THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES GIFT OF R. E. Collom UNIVERSITY of CALIFORNIA LOS ANGELES. CALIF. ^£/f of H. 3. Sollom C-i-rSl e-o S^ , a V, / f ?- ^ ~^ THE PETROLEUM INDUSTRY r-c The Beginning of the American Petroleum Industry The man in the silk hat is Edwin L. Drake; the man near h'm is his engineer, Peter Wilson. Near the derrick are "Uncle Billy" Smith and his sons, Charles and Frank, who drilled the well. THE PETROLEUM INDUSTRY BY CHARLES E. BO^VILES From the Press of SCHOOLEY STATIONERY & PRINTING CO. KANSAS CITY, MISSOURI 1921 COPYRIGHT CHARLES E. BOWLES 1921 All Rights Reserved f FOREWORD This book has been written with the definite purpose of helping men and women, far removed from the Oil Fields, to "see" the Petroleum Indus- try — as it really is. Thousands of people who are interested either directly or indirectly in the Petroleum Industry may never actually see an oil well, or a tank farm, or a pipe line, or a refinery — but these people want to know, and should know, about Petroleum. This marvelous thing, Petroleum, is industrially too vital to us today, and financially too close to us, for any man or woman not to know something about it. This book tries to tell Petroleum's story — briefly, frankly, impartially and accurately. Charles E. Bowles Tulsa, Oklahoma May 30, 1921 VII CHAPTER HEADINGS Chapter Page I. A Short History of Petroleum . . 1 II. Oil Fields of the United States . 14 III. Oil Fields of the World .... 33 IV. Production 52 V. Transportation 74 VI. Refining 87 VII. Marketing 110 VIII. Gas and Gasoline 120 IX. Assets of the Petroleum Industry 140 X. Finance — and the Growth of Industries 148 XI. Creating Investment Securities . 158 XII. Petroleum's Industrial Position . 171 IX LIST OF TABLES Table Page 1. Oil Fields of U. S.— Production 1920 . 17 2. Oil Fields of U. S.— Production 1859-1920 19 3. Production in U. S. by States, 1859-1920 32 4. Production of World, by Countries, 1857- 1920 48 5. Wells Completed in U. S. in 1917 ... 55 6. Producing Oil Wells in U. S. 1920 . . 56 7. Companies Producing Over 1,000,000 Barrels ! • • • '^2 8. Some Large Pipe Line Companies . . 78 9. Some Large Owners of Tank Cars . . 83 10. Petroleum, Gasoline and Motor Vehicles 96 11. Growth of Cracking Plant Stills ... 97 12. Petroleum Products for 1920 .... 100 13. Exports of Petroleum Products, 1918 . 113 14. Capitalization and Assets, S. O. Group . 115 15. Production of Artificial Gas, 1918 . . 121 16. Production of Natural Gas, 1918 . . 123 17. Gasoline Produced in 1917 127 18. Casinghead Gasoline in 1917 .... 134 XI THE PETROLEUM INDUSTRY Table Page 19. Gasoline by Absorption Plants, 1917 . 135 20. Detail of Wealth for 1912 173 21. Changes in Urban and Rural Population 175 22. Growth in Value of Manufactured Products 177 23. Increase in Railroad Mileage .... 179 24. Growth in Population, 1790-1920 . . 183 25. Thirty Years' Growth 185 XII LIST OF ILLUSTRATIONS. Facing Figure Page 1. The First Well V 2. Kier's Rock Oil 8 3. Edwin L. Drake 8 4. Some Early Pioneers 9 5. Tools Used by Drake 9 6. Drake Monument 9 7. Oil Fields and Pipe Line 16 8. Trapshooter Well 24 9. Spindletop Well 24 10. Lake of Oil 25 11. Glenn Pool, Panorama 25 12. Glenn Pool, Drillings 25 13. On the Cimarron 32 14. Colorado Shale Beds 32 15. Mexican Oil Fields 35 16. South American Oil Fields 43 17. Russian Oil Fields 47 18. Cerro Azul 48 19. Surakhani 49 XIII THE PETROLEUM INDUSTRY Figure Facing Page 20. Rotary Drilling Rig 56 21. Portable Drilling Rig 56 22. String of Tools 57 23. Pipe Yard 57 24. From Surface to Sand 59 25. On Beam and Jack 60 26. Power House 61 27. Log of Well 64 28. Power 64 29. Electric Pumping Jack 64 30. Pumping From Three Sands .... 65 31. Wooden Storage Tanks 65 32. Tank Farm 65 33. Laying a Pipe Line . 80 34. Loading Rack 80 35. Pumping Station, Exterior 81 36. Pumping Station, Interior 81 37. Tank Steamer 84 38. Fuel Oil and Coal 85 39. Refinery, Typical Layout 90 40. Refinery, General View 90 41. Refinery, Look Boxes 91 42. Refinery, Type Diagram ...... 94 XIV THE PETROLEUM INDUSTRY Figure Facing Page 43. Refinery, Rear View of Fire Still . . 96 44. Refinery, Steam Stills 97 45. Bartlesville Station 105 46. Casinghead Gasoline Plant 128 47. Compres^on Plant 129 43> Compression Diagram ...... 132 49. Topping Plant 136 50. Absorption Plant 136 51. Absorption Tower 136 52. Blending Plant 137 53. Gas Well 137 54. First Railway Train 176 55. First Electric Power Station .... 176 56. Early Type of Automobile 177 57. Hydro-Electric Station 184 58. Oil Engine 185 XV CHAPTER 1 A SHORT HISTORY OF PETROLEUM The use of Petroleum is older than human his- tory. Oil springs and oil seepages were known to man long before he had developed the art of writ- ing. The Egyptians used it in embalming their dead and it is referred to in their early writings dating back many centuries before the Christian era. Noah '^'pitched" his ark within and without — and today wooden ships are given the same treat- ment. More than 200 references are made in the Bible to the use of oil, pitch and slime. Petroleum was worshipped by the Zoroastrians of Persia, known in history as "Fire Worshippers." The burning wells of Baku on the west coast of the Caspian Sea in southeastern Russia were famous objects of religious worship for more than 2,500 years — long centuries before the oil was used for medicinal or commercial purposes. Only within the last century, and to prevent the spread of Asiatic cholera, have the journeys of these pilgrims been 1 THE PETROLEUM INDUSTRY prohibited. In the Thirteenth Century Marco Polo described the "Eternal Fires" of Baku. Five centuries iDef ore the Christian era Herod- otus described the oil pits near Babylon and the pitch springs near Zante. Strabo, Aristotle and Pliny described bitumen deposits in Albania near the Adriatic Sea, while Plutarch mentioned petro- leum found on the banks of the river Oxus. Alexander the Great saw the burning lake of Ectabana in southwestern Asia while on one of his world-conquering expeditions. Petroleum, "burn- ing water," was known in Japan in the seventh century. Early Chinese history contains references to the use of gas for lighting and heating. Burma in southeastern Asia has known something of oil for many centuries. When Rome became a world-conquering nation she not only controlled the oil supplies of the world but made liberal use of them. The gas springs of northern Italy were so well known that in the year 1226 the town of Salsomaggiore, in the neighbor- hood of the springs, adopted as its emblem a sala- mander surrounded by flames. In 1436 the medicinal properties of the oil of Tegernsee in Bavaria gave it the name of "St. Qui- 2 THE PETROLEUM INDUSTRY rinas's Oil." The oil of Pechelbrom was discovered in 1498 and the "Earthbalm" of Galacia was known as early as 1506. Peter the Great, of Russia, obtained from Per- sia, in 1723, the control of the Baku district, or- dered the seizure of as much white petroleum as possible and directed that a refining master be sent there. According to a record in the archives at Tiflis he also "give special instructions for export- ing oil up the Volga River to Russia." History cannot record when the American In- dians first became acquainted with petroleum through seepages and flowing springs that later led to the real "discovery" of petroleum in 1859, but Indian Medicine Men knew of its curative powers and it was held in high esteem by them. They im- parted this knowledge to the French Jesuit Mis- sionaries who in the Seventeenth Century explored Canada, the Northern States and the Mississippi Valley, but it was two hundred years later that white men put it up in bottles and sold it as "Sene- ca Oil," named after the Seneca Indians. The early Spanish Missionaries of Mexico and California found the Indians using petroleum, chief- ly for burning purposes. 3 THE PETROLEUM INDUSTRY Sir Walter Raleigh in 1595 referred to the pitch lakes of Trinidad, an island off tlie coast of Venezuela, South America. From this apparently inexhaustible source has come the asphalt covering of the streets in hundreds of American cities, and from these lakes of pitch millions of dollars of wealth have been taken. In 1632 reference was made to the oil springs of New York in Sagard's "History of Canada" in which are recorded the explorations of the Jesuit Missionaries in that territory. In the Seventeenth Century, Thomas Shirley called the attention of the Royal Society of England to the natural gas in Wigan, in Shropshire. Her- mann Boernaave in 1724, referred in his writings to "Oleum Terrae" (oil of the earth), and about the same time "Barbadoes Tar" was well known as a medicinal agent. In 1748 Peter Salm, a Russian traveler, pub- lished a book on America in which he described the oil springs of Pennsylvania. David Leisberger, a Moravian Missionary, writing of a visit to the Alle- gheny regions of Pennsylvania in 1767 gives quite a detailed description of its oil springs and the meth- ods used by the Indians in recovering the oil as well 4 THE PETROLEUM INDUSTRY as its uses for medicinal purposes. In 1775 George Washington, our first Presi- dent, acquired three pieces of property in "the west" as it was then known : one at Point Pleasant, Ohio, one at Round Bottom, the present site of Cin- cinnati, and the third at the mouth of the Kanawha river in Ohio. He referred to this property as fol- lows : "This tract was taken up by Gen. Lewis and myself on account of the bituminous spring which it contains, of so inflammable a nature as to burn freely as spirits and is nearly as difficult to ex- tinguish." In a letter written by Gen. Benjamin Lincoln in 1773 there is an interesting description of Oil Creek, a small tributary of the Allegheny River in northwestern Pennsylvania, so named because the oil springs emptied into the creek whose surface was covered v/ith the crude oil. In 1807 F. Cuming made a tour of the same territory whose product was then known as ''Seneca Oil" and sold in bulk from $1.50 to $2.00 per gallon. He described the method of recovery by spreading a blanket on the surface of the stream and then wringing it out into a vessel. In this way about ten gallons a day could be obtained. 5 THE PETROLEUM INDUSTRY The first shipment of petroleum to Pittsburgh was made by a Mr. Gary, an enterprising settler on Oil Creek, who bought up oil and exchanged it in Pittsburgh, about eighty miles away, for groceries for his family. His shipment usually consisted of two five-gallon kegs slung over a ihorse's back. When perchance a flatboatman happened to deliver one or two barrels the Pittsburgh petroleum market "went to pieces" — and a trifle more than a century later we are consuming a Half-Billion Barrels a year of this same crude oil and developing uses for its products for which there is no known substitute obtainable in sufR'cient quantities. It is remarkable that the early oil industry is traceable to the drilling of brine wells in Pennsyl- vania from which large quantities of salt were obtained by distillation. As many times happens, people find things that are infinitely more valuable than those which they are looking for — and it so happened with these "brine well" drillers. When, as occasionally happened, they struck oil instead ol salt water they considered it a calamity — today when an oil man strikes salt water instead of oil he knows it is a calamity — strange how time does change our viewpoint. 6 THE PETROLEUM INDUSTRY In 1818 the first flowing well in the United States was drilled, accidentally, by David Beatty who was drilling for brine in the southeastern cor- ner of Wayne County, Kentucky. The product ac- tually obtained, but not wanted, was contemptuous- ly called "The Devil's Tar" and allowed to flow down the Big South Fork of the Cumberland River, ft covered its surface for 35 miles and later caught fire with, disastrous results to adjoining property. Samuel W. Kier of Tarentum in Allegheny County, was a chemist and druggist as well as own- er of some salt wells in which crude oil was begin- ning to appear. He therefore determined, about 1849, to turn his knowledge of chemistry to account by finding out what the oil was good for as a source of illuminating oil. He constructed a crude still, the first of one barrel capacity and later one of five barrels, and his product used for lighting pur- poses brought him quite a local reputation. How- ever his greatest profit came from the sale of petro- leum under the name of "Kier's Rock Oil" which he uniquely advertised by the use of an imifetion American greenback showing a brine well derrick. One of these circulars bore the date of January 1, 1852. 7 THE PETROLEUM INDUSTRY Francis B. Brewer graduated from Dartmouth College, Hanover, New Hamshire in 1845, studied medicine, and in 1850 went to the Oil Creek terri- tory in Pennsylvania where he became a member of the lumber firm of Brewer, Watson & Com- pany. Noticing crude oil bubbling from the bottom of a spring located a few rods from their upper saw-mill he sent samples of the oil to the chemical laboratory of Dartmouth College for analysis. The Professor of Chemistry declared the product held useful properties and Dr. Brewer left the samples with Prof. Crosby and the display attracted much attention. Geo. H. Bissell who had also graduated from Dartmouth in 1845 returned to the college for a visit in 1853. While there he saw the samples of crude oil left by Dr. Brewer and became very much interested. Upon his return to New York City he discussed the matter with his law associate, J. G. Eveleth, and as a result Eveleth visited Titusville in November, 1854. This investigation resulted in the formation of the Pennsylvania Rock Oil Com- pany, December 30, 1854 under the laws of the state of New York. They bought from Brewer, Watson & Company about 100 acres of land including the oil 8 Q^ ./■■". I n^^ I "",,,^ ^^^^^ >^^. ''^^'^wW^. ■ 4 SI 1 Edwin L. Drake Born — March 29, 1819 Died — November 9, 1881 Figure 4 — Some of the early pioneers of the Petroleum Industry. Gscrge H. Bissell, one of the founders of the Pennsylvania Rock Oil Company. A. B. Funk, who brought in the first flowing well June 1. 1861. William Barnsdall. who drilled the second well after the Drake well and sold an eighth in- terest to Abbott for $10,000. W lliam H. Abbott of Warren, Ohio, who helped finance the oil refinery on the Parker farm near Titusville. Figure 5 — Tools used by Drake in drillng the first well. jH^S' ^THIfj ^^ ill Figure 6 — Drake Monument in Woodlawn cemetery, Tltus- ville. Pa. THE PETROLEUM INDUSTRY spring, paying $5,000 for the property. Bissell and Eveleth then sold a large part of the stock of the Pennsylvania Rock Oil Company to parties in New Haven, Connecticut. About the same time other eastern capitalists became interested in oil but would not subscribe for stock in a New York corporation so the Pennsyl- vania Rock Oil Company was merged into a new Pennsylvania Rock Oil Company which was incor- porated Sept. 18, 1855 under the laws of Connecti- cut. It is interesting to note that the original idea of the organizers of the Pennsylvania Rock Oil Company was not to obtain oil by drilling wells, but to gather it from the surface of springs as the In- dians had been doing for centuries. Little progress was made and in 1857 Mr. Bissell happened to see displayed in a drug store window one of the "green- backs" advertising "Kiers Rock Oil." These ads showed a brine well derrick and stated that the oil came from 400 feet below the surface. The idea flashed into Mr, Bissell's mind of using the brine well drilling outfit to drill for oil and he discussed the matter with his associate, Eveleth, Both ap- proved the plan but not being in position to finance it submitted it to a Mr. Havens of New York who 9 THE PETROLEUM INDUSTRY offered them $500 if they would get a lease on the property from the Pennsylvania Rock Oil Company. The lease was finally obtained, Havens agree- ing to begin operations within a year and to pay 12 cents a gallon royalty on all oil produced in 15 yearsj- Havens failed to fulfill his contract and the capi- talists who went into the company when it was or- ganized under the laws of Connecticut, acting against the wishes of the other directors, made a lease to E. E. Bowditch and E. L. Drake at a royal- ty of 51/2 cents a gallon. This lease however was soon changed to 12 cents a gallon for a period of 45 years and with this lease as a basis the Seneca Oil Company was formed March 23, 1858. Drake who then lived in New Haven, Connecticut owned some 656 shares in the company, was a Director and, as Superintendent, agreed to oversee the de- velopment of the property at a salary of $1,000 a year. After arriving in Titusville with his family May 1, 1858 he gave little attention to gathering oil from the surface of streams but was determined to obtain it by drilling a well. He ordered an engine and expected to begin drilling in September but delay in its delivery postponed work until the spring of 1859. 10 THE PETROLEUM INDUSTRY The driller first engaged failed to appear ; like- wise the second ; and at the suggestion of S. M. Kier of ^'Kier's Rock Oil" fame, Drake engaged "Uncle Billy" Smith and his two sons, experienced brine well "borers." Most of the tools used in drilling the well came from Kier's shop at Taren- tum. Drake had formed Kier's acquaintance on his first trip to Titusville in December 1857. This trip was made at the instance of James M. Townsend, a banker of New Haven, and at that time President of the Board of Directors of the Pennsylvania Rock Oil Company — and was for the purpose of finding out, for the New Haven stockholders, the exact condition of affairs at Titusville. It was Town- send who had previously induced Drake to invest $200 in the stock of the Pennsylvania Rock Oil Com- pany. After harassing delays, work was finally begun May 20, 1859. So much water was encountered in the surface soil that Drake finally decided to drive heavy iron pipe to bed rock which was found at 36 feet. Smith and his two sons arrived in Titusville in June and after about two months' work oil was struck at 69 V2 feet on Saturday afternoon August 27, 1859. The well never flowed but was pumped, 11 THE PETROLEUM INDUSTRY the initial production being about 30 barrels a day. It is estimated that the well produced about 2,000 barrels between Aug. 27 and Dec. 31, 1859. Kier agreed to purchase one-third of the oil and the re- mainder was to be sold by G. M. Mobray on com- mission. While others were busy leasing land and drill- ing wells Drake settled down to pumping his first and only well. In 1860 he was elected Justice of Peace of Titusville, the office paying about $3,000 a year. He also bought oil for Shefflin Brothers of New YorR City, his commissions amounting to about $2,000 a year. Drake bought from Jonathan Watson 25 acres on the edge of Titusville for about $2,000 and when the mortgage came due sold it for $12,000. Drake Street now runs through that sec^ tion of the city and the property is worth a half- million dollars. Drake left the oil fields in 1863 with about $15,000, went to New York City and lost it all in other ventures. He and his family lived in want for years and, broken in health and spirit, he probably would have died in poverty had not some of his old friends accidentally learned of his condition. They raised a purse of $4,200 and in 1873 the Pennsyl- 12 THE PETROLEUM INDUSTRY vania Legislature granted him a pension of $1,500 a year. This enabled him to live in reasonable com- fort until his death in Bethlehem, Pennsylvania, No- vember 9, 1881. Thus passed the man who is uni- versally referred to as "THE FOUNDER OF THE PETROLEUM INDUSTRY." 13 CHAPTER II OIL FIELDS OF THE UNITED STATES From the Drake well in 1859 that came in at about 30 barrels a day, the petroleum industry has grown to a world production of over 688,000,000 barrels in 1920. Imagine a channel 100 feet wide, 50 feet deep and 146 miles long, filled to the brim with crude pe- troleum and you will "see" what the world produc- tion amounted to in 1920. Imagine every factory in America, every loco- motive, every freight car, every passenger car, every automobile, every motor truck, every farm tractor, every aeroplane, every passenger steam- ship, every freight steamship and every battleship passing before your eyes, one at a time, and you will then have some idea of what the word "Lubrica- tion" means in America — because every one of these would instantly stop unless constantly lubricated — and up to the present time no substitutes have been found for the lubricants obtained from petroleum. 14 THE PETROLEUM INDUSTRY Or take the one item of automobiles and motor trucks: imagine every automobile and every mo- tor truck "in the United States January 1, 1921, lined up in a straight line, end to end and allowing 15 feet to each — the line would be 25,000 miles long — long enough to reach once around the world. The gasoline consumed by the automobiles and motor trucks of the United States in 1920 amounted to 4,018,000,000 gallons— but in order to "see" this amount, imagine a channel 100 feet wide, 50 feet deep and 20 miles long filled with sparkling gaso- line. At; 25 cents a gallon it would take an even Billion Dollars to pay for it — a good-sized, gasoline bill for one year. The next morning after the Drake well came in Jonathan Watson, of the lumber firm of Brewer, Watson & Co., rode horseback to the Washington McClintock farm, the Rynd farm and the Frances McClintock farm, secured an oil lease on each farm, went into the oil business and although he soon l)e- came wealthy, afterwards lost it all. William Barnsdall, of Titusville, is credited with drilling the second well, beginning the drilling the day th"e Drake well struck oil. Before this well was completed however W. H. Abbott of Warren, 15 > o > u T-j c4 o o o o o la €«- o o o K3 O 00 00 CTi oo Oo Oo CO o o o o o o o t-^ CO 00 o o o_ o -^ (M o o o^ o o o^ CO o o o^ o 00 0) *^ CJ r- (-1 22 2 ^"^^ ^ rt ^ O O — M G C so .S o fH ^ - O g 02 O s 03 o P. 05 I— I s oO 03 O 3 o o P5 o C3 o C5 o HO CO CO < THE PETROLEUM INDUSTRY Ohio arrived on the ground and bought an eighth interest in the well for $10,000. Abbott later helped build the first refinery in the Oil Creek region, lo- cated on the Parker farm, a mile below Titusville. Later Abbott became interested in the Allegheny Transportation Pipe Line Company which gathered the larger amount of the oil in the Oil Creek field. The first flowing well in this district was drilled by A. B.'^Funk, June 1, 1861, to a depth of 400 feet. It was nameH the "Fountain Well." The second flow- ing well was drilled by John Fertig July 4, 1861 and came in at 300 barrels a day. David Crosby helped start the third well, William Barnsdall being in- terested with him. George K. Anderson arrived in the Oil Creek region in 1863 as general superin- tendent of the Columbia Farm Oil Company. He however purchased two leases from the Central Petroleum Company, drilled two wells, both of which were good producers, and in a short time had an income of $1,400 a day. J. W. Sherman drilled the first "gusher" near the banks of Oil Creek— it produced about 2,000 barrels a day. William Phil- lipps of Tarr Farm drilled in a 4,000-barrel well in September 1861. N. S. Woodford completed a 18 THE PETROLEUM INDUSTRY 3,000-barrel well on the same farm in December 1861. By" turning to Table 3 you can see how the Pennsylvania-New York field grew until in 1891 it produced more than 33,000,000 barrels, from which it gradually declined to about 8,000,000 barrels in 1920. Table 2 — Oil fields of the United States, ivith production from 1859 to 1920. Field Barrels % of Produc- tion Appalachian 1,281,581,501 23.6% Lima-Indiana 455,028,084 8.4 Illinois 321,433,880 5.9 Mid-Continent 1,617,706,677 29.8 Gulf Coast 353,830,919 6.5- Rocky Mountain 82,653,582 1.5 California 1,317,458,576 24.3 Totals 5,429,692,719 100.0% West Virginia began producing about 1865 and reached its greatest production in 1900 with over 16,000,0000 barrels. 19 THE PETROLEUM INDUSTRY Ohio produced in a small way from 18T6 to 1885 when the Lima field came in. The banner year was 1896 with almost 24,000,000 barrels. Illinois became productive in a small way early after Pennsylvania but decreased until in 1903 and 1904 nothing is recorded. In 1905 a 35-barrel well in Clark County started the boom. In 1906 the pro- duction jumped to over 4,000,000 barrels. The high year was 1910, with over 33,000,000 barrels. California is said to have produced oil about 1860 but only in small quantities. According to the Standard Oil Company a Mexican hunter in 1865 found seepages in Eos Angeles County, news of which reached Dr. Gelsich a former resident of the Pennsylvania oil fields then living in California. He promptly formed a company, staked out claims and a well was drilled in 1870, coming in at about 70 barrels a day. The drilling was by the old "spring-pole" method, replaced in 1879 by a steam engine which is still on the property. In 1919 this well (49 years old) was producing three barrels a day. The state did not get into the "million-barrels- a-year" class until 1895 — but in 1919 it passed the "hundred-Tnillion-barrels-a-year" mark. 20 THE PETROLEUM INDUSTRY Kentucky became an important producing state in 1916 with more than a milHon barrels a year. Oil lias been produced there since the first acciden- tally drilled flowing well in America in 1818. The development lagged until 1903 when it reached a half-million barrels, passed the million barrel mark in 1905 and 1906 from which it dropped to an aver- age of about a half-million barrels. Beginning with 1916 the production has steadily increased, going over 3,000,000 barrels in 1917, to over 9,000,000 in 1919 and 8,000,000 barrels in 1920. As the produc- tion in Tennessee, until recently, has been negligible in amount the state's production has been included with Kentucky. Colorado in 1887 produced about 75,000 barrels of crude oil, reached its peak in 1892 with 824,000 and today is producing little more than 100,000 barrels. Indiana in 1889, was producing over 33,000 barrels, the first scattering wells being drilled some years before. The maximum production was reached in 1904 with over 11,000,000 barrels. Kansas officially entered the ranks of oil pro- ducing states in 1889 and reached the "milTion- barrel" class in 1904. The large showing for 1905 21 THE PETROLEUM INDUSTRY and 1906 resulted from including the Oklahoma production wflh Kansas. It produced over 29,000,- 000 barrels in 1919 and over 38,000,000 barrels in 1920. While about twenty counties in the south- eastern corner of the state produce practically all of the oil, the majority of it has come from the Butler County fields. In this one county are the ElDorado field that in 1920 produced over 14.000,- 000 barrels, the Augusta field with over 4,000,000 and the Towanda, Peabody and Florence fields (the latter two just across the county line to the north) with almost 9,000,000 barrels. The ElDorado, Au- gusta and Towanda fields came into large produc- tion during 1916 and 1917 and to the end of 1B19 had produced 100,000,000 barrels of oil from about 40 square miles, or an average of 4,000 barrels per acre. The ElDorado shallow oil sand lies from 650 to 850 feet deep, the Augusta gas sand at 1,450 feet, an upper oil sand at 1,750 feet while the "Var- ner" oil sand, the best producer, lies at about 2,450 feet. This county has produced the largest wells of the Mid Continent field, many of them giving from 12,000 to 15,000 barrels a day. The famous "Trap- shooter" well has produced over 2,250,000 barrels of oil. 22 THE PETROLEUM INDUSTRY The ElDorado, Kansas, field has actually been a realization of the dreams of the early explorers of the Mississippi Valley who sought a legendary El- Dorado, "City of Gold," for through the years its thousands of oil wells have been pouring out black streams of liquid gold. Texas had some scattering wells as far back as 1889 but the production was negligible until 1898 when it passed the half-million mark. Three years later this increased to over 4,000,000, the next year to 18,000,000 and in 1920 the state produced over 96,000,000 barrels. The oil history of Texas has been spectacular — January 10, 1901 the famous discovery well "Spin- dletop," near Beaumont, came in at 100,000 barrels a day, ran wild for ten days before it could be gotten under control and it is estimated that probably a million barrels of oil were lost. The well was 1,150 feet deep, cost less than $6,000 and opened up an oil territory that up to 1921 had produced over 400,- 000,000 barrels of oil. October 7, 1917 the Texas Pacific Oil Company brought in the discovery well near Ranger in north central Texas on W. L. Mcl^lesky's farm. McClesky died about two years later leaving an estate ap- 23 THE PETROLEUM INDUSTRY praised at $7,000,000. The drilling in of this well was followed by an oil boom as great as at Spindle- top. In 1918 the discovery well was drilled in at Burkburnett and another wild rush was on. After these first maddened waves of frenzied drilling sub- side these boom towns and boom territories quiet down to "normal" oil life — but "gushers" certainly play havoc with staid, conservative habits of think- ing and living. It is estimated that the Electra- Burkburnett field, opened in 1911, produced up to the end of 1919 about 90,000,000 barrels of oil, thereby placing it in the ranks of big American fields. Louisiana, as compared with the other states, started its production off "big" with over half-a- million barrels in 1902. This was due however to the great Spindletop boom near Beaumont, Texas. In 1904 the production had jumped to nearly 3,000,- 000 barrels, in 1905 to nearly 9,000,000, while in 1920 the state produced over 35,000,000 barrels. Missouri has produced a little oil for over thir- ty years, and while an increasing amount of ex- ploration work has been carried on, little hope is entertained of Its ever becoming an important oil producing state. 