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Full text of "The petroleum industry"

THE LIBRARY 

OF 

THE UNIVERSITY 

OF CALIFORNIA 

LOS ANGELES 

GIFT OF 

R. E. Collom 



UNIVERSITY of CALIFORNIA 

LOS ANGELES. CALIF. 

^£/f of H. 3. Sollom 









C-i-rSl e-o 




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~^ 



THE PETROLEUM INDUSTRY 



r-c 




The Beginning of the American Petroleum 
Industry 

The man in the silk hat is Edwin L. Drake; the man near 
h'm is his engineer, Peter Wilson. Near the derrick are 
"Uncle Billy" Smith and his sons, Charles and Frank, 
who drilled the well. 



THE 
PETROLEUM INDUSTRY 



BY 

CHARLES E. BO^VILES 



From the Press of 

SCHOOLEY STATIONERY & PRINTING CO. 

KANSAS CITY, MISSOURI 

1921 



COPYRIGHT 

CHARLES E. BOWLES 
1921 

All Rights Reserved 






f FOREWORD 

This book has been written with the definite 
purpose of helping men and women, far removed 
from the Oil Fields, to "see" the Petroleum Indus- 
try — as it really is. 

Thousands of people who are interested either 
directly or indirectly in the Petroleum Industry may 
never actually see an oil well, or a tank farm, or a 
pipe line, or a refinery — but these people want to 
know, and should know, about Petroleum. 

This marvelous thing, Petroleum, is industrially 
too vital to us today, and financially too close to us, 
for any man or woman not to know something about 
it. 

This book tries to tell Petroleum's story — 
briefly, frankly, impartially and accurately. 

Charles E. Bowles 

Tulsa, Oklahoma 
May 30, 1921 



VII 






CHAPTER HEADINGS 

Chapter Page 

I. A Short History of Petroleum . . 1 

II. Oil Fields of the United States . 14 

III. Oil Fields of the World .... 33 

IV. Production 52 

V. Transportation 74 

VI. Refining 87 

VII. Marketing 110 

VIII. Gas and Gasoline 120 

IX. Assets of the Petroleum Industry 140 

X. Finance — and the Growth of 

Industries 148 

XI. Creating Investment Securities . 158 

XII. Petroleum's Industrial Position . 171 



IX 



LIST OF TABLES 

Table Page 

1. Oil Fields of U. S.— Production 1920 . 17 

2. Oil Fields of U. S.— Production 1859-1920 19 

3. Production in U. S. by States, 1859-1920 32 

4. Production of World, by Countries, 1857- 

1920 48 

5. Wells Completed in U. S. in 1917 ... 55 

6. Producing Oil Wells in U. S. 1920 . . 56 

7. Companies Producing Over 1,000,000 

Barrels ! • • • '^2 

8. Some Large Pipe Line Companies . . 78 

9. Some Large Owners of Tank Cars . . 83 

10. Petroleum, Gasoline and Motor Vehicles 96 

11. Growth of Cracking Plant Stills ... 97 

12. Petroleum Products for 1920 .... 100 

13. Exports of Petroleum Products, 1918 . 113 

14. Capitalization and Assets, S. O. Group . 115 

15. Production of Artificial Gas, 1918 . . 121 

16. Production of Natural Gas, 1918 . . 123 

17. Gasoline Produced in 1917 127 

18. Casinghead Gasoline in 1917 .... 134 

XI 



THE PETROLEUM INDUSTRY 

Table Page 

19. Gasoline by Absorption Plants, 1917 . 135 

20. Detail of Wealth for 1912 173 

21. Changes in Urban and Rural Population 175 

22. Growth in Value of Manufactured 

Products 177 

23. Increase in Railroad Mileage .... 179 

24. Growth in Population, 1790-1920 . . 183 

25. Thirty Years' Growth 185 



XII 



LIST OF ILLUSTRATIONS. 

Facing 
Figure Page 

1. The First Well V 

2. Kier's Rock Oil 8 

3. Edwin L. Drake 8 

4. Some Early Pioneers 9 

5. Tools Used by Drake 9 

6. Drake Monument 9 

7. Oil Fields and Pipe Line 16 

8. Trapshooter Well 24 

9. Spindletop Well 24 

10. Lake of Oil 25 

11. Glenn Pool, Panorama 25 

12. Glenn Pool, Drillings 25 

13. On the Cimarron 32 

14. Colorado Shale Beds 32 

15. Mexican Oil Fields 35 

16. South American Oil Fields 43 

17. Russian Oil Fields 47 

18. Cerro Azul 48 

19. Surakhani 49 

XIII 



THE PETROLEUM INDUSTRY 

Figure Facing 

Page 

20. Rotary Drilling Rig 56 

21. Portable Drilling Rig 56 

22. String of Tools 57 

23. Pipe Yard 57 

24. From Surface to Sand 59 

25. On Beam and Jack 60 

26. Power House 61 

27. Log of Well 64 

28. Power 64 

29. Electric Pumping Jack 64 

30. Pumping From Three Sands .... 65 

31. Wooden Storage Tanks 65 

32. Tank Farm 65 

33. Laying a Pipe Line . 80 

34. Loading Rack 80 

35. Pumping Station, Exterior 81 

36. Pumping Station, Interior 81 

37. Tank Steamer 84 

38. Fuel Oil and Coal 85 

39. Refinery, Typical Layout 90 

40. Refinery, General View 90 

41. Refinery, Look Boxes 91 

42. Refinery, Type Diagram ...... 94 

XIV 



THE PETROLEUM INDUSTRY 

Figure Facing 

Page 

43. Refinery, Rear View of Fire Still . . 96 

44. Refinery, Steam Stills 97 

45. Bartlesville Station 105 

46. Casinghead Gasoline Plant 128 

47. Compres^on Plant 129 

43> Compression Diagram ...... 132 

49. Topping Plant 136 

50. Absorption Plant 136 

51. Absorption Tower 136 

52. Blending Plant 137 

53. Gas Well 137 

54. First Railway Train 176 

55. First Electric Power Station .... 176 

56. Early Type of Automobile 177 

57. Hydro-Electric Station 184 

58. Oil Engine 185 



XV 



CHAPTER 1 

A SHORT HISTORY OF PETROLEUM 

The use of Petroleum is older than human his- 
tory. Oil springs and oil seepages were known to 
man long before he had developed the art of writ- 
ing. 

The Egyptians used it in embalming their dead 
and it is referred to in their early writings dating 
back many centuries before the Christian era. 

Noah '^'pitched" his ark within and without — 
and today wooden ships are given the same treat- 
ment. More than 200 references are made in the 
Bible to the use of oil, pitch and slime. 

Petroleum was worshipped by the Zoroastrians 
of Persia, known in history as "Fire Worshippers." 
The burning wells of Baku on the west coast of the 
Caspian Sea in southeastern Russia were famous 
objects of religious worship for more than 2,500 
years — long centuries before the oil was used for 
medicinal or commercial purposes. Only within the 
last century, and to prevent the spread of Asiatic 
cholera, have the journeys of these pilgrims been 

1 



THE PETROLEUM INDUSTRY 

prohibited. In the Thirteenth Century Marco Polo 
described the "Eternal Fires" of Baku. 

Five centuries iDef ore the Christian era Herod- 
otus described the oil pits near Babylon and the 
pitch springs near Zante. Strabo, Aristotle and 
Pliny described bitumen deposits in Albania near 
the Adriatic Sea, while Plutarch mentioned petro- 
leum found on the banks of the river Oxus. 

Alexander the Great saw the burning lake of 
Ectabana in southwestern Asia while on one of his 
world-conquering expeditions. Petroleum, "burn- 
ing water," was known in Japan in the seventh 
century. Early Chinese history contains references 
to the use of gas for lighting and heating. Burma 
in southeastern Asia has known something of oil 
for many centuries. 

When Rome became a world-conquering nation 
she not only controlled the oil supplies of the world 
but made liberal use of them. The gas springs of 
northern Italy were so well known that in the year 
1226 the town of Salsomaggiore, in the neighbor- 
hood of the springs, adopted as its emblem a sala- 
mander surrounded by flames. 

In 1436 the medicinal properties of the oil of 
Tegernsee in Bavaria gave it the name of "St. Qui- 

2 



THE PETROLEUM INDUSTRY 

rinas's Oil." The oil of Pechelbrom was discovered 
in 1498 and the "Earthbalm" of Galacia was known 
as early as 1506. 

Peter the Great, of Russia, obtained from Per- 
sia, in 1723, the control of the Baku district, or- 
dered the seizure of as much white petroleum as 
possible and directed that a refining master be sent 
there. According to a record in the archives at 
Tiflis he also "give special instructions for export- 
ing oil up the Volga River to Russia." 

History cannot record when the American In- 
dians first became acquainted with petroleum 
through seepages and flowing springs that later led 
to the real "discovery" of petroleum in 1859, but 
Indian Medicine Men knew of its curative powers 
and it was held in high esteem by them. They im- 
parted this knowledge to the French Jesuit Mis- 
sionaries who in the Seventeenth Century explored 
Canada, the Northern States and the Mississippi 
Valley, but it was two hundred years later that 
white men put it up in bottles and sold it as "Sene- 
ca Oil," named after the Seneca Indians. 

The early Spanish Missionaries of Mexico and 
California found the Indians using petroleum, chief- 
ly for burning purposes. 

3 



THE PETROLEUM INDUSTRY 

Sir Walter Raleigh in 1595 referred to the 
pitch lakes of Trinidad, an island off tlie coast of 
Venezuela, South America. From this apparently 
inexhaustible source has come the asphalt covering 
of the streets in hundreds of American cities, and 
from these lakes of pitch millions of dollars of 
wealth have been taken. 

In 1632 reference was made to the oil springs 
of New York in Sagard's "History of Canada" in 
which are recorded the explorations of the Jesuit 
Missionaries in that territory. 

In the Seventeenth Century, Thomas Shirley 
called the attention of the Royal Society of England 
to the natural gas in Wigan, in Shropshire. Her- 
mann Boernaave in 1724, referred in his writings to 
"Oleum Terrae" (oil of the earth), and about the 
same time "Barbadoes Tar" was well known as a 
medicinal agent. 

In 1748 Peter Salm, a Russian traveler, pub- 
lished a book on America in which he described the 
oil springs of Pennsylvania. David Leisberger, a 
Moravian Missionary, writing of a visit to the Alle- 
gheny regions of Pennsylvania in 1767 gives quite a 
detailed description of its oil springs and the meth- 
ods used by the Indians in recovering the oil as well 

4 



THE PETROLEUM INDUSTRY 

as its uses for medicinal purposes. 

In 1775 George Washington, our first Presi- 
dent, acquired three pieces of property in "the 
west" as it was then known : one at Point Pleasant, 
Ohio, one at Round Bottom, the present site of Cin- 
cinnati, and the third at the mouth of the Kanawha 
river in Ohio. He referred to this property as fol- 
lows : "This tract was taken up by Gen. Lewis and 
myself on account of the bituminous spring which 
it contains, of so inflammable a nature as to burn 
freely as spirits and is nearly as difficult to ex- 
tinguish." 

In a letter written by Gen. Benjamin Lincoln 
in 1773 there is an interesting description of Oil 
Creek, a small tributary of the Allegheny River in 
northwestern Pennsylvania, so named because the 
oil springs emptied into the creek whose surface 
was covered v/ith the crude oil. 

In 1807 F. Cuming made a tour of the same 
territory whose product was then known as 
''Seneca Oil" and sold in bulk from $1.50 to $2.00 
per gallon. He described the method of recovery 
by spreading a blanket on the surface of the stream 
and then wringing it out into a vessel. In this 
way about ten gallons a day could be obtained. 

5 



THE PETROLEUM INDUSTRY 

The first shipment of petroleum to Pittsburgh 
was made by a Mr. Gary, an enterprising settler on 
Oil Creek, who bought up oil and exchanged it in 
Pittsburgh, about eighty miles away, for groceries 
for his family. His shipment usually consisted of 
two five-gallon kegs slung over a ihorse's back. 
When perchance a flatboatman happened to deliver 
one or two barrels the Pittsburgh petroleum market 
"went to pieces" — and a trifle more than a century 
later we are consuming a Half-Billion Barrels a 
year of this same crude oil and developing uses for 
its products for which there is no known substitute 
obtainable in sufR'cient quantities. 

It is remarkable that the early oil industry is 
traceable to the drilling of brine wells in Pennsyl- 
vania from which large quantities of salt were 
obtained by distillation. As many times happens, 
people find things that are infinitely more valuable 
than those which they are looking for — and it so 
happened with these "brine well" drillers. When, 
as occasionally happened, they struck oil instead ol 
salt water they considered it a calamity — today 
when an oil man strikes salt water instead of oil he 
knows it is a calamity — strange how time does 
change our viewpoint. 

6 



THE PETROLEUM INDUSTRY 

In 1818 the first flowing well in the United 
States was drilled, accidentally, by David Beatty 
who was drilling for brine in the southeastern cor- 
ner of Wayne County, Kentucky. The product ac- 
tually obtained, but not wanted, was contemptuous- 
ly called "The Devil's Tar" and allowed to flow 
down the Big South Fork of the Cumberland River, 
ft covered its surface for 35 miles and later caught 
fire with, disastrous results to adjoining property. 

Samuel W. Kier of Tarentum in Allegheny 
County, was a chemist and druggist as well as own- 
er of some salt wells in which crude oil was begin- 
ning to appear. He therefore determined, about 
1849, to turn his knowledge of chemistry to account 
by finding out what the oil was good for as a source 
of illuminating oil. He constructed a crude still, 
the first of one barrel capacity and later one of 
five barrels, and his product used for lighting pur- 
poses brought him quite a local reputation. How- 
ever his greatest profit came from the sale of petro- 
leum under the name of "Kier's Rock Oil" which he 
uniquely advertised by the use of an imifetion 
American greenback showing a brine well derrick. 
One of these circulars bore the date of January 1, 
1852. 

7 



THE PETROLEUM INDUSTRY 

Francis B. Brewer graduated from Dartmouth 
College, Hanover, New Hamshire in 1845, studied 
medicine, and in 1850 went to the Oil Creek terri- 
tory in Pennsylvania where he became a member 
of the lumber firm of Brewer, Watson & Com- 
pany. Noticing crude oil bubbling from the bottom 
of a spring located a few rods from their upper 
saw-mill he sent samples of the oil to the chemical 
laboratory of Dartmouth College for analysis. The 
Professor of Chemistry declared the product held 
useful properties and Dr. Brewer left the samples 
with Prof. Crosby and the display attracted much 
attention. 

Geo. H. Bissell who had also graduated from 
Dartmouth in 1845 returned to the college for a 
visit in 1853. While there he saw the samples of 
crude oil left by Dr. Brewer and became very much 
interested. Upon his return to New York City he 
discussed the matter with his law associate, J. G. 
Eveleth, and as a result Eveleth visited Titusville 
in November, 1854. This investigation resulted in 
the formation of the Pennsylvania Rock Oil Com- 
pany, December 30, 1854 under the laws of the state 
of New York. They bought from Brewer, Watson 
& Company about 100 acres of land including the oil 

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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 

9 



THE PETROLEUM INDUSTRY 

offered them $500 if they would get a lease on the 
property from the Pennsylvania Rock Oil Company. 
The lease was finally obtained, Havens agree- 
ing to begin operations within a year and to pay 12 
cents a gallon royalty on all oil produced in 15 yearsj- 
Havens failed to fulfill his contract and the capi- 
talists who went into the company when it was or- 
ganized under the laws of Connecticut, acting 
against the wishes of the other directors, made a 
lease to E. E. Bowditch and E. L. Drake at a royal- 
ty of 51/2 cents a gallon. This lease however was 
soon changed to 12 cents a gallon for a period of 
45 years and with this lease as a basis the Seneca 
Oil Company was formed March 23, 1858. Drake 
who then lived in New Haven, Connecticut owned 
some 656 shares in the company, was a Director 
and, as Superintendent, agreed to oversee the de- 
velopment of the property at a salary of $1,000 a 
year. After arriving in Titusville with his family 
May 1, 1858 he gave little attention to gathering oil 
from the surface of streams but was determined to 
obtain it by drilling a well. He ordered an engine 
and expected to begin drilling in September but 
delay in its delivery postponed work until the spring 
of 1859. 

10 



THE PETROLEUM INDUSTRY 

The driller first engaged failed to appear ; like- 
wise the second ; and at the suggestion of S. M. 
Kier of ^'Kier's Rock Oil" fame, Drake engaged 
"Uncle Billy" Smith and his two sons, experienced 
brine well "borers." Most of the tools used in 
drilling the well came from Kier's shop at Taren- 
tum. Drake had formed Kier's acquaintance on his 
first trip to Titusville in December 1857. This trip 
was made at the instance of James M. Townsend, 
a banker of New Haven, and at that time President 
of the Board of Directors of the Pennsylvania Rock 
Oil Company — and was for the purpose of finding 
out, for the New Haven stockholders, the exact 
condition of affairs at Titusville. It was Town- 
send who had previously induced Drake to invest 
$200 in the stock of the Pennsylvania Rock Oil Com- 
pany. 

After harassing delays, work was finally begun 
May 20, 1859. So much water was encountered in 
the surface soil that Drake finally decided to drive 
heavy iron pipe to bed rock which was found at 36 
feet. Smith and his two sons arrived in Titusville 
in June and after about two months' work oil was 
struck at 69 V2 feet on Saturday afternoon August 
27, 1859. The well never flowed but was pumped, 

11 



THE PETROLEUM INDUSTRY 

the initial production being about 30 barrels a day. 
It is estimated that the well produced about 2,000 
barrels between Aug. 27 and Dec. 31, 1859. Kier 
agreed to purchase one-third of the oil and the re- 
mainder was to be sold by G. M. Mobray on com- 
mission. 

While others were busy leasing land and drill- 
ing wells Drake settled down to pumping his first 
and only well. In 1860 he was elected Justice of 
Peace of Titusville, the office paying about $3,000 a 
year. He also bought oil for Shefflin Brothers of 
New YorR City, his commissions amounting to 
about $2,000 a year. Drake bought from Jonathan 
Watson 25 acres on the edge of Titusville for about 
$2,000 and when the mortgage came due sold it for 
$12,000. Drake Street now runs through that sec^ 
tion of the city and the property is worth a half- 
million dollars. 

Drake left the oil fields in 1863 with about 
$15,000, went to New York City and lost it all in 
other ventures. He and his family lived in want for 
years and, broken in health and spirit, he probably 
would have died in poverty had not some of his old 
friends accidentally learned of his condition. They 
raised a purse of $4,200 and in 1873 the Pennsyl- 

12 



THE PETROLEUM INDUSTRY 

vania Legislature granted him a pension of $1,500 a 
year. This enabled him to live in reasonable com- 
fort until his death in Bethlehem, Pennsylvania, No- 
vember 9, 1881. Thus passed the man who is uni- 
versally referred to as "THE FOUNDER OF THE 
PETROLEUM INDUSTRY." 



