OIL EXPLOITATION IN GUATEMALA

Created: 9/22/1953

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MEMORANDUM FOR : Chief, WH

.RELEASE AS SANITIZED

m HISTORICAL REVIEW PRC

Chief, RQM/OIS

Oil ExploitatiorMri'Guatemala

1. In response to your oral request for information concerning oil exploitation in Guatemala, the following information has beenfrom "World Oil" -

"Guatemala's new petroleum law, which went Into effectas instrumental in causing Standard Oil Company of Ohio, The Atlantic Refining Company, and The Ohio Oil Company to suspend operations and withdraw all personnel and equipment. The law provides that the government shall control all petroleum activities fromto distribution, and foreign companies may exploit petroleum resources only as agents of the government. The title to all equipment brought into the country for petroleum exploitation by foreign concerns reverts immediately to the government, with the companies to be reimbursed with oil payments, if oil is found. "

An explanation of the law covering petroleum concessions is attached.

A petroleum engineer, presently with CIA, whoersonal interest in petroleum developments in Central America,that there has been no activity by oil companies since the passing of the petroleum law.

4. Any further questions regarding this subject should beMrs.

Attachments: As stated above

um Legislation

Under articlef the Constitution, deposits of hydrocarbons can be exploited only by the State, by Guatemalans, or by Guatemalanin which the capital is predominately national. This is reaffirmed in articlef the Petroleum Law. Thltf law, Decreefs at present the basic legislation governing petroleum deposits and concessions. It defines petroleum as "any mineral oil, natural gas,asphalt or similar substance" but excluding coal, lignite, bituminous shale and other stratified deposits.

Under this law, petroleum lands are divided into two categories: National Reserve Zones and Free Zones. The former include: a) those specified by the Executive, not included in some other exploration orconcession; b) zones which had previouslyart of an exploration or exploitation concession, but which were subsequentlyin accordance with the provisions of c) those onrevious concession had expired.

Any petroleum lands not included in the above categories are Free Zones. Underf the Law, the Executive may require "special benefits for the Nation" for concessions in National Reserve Zones. These benefits may include special royalties and also special contributions for social welfare, education and public services.

The State may grant four types of petroleum concessions:

Exploration concessions, conferring an exclusive right to search for petroleum in specified areas;

Exploitation concessions, conferring an exclusive right to develop petroleum production, in specified areas;

Conversion concessionsight to process, convert and refine petroleum or extract its derivatives;

Transportation concessions, giving the right to construct and operate pipelines to transport petroleum.

Accessory concessions may be granted in each category, if it is shown that the holder of the principal concessions has complied with all obligations, regulations, etc.

Exploration concessions. An exploration concession mustpecified and continuous tract of not lessor moreectares, in rectangular form where possible, and the base of the rectangle may not be more than five times the height. No one may obtain exploration concessions covering moreectares. Within the first twelve months of the concession drilling equipment suitable to the type of work and the region must be installed under penalty of forfeiture of the concession, except in case of force majeure.

The holder of an exploration concession is entitled to obtain an ex-ploitation concession, if duly qualified, and if the latter concession is awarded to another, the holder of the exploration is entitled to payment of compensation in kind from the holder of the exploitation concession. This right is retained for ten years if no exploitation concession isgranted.

Exploitation concessions. The exploitation concession confers the exclusive right to develop petroleum production in specified tracts of not less thanectares nor moreectares. No one person may hold concessions covering moreectares. They should be in the same rectangular form as exploration concessions.

A holder of an exploitation concession is under obligation toefinery whenever productionay, unless it can be shown this is not economically feasible, but it willaily production ofarrels is reached.

Other concessions. Conversion concessions and transportationdo not confer exclusive rights. Under normal circumstances they would be granted to the holders of exploitation concessions, but not necessarily. In the caseransportation concession, both terminals of pipeline must be situated within the national territory. When the holderipeline concession is also holder of an exploitation concession the Government may require the transportation of the oil it receivesoyalty in proportion to that of the concession holder.