24 a, Figure 10 — A oOO,000-barrel lake of oil in Glenn Pool, Okla- homa. Earthen storage results in enormous "invisible losses" of gasoline vapors. THE PETROLEUM INDUSTRY Oklahoma was an oil producer while still known as Indian Territory — today it ranks as the leading oil state in the Union with a production of over 107,000,000 barrels in 1920. Osage County alone produced over 20,000,000 barrels in 1920— Carter County over 19,000,000 barrels — Creek County over 19^,000,000 barrels — ^nd Okmulgee County over 17,0D0,000 barrels. Thus it is seen that four Okla- homa counties, in 1920, produced 75,000,000 barrels of crude oil, or about 11% of the amount produced by the entire world, while the state produced over 15% of the world's output. denn Pool, near Sapulpa, was opened Novem- ber 22, 1905 with an 85-barrel well, and from March 1907 to May 1911 the output of the field ranged Trom 1 to 2V2 million barrels per month. Up to the end of 1919 Glenn Pool had produced 153,000,000 barrels of oil from an area of 30 square miles, or an average for the entire area of 8,000 barrels per acre, while some parts of it have pro- duced 16,000 barrels per acre. Most of the oil comes from the "Glenn" sand at a depth of about 1,500 feet. Gushing field, about 10 miles east of the town of Gushing, was discovered in March 1912 and up 26 THE PETROLEUM INDUSTRY to the end of 1919 had produced 236,000,000 barrels of oil from an area of 36 square miles, or an average of 10,000 barrels per acre. Most of the oil comes from the "Bartlesville" sand, about 200 feet thick and lying at a depth of about 2,600 feet. The Gush- ing field has also been one of the chief gas fields of the world. Practically all of the sands contain some gas, some of which is under up to 900 pounds pressure to the square inch. The gas was so plenti- ful that it gave a great deal of trouble to the oil well drillers. In 1914 thirty-six gas wells were drilled with a combined initial capacity of 608,000,- 000 cubic feet a day and in 1916 the initial capacity of the new gas wells drilled amounted to one billion cubic Jeet a day. The waste of gas in this field was enormous and during part of 1913 and 1914 it was estimated to have been a half-billion cubic feet a day. The Healdton field, in southern Oklahoma, was opened in 1913 and to the end of 1919 had produced 126,000,000 barrels of oil from an area of 13 square miles, or an average of 15,000 barrels per acre. The oil from this field is darker and heavier than that of northern Oklahoma and comes from an en- tirely different "System" of rocks: the "Permian" 27 THE PETROLEUM INDUSTRY — while practically all of the remainder of the oil of Oklahoma comes from the "Pennsylvanian" sys- tem. The price of Healdton crude is substantially less than that of the remainder of the state. Wyoming began producing about 1894 but never became a real producer until 19^12 when it passed the "million-barrels-a-year" mark, with over 2,000,000 barrels in 1913, reached 19,000,000 barrels in 1919 and dropped to nearly 17,000,000 barrels in 1920. Montana became a producer about 1916 and in 1920 produced about 347,000 barrels. A great deal of exploration work and "test well" drilling is being done in both Montana and Wyoming. Arkansas is the newest state to enter the ranks of oil producers with the discovery well near El- Dorado, January 10, 1921. At the date of this writ- ing the boom is growing and there is every indica- tion that this is a real, new oil field. The produc- tion for the state in March 1921 was 10,000 barrels, in April, 300,000 barrels and by the middle of June the ElDorado field was averaging 3^,000 barrels a day. The water trouble that menaced the first wells had been reduced to about one percent. ElDorado has all of the characteristics of an oil tov/n during 28 THE PETROLEUM INDUSTRY the first few months of its boom life when every- thing is sky-high — leases and royalties especially so, with many of them of uncertain value, shortage of oil storage tanks and pipe line connections, rail- roads congested and everybody struggling to get ahead of or at least keep up with everybody else. However this may appeal to others, the old-timer in oil, knows that it is an inseparable part of the development of a new oil field. To him this condi- tion is "the same old story" — and sooner or later, from this apparent chaos there always emerge some well ordered, substantial, profitable oil businesses. Alaska is geologically very similar to Califor- nia but as yet little more than general exploration work has been done to learn the probable presence of oil and gas in commercially paying quantities. There are numerous oil and gas seepages in a num- ber of districts but up to the present timxe little or no actual development work has been done. Even though oil in quantities were found the real prob- lem would be transportation to refineries in Alaska or to tide water to tank steamers. The foregoing states are the only ones that are usually classed as "oil producing," yet within the last few years, owing to the constantly increasing 29 THE PETROLEUM INDUSTRY demand for more and still more oil, there are but few states in which "test wells" are not now being drilled. While our best petroleum statisticians and the seasoned oil men with broad and far-reaching vision cannot tell when the United States will reach its peaR of oil production which has recently been in- creasing by thirty, forty and fifty million barrels a year, the fact remains that some day that point will be reached. This fact however should not be a matter oT alarm as it is now definitely known that several foreign countries have vast and practically untouched oil reserves which assure an adequate supply, far into the future. The real question is not so much "Is it there?" as, "Who will control it?" — and unless foreign governments arbitrarily bar American oil men from their oil fields we can de- pend upon American agressiveness and resource- fulness to secure for us a fair share of the world's future oil supply. This world-wide oil development which is rapidly taking definite form does not include the vast potential oil resources that are today locked up in the shale deposits of Colorado, Utah and Wy- oming that only await the pinch of necessity to be 30 THE PETROLEUM INDUSTRY transformed into all of the products we are today obtaining from the petroleum that flows from our oil wells. The potential supply of petroleum from these deposits is so vast that it is estimated that they will produce at least ten times as much petro- leum as has been taken from our oil wells. In order to get a clear grasp of the develop- ment of each oil producing state as well as of the United States as a whole, turn to Table 3 and note the total production of each state to and including the year 192D. The total for the United States in 1920 was 443,000,000 barrels while the production for the United States from 1859 to 1920 amounts to the enormous total of over 5,400,000,000 (five billion, four hundred million), barrels. These fig- ures, as figures, are wholly meaningless — so let us suppose that this oil flowed into a channel 100 feet wide and 50 feet deep — it would be 1,150 miles long. In proof of the wonderful growth of the oil industry in the United States in recent years it is interesting to note that of the 5,400,000,000 barrels produced from 1859 to 1920 there were produced during the last ten years of this period slightly more than 3,000,000,000 barrels. In other words 44% of our oil w^as produced during the first 52 31 THE PETROLEUM INDUSTRY years while 56% was produced during the last ten years. In the light of this marvelous growth who can forecast the demand for oil during the next ten years? 32 C3 s O ji O Pi u Figure 14 — Outcropping of shale beds of Colorado, with estimated potential resources far in excess of the present oil fields of the United States. Table 3 — Petroleum produced in "»<^ United States, 1859 to 1920, in barrel.i of 42 gallona. Year 1859 1860 1861 1862 1863 1864 1865 Pennsyl- vania and New York 2,000 500,000 2,113,609 3,056,690 2,611,309 2,116,109 2,497,700 3,597,700 3,347,300 3,646,117 4,215,000 5,260,745 5,205,234 6,293,194 9,893,786 10,926,945 8,787,514 8,968,906 13,135,475 15,163,462 19,685,176 26,027,631 27,376,509 30,053,500 23,128,389 23,772,209 20,776,401 25,798,000 22,356 193 16,488,668 21,487,435 28,458,208 33,009,236 28,422,377 20,314,513 19,019,990 19,144,390 20,584,421 19,262,066 15,948,464 14,374,512 14,559,127 13,831,996 13,183,610 12,518,134 12,239,026 11,554,777 11,500,410 11,211,606 10,584,453 10,434,300 9,848,500 9,200,673 8,712,076 8,865,493 9,109,309 8,726,483 8,466,481 8,612,885 8,216,655 8,988,000 8,344,000 805,534,717 Ohiu West Virginia California Kentucky and Tenne.ssee Colorado Indiana Illinois Kansas Texas Oklahoma Wyoming Louisiana Others " "26 278 25 10 50 8 10 43 19 10 132 1,602 2,335 757 3.000 2,572 3,100 3,500 4,000 15,246 5.750 3,615 7,995 'i6,8'43 7,792 14.265 52,622 109,699 77,266 102,000 353,000 781,564 United States 2,000 500,000 2,113,609 3,056,690 2,611,309 2,116,109 2,497,700 3,597,700 3,347,300 3,646,117 4,215,000 5,260745 5,205,234 6,293,194 9,893,786 10,926,945 8,787,514 9,132,669 13,350,363 15,396,868 19,914,146 26,286,123 27,661,238 30,349,897 23.449,633 24,218,438 21,858.785 28,064,841 28,283,483 27,612,025 35,163,513 45,823,572 54,292.655 50,514,657 48,431,066 49,344,516 52,892,276 60,960,361 60,475,516 55,364,233 57,070,850 63,620,529 69,389.194 88.766.916 100.461.337 117,080,960 134,717,580 126,493,936 166,095,335 178,527,355 183,170,874 209,557,248 220,449,391 222,935,044 248,446,230 265,762,535 281,104,104 300,767,158 335,315,601 355,927,716 378,367,000 442,929,000 Total Value $ 32,000 4,800,000 1,035,668 3,209,525 8,225,663 20,896,576 16,459,853 13,455,398 8,066,993 13,217,174 23,730,450 20,503,754 22,591,180 21,440,503 18,100,464 12,647,527 7,368.133 22,982.822 31.788.566 18.044.520 17.210,708 24,600.638 25.448.339 23.631.165 26,790,252 20.595.966 19,198,243 19,996,313 18,877,094 17,947,620 26,963,340 35,365,105 30,526,553 25,906,463 28,950,326 35.522,095 57,632,296 58,518,709 40,874.072 44,193,359 64,603,904 75,989,313 66,417,335 71,178,910 94,694,050 101,175,455 84,157,399 92,444,735 120,106,749 129,079,184 128,328,487 127,899,688 134,044,752 164,213,247 237,121,.388 214,12i.215 179,462,890 330,899,868 522,635,213 703,943,961 775,000,000 1,360,000,000 16,663,867,168 Year' 1861 1862 1863 1864 1865 1866 1867 1868 1869 1870 1871 1871 1872 1872 1873 1873 1874 1874 1875 1875 1876 31,763 29,888 38,179 29,112 38,940 33,867 39,761 47,632 90,081 661,580 1,782,970 5,022,632 10,010,808 12,471,466 16,124,656 17,740,301 16,362,921 16,249,769 16,792,154 19,545,233 23,941,169 21,660,515 18,738,708 21,142,108 22,362,730 21,648,083 21,014,231 20,480,286 18,876,631 16,346,600 14,787,763 12,207,448 10,858,797 10,632,793 9,916,370 8,817,112 8,969,007 8,781,468 8,536,3.52 7,825,326 7,744,511 7,750,540 7,285,005 7,736,000 7,400,000 478,503,386 120,000 172,000 180,000 180,000 179,000 151,000 128,000 126,000 12,000 13,000 15,227 19,858 40,552 99,862 128,636 142,857 1876 1877 x877 1878 1878 1879 1879 1880 1880 1881 1881 1882 1882 188a 4,755 1888 1884 90,000 91,000 102,000 145,000 119,448 544,113 492,578 2,406,218 3,810,086 8,445,412 8,577,624 8,120,125 10,019,770 13,090,045 13,615,101 13,910,630 16,195,675 14,177,126 13,513,345 12,899.395 12,644,686 11,578,110 10,120,935 9,095,296 9,523,176 10,745,092 11,753,071 9,795,464 12,128,962 11,567,299 9,680,033 9,264,798 8,731.184 8,379,285 7,866.628 8,327,000 8,249,000 262,000 325,000 377,145 678,572 690,333 303,220 307,360 323,600 385,049 470,179 705,969 1,208,482 1,252,777 1,903,411 2,257,207 2,642,095 4,324,484 8,786,330 13,984,268 24,382,472 29,649,434 33,427,473 33,098,598 39,748,375 44,854,737 55,471,601 73,010,560 81,134,391 87,272,593 97,788,525 99,775,327 86,591,535 90,951,936 93,877,549 97,531,997 101,183,000 103,377,000 4,148 5,164 4,726 4,791 5,096 5,400 6,000 9,000, 6,500 3,000 1,500 1,500 1,680 322 5,568 18,280 62,259 137,259 185,331 554.286 998,284 1,217,337 1,213,548 820,844 727,767 639,016 468,774 472,458 484,368 524,568 502,441 437,274 1,203,246 3,100,356 4,376,342 9,293,000 8,752.000 1884 1885 1.... 1885 1886 1886 1887 76,295 297,612 316,476 368,842 665,482 824,000 594,390 515,746 438,232 361,450 384,934 444,383 390,278 317,385 460,520 396,901 483,925 501,763 376,238 327,582 331,851 379,653 310,861 239,794 226,926 206,052 188,799 222,773 208,475 197,235 121,231 143,286 121,000 111,000 1887 1888 1888 1889 33,375 63,496 136,634 698,068 2,335,293 3,688,666 4,386,132 4,680,732 4,122,356 3,730,907 3,848,182 4,874,392 5,757,086 7,480,896 9,186,411 11,339,124 10,964,247 7,673,477 5,128,037 3,283,629 2,296,086 2,159,725 1,695,289 970,009 956,095 1,335,456 875,758 769,036 759,432 877,558 972,000 945,000 1,460 900 675 521 400 300 200 250 500 360 360 200 250 200 500 1,200 1,400 5,000 18,000 40.000 44,300 113,571 81,098 71,980 69,700 74,714 179,151 331,749 932,214 4,250,779 12,013,495 21,718,648 2,409,521 1,801,781 1,263,764 1,128,669 1,278,819 1,592,796 2.375,029 3,103,585 2,823,487 8,738,077 36,536,125 45,451,017 33,048,000 39,005,000 48 54 54 45 50 60 50 1,450 65,975 546,070 669,013 836,039 4,393,658 18,083,658 17,955,572 22,241,413 28,136,189 12,567,897 12,332,696 11,206,464 9,534,467 8,899,266 9,526,474 11,735,057 15,009,478 20,068,184 24,942,701 27,644,605 32,413,287 38.750,031 79,366,000 96,868,000 1889 1890 1890 1891 30 80 10 130 37 170 625 1891 1892 1892 1893 1893 1894 2,369 3,455 2,878 3,650 5,475 5,560 5,450 5,400 6,253 8,960 11,542 8,454 7,000 9,339 17,775 ■ 20,056 115,430 186,695 1,572,306 2,406,522 3,560.375 4,245,525 6,234,137 8,978,680 12,596,287 13,172,000 16,831,000 . 1894 1895 1895 1896 1896 1897 1897 1898 1898 1899 6,472 10,000 37,100 138,911 1,366,748 1900 1901 1901 1903 1904 1905 548,617 917,771 2,958,958 8,910,416 9,077,528 5,000,221 5,788,874 3,059,531 6,841,395 10,720,420 9,263,439 12,498,828 14.309,435 18,191,539 15,248,138 11,392,201 16,042,600 17,188,000 35,714,000 1902 1903 1904 181,084 4,397,050 24,281,973 33,686,2.38 30,898,339 33,143,362 31,317,038 28,601,308 23,893,899 21,919,749 19,041,695 17,714,235 15,776,860 13,365,974 11,960,000 10,774,000 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1906 43,524,128 45,798,765 47,859,218 52,028,718 56,069,637 51,427,071 63,579.384 73,631,724 97,915,243 107,071,715 107,507,471 103,347,070 86,911,000 106,206,000 1907 1908 1909 1910 X911 1912 1913 1914 1915 1916 1917 1918 1919 1920 311,050,710 1,314,786,576 36,258,188 11,551,370 108,022,584 320,959,380 220,503,298 503,784,005 1,044,437,457 70,022,573 203,671,911 5,429,867,719 I T^HE PETROLEUM INDUSTRY CHAPTER III OIL FIELDS OF THE WORLD When you turn from the oil fields of the United States, which are today in a high state of develop- ment, to the rest of the world which, except for a few; countries, is almost entirely undeveloped, you are face-to-face with the best possible reason why the United States should try to retain the oil lead- ership of the world which she has held since the birth of the industry. The products of petroleum have been such ab- solutely vital factors in the winning of our indus- trial supremacy, and will be so vital in retaining it, that the whole matter of our early acquisition of oil territory in foreign lands should evolve, and will evolve, from one of individual interest on the part of big oil producers to one of national interest. Every user of petroleum products is directly interested in our future supply of petroleum because it is only reasonable to assume that should the con- trol of the world supply pass from us to a foreign 33 THE PETROLEUM INDUSTRY nation the prices to which we have been accustomed will not be reduced. By turning to the map of Mexico you will note that the present oil-producing territoiry of Mexico stretches from Tampico on the north to Tuxpam on the south and about 50 miles into the interior. This extremely small producing area, as compared with the large producing area in the United States, is the first of several striking con- trasts between Mexico and the United States as oil producmg countries. The second contrasts found in the average daily production per well: here at home, in 1920, approximately 258,000 wells pro- duced 443,000,000 barrels of oil or an average of 5 barrels per well per day. While definite figures are diflTicult to obtain it is probably true that in Mex- ico, in 1920, approximately 200 wells produced 163,- 000,000 barrels of oil, or an average of about 2,100 barrels per well per day. Mexico is, at present at least, a country of gushers. The a^ctual proven oil producing area of the United States is about 9,000 square miles while that of Mexico is probably only a few hundred square miles. The geological "structures" in which the oil sands of Mexico are found are entirely different 34 THE PETROLEUM INDUSTRY •/ Texas Co ^,Ralo BuancmO 9.'^z/)/v fhrp^jpo .'z* i PtN-WtX Figure 15 — Oil fields of Mexico. 35 THE PETROLEUM INDUSTRY from those of the United States. The Mexican oil occurs in a few pools, and with one known excep- tion all pools are on one long structure. The oil ac- cumulates from vast areas into relatively small producing areas or pools, often in cavernous reser- voirs that offer little "flow resistance." The oil is nearly always under enormous pressure, which in nearly all cases is water pressure as contrasted with gas pressure in almost all of the fields of the United States. When the drill taps one of these Mexican pools a gusher results, whereas the very stability of America's oil industry lies in her great number of wells of moderate daily production, scattered in widely separated fields. In the early 90's Lord Cowdray, then Sir Weet- man Pearson, was doing some engineering work on the Tehuantepec railway in southern Mexico. Noticing the oil seepages he made some investiga- tions, drilled a well, found oil and thereby laid the foundation of the oil industry in Mexico. About 1900 Edward L. Doheny, who had been a big factor in the development of the oil fields in southern Cali- fornia, decided to begin operations in old Mexico. It is said that he spent $2,000,000 on pipelines, storage and other equipment before he had produced a bar- 86 THE PETROLEUM INDUSTRY rel of Mexican oil. His foresight was vindicated however when his Cerro Azul No. 4 came in for 260,000 barrels the first 24 hours. While in 1918 there were 27 producing companies in Mexico these two pioneers were still easily the leaders. Turn to Table 4 and note how Mexico's production has grown in 20 years as compared with other countries. Because of shortage of pipe lines, storage tanks and tank steamers most of Mexico's big wells have long been throttled down to a fraction of their possible daily production. In fact it was estimated that, in 1920, with the actual production at about 163,000,- 000 barrels there was a potential annual production far in excess of 300,000,000 barrels. It was estimated, in 1920, that of the total oil investments in Mexico, amounting to approximately $300,000,000, about 97% was held by foreigners, while in the United States about 4% was held by foreigners. Note that the average investment per company in Mexico is about $10,000,000. In 1918 there were 27 producing companies in Mexico of which 17 were owned by Americans, 5 were Span- ish-Mexican, 3 Dutch and 2 English. Of the total production in 1918, American interests produced 73%, British 21%,, Dutch 4'% and Spanish-Mexican 37 THE PETROLEUM INDUSTRY 2% . In 1919 the shipments from Mexico were 79% American and 21% British. January 1, 1921 there were over 1,430 miles of pipe line In Mexico with a daily capacity of over 1,000,000 barrels. At the beginning of 1921 there were 900 storage tanks and reservoirs available with a combined capacity of about 50,000,000 bar- rels of crude oil. There were four complete re- fineries with a combined daily capacity of about 67,500 barrels, six topping plants with a combined daily capacity of over 130,000 barrels with three complete refineries and one topping plant under construction. Tank steamers load alongside the dock at Tampico but at Tuxpam flexible ocean- loading pipelines are used that reach more than a mile from shore. While Mexico is essentially a country of big wells it is also a country requiring big investments which, with proper management, yield big returns. Any sketch of Mexican oil fields would be in- complete without the stories of a few of her great wells, the greatest of which is "Cerro Azul No. 4" (see map, page 35). This well was completed February 10, 1916 by the Pan American Petroleum and Transport Company, the parent company of the 38 THE PETROLEUM INDUSTRY Doheny interests. The first 24 hours it produced 260,85^8 barrels which is at the rate of three barrels a second. During its first two years it produced approximately 60,000,000 barrels of oil and is today averaging 25,000 barrels a day with its powerful gate valve only slightly opened. The Mexican Petroleum Company, another of the Doheny interests, brought in "Casiano No. 7" September 1910 with an indicated flow of 100,000 barrels a day. It was throttled down to about 25,- 000 barrels a day which it gave for over nine years, until November 1919, when it turned to salt water. The producing field of which this was the largest well is only a half mile wide and three miles long, yet this one well produced not less than 85,000,00D barrels of oil. On December 26, 1910 the 'Totrero del Llano" well, owned by the Lord Cowdray interests, began spouting oil through an eight inch pipe and pro- duced over 100,000,000 barrels before it turned to salt water over night on December 4, 1918. The life of this well could have been prolonged for years if oil leakages had not developed outside the casing on account of the enormous pressure. Until these appeared the well had been throttled down, but 39 THE PETROLEUM INDUSTRY when they developed it was allowed to run "wide open" — and then it required four years to drain the pool. Most spectacular of all Mexican wells was "Dos Bocas," drilled by the Lord Cowdray interests. On July 4, 1908 oil was struck at 1,820 feet and in twenty minutes the well was absolutely out of con- trol. The pent-up pressure was so great that the derrick was blown to fragments, the four-inch drill pipe was blown out of the well, 1,800 feet of heavy iron casing was swallowed up, great fissures opened and spread until they broke up the ground under the boiler. Although the fire had been drenched with water some embers remained — and the con- flagration started. The column of oil now over a thousand feet high was instantly ignited ; the roar of the flames could be heard for miles; the heat was so terrific that approach nearer than 300 feet was impossible. Soon a crater 1000 feet across was blown out and it is estimated that 1,000,000 cubic yards of earth was blown into the air. All known methods of fire-fighting were tried but without success and finally a battery of powerful pumps was set up on the bank of a river 2,000 feet away and they began 40 THE PETROLEUM INDUSTRY filling the crater with water, but before much prog- ress had been made the column of flame, after rag- ing for 58 days, suddenly abated and the well turned to hot salt water. Today Dos Bocas occasionally spouts gas and salt water but it is from the midst of a great briny lake for which it is the subterranean supply. As Dos Bocas was the first of Mexico's giant gushers this tragedy was not without its com- pensation for it advertised the enormous oil re- sources of Mexico as nothing else could have done. Oil was "officially" discovered in South Amer- ica in 1896 and yet that vast country from that date until January 1, 1921, a period of 25 years, had produced less than half as much oil as the state of Oklahoma produced in the year 1920. Oil seep- ages are plentiful, especially in the north half of the continent, and within the last few years mil- lions of dollars have been spent by a number of big producing oil companies in laying the foundation for future business. This money has gone into exploration work on a vast scale, into leases, single companies often holding millions of acres, into rights of way, road building, pipe lines, storage, refineries, wharves, tugs, tankers, offices, quarters, machine shops, storehouses, sanitation, hospitals — a big program worthy of a big industry. 41 THE PETROLEUM INDUSTRY Father Acosta is credited with the discovery of oil in Peru about the middle of the 17th Century and in 1692 the Spanish government granted a con- cession for the collection of Peruvian oil. Most of the oil comes from the vicinity of Talare, which produces over 2,000,000 barrels a year. A large English company has been established for years on the north coast and has other properties in the Punta Restin fields. The oil isi equal to the best produced in the United States. The slow development of Colombia is due to the government's opposition to thei exploitation of her resources by foreign capital. The Tropical Oil Company however has done extensive work there, some wells being reported as good for several thou- sand barrels a day. There are several producing sands lying at from 1,500 to 2,100 feet. Finding it too expensive to ship in timber for derricks they built them throughout from the most common wood at hand — solid mahogany. The company is now de- veloping a property near the Magdalena River, 400 miles from tide-water, through heavy tropical jun- gles and the pipe lines to the Caribbean coast, with pumping stations, tank storage and loading facili- ties will cost probably $15,000,000. 