13 



CHAPTER II 

OIL FIELDS OF THE UNITED STATES 

From the Drake well in 1859 that came in at 
about 30 barrels a day, the petroleum industry has 
grown to a world production of over 688,000,000 
barrels in 1920. 

Imagine a channel 100 feet wide, 50 feet deep 
and 146 miles long, filled to the brim with crude pe- 
troleum and you will "see" what the world produc- 
tion amounted to in 1920. 

Imagine every factory in America, every loco- 
motive, every freight car, every passenger car, 
every automobile, every motor truck, every farm 
tractor, every aeroplane, every passenger steam- 
ship, every freight steamship and every battleship 
passing before your eyes, one at a time, and you will 
then have some idea of what the word "Lubrica- 
tion" means in America — because every one of these 
would instantly stop unless constantly lubricated — 
and up to the present time no substitutes have been 
found for the lubricants obtained from petroleum. 

14 



THE PETROLEUM INDUSTRY 

Or take the one item of automobiles and motor 
trucks: imagine every automobile and every mo- 
tor truck "in the United States January 1, 1921, 
lined up in a straight line, end to end and allowing 
15 feet to each — the line would be 25,000 miles long 
— long enough to reach once around the world. 

The gasoline consumed by the automobiles and 
motor trucks of the United States in 1920 amounted 
to 4,018,000,000 gallons— but in order to "see" this 
amount, imagine a channel 100 feet wide, 50 feet 
deep and 20 miles long filled with sparkling gaso- 
line. At; 25 cents a gallon it would take an even 
Billion Dollars to pay for it — a good-sized, gasoline 
bill for one year. 

The next morning after the Drake well came in 
Jonathan Watson, of the lumber firm of Brewer, 
Watson & Co., rode horseback to the Washington 
McClintock farm, the Rynd farm and the Frances 
McClintock farm, secured an oil lease on each farm, 
went into the oil business and although he soon l)e- 
came wealthy, afterwards lost it all. 

William Barnsdall, of Titusville, is credited 
with drilling the second well, beginning the drilling 
the day th"e Drake well struck oil. Before this well 
was completed however W. H. Abbott of Warren, 

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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 

18 



THE PETROLEUM INDUSTRY 

3,000-barrel well on the same farm in December 
1861. By" turning to Table 3 you can see how the 
Pennsylvania-New York field grew until in 1891 it 
produced more than 33,000,000 barrels, from which 
it gradually declined to about 8,000,000 barrels in 
1920. 



Table 2 — Oil fields of the United States, ivith 
production from 1859 to 1920. 

Field Barrels % of 

Produc- 
tion 

Appalachian 1,281,581,501 23.6% 

Lima-Indiana 455,028,084 8.4 

Illinois 321,433,880 5.9 

Mid-Continent 1,617,706,677 29.8 

Gulf Coast 353,830,919 6.5- 

Rocky Mountain 82,653,582 1.5 

California 1,317,458,576 24.3 



Totals 5,429,692,719 100.0% 



West Virginia began producing about 1865 and 
reached its greatest production in 1900 with over 
16,000,0000 barrels. 

19 



THE PETROLEUM INDUSTRY 

Ohio produced in a small way from 18T6 to 
1885 when the Lima field came in. The banner year 
was 1896 with almost 24,000,000 barrels. 

Illinois became productive in a small way early 
after Pennsylvania but decreased until in 1903 and 
1904 nothing is recorded. In 1905 a 35-barrel well 
in Clark County started the boom. In 1906 the pro- 
duction jumped to over 4,000,000 barrels. The high 
year was 1910, with over 33,000,000 barrels. 

California is said to have produced oil about 
1860 but only in small quantities. According to the 
Standard Oil Company a Mexican hunter in 1865 
found seepages in Eos Angeles County, news of 
which reached Dr. Gelsich a former resident of the 
Pennsylvania oil fields then living in California. 
He promptly formed a company, staked out claims 
and a well was drilled in 1870, coming in at about 
70 barrels a day. The drilling was by the old 
"spring-pole" method, replaced in 1879 by a steam 
engine which is still on the property. In 1919 this 
well (49 years old) was producing three barrels a 
day. The state did not get into the "million-barrels- 
a-year" class until 1895 — but in 1919 it passed the 
"hundred-Tnillion-barrels-a-year" mark. 

20 



THE PETROLEUM INDUSTRY 

Kentucky became an important producing state 
in 1916 with more than a milHon barrels a year. 
Oil lias been produced there since the first acciden- 
tally drilled flowing well in America in 1818. The 
development lagged until 1903 when it reached a 
half-million barrels, passed the million barrel mark 
in 1905 and 1906 from which it dropped to an aver- 
age of about a half-million barrels. Beginning with 
1916 the production has steadily increased, going 
over 3,000,000 barrels in 1917, to over 9,000,000 in 
1919 and 8,000,000 barrels in 1920. As the produc- 
tion in Tennessee, until recently, has been negligible 
in amount the state's production has been included 
with Kentucky. 

Colorado in 1887 produced about 75,000 barrels 
of crude oil, reached its peak in 1892 with 824,000 
and today is producing little more than 100,000 
barrels. 

Indiana in 1889, was producing over 33,000 
barrels, the first scattering wells being drilled some 
years before. The maximum production was 
reached in 1904 with over 11,000,000 barrels. 

Kansas officially entered the ranks of oil pro- 
ducing states in 1889 and reached the "milTion- 
barrel" class in 1904. The large showing for 1905 

21 



THE PETROLEUM INDUSTRY 

and 1906 resulted from including the Oklahoma 
production wflh Kansas. It produced over 29,000,- 
000 barrels in 1919 and over 38,000,000 barrels in 
1920. While about twenty counties in the south- 
eastern corner of the state produce practically all 
of the oil, the majority of it has come from the 
Butler County fields. In this one county are the 
ElDorado field that in 1920 produced over 14.000,- 
000 barrels, the Augusta field with over 4,000,000 
and the Towanda, Peabody and Florence fields (the 
latter two just across the county line to the north) 
with almost 9,000,000 barrels. The ElDorado, Au- 
gusta and Towanda fields came into large produc- 
tion during 1916 and 1917 and to the end of 1B19 
had produced 100,000,000 barrels of oil from about 
40 square miles, or an average of 4,000 barrels per 
acre. The ElDorado shallow oil sand lies from 650 
to 850 feet deep, the Augusta gas sand at 1,450 
feet, an upper oil sand at 1,750 feet while the "Var- 
ner" oil sand, the best producer, lies at about 2,450 
feet. This county has produced the largest wells of 
the Mid Continent field, many of them giving from 
12,000 to 15,000 barrels a day. The famous "Trap- 
shooter" well has produced over 2,250,000 barrels 
of oil. 

22 



THE PETROLEUM INDUSTRY 

The ElDorado, Kansas, field has actually been a 
realization of the dreams of the early explorers of 
the Mississippi Valley who sought a legendary El- 
Dorado, "City of Gold," for through the years its 
thousands of oil wells have been pouring out black 
streams of liquid gold. 

Texas had some scattering wells as far back as 
1889 but the production was negligible until 1898 
when it passed the half-million mark. Three years 
later this increased to over 4,000,000, the next year 
to 18,000,000 and in 1920 the state produced over 
96,000,000 barrels. 

The oil history of Texas has been spectacular — 
January 10, 1901 the famous discovery well "Spin- 
dletop," near Beaumont, came in at 100,000 barrels 
a day, ran wild for ten days before it could be gotten 
under control and it is estimated that probably a 
million barrels of oil were lost. The well was 1,150 
feet deep, cost less than $6,000 and opened up an oil 
territory that up to 1921 had produced over 400,- 
000,000 barrels of oil. 

October 7, 1917 the Texas Pacific Oil Company 
brought in the discovery well near Ranger in north 
central Texas on W. L. Mcl^lesky's farm. McClesky 
died about two years later leaving an estate ap- 

23 



THE PETROLEUM INDUSTRY 

praised at $7,000,000. The drilling in of this well 
was followed by an oil boom as great as at Spindle- 
top. 

In 1918 the discovery well was drilled in at 
Burkburnett and another wild rush was on. After 
these first maddened waves of frenzied drilling sub- 
side these boom towns and boom territories quiet 
down to "normal" oil life — but "gushers" certainly 
play havoc with staid, conservative habits of think- 
ing and living. It is estimated that the Electra- 
Burkburnett field, opened in 1911, produced up to 
the end of 1919 about 90,000,000 barrels of oil, 
thereby placing it in the ranks of big American 
fields. 

Louisiana, as compared with the other states, 
started its production off "big" with over half-a- 
million barrels in 1902. This was due however to 
the great Spindletop boom near Beaumont, Texas. 
In 1904 the production had jumped to nearly 3,000,- 
000 barrels, in 1905 to nearly 9,000,000, while in 
1920 the state produced over 35,000,000 barrels. 

Missouri has produced a little oil for over thir- 
ty years, and while an increasing amount of ex- 
ploration work has been carried on, little hope is 
entertained of Its ever becoming an important oil 
producing state. 

24 



a, 








Figure 10 — A oOO,000-barrel lake of oil in Glenn Pool, Okla- 
homa. Earthen storage results in enormous "invisible 
losses" of gasoline vapors. 



THE PETROLEUM INDUSTRY 

Oklahoma was an oil producer while still known 
as Indian Territory — today it ranks as the leading 
oil state in the Union with a production of over 
107,000,000 barrels in 1920. Osage County alone 
produced over 20,000,000 barrels in 1920— Carter 
County over 19,000,000 barrels — Creek County over 
19^,000,000 barrels — ^nd Okmulgee County over 
17,0D0,000 barrels. Thus it is seen that four Okla- 
homa counties, in 1920, produced 75,000,000 barrels 
of crude oil, or about 11% of the amount produced 
by the entire world, while the state produced over 
15% of the world's output. 

denn Pool, near Sapulpa, was opened Novem- 
ber 22, 1905 with an 85-barrel well, and from 
March 1907 to May 1911 the output of the field 
ranged Trom 1 to 2V2 million barrels per month. 
Up to the end of 1919 Glenn Pool had produced 
153,000,000 barrels of oil from an area of 30 square 
miles, or an average for the entire area of 8,000 
barrels per acre, while some parts of it have pro- 
duced 16,000 barrels per acre. Most of the oil 
comes from the "Glenn" sand at a depth of about 
1,500 feet. 

Gushing field, about 10 miles east of the town 
of Gushing, was discovered in March 1912 and up 

26 



THE PETROLEUM INDUSTRY 

to the end of 1919 had produced 236,000,000 barrels 
of oil from an area of 36 square miles, or an average 
of 10,000 barrels per acre. Most of the oil comes 
from the "Bartlesville" sand, about 200 feet thick 
and lying at a depth of about 2,600 feet. The Gush- 
ing field has also been one of the chief gas fields of 
the world. Practically all of the sands contain 
some gas, some of which is under up to 900 pounds 
pressure to the square inch. The gas was so plenti- 
ful that it gave a great deal of trouble to the oil 
well drillers. In 1914 thirty-six gas wells were 
drilled with a combined initial capacity of 608,000,- 
000 cubic feet a day and in 1916 the initial capacity 
of the new gas wells drilled amounted to one billion 
cubic Jeet a day. The waste of gas in this field was 
enormous and during part of 1913 and 1914 it was 
estimated to have been a half-billion cubic feet a 
day. 

The Healdton field, in southern Oklahoma, was 
opened in 1913 and to the end of 1919 had produced 
126,000,000 barrels of oil from an area of 13 square 
miles, or an average of 15,000 barrels per acre. 
The oil from this field is darker and heavier than 
that of northern Oklahoma and comes from an en- 
tirely different "System" of rocks: the "Permian" 

27 



THE PETROLEUM INDUSTRY 

— while practically all of the remainder of the oil 
of Oklahoma comes from the "Pennsylvanian" sys- 
tem. The price of Healdton crude is substantially 
less than that of the remainder of the state. 

Wyoming began producing about 1894 but 
never became a real producer until 19^12 when it 
passed the "million-barrels-a-year" mark, with 
over 2,000,000 barrels in 1913, reached 19,000,000 
barrels in 1919 and dropped to nearly 17,000,000 
barrels in 1920. 

Montana became a producer about 1916 and 
in 1920 produced about 347,000 barrels. A great 
deal of exploration work and "test well" drilling is 
being done in both Montana and Wyoming. 

Arkansas is the newest state to enter the ranks 
of oil producers with the discovery well near El- 
Dorado, January 10, 1921. At the date of this writ- 
ing the boom is growing and there is every indica- 
tion that this is a real, new oil field. The produc- 
tion for the state in March 1921 was 10,000 barrels, 
in April, 300,000 barrels and by the middle of June 
the ElDorado field was averaging 3^,000 barrels a 
day. The water trouble that menaced the first wells 
had been reduced to about one percent. ElDorado 
has all of the characteristics of an oil tov/n during 

28 



THE PETROLEUM INDUSTRY 

the first few months of its boom life when every- 
thing is sky-high — leases and royalties especially so, 
with many of them of uncertain value, shortage of 
oil storage tanks and pipe line connections, rail- 
roads congested and everybody struggling to get 
ahead of or at least keep up with everybody else. 
However this may appeal to others, the old-timer 
in oil, knows that it is an inseparable part of the 
development of a new oil field. To him this condi- 
tion is "the same old story" — and sooner or later, 
from this apparent chaos there always emerge some 
well ordered, substantial, profitable oil businesses. 

Alaska is geologically very similar to Califor- 
nia but as yet little more than general exploration 
work has been done to learn the probable presence 
of oil and gas in commercially paying quantities. 
There are numerous oil and gas seepages in a num- 
ber of districts but up to the present timxe little or 
no actual development work has been done. Even 
though oil in quantities were found the real prob- 
lem would be transportation to refineries in Alaska 
or to tide water to tank steamers. 

The foregoing states are the only ones that are 
usually classed as "oil producing," yet within the 
last few years, owing to the constantly increasing 

29 



THE PETROLEUM INDUSTRY 

demand for more and still more oil, there are but 
few states in which "test wells" are not now being 
drilled. 

While our best petroleum statisticians and the 
seasoned oil men with broad and far-reaching vision 
cannot tell when the United States will reach its 
peaR of oil production which has recently been in- 
creasing by thirty, forty and fifty million barrels 
a year, the fact remains that some day that point 
will be reached. This fact however should not be a 
matter oT alarm as it is now definitely known that 
several foreign countries have vast and practically 
untouched oil reserves which assure an adequate 
supply, far into the future. The real question is 
not so much "Is it there?" as, "Who will control it?" 
— and unless foreign governments arbitrarily bar 
American oil men from their oil fields we can de- 
pend upon American agressiveness and resource- 
fulness to secure for us a fair share of the world's 
future oil supply. 

This world-wide oil development which is 
rapidly taking definite form does not include the 
vast potential oil resources that are today locked 
up in the shale deposits of Colorado, Utah and Wy- 
oming that only await the pinch of necessity to be 

30 



THE PETROLEUM INDUSTRY 

transformed into all of the products we are today 
obtaining from the petroleum that flows from our 
oil wells. The potential supply of petroleum from 
these deposits is so vast that it is estimated that 
they will produce at least ten times as much petro- 
leum as has been taken from our oil wells. 

In order to get a clear grasp of the develop- 
ment of each oil producing state as well as of the 
United States as a whole, turn to Table 3 and note 
the total production of each state to and including 
the year 192D. The total for the United States in 
1920 was 443,000,000 barrels while the production 
for the United States from 1859 to 1920 amounts 
to the enormous total of over 5,400,000,000 (five 
billion, four hundred million), barrels. These fig- 
ures, as figures, are wholly meaningless — so let us 
suppose that this oil flowed into a channel 100 feet 
wide and 50 feet deep — it would be 1,150 miles long. 

In proof of the wonderful growth of the oil 
industry in the United States in recent years it is 
interesting to note that of the 5,400,000,000 barrels 
produced from 1859 to 1920 there were produced 
during the last ten years of this period slightly 
more than 3,000,000,000 barrels. In other words 
44% of our oil w^as produced during the first 52 

31 



THE PETROLEUM INDUSTRY 

years while 56% was produced during the last ten 
years. 

In the light of this marvelous growth who can 
forecast the demand for oil during the next ten 
years? 



32 




C3 

s 

O 

ji 
O 



Pi 



u 







Figure 14 — Outcropping of shale beds of Colorado, with 
estimated potential resources far in excess of the present 
oil fields of the United States. 



Table 3 — Petroleum produced in "»<^ United States, 1859 to 1920, in barrel.i of 42 gallona. 



