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821.6363 Barco/427: Telegram

The Minister in Colombia (Caffery) to the Secretary of State

[Paraphrase]

BOGOTÁ, January 29, 1931-2 p. m. [Received 5:32 p. m.]

11. My 5, January 16, 6 p. m. and 9, January 26, 6 p. m. Mr. Rublee feels that if the Gulf is really interested in proceeding with the Barco proposition it must act promptly. Rublee will remain in Colombia for only one month longer. Even if the royalty matter is agreed upon now, much remains to be done. Also, if the contract is not arranged during this Congress, it will probably never be arranged.

President Olaya is extremely reluctant to put lower royalty than 6 percent up to Congress, and other members of the Government insist that 6 percent is absolutely the lowest figure Congress would approve.

CAFFERY

821,6363 Barco/428: Telegram

The Secretary of State to the Minister in Colombia (Caffery)

[Paraphrase]

WASHINGTON, January 30, 1931—5 p. m. 5. The purport of your 9, January 26, 6 p. m., was conveyed to the Gulf as well as the question of the minority interests.

Gulf said that Folsom had telegraphed that the Government of Colombia would definitely accept the solution of all points if the company would accept the 6 percent royalty at tidewater, that the company accepts this and will immediately engage in further negotiations with the minority interests in an endeavor to reach a definite settlement. STIMSON

821.6363 Barco/445: Telegram

The Minister in Colombia (Caffery) to the Secretary of State

BOGOTÁ, February 17, 1931-7 p. m. [Received February 18-12:53 a. m.]

17. My telegram No. 11, January 29, 2 p. m. Rublee handed me today following memorandum of which I respectfully suggest substance be transmitted immediately to Gulf Company:

"President Olaya told Rublee today that he wished to submit five modifications of the Barco contract for the consideration of the Gulf Company. He said that absolutely no further modifications would be suggested. The President stated he did not insist upon the acceptance of the five modifications in question and would sign the contract in the

form agreed upon in case the Gulf Company should refuse to accept them. In his judgment however it would be in the interest of both parties to incorporate them in the contract since this would enable the Minister of Industries to defend the contract more aggressively before the Congress and substantially improve the chance of securing its approval. There are only two of the proposed modifications which the President regarded as really important, namely,

(a) One which requires the maintenance of the agreed minimum production provided that the wells have the necessary productive capacity and that the petroleum can be produced without loss.

(b) One which fixes a definite term at the close of which exploitation must begin or the contract terminated.

Of these two the President considers the latter as much the more important. He said that the Congress is obsessed with the idea that the oil companies seek concessions in Colombia not for the purpose of production but for the purpose of creating reserves. The President said that he did not share the view but that it was an influential factor in the situation which must be reckoned with. He thought that unless the contract specifies some definite term when exploitation must commence there is serious danger that the opposition in Congress may succeed in preventing the approval of the contract. The President said that the term might be a long one. Rublee suggested a term of 10 years. The President thought this acceptable. Rublee has communicated the five modifications proposed by the President to Folsom who is cabling them to Wallace 23 today".

In my opinion the acceptance of these modifications by the Gulf would have beneficial effect upon treatment of the contract by the Congress, and especially the suggestion as to definite term when exploitation must commence.

[Paraphrase.] I think it would be well to indicate to Gulf that their conception of the situation in regard to the Barco controversy is apparently erroneous. Gulf seems to think that the Colombian authorities are really very anxious to enter into a contract with them; that it is simply a matter of negotiations between them and the Government of Colombia. As the Department is aware, the facts are very different. The Colombian authorities are proceeding with the negotiations principally because they think the Department desires them to do so. In fact, the Government of Colombia might be inclined to drop the whole matter did not the present administration feel under certain definite obligations to the Department and to this Legation. Otherwise the administration might possibly welcome negotiations with well-known British companies which have expressed interest in the territory. As the Department is also aware, the possibility of the Supreme Court deciding in favor of Gulf in their suit is so extremely remote that it is not worth discussing. In the

"William T. Wallace, Vice President of the South American Gulf Oil Company.

meantime both Rublee and I are doing our best to obtain the best possible terms for the Gulf. [End paraphrase.]

CAFFERY

821.6363 Barco/447: Telegram

The Secretary of State to the Minister in Colombia (Caffery)

[Paraphrase]

WASHINGTON, February 18, 1931—6 p. m.

8. Your 17, February 17, 7 p. m. Gulf says it has already agreed to point (a) in Rublee's memorandum. Gulf feels that it cannot agree to point (b) because in any wildcatting venture such as this it is impossible to predict whether oil will be found and therefore whether exploitation can commence on any arbitrary date. It might be possible to have the property in exploitation in 6 years and it might be impossible to do it in 10 years. Mr. Wallace stated that the Minister of Industry had asked for an 8-year term. The company also stated that the construction of the pipe line and other features were being linked with this condition. They received Folsom's cable at noon today, are studying the same, and will send him an answer this afternoon.