42 THE PETROLEUM INDUSTRY ;;: a> 43 THE PETROLEUM INDUSTRY The first test well in Venezuela was drilled June, 1914. Development if judged by production, has been slow — but the territory is being ''proven" rather than developed. Instead of the "wildcatting" with which the States is familiar every possible pre- caution known to practical operating, to geology and to engineering is used in all the South American countries. The Royal Dutch-Shell Company, through a subsidiary, built a strictly modern re- finery, with a capacity of 10,000 barrels a day, on the Island of Curacao. The largest producing fields are in or near the Lake Maracaibo basin. The Argentine began producing in a small way in 1909 and its largest field, the Comodoro, today yields about 1,000,000 barrels a year. This is trans- ported by pipe line to tide water and thence by tanker to Buenos Aires. Indications are not favor- able for large oil resources in the Argentine. Some oil has Been found in the Dominican Re- public (part of the Island of Haiti), but in limited quantities. The remainder of the West Indies is not considered favorable for oil production. The Island of Trinidad produced over 1,500,000 barrels of oil in 1920 — ibut its asphalt deposits, the largest in the world, are far more valuable. Over 44 THE PETROLEUM INDUSTRY 85 % of tRe asphalt used in the United States comes from "Pitch Lake" which covers 114 acres. This lake produces over 140,000 tons of asphalt a year which is partially replaced by a flow estimated at 20,000 barrels a year from subterranean passages. The quality varies from liquid asphalt to hard pitch. The property is operated by an American company under a British concession which expires in 1930. Some development work is going on in Panama, the exploration work indicating conditions favora- ble to substantial production, although up to the present little oil has been actually obtained. Canada's production of oil was less than a quarter-million barrels in 1920, most of it coming from the province of Ontario. Discoveries of oil were made in northwest Canada near Fort Norman on the Mackenzie River some months ago but the extent and value of the field has not yet been proven. Russia is larger than the United States — but the story of oil in Russia is almost entirely the story of the Baku fields on the west shore of the Caspian Sea — and the Baku fields cover less than ten square miles. Table 4 shows that Russia led the world in the production of oil in 1898, 1899, 1900 and 1901 with a production averaging 72,000,000 barrels a year. 45 THE PETROLEUM INDUSTRY The real pioneers of Russian oil were the two brothers, Rudolph and Ludwig Nobel who were the first to introduce deep drilling at Baku, They too were the first Europeans to use the pipe line for transporting oil and were the leading figures in the development of the oil industry in Russia. The de- velopment of the tank steamer is undoubtedly trace- able to their efforts during the early years of the Baku oil fields when the enormous production, the low price of petroleum and the high transportation charges demanded a new means of cheap transpor- tation to new markets. Prior to 1869 Russia's oil wells were dug by hand but that year modern drilling equipmment and methods were introduced by the Nobel brothers. The product was shipped up the Volga River to in- terior Russia until the completion of the railway from Baku on the Caspian Sea to Batoum on the Black Sea thereby opening up the world's markets. In 1905 an 8 inch pipe line 560 miles long was built from sea to sea alongside this railroad thereby greatly reducing the oil transportation charges. In October 1893 an Englishman drilled the first large well in the great Grozny field but was ruined by the claims of the peasants whose houses and lands 46 THE PETROLEUM INDUSTRY 47 THE PETROLEUM INDUSTRY were damaged by the flood of oil which could not be controlled for years. The property on which this well was drilled has yielded over 300,000 barrels of oil to the acre. The Baku oil sands are plentifully distributed through depths of many hundreds of feet and there- fore under a single small area there may be a dozen separate, rich producing oil sands with a total thick- ness of hundreds of feet. At Bibi Eibat which is almost a suburb of Baku a selected spot has yielded nearly 2,500,000 barrels to the acre, and the whole operated area of 250 acres has produced over 1,- 500,000 barrels to the acre. The great Balakhany- Saboontchy field near Baku, covering about 2,600 acres, has produced 500,000 barrels to the acre. The Binagadi field was opened in 1901 with a 10,000 barrel well. The Surakhani field was dis- covered in 1908 by drilling to a deeper sand, the upper sands yielding light oil and gas. Since 1911 the island of Cheleken, off the east coast of the Cas- pian Sea, has been very productive, the wells yield- ing quantities of paraffin. About 1910 the Emba field, north of the Cas- pian Sea, was developed and has become very pro- ductive. Large flowing wells were struck around 48 Figure 18 — The Mexican gusher, Cerro Azul, being brought under control. Figure 19— Spouting well in action at Surakhani, near Baku, Russia. United States. Table 4 — World's production of crude petroleum, 1857-1920, in batrels of 42 gallons. Italy Canada. Russia Galacia. Japan and Germany. India Dutch East Peru Mexico. Argen- Trinidad. Egypt. Other Total. Year Formosa. Indies. tina. countries. 1857 1,977 1.977 1857 1858 3,560 3,560 1858 1859 4,349 2,000 6,349 1859 1860 8,542 500,000 36 508.578 1860 1861 17,279 2,113,609 29 2,130,917 1861 1862 23,198 3,056,690 29 11,775 3,091,692 1862 1863 27,943 2,611,309 5S 82,814 40,816 2,762,940 1863 1864 33,013 2,116,109 72 90,000 64,586 2,303,780 1864 1865 39,017 2,497,700 2,265 110,000 66,542 2,715,524 1865 1866 42,534 3,597,700 992 175,000 83,052 3,899,278 1866 1867 50,838 3,347,300 791 190,000 119,917 3,708,846 1867 1868 55,369 3,646,117 367 200,000 88,327 3,990,180 1868 1869 58,533 4,215,000 144 220,000 202,308 4,695,985 1869 1870 83,765 5,260,745 86 250,000 204,618 5,799,214 1870 1871 90,030 5,205,234 273 269,397 165,129 5,730,063 1871 1872 91,251 6,293,194 331 308,100 184,391 6,877,267 1872 1873 104,036 9,893,786 467 365,052 474,379 10,837,720 1873 1874 103,177 10,926,945 604 168,807 583,751 149,837 ; 11,933,121 1874 1875 108,569 8,787,514 813 220,000 697,364 158,522 4.566 9,977,348 1875 1876 111,314 9,132,669 2,891 312,000 1,320,528 164,157 7,708 11,051,267 1876 1877 108,569 13,350,363 2,934 312,000 1,800,720 169,792 9,560 15,753,938 1877 1878 109,300 15,396,868 4,329 312,000 2,400,960 175,420 17,884 18,416,761 1878 1879 110,007 19,914,146 2,891 575,000 2,761,104 214,800 23,457 23,601,405 1879 1880 114,321 26,286,123 2,035 350,000 3,001,200 229,120 25,497 9,310 30,017,606 1880 1881 121,511 27,661,238 1,237 275,000 3,601,441 286,400 16,751 29,219 31,992,797 1881 1882 136,610 30,349,897 1,316 275,000 4,537,815 330,076 15,549 58,025 , 35,704,288 1882 1883 139,486 23,449,633 1,618 250,000 6,002,401 365,160 20,473 26,708 30,255,479 1883 1884 210,667 24,218,438 2,855 250,000 10,804,577 408,120 27,923 46,161 35,968,741 1884 1885 193,411 21,858,785 1,941 250,000 13,924,596 465,400 29,237 41,360 86,764,730 1885 1886 168,606 28,064,841 1,575 584,061 18,006,407 305,884 37,916 73,864 47,243,154 1886 1887 181,907 28,283,483 1,496 525,655 18,367,781 343,832 28,645 74,284 47,807,083 1887 1888 218,576 27,612,025 1,251 695,203 23,048,787 466,537 37,436 84,782 52,164,597 1888 1889 297,666 35,163,513 1,273 704,690 24,609,407 515,268 52,811 68,217 94,250 61,507,095 1889 1890 383,227 45,823,572 2,998 795,030 28,691,218 659,012 51,420 108,296 118,065 76,632,838 1890 1891 488,201 54,292,655 8,305 755,298 34,573,181 630,730 52,917 108,929 190,131 ■ 91,100,347 1891 1892 593,175 50,514,657 18,231 779,753 35,774,504 646,220 68,901 101,404 242,284 88,739,219 1892 1893 535,655 48,431,066 19,069 798,406 40,456,519 692,669 106,384 99,390 298,969 600,000 92,038,127 1893 1894 507,255 49,344,516 20,552 829,104 36,375,428 949,146 171,744 122,564 .327,218 688,170 89,335,697 1894 1890 575,200 52,892,276 25,843 726,138 46,140,174 1,452,999 141,310 121,277 371,536 1,215,757 103,662,510 l«a? IfAf. '^^.^3i^\ ^^'"^ ^-*5'^22 47,220,033 2,443.080 197,082 145,061 429,979 1,427,132 JT.53o 1M.159,1.S:! \fl 7?«'o^« ^Al^'ll'i 1^??^ Ifo'T. 54,399,568 2,226.368 218,559 165,745 545.704 2,551,649 70.831 121,948,575 1898 776,238 55,364,233 14,489 758,391 61,609,357 2,376,108 265,389 183,427 542 110 2 964 035 70 905 124 9^4 68-' Qn« Y^^V' ",070,850 16,121 808,570 65,954,968 2;3i3;o47 536;o79 192:232 945:97? 1.795:961 89,166 :::::::::: :::::;:: :;::::::: :::::::: :::::::: ilu33:?4i 1895 1896 1897 1898 1900 1,628,535 63,620,529 12,102 913,498 75,779,417 2,346,505 866,814 358,297 1,078,264 2.253,355 274.800 149.132,116 1900 }902 limit 88 7rfi'i?r \t'l^t Hl'Ti 1^.^/^'°^ 3,251,544 1,110,790 313.630 1.430,716 4.013,710 274,800 10,345 20.000 167.434.434 1901 903 2?e3m walni\7 i?s7A IfAii ??'^o?'SH i'\f-^^^ 1'193,038 353,674 1,617,363 2,430,465 286,725 40,200 26,000 182,006,076 1902 904 sltlo^R mnsn'qfin llUt -o'r?- llit}:f-^. ^-'^Ml^ 1.209,371 445,818 2,510,259 5,770,056 278,092 75,375 36,000 194 879 669 1903 905 i^l'tll l-«???'^sn llfo- lf,fa% l^Ai^.'t% 5,947,383 1,419,473 637,431 3,385,468 6,508,485 345,834 125,625 40.000 218.204,391 1904 l»05 4,420,987 134,71 ,,.-,80 44,02/ 634,095 54,960,270 5,765,317 1,472,804 560,963 4,137,098 7,849,896 447,880 251,250 ;.... 30,000 215,292:107 1905 1907 8 US 207 Kt'^^^ ^q's?- ^tt'l^l IH^PrW 5,467,967 1.710,768 578,610 4,015,803 8,180,657 536,294 502,500 30,000 213,415,360 1906 908 8 252157 iTs^^f^^i ^n'qr« -fAl^ ll'^t^A^J 8,455,841 2,001,838 765,631 4.344,162 9.982,597 756,226 1,005 000 101 30,000 264,245,419 1907 909 9 32? 278 183'l70 874 49^88 4P07I? IH^^Ail J!'^^!'?^^ 2,070,145 1.009.278 5,047,038 10,283.357 1,011,180 3.932,900 11,472 169 30,000 285,552,746 1908 1910 9 723 806 io9 557ol8 50 MO i^^lll ^n'^Ir'?,? JH^F^^ 1,889,563 1,018,837 6,676,517 11,041,852 1.316,118 2,713,500 18 431 57,14;; 20,000 298,616,403 1909 »,r^,j,»Ub .09,557,-48 o0,830 315,89o r0,336,o74 12,673.688 1,930,661 1,032,522 6,137,990 11,030,620 1.330,105 .3,634,080 20,753 142,857 20,000 327,937:629 1910 1912 l2:9?6:232 12:935:041 It]^ l%ilt ll'lflHl ^lil^-'f,^, \-f^Af- ]''n^An ?'f?F«^ 12'1^2,949 1,368,274 12,552.798 13,119 285.307 9,150 20,000 344.174,355 1911 1913 13.554,768 248446,230 47198 228080 fioswl^r 7'a?^'}!^ }i]lit H^h^l'^ 7,116,672 10,845,624 1,751,143 16,558,215 47,007 436,805 205,905 20,000 352,446,598 1912 1914 12,826,579 265 762,535 .39849 il4805 r.709ol99 I'n«H?2 hlfA'il ^2^'^^* 7,930,149 11,172,294 2.133.201 25,696,291 130,618 503,616 94.635 20,000 383,547.399 1913 1915 12.029.913 281,104104 43898 215464 fis^ianfio !'?flln? !','?f'?J? ^^^'^^^ 7,409,792 11,834,802 1,917,802 26,235,403 275,500 643,533 777,038 20,000 403,745,652 1914 1916 8 945 029 300 767 158 68.o48,062 4,158,899 3,118,464 995,764 8,202,674 12,386,800 2,487,251 32,910,508 516,120 750,000 262;208 10,000 427,740,129 1915 1917 3:720:760 SSS.Sls'.OOl 40763 i^l'sP mitl'lm li^AI^^ o'lll'll^. ^^^'''^'^ 8,491,137 13,174,399 2,550,645 39,817,402 796,920 928,581 411,000 25.000 459.411.737 1916 918 8.730,235 355,927.716 35953 504741 4045fi'?8? t'?a?'«9n I'^^l'fla S^M^)! 8.078.843 12.928.955 2.533,417 55,292,770 1,144,737 1,602,312 1,008,750 7,002.973 508.687,302 1917 1919 6,517.748 377.719000 382.54 OOQIOO ZilAm «i?-'nnn l'ttn'2^^ ^^^'^^^ 8,000,000 13,284,936 2,536,102 63,828,327 1,321315 2,082,068 2,079,750 7,390,080 514,729,354 1918 1920 7.406,318 443,402,000 38,000 ^oqooO ^Onoonnn rnnn'nn« o'ifS'nS'^ P'*""' 8,453,800 15,780,000 2,561,000 87,072,954 1504.300 2,780,000 1,662,184 6,611,208 554,505.048 1919 . JU.UUO. UUO 6.000.000 ^.^13.083 215.340 8,500,000 16,000,000 2,790.000 163,000,000 1,366,926 1.628.637 1.089,213 7,804,734 688,474,251 165,332,477 5.429,692,719 1,049,925 24,865,870 1,938,283.199 166,306,273 42.831,830 ^^iJ^Wl V^J^^B ^^^J,^, ^^^^^^^ ^^^^^^ ^^^-JT, Ti:iJi:^ ^TT^^ oJ7^, 8,754.383,216 1920 ^ THE PETROLEUM INDUSTRY Dossor and before the war extensive arrangements were made for development. Russia has thousands of square miles of the most promising oil producing areas in the world and witli a stableized govern- ment these oil resources will be quickly developed. The story of oil in the Dutch East Indies can be written around one man — H. W. A. Deterding. In the 20 years that he has been the directing head of the Royal Dutch Company he has developed it from a small producer to practical dominance of the ~>il business in the Eastern Hemisphere, a com- manding position in Mexico and large holdings in the United States. In 1902 the Royal Dutch Com- pany became affiliate'd with the Shell Transport and Trading Company of London and the Rothschild petroleum interests of Paris, all of which are now referred to as the Royal Dutch-Shell Company. The oil production of the British Empire is rep- resented by Canada with 220,000 barrels, India with over 8,500,000 barrels, Egypt with 1,000,000 bar- rels and the Royal Dutch-Shell Company in which Holland, England and France are interested. The total production of the British Empire is probably about 4% of the world's production, but this will undoubtedly be rapidly increased as the world war 49 THE PETROLEUM INDUSTRY gave Britain a new vision of the vital importance of petroleum, not only for her navy but also for her merchant marine and her industries. The oil industry really started in the Kingdom of Roumania in 1857 and this little country had produced up to the beginning of 1921 about 165,- 000,000 barrels. Galacia, formerly known as Austrian Poland, has been producing nearly fifty years, her total pro- duction to date being about equal to Roumania's. Japan's production of 2,000,000 barrels in 1920 puts her in the position of either becoming a pro- ducer in foreign lands or a large purchaser not only for her industries but more especially for her rapid- ly growing navy which must be or become oil-burn- ing to rank with other nations. Germany has been a small producer and a large importer of petroleum and its products, her produc- tion scracely passing the million barrel mark before the world war, Persia and Mesopotamia are the latest and po- tentially among the most promising nations to enter the field of oil producers. In fact the entire terri- tory of southwestern Asia, because of its potential oil resources, is today the subject of international 50 THE PETROLEUM INDUSTRY diplomatic controversies, the results of which can- not be anticipated, Italy with a production of 38,000 barrels in 1920 can scarcely be classed as an oil producing country. In Table 4 the item, "Other Countries," represents the combined production of Venezuela, Colombia, British Borneo, Cuba and other small producing nations. British Borneo was developed about the time the Royal Dutch Company began operations in the East Indies. Consulting Table 4 it is interesting to note that of the world's production from 1857 to the year 1920 (8,754,000,000 barrels) the United States produced 5,429,000,000 barrels, or 62%. Of the world's production for the year 1920 (688,000,000 barrels) the United States produced 443,000,000 barrels, or over 64%. In the year 1920, the combined production of the United States and Mexico (606,000,000 barrels) was over 87% of the world's production, thus leav- ing all of the remaining nations of the world to pro- duce less than 13%. 51 CHAPTER IV PRODUCTION When most of us think of the oil business we imagine a derrick with oil spouting from the top — and when we stop our car at a filling station for gasoline and oil, we, in a sort of vague way, associate the gasoline and the oil with the derrick, giving lit- tle thought to the gigantic industry that lies between the derrick and the filling station. But on, today, is as vital to civilization as Iron and Coal. The petroleum industry is a chain, with four links : 1 — Production 2 — Transportation 3 — Refining 4 — iMarketing Production has to do with all of the different processes and equipment by which crude oil is ob- tained from the oil-bearing sands far beneath the surface of the earth. 52 THE PETROLEUM INDUSTRY Transportation takes the crude oil when it reaches the surface and transports it to the refinery. The refinery "distills" the crude oil into ben- zine, gasoline, kerosene, gas oil, lubricating oils, fuel oil, paraffin, petroleum coke — in fact about 300 distinct products are today obtained from crude oil. Marketing takes the gasoline, kerosene, lubri- cating oils and other products from the refinery, and distributes them by tank cars, tank steamers, tank wagons, filling stations and retail stores to millions of customers in every country on the globe. Without entering into a discussion of how or when petroleum was formed we will start with the fact that it actually exists in the crust of the earth, and describe the present methods of locating it and bringing it to the surface. If the territory is already producing, the loca- tion of a site for a new well is a comparatively sim- ple matter, with the chances very largely in favor of success, because the history of the wells already drilled in the field is available. But in undeveloped territory, known to the oil man as "wildcat" terri- tory, the location of drilling sites usually does and always should start with "exploration" work which may take the exploring party to another part of the 53 THE PETROLEUM INDUSTRY state or a distant state or possibly some field half- way round the world. With the big producing companies the "Ex- ploration Department" consists of an office staff and a field staff. The office staff is largely statistical and clerical while the field staff is made up of petro- leum geologists and experienced oil field men. Ev- ery man is trained and alert to discover every evi- dence, by every known means, of the presence of oil or gas beneath the surface, whether that evidence be actual oil or gas seepages, oil on the surface of streams or in wells, mud volcanoes, outcropping rocks or general surface contour. Of the 23,133 wells drilled in the United States in 1917, Table 5 shows that 16,365 (or about 71%) came in oil, 1,966 (or about 8% ) came in gas while 4,802 (or about 21%) were "dry holes." By far the greater part of these 4,802 dry holes were drilled by "wildcatters" in territory frequently far removed from actual production. The wildcatting done by the large producing companies is on an entirely dif- ferent basis from that done by the small operator, as the large company has the advantage of the serv- ices of high-grade technical men to direct their ex- ploration and wildcatting work and as a result 54 THE PETROLEUM INDUSTRY their percentage of dry holes is comparatively small. Table 5 — Wells completed in the United States in 1917. % Field Oil Gas Dry Total Dry Appalachian 4,907 1,219 1,544 7,670 20 Lima-Indiana ... 647 18 135 800 17 Illinois 488 9 149 646 23 Kansas 2,712 177 538 3,427 16 Oldahoma 5,027 410 1,360 6,797 20 Texas, northern and central 728 23 290 1,041 28 Louisiana, northern 302 56 99 457 22 Gulf Coast 864 54 600 1,518 39 California 686 48 734 7 Remainder 4 39 43 91 Totals 16,365 1,966 4,802 23,133 Average dry holes for the United States in 1917—21%. T'day the average oil well is drilled much deep- er than a few years ago, labor costs are much high- er, oil v/ell m.achinery and supplies are much higher — all resulting in a much higher cost per well. Dry holes are too costly to justify "rule-of-thumb" meth- ods, and 60 years of "hindsight" is being turned to profit through "foresight" in every department of the industry. 55 THE PETROLEUM INDUSTRY Table 6 — Producing oil wells in the United States October 31, 1920. Pennsylvania : 67,700 Oklahoma 50,700 Ohio 39,600 West Virginia. 19,500 Illinois 16,800 Kansas 15,700 . New York 14,040 Texas - 11,100 California 9,490 Kentucky 7,800 Louisiana 2,700 Indiana 2,400 Wyoming and Montana 1,000 Colorado 70 Total.... 258,600 There are in use today in the United States two principal types of drilling outfits: 1 — Standard cable-tool system 2 — Rotary-hydraulic system These types have been developed to meet the different earth and rock conditions in different parts of the country. The oil industry inherited its 56 Figure 20 — Rotary drilling rig. -a c 3 O u tt„ ^ CO 1 C to C a; C8 W 3 b* Figure 22 — String of tools for standard cable tool system. 1 — Walking beam. 2 — Temper screw, about 5 feet long. 3 — Rope clamp. The upper end of the rope leads to the bull wheel on which the necessary length of rope is spooled. 4 — Casinghead, or top of well casing. 5 — Derrick floor. 6 — Timbers supporting derrick floor. 7 — Rope leading into well and carrying the weight of tools, some- times several tons. 8 — Rope socket, from 2Vi2 to 4 feet long, 9 — Jars, about 5 feet long. 10 — Stem, from 6 to 48 feet long. 11 — Dr-lling bit, from ^V2 to 6 feet long, and from 21/2 to 28 inches across; weighs up to 3 tons, or more. The spudding bit is usually .'} feet long and from 8 to 16 inches across; weighs about 500 pounds. Note taper screws for connecting 8, 9, 10 and 11. THE PETROLEUM INDUSTRY first drilling equipment from the brine-well drilling business. Col. Drake's outfit, with 60 years' im- provements, is known today as the standard cable- tool system. It is adapted to deep drilling where several strings of casing must be handleB and much rock penetrated. The rotary-hydraulic system is largely used in the gulf coast fields where little roc"k lies above the oil bearing sands. The act of drilling with a rotary outfit is very similar to that of a machinist drilling a hole through a casting. The drill stem is hollow and a mixture of mud and water is forced through it under pressure of 40 to 100 pounds to the square inch. This fluid escapes through the drill bit at the bottom of the well, softening the forma- tion and carrying the "drillings" up the outside of the drill stem to the surface. Powerful pumps keep this fluid in constant circulation. The drill bit and drill stem are solidly attached to a rotator at the top of the well and under average conditions to which this system is adapted the day's drilling ranges from 25 to 200 feet. If drilling with the standard cable-tool system is to be done in shallow fields, that is up to 1500 feet deep, and the bore hole does not require much cas- 57 THE PETROLEUM INDUSTRY ing until the well is completed, the portable rig, shown in Figure 21, gives equal results' at a frac- tion of the cost of the standard rig. The portable rig uses only the cable-tool system whereas deep drilling by the cable-tool system and all drilling by the rotary system requires the standard type der- rick. These derricks, usually of wood, although steel derricks are coming into use, are 20 feet square at the base, 4 feet square at the top and from 40 to 80 and occasionally 120 feet high depending on the depth well to be drilled. The "string of tools" used in the standard sys- tem is from 30 to 50 feet long and consists of rope socket, jars, stem and bit. The rope socket is at the top end of the string and the rope is attached to it. Next come the "jars" that permit a "slack" in the tension of the cable at the end cf the down stroke of the drill and make it possible to loosen the bit with a jerk, instead of a pull, if it sticks in the bore hole. Next comes the stem, long and heavy, to give weight to the string and to keep the bore hole straight. Last comes the drill bit varying in size from a few inches to 28 inches across. The deeper the well to be drilled the larger the bit that must be 58 THE PETROLEUM INDUSTRY Figure 24 — From surface to oil sand. Note that first string of casing rests on gray shale and second string rests on cap rock. 59 THE PETROLEUM INDUSTRY used when "spudding in," that is, drilling the first 50 to 100 feet. The rope socket, jars, stem and bit are screwed together with taper threads. The string of tools weighs from one to four tons and is attached to the end of a heavy manila rope or wire cable that passes over the crown pulley at the top of the derrick to the bull wheel on the derrick floor. Enough cable is spooled on this bull wheel to drill as deep as the well is to go, whether hundreds or thousands of feet. By releasing the brake on the bull wheel, the cable unwinds as the weight of the tools takes them to the bottom of the hole. The churning motion, by which the string of tools is raised and dropped against the bottom, is imparted by the walking beam to which the rope just above the top of the well is attached by means of a temper screw. One end of this screw has a rope clamp while the other is attached to the walk- ing beam. This screw is about 5 feet long and every time the drill strikes bottom and the tension on the rope slackens the driller gives the handle of the screw a half turn thereby letting the bit strike a little deeper the next time. When the end of the screw is reached the string of tools is raised from the well, the bailer is let down to remove the pul- 60 a; 1 — 1 ^ r^ > OJ o 03 o ^ p. O) .s T3 c C3 bio ■^ +J .S _bf T3 4-> b4 .S QJ 4_) 0) 3 '3 bJO o m "3 3 03 3 .« ^ ^1 5-1 J"" o p. >> X QJ +-1 rn QJ c o ^ Ol 03 +-> Ax. ■•"= _C3 ^ ft in s 3 QJ ifi a cc ^ :3 03 QJ ft o e O^ & c3 «fH 03 "cS ft o CU JS OJ m -Q en QJ -3 bJ3 &C ^ ? C _C t: 4J S ^3 '% c {li 15 OJ « >, JS r/3 3 '3 OJ c5 > 01 X. !-( 03 ft -Q -C w o OJ +-* CJ Oj j3 '> in -C -4-' l> -tJ M -4-J 3 (S _aj TD O c , ft Q) O ft S Oh m 15 3 bf ^ 3 03 t: & &i5 r2 03 0) 3 bJO OJ 0) S 03 c u -73^ 3 Q) o n cS O r > 03 ^ ^^ +-> m "o o 5 '^ cc _ 1^ O O -^ ^ «*H O P, O CO „ 3 CO o O 01 p< >> ^ M o 0) o c -J- ni 01 a ° 3 O) tS 3 5* oi « CO 0/ p. 3 o a> •£ -^ c O to s- a; THE PETROLEUM INDUSTRY verized earth and rock after which the string of tools is returned, the temper screw at the end of the walking beam is clamped to the rope 5 feet high- er up than before, and the whole process of drilling and bailing is repeated until the well is completed as an oil or gas well or abandoned as a "dry hole." When a well is started the drilling usually goes on day and night until the well is completed. The 12-hour shifts are called "tours" and a crew usu- ally consists of eight men, four on each tour: a driller, a tool dresser, a helper and an engineer. The marvelous delicacy of touch by which the blind read the raised letters on their specially-made books is at least equaled by the sense of "feel" of the rope by which the driller can tell what is going on at the bottom of the hole, two, three or four thousand feet deep. Many wells are drilled to "the top of the sand" and stopped until storage tanks and pipe line connections are made to take care of the oil when the well is "drilled in." Many unfortunate and costly things however can happen during the drilling of a well : the cable may break resulting in a "fishing job" that may last hours, days, weeks or months, or cause the abandon- ment of the well ; the string of tools may separate 61 THE PETROLEUM INDUSTRY causing another fishing job; the walls of the bore hole may collapse, water may be struck once or many times, and every time it must be "cased off" by setting a string of casing on the next lower layer of rock and reaching to the surface. After pene- trating this layer of rock, water may be struck again, and it must be cased off with another and smaller string of casing, inside the first string and resting on the second layer of rock and reaching to the surface. Most wells have two or three strings of casing, the deeper the well the more strings, the size of the drill bit being reduced with each string. When oil is struck, unless the flow is large, the well is usually "shot" with a charge of from 10 to 250 quarts of nitroglycerine to loosen up the sand and increase the flow of oil. When the well is com- pleted all of the casing is pulled except what is considered necessary to keep the bore hole from collapsing or to protect the oil sands from the water. If the well does not flow naturally it is pumped. In this case a 2-inch tube is inserted reaching from the surface to the oil sand. At the bottom end of this tube is a "working barrel" connected with which is the pump rod reaching to the surface where it is connected with the "pump jack" which 62 THE PETROLEUM INDUSTRY in turn is connected by either cable or pull rods to a central "power" in the pump house. These powers, with capacities sufficient to pull 25 pump jacks, are driven by engines using gasoline or natural gas, or by electric motors. The flow pipe leads from the pump jack to the flow tank usually near the power house and holding from 200 to a thousand or more barrels depending upon the daily production of the property. These flow tanks are connected, through the oil purchas- ing company's gathering lines, to their pipe lines which lead to the refinery. As crude oil contains either paraffin or asphalt, or both, and as flowing oil carries some sand v/ith it, the bottom of the pipe or the pump sooner or later fills up and must be cleaned. Where the working barrel and the oil sand meet is one among the most vital points in the entire matter of produc- tion, and much research work is being done along the line of a better understanding of actual condi- tions at this strategic point. Not only do these con- ditions change with the diminishing gas pressure but they change with the manner of pumping that is directly under the control of the "pumper." 