Year 

1859 
1860 
1861 
1862 
1863 
1864 
1865 


Pennsyl- 
vania and 
New York 

2,000 
500,000 
2,113,609 
3,056,690 
2,611,309 
2,116,109 
2,497,700 

3,597,700 
3,347,300 
3,646,117 
4,215,000 
5,260,745 

5,205,234 
6,293,194 
9,893,786 
10,926,945 
8,787,514 

8,968,906 
13,135,475 
15,163,462 
19,685,176 
26,027,631 

27,376,509 
30,053,500 
23,128,389 
23,772,209 
20,776,401 

25,798,000 
22,356 193 
16,488,668 
21,487,435 
28,458,208 

33,009,236 
28,422,377 
20,314,513 
19,019,990 
19,144,390 

20,584,421 
19,262,066 
15,948,464 
14,374,512 
14,559,127 

13,831,996 
13,183,610 
12,518,134 
12,239,026 
11,554,777 

11,500,410 
11,211,606 
10,584,453 
10,434,300 
9,848,500 

9,200,673 
8,712,076 
8,865,493 
9,109,309 
8,726,483 

8,466,481 
8,612,885 
8,216,655 
8,988,000 
8,344,000 

805,534,717 


Ohiu 


West 
Virginia 


California 


Kentucky 
and 

Tenne.ssee 


Colorado 


Indiana 


Illinois 


Kansas 


Texas 


Oklahoma 


Wyoming 


Louisiana 


Others 

" "26 
278 

25 

10 
50 
8 
10 

43 

19 

10 

132 

1,602 

2,335 
757 
3.000 
2,572 
3,100 

3,500 
4,000 
15,246 
5.750 
3,615 

7,995 

'i6,8'43 
7,792 
14.265 

52,622 
109,699 

77,266 
102,000 
353,000 

781,564 


United 
States 

2,000 
500,000 
2,113,609 
3,056,690 
2,611,309 
2,116,109 
2,497,700 

3,597,700 
3,347,300 
3,646,117 
4,215,000 
5,260745 

5,205,234 
6,293,194 
9,893,786 
10,926,945 
8,787,514 

9,132,669 
13,350,363 
15,396,868 
19,914,146 
26,286,123 

27,661,238 
30,349,897 
23.449,633 
24,218,438 
21,858.785 

28,064,841 
28,283,483 
27,612,025 
35,163,513 
45,823,572 

54,292.655 
50,514,657 
48,431,066 
49,344,516 
52,892,276 

60,960,361 
60,475,516 
55,364,233 
57,070,850 
63,620,529 

69,389.194 
88.766.916 
100.461.337 
117,080,960 
134,717,580 

126,493,936 
166,095,335 
178,527,355 
183,170,874 
209,557,248 

220,449,391 
222,935,044 
248,446,230 
265,762,535 
281,104,104 

300,767,158 
335,315,601 
355,927,716 
378,367,000 
442,929,000 


Total 
Value 

$ 32,000 
4,800,000 
1,035,668 
3,209,525 
8,225,663 
20,896,576 
16,459,853 

13,455,398 
8,066,993 
13,217,174 
23,730,450 
20,503,754 

22,591,180 
21,440,503 
18,100,464 
12,647,527 
7,368.133 

22,982.822 
31.788.566 
18.044.520 
17.210,708 
24,600.638 

25.448.339 
23.631.165 
26,790,252 
20.595.966 
19,198,243 

19,996,313 
18,877,094 
17,947,620 
26,963,340 
35,365,105 

30,526,553 
25,906,463 
28,950,326 
35.522,095 
57,632,296 

58,518,709 
40,874.072 
44,193,359 
64,603,904 
75,989,313 

66,417,335 
71,178,910 
94,694,050 
101,175,455 
84,157,399 

92,444,735 
120,106,749 
129,079,184 
128,328,487 
127,899,688 

134,044,752 
164,213,247 
237,121,.388 
214,12i.215 
179,462,890 

330,899,868 
522,635,213 
703,943,961 
775,000,000 
1,360,000,000 

16,663,867,168 


Year' 




















































1861 


























1862 


























1863 


























1864 


























1865 


























1866 




























1867 




























1868 




























1869 




























1870 


1871 
























1871 


1872 


























1872 


1873 


























1873 


1874 


























1874 


1875 


























1875 


1876 


31,763 
29,888 
38,179 
29,112 
38,940 

33,867 
39,761 
47,632 
90,081 
661,580 

1,782,970 
5,022,632 
10,010,808 
12,471,466 
16,124,656 

17,740,301 
16,362,921 
16,249,769 
16,792,154 
19,545,233 

23,941,169 
21,660,515 
18,738,708 
21,142,108 
22,362,730 

21,648,083 
21,014,231 
20,480,286 
18,876,631 
16,346,600 

14,787,763 

12,207,448 

10,858,797 

10,632,793 

9,916,370 

8,817,112 

8,969,007 

8,781,468 

8,536,3.52 

7,825,326 

7,744,511 
7,750,540 
7,285,005 
7,736,000 
7,400,000 

478,503,386 


120,000 
172,000 
180,000 
180,000 
179,000 

151,000 
128,000 
126,000 


12,000 
13,000 
15,227 
19,858 
40,552 

99,862 
128,636 

142,857 




















1876 


1877 




















x877 


1878 




















1878 


1879 




















1879 


1880 




















1880 


1881 




















1881 


1882 




















1882 


188a 


4,755 


















1888 


1884 


90,000 
91,000 

102,000 
145,000 
119,448 
544,113 
492,578 

2,406,218 
3,810,086 
8,445,412 
8,577,624 
8,120,125 

10,019,770 
13,090,045 
13,615,101 
13,910,630 
16,195,675 

14,177,126 
13,513,345 
12,899.395 
12,644,686 
11,578,110 

10,120,935 
9,095,296 
9,523,176 
10,745,092 
11,753,071 

9,795,464 

12,128,962 

11,567,299 

9,680,033 

9,264,798 

8,731.184 
8,379,285 
7,866.628 
8,327,000 
8,249,000 


262,000 

325,000 

377,145 
678,572 
690,333 
303,220 
307,360 

323,600 
385,049 
470,179 
705,969 
1,208,482 

1,252,777 
1,903,411 
2,257,207 
2,642,095 
4,324,484 

8,786,330 
13,984,268 
24,382,472 
29,649,434 
33,427,473 

33,098,598 
39,748,375 
44,854,737 
55,471,601 
73,010,560 
81,134,391 
87,272,593 
97,788,525 
99,775,327 
86,591,535 

90,951,936 
93,877,549 
97,531,997 
101,183,000 
103,377,000 


4,148 
5,164 

4,726 
4,791 
5,096 
5,400 
6,000 

9,000, 
6,500 
3,000 
1,500 
1,500 

1,680 
322 

5,568 
18,280 
62,259 

137,259 
185,331 
554.286 
998,284 
1,217,337 

1,213,548 
820,844 
727,767 
639,016 
468,774 

472,458 
484,368 
524,568 
502,441 
437,274 

1,203,246 
3,100,356 
4,376,342 
9,293,000 
8,752.000 




















1884 


1885 


















1.... 


1885 


1886 
















1886 


1887 


76,295 
297,612 
316,476 
368,842 

665,482 
824,000 
594,390 
515,746 
438,232 

361,450 
384,934 
444,383 
390,278 
317,385 

460,520 
396,901 
483,925 
501,763 
376,238 

327,582 
331,851 
379,653 
310,861 
239,794 

226,926 
206,052 
188,799 
222,773 
208,475 

197,235 
121,231 
143,286 
121,000 
111,000 


















1887 


1888 


















1888 


1889 


33,375 
63,496 

136,634 

698,068 

2,335,293 

3,688,666 

4,386,132 

4,680,732 
4,122,356 
3,730,907 
3,848,182 
4,874,392 

5,757,086 
7,480,896 
9,186,411 
11,339,124 
10,964,247 

7,673,477 
5,128,037 
3,283,629 
2,296,086 
2,159,725 

1,695,289 
970,009 
956,095 

1,335,456 
875,758 

769,036 
759,432 
877,558 
972,000 
945,000 


1,460 
900 

675 
521 
400 
300 
200 

250 
500 
360 
360 
200 

250 

200 


500 
1,200 

1,400 

5,000 

18,000 

40.000 

44,300 

113,571 
81,098 
71,980 
69,700 
74,714 

179,151 

331,749 

932,214 

4,250,779 

12,013,495 

21,718,648 
2,409,521 
1,801,781 
1,263,764 
1,128,669 

1,278,819 
1,592,796 
2.375,029 
3,103,585 
2,823,487 

8,738,077 
36,536,125 
45,451,017 
33,048,000 
39,005,000 


48 
54 

54 
45 
50 
60 
50 

1,450 

65,975 

546,070 

669,013 

836,039 

4,393,658 
18,083,658 
17,955,572 
22,241,413 
28,136,189 

12,567,897 
12,332,696 
11,206,464 
9,534,467 
8,899,266 

9,526,474 
11,735,057 
15,009,478 
20,068,184 
24,942,701 

27,644,605 
32,413,287 
38.750,031 
79,366,000 
96,868,000 










1889 


1890 










1890 


1891 


30 
80 
10 
130 
37 

170 
625 








1891 


1892 








1892 


1893 








1893 


1894 


2,369 
3,455 

2,878 
3,650 
5,475 
5,560 
5,450 

5,400 
6,253 
8,960 
11,542 
8,454 

7,000 

9,339 

17,775 

■ 20,056 

115,430 

186,695 
1,572,306 
2,406,522 
3,560.375 
4,245,525 

6,234,137 
8,978,680 
12,596,287 
13,172,000 
16,831,000 . 






1894 


1895 






1895 


1896 






1896 


1897 




1897 


1898 




1898 








1899 




6,472 

10,000 

37,100 

138,911 

1,366,748 




1900 


1901 




1901 


1903 
1904 
1905 


548,617 

917,771 

2,958,958 

8,910,416 

9,077,528 
5,000,221 
5,788,874 
3,059,531 
6,841,395 

10,720,420 
9,263,439 
12,498,828 
14.309,435 
18,191,539 

15,248,138 
11,392,201 
16,042,600 
17,188,000 
35,714,000 


1902 
1903 




1904 


181,084 

4,397,050 
24,281,973 
33,686,2.38 
30,898,339 
33,143,362 

31,317,038 
28,601,308 
23,893,899 
21,919,749 
19,041,695 

17,714,235 
15,776,860 
13,365,974 
11,960,000 
10,774,000 


1905 


1906 
1907 
1908 
1909 
1910 
1911 
1912 
1913 
1914 
1915 

1916 

1917 
1918 
1919 
1920 




1906 


43,524,128 
45,798,765 
47,859,218 
52,028,718 

56,069,637 
51,427,071 
63,579.384 
73,631,724 
97,915,243 

107,071,715 
107,507,471 
103,347,070 
86,911,000 
106,206,000 


1907 
1908 
1909 
1910 

X911 
1912 
1913 
1914 
1915 

1916 
1917 
1918 
1919 
1920 




311,050,710 


1,314,786,576 


36,258,188 


11,551,370 


108,022,584 


320,959,380 


220,503,298 


503,784,005 


1,044,437,457 


70,022,573 


203,671,911 


5,429,867,719 





I 



T^HE PETROLEUM INDUSTRY 



CHAPTER III 

OIL FIELDS OF THE WORLD 

When you turn from the oil fields of the United 
States, which are today in a high state of develop- 
ment, to the rest of the world which, except for a 
few; countries, is almost entirely undeveloped, you 
are face-to-face with the best possible reason why 
the United States should try to retain the oil lead- 
ership of the world which she has held since the 
birth of the industry. 

The products of petroleum have been such ab- 
solutely vital factors in the winning of our indus- 
trial supremacy, and will be so vital in retaining it, 
that the whole matter of our early acquisition of oil 
territory in foreign lands should evolve, and will 
evolve, from one of individual interest on the part 
of big oil producers to one of national interest. 

Every user of petroleum products is directly 
interested in our future supply of petroleum because 
it is only reasonable to assume that should the con- 
trol of the world supply pass from us to a foreign 

33 



THE PETROLEUM INDUSTRY 

nation the prices to which we have been accustomed 
will not be reduced. 

By turning to the map of Mexico you will 
note that the present oil-producing territoiry of 
Mexico stretches from Tampico on the north to 
Tuxpam on the south and about 50 miles into the 
interior. This extremely small producing area, as 
compared with the large producing area in the 
United States, is the first of several striking con- 
trasts between Mexico and the United States as oil 
producmg countries. The second contrasts found 
in the average daily production per well: here at 
home, in 1920, approximately 258,000 wells pro- 
duced 443,000,000 barrels of oil or an average of 5 
barrels per well per day. While definite figures are 
diflTicult to obtain it is probably true that in Mex- 
ico, in 1920, approximately 200 wells produced 163,- 
000,000 barrels of oil, or an average of about 2,100 
barrels per well per day. Mexico is, at present at 
least, a country of gushers. The a^ctual proven oil 
producing area of the United States is about 9,000 
square miles while that of Mexico is probably only 
a few hundred square miles. 

The geological "structures" in which the oil 
sands of Mexico are found are entirely different 

34 



THE PETROLEUM INDUSTRY 




•/ Texas Co 



^,Ralo BuancmO 



9.'^z/)/v fhrp^jpo 



.'z* 



i PtN-WtX 



Figure 15 — Oil fields of Mexico. 
35 



THE PETROLEUM INDUSTRY 

from those of the United States. The Mexican oil 
occurs in a few pools, and with one known excep- 
tion all pools are on one long structure. The oil ac- 
cumulates from vast areas into relatively small 
producing areas or pools, often in cavernous reser- 
voirs that offer little "flow resistance." The oil is 
nearly always under enormous pressure, which in 
nearly all cases is water pressure as contrasted with 
gas pressure in almost all of the fields of the United 
States. When the drill taps one of these Mexican 
pools a gusher results, whereas the very stability of 
America's oil industry lies in her great number of 
wells of moderate daily production, scattered in 
widely separated fields. 

In the early 90's Lord Cowdray, then Sir Weet- 
man Pearson, was doing some engineering work 
on the Tehuantepec railway in southern Mexico. 
Noticing the oil seepages he made some investiga- 
tions, drilled a well, found oil and thereby laid the 
foundation of the oil industry in Mexico. About 
1900 Edward L. Doheny, who had been a big factor 
in the development of the oil fields in southern Cali- 
fornia, decided to begin operations in old Mexico. It 
is said that he spent $2,000,000 on pipelines, storage 
and other equipment before he had produced a bar- 

86 



THE PETROLEUM INDUSTRY 

rel of Mexican oil. His foresight was vindicated 
however when his Cerro Azul No. 4 came in for 
260,000 barrels the first 24 hours. While in 1918 
there were 27 producing companies in Mexico these 
two pioneers were still easily the leaders. Turn to 
Table 4 and note how Mexico's production has 
grown in 20 years as compared with other countries. 
Because of shortage of pipe lines, storage tanks and 
tank steamers most of Mexico's big wells have long 
been throttled down to a fraction of their possible 
daily production. In fact it was estimated that, in 
1920, with the actual production at about 163,000,- 
000 barrels there was a potential annual production 
far in excess of 300,000,000 barrels. 

It was estimated, in 1920, that of the total oil 
investments in Mexico, amounting to approximately 
$300,000,000, about 97% was held by foreigners, 
while in the United States about 4% was held by 
foreigners. Note that the average investment per 
company in Mexico is about $10,000,000. In 1918 
there were 27 producing companies in Mexico of 
which 17 were owned by Americans, 5 were Span- 
ish-Mexican, 3 Dutch and 2 English. Of the total 
production in 1918, American interests produced 
73%, British 21%,, Dutch 4'% and Spanish-Mexican 

37 



THE PETROLEUM INDUSTRY 

2% . In 1919 the shipments from Mexico were 79% 
American and 21% British. 

January 1, 1921 there were over 1,430 miles of 
pipe line In Mexico with a daily capacity of over 
1,000,000 barrels. At the beginning of 1921 there 
were 900 storage tanks and reservoirs available 
with a combined capacity of about 50,000,000 bar- 
rels of crude oil. There were four complete re- 
fineries with a combined daily capacity of about 
67,500 barrels, six topping plants with a combined 
daily capacity of over 130,000 barrels with three 
complete refineries and one topping plant under 
construction. Tank steamers load alongside the 
dock at Tampico but at Tuxpam flexible ocean- 
loading pipelines are used that reach more than a 
mile from shore. 

While Mexico is essentially a country of big 
wells it is also a country requiring big investments 
which, with proper management, yield big returns. 

Any sketch of Mexican oil fields would be in- 
complete without the stories of a few of her great 
wells, the greatest of which is "Cerro Azul No. 4" 
(see map, page 35). This well was completed 
February 10, 1916 by the Pan American Petroleum 
and Transport Company, the parent company of the 

38 



THE PETROLEUM INDUSTRY 

Doheny interests. The first 24 hours it produced 
260,85^8 barrels which is at the rate of three barrels 
a second. During its first two years it produced 
approximately 60,000,000 barrels of oil and is today 
averaging 25,000 barrels a day with its powerful 
gate valve only slightly opened. 

The Mexican Petroleum Company, another of 
the Doheny interests, brought in "Casiano No. 7" 
September 1910 with an indicated flow of 100,000 
barrels a day. It was throttled down to about 25,- 
000 barrels a day which it gave for over nine years, 
until November 1919, when it turned to salt water. 
The producing field of which this was the largest 
well is only a half mile wide and three miles long, 
yet this one well produced not less than 85,000,00D 
barrels of oil. 

On December 26, 1910 the 'Totrero del Llano" 
well, owned by the Lord Cowdray interests, began 
spouting oil through an eight inch pipe and pro- 
duced over 100,000,000 barrels before it turned to 
salt water over night on December 4, 1918. The 
life of this well could have been prolonged for years 
if oil leakages had not developed outside the casing 
on account of the enormous pressure. Until these 
appeared the well had been throttled down, but 

39 



THE PETROLEUM INDUSTRY 

when they developed it was allowed to run "wide 
open" — and then it required four years to drain 
the pool. 

Most spectacular of all Mexican wells was "Dos 
Bocas," drilled by the Lord Cowdray interests. On 
July 4, 1908 oil was struck at 1,820 feet and in 
twenty minutes the well was absolutely out of con- 
trol. The pent-up pressure was so great that the 
derrick was blown to fragments, the four-inch drill 
pipe was blown out of the well, 1,800 feet of heavy 
iron casing was swallowed up, great fissures opened 
and spread until they broke up the ground under 
the boiler. Although the fire had been drenched 
with water some embers remained — and the con- 
flagration started. The column of oil now over a 
thousand feet high was instantly ignited ; the roar 
of the flames could be heard for miles; the heat 
was so terrific that approach nearer than 300 feet 
was impossible. 

Soon a crater 1000 feet across was blown out 
and it is estimated that 1,000,000 cubic yards of 
earth was blown into the air. All known methods 
of fire-fighting were tried but without success and 
finally a battery of powerful pumps was set up on 
the bank of a river 2,000 feet away and they began 

40 



THE PETROLEUM INDUSTRY 

filling the crater with water, but before much prog- 
ress had been made the column of flame, after rag- 
ing for 58 days, suddenly abated and the well turned 
to hot salt water. Today Dos Bocas occasionally 
spouts gas and salt water but it is from the midst of 
a great briny lake for which it is the subterranean 
supply. As Dos Bocas was the first of Mexico's 
giant gushers this tragedy was not without its com- 
pensation for it advertised the enormous oil re- 
sources of Mexico as nothing else could have done. 
Oil was "officially" discovered in South Amer- 
ica in 1896 and yet that vast country from that 
date until January 1, 1921, a period of 25 years, 
had produced less than half as much oil as the state 
of Oklahoma produced in the year 1920. Oil seep- 
ages are plentiful, especially in the north half of 
the continent, and within the last few years mil- 
lions of dollars have been spent by a number of big 
producing oil companies in laying the foundation 
for future business. This money has gone into 
exploration work on a vast scale, into leases, single 
companies often holding millions of acres, into 
rights of way, road building, pipe lines, storage, 
refineries, wharves, tugs, tankers, offices, quarters, 
machine shops, storehouses, sanitation, hospitals — 
a big program worthy of a big industry. 

41 



THE PETROLEUM INDUSTRY 

Father Acosta is credited with the discovery of 
oil in Peru about the middle of the 17th Century 
and in 1692 the Spanish government granted a con- 
cession for the collection of Peruvian oil. Most of 
the oil comes from the vicinity of Talare, which 
produces over 2,000,000 barrels a year. A large 
English company has been established for years on 
the north coast and has other properties in the 
Punta Restin fields. The oil isi equal to the best 
produced in the United States. 

