whole of the Mexican petroleum industry is in the hands of the two great Anglo-Saxon nations.

Seventy per cent. of the capital invested there is American in origin, 27 per cent. Anglo-Dutch. Now Great Britain, in spite of the smallness of the capital she has sunk, triumphs more and more. Only 3 per cent. of the capital invested in this Mexican industry is Mexican.

Production continues to grow at a prodigious rate. It has risen from 87 million barrels in 1919 to 195 million in 1921. Edward Doheny declares that it will continue to increase for thirty years. Considerable oil-fields are still unexploited along the coast of the Pacific, and the Mexican Government officially announced the discovery of oil in the islands of the Gulf of California in September 1921. The Mexican Petroleum has just bored a well, the Cerro Azul, producing 100,000 barrels a day. Two miles from this well there is another which yields 260,000 barrels a day. All these deposits are found at an almost uniform depth of 600 metres. It is estimated that Mexico can still produce 4,500 million barrels of oil.

There were 367 wells in production in Mexico on January 1, 1921, of which 61 belong to the Eagle and 34 to the American Petroleum. Other companies, with five exceptions, rarely hold more than a dozen wells.

The Eagle stands to-day at the head of all producing companies. Here are the four companies which produce the most:--

Mexican Eagle 32 million barrels Standard Oil of New Jersey 19 million barrels Texas Company 12-1/2 million barrels Mexican Petroleum 12-1/2 million barrels

Great Britain has played a very clever game. As Phelan, the American Senator, wrote: "Her companies accommodate themselves to the political views of the Mexican Government." Moreover, they have all, from the Mexican Eagle down to subsidiary companies of the Royal Dutch like the Corona, been placed under Mexican law, which shields them from the effect of the Constitution of 1917. American companies, on the other hand, whether constituted under the laws of New Jersey, Texas or Delaware, remain foreign companies.

Since March 1922 they have been working out a plan for amalgamation, so as to form a powerful American group which could resist the demands of the Mexican Government.

The companies joining the group would be the Standard Oil, the Sinclair, the Texas Company of Mexico, the Atlantic Refining and the Mexican Petroleum. The Supreme Court of Mexico has decided that properties acquired before the Constitution of 1917 was promulgated would not be confiscated--a declaration which has reassured the United States.

Mexico retains only 4 per cent. of her production. In 1920 alone she exported 153 million barrels out of the 159 million produced, keeping for home consumption only 6 million barrels. Seventy-eight per cent. of her production went to the United States. Every year Great Britain takes from Mexico more than 40 million gallons of illuminating oil, benzine and fuel oil. Mexico literally saves the world. Without her there would be a universal shortage of petroleum.

FOOTNOTES:

Million dollars. Wells bored and in production 100 Value of ground on which they are situated 50 Pipe-lines, railways and rolling-stock 50 Refineries, buildings and machinery 50 Various properties, chiefly British 50 ]