63 THE PETROLEUM INDUSTRY LetLse ^ame.'ioi\S& .... iVe// Number. .5 SxctionS>Tip&\inng\QZ. /ve/rf_.Be5.3S.-_ Depth (ft) 0—1 30- 60- Wl sSur/bce 114 C/o/ -'^-Z /faz-rf 5hale III - ¥M Shale and ^^ Boulders Ii>£ e.50- ££5- ^ Pocked 5ond P^ Shale 504- 1 S-'^ 5andj.5hate 6/5- ~^' aa 5hQle «3 Bcut G75- e9i- S^ Qumbo 5arjd &5/}afe 740- n = .-= 5hale and ^Q Boulders ;5Z. 389- 91 B - w Cjumbo =^5 ■SandyShale lOSO- cars 5hale and Boulders 3.S pS IZ6S- Sand & Boul. /3S9- «*'« Lime 1405- K i Shale, Oil showing 1552- 1572- Lime rock 5hale and Qumbo 1650- Oil Sand I750- Completed — ^zZL IfAl Initial Prod.JJ.Si-Bbls. Qrayity. . iS.J?. Bourne. . .a per cent Wafer. Fig. 27— Log of Well. The driller's record of the kind and thickness of earth, limestone, sandstone, shale, sand and water that the drill penetrates from the surface of the ground to the bot- tom of the Well is called the "log," and from it the geological depart- ment makes a drawing like the cut shown herewith. The log of a "test well" in wildcat territory be- comes the basis for drilling in that field, and the more wells that are drilled the more information be- comes available to guide future drilling. 64 Figure 28 — Pulley and bevel gear type of power for oper- ating pump jacks. Note that two "pull lines" are at- tached opposite each other, to~each of the three eccen- trics, so that when the pump ("sucker") rod in one well is pulling up the rod in the other well is going down. J^ m^ d vm^ ^jIjHfl ^A 1 ifll \: \ . ^i'^''-'" »ybi[^9|ln JUj ' 1 " "'dft WUk BjtL^ ^ ^ mtei ^"i^^^B ^^ Figure 29 — Electric motor connected to pump jack. On oil properties so equipped the power is furnished from a cen- tral power plant usually owned by the oil company. f ^ - o •— ^fl 0 c cu "S s it Ol OS c f/2 U( cS rr. LJ a; ^ O 3 X -n • — ' ac a - "o a» 'x 15 CS > ■4^ 1— 1 m cS X ^ H -(-> c o rn Ol CS X ^ ^ crt CS ^ +-> Ol im ft (U _ o bsj aj X ^ .2 c JC o & OJ ce N > C/3 OJ C "O c w 01 C bti « C5 '^ ft tc 0; C -4-> m -C 0> aj H en "qj a; »-i j= ?H H c« s -Q 3 |-j O o '« o_ ^ S lO c 03 lO 03 ^ bti J. s X5 CO 01 0) Sh 3 Ol 'to 6jO THE PETROLEUM INDUSTRY Some idea of the cost, in 1919, of drilling a comparatively deep and expensive well in Oklahoma can be had from the following figures from the "Oil and Gas Journal" of Tulsa : Lumber, rig irons and labor. . .$2,200 Drilling, 2,500 feet 7,750 Contract day labor 1,800 Gas engine, setting and housing 1,975 Tanks and tank houses 1,750 Miscellaneous material 1,500 Miscellaneous labor 1,025 Hauling 500 Casing, tubing, rods and work- ing barrel 13,000 Total for complete well $31,500 The last item of $13,000 indicates that an un- usually large amount of casing was used, undoubt- edly due to striking several water sands each of which had to be cased off. Comparatively shallow wells can be drilled for a few thousand dollars. The cost of wells varies with their depth, the number, hardness and thickness of rock strata, number, size and length of strfngs of casing, fluctuations in the cost of material and labor, distance from shipping point, etc. 65 THE PETROLEUM INDUSTRY One man, usually called the "pumper," can take care of a number of wells, his salary ranging from $150 to $250 a month. To this expense must be added the cost of fuel or electricity for power to pump the wells, repairs and replacements and, most expensive of all, the cleaning of the wells. The frequency of cleaning depends entirely upon the nature of the oil sand and the method of pumping. Only in recent years has the average small operator learned the importance of proper pumping of wells and that a well can be "killed" by bad pumping or its life greatly prolonged by good pumping. Even this supposedly small item of when, how long, how fast and how often to pump a well to get the most oil over the longest period of time, emphasizes the fact that the novice in the oil business can easily lose all of his capital before he learns how to protect it. Oil-bearing sands vary in thickness from a few inches to a hundred feet or more, and in size from less than an acre to great oil fields covering 100 square miles or more. The total area of the Mid Continent field is about 2,000 square miles. Oil sand is by no means loose sand like that on the banks of creeks but sandstone, or sandy lime- 66 THE PETROLEUM INDUSTRY stone. The "absorbing capacity" of sands for crude oil varies from dense, fine grained sands that will hold only a small percentage of their volume of oil, to open porous sands that will hold as much as 35% or more of oil. A barrel (42 gallons) of oil con- tains 5.6 cubic feet, and an acre of ground contains 43,560 square feet. If the outside drilHngs of an oil pool indicate that the oil bearing sand has an area of 10 acres it would contain 435,600 square feet, and if the drillings indicate that the sand averages 15 feet thick there would be 6,534,000 cubic feet of sand. If the sand has an "absorbing capacity" of 20% the pool win contain 1,306,800 cubic feet of crude oil. Dividing this by 5.6 we have about 234,- 000 barrels of crude oil in the sand. It has been estimated that, on the average, probably not more than 50% of the total oil in the sand is recovered by present methods, hence this would give us about 117,000 barrels of oil that a good "pumper" would get from the pool. Under average conditions there should not be more than one well to each 5 acres, for each sand, hence 2 wells would drain this pool at a minimum of expense. Three wells, or four wells would not increase the amount of oil in this pool, but they would increase the expense — and thereby reduce the p7'ofits. 67 THE PETROLEUM INDUSTRY Fig. 12 on page 25 shows a part of the famous Glenn Pool field and section 8 (an inch square) , con- tains one square mile (640 acres). The NE14 of the NEi/4 of this section shows 13 wells on 40 acres, which indicates that two or more sands are pro- ducing. One of the things that, from a profit-mak- ing standpoint, quickly "killed" the Burkburnett field in 1919, and that is a menace to every field that is cut up into "town lots," is over-drilling, and it is probably true that the losses to small investors through the over-drilling of producing territory by small companies have been at least as great as the losses from drilling dry holes. In Fig. 12 the four-pointed stars indicate dry holes while the six-pointed stars indicate gas wells — note how many dry holes were drilled in order to define the border of the producing area. In the early history of the industry only the shallow sands were reached, but deeper drilling fre- quently revealed deeper sands, in "layers," one above another separated by layers of different kinds of rock. Every year has seen deeper wells drilled until at present, especially in the Mid Con- tinent fields, the most of the drilling is to the deeper sands, sometimes 3,000 feet or more. The presence 68 THE PETROLEUM INDUSTRY in any field of several layers of oil sands naturally adds greatly to the value of the property and it is not unusual in some areas, to see several wells, each producing from a different oil sand. For example, in the Gushing (Oklahoma) field among the half- dozen producing oil sands and several gas sands the more important oil sands are "Layton" at 1,530 feet, "Wheeler" at 2,330 feet and "Bartlesville" at 2,750 feet. All sands differ in their productiveness, rates of flow and to a much smaller extent in the nature of their crude oil. The Bartlesville sand has produced 90% of the oil in southeastern Kansas and northeastern Okla- homa, probably 50% of the oil of the Mid Continent field and perhaps more oil than any other sand in the world. It is probably the general impression that an oil well flows "straight oil," all the time — 'the fact is however that very frequently more or less water and sediment are mixed with the oil, the fluid being called an "emulsion." The simplest and cheapest way to separate the oil from the water and sediment is to "let gravity do it," in "gun-barrel" tanks near the well. Recently however "de-hydrating" plants are being installed which handle large quantities of 69 THE PETROLEUM INDUSTRY the emulsion much more rapidly than the gravity process. A "de-hydrating" plant that would separate the "water" from the real assets of fly-by-night oil companies would certainly save millions of dollars to the investors of the country. The Get-rich-quick Wallingfords whose opera- tions are confined to the "oil game," and who know practically nothing of the "oil business" don't tell their prospective investors about the thousands of oil properties whose wells 'have been producing from one to five barrels a day for years and are good for years to come, but these artists in "financial sleight-of-hand" talk glibly about their property that is "close in to a gusher that the papers say spouted clear over the top of the derrick and made 100 barrels the first hour." The unusual geological formations of Mexico and the Baku district of Russia make gushers the usual type of well in those countries; but in the United States our gushers, when drilled in by small producers, have in a general way been misfortunes both to the owners and to the public: to the own- ers, because when they struck a gusher they usually abandoned the conservative basis on which they had 70 THE PETROLEUM INDUSTRY been operating, "plunged on gushers" and nearly always lost everything ; and gushers have been mis- fortunes to the public to the extent that they have opened the way to many crooked promoters who have magnified and capitalized the gusher idea and thereby created a distorted impression of the real oil business in the minds of the investing public. In 1920 it was estimated that there were about 16,000 producers of crude oil in the United States. Their individual production varied from less than one barrel per day to 70,000 barrels. The majority of the production came from a comparatively small number of companies, each of those listed in Table 7 reporting a production of over 1,000,000 barrels in 1919. In addition to these 32 companies there proba- bly were others that did not report but which pro- duced a million barrels or more; the list however contains most of the large producers in the United States. In 1919 these 32 companies produced over 218,667,000 barrels of oil, or about 58% of the total production of the United States for that year. As 32 companies produced 58% of all of the oil, the remainder of the 16,000 companies produced 42% — hence it is obvious that, in order for the 71 THE PETROLEUM INDUSTRY Table 7 — Companies producing over 1,000,000 barrels of crude petroleum in 1919; Associated Oil Co. Barnsdall Corporation Carter Oil Company Cities Service Company Cosden Oil and Gas Co. Doheny Companies of Calif. Galena Signal Oil Co. of Texas General Petroleum Corp. Gulf Oil Corporation Humble Oil and Ref'g Co. Magnolia Petroleum Co. McMan Oil and Gas Co. Mid West Ref'g Co. Ohio Cities Gas Co. Ohio Oil Company Oklahoma Prod, and Ref g Corp. Prairie Oil and Gas Co. Producers and Refiners Corp. Roxana Petroleum Co. Santa Te Railway Shaffer Oil and Ref g Co. Shell Co. of Calif. Sinclair Consolidated Oil Corp. Southern Pacific Co. South Penn Oil Co. Standard Oil Co. of Calif. Standard Oil Co. of La. Sun Company Texas Company Texas Pacific Coal and Oil Co. Tide Water Oil Co. Union Oil Co. of Calif. 72 THE PETROLEUM INDUSTRY smaller producers to make money, they must have access to as high quality of technical, engineering and financial services as the large producers whose organizations include these departments. Probably the greatest handicap to the small pro- ducer is his lack of these kinds of service which his organization, because of lack of capital, cannot in- clude within itself. Because of the vital need for this kind of work there have been evolved during recent years several lines of technical and professional service intended especially for the oil industry. These include Con- sulting Petroleum Geologists, Petroleum Chemists and Petroleum Engineers. All of these are on the same high plane as similar services in other indus- tries and it is not too much to say that to this kind of work, whether found in large companies or small companies, is due a large part of the credit for the recent remarkable advancement and increased effi- ciency in the producing, transporting and refining ends of the industry. 73 CHAPTER V TRANSPORTATION Transportation, in the oil business, starts at the well and ends at the refinery. Its equipment consists of 1 — Gathering lines 2 — Pipe lines 3 — Pumping stations 4 — Storage tanks and reservoirs 5 — Tank cars 6 — Tank steamers For several years after the discovery of oil in 1859 it was transported in iron-hooped wooden bar- rels by flatboat or wagon, four to ten barrels mak- ing a wagon load. Excessive charges by teamsters, together with the frequent and large losses by flat- boat jams naturally led to the modern pipe line. In 1860 S. D. Karns, of Parkersburg, W. V., suggested a six-inch line from Burning Springs to Parkers- burg, a distance of 30 miles, the oil to flow by grav- ity; but the project fell through. In 1863 a Mr. 74 THE PETROLEUM INDUSTRY Hutchings actually laid a line over a hill from the Tarr farm near Tftusville to the Humboldt Refinery at Plumer. The length was 21/2 miles and the siphon principle was used to move the oil. The teamsters tore up this line and two others that Hutchings built and he died penniless. The first successful pipeline was built by Sam- uel Van Syckel of Titusville during the summer of 1865. It connected Pithole City and Miller's farm four milea distant. For safety it was buried two feet under ground. In 1865 Henry Harley built a line from Ben- ninghoff Run to Shaffer farm on the Oil Creek rail- road but the teamsters not only cut the pipe but burned his gathering tanks. The state furnished armed protection and the line 2 inches in diameter was finished and rated at 800 barrels a day. This line, and a second one, were so successful that capi- talists soon consolidated them. About this time Har- ley organized the" first pipe line company, the "Pennsylvania Transportation Company," and built a line from the Pennsylvania oil fields to the Atlan- tic seaboard. It has been estimated that there are today in the United States 34,000 miles of main trunk pipe 75 THE PETROLEUM INDUSTRY lines and 11,500 miles of gathering lines, making a "transportation system" 45,500 miles long — longer by far than the greatest railroad system in the world. For the railroads to have replaced the pipe lines and hauled the crude oil that was produced east of the Rocky Mountains every day in 1920 would have required 90,000 tank cars and 2,000 locomotives. The building of a pipe line is very similar to the building of a railroad. First comes the "sur- veying gang" which determines the route, and se- cures rights of way, sites for pumping stations, etc. It is followed by the "right-of-way" gang that cuts down trees, clears the way, builds bridges, delivers pipe at convenient intervals and gets everything ready for the "stringing gang." These men distrib- ute the pipe for the "pipe laying gang" that screw the lengths together. A gang usually consists of 40 to 75 men and they average from a half to three- quarters of a mile a day. Following them comes the "ditching gang" that digs the trench and buries the pipe from 18 inches to 3 feet deep. Main trunk pipe lines vary from 6 to 14 inches in diameter, the most common size being 8 inches. They are of high grade, seamless steel, carefully 76 THE PETROLEUM INDUSTRY threaded and tested to an internal pressure of 1,000 pounds to the square inch. Gathering lines vary from 4 to 6 inches in diameter. Where possible the pipe lines follow railroads and public roads to facil- itate repair work. The "line rider" patrols the line summer and winter. The organization of the pipe line company is similar to that of the railroad company, having gen- eral offices and branch offices. The pipe line sys- tem is divided into divisions, each under a division superintendent. The division is usually divided into districts, each under a foreman. The general office includes the Oil Transportation, Engineering, Legal, Tax, Accounting and Telegraph and Telephone de- partments, each described in a general way by its name. Booster or pumping stations are located along the lines to keep the crude oil moving at the desired rate. The distance between stations depends upon the nature of the country and the viscosity of the oil. In the Mid-Continent field the average distance is about 35 miles and in California about 12 miles. Some stations handling extra heavy oil on an "up grade" are as close as two miles and others handling light oils on a "down grade" are as far apart as 90 77 THE PETROLEUM INDUSTRY C3 CO so 1^ ?5, 50 C3 <5i -Si 00 < >.^ 6 O O o o o o o o^o o" o" o" CO »-l to o o o I -• ^ • g T3'2 .2 g|o o S-2.2 •sow ^ 5 c3 a ° C !=l -^ 3 3 O "^ OS ^ cS > u >9 -3 H^ ^ -a X > 5Eh ► CO O c3 X^ HO ^ +3 CO O oj pq <:^ fe o o kni o CO CO s s LO o o o CO CO 55 "3 o OS ^ ^ 5 a> '-I £ S S 2 2 2 4^ C3 QO ^ X -^ f xi ■*-• =* -S « 2 o o o C30 bD > 3 5 CO ,iij 03 o s C!3 ■f3 r 6 o O a £ t? 4d 3 o >> o c« O > ^t 3^3 04 o o o o is 3 3 cj o S 3 3 pho; (U Q) ^ o 3 :^ OS be M cl 03 fl 3 be ba 03 C3 78 • THE PETROLEUM INDUSTRY 00 •^ CO o o c o tf ja s-i ^ _ c_i ^ i« ^ . s +-- S £ S pop fe tn £ fe £ fe o a c -*-> C rj QJ C ^ 5:^ C £ S o o kS " 6 be o o a; O ;:3 » > *< C _j. 'S G rt " -H 3 .Xi 03 s s O O ^ S S +3 o o eg -^ in c- o o CO o 00 -<* p. a. S o o 3 ft, a K c3 P< >» T3 3 o OJ ^ ;S ft ,13 O) o ;::: d C O CO H 6 ^ a X c '3 Pi'—' PL, P. 1 1 79 THE PETROLEUM INDUSTRY miles. Some oils are so heavy that they must be heated before entering the pipe line. The pumps that drive the oil through an 8-inch pipe line are powerful enough to deliver 30,000 barrels of me- dium light oil in 24 hours with a line pressure of about 800 pounds to the square inch. When oil of a different grade is sent through a pipe line, a header is injected into the line. This is a slug of wa'ter about three feet long and separates the grades. When pumping of the different grade is completed another header is inserted, followed by the original grade. Occasionally a bullet-like "go- devil" is pumped through the pipe with the oil. The revolving knives cut from the walls of the pipe the accumulated sediment which would soon plug it up if not removed. When an oil company leases land the "Oil Lease," usually made for five years, provides for an annual rental to be paid to the owner arid varying from a few cents to several dollars an acre. When oil is struck rentals are replaced by a "royalty" of usually i/s of the oil, the other % going to the oil company. The pipe line company whose lines connect with the field tanks empty them when filled and pay for the oil usually twice a month, Ys going 80 Figure 33 — P^pe line being laid through a forest in the Gulf Coast field. c O o C ~" S 0; o ^ o o oj ^ u C 3 (H bfi (U C U a; n* OS -< s ■oD M OJ u C8 -C ^ 01 -1-1 c CO ^ -2 -C o- H -o s n c« ^ ' Vh ^ X CO u Oi 01 +-> 01 > « u o Tl 3 bfi a; ^_| THE PETROLEUM INDUSTRY to the producing company and Vs to the owner of the royalty interest. This simple transaction may have some variations as the producing company may also be the owner of the pipe line or the owner of the royalty may sell all or part of his royalty. With- in recent years, and especially since the passage of the Revenue Act of 1918, a great deal of attention has been given to the scientific valuation of oil and gas properties. Statistics have been collected cover- ing the production history of thousands of wells, and all of the fields. In hundreds of instances these records cover a number of years. Petroleum En- gineers have studied these records carefully in con- nection with personal examinations of the oil fields in order to establish fair standards of value based on both present production and probable future production. As the royalty represents one-eighth of the to- tal production Trom the property it has come to have a definite merchantable value and as a result much "trading in royalties" goes on in the oil territories. The price is usually on the "barrel-per-day" basis and prices range from $1,000 to $3,000 per barrel, or more, depending upon many factors which no one but an experienced oil man can iveigh with reas- onable accuracij. 81 THE PETROLEUM INDUSTRY Storage tanks belonging to producers are usual- ly of wood and hold only a few hundred barrels, ex- cept on large properties, as the pipe line company "runs" the oil to its own storage when the well tank is filled. Most of the pipe lines are owned by re- fineries, hence their storage tanks are usually built near the refinery in groups called "Tank Farms." These farms frequently cover hundreds of acres and sometimes contain dozens of tanks. The usual sizes are 37,500 and 55,000 barrels, the latter being 115 feet in diameter and 35 feet high. With crude oil at $2.00 a barrel a "55" will hold $110,000 worth. Lightning is the worst enemy of the steel tank and losses from it are frequent. The storage tanks of the United States for the last several years have carried an average of well over 100,000,000 barrels of crude oil or about 3 months' supply. In 186B Lawrence Myers built a "Rotary Oil Car" — a flat car with two sloping tanks mounted on it, similar to the field tanks of today. Each tank held about 40 barrels ; thus "a car of oil" was about 80 barrels. The first of these cars arrived in Titus- ville November 1, 1865, and was loaded at the Mil- ler farm. This car was owned by the Eagle Trans- 82 THE PETROLEUM INDUSTRY porfation Company oT Philadelphia which also own- ed the patent on it. In 1866 Dillingham and Cole, Table 9 — Some large oivners of tank cars. Santa Fe Railroad Co 3,178 Southern Pacific Railway 2,963 Missouri, Kansas & Texas R. R 677 St. Louis & San Francisco R. R 629 Pennsylvania R. R. Co 514 American Refining Co 256 Associated Oil Co 337 Central Refining Co 293 Constantin Refining Co 500 Consumers Refining Co 379 Cosden Company 2,163 Empire Refineries 2,100 Gulf Refining Co 1,411 Indiana Refining Co 1,032 Magnolia Petroleum Co 590 Ohio Cities Gas Co 900 National Refining Co 1,004 Pierce Oil Corporation 643 Sinclair Refining Co 3,700 Standard Oil Co. (Union Tank) 21,600 Texas Company 3,435 83 THE PETROLEUM INDUSTRY machinists of Tftusville, built 60 tank cars for the Oil Creek railroads. These were built of iron, about 90 barrel capacity, and fitted with gate valves. In 1868 the first car with a horizontal cylindri- cal tank was shipped to the Oil Creek fields to be tried out. Its capacity was about 80 barrels, later increased to 100, which became the standard size for many years. It was so superior to the old type barrel car that within a few years they had disap- peared. January 1, 1921, there were in use in the United States and Canada 137,493 tank cars used for the transportation principally of the refined products of oil — and in the case of new fields lack- ing pipe line connections, of crude oil. The first vessel to carry a cargo of oil exclu- sively was a'fittle sailing vessel, Elizabeth Watts, of 224 tons, plying between Philadelphia and London. The first cargo consisted of 1,329 barrels and the first trip was made in November, 1861. The cost of transportation was "eight shillings per barrel deliv- ered with 5 per cent primage, payable cash on right delivery of cargo without discount." They were al- lowed 10 working days for loading the vessel and 12 working days for unloading with $25 a day demur- rage. 84 c T ■^ o •^ +J Ti rC hr c ' — ' 03 >= ^ o o c o 3 03 00 >> THE PETROLEUM INDUSTRY The tanker of the older design dates from Aug- ust, 1863, when the Atlantic was launched on the river Tyne in Yorkshire, England; the vessel was never put into commission however. The first tank- er to go into actual service was the Belgian sailing ship, Charles, of 794 tons, fitted with pumps for loading and 59 iron tanks with a combined capacity of 7,000 barrels. Regular trips were made from New York to European ports from 1869 to 1872 and as a result barrel-carrying ships quickly disappeared. Because of the fear of fire from oil it was almost impossible at first to secure a crew for an oil carry- ing vessel, and for years the ocean transportation of oil was confined to sailing vessels, steam vessels be- ing used many years later. The first tanker of the modern type, the Zoroas- ter, was built by Ludwig Nobel, Russian oil pioneer, in 1878 and was followed by the Buddah in 1879. From this date on the building of tankers pro- gressed rapidly. On account of the use of fuel oil by our mer- chant marine, and especially by our navy, oil-bunk- ering stations for the use of United States vessels are being located at strategic positions in the path- ways of commerce all around the world. Recent 85 THE PETROLEUM INDUSTRY statistics showed that of the 114 oil-bunkering sta- tions in the world 83 were owned by the United States. These stations under the Stars and Stripes are located at the chief ports on the Atlantic and Pacific coasts, the Great Lakes and the Gulf of St. Lawrence. In South America they are located at the chief ports of Brazil, Uruguay, Argentine, Chile and Peru. Stations are located at both approaches of the Panama Canal and at several points in the West Indies. Nine stations are located in Great Britain, 3 in Norway, 2 in Sweden, 3 in Denmark, 5 in Italy, 1 in Tunis, 1 in Egypt — with other stations being added. During the world war, while gasoline helped the automobile, the truck, the tractor and the tank to "do their bit" on land, and the aeroplane in the air, fuel oil was among the most potent factors on the sea. Oil-bunkering ships using flexible pipe lines replenish the tanks of ships on the high seas at the rate of 1,000 barrels an hour, while both vessels are under slow speed. The latest changes in ship design have been brought about by the substitution of oil for coal. 86 CHAPTER VI REFINING Almost all of the crude oil produced in the United States is "distilled" by the refineries. If the distillation process is carried far enough about 300 different products can be obtained, although four of them made up about 89 ^c of the quantity and over 91% of the value of the refined products made from all kinds of crude oil in the United States in 1918 : Products Quantity Value Gasoline 23.47% 45.99% Kerosene 12.00 9.18 Gas and Fuel oil 48.16 25.99 Lubricants 5.54 10.31 89.17% 91.47%o The present high state of development of re- fining is emphasized by the fact that in the early years of the petroleum industry "coal oil" was the only product obtained from crude oil. The residue containing gasoline, lubricating oils, wax oils, etc., 87 THE PETROLEUM INDUSTRY that are so valuable today, was either thrown away as useless or sold for a trifle to anyone who could find use for it. Based on 1918 data this waste would have amounted to 91% of the value of the products that might have been obtained from the crude oil — and. these products would have been worth, at retail prices, over a Billion Dollars. The general process of refining is fundamental- ly very simple. Petroleum, usually called "crude oil," is a liquid made up of a number of different products, each having a different vaporizing tem- perature — and this fact is the basis of the refining industry. Reduced to its simplest form a refinery would consist of 1— A still 2 — A cooling tank 3 — A tail house 4 — Storage tanks Beginning at about 200 degrees Fahrenheit, and ending at about 500 degrees, these products of crude oil are vaporized, each at its own particular temperature. The vapors of the "lightest" (least dense) products pass off first, then the next light- est, and so on until, with the heat gradually in- 88 THE PETROLEUM INDUSTRY creasing, all of the products desired are obtained. Each of these products is called a ''fraction" of crude oil, hence the refining process is called "the fractional distillation of petroleum." After the fire has been burning for several hours and the hundreds of barrels of crude oil in the "still" get hot enough to vaporize, the vapor passes through the pipe leading from the still to the cooling tank which is filled with cold water. Dur- ing its passage through the hundreds of feet of pipe in this cooling tank the greater part of the vapor changes to liquid. Completing its passage through the cooling tank it flows to the tail house which is in charge of the "stillman." As the liquid flows through the "look box" (1) he takes samples from time to time to find their density (specific gravity) . Knowing the specific gravity of each of the differ- ent fractions, together with their color and how they "feel" to the touch (the latter two are acquired by long years of experience) he can tell when prac- tically all of the first fraction has passed over. This flows into storage tank 2, valve 3 being open and valve 4 closed. By closing valves 3 and 6 and open- ing valves 4 and 5 the second fraction flows into storage tank 7 — and so on with the remaining frac- tions, each going into its own tank, until the crude sa THE PETROLEUM INDUSTRY c 0> s fl 4-( bD9 P! H o at 8 -2 ^ nt -tJ fl) Ol ^ «H O «H S3 O o in 1^ ■s o a o p< © be ^ c 4-> t3 ^ o OS a< P< w s o ^ C) o . &0 bcbO 3 — CO [fi hto< z < I U cr < ir o h <0 fvi ca^ ?