The slow development of Colombia is due to 
the government's opposition to thei exploitation of 
her resources by foreign capital. The Tropical Oil 
Company however has done extensive work there, 
some wells being reported as good for several thou- 
sand barrels a day. There are several producing 
sands lying at from 1,500 to 2,100 feet. Finding 
it too expensive to ship in timber for derricks they 
built them throughout from the most common wood 
at hand — solid mahogany. The company is now de- 
veloping a property near the Magdalena River, 400 
miles from tide-water, through heavy tropical jun- 
gles and the pipe lines to the Caribbean coast, with 
pumping stations, tank storage and loading facili- 
ties will cost probably $15,000,000. 

42 



THE PETROLEUM INDUSTRY 




;;: a> 



43 



THE PETROLEUM INDUSTRY 

The first test well in Venezuela was drilled 
June, 1914. Development if judged by production, 
has been slow — but the territory is being ''proven" 
rather than developed. Instead of the "wildcatting" 
with which the States is familiar every possible pre- 
caution known to practical operating, to geology 
and to engineering is used in all the South American 
countries. The Royal Dutch-Shell Company, 
through a subsidiary, built a strictly modern re- 
finery, with a capacity of 10,000 barrels a day, on 
the Island of Curacao. The largest producing fields 
are in or near the Lake Maracaibo basin. 

The Argentine began producing in a small way 
in 1909 and its largest field, the Comodoro, today 
yields about 1,000,000 barrels a year. This is trans- 
ported by pipe line to tide water and thence by 
tanker to Buenos Aires. Indications are not favor- 
able for large oil resources in the Argentine. 

Some oil has Been found in the Dominican Re- 
public (part of the Island of Haiti), but in limited 
quantities. The remainder of the West Indies is 
not considered favorable for oil production. 

The Island of Trinidad produced over 1,500,000 
barrels of oil in 1920 — ibut its asphalt deposits, the 
largest in the world, are far more valuable. Over 

44 



THE PETROLEUM INDUSTRY 

85 % of tRe asphalt used in the United States comes 
from "Pitch Lake" which covers 114 acres. This 
lake produces over 140,000 tons of asphalt a year 
which is partially replaced by a flow estimated at 
20,000 barrels a year from subterranean passages. 
The quality varies from liquid asphalt to hard pitch. 
The property is operated by an American company 
under a British concession which expires in 1930. 

Some development work is going on in Panama, 
the exploration work indicating conditions favora- 
ble to substantial production, although up to the 
present little oil has been actually obtained. 

Canada's production of oil was less than a 
quarter-million barrels in 1920, most of it coming 
from the province of Ontario. Discoveries of oil 
were made in northwest Canada near Fort Norman 
on the Mackenzie River some months ago but the 
extent and value of the field has not yet been proven. 

Russia is larger than the United States — but 
the story of oil in Russia is almost entirely the story 
of the Baku fields on the west shore of the Caspian 
Sea — and the Baku fields cover less than ten square 
miles. Table 4 shows that Russia led the world in 
the production of oil in 1898, 1899, 1900 and 1901 
with a production averaging 72,000,000 barrels a 
year. 

45 



THE PETROLEUM INDUSTRY 

The real pioneers of Russian oil were the two 
brothers, Rudolph and Ludwig Nobel who were the 
first to introduce deep drilling at Baku, They too 
were the first Europeans to use the pipe line for 
transporting oil and were the leading figures in the 
development of the oil industry in Russia. The de- 
velopment of the tank steamer is undoubtedly trace- 
able to their efforts during the early years of the 
Baku oil fields when the enormous production, the 
low price of petroleum and the high transportation 
charges demanded a new means of cheap transpor- 
tation to new markets. 

Prior to 1869 Russia's oil wells were dug by 
hand but that year modern drilling equipmment and 
methods were introduced by the Nobel brothers. 
The product was shipped up the Volga River to in- 
terior Russia until the completion of the railway 
from Baku on the Caspian Sea to Batoum on the 
Black Sea thereby opening up the world's markets. 
In 1905 an 8 inch pipe line 560 miles long was built 
from sea to sea alongside this railroad thereby 
greatly reducing the oil transportation charges. In 
October 1893 an Englishman drilled the first large 
well in the great Grozny field but was ruined by 
the claims of the peasants whose houses and lands 

46 



THE PETROLEUM INDUSTRY 




47 



THE PETROLEUM INDUSTRY 

were damaged by the flood of oil which could not 
be controlled for years. The property on which this 
well was drilled has yielded over 300,000 barrels 
of oil to the acre. 

The Baku oil sands are plentifully distributed 
through depths of many hundreds of feet and there- 
fore under a single small area there may be a dozen 
separate, rich producing oil sands with a total thick- 
ness of hundreds of feet. At Bibi Eibat which is 
almost a suburb of Baku a selected spot has yielded 
nearly 2,500,000 barrels to the acre, and the whole 
operated area of 250 acres has produced over 1,- 
500,000 barrels to the acre. The great Balakhany- 
Saboontchy field near Baku, covering about 2,600 
acres, has produced 500,000 barrels to the acre. 

The Binagadi field was opened in 1901 with a 
10,000 barrel well. The Surakhani field was dis- 
covered in 1908 by drilling to a deeper sand, the 
upper sands yielding light oil and gas. Since 1911 
the island of Cheleken, off the east coast of the Cas- 
pian Sea, has been very productive, the wells yield- 
ing quantities of paraffin. 

About 1910 the Emba field, north of the Cas- 
pian Sea, was developed and has become very pro- 
ductive. Large flowing wells were struck around 

48 




Figure 18 — The Mexican gusher, Cerro Azul, being brought 
under control. 




Figure 19— Spouting well in action at Surakhani, near 
Baku, Russia. 



United 
States. 



Table 4 — World's production of crude petroleum, 1857-1920, in batrels of 42 gallons. 

Italy Canada. Russia Galacia. Japan and Germany. India Dutch East Peru Mexico. Argen- Trinidad. Egypt. Other Total. Year 

Formosa. Indies. tina. countries. 



1857 1,977 1.977 1857 

1858 3,560 3,560 1858 

1859 4,349 2,000 6,349 1859 

1860 8,542 500,000 36 508.578 1860 

1861 17,279 2,113,609 29 2,130,917 1861 

1862 23,198 3,056,690 29 11,775 3,091,692 1862 

1863 27,943 2,611,309 5S 82,814 40,816 2,762,940 1863 

1864 33,013 2,116,109 72 90,000 64,586 2,303,780 1864 

1865 39,017 2,497,700 2,265 110,000 66,542 2,715,524 1865 

1866 42,534 3,597,700 992 175,000 83,052 3,899,278 1866 

1867 50,838 3,347,300 791 190,000 119,917 3,708,846 1867 

1868 55,369 3,646,117 367 200,000 88,327 3,990,180 1868 

1869 58,533 4,215,000 144 220,000 202,308 4,695,985 1869 

1870 83,765 5,260,745 86 250,000 204,618 5,799,214 1870 

1871 90,030 5,205,234 273 269,397 165,129 5,730,063 1871 

1872 91,251 6,293,194 331 308,100 184,391 6,877,267 1872 

1873 104,036 9,893,786 467 365,052 474,379 10,837,720 1873 

1874 103,177 10,926,945 604 168,807 583,751 149,837 ; 11,933,121 1874 

1875 108,569 8,787,514 813 220,000 697,364 158,522 4.566 9,977,348 1875 

1876 111,314 9,132,669 2,891 312,000 1,320,528 164,157 7,708 11,051,267 1876 

1877 108,569 13,350,363 2,934 312,000 1,800,720 169,792 9,560 15,753,938 1877 

1878 109,300 15,396,868 4,329 312,000 2,400,960 175,420 17,884 18,416,761 1878 

1879 110,007 19,914,146 2,891 575,000 2,761,104 214,800 23,457 23,601,405 1879 

1880 114,321 26,286,123 2,035 350,000 3,001,200 229,120 25,497 9,310 30,017,606 1880 

1881 121,511 27,661,238 1,237 275,000 3,601,441 286,400 16,751 29,219 31,992,797 1881 

1882 136,610 30,349,897 1,316 275,000 4,537,815 330,076 15,549 58,025 , 35,704,288 1882 

1883 139,486 23,449,633 1,618 250,000 6,002,401 365,160 20,473 26,708 30,255,479 1883 

1884 210,667 24,218,438 2,855 250,000 10,804,577 408,120 27,923 46,161 35,968,741 1884 

1885 193,411 21,858,785 1,941 250,000 13,924,596 465,400 29,237 41,360 86,764,730 1885 

1886 168,606 28,064,841 1,575 584,061 18,006,407 305,884 37,916 73,864 47,243,154 1886 

1887 181,907 28,283,483 1,496 525,655 18,367,781 343,832 28,645 74,284 47,807,083 1887 

1888 218,576 27,612,025 1,251 695,203 23,048,787 466,537 37,436 84,782 52,164,597 1888 

1889 297,666 35,163,513 1,273 704,690 24,609,407 515,268 52,811 68,217 94,250 61,507,095 1889 

1890 383,227 45,823,572 2,998 795,030 28,691,218 659,012 51,420 108,296 118,065 76,632,838 1890 

1891 488,201 54,292,655 8,305 755,298 34,573,181 630,730 52,917 108,929 190,131 ■ 91,100,347 1891 

1892 593,175 50,514,657 18,231 779,753 35,774,504 646,220 68,901 101,404 242,284 88,739,219 1892 

1893 535,655 48,431,066 19,069 798,406 40,456,519 692,669 106,384 99,390 298,969 600,000 92,038,127 1893 

1894 507,255 49,344,516 20,552 829,104 36,375,428 949,146 171,744 122,564 .327,218 688,170 89,335,697 1894 

1890 575,200 52,892,276 25,843 726,138 46,140,174 1,452,999 141,310 121,277 371,536 1,215,757 103,662,510 



l«a? IfAf. '^^.^3i^\ ^^'"^ ^-*5'^22 47,220,033 2,443.080 197,082 145,061 429,979 1,427,132 JT.53o 1M.159,1.S:! 

\fl 7?«'o^« ^Al^'ll'i 1^??^ Ifo'T. 54,399,568 2,226.368 218,559 165,745 545.704 2,551,649 70.831 121,948,575 

1898 776,238 55,364,233 14,489 758,391 61,609,357 2,376,108 265,389 183,427 542 110 2 964 035 70 905 124 9^4 68-' 

Qn« Y^^V' ",070,850 16,121 808,570 65,954,968 2;3i3;o47 536;o79 192:232 945:97? 1.795:961 89,166 :::::::::: :::::;:: :;::::::: :::::::: :::::::: ilu33:?4i 



1895 

1896 
1897 
1898 

1900 1,628,535 63,620,529 12,102 913,498 75,779,417 2,346,505 866,814 358,297 1,078,264 2.253,355 274.800 149.132,116 1900 

}902 limit 88 7rfi'i?r \t'l^t Hl'Ti 1^.^/^'°^ 3,251,544 1,110,790 313.630 1.430,716 4.013,710 274,800 10,345 20.000 167.434.434 1901 

903 2?e3m walni\7 i?s7A IfAii ??'^o?'SH i'\f-^^^ 1'193,038 353,674 1,617,363 2,430,465 286,725 40,200 26,000 182,006,076 1902 

904 sltlo^R mnsn'qfin llUt -o'r?- llit}:f-^. ^-'^Ml^ 1.209,371 445,818 2,510,259 5,770,056 278,092 75,375 36,000 194 879 669 1903 

905 i^l'tll l-«???'^sn llfo- lf,fa% l^Ai^.'t% 5,947,383 1,419,473 637,431 3,385,468 6,508,485 345,834 125,625 40.000 218.204,391 1904 

l»05 4,420,987 134,71 ,,.-,80 44,02/ 634,095 54,960,270 5,765,317 1,472,804 560,963 4,137,098 7,849,896 447,880 251,250 ;.... 30,000 215,292:107 1905 

1907 8 US 207 Kt'^^^ ^q's?- ^tt'l^l IH^PrW 5,467,967 1.710,768 578,610 4,015,803 8,180,657 536,294 502,500 30,000 213,415,360 1906 

908 8 252157 iTs^^f^^i ^n'qr« -fAl^ ll'^t^A^J 8,455,841 2,001,838 765,631 4.344,162 9.982,597 756,226 1,005 000 101 30,000 264,245,419 1907 

909 9 32? 278 183'l70 874 49^88 4P07I? IH^^Ail J!'^^!'?^^ 2,070,145 1.009.278 5,047,038 10,283.357 1,011,180 3.932,900 11,472 169 30,000 285,552,746 1908 

1910 9 723 806 io9 557ol8 50 MO i^^lll ^n'^Ir'?,? JH^F^^ 1,889,563 1,018,837 6,676,517 11,041,852 1.316,118 2,713,500 18 431 57,14;; 20,000 298,616,403 1909 

»,r^,j,»Ub .09,557,-48 o0,830 315,89o r0,336,o74 12,673.688 1,930,661 1,032,522 6,137,990 11,030,620 1.330,105 .3,634,080 20,753 142,857 20,000 327,937:629 1910 

1912 l2:9?6:232 12:935:041 It]^ l%ilt ll'lflHl ^lil^-'f,^, \-f^Af- ]''n^An ?'f?F«^ 12'1^2,949 1,368,274 12,552.798 13,119 285.307 9,150 20,000 344.174,355 1911 

1913 13.554,768 248446,230 47198 228080 fioswl^r 7'a?^'}!^ }i]lit H^h^l'^ 7,116,672 10,845,624 1,751,143 16,558,215 47,007 436,805 205,905 20,000 352,446,598 1912 

1914 12,826,579 265 762,535 .39849 il4805 r.709ol99 I'n«H?2 hlfA'il ^2^'^^* 7,930,149 11,172,294 2.133.201 25,696,291 130,618 503,616 94.635 20,000 383,547.399 1913 

1915 12.029.913 281,104104 43898 215464 fis^ianfio !'?flln? !','?f'?J? ^^^'^^^ 7,409,792 11,834,802 1,917,802 26,235,403 275,500 643,533 777,038 20,000 403,745,652 1914 

1916 8 945 029 300 767 158 68.o48,062 4,158,899 3,118,464 995,764 8,202,674 12,386,800 2,487,251 32,910,508 516,120 750,000 262;208 10,000 427,740,129 1915 

1917 3:720:760 SSS.Sls'.OOl 40763 i^l'sP mitl'lm li^AI^^ o'lll'll^. ^^^'''^'^ 8,491,137 13,174,399 2,550,645 39,817,402 796,920 928,581 411,000 25.000 459.411.737 1916 
918 8.730,235 355,927.716 35953 504741 4045fi'?8? t'?a?'«9n I'^^l'fla S^M^)! 8.078.843 12.928.955 2.533,417 55,292,770 1,144,737 1,602,312 1,008,750 7,002.973 508.687,302 1917 

1919 6,517.748 377.719000 382.54 OOQIOO ZilAm «i?-'nnn l'ttn'2^^ ^^^'^^^ 8,000,000 13,284,936 2,536,102 63,828,327 1,321315 2,082,068 2,079,750 7,390,080 514,729,354 1918 

1920 7.406,318 443,402,000 38,000 ^oqooO ^Onoonnn rnnn'nn« o'ifS'nS'^ P'*""' 8,453,800 15,780,000 2,561,000 87,072,954 1504.300 2,780,000 1,662,184 6,611,208 554,505.048 1919 



. JU.UUO. UUO 6.000.000 ^.^13.083 215.340 8,500,000 16,000,000 2,790.000 163,000,000 1,366,926 1.628.637 1.089,213 7,804,734 688,474,251 

165,332,477 5.429,692,719 1,049,925 24,865,870 1,938,283.199 166,306,273 42.831,830 ^^iJ^Wl V^J^^B ^^^J,^, ^^^^^^^ ^^^^^^ ^^^-JT, Ti:iJi:^ ^TT^^ oJ7^, 8,754.383,216 



1920 



^ 



THE PETROLEUM INDUSTRY 

Dossor and before the war extensive arrangements 
were made for development. Russia has thousands 
of square miles of the most promising oil producing 
areas in the world and witli a stableized govern- 
ment these oil resources will be quickly developed. 

The story of oil in the Dutch East Indies can be 
written around one man — H. W. A. Deterding. In 
the 20 years that he has been the directing head 
of the Royal Dutch Company he has developed it 
from a small producer to practical dominance of the 
~>il business in the Eastern Hemisphere, a com- 
manding position in Mexico and large holdings in 
the United States. In 1902 the Royal Dutch Com- 
pany became affiliate'd with the Shell Transport and 
Trading Company of London and the Rothschild 
petroleum interests of Paris, all of which are now 
referred to as the Royal Dutch-Shell Company. 

The oil production of the British Empire is rep- 
resented by Canada with 220,000 barrels, India with 
over 8,500,000 barrels, Egypt with 1,000,000 bar- 
rels and the Royal Dutch-Shell Company in which 
Holland, England and France are interested. The 
total production of the British Empire is probably 
about 4% of the world's production, but this will 
undoubtedly be rapidly increased as the world war 

49 



THE PETROLEUM INDUSTRY 

gave Britain a new vision of the vital importance of 
petroleum, not only for her navy but also for her 
merchant marine and her industries. 

The oil industry really started in the Kingdom 
of Roumania in 1857 and this little country had 
produced up to the beginning of 1921 about 165,- 
000,000 barrels. 

Galacia, formerly known as Austrian Poland, 
has been producing nearly fifty years, her total pro- 
duction to date being about equal to Roumania's. 

Japan's production of 2,000,000 barrels in 1920 
puts her in the position of either becoming a pro- 
ducer in foreign lands or a large purchaser not only 
for her industries but more especially for her rapid- 
ly growing navy which must be or become oil-burn- 
ing to rank with other nations. 

Germany has been a small producer and a large 
importer of petroleum and its products, her produc- 
tion scracely passing the million barrel mark before 
the world war, 

Persia and Mesopotamia are the latest and po- 
tentially among the most promising nations to enter 
the field of oil producers. In fact the entire terri- 
tory of southwestern Asia, because of its potential 
oil resources, is today the subject of international 

50 



THE PETROLEUM INDUSTRY 

diplomatic controversies, the results of which can- 
not be anticipated, 

Italy with a production of 38,000 barrels in 
1920 can scarcely be classed as an oil producing 
country. In Table 4 the item, "Other Countries," 
represents the combined production of Venezuela, 
Colombia, British Borneo, Cuba and other small 
producing nations. British Borneo was developed 
about the time the Royal Dutch Company began 
operations in the East Indies. 

Consulting Table 4 it is interesting to note that 
of the world's production from 1857 to the year 
1920 (8,754,000,000 barrels) the United States 
produced 5,429,000,000 barrels, or 62%. 

Of the world's production for the year 1920 
(688,000,000 barrels) the United States produced 
443,000,000 barrels, or over 64%. 

In the year 1920, the combined production of 
the United States and Mexico (606,000,000 barrels) 
was over 87% of the world's production, thus leav- 
ing all of the remaining nations of the world to pro- 
duce less than 13%. 



