We Fight for Oil

Ludwell Denny

CHAPTER FIVE
British [Government] Controlled Oilfields, Ltd.”


WASHINGTON looks with suspicion and hostility on British penetration in the Caribbean.  In that region the United States claims a special sphere of influence.

“The Americans are not going to yield their old supremacy without a struggle, least of all in those Spanish American republics which they regard as their natural preserve,” Mr. Sydney Brooks wrote in 1920, at the beginning of the American oil awakening.  “The concessions which British subjects have acquired in Venezuela, Costa Rica, Colombia, Ecuador, and so on, are looked upon at Washington with peculiar jealousy. ... Moreover, in one of the greatest organizations that is fighting out the battle of oil, the British Government is itself the principle stockholder and an unavoidably official and national character is thus imparted to its operation.”105

Control in the Monroe Doctrine area was described by Sir Edward Mackay Edgar’s article in Sperling’s Journal:  “I should say that two-thirds of the improved fields of Central and South America are in British hands.  In Guatemala, Honduras, Nicaragua, Costa Rica, Panama, Colombia, Venezuela, and Ecuador, a decisive and really overwhelming majority of the petroleum concessions are held by British subjects. ... The Alves group [British Controlled Oilfields, Ltd.], whose holdings encircle practically two-thirds of the Caribbean Sea, is wholly British, working under arrangements which insure that perpetual control of its undertakings shall remain in British hands.  No American citizen and no American group has acquired or ever could acquire any such position in Central America as that which enterprise and personality have secured for Mr. Alves. ... Unfortunately for them—and fortunately for us—their eyes have been opened too late.”106

But perhaps neither an American nor a Briton should be trusted to judge this fight, which holds so much menace for future relations of the two Powers.

Let a Frenchman describe early British activities in the Caribbean, prompted allegedly “as a precaution in case war should break out between Britain and the United States;  for, even with the help of the Japanese fleet, the British navy might not be able to seize the Panama Canal.”  M. Pierre l’Espagnol de la Tramerye, in a chapter on “An American Balkanism” in his World Struggle for Oil, in 1923 said:

“The Anglo-Persian Oil is no longer sufficient for Great Britain, which founded a new company in 1918, the ‘British Controlled Oilfields,’ specially commissioned to fight the Standard Oil. ... Like the Anglo-Persian, it is entirely in the hands of the British Government under the system of the Voting Trust.  It seems that an immense tract of oil-bearing territory exists from Mexico to the Argentine, a continuation of that of the United States. ... Of these deposits the British Controlled Oilfields wishes to gain possession on behalf of the British Government, thus completing the work of the Royal Dutch-Shell in Venezuela and in the neighbourhood of the Panama Canal. ... Its concessions actually surround two-thirds of the Caribbean Sea:  they are situated in the States of Guatemala, Honduras, Nicaragua, Costa Rica, Panama, British Guiana, Colombia, Venezuela, Peru, Ecuador, and the Island of Trinidad.  The concessions of the British Controlled Oilfields are nearly always on the sea coast—or rather in close proximity to the sea—which is a considerable advantage.  It has expressly chosen them, on both the Atlantic and the Pacific, as a precaution in case war should break out between Great Britain and the United States;  for, even with the help of the Japanese fleet, the British navy might not be able to seize the Panama Canal.  All its units must be in a position to replenish their stores of fuel without being obliged to make a long detour round the Magellan Straits. ... In order to obtain them [Costa Rican concessions], Great Britain did not hesitate to foment revolution in this little Republic.  Unable to obtain anything from the established Government, it helped to place in power the revolutionary President Tinoco, from whom it got all it wanted:  more than 6,000 square miles granted to the British Controlled Oilfields.  Unfortunately Tinoco has been overthrown:  the regular Government, restored to power, hastened to annul these concessions.  Great Britain, to compel it to ratify these concessions, stirred up a war between Costa Rica and Panama, while she sent the cruiser Cambrian to the coast of Costa Rica in order to increase the pressure.  Events went against her.  Costa Rican troops invaded Panama.  A landing took place on February 28, 1921, on the Pacific Coast, south of the Dulce Gulf, the eastern shore of which is common to both countries, and another less important one on the Atlantic, towards Bocas del Toro.  Panama lost the territory of Coto.  Mr. Alves, chairman of the British Controlled Oilfields, set out in March 1921 for Costa Rica, to study the question at issue.  But the United States stepped in;  and judge White, as arbitrator, pronounced in favour of Costa Rica.  On August 26, 1922, an American naval detachment assisted the Costa Rican forces to take definite possession of the contested territory, in spite of the indignant protests of the Government of Panama against the violent measures of which it was the victim.  There is continual warfare among the little republics of Central America.  The imbroglio of British and American affairs around the Gulf of Mexico and the Caribbean Sea (British Controlled Oilfields, Mexican Eagle, Royal Dutch-Shell, Mexican Petroleum, Standard Oil) makes this region the Balkans of the oil world.  The British Controlled Oilfields, the board of which includes a British admiral and a member of Parliament, is the result of long investigations pursued by Lord Fisher on behalf of the Admiralty.  The results of these studies are being methodically turned to account in order to insure to Great Britain the supremacy of the sea by means of the supremacy of oil.”