^ _IZ o< Oh u HHHHHHI HHHHHtil 'HHHHHHHH j RHHHHHHHHl 90 3 -; 5 ^ c c ^ ^ Figure 41 — "Look boxes" in the tail house (sometimes called the receiving house) of a refinery. As the liquid flows from the end of the pipe in the look box the stillman can tell by its specific gravity and color when to cut the flow from one rundown storage tank to another. This is done by a system of manifolds that control the flow to each rundown tank. THE PETROLEUM INDUSTRY oil is distilled down as far as that particular type of refinery takes it. As it is impossible for the "stillman" to make an exact "cut" from one fraction to another, most of the fractions are re-distilled with much more care, and each fraction is thereby broken up into a num- ber of fractions. In the "complete" refineries this re-distillation process becomes a highly technical matter — ^^but without it we would not have the 300 products of petroleum. The still is equipped with a thermometer (this particular kind is called a pyrometer) that indi- cates the temperature of the crude oil within. The first vapors to be formed are crude naphtha, from which naphtha, benzene and gasoline are obtained by re-distillation. These vapors begin to form at about 200 degrees Fahrenheit and end at about 250 degrees. Then comes kerosene distillate vapors from 250 to about 300 degrees; then gas oil vapors from 300 to 350 ; then parafiin distillate vapors from 350 to 500 degrees. The residue is cylinder stock and from it are obtained tar, asphalt, road oil, flux, tailings, coke, etc. The small circles shown in the bottom of the still, just over the fire, represent pipes through 91 THE PETROLEUM INDUSTRY which steam under high pressure is blown into the crude oil to keep it from "burning" where the flame strikes the still. Coke stills are not equipped with these steam pipes as the oil which they use has al- ready had the more valuable products removed by other stills. The type of still just described is known as a "batch still" as it is charged, closed, fired for 20 to 40 hours and then cleaned for another batch. In re- cent years the idea of "continuous" distillation has been successfully worked out, the process removing only the lighter fractions of the crude, hence such refineries belong in the skimming plant group. By consulting the first paragraph of this chap- ter you will see that gasoline and kerosene repre- sented about 55% of the value of the crude oil re- fined in 1918 — and when you stop to think that mil- lions of barrels of crude oil, direct from the well, have been burned for "fuel oil" you will realize the tremendous economic loss sustained through failure to remove these more valuable products before using the less valuable for fuel. 92 THE PETROLEUM INDUSTRY There are three types of oil refineries : 1 — Skimming plants 2 — Lubricating and wax plants 3 — Complete run down refineries Fig. 42 shows graphically the scope of work of each of these refineries. The slamming plant starts with crude oil and gets from it gasoline, kerosene, gas oil and fuel oil. The lubricating and wax plant starts with crude oil and gets from it the same pro- ducts as the skimming plant and in addition breaks up the fuel oil into equal parts of paraffin distillate and cylinder stock. The paraffin distillate is broken up into lubricating oils and paraffin wax while the cylinder stock is sold. The complete run down re- finery starts with crude oil and makes all of the products that the skimming plant and the lubri- cating and wax plant make and in addition makes bright stock and petrolatum, from which many more products are made. The simplest proposition, and the one requiring the least investment of capital, is naturally the skimming plant which yields four products. The lubricating and wax plant requires a much larger investment and yields a larger line of products, while the complete run down refinery could probably 93 THE PETROLEUM INDUSTRY 94 THE PETROLEUM INDUSTRY not be built to operate economically for less than a half-million dollars, the average investments run- ning from one to five million dollars, or more. These three types of refineries are the results of different purposes of different refiners as to the products they want to get from crude oil for the class of people they intend to serve. Thus the same general principle prevails in the refining business that prevails, for example, in the iron business w^here different manufacturers make different metal products from the same iron ore. It is a well known fact in the iron industry that after ore is brought to the surface its later treatment is almost entirely a question of chemistry and engi- neering — and it should be as universally known that after crude oil is brought to the surface its usefulness to mankind as well as its profitableness to investors in refinery securities is largely a ques- tion of chemistry plus sound business policies and principles. If the market for crude oil is "low" the com- panies with plenty of storage fill their tanks with "cheap oil", but before running it into storage they "top" it by removing the lightest fractions (mostly gasoline), much of which would evaporate if left in 95 THE PETROLEUM INDUSTRY storage for several months. Plants specially de- signed for this work are called "topping" plants. From 1912 to 1920 the annual production of petroleum in the United States doubled — but the production of automobiles and motor trucks in- creased six times, as shown in Table 10. This rep- resents one of the many conditions in our rapid in- dustrial development which has made necesssary Table 10 — Growth in production of peti^oleum, gasoline and motor vehicles: Petroleum Gasoline Automobiles & lear Barrels Gallons Motor Trucks 1912 222,000,000 1,008,000,000 378,000 1913 248,000,000 1,260,000,000 485,000 1914 265,000,000 1,512,000,000 569,000 1915 281,000,000 1,764,000,000 892,000 1916 300,000,000 2,058,000,000 1,583,000 1917 335,000,000 2,850,000,000 l,868,00a 1918 355,000,000 3,570,000,000 1,153,000 1919 377,000,000 3,957,000,000 1,974,000 1920 443,0011,000 4,870,000,000 2,241,000 Note — In 1904 the yield of gasoline luas 10.3 per cent of the crude oil run to refineries, ivhereas in 1920 the yield ivas 26.2 per cent. 96 Figure 43 — The rear end of a fire still, showing the "vapor lines" leadng- to the cooling tanks. The engines in the pump house pump the crude oil from the crude oil storage tanks to the stills, as well as the different fractions, from one part of the plant to another, and finally, as finished products, into the usual transporter*, the tank car. THE PETROLEUM INDUSTRY Table 11-A — Growth in capacity of cracking plant stills: Year Cracked gasoline, gallons 1913 42,000,000 1911 126,000,000 1915 168,000,000 191^ 252,000,000 1917 378,000,000 1918 756,000,000 Table 11-B — Growth in production of casing- head gasoline, from both compression and ab- sorption plants: Gasoline Produced Per Gallon Year Plants Gallons Value Cents 1911 176 7,425,839 $ 531,704 7.16 1912 250 12,081,179 1,157,476 9.6 1913 341 24,060,817 2,458,443 10.22 1914 386 42,652,632 3,105,909 7.28 1915 414 65,364,665 5,150,823 7.88 1916 596 103,492,689 14,331,148 13.85 1917 886 217,884,104 40,188,956 18.45 1918 1,004 282,535,550 50,363,535 17.8 97 THE PETROLEUM INDUSTRY the "cracking plant" type of refinery. The crack- ing process consists of the re-distillation of heavy distillates in high-pressure, high-temperature stills for the primary purpose of getting an additional amount of gasoline from them; hence a skimming plant or a lubricating and wax plant or a complete refinery might each have a battery of "cracking stills." Table 11-A shows the growth in capacity of cracking plant stills in the United States — but it must be remembered that every year's crude oil production sets the limit on the maximum amount of distillates that can be cracked, and that there is a limit beyond which no chemist can go in obtain- ing gasoline from petroleum. While several cracking processses are now in use nearly all of the cracked gasoline is made today by the Burton process invented by Dr. Burton, President of the Standard Oil Company of Indiana. Thia process is leased to certain other companies, principally of the Standard Oil "group". The question of continuing to obtain sufficient gasoline to meet our rapidly expanding needs has become so serious that the International Associa- tion of Recognized Automobile Clubs offered a 98 THE PETROLEUM INDUSTRY prize of $100,000 for a gasoline substitute to cost less than gasoline. Crude oil is usually divided into two kinds: 1 — Paraffin base 2 — Asphalt base The paraffin base crudes are the "light" crudes, while the asphalt base crudes are the "heavy" crudes. The crude oil of Pennsylvania is paraffin base hence the making of illuminating oil and "wax" candles sprang up early in that territory. The par- affin base crudes also contain larger percentages of gasoline and naphtha than the heavy crudes, hence the price of crude oil at any given time varies wide- ly over the United States and may range from 50 cents to $6.00 a barrel. This variation is due to a number of factors, the most important of which is the percentage of the more valuable products that can be refined from the different kinds of crude. By referring to Table 1 you will see that in 1920 Appalachain crude averaged about $5.50 a bar- rel, Illinois crude about $4.00, Mid-Continent crude about $3.50, Gulf Coast crude about $2.40 and Cali- fornia cru'de about $1.85. While the old saying is true, that "no two crudes are alike," yet the oil 99 THE PETROLEUM INDUSTRY Table 12 ■ — Petroleuyn products for the year 1920 : Gasoline 4,882,000,000 gallons Kerosene 2,320,000,000 gallons Gas and Fuel oils 8,861,000,000 gallons Lubricating oils 1,046,000,000 gallons Paraffin wax 541,000,000 pounds Coke 576,000 tons Asphalt 1,290,000 tons Miscellaneous 1,492,000,000 gallons The principal items making up the "Miscella- neous" item above are as follows: Gallons Distillates 787,000,000 Tops 107,(700,000 Road oil 60,000,000 Flux 34,000,000 Sludge 19,000,000 Petrolatum 6,000,000 Tailings 5,000,000 Acid oil 5,000,000 Tar 4,000,000 Wax tailings 3,000,000 Medicinal oils 1,000,000 Some of the remaining items are pitch, paint products, roofer's wax, binder, mineral turpentine — the complete list would contain about 300 items. 100 THE PETROLEUM INDUSTRY from the wells and pools in the same fields are sufficiently similar to be classed as either paraf- fin base or asphalt base, although there are a few- instances where they are "mixed base." By a broad general classification Eastern, Mid Continent and Rocky Mountain crudes are paraffin base, while California, Gulf Coast and Mexican crudes are as- phalt base. The heavy crudes produce little gaso- line except by cracking, but they yield large amounts of lubricating oils, asphalt, tar and coke. In 1920 the United States produced 443,000,- 000 barrels of crude oil and during the same year her refineries turned out the products shown in Table 12. To an English chemist, James Young, is due the credit for working out the process of refining crude oil. While serving as industrial chemist to a firm in Manchester, England, his attention was called by Lord Playfair to a thick, viscous liquid which was oozing from a coal mine at Alfreton in Derbyshire. Young found it to be crude petroleum and succeeded in distilling paraffin (illuminating oil) from it. He left Manchester, built a small refinery near the mine and began producing illuminating oil which was then the only commercial use made of petrole- 101 THE PETROLEUM INDUSTRY um. At the end of two years his supply of crude oil failed, but in that time he had perfected his refining process and in 1850 took out his famous patent for the distillation of paraffin (illuminating oil) from petroleum. Young's discovery of the refining proc- ess in England compares in importance with Drake's drilling the first oil well in America. January 1, 1921 there were 415 refineries in the United States with a combined capacity of 1,888,000 barrels of crude oil a day. In 1920 the United States produced 443,000,000 barrels of crude oil within its own borders and, in addition to re- fining its own crude, refined 61,000,000 barrels of crude oil and 2,000,000 barrels of "tops" from Mex- ico. The total oil available for refining in 1920 was therefore about 506,000,000 barrels, or an average of 1,386,000 barrels a day. This gives an excess of 502,000 barrels of daily refining capacity over the daily production. This excess capacity is not evenly distributed over the United States however, some districts being over-built while others are under- built — with the same effect in each instance that would follow similar conditions in any other indus- try. 102 THE PETROLEUM INDUSTRY Texas has the most refineries, 70, with a daily combined capacity of 330,000 barrels; Oklahoma comes next with 68 refineries and 248,000 barrels capacity; then Pennsylvania with 51 and 116,000 barrels and California with 39 and 312,000 barrels. While New Jersey has but 7 refineries they have a daily capacity of 215,000 barrels. It has been estimated that in 1919 the refiner- ies of the Standard Oil "group" consumed over 51 per cent of the crude oil which was refined in the United States that year. The "independent" re- fining companies, each of which consumed over 1,000,000 barrels of crude oil in 1919 were: American Oilfields Company American Petroleum Company Cosden & Company General Petroleum Corporation Gulf Refining Company Indiana Refining Company Midwest Refining Company National Refining Company Ohio Cities Gas Company Roxana Petroleum Company Shaffer Oil & Refining Company Sinclair Refining Company Sun Company Texas Company Tidewater Oil Company Union Oil Co. of California 103 THE PETROLEUM INDUSTRY The 16 independents listed above consumed, in 1919, over 31 per cent of the crude oil refined. As the Standard Oil group and the 16 independ- ents together consumed about 83 per cent of the crude oir refined in the United States in 1919 it is apparent that the bulk of the refining business in the United States is in the hands of corporations with large finar ial resources. It is equally obvious that the hope of the small refiner lies in the direction of availing himself of those outside sources of service which will put him on a competitive basis with the large refiners. No story of the petroleum industry would be either complete or just that did not give full credit for the splendid work of the United States Geologi- cal Survey, the United States Bureau of Mines and the 'Geological Surveys of the various states, as well as tHe work that has been done by many of our uni- versities. The American Petroleum Institute, or- ganized in 1919, recently created the department of Technical Research and Dr. Van H. Manning, for years Director of the United States Bureau of Mines, resigned to accept the position of Director of this work for the Institute. The Bureau of Mines was established in 1910 and outside of Washington, D. C., there are 10 "sta- 104 S 2 c ?* C 3 =* tM __ -H 3 &,« 3 5 b£ n I— . tn C.2 S.2 a> 2:i C v^ ^ +^ O "3 *• ?i e ^ o s- <3; o C3 +-> 3 C rt o p; t(H >-' > t«v^ > O) o) is oj o 3 THE PETROLEUM INDUSTRY tions" scattered throughout the United States, each station specializing in some department of the mining industry. In 1917 the Bartlesville (Okla- homa) station was established. The work of this station is confined exclusive- ly to oil and gas. Their chemists and technologists are working along the lines of improvements in the drilling and casing of wells, causes of water trou- bles and their abatement, capacities and character- istics of oil and gas sands, losses of oil in storage, prevention of v/aste at refineries, etc. Their field investigations are combined with laboratory re- search work and cover every b^ranch of the industry in every part of the country. The importance and value to the petroleum industry of the work of the Bartlesville station can be better appreciated by a few specific instances of money saved, and what it cost to save it: "Walters Field, Oklahoma, 1919.— Cost of Wal- ters work, six months time of two men, and field ex- penses, $2,500. Five wells drilled at recommendations of the Bureau of Mines by one company on lands hereto- fore thought unproductive yielded an initial daily production of 600 bbls. 105 THE PETROLEUM INDUSTRY Production first month, approximately 2,000 bbls. Value of oil first month, $42,000. Hewitt Field, Oklahoma, 1920. — In addition to solving innumei'able operating proKems, the Bureau of Mines, through its recommendations: (1) Saved one operator casing worth $5,500 by advice on water problems in his well. (2) Enabled operator to save 7i/^ million feet of gas per day and produce 350 barrels of clean oil per day from the same well. (3) Caused operator to discover deeper sand, good for 200 barrels, on one property. (4) Raised settled production 150 barrels per day on one 40-acre lease by proper handling of wells. In addition, drilling against the advice of Bu- reau of Mines engineers cost operators a total of 40 dry holes worth $250,000. Cost of investigation: Two men, six months, and field expenses, $4,300. Cushing Field, Oklahoma, 1917j — Total year's appropriation for supervisory work of Indian lands, $17,500. Actual cost of this particular piece of work for shutting off bottom water in oil wells: Salary of 106 THE PETROLEUM INDUSTRY one man, six months, $1,250 ; expenses, six months, $720; total cost of this job, $1,970. The Bureau engineers demonstrated the possi- bilities of shutting off bottom water by the use of cement. Operators co-operated, and figures collect- ed by B. H. Scott show an increase in oil production resulting from this work of 4,304 barrels per day. Value of oil estimated as worth 4,304 x 365 days X $2.50 per barrel (field price) equals $3,^27,- 400 first year. Production will not continue at same rate, but if savings are decreased by 50 per cent they still amounted to almost $^2,000,000 in one year. Mid-Continent. — Installation of "tail absorbers" on six casinghead gasoline plants increased output 600,000 gallons during 1920. At least 12 other plants have installed or are installing these absorb- ers, and the value of gasoline shown below indi- cates the value of a product which would have oth- erwise gone to waste and from six plants only, and does not indicate the value of this equipment for future years. Cost of this work, about $3,000. Value of gasoline saved during 1920 in the six plants of which record is available, $125,000. 107 THE PETROLEUM INDUSTRY Wyoming. — In Lance Creek field, in Wyoming, the Bureau of Mines engineers repaired one weU which had been given up by the owners. A compli- cated repair job obtained the following results on the one well: Initial daily production after being repaired, 700 barrels. Value of first month's production, $42,180. Actual cost of the work not more than $2,000. Oklahoma. — A method was developed in the laboratory at the Bartlesville station for treating casinghead gasoline so that it will pass the ''doctor test" and thus render it available for export. The process is now being installed by at least two cotm- panies in Oklahoma, one company reporting that they can obtain 3 cents more per gallon for their gasoline than would otherwise be possible. This company has a production of 250,000 gallons month- ly, which will mean an increased income of approxi- mately $7,500 per month." — From "Oil and Gas Journal," Tulsa, Oklahoma — issue of February 4, 1921. Because of enormous wastes frequently found in the producing and refining ends of many oil com- panies, as illustrated by the work of the Bartlesville 108 THE PETROLEUM INDUSTRY station, as well as enormous wastes resulting from mismanagement, especially of most oil companies launched by novices, the business or profession of Petroleum Engineering has been evolved during re- cent years. The field covered by commercial Petro- leum Engineering is broader however than that of the Bureau of Mines as it includes examinations of oil and gas properties, appraisals and consultations on all phases of the industry and in many instances includes the actual management of properties for the owners, whether individuals or corporations. Obviously these phases of the work could not be included in the field covered by either the Bureau of Mines or the Geological Surveys of either the national government or the various states. That the work of the Petroleum Engineer is extremely profitable to his clients owning oil or gas properties is very apparent — while at the same time the Engi- neer becomes thoroughly familiar with every detail of scores of properties operating under almost every different condition possible, thereby broaden- ing his experience and securing a training far more valuable than that of any group of oil men whose efforts are confined to handling the affairs of one company. 109 CHAPTER VII MARKETING Marketing of petroleum products begins at the hundreds of refineries in the United States and ends in millions of homes and businesses in every country on the globe. Regardless of the product, it must reach the ultimate consumer in a can, car, carboy, carton, bot- tle, box, drum or other container that is acceptable to the consumer and at a fair price. When seeking world markets the racial characteristics of each peo- ple served, their stage of development, their trans- portation facilities and a thousand and one other things — even to the color of the wrapping paper on the package — must be known in advance. The electric light forced kerosene to hunt new markets — and among the numerous manufacturers of kerosene, one developed a market in China by selling "coal oil" lamps to the natives at a price said to have been less than cost. 110 THE PETROLEUM INDUSTRY Thirty years ago, with no automobiles, it was a problem to find a market for gasoline — the internal combustion engine was the answer. And without gasoline no one can say how long the coming of the automobile, motor truck, farm tractor and aeroplane would have been delayed. The growing demand for gasoline has been be- yond the capacity of new oil wells to supply — the casinghead gasoline plant and the "cracking" proc- ess in refining are the answers. Through 60 years the petroleum industry has been a "see-saw" between a product looking for a market and a market looking for more of the pro- duct. "Sufficient unto the generation is the in- ventive genius thereof." The United States is producing annually about two-thirds of the crude oil of the world and consum- ing it in about the same proportion. The value of the crude oil produced in the United States in 1920 has been estimated at $i;360,000,000— the value of the refined products made from it was about twice that amount. Practically every industry in the United States, every business, every profession, every home, every individual is reached by one or more of the products of petroleum. Ill THE PETROLEUM INDUSTRY This gigantic marketing organization that reaches into probably 20,000,000 homes in the United States and other millions in other lands is both the answer to and the call for more crude oil. As there are today in the United States more than 8,500,000 motor vehicles the distribution of the great bulk of petroleum products has naturally become a part of the "service" end of the automo- bile industry — hence the filling station, the garage, the supply store, and the car and truck agency, each with its "line" of gasoline, lubricating oils and greases. The filling station in our large cities has be- come architecturally "a thing of beauty" — and an- other evidence of the wonderful changes that the "motorizing of the world" is working in our lives. In one form or another crude oil is found in hundreds of articles dispensed in our drug stores. The comer grocery sells the lamp and the oil as well as the paraffin "wax" candle and the cake of paraf- fin for either ironing or canning day. Except coal gas and coke gas, all of our illumin- ating and heating gas comes either directly or indi- rectly from crude oil, so the problem of marketing its gas assulmes large proportions. Gas companies 112 THE PETROLEUM INDUSTRY are classed as public utilities and found in practic- ally every city in the land, with plant investments aggregating millions of dollars and ranking with Electric Light and Street Car Companiess. The first exportation of refined oil, 40 barrels, was made in 1861 to Antwerp, Belgium. Table 13 shows in round numbers the amount of petroleum and petroleum products shipped to foreign coun- tries in 1918. The principal countries to which these Table 13 — Exports of petroleum products, 1918: Gallons Value Crude Qil 205,000,000 $ 12,000,000 Gasoline and Naptha 559,000,000 139,000,000 Illuminating Oil 491,000,000 50,000,000 Lubricating Oils and Paraffin 257,000,000 75,000,000 Gas and Fuel Oils 1,200,000,000 66,000,000 Residuum 244,000 14,000 Total 2,712,244,000 $342,014,000 products were shipped were: Canada, Mexico, Pan- ama, Cuba, Chili, Argentine, Brazil, West Indies, United Kingdom, France, Spain, Netherlands, Italy, 113 THE PETROLEUM INDUSTRY Sweden, Denmark, Philippines, Dutch East Indies, China, Japan, British India, British Africa, British Oceanica — and from there to the "four corners of the world." As the Standard Oil Company developed, it dis- tributed its transporting-, refining and marketing among its different companies. Some were strict- ly pipe line companies, others strictly refiners, while others combined these activities with marketing; but as a great organization it was essentially not a producer of crude oil. The Standard Oil Company of Ohio was organ- ized in 1870 under the laws of Ohio and was the orig- inal Standard Oil Company. The Cleveland Refining Works is probably the oldest complete refining plant in the Unfted States and is the pioneer for producing lubricating oils and paraffin products. From this original company there developed the giant organi- zation which was dissolved by order of the United States Supreme Court in 1911. The companies which made up the old organization are today re- ferred to, for convenience only, as the Standard Oil "group" — and because, for a generation, they repre- sented the greater part of the American petroleum industry, their capitalization and assets are shown 114 Table 14 — The Standard Oil group. PRODUCING COMPANIES Capitalization Assets Year Ohio Oil Company $15,000,000 $81,710,056 1919 Prairie Oil and Gas Company 20,000,000 117,955,760 1918 South Penn Oil Company. . 