51 



CHAPTER IV 
PRODUCTION 

When most of us think of the oil business we 
imagine a derrick with oil spouting from the top — 
and when we stop our car at a filling station for 
gasoline and oil, we, in a sort of vague way, associate 
the gasoline and the oil with the derrick, giving lit- 
tle thought to the gigantic industry that lies between 
the derrick and the filling station. 

But on, today, is as vital to civilization as Iron 
and Coal. 

The petroleum industry is a chain, with four 
links : 

1 — Production 
2 — Transportation 
3 — Refining 
4 — iMarketing 
Production has to do with all of the different 
processes and equipment by which crude oil is ob- 
tained from the oil-bearing sands far beneath the 
surface of the earth. 

52 



THE PETROLEUM INDUSTRY 

Transportation takes the crude oil when it 
reaches the surface and transports it to the refinery. 

The refinery "distills" the crude oil into ben- 
zine, gasoline, kerosene, gas oil, lubricating oils, 
fuel oil, paraffin, petroleum coke — in fact about 300 
distinct products are today obtained from crude oil. 

Marketing takes the gasoline, kerosene, lubri- 
cating oils and other products from the refinery, and 
distributes them by tank cars, tank steamers, tank 
wagons, filling stations and retail stores to millions 
of customers in every country on the globe. 

Without entering into a discussion of how or 
when petroleum was formed we will start with the 
fact that it actually exists in the crust of the earth, 
and describe the present methods of locating it and 
bringing it to the surface. 

If the territory is already producing, the loca- 
tion of a site for a new well is a comparatively sim- 
ple matter, with the chances very largely in favor 
of success, because the history of the wells already 
drilled in the field is available. But in undeveloped 
territory, known to the oil man as "wildcat" terri- 
tory, the location of drilling sites usually does and 
always should start with "exploration" work which 
may take the exploring party to another part of the 

53 



THE PETROLEUM INDUSTRY 

state or a distant state or possibly some field half- 
way round the world. 

With the big producing companies the "Ex- 
ploration Department" consists of an office staff and 
a field staff. The office staff is largely statistical 
and clerical while the field staff is made up of petro- 
leum geologists and experienced oil field men. Ev- 
ery man is trained and alert to discover every evi- 
dence, by every known means, of the presence of oil 
or gas beneath the surface, whether that evidence 
be actual oil or gas seepages, oil on the surface of 
streams or in wells, mud volcanoes, outcropping 
rocks or general surface contour. 

Of the 23,133 wells drilled in the United States 
in 1917, Table 5 shows that 16,365 (or about 71%) 
came in oil, 1,966 (or about 8% ) came in gas while 
4,802 (or about 21%) were "dry holes." By far the 
greater part of these 4,802 dry holes were drilled 
by "wildcatters" in territory frequently far removed 
from actual production. The wildcatting done by 
the large producing companies is on an entirely dif- 
ferent basis from that done by the small operator, 
as the large company has the advantage of the serv- 
ices of high-grade technical men to direct their ex- 
ploration and wildcatting work and as a result 

54 



THE PETROLEUM INDUSTRY 

their percentage of dry holes is comparatively small. 

Table 5 — Wells completed in the United States 
in 1917. 

% 
Field Oil Gas Dry Total Dry 

Appalachian 4,907 1,219 1,544 7,670 20 

Lima-Indiana ... 647 18 135 800 17 

Illinois 488 9 149 646 23 

Kansas 2,712 177 538 3,427 16 

Oldahoma 5,027 410 1,360 6,797 20 

Texas, northern 

and central 728 23 290 1,041 28 

Louisiana, 

northern 302 56 99 457 22 

Gulf Coast 864 54 600 1,518 39 

California 686 48 734 7 

Remainder 4 39 43 91 

Totals 16,365 1,966 4,802 23,133 

Average dry holes for the United States in 
1917—21%. 

T'day the average oil well is drilled much deep- 
er than a few years ago, labor costs are much high- 
er, oil v/ell m.achinery and supplies are much higher 
— all resulting in a much higher cost per well. Dry 
holes are too costly to justify "rule-of-thumb" meth- 
ods, and 60 years of "hindsight" is being turned to 
profit through "foresight" in every department of 
the industry. 

55 



THE PETROLEUM INDUSTRY 

Table 6 — Producing oil wells in the United 
States October 31, 1920. 

Pennsylvania : 67,700 

Oklahoma 50,700 

Ohio 39,600 

West Virginia. 19,500 

Illinois 16,800 

Kansas 15,700 

. New York 14,040 

Texas - 11,100 

California 9,490 

Kentucky 7,800 

Louisiana 2,700 

Indiana 2,400 

Wyoming and Montana 1,000 

Colorado 70 

Total.... 258,600 

There are in use today in the United States 
two principal types of drilling outfits: 
1 — Standard cable-tool system 
2 — Rotary-hydraulic system 
These types have been developed to meet the 
different earth and rock conditions in different 
parts of the country. The oil industry inherited its 

56 




Figure 20 — Rotary drilling rig. 






-a 

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3 
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to 

C 


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Figure 22 — String of 
tools for standard cable 
tool system. 

1 — Walking beam. 

2 — Temper screw, about 

5 feet long. 

3 — Rope clamp. The 

upper end of the rope 
leads to the bull wheel 
on which the necessary 
length of rope is 
spooled. 

4 — Casinghead, or top of 

well casing. 

5 — Derrick floor. 

6 — Timbers supporting 

derrick floor. 

7 — Rope leading into 

well and carrying the 
weight of tools, some- 
times several tons. 

8 — Rope socket, from 

2Vi2 to 4 feet long, 

9 — Jars, about 5 feet 
long. 

10 — Stem, from 6 to 48 
feet long. 

11 — Dr-lling bit, from 
^V2 to 6 feet long, and 
from 21/2 to 28 inches 
across; weighs up to 3 
tons, or more. The 
spudding bit is usually 
.'} feet long and from 
8 to 16 inches across; 
weighs about 500 
pounds. Note taper 
screws for connecting 
8, 9, 10 and 11. 



THE PETROLEUM INDUSTRY 

first drilling equipment from the brine-well drilling 
business. Col. Drake's outfit, with 60 years' im- 
provements, is known today as the standard cable- 
tool system. It is adapted to deep drilling where 
several strings of casing must be handleB and much 
rock penetrated. 

The rotary-hydraulic system is largely used 
in the gulf coast fields where little roc"k lies above 
the oil bearing sands. The act of drilling with a 
rotary outfit is very similar to that of a machinist 
drilling a hole through a casting. The drill stem is 
hollow and a mixture of mud and water is forced 
through it under pressure of 40 to 100 pounds to 
the square inch. This fluid escapes through the drill 
bit at the bottom of the well, softening the forma- 
tion and carrying the "drillings" up the outside of 
the drill stem to the surface. Powerful pumps keep 
this fluid in constant circulation. 

The drill bit and drill stem are solidly attached 
to a rotator at the top of the well and under average 
conditions to which this system is adapted the day's 
drilling ranges from 25 to 200 feet. 

If drilling with the standard cable-tool system 
is to be done in shallow fields, that is up to 1500 feet 
deep, and the bore hole does not require much cas- 

57 



THE PETROLEUM INDUSTRY 

ing until the well is completed, the portable rig, 
shown in Figure 21, gives equal results' at a frac- 
tion of the cost of the standard rig. The portable 
rig uses only the cable-tool system whereas deep 
drilling by the cable-tool system and all drilling by 
the rotary system requires the standard type der- 
rick. 

These derricks, usually of wood, although steel 
derricks are coming into use, are 20 feet square at 
the base, 4 feet square at the top and from 40 to 80 
and occasionally 120 feet high depending on the 
depth well to be drilled. 

The "string of tools" used in the standard sys- 
tem is from 30 to 50 feet long and consists of rope 
socket, jars, stem and bit. The rope socket is at 
the top end of the string and the rope is attached to 
it. Next come the "jars" that permit a "slack" in 
the tension of the cable at the end cf the down stroke 
of the drill and make it possible to loosen the bit 
with a jerk, instead of a pull, if it sticks in the bore 
hole. Next comes the stem, long and heavy, to give 
weight to the string and to keep the bore hole 
straight. Last comes the drill bit varying in size 
from a few inches to 28 inches across. The deeper 
the well to be drilled the larger the bit that must be 

58 



THE PETROLEUM INDUSTRY 




Figure 24 — From surface to oil sand. Note that first string 
of casing rests on gray shale and second string rests on 
cap rock. 



59 



THE PETROLEUM INDUSTRY 

used when "spudding in," that is, drilling the first 
50 to 100 feet. The rope socket, jars, stem and bit 
are screwed together with taper threads. 

The string of tools weighs from one to four 
tons and is attached to the end of a heavy manila 
rope or wire cable that passes over the crown pulley 
at the top of the derrick to the bull wheel on the 
derrick floor. Enough cable is spooled on this bull 
wheel to drill as deep as the well is to go, whether 
hundreds or thousands of feet. By releasing the 
brake on the bull wheel, the cable unwinds as the 
weight of the tools takes them to the bottom of the 
hole. The churning motion, by which the string of 
tools is raised and dropped against the bottom, is 
imparted by the walking beam to which the rope 
just above the top of the well is attached by means 
of a temper screw. One end of this screw has a 
rope clamp while the other is attached to the walk- 
ing beam. This screw is about 5 feet long and every 
time the drill strikes bottom and the tension on the 
rope slackens the driller gives the handle of the 
screw a half turn thereby letting the bit strike a 
little deeper the next time. When the end of the 
screw is reached the string of tools is raised from 
the well, the bailer is let down to remove the pul- 

60 




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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 

61 



THE PETROLEUM INDUSTRY 

causing another fishing job; the walls of the bore 
hole may collapse, water may be struck once or 
many times, and every time it must be "cased off" 
by setting a string of casing on the next lower layer 
of rock and reaching to the surface. After pene- 
trating this layer of rock, water may be struck 
again, and it must be cased off with another and 
smaller string of casing, inside the first string and 
resting on the second layer of rock and reaching 
to the surface. Most wells have two or three strings 
of casing, the deeper the well the more strings, the 
size of the drill bit being reduced with each string. 
When oil is struck, unless the flow is large, the 
well is usually "shot" with a charge of from 10 to 
250 quarts of nitroglycerine to loosen up the sand 
and increase the flow of oil. When the well is com- 
pleted all of the casing is pulled except what is 
considered necessary to keep the bore hole from 
collapsing or to protect the oil sands from the water. 
If the well does not flow naturally it is pumped. 
In this case a 2-inch tube is inserted reaching from 
the surface to the oil sand. At the bottom end of 
this tube is a "working barrel" connected with 
which is the pump rod reaching to the surface 
where it is connected with the "pump jack" which 

62 



THE PETROLEUM INDUSTRY 

in turn is connected by either cable or pull rods to a 
central "power" in the pump house. These powers, 
with capacities sufficient to pull 25 pump jacks, are 
driven by engines using gasoline or natural gas, or 
by electric motors. 

The flow pipe leads from the pump jack to the 
flow tank usually near the power house and holding 
from 200 to a thousand or more barrels depending 
upon the daily production of the property. These 
flow tanks are connected, through the oil purchas- 
ing company's gathering lines, to their pipe lines 
which lead to the refinery. 

As crude oil contains either paraffin or asphalt, 
or both, and as flowing oil carries some sand v/ith 
it, the bottom of the pipe or the pump sooner or 
later fills up and must be cleaned. Where the 
working barrel and the oil sand meet is one among 
the most vital points in the entire matter of produc- 
tion, and much research work is being done along 
the line of a better understanding of actual condi- 
tions at this strategic point. Not only do these con- 
ditions change with the diminishing gas pressure 
but they change with the manner of pumping that 
is directly under the control of the "pumper." 



63 



THE PETROLEUM INDUSTRY 



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


iVe// Number. .5 


SxctionS>Tip&\inng\QZ. 


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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. 



64 



Figure 28 — Pulley and bevel gear type of power for oper- 
ating pump jacks. Note that two "pull lines" are at- 
tached opposite each other, to~each of the three eccen- 
trics, so that when the pump ("sucker") rod in one well 
is pulling up the rod in the other well is going down. 




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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. 

65 



THE PETROLEUM INDUSTRY 

One man, usually called the "pumper," can take 
care of a number of wells, his salary ranging from 
$150 to $250 a month. To this expense must be 
added the cost of fuel or electricity for power to 
pump the wells, repairs and replacements and, most 
expensive of all, the cleaning of the wells. The 
frequency of cleaning depends entirely upon the 
nature of the oil sand and the method of pumping. 
Only in recent years has the average small operator 
learned the importance of proper pumping of wells 
and that a well can be "killed" by bad pumping or 
its life greatly prolonged by good pumping. Even 
this supposedly small item of when, how long, how 
fast and how often to pump a well to get the most 
oil over the longest period of time, emphasizes the 
fact that the novice in the oil business can easily 
lose all of his capital before he learns how to protect 
it. 

Oil-bearing sands vary in thickness from a few 
inches to a hundred feet or more, and in size from 
less than an acre to great oil fields covering 100 
square miles or more. The total area of the Mid 
Continent field is about 2,000 square miles. 

Oil sand is by no means loose sand like that on 
the banks of creeks but sandstone, or sandy lime- 

66 



THE PETROLEUM INDUSTRY 

stone. The "absorbing capacity" of sands for crude 
oil varies from dense, fine grained sands that will 
hold only a small percentage of their volume of oil, 
to open porous sands that will hold as much as 35% 
or more of oil. A barrel (42 gallons) of oil con- 
tains 5.6 cubic feet, and an acre of ground contains 
43,560 square feet. If the outside drilHngs of an oil 
pool indicate that the oil bearing sand has an area 
of 10 acres it would contain 435,600 square feet, 
and if the drillings indicate that the sand averages 
15 feet thick there would be 6,534,000 cubic feet of 
sand. If the sand has an "absorbing capacity" of 
20% the pool win contain 1,306,800 cubic feet of 
crude oil. Dividing this by 5.6 we have about 234,- 
000 barrels of crude oil in the sand. It has been 
estimated that, on the average, probably not more 
than 50% of the total oil in the sand is recovered 
by present methods, hence this would give us about 
117,000 barrels of oil that a good "pumper" would 
get from the pool. Under average conditions there 
should not be more than one well to each 5 acres, 
for each sand, hence 2 wells would drain this pool 
at a minimum of expense. Three wells, or four 
wells would not increase the amount of oil in this 
pool, but they would increase the expense — and 
thereby reduce the p7'ofits. 

67 



THE PETROLEUM INDUSTRY 

Fig. 12 on page 25 shows a part of the famous 
Glenn Pool field and section 8 (an inch square) , con- 
tains one square mile (640 acres). The NE14 of 
the NEi/4 of this section shows 13 wells on 40 acres, 
which indicates that two or more sands are pro- 
ducing. One of the things that, from a profit-mak- 
ing standpoint, quickly "killed" the Burkburnett 
field in 1919, and that is a menace to every field that 
is cut up into "town lots," is over-drilling, and it is 
probably true that the losses to small investors 
through the over-drilling of producing territory by 
small companies have been at least as great as the 
losses from drilling dry holes. 

In Fig. 12 the four-pointed stars indicate dry 
holes while the six-pointed stars indicate gas wells 
— note how many dry holes were drilled in order 
to define the border of the producing area. 

In the early history of the industry only the 
shallow sands were reached, but deeper drilling fre- 
quently revealed deeper sands, in "layers," one 
above another separated by layers of different 
kinds of rock. Every year has seen deeper wells 
drilled until at present, especially in the Mid Con- 
tinent fields, the most of the drilling is to the deeper 
sands, sometimes 3,000 feet or more. The presence 

68 



THE PETROLEUM INDUSTRY 

in any field of several layers of oil sands naturally 
adds greatly to the value of the property and it is 
not unusual in some areas, to see several wells, each 
producing from a different oil sand. For example, 
in the Gushing (Oklahoma) field among the half- 
dozen producing oil sands and several gas sands the 
more important oil sands are "Layton" at 1,530 
feet, "Wheeler" at 2,330 feet and "Bartlesville" at 
2,750 feet. All sands differ in their productiveness, 
rates of flow and to a much smaller extent in the 
nature of their crude oil. 

The Bartlesville sand has produced 90% of the 
oil in southeastern Kansas and northeastern Okla- 
homa, probably 50% of the oil of the Mid Continent 
field and perhaps more oil than any other sand in 
the world. 

It is probably the general impression that an 
oil well flows "straight oil," all the time — 'the fact 
is however that very frequently more or less water 
and sediment are mixed with the oil, the fluid being 
called an "emulsion." The simplest and cheapest 
way to separate the oil from the water and sediment 
is to "let gravity do it," in "gun-barrel" tanks near 
the well. Recently however "de-hydrating" plants 
are being installed which handle large quantities of 

69 



THE PETROLEUM INDUSTRY 

the emulsion much more rapidly than the gravity 
process. 

A "de-hydrating" plant that would separate 
the "water" from the real assets of fly-by-night oil 
companies would certainly save millions of dollars 
to the investors of the country. 

The Get-rich-quick Wallingfords whose opera- 
tions are confined to the "oil game," and who know 
practically nothing of the "oil business" don't tell 
their prospective investors about the thousands of 
oil properties whose wells 'have been producing 
from one to five barrels a day for years and are good 
for years to come, but these artists in "financial 
sleight-of-hand" talk glibly about their property 
that is "close in to a gusher that the papers say 
spouted clear over the top of the derrick and made 
100 barrels the first hour." 

The unusual geological formations of Mexico 
and the Baku district of Russia make gushers the 
usual type of well in those countries; but in the 
United States our gushers, when drilled in by small 
producers, have in a general way been misfortunes 
both to the owners and to the public: to the own- 
ers, because when they struck a gusher they usually 
abandoned the conservative basis on which they had 

70 



THE PETROLEUM INDUSTRY 

been operating, "plunged on gushers" and nearly 
always lost everything ; and gushers have been mis- 
fortunes to the public to the extent that they have 
opened the way to many crooked promoters who 
have magnified and capitalized the gusher idea and 
thereby created a distorted impression of the real 
oil business in the minds of the investing public. 

In 1920 it was estimated that there were about 
16,000 producers of crude oil in the United States. 
Their individual production varied from less than 
one barrel per day to 70,000 barrels. The majority 
of the production came from a comparatively small 
number of companies, each of those listed in Table 
7 reporting a production of over 1,000,000 barrels 
in 1919. 

In addition to these 32 companies there proba- 
bly were others that did not report but which pro- 
duced a million barrels or more; the list however 
contains most of the large producers in the United 
States. In 1919 these 32 companies produced over 
218,667,000 barrels of oil, or about 58% of the total 
production of the United States for that year. 