The Costa Rican incident recounted by M. de la Tramerye grew out of British efforts as early as 1914 to obtain concessions in that Central American Republic.  Immediately after its organization in 1918 to make Caribbean oil safe for the Union Jack, British Controlled Oilfields obtained a 7,000,000-acre concession from the revolutionary Tinoco Government.  General Tinoco seized power with British help, according to Americans.  His oil grant to the British company conflicted with earlier American concessions.  London recognized the Tinoco regime.  Washington refused to do so.  “The attitude of the United States encouraged a successful rebellion against Tinoco in 1919,” according to Parker Thomas Moon.  Dr. Moon adds:  “Costa Rica is ‘independent,’ but her Government must respect the new Monroe Doctrine, the doctrine that the United States has a veto on concessions.”107  The new Costa Rican Ministry cancelled the British concession.

Washington bided its time until 1921, and then permitted Panama to push a frontier dispute against Costa Rica.  As soon as the boundary war got under way, Washington intervened and an American arbitrator drew a frontier which satisfied the Costa Rican Government.  The latter having revoked the British concessions, later gave a 9,000,000-acre concession to the American Doheny interests and another to the Sinclair company.

Downing Street, in the exchange of notes on the San Remo-Mosul controversy, defended its Near East exclusion policy in part on the ground that the United States was guilty of the same practice in influencing the Costa Rican and Haitian Governments to revoke legally acquired British concessions.108  The State Department denied this charge, asserting it could not recognize the Tinoco Government because the latter had acquired office by unconstitutional means.  Not these British protests, but Costa Rican dissatisfaction over Washington’s refusal to accept the Pan-American Court’s ruling in the Nicaraguan dispute, later jeopardized United States prestige there and the Doheny-Sinclair concessions.

M. de la Tramerye and Sir Edward Mackay Edgar, as it turned out, were premature in forecasting complete British victory in Latin America.  Their descriptions of the situation, however, were valuable as revelations of British purpose and tactics.

Despite repeated London denials, British Controlled Oilfields has been controlled by trustees, some of whom were nominated by the British Government.  But the oil of diplomacy and of commerce does not always mix.  From the standpoint of naval strategy this company has been most successful, especially in acquiring lands in the Panama Canal region.  As a commercial organization, it has failed—though this is of less importance to the British Government.  At the latter’s suggestion the company was organized in a unique way, stockholders renouncing control in favour of seven “Voting Trustees.”  Following incorporation of the concern in Canada by Mr. Alves, the control system was established by a “Trust” on January 20, 1920.  Trustees representing the London Government directly were Mr. E.G. Pretyman and Sir Edward Mackay Edgar, whose boasts of British supremacy in the Caribbean are quoted above.  The Trustees were empowered to appoint directors.  Company shares were distributed throughout the Empire but carried on the books in the name of Messrs.  Sperling, a bank of which Sir Edward is an official.