20,000,000 36,283,022 1919 Washington Oil Company . . 100,000 201,048 1919 Total $55,100,000 $236,150,386 PIPE LINES AND CARRIERS Buckeye Pipe Line Co. ...$ 10,000,000 $ 26,273,668 1919 Crescent Pipe Line Co. ... 33,000,000 3,469,660 1919 Cumberland Pipe Line Co. 1,500,000 4,167,684 1919 Eureka Pipe Line Co 5,000,000 12,276,317 1919 Illinois Pipe Line Co 20,000,000 22,949,719 1919 Indiana Pipe Line Co 5,000,000 10,855,349 1919 National Transit Co 6,362,500 17,005,844 1919 New York Transit Co 5,000,000 13,407,102 1919 Northern Pipe Line Co. .. 4,000,000 6,506,420 1919 Prairie Pipe Line Co 27,000,000 55,497,366 1918 Southern Pipe Line Co. ... 10,000,000 14,001,521 1919 South West Penn P. L. Co. 3,500,000 5,484,218 1919 Union Tank Car Co 24,000,000 24,521,815 1918 Total $124,362,500 $216,416,683 REFINERS AND MARKETERS Anglo-American $ 14,520,000 $ 55,682,640 1918 Atlantic Refining Co. . . 70,000,000 95,400,893 1919 Borne-Scrymser Co. ... 200,000 (not available) Chesebrough Mfg. Co. . 2,500,000 3,508,433 1919 Continental Oil Co 12,000,000 13,867,690 1919 Galena-Signal Oil Co. . . 32,000,000 30,723,508 1919 Solar Refining Co 2,000,000 7,906,206 1919 S. O. of California . . . 100,000,000 174,317,551 1919 S. 0. of Indiana 100,000,000 154,672,024 1919 S. O. of Kansas 2,000,000 9,640,017 1919 S. O. of Kentucky . . . 6,000,000 16,950,785 1919 S. O. of Nebraska . . . 5,000,000 5,344,933 1919 S. O. of New Jersey . . 300,000,000 853,360,598 1919 S. O. of New York . . . 75,000,000 299,592,590 1919 S. O. of Ohio 21,000,000 28,203,897 1919 Swan and Finch 2,000,000 2,584,593 1918 Vacuum Oil Company . . 15,000,000 75,619,536 1919 Total $759,220,000 $1,827,375,894 Total assets $2,279,942,963 Total capitalization 938,Q82,500 Excess of assets over capitalization. .$1,341,260,463 115 THE PETROLEUM INDUSTRY in Table 14. The capitalization shown is "author- ized" capitalization, although in many instances the capital stock actually outstanding is substantially less than the authorized amount — for example, the authorized amount for the Standard Oil of Indiana is $100,000,000, while in 1919 only $30,000,000 was outstanding as against over $154,000,000 of assets. The grouping into the three classes is only roughly accurate, as for example, the Standard Oil of Cali- fornia, while classified as a refiner and marketer, is also a large producer as well as a transporter of crude oil. The enormous assets of the Standard Oil of New Jersey are largely due to the great number of its subsidiary companies, not only in this country but in many foreign lands. Among its subsidiaries in the United States are the Standard Oil of Louis- iana, the Carter Oil Co. and the Humble Oil and Re- fining Company. These companies are producers and control over 2,500,000 acres of oil and gas leases in the Appalachian, Mid Continent and Gulf Coast regions with a developed production of about 75,000 barrels a day, as of June 1, 1920. In Mexico it operates through the Transconti- nental Petroleum Company which is a large pro- 116 THE PETROLEUM INDUSTRY ducer. In Peru, South America, it is connected with the International Petroleum Company, also pro- ducers. In the West Indies, Central and South America its marketing is done through the Standard Oil Company of Brazil and the West India Oil Com- pany. Refining is done by the West India Refining Company. The European marketing is done through the American Petroleum Co. which distributes Stand- ard Oil products in Holland and Belgium; the Bed- ford Petroleum Co. distributes in France, Belgium, Holland, Spain, Italy and Switzerland; the Det Danske Petroleums Atkieskab in Norway, Sweden, Denmark and Iceland ; the Roumania-Americano in Roumania ; the Societa Italo-Americana Pel Petrolio in Italy, Algiers, Tunis, Malta and Tripoli. The other 16 refining and marketing companies ii>- cluded in this group, distribute their products into every corner of this country and into every foreign land where petroleum products are used. The "Sales Organizations" that have been built up, especially in recent years, by all of the distribu- tors of refined products — and there are hundreds of them — are marvels of effectiveness in not only sup- plying the demand but in creating demand in new 117 THE PETROLEUM INDUSTRY fields. Probably no other industry is so thoroughly organized today in the matter of a world-wide dis- tribution of so broad a line of products. By confining its early efforts largely to pipe lines, refining and marketing the old Standard Oil Company earned large profits which increased with the growth of the industry. Up to the time of its dissolution in 1911 these profits were distributed to its shareholders with extreme liberality. Since that time the companies referred to as the Standard Oil group have followed the dividend policy of the orig- inal company, and from 1912 to a date averaging June, 1920 — or approximately eight and a half years — these companies, listed in Table 14, paid to their shareholders, in cash dividends, over $750,000,000. In addition to this enormous amount paid to the shareholders in cash, a large part of the increase in capitalization of these companies has been through the payment of stock dividends; part of it has cotme from allowing the old shareholders to pur- chase additional stock, usually at par, although the market price has usually been far above par; the remainder has been sold to the public at the market price. 118 THE PETROLEUM INDUSTRY The profits earned by these companies have been enormous — and the management's poHcy to- ward the shareholders has been most liberal and satisfactory. The accusation of "watered stock," often made and always true with get-rich-quick pro- motions, certainly does not apply to these com- panies as will be seen by referring to Table 14 : from the excess of total assets over total capitalization these companies could pay stock dividends aggre- gating One Billion Dollars and the book value of their stock would still be above par. While the companies listed in Table 14 would, if combined, make the largest organization in the pe- troleum industry, many large so-called "independ- ents" have grown up in recent years whose produc- tion surpasses that of any member of the so-called "group." 119 CHAPTER VIII GAS AND GASOLINE Gas, as related to the petroleum industry, is of two kinds : artificial and natural. The artificial gas manufactured in the United States is of four kinds : 1 — Coal gas 2 — Coke gas 3 — Carburetted water gas 4 — Oil gas The manufacture of neither coal gas nor coke gas utilizes petroleum, hence they will not be dis- cussed in this book. Carburetted water gas is derived from the treatment, at high temperatures, of anthracite coal into the vapor of which while passing through the carburetor, gas oil or fuel oil is sprayed, thereby adding any desired heat value or candle power to the blue water gas. The oil gas process is confined largely to the Pacific Coast states where comparatively cheap oil and expensive coal make the other processes less 120 THE PETROLEUM INDUSTRY feasible. On the other hand, east of the Rocky Moun- tains where coal is comparatively cheap and oil ex- pensive, the coal, coke and carburetted water gas processes practically monopolize the artificial gas market. Much of the artificial gas manufactured is utilized at the plants in which it is produced, there- fore the data in Table 15 represent gas sales, not production. Table 15 — Production of artificial gas in the United States, 1918 : Aver, price per 1000 Kind Cubic feet Value cu. ft. Coal gas 42,630,000,000 $ 43,000,000 $1.01 Water gas 175,431,000,000 156,000,000 .90 Oil gas 14,100,000,000 13,000,000 .92 Coke gas 158,358,000,000 13,000,000 .09 390,519,000,000 $225,000,000 .58 At the end of 1918 there were 40,369 wells pro- ducing natural gas in the United States. During 1918 there were 5,316 wells drilled for gas, of which 3,808 or 72 per cent came in gas while 1,508 or 28 per cent were dry. The total production of natural gas (from gas wells) for 1918, as shown in Table 16, amounted to 121 THE PETROLEUM INDUSTRY 721,000,000,000 (Seven Hundred and Twenty One Billion) cubic feet, for which the consumers paid over $153,000,000 or about 21 cents per 1,000 cubic feet. Of both artificial gas and natural gas the United States consumed, in 1918, over Oyie T^^illion One Hundred and, Eleven Billion cubic feet, for which they paid $378,000,000 or an average of 34 cents per 1,000 cubic feet. In order to ''see" this enormous quantity of gas imagine it filling a pipe 12 inches in diameter and 267,000 miles long. The first discovery of natural gas in the United States, by drilling, resulted from the drilling of brine wells in Ohio and West Virginia about a cent- ury ago. Rufus Stone, of McConnelsville, in the Morgan salt well field, accidentally drilled one of the early natural gas wells while drilling for a salt well. He was disgusted with the gas, but Captain Henry Stull showed him how to burn it to evaporate the salt water to make the salt, which process was con- tinued for many years. The first commercial use of natural gas for lighting purposes was at Fredonia, New York, in 1826. About a hundred lights were connected up, 122 THE PETROLEUM INDUSTRY Table 16 — Production of natural (dry) gas in the United States, 1918 : Average price in cents per Volume in 1000 cu. State cubic feet Value feet West Virginia.. 265,160,917,000 $41,324,365 15.58 Oklahoma 124,317,179,000 15,805,135 12.71 Pennsylvania ..123,813,358,000 38,608,883 31.18 Ohio 61,261,069,000 24,234,741 39.55 California 39,718,941,000 7,951,666 20.01 Louisiana 36,094,132,000 4,912,235 13.60 Kansas 27,824,641,000 6,640,781 23.86 Texas 13,439,624,000 5,027,449 37.40 New York 8,460,583,000 5,673,13167.05 Arkansas 5,294,663,000 575,115 10.86 Illinois 4,473,018,000 620,949 13.88 Wyoming 4,338,840,000 156,171 3.59 Kentucky 3,022,439,000 665,843 22.03 Tennessee 1,826,725,000 361,140 19.76 Indiana 1,666,822,000 899,671 53.97 Montana 177,039,000 62,148 35.10 South Dakota... 42,186,000 19,109 45.29 Maryland, Utah, Washington . . 25,916,000 2,700 10.41 Missouri 22,120,000 5,548 25.08 Colorado 10,103,000 2,575 25.48 Alabama 4,600,000 1,890 41.08 Oregon 2,200,000 550 25.00 Iowa 1,758,000 245 13.93 Michigan 1,173,000 1,045 89.08 North Dakota... 913,000 475 52.02 721,000,959,000 153,553,560 21.29 123 THE PETROLEUM INDUSTRY the consumers paying $1.50 per light per year. It was not until 1872 however that a town was actually piped for natural gas for domestic use — and by a strange coincidence that town was Titusville, Pa. The gas was delivered through a two-inch pipe from the Newton well, about 5 miles north of Titusville. From this small beginning the natural (dry) gas in- dustry had spread up to 1918 to 2,508,000 domestic consumers who used 271,000,000,000 cubic feet, while 16,581 industrial establishments used 450,- 000,000,000 cubic feet. The term natural gas includes both dry gas from gas wells and wet gas from oil wells, although it is common practice to call dry gas natural gas and wet gas casinghead gas. In 1917 the United States spent $142,000,000 for natural (dry) gas for heating and hghting pur- poses and the same year there was extracted from natural (dry) gas $9,000,000 worth of casinghead gasoline, making a total of $151,000,000 for heat, light and power from natural (dry) gas. The heat- ing and lighting value of dry gas is not noticeably impaired by the removal of the gasoline content. The chemical element, Helium, was discovered by the astronomer Lockyear in 1869 while making 124 THE PETROLEUM INDUSTRY same investigations in connection with the incandes- cent gaseous atmosphere of the sun and as no known element in the earth compared with it he numbered it "D3" and called it Helium. About 1890 Sir Wil- liam Ramsey, the discoverer of Argon, while looking for new sources from which to obtain it, accidentally found Helium, the first time it was known to exist on the earth. Up to 1917 probably not more than 100 cubic feet had been found, the price being $1,700 a cubic foot. Next to Hydrogen, the lightest known gas is Helium, but while Hydrogen is highly in- flammable. Helium so far as is known cannot be burned, hence it makes an ideal substance for dirigi- ble balloons. Later investigations by the Bureau of Mines revealed Helium in the natural (dry) gas of the Mid Continent field and under the spur of the war two plants to obtain Helium from natural gas were built at Fort Worth, Texas. They used 20,000,- 000 cubic feet of natural gas a day and by Septem- ber, 1918, the first plant was producing 5,000 cubic feet of Helium a day of 93 per cent purity. A plant is now under construction capable of producing at least 50,000 cubic feet of Helium a day — at a cost of not more than 10 cents a cubic foot. 125 THE PETROLEUM INDUSTRY Gasoline is derived today from three sources and by four processes : Sources Processes Crude oil Complete refinery Cracking plant Dry gas Absorption plant Wet gas Compression plant The manufacture of gasoline by the complete refinery and by the cracking process were described in the chapter on Refining, but as gasoline is so vital to our industrial and economic life, and as its value is almost equal to that of all other petroleum prod- ucts combined, the entire subject will be treated in this chapter. Gasoline made by the distillation of crude oil in straight run (complete) refineries is called straight run gasoline and for many years was the only kind of gasoline manufactured. Many users today insist on straight run gasoline and feel that other kinds are inferior substitutes. It is a fact, however, that the greater part of the gasoline marketed today is blended, and this is especially true in some sections of the country. Most of the blended gasolines are preferable to the straight run products particularly if the added part is casinghead gasoline. Blends 126 THE PETROLEUM INDUSTRY containing casinghead gasoline contain larger per- centages of low boiling (lighter) fractions than do straight run gasolines of the same end point, and because of this fact possess more "kick," or starting qualities, making them particularly desirable for use in cold weather. Table 17 — Gasoline produced in 1917 : Process Barrels Straight run 54,000,000 Cracked 9,000,000 Compression plants (Wet) 4,024,000 Absorption plants (Dry) 1,167,000 Total 68,191,000 Production of crude oil : 19K— 281,000,000 Barrels 1920—443,000,000 Barrels— increase 57% Production of gasoline: 1915—65,000,000 Barrels 1920—128,000,000 Barrels — increase 95% Cracked gasoline is manufactured chiefly by re- fineries that control large supplies of straight run gasoline and casinghead gasoline. Cracked gasoline is usually blended with casinghead gasoline, thereby 127 THE PETROLEUM INDUSTRY producing a product equal at least to straight run. Possibly because of a more or less comimon ori- gin millions of years ago, crude oil and natural gas have a striking affinity for each other. While con- fined in the oil sands under heavy pressure, hun- dreds or thousands of feet below^ the surface of the earth, the crude oil absorbed most of the gas while the gas in turn absorbed some of the "lighter" frac- tions (principally gasoline) of the crude oil. When the drill reaches the oil sand and the pressure is released, the crude oil in reaching the surface carries with it more or less of the gas, de- pending upon the pressure. When the crude oil reaches the flow tanks the gas separates from the oil and escapes into the air. Now to return to the crude oil and gas, still in the sand : while a large portion of the gas was ab- sorbed by the crude oil, as just described, the unab- sorbed part of the gas absorbs some of the volatile fractions of the crude oil, gasoline being the most important. Therefore at the same time that the crude oil and gasi flow to the surface, inside the tubing, the unabsorbed gas containing gasoline vapor flows to the surface between the tubing and the casing. For years this has been wasting into the air at the 128 jZ (m Ui q; THE PETROLEUM INDUSTRY head of the casing, hence called "casinghead gas". Millions of dollars worth of gasoline, that might have been recovered from the surface of flow tanks and from the heads of well casings have for years been wasting into the air, and only in recent years have casinghead gasoline plants been developed that would recover this "invisible waste." The difference between gasoline made from either dry gas from gas wells or wet gas from oil wells, and gasoline made from crude oil is due to the fact that while crude oil is still in the ground the gas that is always associated with it, in greater or less quantities, absorbs some of its lighter frac- tions, gasoline being the most important; the frac- tions remaining in the crude oil are heavier than the ones that are absorbed by the gas — and as the lighter- the fraction from which gasoline is made the greater the "kick" when used in your automobile, it naturally follows that gasoline made from either wet gas or dry gas is more volatile and has more "kick" than gasoline made from crude oil. Following the same line of reasoning dry gas, not having been in contact probably for centuries with crude oil, is "lean" in gasoline vapors and therefore will not yield as much gasoline per 1,000 129 THE PETROLEUM INDUSTRY cubic feet as wet gas which remains in contact with tihe crude oil. In proof of these obvious facts the data for 1917 show that 79,527,000,000 cubic feet of wet gas produced 168,000,000 gallons of gasoline or an average of 2 gallons and one pint per 1,000 cubic feet, while 349,760,000,000 cubic feet of dry gas produced 49,000,000 gallons of gasoline or a little more than one pint to the 1,000 cubic feet. And it also follows that cracked gasoline is heavier than straight run, because the first distil- lation removes the greater part, and practically all of the lighter part of gasoline in the crude oil. The second distillation (cracking process) onust natur- ally yield a heavier gasoline. Therefore gasolines arranged according to their volatility, would assume the following order: 1 — Casinghead gasoline (From wet gas) 2 — Natural gas gasoline (From dry gas) 3 — Straight-run gasoline (From crude oil) 4 — Cracked gasoline (From gas oil) Casinghead gasoline (made from either wet gas or dry gas) is too rich, while cracked gasoline is too lean to be satisfactory for motor vehicle use. For this reason a blend of cracked gasoline with casing- 130 THE PETROLEUM INDUSTRY head gasoline gives a product equal at least to straight run — ^and one in which the amount of "kick" desired can be controlled by the person mak- ing the blend. In the first distillation of crude oil, crude naph- tha is the first fraction to vaporize, and wthen this is re-distilled it breaks up into naphtha, benzene and gasoline. Naphtha however lacks the low burning constituents essential to a good motor fuel while casinghead gasoline has too much — therefore a blend of naphtha and casinghead gasoline makes a high quality motor fuel. The 8,000,000 barrels of casinghead gasoline made in 1918 rendered at least an equal amount of naphtha available as motor fuel. There are at present two processes by which gasoline is obtained from natural gas : 1 — Compression and refrigeration process 2 — Absorption process When air is "saturated" with water vapor and the temperature falls, some of the water vapor changes to rain, snow, fog, dew or hail — and if gas is saturated with the vapor of gasoline and the temperature falls, the vapor of the gasoline changes to liquid gasoline. 131 bo -tJ a -(J I— 1 rt -tJ M c ci o hf) ,c cS ;-< ««-l o o (U -|j o w rt (U 03 C P< o 0} bo p; c« c o bo bo C8 « O be c ^ p. -S 132 THE PETROLEUM INDUSTRY When air is placed under sufficient pressure the water vapor it contains changes to water — and when gas saturated with the vapor of gasoline is placed under sufficient pressure the gasoline vapor it con- tains changes to liquid gasoline. As the temperature of the compressed gas increases as the compression increases, refrigeration must be used to hasten the condensation of the gasoline to liquid gasoline; hence this process is called the "compression and re- frigeration" process, and the plant is called a com- pression plant. The first gas cdmpression plants were built in the eastern oil fields about 1905, were extremely simple in design and would handle about 300,000 cubic feet of gas a day, yielding 4 to 6 gallons of gasoline per 1,000 cubic feet of gas. This gave a daily output of 1,200 to 1,800 gallons, or 30 to 45 barrels of gasoline. The profitable operation of the?" present type of compression plant is limited to wet gas containing not less than three-fourths of a gallon of gasoline to 1,000 cubic feet of gas. Therefore all wet gas containing less than this amount, as well as all dry gas, little of which ever approaches this amount, are excluded from treatment by the compression 133 THE PETROLEUM INDUSTRY HO CJ5 IS est- as a -to O s o a. 00 a o O >» M Eh 0) ^-N &J0 T-H OS ■ — ' >H TS a> > ^ < '>> -o 03 s a; s 4-> m 'o H > aJ 3 a > >> -4-> +-> c rt 3 O" ?^ >, -i-> *« '3 Q c3 ft c8 o 0) +-> c3 -t-> W 00lOCO(M(X>i-lt:>00 C500LOU300r-IT)c~T)*<3SOOOl>00 ,-ic Oi T-t C* 00 o ■* m CO 1-1 S 'S 3 o S . d 3 o 3 05 CD O CD CD CO CO 00 CS 00 bo CO «w o .S 03 i^ (D y :— >" -^ Ji .'•■i ."^ o 134 THE PETROLEUM INDUSTRY ? 2 ^^ < ■>. 13 0) OJ c3 S S ^ o > w >. -ij -(-) c c3 S > ^ -M O Q c3 o 0) ,£5 0) -M C8 -u CO o iniiMC5icocr>oo«coo (MCOOSOlOoOStHOC- ■r-lT-l(Mr-l»-li-l(MT-lOt- o o o o o o o o o o o o CO '-H "^ o o ^ o o t- CD 00 t-;^ lo o CO -^ T-i c^i oo t- Lc -^ (jT O o O O O O o O <^ O O o "^ o_ ^ Co" of tH lO CD CO 00 ^ ^ t~ C^ (M CO i-H^ C-^ O -^ U5 lO CJ 1—1 t~ CD C~ O CM '^ ^ CD -^ i-H Tj< OsOOlOOOOOO^O'^CiO T-'^Ct o 0) CO be (M c Cvj < 135 THE PETROLEUM INDUSTRY process which probably does not recover more than half of the total gasoline content in the wet gas. As the amount of dry gas (from gas wells) consumed in 1918 amounted to 721,000,000,000 cubic feet, and as not more than half of the gasoline was recovered from the wet gas (by the compres- sion process), it is obvious that there was a "field" for a new process — and the answer was the ab- sorption process. This consists essentially in bringing the gas (containing the vapor of gasoline) into contact with an oil heavier than gasoline. The oil absorbs the gasoline which is then separated from it by distilla- tion. This process may be varied by passing the gas through naphtha having a specific gravity of about 50 to 55 degrees Beaume, letting the naphtha absorb enough of the gasoline to produce a blended gasoline of the desired quality for commercial use. Probably the first large scale absorption plant, working under high pressure, was built by J. M. Saybolt at Hastings, West Virginia in 1913. By this process the gas bubbles up through a heavy petroleum distillate at high pressure, the distillate absorbing the gasoline vapor from the gas. This "mixture" is then sent to steam stills where the 136 Figure 49 — Topping- plant for removing only the lighter fractions from the crude oil. Figure 50 — Absorption plant; see towers on next page. Figure 51 — Absorption towers of plant shown in Figure 50. For extracting the gasoline from either casinghead (wet) gas from oil wells, or from natural (dry) gas from gas wells. They can recover as small an amount as one pint of gasoline in 1,000 cubic feet of natural gas. / 51 \ iff^fin CS « c 03 o ^ ^ s O CS o -° -c .2 ;= c ,—t +-> "^ CC O !« ni .5 (S U M S cj ITT ^ a; ?• ~- ^ o o i-( CO _ C3 '-'' ^ .= .S c 0) •r' 01 a* ' — ' Figure 53 — Tiger Mountain gas well ; when drilled in it made 22,000,000 cubic feet and when 6 years old was mak- ing 16,000,000 cubic feet. THE PETROLEUM INDUSTRY gasoline is separated from the distillate which is used over and over again. As first devised the absorption plant worked at high pressure only, but as improved today it works at all pressures and vacuums and as a result any gas, wet or dry, after treatment by it is almost "as dry as a bone," so far as containing any gasoline vapor is concerned. The present high efficiency of the absorption process has made it possible to recover the gasoline from the unliquified vapors, which during refining pass from the still through the cooling tank to the storage tank from which for years they have been wasting into the air. It is also possible to recover the gasoline from the vapors from flow tanks and storage tanks as well as the residual gases from casinghead gasoline plants working by the compression process. The gas from gas wells under high pressure is usually lean in gasoline content because at the high pressure in the gas sand the gasoline is too dense to escape except in very small amounts. As the well exhausts itself the gas grows richer in the gasoline vapor that it carries. 137 THE PETROLEUM INDUSTRY Today when a new oil well or gas well comes in, one of the early duties is to have a chemist test the gas for its "gasoline content". If the producing oil company does not have its own casinghead gasoline plant there are today, in almost all fields, companies that specialize in the manufacture of casinghead gasoline and are always in the market for gas from the gas it is necessary that the owners know how the gas it is necessary that the owners know how much gasoline it contains. As a practical illustration of one kind of "waste of invisible profits" that prevailed for many years in the oil business : the "XYZ Oil Company" brings in a 300-barrel well — crude oil is $2.00 a barrel — and their income is $B00 a day. In addition to the crude oil, their well is running 3,000,000 cubic feet of gas that shows on test that it contains a half -gallon of gasoline to the 1,000 cubic feet. A casinghead gasoline plant will recover 1,500 gallons (3,000 times V^ gallon) of gasoline from this well. At a whole- sale price of 15 cents a gallon the company's income from gasolfne sales would be $225 (1,500 times 15 cents) a day. And up to a few years ago the XYZ Company would have accepted the $600 a day for their oil and never have known of the "invisible 138 THE PETROLEUM INDUSTRY profits" of $225 a day that were wasting away into thin air. That this "invisible waste" can be stopped, and turned into profits available for dividends, is due to the work 61 chemists and specialists — and without work ofl:his kind there would have been no petro- leum industry, in the sense that we know it today. 