As 32 companies produced 58% of all of the oil, 
the remainder of the 16,000 companies produced 
42% — hence it is obvious that, in order for the 

71 



THE PETROLEUM INDUSTRY 

Table 7 — Companies producing over 1,000,000 
barrels of crude petroleum in 1919; 

Associated Oil Co. 

Barnsdall Corporation 

Carter Oil Company 

Cities Service Company 

Cosden Oil and Gas Co. 

Doheny Companies of Calif. 

Galena Signal Oil Co. of Texas 

General Petroleum Corp. 

Gulf Oil Corporation 

Humble Oil and Ref'g Co. 

Magnolia Petroleum Co. 

McMan Oil and Gas Co. 

Mid West Ref'g Co. 

Ohio Cities Gas Co. 

Ohio Oil Company 

Oklahoma Prod, and Ref g Corp. 

Prairie Oil and Gas Co. 

Producers and Refiners Corp. 

Roxana Petroleum Co. 

Santa Te Railway 

Shaffer Oil and Ref g Co. 

Shell Co. of Calif. 

Sinclair Consolidated Oil Corp. 

Southern Pacific Co. 

South Penn Oil Co. 

Standard Oil Co. of Calif. 

Standard Oil Co. of La. 

Sun Company 

Texas Company 

Texas Pacific Coal and Oil Co. 

Tide Water Oil Co. 

Union Oil Co. of Calif. 

72 



THE PETROLEUM INDUSTRY 

smaller producers to make money, they must have 
access to as high quality of technical, engineering 
and financial services as the large producers whose 
organizations include these departments. 

Probably the greatest handicap to the small pro- 
ducer is his lack of these kinds of service which his 
organization, because of lack of capital, cannot in- 
clude within itself. 

Because of the vital need for this kind of work 
there have been evolved during recent years several 
lines of technical and professional service intended 
especially for the oil industry. These include Con- 
sulting Petroleum Geologists, Petroleum Chemists 
and Petroleum Engineers. All of these are on the 
same high plane as similar services in other indus- 
tries and it is not too much to say that to this kind 
of work, whether found in large companies or small 
companies, is due a large part of the credit for the 
recent remarkable advancement and increased effi- 
ciency in the producing, transporting and refining 
ends of the industry. 



73 



CHAPTER V 
TRANSPORTATION 

Transportation, in the oil business, starts at 
the well and ends at the refinery. Its equipment 
consists of 

1 — Gathering lines 

2 — Pipe lines 

3 — Pumping stations 

4 — Storage tanks and reservoirs 

5 — Tank cars 

6 — Tank steamers 
For several years after the discovery of oil in 

1859 it was transported in iron-hooped wooden bar- 
rels by flatboat or wagon, four to ten barrels mak- 
ing a wagon load. Excessive charges by teamsters, 
together with the frequent and large losses by flat- 
boat jams naturally led to the modern pipe line. In 

1860 S. D. Karns, of Parkersburg, W. V., suggested 
a six-inch line from Burning Springs to Parkers- 
burg, a distance of 30 miles, the oil to flow by grav- 
ity; but the project fell through. In 1863 a Mr. 

74 



THE PETROLEUM INDUSTRY 

Hutchings actually laid a line over a hill from the 
Tarr farm near Tftusville to the Humboldt Refinery 
at Plumer. The length was 21/2 miles and the siphon 
principle was used to move the oil. The teamsters 
tore up this line and two others that Hutchings 
built and he died penniless. 

The first successful pipeline was built by Sam- 
uel Van Syckel of Titusville during the summer of 
1865. It connected Pithole City and Miller's farm 
four milea distant. For safety it was buried two 
feet under ground. 

In 1865 Henry Harley built a line from Ben- 
ninghoff Run to Shaffer farm on the Oil Creek rail- 
road but the teamsters not only cut the pipe but 
burned his gathering tanks. The state furnished 
armed protection and the line 2 inches in diameter 
was finished and rated at 800 barrels a day. This 
line, and a second one, were so successful that capi- 
talists soon consolidated them. About this time Har- 
ley organized the" first pipe line company, the 
"Pennsylvania Transportation Company," and built 
a line from the Pennsylvania oil fields to the Atlan- 
tic seaboard. 

It has been estimated that there are today in 
the United States 34,000 miles of main trunk pipe 

75 



THE PETROLEUM INDUSTRY 

lines and 11,500 miles of gathering lines, making a 
"transportation system" 45,500 miles long — longer 
by far than the greatest railroad system in the 
world. For the railroads to have replaced the pipe 
lines and hauled the crude oil that was produced 
east of the Rocky Mountains every day in 1920 
would have required 90,000 tank cars and 2,000 
locomotives. 

The building of a pipe line is very similar to 
the building of a railroad. First comes the "sur- 
veying gang" which determines the route, and se- 
cures rights of way, sites for pumping stations, etc. 
It is followed by the "right-of-way" gang that cuts 
down trees, clears the way, builds bridges, delivers 
pipe at convenient intervals and gets everything 
ready for the "stringing gang." These men distrib- 
ute the pipe for the "pipe laying gang" that screw 
the lengths together. A gang usually consists of 40 
to 75 men and they average from a half to three- 
quarters of a mile a day. Following them comes the 
"ditching gang" that digs the trench and buries the 
pipe from 18 inches to 3 feet deep. 

Main trunk pipe lines vary from 6 to 14 inches 
in diameter, the most common size being 8 inches. 
They are of high grade, seamless steel, carefully 

76 



THE PETROLEUM INDUSTRY 

threaded and tested to an internal pressure of 1,000 
pounds to the square inch. Gathering lines vary 
from 4 to 6 inches in diameter. Where possible the 
pipe lines follow railroads and public roads to facil- 
itate repair work. The "line rider" patrols the line 
summer and winter. 

The organization of the pipe line company is 
similar to that of the railroad company, having gen- 
eral offices and branch offices. The pipe line sys- 
tem is divided into divisions, each under a division 
superintendent. The division is usually divided into 
districts, each under a foreman. The general office 
includes the Oil Transportation, Engineering, Legal, 
Tax, Accounting and Telegraph and Telephone de- 
partments, each described in a general way by its 
name. 

Booster or pumping stations are located along 
the lines to keep the crude oil moving at the desired 
rate. The distance between stations depends upon 
the nature of the country and the viscosity of the 
oil. In the Mid-Continent field the average distance 
is about 35 miles and in California about 12 miles. 
Some stations handling extra heavy oil on an "up 
grade" are as close as two miles and others handling 
light oils on a "down grade" are as far apart as 90 

77 



THE PETROLEUM INDUSTRY 



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79 



THE PETROLEUM INDUSTRY 

miles. Some oils are so heavy that they must be 
heated before entering the pipe line. The pumps 
that drive the oil through an 8-inch pipe line are 
powerful enough to deliver 30,000 barrels of me- 
dium light oil in 24 hours with a line pressure of 
about 800 pounds to the square inch. 

When oil of a different grade is sent through a 
pipe line, a header is injected into the line. This is 
a slug of wa'ter about three feet long and separates 
the grades. When pumping of the different grade 
is completed another header is inserted, followed by 
the original grade. Occasionally a bullet-like "go- 
devil" is pumped through the pipe with the oil. The 
revolving knives cut from the walls of the pipe the 
accumulated sediment which would soon plug it up 
if not removed. 

When an oil company leases land the "Oil 
Lease," usually made for five years, provides for an 
annual rental to be paid to the owner arid varying 
from a few cents to several dollars an acre. When 
oil is struck rentals are replaced by a "royalty" of 
usually i/s of the oil, the other % going to the 
oil company. The pipe line company whose lines 
connect with the field tanks empty them when filled 
and pay for the oil usually twice a month, Ys going 

80 




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



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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. 

81 



THE PETROLEUM INDUSTRY 

Storage tanks belonging to producers are usual- 
ly of wood and hold only a few hundred barrels, ex- 
cept on large properties, as the pipe line company 
"runs" the oil to its own storage when the well tank 
is filled. Most of the pipe lines are owned by re- 
fineries, hence their storage tanks are usually built 
near the refinery in groups called "Tank Farms." 
These farms frequently cover hundreds of acres and 
sometimes contain dozens of tanks. The usual sizes 
are 37,500 and 55,000 barrels, the latter being 115 
feet in diameter and 35 feet high. With crude oil at 
$2.00 a barrel a "55" will hold $110,000 worth. 
Lightning is the worst enemy of the steel tank and 
losses from it are frequent. 

The storage tanks of the United States for the 
last several years have carried an average of well 
over 100,000,000 barrels of crude oil or about 3 
months' supply. 

In 186B Lawrence Myers built a "Rotary Oil 
Car" — a flat car with two sloping tanks mounted on 
it, similar to the field tanks of today. Each tank 
held about 40 barrels ; thus "a car of oil" was about 
80 barrels. The first of these cars arrived in Titus- 
ville November 1, 1865, and was loaded at the Mil- 
ler farm. This car was owned by the Eagle Trans- 

82 



THE PETROLEUM INDUSTRY 

porfation Company oT Philadelphia which also own- 
ed the patent on it. In 1866 Dillingham and Cole, 

Table 9 — Some large oivners of tank cars. 

Santa Fe Railroad Co 3,178 

Southern Pacific Railway 2,963 

Missouri, Kansas & Texas R. R 677 

St. Louis & San Francisco R. R 629 

Pennsylvania R. R. Co 514 

American Refining Co 256 

Associated Oil Co 337 

Central Refining Co 293 

Constantin Refining Co 500 

Consumers Refining Co 379 

Cosden Company 2,163 

Empire Refineries 2,100 

Gulf Refining Co 1,411 

Indiana Refining Co 1,032 

Magnolia Petroleum Co 590 

Ohio Cities Gas Co 900 

National Refining Co 1,004 

Pierce Oil Corporation 643 

Sinclair Refining Co 3,700 

Standard Oil Co. (Union Tank) 21,600 

Texas Company 3,435 

83 



THE PETROLEUM INDUSTRY 

machinists of Tftusville, built 60 tank cars for the 
Oil Creek railroads. These were built of iron, about 
90 barrel capacity, and fitted with gate valves. 

In 1868 the first car with a horizontal cylindri- 
cal tank was shipped to the Oil Creek fields to be 
tried out. Its capacity was about 80 barrels, later 
increased to 100, which became the standard size 
for many years. It was so superior to the old type 
barrel car that within a few years they had disap- 
peared. 

January 1, 1921, there were in use in the 
United States and Canada 137,493 tank cars used 
for the transportation principally of the refined 
products of oil — and in the case of new fields lack- 
ing pipe line connections, of crude oil. 

The first vessel to carry a cargo of oil exclu- 
sively was a'fittle sailing vessel, Elizabeth Watts, of 
224 tons, plying between Philadelphia and London. 
The first cargo consisted of 1,329 barrels and the 
first trip was made in November, 1861. The cost of 
transportation was "eight shillings per barrel deliv- 
ered with 5 per cent primage, payable cash on right 
delivery of cargo without discount." They were al- 
lowed 10 working days for loading the vessel and 12 
working days for unloading with $25 a day demur- 
rage. 

84 




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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 

85 



THE PETROLEUM INDUSTRY 

statistics showed that of the 114 oil-bunkering sta- 
tions in the world 83 were owned by the United 
States. These stations under the Stars and Stripes 
are located at the chief ports on the Atlantic and 
Pacific coasts, the Great Lakes and the Gulf of St. 
Lawrence. In South America they are located at 
the chief ports of Brazil, Uruguay, Argentine, Chile 
and Peru. Stations are located at both approaches 
of the Panama Canal and at several points in the 
West Indies. Nine stations are located in Great 
Britain, 3 in Norway, 2 in Sweden, 3 in Denmark, 5 
in Italy, 1 in Tunis, 1 in Egypt — with other stations 
being added. During the world war, while gasoline 
helped the automobile, the truck, the tractor and the 
tank to "do their bit" on land, and the aeroplane in 
the air, fuel oil was among the most potent factors 
on the sea. 

Oil-bunkering ships using flexible pipe lines 
replenish the tanks of ships on the high seas at the 
rate of 1,000 barrels an hour, while both vessels are 
under slow speed. The latest changes in ship design 
have been brought about by the substitution of oil 
for coal. 



86 



CHAPTER VI 
REFINING 

Almost all of the crude oil produced in the 
United States is "distilled" by the refineries. If the 
distillation process is carried far enough about 300 
different products can be obtained, although four of 
them made up about 89 ^c of the quantity and over 
91% of the value of the refined products made from 
all kinds of crude oil in the United States in 1918 : 



Products 




Quantity 


Value 


Gasoline 




23.47% 


45.99% 


Kerosene 




12.00 


9.18 


Gas and Fuel 


oil 


48.16 


25.99 


Lubricants 




5.54 


10.31 



89.17% 91.47%o 

The present high state of development of re- 
fining is emphasized by the fact that in the early 
years of the petroleum industry "coal oil" was the 
only product obtained from crude oil. The residue 
containing gasoline, lubricating oils, wax oils, etc., 

87 



THE PETROLEUM INDUSTRY 

that are so valuable today, was either thrown away 
as useless or sold for a trifle to anyone who could 
find use for it. Based on 1918 data this waste 
would have amounted to 91% of the value of the 
products that might have been obtained from the 
crude oil — and. these products would have been 
worth, at retail prices, over a Billion Dollars. 

The general process of refining is fundamental- 
ly very simple. Petroleum, usually called "crude 
oil," is a liquid made up of a number of different 
products, each having a different vaporizing tem- 
perature — and this fact is the basis of the refining 
industry. 

Reduced to its simplest form a refinery would 
consist of 

1— A still 
2 — A cooling tank 
3 — A tail house 
4 — Storage tanks 
Beginning at about 200 degrees Fahrenheit, 
and ending at about 500 degrees, these products of 
crude oil are vaporized, each at its own particular 
temperature. The vapors of the "lightest" (least 
dense) products pass off first, then the next light- 
est, and so on until, with the heat gradually in- 

88 



THE PETROLEUM INDUSTRY 

creasing, all of the products desired are obtained. 
Each of these products is called a ''fraction" of 
crude oil, hence the refining process is called "the 
fractional distillation of petroleum." 

After the fire has been burning for several 
hours and the hundreds of barrels of crude oil in 
the "still" get hot enough to vaporize, the vapor 
passes through the pipe leading from the still to the 
cooling tank which is filled with cold water. Dur- 
ing its passage through the hundreds of feet of pipe 
in this cooling tank the greater part of the vapor 
changes to liquid. Completing its passage through 
the cooling tank it flows to the tail house which is 
in charge of the "stillman." As the liquid flows 
through the "look box" (1) he takes samples from 
time to time to find their density (specific gravity) . 
Knowing the specific gravity of each of the differ- 
ent fractions, together with their color and how 
they "feel" to the touch (the latter two are acquired 
by long years of experience) he can tell when prac- 
tically all of the first fraction has passed over. This 
flows into storage tank 2, valve 3 being open and 
valve 4 closed. By closing valves 3 and 6 and open- 
ing valves 4 and 5 the second fraction flows into 
storage tank 7 — and so on with the remaining frac- 
tions, each going into its own tank, until the crude 

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THE PETROLEUM INDUSTRY 



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Figure 41 — "Look boxes" in the tail house (sometimes 
called the receiving house) of a refinery. As the liquid 
flows from the end of the pipe in the look box the stillman 
can tell by its specific gravity and color when to cut the 
flow from one rundown storage tank to another. This is 
done by a system of manifolds that control the flow to 
each rundown tank. 



THE PETROLEUM INDUSTRY 

oil is distilled down as far as that particular type of 
refinery takes it. 

As it is impossible for the "stillman" to make 
an exact "cut" from one fraction to another, most of 
the fractions are re-distilled with much more care, 
and each fraction is thereby broken up into a num- 
ber of fractions. In the "complete" refineries this 
re-distillation process becomes a highly technical 
matter — ^^but without it we would not have the 300 
products of petroleum. 

The still is equipped with a thermometer (this 
particular kind is called a pyrometer) that indi- 
cates the temperature of the crude oil within. The 
first vapors to be formed are crude naphtha, from 
which naphtha, benzene and gasoline are obtained 
by re-distillation. These vapors begin to form at 
about 200 degrees Fahrenheit and end at about 250 
degrees. Then comes kerosene distillate vapors 
from 250 to about 300 degrees; then gas oil vapors 
from 300 to 350 ; then parafiin distillate vapors from 
350 to 500 degrees. The residue is cylinder stock 
and from it are obtained tar, asphalt, road oil, flux, 
tailings, coke, etc. 

The small circles shown in the bottom of the 
still, just over the fire, represent pipes through 

91 



THE PETROLEUM INDUSTRY 

which steam under high pressure is blown into the 
crude oil to keep it from "burning" where the flame 
strikes the still. Coke stills are not equipped with 
these steam pipes as the oil which they use has al- 
ready had the more valuable products removed by 
other stills. 

The type of still just described is known as a 
"batch still" as it is charged, closed, fired for 20 to 
40 hours and then cleaned for another batch. In re- 
cent years the idea of "continuous" distillation has 
been successfully worked out, the process removing 
only the lighter fractions of the crude, hence such 
refineries belong in the skimming plant group. 

By consulting the first paragraph of this chap- 
ter you will see that gasoline and kerosene repre- 
sented about 55% of the value of the crude oil re- 
fined in 1918 — and when you stop to think that mil- 
lions of barrels of crude oil, direct from the well, 
have been burned for "fuel oil" you will realize the 
tremendous economic loss sustained through failure 
to remove these more valuable products before 
using the less valuable for fuel. 



92 



THE PETROLEUM INDUSTRY 

There are three types of oil refineries : 
1 — Skimming plants 
2 — Lubricating and wax plants 
3 — Complete run down refineries 
Fig. 42 shows graphically the scope of work of each 
of these refineries. The slamming plant starts 
with crude oil and gets from it gasoline, kerosene, 
gas oil and fuel oil. The lubricating and wax plant 
starts with crude oil and gets from it the same pro- 
ducts as the skimming plant and in addition breaks 
up the fuel oil into equal parts of paraffin distillate 
and cylinder stock. The paraffin distillate is broken 
up into lubricating oils and paraffin wax while the 
cylinder stock is sold. The complete run down re- 
finery starts with crude oil and makes all of the 
products that the skimming plant and the lubri- 
cating and wax plant make and in addition makes 
bright stock and petrolatum, from which many 
more products are made. 

The simplest proposition, and the one requiring 
the least investment of capital, is naturally the 
skimming plant which yields four products. The 
lubricating and wax plant requires a much larger 
investment and yields a larger line of products, 
while the complete run down refinery could probably 

93 



THE PETROLEUM INDUSTRY 




94 



THE PETROLEUM INDUSTRY 

not be built to operate economically for less than 
a half-million dollars, the average investments run- 
ning from one to five million dollars, or more. 

These three types of refineries are the results 
of different purposes of different refiners as to the 
products they want to get from crude oil for the 
class of people they intend to serve. 