Duration. Exploration concessions may be granted for three years, renewable for one year if all conditions have been complied with. conversion, and transportation concessions are grantederiod of thirty years and may be renewederiod of twenty years if allhave been met. Upon expirationoncession, the property in the condition that it then exists shall revert to the State.

Applications. Applications for all petroleum concessions are to be made in duplicate to the National Petroleum Institute (Instituto Nacional deccompanied by maps and plana.

Fees and royalties. The fee for granting an exploration concessionuetzals and for an exploitation, conversion, or transportationituetzals, payable to the National Treasury. If ais denied, the fee is returned, lessercent withheldax.

The holder of an exploration concession must pay an annual tax of two centavos per hectare of area of the concession. This tax is payable in advance during the first month of each year. The concession holder is also required to invest annually an amount equal toentavos per hectare. This investment may include cost of transportation of equipment and material.

Holders of an exploitation concession are exempt from tax during the first three years ofoncession, after which the tax is increased at intervals, as follows:

4th to 7th year of0 per hectare

8th h year of theper hectare

11thh year ofer hectare

16thh year of theper hectare

21sth year ofer hectare

25thh year of theperst and longer (if the concession is

per hectare

A royalty is also payable at the close of each quarter, based onof production, as

1st to 3rd year of the

4th to 6th year of the

7th to 9th year of the

10th year and over of the

This royalty may be paid in money or in kind, at the option of the Executive. Once decided, this may not be changeduarter, orucceeding quarter without advance notice. If to be paid in kind, the oil is to be stored, at the expense of the concession holder, for thirty days, and if any amount is not withdrawn by the government, it shall be assumed that payment of the remainder in money is desired and shall be continued until further notice.

a

During the first ten yearsoncession, the holder is entitled to import, duty free, all equipment, materials, instruments,and accesories not manufactured within the country, for use of the enterprise. Certain formalities are required to obtain this free entry.

National Petroleum Institute. The National Petroleum Institute was createdechnical-administrative agency, headedirector General, entrusted with application of the Petroleum Law in all matters pertaining it. It is also charged with the inspection and supervision of all operations relating to the petroleum industry and with the orientation of national petroleum policies.

National Reserve Zones. Articlef the Law states that If the State decides to undertake the exploration and exploitation of the National Reserve Zones, it is authorized to make contracts with qualified national or foreign enterprises under the following conditions:

When exploitation is begun, the State shall reserve toinimumf the gross petroleum production, the remainder being available for amortization of the capital investment;

After amortization has been completed, the State will takeercent of the value of production, in addition to2 percent in kind;

The enterprise shall undertake to construct refineries inon terms agreed upon ln the contract;

The State shall acquire ownership of machinery, equipment, tools,sed in the industry, from the time they are acquired by the enterprise, and their value shall be amortized from production; if the value of production is not sufficient to cover the value, the State may elect to pay the difference in money;

The State shall pay for investments made by the enterprise, in petroleum and derivatives extracted from the area under contract, and payment may not be requested in any other form; the State may elect payment as indicated

In no caseontract be made covering an area of moreectares for explorationectares foror for periods of more than three years for exploration or fifty years for exploitation. Conversion and transportation may be included in the same contract with exploration and exploitation;

Whenever the Executive may deem itontract may also stipulate the "specialeferred to in article 8;

Enterprises operating under these contracts shall be exempt from taxes and municipal charges if so stipulated in the contract; such exemptions shall be in effect for the period stipulated in each contract;

The State may notontract based on terms inferior lo thoserevious contract;

n accordance withf the Constitution, all such contracts must be submitted to the Congress for approval.

Source: tatement of the Laws of Guatemala In Matters Affecting

Business, by Julio Gomez Robles. Division of Legal Affairs, Department of International Law, Pan American Union, Washington,1

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Original document.

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