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THE LIBRARY

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

CHARLES E. BO^VILES

From the Press of

SCHOOLEY STATIONERY & PRINTING CO.

KANSAS CITY, MISSOURI

1921

CHARLES E. BOWLES
1921

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

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

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

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

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-

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.

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

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.

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.

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.

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

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■ 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.

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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

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.

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,

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-

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."

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.

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,

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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

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.

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.

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

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.

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-

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.

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

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"

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

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

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

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

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?

ji
O

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

10
50
8
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

1872

1873

1874

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

1879

1880

1881

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

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

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

1891

30
80
10
130
37

170
625

1891

1892

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

1896

1897

1898

1899

6,472

10,000

37,100

138,911

1,366,748

1900

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

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

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

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-

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

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

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

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

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.

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.

THE PETROLEUM INDUSTRY

;;: a>

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

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.

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

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

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

0 165,332,477 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

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

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%.

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.

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

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

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.

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

Figure 20 — Rotary drilling rig.

-a

3
O

tt„

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-

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

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.

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-

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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

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

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."

THE PETROLEUM INDUSTRY

LetLse ^ame.'ioi\S& ....

iVe// Number. .5

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Initial Prod.JJ.Si-Bbls.

Qrayity. . iS.J?. Bourne.

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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.

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.

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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.

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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.

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-

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.

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

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

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

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

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.

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.

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.

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

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

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

THE PETROLEUM INDUSTRY

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THE PETROLEUM INDUSTRY

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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

Figure 33 — P^pe line being laid through a forest in the Gulf
Coast field.

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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.

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-

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

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.

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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

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.

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.,

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-

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

THE PETROLEUM INDUSTRY

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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

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.

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

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

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.

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

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

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

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

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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

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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

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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.

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133

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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.

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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

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

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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

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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

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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.

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