189 CHAPTER IX ASSETS OF THE PETROLEUM INDUSTRY On August 27, 1859 there was just one oil well in the United States — since that time about 500,000 have been drilled, of which 258,600 were rated as producers on Oct. 31, 1920 as shown in Table 6. The statement that "more money has been put into oil than has ever been gotten out of it" is not true of the industry as a whole. Numerous in- stances could be cited however of individual com- panies that did put more money into oil than they ever got out — but this is equally true of every other business in the land. It is probably true that if it were possible to separate the producing end of the oil business from the remainder, and charge against the producing end the cost of drilling all of the wells, including the dry holes, ayid all of the money tvasted by all of the get-rich-quick oil promotions that have been floated, the total would be greater than the value of all of the crude oil, at the surface of the ground at UO THE PETROLEUM INDUSTRY the market price when produced. Within the last few years however the great improvements in ex- ploration work, in the location of test wells, in the proper casing of wells to prevent water encroach- ment into oil and gas sands, in the discovery of deeper sands, in the proper pumping of wells, etc. have placed the producing end of the oil business upon a very different basis than when the old "rule-of-thumb" methods prevailed. The transporting, refining and marketing ends of the business have not had to carry the stupen- dous burdens that have been loaded upon the shoul- ders of the producing end. In electrical language "it isn't the load, but the overload that destroys" — and this is true of the producing end of the oil business. Relieved of the burden of crooked pro- motions and the expensive mistakes of novices who never belonged in the business, the producing end of the petroleum industry would show handsome profits as is evidenced by the hundreds of well- managed, highly successful producing oil com- panies today. The transporting end of the business has been extremely profitable. The refining business has been profitable when in the hands of men whose techni- 141 THE PETROLEUM INDUSTRY cal training and practical experience qualified them to operate such plants. "Isolated'" refineries (those without fixed supplies of crude oil or dependable markets for refined products — and most of the "pro- moted" refineries have been of this kind) have us- ually fallen into the hands of other refineries or were re-organized by practical oil people — and put on a "de-hydrated" basis. Many refineries either own outright or control the policy of chains of distributing stations, there- by safeguarding the market for their products as well as safeguarding their profits. It is absolutely impossible to secure any re- liable statistics as to the cost of the early develop- ment of the petroleum industry. The industry had to be created — there were no established stand- ards to guide these oil pioneers in drilling wells, or casing them, or taking proper care of them, or building refineries, or operating them economically, to say nothing of frequent chaotic marketing con- ditions. All of the vast machinery of the industry had to be built, and the market had to be developed with the growing industry. Mistakes were made in every end of the industry — much money was wast- ed — much effort was wasted — and it would serve no 142 THE PETROLEUM INDUSTRY real purpose to know how much. This one fact re- mains: that from it all has emerged the petroleum industry as we know it today — and measured in terms, not of cost, hut of service to mmikind, it is amply worth the price. Disregarding capitalization, and considering only the "physical assets" of the four departments of the industry, a comparatively close estimate can be made of its "present worth" — and this, compared with an estimate of the market price of the refined products as represented by sales, establishes a working basis from which some general conclusions may be drawn. Most production is bought and sold by one or the other of two widely different standards: — 1 — On a "barrel-per-day" basis 2 — On an appraisal made by a firm of Pe- troleum Engineers. The principle involved in the first method is a unit price per barrel multiplied by the number of barrels per day. For example, the price agreed on is $1,500 per barrel and the well is producing 10 barrels per day : the market price of the well would be 10 times $1,500 or $15,000. The price per bar- rel varies with the price of crude oil, the age of the 143 THE PETROLEUM INDUSTRY well, the kind of oil sand, the number of oil sands in the pool, and other factors, an accurate estimate of which can he made by experienced oil men only. Especially in transactions involving larger properties the method of a complete appraisal by a firm of Petroleum Engineers is rapidly replacing the first method which, at the best, is little better than a "rule-of-thumb" way of arriving at a value. The American Petroleum Institute estimated that the average daily production for the United States for the week ending April 30, 1921 was 1,- 297,940 barrels— multiplying this by $2,000 (which is probably the average price per barrel based on conditions early in 1921) would give an approxi- mate value of $2,500,000,000 for the present pro- duction of the United States. This estimate is undoubtedly less than the real value, because the buying price of a well contem- plates a profit on the transaction, and most wells are bought on the basis of returning the purchase price in from 3 to 4 years. Conceding that the real value of the wells is greater than that indicated by the temporarily low prices of crude ruling through the first half of 1921, and that the "profit" margin in the purchase price is a part of the real value of 144 THE PETROLEUM INDUSTRY the wells, a price of $3,500,000,000 would probably represent a fair value. According to estimates made by the United States Bureau of Mines, there were in the United States in 1920 about 34,000 miles of main trunk pipe line and about 11,500 miles of gathering lines. At the time of construction the average cost per mile, based on 8-inch pipe, was about $6,500. The re- placement cost today of the trunk lines and the gathering lines would be about $400,000,000. The cost of the average pumping station, when built, ranged from $130,000 to $250,000. The replace- ment cost today would be substantially more. A total present valuation of $500,000,000 for the transportation system would be conservative. On January 1, 1921 there were 415 refineries in the United States with a total daily capacity of 1,888,800 barrels — and 44 refineries were under con- struction. Included with these refineries are in many instances valuable wharf and terminal proper- ties, factories for the production of tin containers for the refined products, factories for making steel and wooden barrels, foundries, machine shops, tank car repair shops, etc., a total valuation for all of which would probably not fall short of $2,000,000- 000 based on the present replacement costs. 145 THE PETROLEUM INDUSTRY On January 1, 1921 there were 220 tankers on the high seas flying the American flag and 105 building, giving us a fleet of 325 Aanerican-owned tankers, valued conservatively at over $250,000,000. In addition there were numerous tugs and lighters for harbor use. The tank cars in use in the United States at the beginning of 1921 were estimated to have cost over $200,000,000. Among the other items necessary to maintain the vast marketing organiza- tion throughout the United States, are filling sta- tions, warehouses, tank wagons, motor trucks, pri- vate railroad sidings, storage tanks, etc. The mar- keting investment would total not less than $650,- 000,000. The industry carries at all times large quanti- ties of crude oil and refined products. The crude oil "above ground," between the field tanks and the refinery storage tanks, varies from day to day, the average amount being about 125,000,000 barrels which, at the prices ruling early in 1921, would be worth approximately $200,000,000. Between the refinery and the filling stations and retail stores are vast quantities of gasoline, kerosene, lubricating oils and other refined products worth, at current retail prices, approximately $200,000,000. 146 THE PETROLEUM INDUSTRY A summary of the preceding estimates of the investment in the petroleum industry in the United States, as of the year 1921, would be as follows : Production $3,500,000,000 Transportation . . . 500,000,000 Refining 2,000,000,000 Marketing 1,500,000,000 Total $7,500,000,000 The best estimates available place the "sales" of the refined products of petroleum at from $2,- 500,000,000 to $2,700,000,000 annually. Accepting the smaller amount as a conservative valuation, and the total investment at $7,500,000,000, an approxi- mation can be had of what the petroleum industry means to this country, when viewed from the stand- point of "A GREAT AMERICAN INDUSTRY". 147 CHAPTER X FINANCE— AND THE GROWTH OF INDUSTRIES Regardless of the division of human history in- to the Stone Age, the Iron Age, the Bronze Age and so on, the fact remains that, for about a century, we have been living in three Ages, all combined into one. Scarcely more than a century ago Watt invent- ed the steam engine and thereby launched the "Age of Steam." When Franklin with his kite drew the electric spark from the clouds he launched the "Age of Electricity." And little did Drake dreaim, on August 27, 1859, when the first barrel of petroleum was drawn from the well that he was that day launching the "Age of Petroleum". Steam is Power — but it calls for engines, so that it can turn the wheels of industry. Electricity is Power — but it calls for motors so that it can serve humanity. 148 THE PETROLEUM INDUSTRY Petroleum is Power — but it calls for the inter- nal combustion engine, so that its gasoline can drive the automobile, the motor truck, the tractor and the aeroplane. Steam, Electricity and Petroleum have com- bined to give us the "Age of Machinery" — ^and in delving through the history of nations, from the earliest dawn to the beginning of the last century, one is amazed to find that "civilization" had prac- tically no machines. It is difficult to realize that agricultural ma- chinery, railroads, steamboats, street cars, tele- graphs, telephones, electric lights, automobiles, mo- tor trucks, farm tractors, aeroplanes have all come into our civilization within the last 100 years — and nearly all of them within the present generation. It is difficult to realize that down through forty centuries these things were totally unknown — and that all of them have come within one century. When the South Carolina Railroad placed its American-built locomotive on its six miles of track, January, 1831, it launched tlie American Railroad Industry that in October 1919 had a physical valu- ation of almost Nineteen Billion Dollars. From this first crude type of locomotive there has evolved the 149 THE PETROLEUM INDUSTRY giant triplex, articulated, compound mallet type that weighs 200 tons and will pull a train a mile long, and lighter passenger engines with regular schedules of "a mile a minute." From the first crude car have evolved the palatial all-steel coaches, sleepers and diners of today. From the first 6 miles of track has evolved 266,000 miles of main line. From the employees of this first little road there has grown up a great working organization num- bering 1,700,000 in 1914, with an annual payroll of $1,381,000,000— possibly 8,000,000 people in the United States are today dependent, directly or indi- rectly, on the railroads for their daily bread. The people who "furnished the Tnoney" that made this first train possible had no conception of what the industry they were financing would mean to the world, or that this first "investment" in rail- roads would grow in less than a century to nearly Nineteen Billion Dollars. The network of railroads spread over the Uni- ted States so rapidly that there was no possibility of the profits being large enough to pay dividends, and allow the railroads to grow at the same time. Therefore our first great American industry, the railroads, soon learned that in order to grow they 150 THE PETROLEUM INDUSTRY would have to go to the public, whom they served, for the money. The growth in mileage and in rolling stock and in payrolls has been so rapid and the need for mon- ey to meet this expansion has been on such a vast scale that it could be met in only one way — and that was by the creation of railroad securities to be of- fered to the public as investments — and the public's money built the railroads. In reviewing a century's railroad history there is no questioning the fact that their physical growth outran their financial development — ^with all of the unfortunate results that surely and swiftly follow in the wake of "lopsided" growth. If the railroads in the early history of the in- dustry, had adopted such policies of management as would have laid special emphasis on the profita- ble operation of the roads, evidenced by ample re- turns to the people who furnished the money to build and equip them, there is absolutely no question but that they would never have lacked plentiful supplies of outside capital for expansion and development and at the same time they would have avoided at least a large part of the public's attitude that has, on frequent occasions, found expression in legisla- 151 THE PETROLEUM INDUSTRY tion that, to say the least, has been antagonistic. Viewed in the light of physical accomplishment the building, equipping and operating of more than a quarter of a million miles of railroad stands as an enduring monument to American genius — but it is a regrettable fact that the roads have not rendered as satisfactory a service to the people who fur- nished the money that built and equipped them as they have to their patrons. The distribution of the products of the agricul- tural implement industry has been especially charac- terized by "long terms" to the farmer. Long terms means slow turn-over of capital, thereby necessitat- ing large amounts of it. This money has come from "the outside," as is evidenced by the millions of dol- lars worth of stocks and bonds issued by the agri- cultural implement manufacturers. The telegraph, telephone and electrical com- panies have asked for and received hundreds of mil- lions of dollars of the public's money, and the rapid expansion of these businesses has been made possi- ble only by addition of new capital from the outside. There can be no questioning the fact that our great industries render great service to the public — to all of the people — and the real measui>i of every 152 THE PETROLEUM INDUSTRY industry is the value of the service it renders to its public. It is just as essential, and just as uound business, for the people who finance a business to receive ample financial returns, as for the public to receive satisfactory service. In analyzing the financial structure of corpora- tions one is almost forced to the conclusion that, in- stead of all of the shareholders of a business having one viewpoint, the Board of Directors looks at the business from one angle while the remaining share- holders look at it from another angle — and it is rather obvious that much of the frequently dis- trustful attitude of the public towards the Common and Preferred Stocks of corporations has its origin in the fact that only too frequently do Boards of Di- rectors apparently forget the vital reason why shareholders invest in their capital stock. Soliciting subscriptions to capital stock on the basis that "the principal is safe" is entirely beside the question, because safety of principal is, or should be, to investments what honesty is to every- day transactions — ^while ability is the added qualifi- cation that is desired. In business, safety of prin- cipal should be established by conformance with the spirit, as well as the letter, of corporation legisla- 153 THE PETROLEUM INDUSTRY tion, while earning power remains to be perpetually demonstrated because it is based on the ability of people. In the language of our political economists, the function of money is to serve as "a medium of ex- change" — but the function of capital is to multiply itself — and the anticipation of the "multiplication" of his capital is, and should be, the shareholder's strongest reason for investing — and to honestly provide this "multiplication" for the shareholders is, and should be, the chief reason for the existence of the Board of Directors, who, as shareholders, find their greatest duty in securing the "full earning power" rather than the "rental value" from the money obtained not only from the sale of Stock but also from Bonds and Short Term Notes. Probably the greatest stumbling block in the financing of business in the past has been the way the growth of business has been taken care of, from the standpoint 6i the people who financed it. It is obviously true that the net profits of a business be- long to its owners — and it is obviously fair that the returns on their invested capital should not be pen- alized to enable the business to grow. In other words, net profits represent invested capital's re- 154 THE PETROLEUM INDUSTRY turn and should be paid to those who furnished it, while the growth of the business should be taken care of through additional capital from the outside. While it is conceivable that a slow-growing business could pay its shareholders the customary "rental value" of the money that they Had invested in it and still have a margin that would take care of its growth, yet such a business would not be very attactive to an investor who wanted the "full earn- ing power" of his money. It is also obvious that the faster a business grows the larger will be the amounts of additional capital that it will require each year, to take care of its growth. Regardless of its line of business, when a com- pany with a long and satisfactory dividend-paying record is in need of new capital, its chances of get- ting all it needs when it needs it, are infinitely bet- ter than the non-dividend-paying company which has actually earned good profits, but whose Board of Directors either "passed the dividends" or paid very small ones in order to "put the money back into the business" — ^instead of into the investors' pockets. In 1899 there were 3,723 automobiles manu- factured in the United States — in 1920 the factories turned out 1,906,000. 155 THE PETROLEUM INDUSTRY The growth of the automobile industry has been so rapid that there never has been a year dur- ing which its growth could have been financed from its profits. The sums of money needed for new fac- tory buildings, new machinery, bigger stocks of raw materials, new factory branches and new models, were too vast to be supplied from the company s profits. It is perfectly obvious that the company that makes 25% net profit on its year's business, and then shows a 100% increase in its next year's sales couldn't have done it without additional money from an outside source, even if its Board of Directors had "passed the dividend" and put all of the 25% net profits "back into the business." The wholesale value of the automobiles manu- factured in the United States in 1920 amounted to over $1,700,000,000— and if the industry is to con- tinue to grow, it must continue getting new capital. Only when a business ceases growing does it cease needing new capital — then it needs new brains. Some idea of the capital requirements and tre- mendous growth of the petroleum industry, espe- cially during the last few years, can be obtained from a recent analysis of 250 oil companies. This analysis includes 108 companies organized prior to 156 THE PETROLEUM INDUSTRY Dec. 31, 1911, and 142 companies organized after Jan. 1, 1912. The 108 companies include all of the Standard Oil "group" (about 35 companies) and 70- odd of the larger, older "independents." The 142 companies include large independents for which available records are practically complete. The rec- ords show that on Dec. 31, 1914, the outstanding stock of these companies was approximately $1,000,- 000,000— and that on Dec. 31, 1919, it was approxi- mately $2,500,000,000— or an increase of $1,500,- 000,000 in the 5 years from Jan. 1, 1915, to Dec. 31, 1919. In other words, at the end of 55 years (1859- 1914) these companies were capitalized at One Bil- lion Dollars — but in the next 5 years (1915-1919) there was added One-and-a-Half Billion Dollars more capitalization. In the face of this stupendous capital expansion it is only fair to state that these 250 companies rep- resent the very best element of the petroleum in- dustry — that they represent the bulk of the "assets" summarized in Chapter IX as aggregating $7,500,- 000,000 — and that they do not represent any of that type of oil companies whose devious methods have caused many uninformed people to bitterly condemn the oil business — instead of its counterfeit, "the oil game." 157 CHAPTER XI CREATING INVESTMENT SECURITIES Putting money to work is very much like rent- ing a farm — ^there are two ways of doing it : 1st— Flat Rent 2nd— "On-the-Shares" It is perfectly obvious that the way the farm is rented does not affect the fertility of the soil — and the way it is rented should not affect the ability of the renter to get the largest crop possible — but the way it is rented does affect the division of the earn- ings at the end of the year. By way of comparison, take the case of the "XYZ Corporation" and Mr. Jones, a laboring man, who has $400 to invest. There are two ways for Jones to invest his money: 1st. Flat rent — the rate is determined in ad- vance. 2nd. "On-the-Shares" — the amount it earns is known at the end of the year. 158 THE PETROLEUM INDUSTRY The XYZ Corporation has four kinds of securi- ties to offer and Jones decides to invest $100 in each kind — so he puts $100 in 6% Gold Bonds, due in 1941 $100 in 7% Preferred Stock $100 in S% Gold Notes, due in 1926 $100 in Common Stock Each of these securities is distinctly different from the others — but as soon as the $400 is paid in ft does not remain separate, any more than water flowing from four wells into a tank remains sepa- rate. All of the money promptly starts to work on the same job, and with equal effectiveness — but when the end of the year comes Jones receives a different amount from each $100 investment, re- gardless of the fact that each dollar of the $400 worked side by side, doing exactly the same work and earning exactly the same returns for the cor- poration. The above represents only four general types of investments, but there are a great many different kinds of Bonds, Short Term Notes and Stocks on the market today and the variations are increasing ever year. They differ in rate of interest or divi- dends — and in the amount and quality of security 159 THE PETROLEUM INDUSTRY back of each issue — and in the preference of one issue over others in the payment of interest or divi- dend — and in the preference of one issue over others in the distribution of the assets if the business is liquidated, etc. This confusing multiplicity of types, and varia- tion of types, has resulted in the organization of highly specialized Bond Houses, Investment Bank- ing Organizations and other distributors of securi- ties, each with its force of salesmen thoroughly trained to render a genuine service in the selection of the particular type of security that will best meet the needs of each individual investor. This service is constantly used by practically all of the largest business organizations in the land, and although they handle millions of dollars in their own business with which they are thoroughly famil- iar, they do not trust wholly to their own judgment in the selection of the investments which they make, either as corporations or as individuals. Had the "small investors" of America followed the practice of "large investors," if only to the ex- tent of establishing the integrity of the securities offered, they would have been saved hundreds of millions of dollars — their confidence in the spirit 160 THE PETROLEUM INDUSTRY and purpose of corporate organizations would not have been shattered — and much of the difficulty tTiat absolutely meritorious propositions have en- countered when seeking additional capital, would never have existed. During the world war we passed through a period of "dear money" and as a result the Bonds, Stocks, etc., issued during that period carried higher rates of interest and dividends than the average for a great many years. Bonds that during periods of "cheap money" could have been floated at 5'%> were issued during the war at 7% and 8%. Preferred Stocks that would have been issued ten years ago at 6% were issued at S% . Short Term Notes issued during the war were almost uniformly at 8 a . In addition to these unusually high rates a great many Bonds, Preferred Stocks, Short Term Notes, etc., were quoted, at the time of issue, at prices below par, thereby making them more attractive to the investor. Like the ebb and flow of the tides, the money market, over varying periods of time, goes from cheap to dear and back again — and this fact is one of the reasons why interest and dividend rates vary on the same type of security issued at different times. 