823.6363/12–1048

The Ambassador in Peru ( Tittmann ) to the Secretary of State

No. 1057

Sir: I have the honor to transcribe below the content of a letter written to Mr. Charles B. Marshall, a staff member of the House of Representatives, Foreign Affairs Committee. Members of this Committee recently visited Peru among other West Coast countries. The information was prepared at the request of Mr. Marshall. There was no discussion of the petroleum situation, either with Mr. Marshall or any of the Congressmen.

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American Embassy, Lima

December 2, 1948.

Dear Mr. Marshall: In accordance with our conversation of Tuesday evening (November 30th) at the Embassy Residence, I have summarized in the following the status of the main elements of the Peruvian oil exploration and development situation. I have been purposely brief, in line with your thought, but I shall be very happy to elaborate on any point you find of special interest.

Although Peru has been able to produce more oil than needed for domestic consumption, its total production is not a significant proportion of world supply. Oil production in Peru rose from 128 barrels daily in 1896 to 48,000 barrels daily in 1936. From 1936 to 1947, daily average production fell to 35,000 barrels. Practically all oil is from the Northwest Coastal fields, with the only other production coming from the small Agua Caliente field situated East of the Andes (the Peruvian Montaña). This has an output of 400 barrels daily. The mountainous section of Peru, between the coastal areas and the montaña areas, is considered barren of oil.

The potential coastal oil areas are of great interest on account of their accessibility. International Petroleum Company signed a contract in 1946 with the Peruvian Government for exploration and development of a large concession covering the coastal Sechura Desert, but this contract has not been approved by Congress, chiefly due to the failure of that body to hold sessions in 1947 or 1948. The International’s Sechura Desert ad-referendum contract falls under that part of the 1922 law governing development on Government reserve lands.

The oil possibilities of the Peruvian Montaña area on the East flank of the Andes are considered good. This area, however, is relatively inaccessible. A large quantity of oil would have to be discovered to justify the construction, at the tremendous cost involved, of roads and [Page 737] pipelines to the coast. Eventual investment before any oil could reach the Pacific Coast has been estimated at 300 million dollars.

The Peruvian Government permits private industry to take up oil concessions in Peru under the 1922 basic petroleum law. However, the effects of the 1922 law were restricted to exploration and development along the Pacific Coast through the passage of the 1937 Montana petroleum law. The 1937 law attempts to make more liberal the conditions under which oil concessions could be obtained and worked by private capital in the isolated Montana area. The private operators have found the basic 1922 law and the supplementary 1937 law to contain numerous objectionable features and no major private operator has taken up concession acreage under them.

A new petroleum law was drafted in 1946 by A. A. Curtice of Hoover, Curtice & Ruby, one of the principal international oil consulting firms. This draft law has been under consideration by the Peruvian Government for more than two years, but as yet no action has been taken as the Government was unable to convene a Congressional quorum in 1947 and 1948. Enactment of this draft law would represent a major step toward making possible the needed expansion in oil exploration and development, as objectionable features of earlier legislation would be removed and as American oil operators would be encouraged to take on concessions.

Because (a), the major private oil companies have refused to apply for concession acreage under the 1922 and 1937 laws, and because (b), Congress did not meet in 1947 and 1948 to approve the Sechura Desert contract or to discuss and pass the proposed new petroleum legislation, the Peruvian Government issued Decree No. 11 on April 2, 1948, in an attempt to break the impasse. Decree No. 11 permits private companies to take up State reserve acreage under development contracts with the Empresa Petrolera Fiscal. These contracts are not subject to approval by Congress, as was the case with contracts falling under the 1922 law. The private companies doubt the long-term legality of this decree and have not attempted to make any contracts, as yet.

You no doubt know that the United States Armed Services attach the utmost importance to the building of an increased supply of South American oil for hemisphere defense purposes. We are hopeful here that the impasse described above as delaying development of Peruvian oil reserves will eventually be broken by the convening of a Peruvian Congress and that a worthwhile contribution of crude supplies from this country will result. Yours very truly, George W. Levangie, Petroleum Attaché

Approved: Harold H. Tittman.

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Respectfully yours,

For the Ambassador:
George W. Levangie

Petroleum Attaché