STIMSON

821.6363 Barco/450: Telegram

me.

The Minister in Colombia (Caffery) to the Secretary of State

[Paraphrase]

BOGOTÁ, February 25, 1931-5 p. m. [Received 10 p. m.]

21. My 17, February 17, 7 p. m. Yesterday the President sent for (This morning he repeated the same conversation to Rublee.) He stated that he appealed to me for aid in the Barco matter. Both he and his Minister of Industries had agreed to sign the contract (as set forth in Rublee's memorandum). Since then, however, the President has been forcibly reminded that powerful political factors here were in a position definitely to prevent the contract's approval by Congress unless certain additional changes were made. The President by no means put these forward as demands, but on the contrary he hoped that Gulf would again help him with the contract in order to get it in shape to get it through Congress. He realizes that this will try Gulf's patience but it is only the risk of failure in Congress that induces him to make the request.

(1) The President is convinced that it will be useless to present the contract to Congress without the addition of a clause to article 10 stipulating that in the event that a dispute shall arise as to the amount of the royalty payments, the company shall pay to the Government the amount the company admit is due, and the Government will sue in the courts any balance it claims as due.

(2) Also, the President would like very much to have a clause included fixing a 10-year term at the end of which exploitation must commence or the contract be given up. The President is of the opinion that it would be difficult to get the bill through Congress without this clause, but he is willing to present the bill to Congress without it.

I respectfully make the suggestion that the Department use its good offices with the Gulf to induce it to accept at least the first change desired by President Olaya.

I was assured by the President that the Government would raise no more questions. He added that he wanted to sign the contract and send it to Congress on March 1, next, because he much desired to close Congress.

CAFFERY

$21.6363 Barco/456

The Assistant Chief of the Division of Latin American Affairs (Matthews) to the Assistant Secretary of State (White)

[WASHINGTON,] February 26, 1931.

With reference to Mr. Caffery's telegram No. 21, February 25, 5 p. m., concerning the Barco matter, and especially to the first point raised therein by Olaya, the following explanation may be of interest to you:

As you will recall, an agreement was finally reached in December, 1928, between Montalvo and the Tropical Oil Company settling their two years dispute concerning royalty payments (the interpretation with respect to refined products to be given clause 5 of the Tropical's contract).23 This agreement provided that the Tropical should pay the Government immediately what it considered to be royalty payments due, and that the question of additional amounts claimed by the Government, based on its interpretation of clause 5, should be left to the Supreme Court by means of a suit brought by the Government. Public opinion in Colombia would probably regard that settlement as in the nature of a precedent, and since its provisions are substantially what Olaya is asking as an addition to clause 10 of the proposed Barco contract, I share his opinion that the omission of such additional clause would lay the contract open to attacks in Congress.

See telegram No. 189, December 16, 1928, from the Minister in Colombia, Foreign Relations, 1928, vol. II, p. 603.

While the Gulf seem to me to have been quite conciliatory and reasonable in their present negotiations, I feel on the other hand that Olaya is sincere in wanting the changes primarily, if not entirely, in order to obtain congressional approval. I wonder if the Gulf fully realize: (1) that this is in effect their last chance to get back the Barco; (2) that Olaya is pressing for a settlement chiefly because he feels "under certain definite obligations to the Department"; and (3) that the Gulf's chances of a favorable Supreme Court decision are "extremely remote".

H. FREEMAN MATTHEWS

821.6363 Barco/454: Telegram

The President of Colombia (Olaya) to the Colombian Legation 24

[Translation]

BOGOTÁ, February 26, 1931.

Please give my cordial compliments to Mr. White and deliver to him the following message:

As you are aware, my greatest desire is to eliminate all the difficulties which may formerly have existed in the development of commercial, industrial and other ties between Colombia and the United States. Among the difficulties referred to are those relative to the so-called Barco concession, and in order to close a definitive adjustment there are lacking only certain points, which are, properly speaking, explanatory statements of conditions, for the purpose of preventing, later on, any risk of future disputes and possible difficulties. I believe that on this point the interest of the Company, that of the Colombian Government and that of the United States coincide or ought to coincide so that the new contract may be a clear and unambiguous document and an effective guarantee of cordial relations and harmony between the company and the Government. Minister Caffery, whose valuable aid I highly appreciate, shares with me this opinion and for that reason he has offered to recommend by cable the adoption in the contract of certain stipulations which Caffery will detail to the Department and which I sincerely believe serve principally to eliminate from the contract ambiguities which later might be the source of difficulties and disputes. If the points referred to in Mr. Caffery's cable are accepted by the Gulf, the contract would be signed immediately and we would proceed to present it at once to Congress, supporting it before that body very vigorously in order to bring about its prompt approval. It would be deeply regrettable if because of in

*Copy handed to Assistant Secretary White on February 26 by the Colombian Chargé.

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