Foot in the Door

Mexican politicos like to quote the law used to expropriate some $200,000,000 worth of U.S.-owned oil properties: "All hydrocarbons are the direct, inalienable and impressible property of the nation." They fight shy of mentioning just how much the expropriation cost Mexico. Ten years after expropriation, Pemex, the Government oil monopoly, still loses an estimated $3 million a month. To keep up Mexico's comparatively low oil production, known fields are being pumped too fast for maximum extraction; they will be exhausted in 20 years. Only a handful of new wells have been drilled this year.

To Antonio Bermudez, the hard-hitting whiskey maker who bosses Pemex, the solution was plain: he had to bring U.S. oilmen, and their know-how and capital, back into Mexico--if he could find anyone willing to come in under the restrictive law. In Mexico City recently he met suave J. Edward Jones of Scarsdale, N.Y., a veteran dealer in oil royalties. Jones talked so persuasively about oil that Bermudez decided that he was the man. Last week Bermudez announced the first U.S.-Mexican oil contract since the expropriation.

Raised Brows. Under the contract Jones would drill 100 wells. He will furnish the machinery and workers, and foot the bill for current operations. The Mexican Government will reimburse Jones in Mexican Government bonds for all expenses plus 10%. To enable Jones to resell the bonds in the U.S. market, they will be convertible into oil at a preferential price.

While the big oil companies, who ache to get back into Mexico, were glad to see this foot in the door, they were surprised at the man chosen to put it there. Among oilmen, Jones is known not as a wildcatter but as the dealer in oil royalties who first tested the power of SEC in court.

Jones had tried to register some oil royalty trust certificates. When SEC objected to his registration statement, Jones tried to withdraw it. SEC refused to let him, so he fought the case up to the U.S. Supreme Court and won (TIME, April 13, 1936). Shortly after, Jones was indicted for mail fraud. He won again, although the money he spent fighting the two cases drove his company into bankruptcy, left him with a $700,000 debt. Since then, as president of Louisiana's tiny Sugarfield Oil Co. (production: 725 barrels daily), he has been trying to recoup.

Most oilmen wondered whether Jones would be able to market his bonds and raise the money to keep up his end of the bargain. (His machinery sent into Mexico so far consisted of one old drilling rig.) But Jones counted heavily on the oil shortage, which would make the bonds an attractive investment to smaller refineries which have been feeling the oil drought.

And Bermudez was happy enough about the deal to start negotiating three other "Jones type" contracts with U.S. wildcatters. He was also negotiating with Cities Service Co. to provide the capital for the development of 1,000,000 acres of Government-owned land. To other U.S. oilmen who hope for a modification of the oil law, it looked as if it might be only a question of time until the big oil companies would be back in Mexico.

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