A revolt of these disfranchised stockholders led in 1925 to forced appointment of new directors.  This board revealed that $30,000,000, two-thirds of the company’s capital, had been lost under the system and policy of political management.  The struggle between the non-voting shareholders and the British Government, represented by the Trustees, continued until it was carried into the courts in the winter of 1926-27.  Belatedly the Trustees agreed to abolition of the Voting Trust and to financial reorganization.  But in the process of forcing this reorganization certain details of British Government policy in the Western Hemisphere inadvertently had been shown to the world.

The report of the new board of directors, January 4, 1927, stated:  “The business of the company can never be conducted on a sound basis until its board can be chosen, can be criticized, and can, if necessary, be discharged by the whole body of the shareholders whose capital is engaged in the company and until these matters are no longer subject to the judgment or to the caprice of the majority of a body of trustees of a Trust which was created in January 1920 by Messrs. Sperling and Co., to whom the whole of the company’s common stock (save 100 shares) had been issued in part satisfaction of the purchase price of properties sold by them to the company.”109

Mr. E.A. Harney, LP., in addressing a protest meeting of stockholders was quoted by the London Times, January 27, 1927 as follows:  “when their own company started it was the suggestion of the British Government that things should be arranged in such a way that neither the Standard Oil Company nor any foreign company should get the oil which it was hoped would come out of the property, and two nominees of the British Government were placed upon the Trust.”

While stockholders were insisting on reorganization, the Voting Trustees issued on October 11, 1926, the following statement defending political control of the company on the ground that it served British Imperial interests:

“As was publicly stated at the inception of the company the dominant object for the creation of the Voting Trust was to secure the control of the company for all time by British subjects in order in times of need to be in a position to direct the output of the fields into channels best calculated to serve Imperial interests, and for this object, and this object alone, the Trustees accepted the Trust.  Sir William Mercer, who held the office of Chief of the Crown Agents, obtained the sanction of the Colonial Office to his appointment, and Mr. Pretyman becoming a Voting Trustee at the request of Lord Long, who was the Cabinet minister at the head of the Petroleum Department.  The Trustees were in no way responsible for the appointment of the original directors, but, in the pursuance of the trust imposed in them, they have from time to time reappointed boards of directors which, on the information available at the time, were in their opinion best competent to manage successfully the affairs of the company and control the oil supplies with the object set out above.  From the latter point of view the Trustees have never regarded with satisfaction the agreement made by the present board with the Standard Oil Company, as to which they were not consulted, and they are gratified to learn of its imminent termination.”110

Heavy financial losses and failure to discover oil on some company tracts had led the directors to make temporary leases to Standard Oil of apparently undesirable portions of one Venezuelan concession.  As shown in the foregoing Trustees’s statement, even such a temporary connexion with an American company was held taboo by the British Government representatives and scheduled for discontinuance.  One of its contracts with Standard was cancelled in 1926.  It operates in Venezuela and other Latin American countries in part through Dutch-Shell.  In Trinidad much of its land is worked by Anglo-Persian.  Though the Alves organization under British Government influence succeeded in being first on the field and in acquiring more lands in Latin America than any other company, its actual production has never been large.  Its output in 1927 was less than 2,500,000 barrels.111

Why British Government control in the case of the Alves company should have been so disastrous financially, in contrast to the commercial success of the British Government-owned Anglo-Persian Company, is not altogether clear.  Americans believe that much of the Alves land was acquired and is retained, for strategic purposes, with the knowledge that oil is not present.  In cases of actual oil lands, the company in Venezuela and elsewhere has been unfortunate in its engineers.  Moreover British Controlled Oilfields’ area of operations has been in highly competitive and unknown territories, whose governments have not been amenable to London control.  So the business hazards have been much greater than in Persia, where the British Government took over a rich company operating a huge developed monopoly concession in territory which was a quasi British protectorate.