Thus the same general principle prevails in the 
refining business that prevails, for example, in the 
iron business w^here different manufacturers make 
different metal products from the same iron ore. It 
is a well known fact in the iron industry that after 
ore is brought to the surface its later treatment is 
almost entirely a question of chemistry and engi- 
neering — and it should be as universally known 
that after crude oil is brought to the surface its 
usefulness to mankind as well as its profitableness 
to investors in refinery securities is largely a ques- 
tion of chemistry plus sound business policies and 
principles. 

If the market for crude oil is "low" the com- 
panies with plenty of storage fill their tanks with 
"cheap oil", but before running it into storage they 
"top" it by removing the lightest fractions (mostly 
gasoline), much of which would evaporate if left in 

95 



THE PETROLEUM INDUSTRY 

storage for several months. Plants specially de- 
signed for this work are called "topping" plants. 

From 1912 to 1920 the annual production of 
petroleum in the United States doubled — but the 
production of automobiles and motor trucks in- 
creased six times, as shown in Table 10. This rep- 
resents one of the many conditions in our rapid in- 
dustrial development which has made necesssary 



Table 10 — Growth in production of peti^oleum, 
gasoline and motor vehicles: 





Petroleum 


Gasoline Automobiles & 


lear 


Barrels 


Gallons Motor Trucks 


1912 


222,000,000 


1,008,000,000 


378,000 


1913 


248,000,000 


1,260,000,000 


485,000 


1914 


265,000,000 


1,512,000,000 


569,000 


1915 


281,000,000 


1,764,000,000 


892,000 


1916 


300,000,000 


2,058,000,000 


1,583,000 


1917 


335,000,000 


2,850,000,000 


l,868,00a 


1918 


355,000,000 


3,570,000,000 


1,153,000 


1919 


377,000,000 


3,957,000,000 


1,974,000 


1920 


443,0011,000 


4,870,000,000 


2,241,000 



Note — In 1904 the yield of gasoline luas 10.3 
per cent of the crude oil run to refineries, ivhereas 
in 1920 the yield ivas 26.2 per cent. 



96 




Figure 43 — The rear end of a fire still, showing the "vapor 
lines" leadng- to the cooling tanks. The engines in the 
pump house pump the crude oil from the crude oil storage 
tanks to the stills, as well as the different fractions, from 
one part of the plant to another, and finally, as finished 
products, into the usual transporter*, the tank car. 



THE PETROLEUM INDUSTRY 



Table 11-A — Growth in capacity of cracking 
plant stills: 

Year Cracked gasoline, gallons 

1913 42,000,000 

1911 126,000,000 

1915 168,000,000 

191^ 252,000,000 

1917 378,000,000 

1918 756,000,000 

Table 11-B — Growth in production of casing- 
head gasoline, from both compression and ab- 
sorption plants: 

Gasoline Produced Per Gallon 

Year Plants Gallons Value Cents 

1911 176 7,425,839 $ 531,704 7.16 

1912 250 12,081,179 1,157,476 9.6 

1913 341 24,060,817 2,458,443 10.22 

1914 386 42,652,632 3,105,909 7.28 

1915 414 65,364,665 5,150,823 7.88 

1916 596 103,492,689 14,331,148 13.85 

1917 886 217,884,104 40,188,956 18.45 

1918 1,004 282,535,550 50,363,535 17.8 



97 



THE PETROLEUM INDUSTRY 

the "cracking plant" type of refinery. The crack- 
ing process consists of the re-distillation of heavy 
distillates in high-pressure, high-temperature stills 
for the primary purpose of getting an additional 
amount of gasoline from them; hence a skimming 
plant or a lubricating and wax plant or a complete 
refinery might each have a battery of "cracking 
stills." 

Table 11-A shows the growth in capacity of 
cracking plant stills in the United States — but it 
must be remembered that every year's crude oil 
production sets the limit on the maximum amount 
of distillates that can be cracked, and that there is 
a limit beyond which no chemist can go in obtain- 
ing gasoline from petroleum. 

While several cracking processses are now in 
use nearly all of the cracked gasoline is made today 
by the Burton process invented by Dr. Burton, 
President of the Standard Oil Company of Indiana. 
Thia process is leased to certain other companies, 
principally of the Standard Oil "group". 

The question of continuing to obtain sufficient 
gasoline to meet our rapidly expanding needs has 
become so serious that the International Associa- 
tion of Recognized Automobile Clubs offered a 

98 



THE PETROLEUM INDUSTRY 

prize of $100,000 for a gasoline substitute to cost 
less than gasoline. 

Crude oil is usually divided into two kinds: 
1 — Paraffin base 
2 — Asphalt base 
The paraffin base crudes are the "light" crudes, 
while the asphalt base crudes are the "heavy" 
crudes. 

The crude oil of Pennsylvania is paraffin base 
hence the making of illuminating oil and "wax" 
candles sprang up early in that territory. The par- 
affin base crudes also contain larger percentages of 
gasoline and naphtha than the heavy crudes, hence 
the price of crude oil at any given time varies wide- 
ly over the United States and may range from 50 
cents to $6.00 a barrel. This variation is due to a 
number of factors, the most important of which is 
the percentage of the more valuable products that 
can be refined from the different kinds of crude. 

By referring to Table 1 you will see that in 
1920 Appalachain crude averaged about $5.50 a bar- 
rel, Illinois crude about $4.00, Mid-Continent crude 
about $3.50, Gulf Coast crude about $2.40 and Cali- 
fornia cru'de about $1.85. While the old saying is 
true, that "no two crudes are alike," yet the oil 

99 



THE PETROLEUM INDUSTRY 
Table 12 ■ — Petroleuyn products for the year 1920 : 

Gasoline 4,882,000,000 gallons 

Kerosene 2,320,000,000 gallons 

Gas and Fuel oils 8,861,000,000 gallons 

Lubricating oils 1,046,000,000 gallons 

Paraffin wax 541,000,000 pounds 

Coke 576,000 tons 

Asphalt 1,290,000 tons 

Miscellaneous 1,492,000,000 gallons 

The principal items making up the "Miscella- 
neous" item above are as follows: 

Gallons 
Distillates 787,000,000 

Tops 107,(700,000 

Road oil 60,000,000 

Flux 34,000,000 

Sludge 19,000,000 

Petrolatum 6,000,000 

Tailings 5,000,000 

Acid oil 5,000,000 

Tar 4,000,000 

Wax tailings 3,000,000 

Medicinal oils 1,000,000 

Some of the remaining items are pitch, paint 
products, roofer's wax, binder, mineral turpentine 
— the complete list would contain about 300 items. 

100 



THE PETROLEUM INDUSTRY 

from the wells and pools in the same fields are 
sufficiently similar to be classed as either paraf- 
fin base or asphalt base, although there are a few- 
instances where they are "mixed base." By a broad 
general classification Eastern, Mid Continent and 
Rocky Mountain crudes are paraffin base, while 
California, Gulf Coast and Mexican crudes are as- 
phalt base. The heavy crudes produce little gaso- 
line except by cracking, but they yield large 
amounts of lubricating oils, asphalt, tar and coke. 

In 1920 the United States produced 443,000,- 
000 barrels of crude oil and during the same year 
her refineries turned out the products shown in 
Table 12. 

To an English chemist, James Young, is due the 
credit for working out the process of refining crude 
oil. While serving as industrial chemist to a firm 
in Manchester, England, his attention was called by 
Lord Playfair to a thick, viscous liquid which was 
oozing from a coal mine at Alfreton in Derbyshire. 
Young found it to be crude petroleum and succeeded 
in distilling paraffin (illuminating oil) from it. He 
left Manchester, built a small refinery near the 
mine and began producing illuminating oil which 
was then the only commercial use made of petrole- 

101 



THE PETROLEUM INDUSTRY 

um. At the end of two years his supply of crude oil 
failed, but in that time he had perfected his refining 
process and in 1850 took out his famous patent for 
the distillation of paraffin (illuminating oil) from 
petroleum. Young's discovery of the refining proc- 
ess in England compares in importance with 
Drake's drilling the first oil well in America. 

January 1, 1921 there were 415 refineries in 
the United States with a combined capacity of 
1,888,000 barrels of crude oil a day. In 1920 the 
United States produced 443,000,000 barrels of crude 
oil within its own borders and, in addition to re- 
fining its own crude, refined 61,000,000 barrels of 
crude oil and 2,000,000 barrels of "tops" from Mex- 
ico. The total oil available for refining in 1920 was 
therefore about 506,000,000 barrels, or an average 
of 1,386,000 barrels a day. This gives an excess of 
502,000 barrels of daily refining capacity over the 
daily production. This excess capacity is not evenly 
distributed over the United States however, some 
districts being over-built while others are under- 
built — with the same effect in each instance that 
would follow similar conditions in any other indus- 
try. 

102 



THE PETROLEUM INDUSTRY 

Texas has the most refineries, 70, with a daily 
combined capacity of 330,000 barrels; Oklahoma 
comes next with 68 refineries and 248,000 barrels 
capacity; then Pennsylvania with 51 and 116,000 
barrels and California with 39 and 312,000 barrels. 
While New Jersey has but 7 refineries they have a 
daily capacity of 215,000 barrels. 

It has been estimated that in 1919 the refiner- 
ies of the Standard Oil "group" consumed over 51 
per cent of the crude oil which was refined in the 
United States that year. The "independent" re- 
fining companies, each of which consumed over 
1,000,000 barrels of crude oil in 1919 were: 

American Oilfields Company 
American Petroleum Company 
Cosden & Company 
General Petroleum Corporation 
Gulf Refining Company 
Indiana Refining Company 
Midwest Refining Company 
National Refining Company 
Ohio Cities Gas Company 
Roxana Petroleum Company 
Shaffer Oil & Refining Company 
Sinclair Refining Company 
Sun Company 
Texas Company 
Tidewater Oil Company 
Union Oil Co. of California 
103 



THE PETROLEUM INDUSTRY 

The 16 independents listed above consumed, in 
1919, over 31 per cent of the crude oil refined. 

As the Standard Oil group and the 16 independ- 
ents together consumed about 83 per cent of the 
crude oir refined in the United States in 1919 it is 
apparent that the bulk of the refining business in 
the United States is in the hands of corporations 
with large finar ial resources. 

It is equally obvious that the hope of the small 
refiner lies in the direction of availing himself of 
those outside sources of service which will put him 
on a competitive basis with the large refiners. 

No story of the petroleum industry would be 
either complete or just that did not give full credit 
for the splendid work of the United States Geologi- 
cal Survey, the United States Bureau of Mines and 
the 'Geological Surveys of the various states, as well 
as tHe work that has been done by many of our uni- 
versities. The American Petroleum Institute, or- 
ganized in 1919, recently created the department of 
Technical Research and Dr. Van H. Manning, for 
years Director of the United States Bureau of 
Mines, resigned to accept the position of Director of 
this work for the Institute. 

The Bureau of Mines was established in 1910 
and outside of Washington, D. C., there are 10 "sta- 

104 



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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 




jZ (m 



Ui q; 



THE PETROLEUM INDUSTRY 

head of the casing, hence called "casinghead gas". 
Millions of dollars worth of gasoline, that might 
have been recovered from the surface of flow tanks 
and from the heads of well casings have for years 
been wasting into the air, and only in recent years 
have casinghead gasoline plants been developed that 
would recover this "invisible waste." 

The difference between gasoline made from 
either dry gas from gas wells or wet gas from oil 
wells, and gasoline made from crude oil is due to 
the fact that while crude oil is still in the ground 
the gas that is always associated with it, in greater 
or less quantities, absorbs some of its lighter frac- 
tions, gasoline being the most important; the frac- 
tions remaining in the crude oil are heavier than 
the ones that are absorbed by the gas — and as the 
lighter- the fraction from which gasoline is made the 
greater the "kick" when used in your automobile, it 
naturally follows that gasoline made from either 
wet gas or dry gas is more volatile and has more 
"kick" than gasoline made from crude oil. 

Following the same line of reasoning dry gas, 
not having been in contact probably for centuries 
with crude oil, is "lean" in gasoline vapors and 
therefore will not yield as much gasoline per 1,000 

129 



THE PETROLEUM INDUSTRY 

cubic feet as wet gas which remains in contact with 
tihe crude oil. 

In proof of these obvious facts the data for 
1917 show that 79,527,000,000 cubic feet of wet 
gas produced 168,000,000 gallons of gasoline or an 
average of 2 gallons and one pint per 1,000 cubic 
feet, while 349,760,000,000 cubic feet of dry gas 
produced 49,000,000 gallons of gasoline or a little 
more than one pint to the 1,000 cubic feet. 

And it also follows that cracked gasoline is 
heavier than straight run, because the first distil- 
lation removes the greater part, and practically all 
of the lighter part of gasoline in the crude oil. The 
second distillation (cracking process) onust natur- 
ally yield a heavier gasoline. 

Therefore gasolines arranged according to 
their volatility, would assume the following order: 
1 — Casinghead gasoline (From wet gas) 
2 — Natural gas gasoline (From dry gas) 
3 — Straight-run gasoline (From crude oil) 
4 — Cracked gasoline (From gas oil) 
Casinghead gasoline (made from either wet gas 
or dry gas) is too rich, while cracked gasoline is too 
lean to be satisfactory for motor vehicle use. For 
this reason a blend of cracked gasoline with casing- 

130 



THE PETROLEUM INDUSTRY 

head gasoline gives a product equal at least to 
straight run — ^and one in which the amount of 
"kick" desired can be controlled by the person mak- 
ing the blend. 

In the first distillation of crude oil, crude naph- 
tha is the first fraction to vaporize, and wthen this 
is re-distilled it breaks up into naphtha, benzene 
and gasoline. Naphtha however lacks the low 
burning constituents essential to a good motor fuel 
while casinghead gasoline has too much — therefore 
a blend of naphtha and casinghead gasoline makes a 
high quality motor fuel. The 8,000,000 barrels of 
casinghead gasoline made in 1918 rendered at least 
an equal amount of naphtha available as motor fuel. 

There are at present two processes by which 
gasoline is obtained from natural gas : 

1 — Compression and refrigeration process 
2 — Absorption process 

When air is "saturated" with water vapor and 
the temperature falls, some of the water vapor 
changes to rain, snow, fog, dew or hail — and if gas 
is saturated with the vapor of gasoline and the 
temperature falls, the vapor of the gasoline changes 
to liquid gasoline. 

131 



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When air is placed under sufficient pressure the 
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tains changes to liquid gasoline. As the temperature 
of the compressed gas increases as the compression 
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133 



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135 



THE PETROLEUM INDUSTRY 

process which probably does not recover more than 
half of the total gasoline content in the wet gas. 

As the amount of dry gas (from gas wells) 
consumed in 1918 amounted to 721,000,000,000 
cubic feet, and as not more than half of the gasoline 
was recovered from the wet gas (by the compres- 
sion process), it is obvious that there was a "field" 
for a new process — and the answer was the ab- 
sorption process. 

This consists essentially in bringing the gas 
(containing the vapor of gasoline) into contact with 
an oil heavier than gasoline. The oil absorbs the 
gasoline which is then separated from it by distilla- 
tion. This process may be varied by passing the 
gas through naphtha having a specific gravity of 
about 50 to 55 degrees Beaume, letting the naphtha 
absorb enough of the gasoline to produce a blended 
gasoline of the desired quality for commercial use. 

Probably the first large scale absorption plant, 
working under high pressure, was built by J. M. 
Saybolt at Hastings, West Virginia in 1913. By 
this process the gas bubbles up through a heavy 
petroleum distillate at high pressure, the distillate 
absorbing the gasoline vapor from the gas. This 
"mixture" is then sent to steam stills where the 

136 



Figure 49 — Topping- plant for removing only the lighter 
fractions from the crude oil. 








Figure 50 — Absorption plant; see towers on next page. 




Figure 51 — Absorption towers of plant shown in Figure 50. 
For extracting the gasoline from either casinghead (wet) 
gas from oil wells, or from natural (dry) gas from gas 
wells. They can recover as small an amount as one pint 
of gasoline in 1,000 cubic feet of natural gas. 



/ 51 








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Figure 53 — Tiger Mountain gas well ; when drilled in it 
made 22,000,000 cubic feet and when 6 years old was mak- 
ing 16,000,000 cubic feet. 



THE PETROLEUM INDUSTRY 

gasoline is separated from the distillate which is 
used over and over again. 

As first devised the absorption plant worked at 
high pressure only, but as improved today it works 
at all pressures and vacuums and as a result any 
gas, wet or dry, after treatment by it is almost "as 
dry as a bone," so far as containing any gasoline 
vapor is concerned. 

The present high efficiency of the absorption 
process has made it possible to recover the gasoline 
from the unliquified vapors, which during refining 
pass from the still through the cooling tank to the 
storage tank from which for years they have been 
wasting into the air. 

It is also possible to recover the gasoline from 
the vapors from flow tanks and storage tanks as 
well as the residual gases from casinghead gasoline 
plants working by the compression process. 

The gas from gas wells under high pressure is 
usually lean in gasoline content because at the high 
pressure in the gas sand the gasoline is too dense to 
escape except in very small amounts. As the well 
exhausts itself the gas grows richer in the gasoline 
vapor that it carries. 

137 



THE PETROLEUM INDUSTRY 

Today when a new oil well or gas well comes in, 
one of the early duties is to have a chemist test the 
gas for its "gasoline content". If the producing oil 
company does not have its own casinghead gasoline 
plant there are today, in almost all fields, companies 
that specialize in the manufacture of casinghead 
gasoline and are always in the market for gas from 
the gas it is necessary that the owners know how 
the gas it is necessary that the owners know how 
much gasoline it contains. 

As a practical illustration of one kind of "waste 
of invisible profits" that prevailed for many years in 
the oil business : the "XYZ Oil Company" brings in 
a 300-barrel well — crude oil is $2.00 a barrel — and 
their income is $B00 a day. In addition to the crude 
oil, their well is running 3,000,000 cubic feet of gas 
that shows on test that it contains a half -gallon of 
gasoline to the 1,000 cubic feet. A casinghead 
gasoline plant will recover 1,500 gallons (3,000 times 
V^ gallon) of gasoline from this well. At a whole- 
sale price of 15 cents a gallon the company's income 
from gasolfne sales would be $225 (1,500 times 15 
cents) a day. And up to a few years ago the XYZ 
Company would have accepted the $600 a day for 
their oil and never have known of the "invisible 

138 



THE PETROLEUM INDUSTRY 

profits" of $225 a day that were wasting away into 
thin air. 

That this "invisible waste" can be stopped, and 
turned into profits available for dividends, is due to 
the work 61 chemists and specialists — and without 
work ofl:his kind there would have been no petro- 
leum industry, in the sense that we know it today. 