161 THE PETROLEUM INDUSTRY Life insurance companies, colleges and institu- tions Xwith endowments that produce a fixed in- come) , trustees of estates, wealthy people, etc., want investments that run for 10, 20, 30, 5D years and with "absolute safety" — this class of investors buy Bonds. Some investors want their money back in 5 years — they can invest in Real Estate Mortgages. Others want their money back in 1 to 5 years — they can buy Short Term Notes. Others want to feel that they own an interest in a business from which they will receive a fixed re- turn, usually 6% to 8% — they buy Preferred Stock. And still others want to own an interest in a business from which they will receive the "full earn- ing power" of their money — these buy Common Stock. According to the New York Journal of Com- merce the aggregate capitalization of all of the new corporations of all kinds organized in the United States during the year 1920 amounted to almost Fourteen Billion Dollars. This vast amount is near- ly twice as much as the estimated assets of the en- tire petroleum industry — it is almost twice the value of the 8,500,000 motor vehicles in the United States 162 THE PETROLEUM INDUSTRY in 1921 — it is about twice the total "money" in the United States June 30, 1919. The question naturally arises, "If the public has the money to invest in hundreds of millions of dollars worth of securities ever year — and if bond houses, banks and other agencies distribute these securities to the investing public — who creates them 7" There are two widely different sources from which investment securities may be created : Fiy^st — Bonds are issued by our national gov- ernment, our state governments, counties, town- ships, school districts, incorporated towns and cities. These bonds are "secured" by the ability of the peo- ple to pay taxes and they rank as the very highest type of security. Although their interest rates are uniformily low they are tax-free, and therefore their earning power is about the same as the net earning power of the average 6% and 7% industrial investment. Second — ^Bonds, Stocks, Short Term Notes, etc., issued by industrial corporations. Such investment securities are "secured" in two ways, although most people give very little thought to but one of them: They are secured by the "physical assets" of the 163 THE PETROLEUM INDUSTRY corporation in the shape of land, buildings, machin- ery, raw materials, rights of way, roundhouses, ter- minals, pumping stations, rolling stock, etc. These are the things that most investors think of when they think of the "security" back of the Corporation Stocks or Bonds that they own. But there is an "in- visible" form of security that the investor should endeavor to assure himself is back of the Stock or Bond before he invests in it — for if this form of security is not there, then his investment will return him no interest or dividends and probably little or nothing of his principal. This security is the ability of the men in charge of the corporation's affairs to operate the business successfully — and the most satisfactory proof of the presence of that ability lies in the payment of inter- est on the outstanding Bonds and Notes and divi- dends on the outstanding Stocks. The great majority (it has been estimated 90%) of new corporations never arrive at the divi- dend-paying stage — therefore if the investor con- fines his investments to "dividend-paying stocks" he has thereby eliminated 90% of the chance of loss. As our first industries sprang up in "the East" so our first financing sprang up in the East — mostly 164 THE PETROLEUM INDUSTRY in "Wall Street." And as the industries spread over the United States the financial organizations spread with them. Most of the short-term financing (30, 60 and 90-day loans) needed by the tens of thou- sands of industrial organizations scattered over the United States is done by the local banks, but the majority of the long-term financing, in large amounts, is arranged for in a few large financial centers, the greater part of it still being done in the East. There are today probably four thousand houses in the United States that are recognized distributors of securities. Of this number there are not more than 1,000 that make any pretense of buying entire issues, and there are probably not more than a few hundred who are willing and able with their own resources to purchase issues of a million dollars or more. Any one of the larger of these financial insti- tutions will "underwrite" (buy outright) issue after issue, today $5,000,000 for an irrigation project, next month $2,000,000 for a street railway com- pany, then $1,000,000 for a coal mine, $10,000,000 for a railroad, then $25,000,000 for a foreign gov- ernment and so on, the total issues handled in one 165 THE PETROLEUM INDUSTRY year by some of the larger of these houses often running into many millions of dollars. The question naturally arises — "How can these financial institutions, however large, have among their officers and directors men who are qualified to pass on a dozen, or fifty, absolutely different in- dustrial propositions, in one year, scattered over this and other countries and amounting to many millions of dollars? What do they know, down in New York City, or in any of the other large cities, about an irrigation project in Arizona, a street rail- way in Omaha, a coal mine in southern Illinois, the buflding of an extension to a railroad in Montana or the internal development of the Argentine?" These men can't know all these things — and they don't pretend to. But what they do know is, where the money is — and how to cause it to flow to where it is wanted. If the issue is a very large one several houses may combine to underwrite it, but with smaller issues one house will underwrite the entire issue of Bonds, Stocks or whatever the type of security — write one check for the entire amount — and then get in touch with their "corre- spondents" scattered over the United States. These houses get in touch with their own houses, and so 166 THE PETROLEUM INDUSTRY on down the line, until the last distributor, maybe a bank in a small town, gets his "allotment" of these Bonds or Stocks, possibly only a few hundred or a few thousand dollar's worth. There are hundreds of instances on record of entire issues amounting to millions of dollars being over-subscribed within 24 hours — some within one hour — after they were offered. But before this issue is distributed, or the check written, the Bonds or Stocks must be "created" — and to do this requires the use, by these great finan- cial organizations, of many different kinds of serv- ice, by many different kinds of organizations scat- tered over the country. As an example, let us take the $5,000,000 Bond issue for the irrigation project in Arizona with "the money" in Chicago. Briefly the steps in the proposition would be about as follows : The people back of the irrigation project would go to Chicago with complete maps, plans, statistics, general information, etc. and lay the entire proposition before the proper "commit- tee" of one of these large institution^. Years of experience in handling many different kinds of in- dustrial propositions, in every part of the country, 167 THE PETROLEUM INDUSTRY enable these men to make a quick and thorough analysis of the more important points of the irri- gation project. If the proposition, in a general way, appeals to them and looks to be fundamentally sound, they get in touch with their special agencies, trained in handling irrigation projects. Among these are general investigators who are qualified to "size up" big propositions. These men would per- sonally inspect the site, investigate the men back of the project, the industrial condition of the terri- tory to be served, the water supply, etc. Civil En- gineers, Mechanical Engineers and other technical men, each qualified by years of experience to pass on his particular line of work, would personally visit the site of the project and make a thorough investigation. Attorneys would ascertain the le- gality, terms, etc. of the franchise and the corporate powers and responsibility of the irrigation com- pany, etc. Each of these special investigators would send his report to Chicago where statisticians and experts would tabulate all of the information, condense it into a report and submit it for final action. If approved, the check for $5,000,000 is written, the bonds are sold, the interest is paid when due, the Bonds are paid off as they mature, or before — and everybody is satisfied. 168 THE PETROLEUM INDUSTRY Every proposition submitted to every "house of issue" is different from every other proposition — each is handled separately, and a half-dozen may be undergiong investigation by different specialists, in widely separated sections of the country, at the same time that many others are undergoing their preliminary investigation in the main office. Even though most of the great financial institu- tions have a national and many of them an inter- national reputation, they don't act, they can't act, on their own judgment, except as that judgment is fortified and broadened and deepened by the serv- ices of these specialists many of whom likewise have national reputations in their own particular line. The methoci followed in the $5,000,000 Irriga^ tion Bond issue illustrates only one method, and probably the highest type method, used in the issue of industrial securities. Unfortunately not all issues of Bonds and Stocks are "created" under such conditions as the foregoing, which practically insure the investor against loss of either his income or his principal. The marvelous rate at which wealth is increas- ing in the United States, the thrift of the people as reflected by the Billions of Dollars on deposit in the 169 THE PETROLEUM INDUSTRY national, state and savings banks, together with the universal desire to "make the saved dollar work" for us — after we have worked for it — have all com- bined to pile up hundreds of millions of dollars ev- ery year that should be wisely invested. Long years of our earlier life are spent in school, to be followed in many instances by more years spent in professional or technical school, or other special preparation, in learning "how to make money," Until recently not a great deal has been said in any of these institutions about "how to save money" — and a pitifully small amount of time has been given to learning even the simplest principles underlying "how to invest money." Judged by the attention that has been given to the "investment" education of either the youth or the adults of our country one would conclude that the investment of money was a matter of small importance in human lives — instead of one of tremendous importance — for while money can be earned only by labor, it can be multiplied only by investment. 170 CHAPTER XII PETROLEUM'S INDUSTRIAL POSITION Petroleum's industrial position is best revealed by comparing it, as an industry, with other indus- tries, and then ascertaining how far they are de- pendant on petroleum and how the loss of the products of petroleum would affect these industries — and the world's progress. When our national government talks of "wealth" it means the "developed resources" of the country. The first fewXensuses of the United States furnished little information in addition to giving the number of inhabitants, but beginning with 1850 tTie Census Bureau has made the following estimates of the wealth of the United States : 1850 $ 7,135,000,000 1860 16,159,000,000 1870 30,068,000,000 1880 43,642,000,000 1890 65,037,000,000 1900 88,517,000,000 1904 107,104,000,000 1912 187,731,000,000 171 THE PETROLEUM INDUSTRY The occupations of mankind are usually di- vided into four groups: 1 — Agriculture (producing) 2 — Mining (procuring) 3 — Manufacturing (altering) 4 — Commerce (distributing) The wealth of the United States as shown by the Census Bureau's figures for 1912 (see Table 20) was divided among these groups as follows : Agriculture $123,882,000,000—66.0% Mining 3,431,000,000— 1.8% Manufacturing . . 36,756,000,000—19.6% Commerce 23,662,000,000—12.6% $187,731,000,000—100% The use of machinery on the farm began with the threshing machine about 1825, followed by the reaping machine about 1841 (invented 10 years earlier) followed by the self-binder, the grain drill and other horse-drawn implements. After 40 centuries without machinery, the farmer has had almost one century with machinery and about 20 years of "motorized" farming, with gasoline engines, tractors, motor trucks and auto- mobiles. 172 Table 20 — Sum/mary of tKe distribution of wealth by industries: AGRICULTURE Real property (land and buildings) $110,676,000,000 Live stock 6,238,000,000 Agricultural products 5,240,000,000 Farm implements and machinery. 1,368,000,000 Irrigation enterprises 360,000,000 Total 123,882,000,000 MINING Gold and silver coin and bullion 2,616,000,000 Mining products 815,000,000 Total 3,431,000,000 MANUFACTURING Manufacturing machinery and tools. 6,091,000,000 Manufacturing products 14,693,000,000 Imported merchandise 826,000,000 Clothing' and personal ornaments... 4,295,000,000 Furniture and carriages, etc 8,463,000,000 Private owned water works 290,000,000 Private owned central electric light and power stations 2,098,000,000 Total 36,756,000,000 COMMERCE Railroads and Equipment 16,14,8,000,000 Pullman and private cars 123,000,000 Street railways 4,596,000,000 Telegraph and telephone 1,304,000,000 Shipping and canals 1,491,000,000 Total 23,662,000,000 Grand total, Wealth in the United States 1912 $187,731,000,000 173 THE PETROLEUM INDUSTRY If the United States is to be self-supporting in the matter of producing food stuffs and clothing materials, with more than 20,000,000 families in the United States and about 7,000,000 farms, each farmer must produce enough for his own family and for two other families who don't live on farms — who are consumers of farm products, not pro- ducers. The constantly increasing proportion of non- producing consumers of farm products was empha- sized by the census of 1920 that showed over half of our entire population living in cities. Table 21 shows the rapid change in the last 40 years in the percentage of our population living on farms and in towns and cities. According to the United States Census Bureau "urban" inhabitants are those living in incor- porated places of 2,500 inhabitants or more; all other inhabitants are classed as "rural." In 1920 there were 9,864,196 people (9.3% of the entire population) living in incorporated places of less than 2,500 inhabitants, therefore only 38.8% (48.1% minus 9.3%) of our population lived in the "country," while 61.2% lived in incorporated places. 174 THE PETROLEUM INDUSTRY Table 21 — Changes in urban and rwal popula- tion : Census Urban Rural 1880 29.5% 70.5% 1890 36.1% 63.9% 1900 40.5% 59.5% 1910 46.3%) 53.7% 1920 51.9% 48.1% From 1910 to 1920 our population increased 13,710,842, or 14.9%, but dividing this increase be- tween the incorporated places and the country we find that the incorporated places increased 13,938,- 197 while the country actually decreased 227,355. The essential resource of agriculture is the fer- tility of the soil, but with the percentage of man- power on farms decreasing at the same time that the demand for farm products is increasing , there is but one answer to the demand for more food : and that answer is "motorized farming." Some idea of the results from "power" farming, in the shape of increased production of crops, can be gleaned from the following figures which show the increase in the 175 THE PETROLEUM INDUSTRY value of our farm crops from 1880 to 1917 : 1880 $ 1,212,000,000 1890 1,460,000,000 1900 3,191,000,000 1910 5,487,000,000 1917 13,610,000,000 From 1795 to 1807 the Napoleonic wars so oc- cupied the nations of Europe that American agri- cultural products found ready markets and our farming, shipbuilding and commerce flourished. In 1807, in an attempt to remain neutral to both Eng- land and France, our Congress passed the "Em- bargo Act" which immediately closed most of our markets and paralyzed shipbuilding. Capital in- vested in shipbuilding and commerce soon sought new channels much of it going into the manufacture of products we had been importing in exchange for our agricultural products. In 1810 the products of our factories were valued at $173,000,000 — in 1914 they were valued at over Twenty-Four Billion Dollars. The last 50 years has marked a definite "tran- sition period" in American history during which our vast development of Machinery and Power has turned the current of our Industrial life into the channels of manufacturing and commerce. 176 Figure 54 — First railroad train in New Jersey in 1831. Figure 55 — First central power station in the United States at Appleton, Wisconsin, 1882. Capacity 250 lamps. The Edison dynamo, shown in the center, was built in 1883. Compare this plant with the modern hydro- electric plant shown in Figure 57. O 00 O § 3 S THE PETROLEUM INDUSTRY Table 22 — Growth in value of manufactured products. 1870 $ 4,232,000,000 1880 5,369,000,000 189T) 9,372,000,000 1900 11,406,000,000 1910 20,672,000,000 19r4 24,246,000,000 It has been estimated that the coal resources of the United States, based on present consumption, are sufficient for about 6,000 years — but in order to ''see" what one year's coal 'production in the Unfted States means, imagine the coal loaded into cars each 40 feet long and holding 45 tons — the "train" would be 100,000 miles long — long enough to reach four times around the world — and yet this represents the production for just one year, 1916, which amounted to 581,000,000 tons. If the pig iron produced in the United States in 1916—39,126,000 tons— were loaded into the same kind of cars it would make a train 6,700 miles long — or twice across the United States from Bos- ton to San Francisco. 177 THE PETROLEUM INDUSTRY Aside from agriculture the steam railroads of the United States represent our largest individual industry, with physical assets in 1912 of approxi- mately $16,000,000,000. In order to arrive at the wealtli represented by "Transportation and Com- munication" (see Table ZO) we must add to this gigantic sum the wealth represented by the tele- phone, the telegraph and the cable companies, the canals and our merchant marine. Our steam railroads are less than 100 years old. After years of experimenting the South Caro- lina Railroad in 1830 finished 6 miles of track, had a locomotive built in New York City and January 1831 placed it on the tracks in Charleston, thereby launching the American railroad industry. In 1833 there were 22 railroads in operation in the United States, none of them 140 miles long — in 1837 there were 1,497 miles of track — and in 1916 there was enough to reach 10 times around the world. This mileage was equipped with 65,000 locomotives 54,- 000 passenger coaches and 2,362,000 freight cars. In 1917 the railroads of the United States em- ployed almost half as many people as the total pop- ulation of the United States in 1790, when the first census was taken. 178 THE PETROLEUM INDUSTRY Table 23 — Increase in railroad mileage operated in the United States. Year Mileage Year Mileage 1837 1,497 1880 93,262 1840 2,818 1890 167,191 1850 9,021 1900 198,964 1860 30,626 1910 249,992 1870 52,922 1916 266,381 In 1918 there were 48,000 miles of electric rail- way in the United States equipped with 83,000 pas- senger cars whose combined carrying capacity prob- ably equaled that of the steam roads — and yet the interurban electric road is today in its infancy, so far as mileage is concerned. The total amount of pole line for telegraph use in the United States in 1912 was 247,000 miles, and it used 1,814,000 miles of single wire — enough to encircle the globe 72 times. To supplement this land service there were 44,000 miles of submarine cable that carried 2,845,000 messages in 1912. 179 THE PETROLEUM INDUSTRY In 1917 there were 11,713,000 miles of tele- phone wire in use in the United States that carried Twenty-One Billion Eight Hundred and Forty Two Million telephone calls, or an average of 200 calls for every man, woman and child in the United States. Lloyd's Register estimated the world's shipping tonnage August 1, 1919 at 50,919,000 gross tons, a slight increase over July 1914. This tonnage was distributed as follows: United Kingdom 16,340,000 tons United States (27,000 vessels) 11,933,000 tons Japan 2,325,000 tons No other nation owned as much as 2,000,000 tons of shipping. Our merchant marine finds the world's markets for the products of our rapidly ex- panding manufacturing industries, and in our struggle today for a commanding position in the commerce of the world we find that the increasing demands for more power (engine power) for our merchant vessels are finding a new answer in fuel oil and distillate from petroleum. That the internal combustion engine has influ- enced the course of history and the fate of nations, 180 THE PETROLEUM INDUSTRY is obviously true. Three great distinctly American industries — the automobile, the motor truck and the farm tractor — have been built around the internal combustion engine — and aviation is in the building. In 1899 the automobile business was of so little importance that in the census of manufacturers for that year it was grouped with carriage manufac- turers, the number of cars produced being 3,723. At the beginning of 1921 there were in the United States over 36,000 automobile dealers, over 20,000 motor truck dealers, over 38,000 garages and over 47,000 repair shops for motor vehicles. With over 7,600,000 automobiles in use in the United States it is probable that the "replacement" item alone has reached a million cars a year. It required about 20 years for automobile production to reach "1,000,000-a-year" — but in spite of the set-back in 1918 it will probably get into the "2,000,000-a-year" class in 1^1 — just 5 years later. Automobile and truck manufacturers years ago used to talk about the "saturation point," meaning the ability of the people to buy cars and trucks — but with the popula- tion, the wealth and the industries increasing at present rates it is probable that the limiting factor in the use of motor vehicles will be fuel for the in- ternal combustion engine. 181 THE PETROLEUM INDUSTRY In 1920 the automobile factories turned out 1,906,000 cars with a wholesale value of $1,703,- 000,000. The motor truck factories turned out 335,(J00 trucks with a wholesale value of $432,000,- 000. The farm tractor business is still so young that definite statistics are hard to obtain but it is growing faster than either the automobile or the motor truck grew in their early years. The replacement of the horse and buggy by the automobile, the horse and wagon by the motor truck and the horse and plow by the tractor and gang- plow are milestones in the march of our industrial development — in man's conquest of nature's re- sources. In the growth of our industries there is an- other factor, the force of which is seldom fully ap- preciated : the fact of the constant increase in pop- ulation. Until recently the percentage has varied within comparatively narrow limits, our population doubling about every 30 years. Note how nearly this ratio applies to the population figures given in Table 24. On the basis of the population doubling within the 30-year period, and beginning with 1790 we find that in 1820, 1850 and 1880 the increase in popula- 182 THE PETROLEUM INDUSTRY Table 24 — Growth in population of the United States. 1790 3,929,000 1800 5,308,000 1810 7,239,000 1820 9,638,000 1830 12,866,000 1840 17,069,000 1850 23,191,000 18¥0 31,443,000 1870 38,558,000 1880 50,155,000 1890 62,947,000 190T) 75,994,000 1910 91,972,000 1920 105,683,000 tion was over 100% each 30 years — but the increase from 1880 to 1910 dropped to 83%. Beginning with 1800 we find that in 1830, 1860 and 1890 the increase in population was over 100% each 30 years — but the increase from 1890 to 1920 dropped to 68%. Waiving all discussion of the basic causes and conditions of which these diminishing percentages 183 THE PETROLEUM INDUSTRY are the result, we are face to face with the fact that only in proportion as these causes and condi- tions reverse themselves will we return to our for- mer 100% increase each 30 years. For the sake of illustration we will accept a "diminishing percentage" for the next 80 years and see how it would apply to our population as shown in Table 25. An increase of only 51% from 1920 to 1950 (as against 68% from 1890 to 1920) will give us a population of 160,000,000 in 1950. An increase of only 40% from 1950 to 1980 will give us approximately 225,000,000 in 1980 — while an increase of 22% for the 20 years from 1980 to the year 2000 will give us a population of 275,000,000 in the year 2000. Many boys and girls of today will see the year 2000 — a matter of only 79 years — and a short peri- od when measured by the lives of nations. In the light of 130 years of our national history these three percentages (51%, 40% and 227c) for the next 80 years are ultra-conservative — and even if we do not exceed 160,000,000 population in 1950 it is not difficult to imagine something of what the automobile, motor truck and tractor industries will be at that date. 184 a o o a> C -t-" o ^ c ^ ai be p. 3 fo >>5 be J3 o o aT . S 0) "So.S C be '^ -t-> " lO lO o o o o o o o T-Tco 00 '^ (M (M '* 00 (^ 00 _o o o Ah 2i ^ 2 t> S !=5 s ^ O o O 0) -to T-l t^ 1—1 O) OJ O) rH O O O -^ P5 fl rt^ CO ^ (£) O O OS O O S o o 1-1 <^ ^ 05 -t-" 05 a> o) o o o o o O o o O O O o ^ s^ lo to i-T oo" co" (M 00 ,— I O '-^ 00 Oi 3 o Ah o o o ^*~ 05^ iS o o o O o o 05 CO 00 CD 1—1 05 lO o 00 o^ O^ S'-H Oo ^.u:) ^.^ O 0) O (X) O tn O M o d O C« o^ to ?^ ^ o (M y ^ G Cvj c * -rl O OS (M O O ID O UO 05 05 00 00 05 05 lO o 1-1 (M 05 C5 o (D 05 73 00 O OJ 1-1 (M ncre rom 19 O O lO 00 05 05 1— 1 e4_i -M iH r-i 185 THE PETROLEUM INDUSTRY And if these three industries continue to de- velop, during the next 10, 20, 30 years as they have in the last 20 years, one is startled when they think of the probable growth of the petroleum industry. While our population was increasing 68% from 1890 to 1920 our production of petroleum was increasing eight hundred and sixty-eight per cent. We cannot close our eyes to the fact of the future growth of the industries that are absolutely dependant upon gasoline and lubricants — neither can we close our eyes to the fact of the increasing industrial importance of petroleum. Take your pencil and paper and figure out, fo?"- yourself, the estimates for the blank spaces at the bottom of Table 25 — and out of all of your earnest thinking and reasoning will come a newer and clearer and larger vision of what the petroleum industry really is. As the last 50 years has marked our transi- tion into a pre-eminently manufacturing nation, so the present is witnessing as clearly defined a transition in the petroleum industry. During the last few years its financing has been on a scale so vast that the use of anything short of the soundest of principles, policies and practice, at every step in 186 THE PETROLEUM INDUSTRY every department of the industry, would have been a menace, not only to the industry itself, but to all related industries. In our financial fabric the outstanding secur- ities representing petroleum have become so great that the industry, as a whole, has stabilized itself by getting on the same basis that our biggest and most successful oil companies have been on for years — ^and the smaller oil companies that are growing and making money are doing so by following the same sound principles and policies that brought suc- cess to these older companies. For years these successful companies have been on an "engineer- ing" basis of efficiency in all of their departments — and their shareholders have profited accordingly. In the "interpenetration of industries" the pro- ducts of petroleum find universal use, and if one were to attempt to place a value on the petroleum industry it would not be limited to Seven-and-a- Half Billion Dollars, as itemized in Chapter IX — for even this vast amount is not the measure of the real value of the industry. That value can be approxi- mated only by determining the value to our pro- gress and civilization of all of the industries in which the products of petroleum have as yet no substitute. 187 THE PETROLEUM INDUSTRY Deprived of gasoline and lubricating oil, obtain- ed only from petroleum, every automobile, truck, tractor and aeroplane in the United States would instantly stop. Deprived of lubricating oils and greases, ob- tained only from petroleum, every steam and electric railroad, every steamship, every machine in every industrial plant in the United States would instant- ly stop. And if the petroleum industry were instantly blotted out, every one of these other industries would stand still, until a substitute were found for gasoline and lubricating oils — for today there is not a substitute, even remotely available, for either of them. And not until this is done can anyone pos- sibly have any adequate conception of the 7^eal pe- troleum industry — and its vital importance to our other industries. Some draw their ideas of the petroleum indus- try from the fortunes that have been "made in oil" — that is the wrong standard to use if the right value would be placed on the industry. Some measure it by the money that has been "lost in oil" — that likewise is the wrong standard. Because it looked like "easy money" many 188 THE PETROLEUM INDUSTRY crooks and grafters have masqueraded in the name of the petroleum industry and played it as a "game" — men of this type have cost the public hundreds of millions of dollars. The industry has had its nov- ices, honest but ignorant of the fundamental prin- ciples of the industry — they and their friends have lost millions. And the industry has had its giants — broad-minded men whose clear vision grasped not simply the mechanical acts of drilling, piping, re- fining and selling, but who saw in this heavy black oil not only one of the world's great industries, but one that is indispensable to practically every other industry. It is the indispensible feature of the pe- troleum industry that results in "The Strategy of Petroleum." These are the men who have been and are the real builders of the real petroleum industry — men who have combined practical operating knowledge with laboratory research, engineering experience and the ability to organize men and money. Men of this type Jcnow that the petroleum industry is fundamentally sound, absolutely vital and financially profitable — and they find in it that measure of serv- ice to man, through his industries, that becomes their greatest stimulus to achievement. 189 UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. Form L9-25m-8, '46 (9852)444 TH" VNIVER. 'OXi^ LOS Ai>i3:iiiiJ:iiS A 000 583 286 GsoFesy Dept. 870 B68p