Though such considerations explain in part the financial success of Anglo-Persian and Dutch-Shell, compared with the commercial failure of British Controlled Oilfields, they do not explain all.  Both of these other companies operate in the Caribbean successfully.  Anglo-Persian in some Latin American fields has made big money.  In others it has followed the Alves example of spending large sums for what is apparently strategic territory of little actual petroleum value.  Anglo-Persian profits from Persian wells and some Latin American pools are sufficient, however, to conceal “losses” incurred in political ventures.

Within 10 years after its purchase of Anglo-Persian control for $11,000,000, the British Government had profited to the extent of $200,000,000, according to Mr. Winston Churchill’s estimate in his The World Crisis.  Allowing for the Churchillian powers of exaggeration, the amount remains large.  Profits of Anglo-Persian continue to rise despite the fall in petroleum prices.  In 1926-27 its net profit was $23,000,000, compared with $21,500,000 in 1925-26, $17,500,000 in 1924-25, and about $12,500,000 in 1923-24 and 1922-23.112  Ordinary dividends exclusive of stock bonuses have ranged from 10 to 20 per cent since 1920.  In 1926-27 the dividend was reduced from 17½ per cent to 12½ per cent, but a 50 per cent stock bonus made the equivalent dividend 18¾ per cent.  Royalty payments to the Persian Government increased from $2,315,000 in 1920-21 to $5,135,000 in 1926-27, being based upon company production and profits.  The political—exploration activities of the company through subsidiaries in the Caribbean—South American region and elsewhere are shown by the company’s balance sheet to be expanding rapidly.  Though no details were given, the budget of expenditures submitted to the annual meeting for 1926-27 included an item of $123,945,000 as “purchase price of concession, shares in and advances to associated companies,” an increase within the year of $14,545,000.

Dutch-Shell, which is not directly a Government company and therefore under less incentive to make political expenditures, pays even better than Anglo-Persian.  Profits of the “Royal Dutch Company for the Netherlands Indies,” the holding corporation, are indicated by dividends of 23 per cent in 1924 and 1925, and 23½ per cent in 1926.113  These dividends were exclusive of profits of the Deterding operating companies.  The Federal Trade Commission found that the cash and stock dividends of the Royal Dutch subsidiaries, other than holding companies, averaged in the 1902-1921 period 42 per cent.114  Shell Transport and Trading Company, the holding company having 40 per cent interest in the Dutch-Shell combine, from 1909 to 1921 paid an annual average dividend of 31 per cent.  Profits of this company, exclusive of producing and distributing subsidiaries, were $24,000,000 in both 1924 and 1925, and $26,800,000 in 1926;  dividends in those years rising from 22½ per cent to 25 per cent.115  Dutch-Shell losses in the Russo-India sales battle of 1927-28 are discussed in Chapter Ten.

Activities of Dutch-Shell, Anglo-Persian and British Controlled Oilfields challenged commercial interests of Standard and other American companies and endangered the United States claim to special political interests in the Caribbean.  Though the eyes of the Americans were opened late, to use the British phrase, the Yankees fought back.  As a result, American holdings in the Caribbean region and southward are now much larger than the Edgars, de la Trameryes, and others, anticipated.116

American dominance was easy to achieve in countries over which the United States Government or its so-called “treaty officials” exercise wide authority.  In the Dominican Republic, the Texas Company through its subsidiary Antillian Petroleum has acquired four concessions covering all of Azua province and parts of adjoining provinces.  Drilling there began in March 1927.

The British have been more successful in Bolivia and Ecuador, though neither of those fields is important as yet.  A London firm, Anglo-Ecuadorian, is the only company with commercial production in the latter country.  It had 40 flowing wells in the fall of 1927.  Production in that year doubled to 450,000 barrels.  On the basis of an increase from 29,000, to 49,000 barrels a month at the close of 1927, the company proposed to increase its capital from $5,000,000 to $7,500,000.  British interests in that year acquired a large block of stock of Inter-Continent Petroleum Corporation, a mixed company holding about 8,000,000 acres in Ecuador, Mexico, Guatemala, British Guiana, and Venezuela.

Though Brazil in 1926 nationalized all mineral deposits in anticipation of important petroleum discoveries, exploration and drilling operations are still in an initial stage.

Chile also has passed restrictive legislation.  The foreign company chiefly interested is Chilean Oilfields, an Australian organization, which has not yet found oil in commercial quantities.  Standard and Dutch-Shell have made drilling applications, which would be rejected under a quasi-nationalization bill pending in 1928.  Another bill to place a prohibitive tax on oil imports, to force American copper companies to use native coal, was side-tracked in 1928 when Washington unofficially protested.  Chile has purchased national rights to the German “Bergin” patents for making oil by the coal liquefaction process.

Argentina in 1927 with an increase of 800,000 barrels produced a total of 8,700,000 barrels, displacing British India in tenth place in world output.  India is holding down under the British conservation policy.  Argentina produces almost a third more than Poland and Trinidad.

Foreign capital has been at a disadvantage in Argentina.  The Government exploits the best fields and practically prohibits export.  Nationalization of the industry throughout the Republic, State monopoly of oil transportation, and exclusive State exploration are provided in a bill passed by the Argentina Chamber of Deputies in 1927.  Foreign companies predicted in 1928 the bill would be killed by the Senate.  Despite restrictive legislation and decrees, privately owned fields in the ten year period 1917-26 increased annual production from 11,000 to 477,000 tons.  In the same decade Government fields raised their output from 167,000 to 680,000 tons.  British Railways and Anglo-Persian are the largest private producers;  Standard (N.J.) and Dutch-Shell output is insignificant.

Rising Argentine nationalist opposition to Standard and other foreign companies is indicated by the following survey in O’Shaughnessy’s South American Oil Reports, March 1928:

“Practically from the beginning of the year [1927] there has been a tremendous interest in the question of petroleum legislation, largely the result of propaganda of a violent and entirely misleading nature directed against the Standard Oil Company, S.A. Argentina, especially, and its operations in the country.  This was stimulated primarily by the Fiscal Petroleum Department and secondarily by the radical press and political elements. ...

“The theme of all this propaganda was that the Standard Oil Company (backed by the United States Government) as part of its world program, was endeavouring to monopolize or control the supposedly tremendous oil resources of the Argentine, and that it was essential that legislation be enacted immediately depriving the provinces of the ownership of petroleum wells and vesting all title and control in the Federal Government (nationalization) and thus prevent such a situation. ...

“It may be said that for one month the discussions in Congress were practically a continuous tirade against the Standard Oil Company, with a great deal of attention devoted to the alleged imperialistic ‘oil policy’ of the United States Government. ...

“By the time Congress convenes for the 1928 Ordinary Sessions the National elections will have ended and it will be very difficult for the present Congress and Administration to enact a definite petroleum law (which could only be executed by the succeeding Administration) even though they should wish to do so.  The new Executive Power comes into office in October 1928, after the termination of the Ordinary Sessions of Congress for that year.  Under the most favourable conditions it is unlikely that the incoming Congress and Administration will enact a definite petroleum law prior to 1929.”  President-elect Irigoyen favours further oil nationalization.

Bolivia has been chosen by the British for a grandiose exploitation scheme under grants obtained by a London concern, Bolivia Concessions, Ltd.117  This company is promoted by Sir Martin Conway, M.P., and others.  The vast concession covers 50,000,000 acres, including 20,000,000 under option.  The company’s rights cover oil, mineral, timber, and agricultural concessions in the eastern part of the country.  In 1928 the company appealed for English settlers to join a group of Tsarist Russian refugees in colonizing this territory.  An added inducement of hidden Jesuit treasure lured the pioneers.  A port has been built on the Paraguay River near the Brazilian border and 600 miles from the coast, and a railway and wireless station projected by the company.  Apparently the tract is suitable for cultivation of rubber, coffee, cocoa, cotton, sugar, quinine, rice, and tobacco.  But geologists are sceptical regarding ambitious estimates endowing this tract and the adjoining territory with “the greatest petroleum resources in the world.”

Petroleum deposits have been found in a score of places between Yacuiba and San Cruz, Bolivia.  Standard has small productive wells in the Yacuiba territory, near the British concession.  Guggenheim and other United States mining and financial interests are a power in that country.  Unfavourable inland location of the country and transportation obstacles, however, have retarded oil development.  A pipe-line across the Andes would have to cross Chilean and Peruvian territory, raising political difficulties in addition to the heavy investment required.  The longer outlet down the Paraguay River also might raise political questions, as that route touches other countries.  But this transport solution will be the one attempted.

Peru is the most important oil country in South America, except Colombia and Venezuela.  With an annual production of 9,800,000 barrels in 1927 it ranked ninth among the producing countries of the world.  In 1926 it was eighth, but its output decreased 1,000,000 barrels while Colombian production rose 8,000,000, putting the latter in eighth position.  There are three Peruvian fields on or near the coast, Zorritos, Lobitos, and Negritos.  Less accessible are the Titicaca deposits in the Andes.  Standard (N.J.), through its subsidiary, International Petroleum, the largest producer in Colombia, holds the La Brea y Parinas concession of 400,000 acres in north-eastern Peru, and smaller tracts aggregating 850,000 acres more.  The Rockefeller company is holding output to about 7,000,000 barrels a year on account of present world over-production.  But many of its wells are closed in and production can be increased rapidly on demand.  Part of Standard’s acreage was obtained from British Controlled Oilfields, when that company’s near-bankruptcy was discovered by its stockholders.

A British concern, Lobitos, produced in 1927 about 2,500,000 barrels.  With a working capital of $3,000,000, Lobitos in the year 1926-27 earned $1,300,000 and paid 35 per cent dividend.  It is building 10 new storage tanks, with capacity of more than 500,000 barrels at the company’s port, La Libertad.

Dutch-Shell, like British Controlled Oilfields, went into Peru several years ago, but grew discouraged too soon.  The Deterding combine let its largest concession option lapse through failure to exploit the tract.  An American company, Phillips Petroleum, in 1927 obtained that concession on a Government royalty basis.  The tract includes from 1,000,000 to 1,500,000 acres along the coast in Piura Department.  Other American companies are exploring Government lands.

A British promoter, Mr. G.V. Holden, became very active in Lima in 1927, finally winning the friendship of President Leguia.  He was promised a refinery concession and gasoline sale “monopoly” on a 12½ per cent Government royalty basis.  At the end of 25 years the refinery would revert to the Government gratis.  Annual revenue on present Peruvian consumption of 10,000,000 gallons amounts to somewhat less than $500,000.  The Chamber of Deputies refused to ratify the Holden “monopoly” contract in October 1927, but reversed its decision in 1928.118

Apart from this apparent favouritism toward some British interests, American companies for the moment are fairly well satisfied with conditions in Peru.  They were able in January 1927 to get from the President an executive decree, which “clarified” the petroleum nationalization law in line with American demands.  The decree extended the length of concessions to 40 years.  Various legislative and administrative restrictions also were relaxed.  There is some fear, however, that the Government may return with greater zeal to a policy of nationalization.



 

105. Tulsa Oil and Gas Journal, December 1920.

106. London Sperling’s Journal, September 1919.

107. Thomas Parker Moon, Imperialism and World Politics, p. 429, 1926.

108. Notes of Aug. 9, 1920, Feb. 28, 1921.

109. London Times, Jan. 5, 1927.

110. Ibid_, Oct. 12, 1926.

111. New York Wall Street Journal, Dec. 7, 1927.

112. Report, Nov. 2, 1927.

113. London Times, June 6, 1927.

114. Federal Trade Commission, supra, p. xii.

115. London Times, June 11, 1927.

116. Cf., Tulsa Oil and Gas Journal, Dec. 29, 1927, and New York O’Shaughnessy’s South American Oil Reports, April 1927–April 1928, for technical articles on Latin American oil industry.

117. Cf., New York Times, Jan. 13, 1928.  Boston Living Age, April 1, 1927.

118. Commerce Department, Foreign Trade Notes, March 10, 1928.