189 



CHAPTER IX 
ASSETS OF THE PETROLEUM INDUSTRY 

On August 27, 1859 there was just one oil well 
in the United States — since that time about 500,000 
have been drilled, of which 258,600 were rated as 
producers on Oct. 31, 1920 as shown in Table 6. 

The statement that "more money has been put 
into oil than has ever been gotten out of it" is not 
true of the industry as a whole. Numerous in- 
stances could be cited however of individual com- 
panies that did put more money into oil than they 
ever got out — but this is equally true of every other 
business in the land. 

It is probably true that if it were possible to 
separate the producing end of the oil business from 
the remainder, and charge against the producing 
end the cost of drilling all of the wells, including 
the dry holes, ayid all of the money tvasted by all of 
the get-rich-quick oil promotions that have been 
floated, the total would be greater than the value of 
all of the crude oil, at the surface of the ground at 



UO 



THE PETROLEUM INDUSTRY 

the market price when produced. Within the last 
few years however the great improvements in ex- 
ploration work, in the location of test wells, in the 
proper casing of wells to prevent water encroach- 
ment into oil and gas sands, in the discovery of 
deeper sands, in the proper pumping of wells, etc. 
have placed the producing end of the oil business 
upon a very different basis than when the old 
"rule-of-thumb" methods prevailed. 

The transporting, refining and marketing ends 
of the business have not had to carry the stupen- 
dous burdens that have been loaded upon the shoul- 
ders of the producing end. In electrical language 
"it isn't the load, but the overload that destroys" — 
and this is true of the producing end of the oil 
business. Relieved of the burden of crooked pro- 
motions and the expensive mistakes of novices who 
never belonged in the business, the producing end 
of the petroleum industry would show handsome 
profits as is evidenced by the hundreds of well- 
managed, highly successful producing oil com- 
panies today. 

The transporting end of the business has been 
extremely profitable. The refining business has been 
profitable when in the hands of men whose techni- 

141 



THE PETROLEUM INDUSTRY 

cal training and practical experience qualified them 
to operate such plants. "Isolated'" refineries (those 
without fixed supplies of crude oil or dependable 
markets for refined products — and most of the "pro- 
moted" refineries have been of this kind) have us- 
ually fallen into the hands of other refineries or 
were re-organized by practical oil people — and put 
on a "de-hydrated" basis. 

Many refineries either own outright or control 
the policy of chains of distributing stations, there- 
by safeguarding the market for their products as 
well as safeguarding their profits. 

It is absolutely impossible to secure any re- 
liable statistics as to the cost of the early develop- 
ment of the petroleum industry. The industry had 
to be created — there were no established stand- 
ards to guide these oil pioneers in drilling wells, or 
casing them, or taking proper care of them, or 
building refineries, or operating them economically, 
to say nothing of frequent chaotic marketing con- 
ditions. All of the vast machinery of the industry 
had to be built, and the market had to be developed 
with the growing industry. Mistakes were made in 
every end of the industry — much money was wast- 
ed — much effort was wasted — and it would serve no 

142 



THE PETROLEUM INDUSTRY 

real purpose to know how much. This one fact re- 
mains: that from it all has emerged the petroleum 
industry as we know it today — and measured in 
terms, not of cost, hut of service to mmikind, it is 
amply worth the price. 

Disregarding capitalization, and considering 
only the "physical assets" of the four departments 
of the industry, a comparatively close estimate can 
be made of its "present worth" — and this, compared 
with an estimate of the market price of the refined 
products as represented by sales, establishes a 
working basis from which some general conclusions 
may be drawn. 

Most production is bought and sold by one or 
the other of two widely different standards: — 
1 — On a "barrel-per-day" basis 
2 — On an appraisal made by a firm of Pe- 
troleum Engineers. 

The principle involved in the first method is a 
unit price per barrel multiplied by the number of 
barrels per day. For example, the price agreed on 
is $1,500 per barrel and the well is producing 10 
barrels per day : the market price of the well would 
be 10 times $1,500 or $15,000. The price per bar- 
rel varies with the price of crude oil, the age of the 

143 



THE PETROLEUM INDUSTRY 

well, the kind of oil sand, the number of oil sands in 
the pool, and other factors, an accurate estimate of 
which can he made by experienced oil men only. 

Especially in transactions involving larger 
properties the method of a complete appraisal by a 
firm of Petroleum Engineers is rapidly replacing the 
first method which, at the best, is little better than 
a "rule-of-thumb" way of arriving at a value. 

The American Petroleum Institute estimated 
that the average daily production for the United 
States for the week ending April 30, 1921 was 1,- 
297,940 barrels— multiplying this by $2,000 (which 
is probably the average price per barrel based on 
conditions early in 1921) would give an approxi- 
mate value of $2,500,000,000 for the present pro- 
duction of the United States. 

This estimate is undoubtedly less than the real 
value, because the buying price of a well contem- 
plates a profit on the transaction, and most wells 
are bought on the basis of returning the purchase 
price in from 3 to 4 years. Conceding that the real 
value of the wells is greater than that indicated by 
the temporarily low prices of crude ruling through 
the first half of 1921, and that the "profit" margin 
in the purchase price is a part of the real value of 

144 



THE PETROLEUM INDUSTRY 

the wells, a price of $3,500,000,000 would probably 
represent a fair value. 

According to estimates made by the United 
States Bureau of Mines, there were in the United 
States in 1920 about 34,000 miles of main trunk pipe 
line and about 11,500 miles of gathering lines. At 
the time of construction the average cost per mile, 
based on 8-inch pipe, was about $6,500. The re- 
placement cost today of the trunk lines and the 
gathering lines would be about $400,000,000. The 
cost of the average pumping station, when built, 
ranged from $130,000 to $250,000. The replace- 
ment cost today would be substantially more. A 
total present valuation of $500,000,000 for the 
transportation system would be conservative. 

On January 1, 1921 there were 415 refineries in 
the United States with a total daily capacity of 
1,888,800 barrels — and 44 refineries were under con- 
struction. Included with these refineries are in 
many instances valuable wharf and terminal proper- 
ties, factories for the production of tin containers 
for the refined products, factories for making steel 
and wooden barrels, foundries, machine shops, tank 
car repair shops, etc., a total valuation for all of 
which would probably not fall short of $2,000,000- 
000 based on the present replacement costs. 

145 



THE PETROLEUM INDUSTRY 

On January 1, 1921 there were 220 tankers on 
the high seas flying the American flag and 105 
building, giving us a fleet of 325 Aanerican-owned 
tankers, valued conservatively at over $250,000,000. 
In addition there were numerous tugs and lighters 
for harbor use. The tank cars in use in the United 
States at the beginning of 1921 were estimated to 
have cost over $200,000,000. Among the other items 
necessary to maintain the vast marketing organiza- 
tion throughout the United States, are filling sta- 
tions, warehouses, tank wagons, motor trucks, pri- 
vate railroad sidings, storage tanks, etc. The mar- 
keting investment would total not less than $650,- 
000,000. 

The industry carries at all times large quanti- 
ties of crude oil and refined products. The crude 
oil "above ground," between the field tanks and the 
refinery storage tanks, varies from day to day, the 
average amount being about 125,000,000 barrels 
which, at the prices ruling early in 1921, would be 
worth approximately $200,000,000. Between the 
refinery and the filling stations and retail stores are 
vast quantities of gasoline, kerosene, lubricating oils 
and other refined products worth, at current retail 
prices, approximately $200,000,000. 

146 



THE PETROLEUM INDUSTRY 

A summary of the preceding estimates of the 
investment in the petroleum industry in the United 
States, as of the year 1921, would be as follows : 

Production $3,500,000,000 

Transportation . . . 500,000,000 

Refining 2,000,000,000 

Marketing 1,500,000,000 

Total $7,500,000,000 

The best estimates available place the "sales" 
of the refined products of petroleum at from $2,- 
500,000,000 to $2,700,000,000 annually. Accepting 
the smaller amount as a conservative valuation, and 
the total investment at $7,500,000,000, an approxi- 
mation can be had of what the petroleum industry 
means to this country, when viewed from the stand- 
point of 

"A GREAT AMERICAN INDUSTRY". 



147 



CHAPTER X 

FINANCE— AND THE GROWTH OF 
INDUSTRIES 

Regardless of the division of human history in- 
to the Stone Age, the Iron Age, the Bronze Age and 
so on, the fact remains that, for about a century, 
we have been living in three Ages, all combined 
into one. 

Scarcely more than a century ago Watt invent- 
ed the steam engine and thereby launched the "Age 
of Steam." 

When Franklin with his kite drew the electric 
spark from the clouds he launched the "Age of 
Electricity." 

And little did Drake dreaim, on August 27, 
1859, when the first barrel of petroleum was drawn 
from the well that he was that day launching the 
"Age of Petroleum". 

Steam is Power — but it calls for engines, so 
that it can turn the wheels of industry. 

Electricity is Power — but it calls for motors so 
that it can serve humanity. 

148 



THE PETROLEUM INDUSTRY 

Petroleum is Power — but it calls for the inter- 
nal combustion engine, so that its gasoline can drive 
the automobile, the motor truck, the tractor and 
the aeroplane. 

Steam, Electricity and Petroleum have com- 
bined to give us the "Age of Machinery" — ^and in 
delving through the history of nations, from the 
earliest dawn to the beginning of the last century, 
one is amazed to find that "civilization" had prac- 
tically no machines. 

It is difficult to realize that agricultural ma- 
chinery, railroads, steamboats, street cars, tele- 
graphs, telephones, electric lights, automobiles, mo- 
tor trucks, farm tractors, aeroplanes have all come 
into our civilization within the last 100 years — and 
nearly all of them within the present generation. 

It is difficult to realize that down through forty 
centuries these things were totally unknown — and 
that all of them have come within one century. 

When the South Carolina Railroad placed its 
American-built locomotive on its six miles of track, 
January, 1831, it launched tlie American Railroad 
Industry that in October 1919 had a physical valu- 
ation of almost Nineteen Billion Dollars. From this 
first crude type of locomotive there has evolved the 

149 



THE PETROLEUM INDUSTRY 

giant triplex, articulated, compound mallet type 
that weighs 200 tons and will pull a train a mile 
long, and lighter passenger engines with regular 
schedules of "a mile a minute." From the first 
crude car have evolved the palatial all-steel coaches, 
sleepers and diners of today. From the first 6 miles 
of track has evolved 266,000 miles of main line. 
From the employees of this first little road there 
has grown up a great working organization num- 
bering 1,700,000 in 1914, with an annual payroll of 
$1,381,000,000— possibly 8,000,000 people in the 
United States are today dependent, directly or indi- 
rectly, on the railroads for their daily bread. 

The people who "furnished the Tnoney" that 
made this first train possible had no conception of 
what the industry they were financing would mean 
to the world, or that this first "investment" in rail- 
roads would grow in less than a century to nearly 
Nineteen Billion Dollars. 

The network of railroads spread over the Uni- 
ted States so rapidly that there was no possibility 
of the profits being large enough to pay dividends, 
and allow the railroads to grow at the same time. 
Therefore our first great American industry, the 
railroads, soon learned that in order to grow they 

150 



THE PETROLEUM INDUSTRY 

would have to go to the public, whom they served, 
for the money. 

The growth in mileage and in rolling stock and 
in payrolls has been so rapid and the need for mon- 
ey to meet this expansion has been on such a vast 
scale that it could be met in only one way — and that 
was by the creation of railroad securities to be of- 
fered to the public as investments — and the public's 
money built the railroads. 

In reviewing a century's railroad history there 
is no questioning the fact that their physical growth 
outran their financial development — ^with all of the 
unfortunate results that surely and swiftly follow 
in the wake of "lopsided" growth. 

If the railroads in the early history of the in- 
dustry, had adopted such policies of management 
as would have laid special emphasis on the profita- 
ble operation of the roads, evidenced by ample re- 
turns to the people who furnished the money to build 
and equip them, there is absolutely no question but 
that they would never have lacked plentiful supplies 
of outside capital for expansion and development 
and at the same time they would have avoided at 
least a large part of the public's attitude that has, 
on frequent occasions, found expression in legisla- 

151 



THE PETROLEUM INDUSTRY 

tion that, to say the least, has been antagonistic. 
Viewed in the light of physical accomplishment the 
building, equipping and operating of more than a 
quarter of a million miles of railroad stands as an 
enduring monument to American genius — but it is 
a regrettable fact that the roads have not rendered 
as satisfactory a service to the people who fur- 
nished the money that built and equipped them as 
they have to their patrons. 

The distribution of the products of the agricul- 
tural implement industry has been especially charac- 
terized by "long terms" to the farmer. Long terms 
means slow turn-over of capital, thereby necessitat- 
ing large amounts of it. This money has come from 
"the outside," as is evidenced by the millions of dol- 
lars worth of stocks and bonds issued by the agri- 
cultural implement manufacturers. 

The telegraph, telephone and electrical com- 
panies have asked for and received hundreds of mil- 
lions of dollars of the public's money, and the rapid 
expansion of these businesses has been made possi- 
ble only by addition of new capital from the outside. 

There can be no questioning the fact that our 
great industries render great service to the public — 
to all of the people — and the real measui>i of every 

152 



THE PETROLEUM INDUSTRY 

industry is the value of the service it renders to its 
public. It is just as essential, and just as uound 
business, for the people who finance a business to 
receive ample financial returns, as for the public to 
receive satisfactory service. 

In analyzing the financial structure of corpora- 
tions one is almost forced to the conclusion that, in- 
stead of all of the shareholders of a business having 
one viewpoint, the Board of Directors looks at the 
business from one angle while the remaining share- 
holders look at it from another angle — and it is 
rather obvious that much of the frequently dis- 
trustful attitude of the public towards the Common 
and Preferred Stocks of corporations has its origin 
in the fact that only too frequently do Boards of Di- 
rectors apparently forget the vital reason why 
shareholders invest in their capital stock. 

Soliciting subscriptions to capital stock on the 
basis that "the principal is safe" is entirely beside 
the question, because safety of principal is, or 
should be, to investments what honesty is to every- 
day transactions — ^while ability is the added qualifi- 
cation that is desired. In business, safety of prin- 
cipal should be established by conformance with the 
spirit, as well as the letter, of corporation legisla- 

153 



THE PETROLEUM INDUSTRY 

tion, while earning power remains to be perpetually 
demonstrated because it is based on the ability of 
people. 

In the language of our political economists, the 
function of money is to serve as "a medium of ex- 
change" — but the function of capital is to multiply 
itself — and the anticipation of the "multiplication" 
of his capital is, and should be, the shareholder's 
strongest reason for investing — and to honestly 
provide this "multiplication" for the shareholders 
is, and should be, the chief reason for the existence 
of the Board of Directors, who, as shareholders, find 
their greatest duty in securing the "full earning 
power" rather than the "rental value" from the 
money obtained not only from the sale of Stock but 
also from Bonds and Short Term Notes. 

Probably the greatest stumbling block in the 
financing of business in the past has been the way 
the growth of business has been taken care of, from 
the standpoint 6i the people who financed it. It is 
obviously true that the net profits of a business be- 
long to its owners — and it is obviously fair that the 
returns on their invested capital should not be pen- 
alized to enable the business to grow. In other 
words, net profits represent invested capital's re- 

154 



THE PETROLEUM INDUSTRY 

turn and should be paid to those who furnished it, 
while the growth of the business should be taken 
care of through additional capital from the outside. 

While it is conceivable that a slow-growing 
business could pay its shareholders the customary 
"rental value" of the money that they Had invested 
in it and still have a margin that would take care of 
its growth, yet such a business would not be very 
attactive to an investor who wanted the "full earn- 
ing power" of his money. It is also obvious that the 
faster a business grows the larger will be the 
amounts of additional capital that it will require 
each year, to take care of its growth. 

Regardless of its line of business, when a com- 
pany with a long and satisfactory dividend-paying 
record is in need of new capital, its chances of get- 
ting all it needs when it needs it, are infinitely bet- 
ter than the non-dividend-paying company which 
has actually earned good profits, but whose Board 
of Directors either "passed the dividends" or paid 
very small ones in order to "put the money back into 
the business" — ^instead of into the investors' pockets. 

In 1899 there were 3,723 automobiles manu- 
factured in the United States — in 1920 the factories 
turned out 1,906,000. 

155 



THE PETROLEUM INDUSTRY 

The growth of the automobile industry has 
been so rapid that there never has been a year dur- 
ing which its growth could have been financed from 
its profits. The sums of money needed for new fac- 
tory buildings, new machinery, bigger stocks of raw 
materials, new factory branches and new models, 
were too vast to be supplied from the company s 
profits. It is perfectly obvious that the company 
that makes 25% net profit on its year's business, and 
then shows a 100% increase in its next year's sales 
couldn't have done it without additional money from 
an outside source, even if its Board of Directors had 
"passed the dividend" and put all of the 25% net 
profits "back into the business." 

The wholesale value of the automobiles manu- 
factured in the United States in 1920 amounted to 
over $1,700,000,000— and if the industry is to con- 
tinue to grow, it must continue getting new capital. 
Only when a business ceases growing does it cease 
needing new capital — then it needs new brains. 

Some idea of the capital requirements and tre- 
mendous growth of the petroleum industry, espe- 
cially during the last few years, can be obtained 
from a recent analysis of 250 oil companies. This 
analysis includes 108 companies organized prior to 

156 



THE PETROLEUM INDUSTRY 

Dec. 31, 1911, and 142 companies organized after 
Jan. 1, 1912. The 108 companies include all of the 
Standard Oil "group" (about 35 companies) and 70- 
odd of the larger, older "independents." The 142 
companies include large independents for which 
available records are practically complete. The rec- 
ords show that on Dec. 31, 1914, the outstanding 
stock of these companies was approximately $1,000,- 
000,000— and that on Dec. 31, 1919, it was approxi- 
mately $2,500,000,000— or an increase of $1,500,- 
000,000 in the 5 years from Jan. 1, 1915, to Dec. 31, 
1919. In other words, at the end of 55 years (1859- 
1914) these companies were capitalized at One Bil- 
lion Dollars — but in the next 5 years (1915-1919) 
there was added One-and-a-Half Billion Dollars 
more capitalization. 

In the face of this stupendous capital expansion 
it is only fair to state that these 250 companies rep- 
resent the very best element of the petroleum in- 
dustry — that they represent the bulk of the "assets" 
summarized in Chapter IX as aggregating $7,500,- 
000,000 — and that they do not represent any of that 
type of oil companies whose devious methods have 
caused many uninformed people to bitterly condemn 
the oil business — instead of its counterfeit, "the oil 
game." 

157 



CHAPTER XI 
CREATING INVESTMENT SECURITIES 

Putting money to work is very much like rent- 
ing a farm — ^there are two ways of doing it : 
1st— Flat Rent 
2nd— "On-the-Shares" 
It is perfectly obvious that the way the farm is 
rented does not affect the fertility of the soil — and 
the way it is rented should not affect the ability of 
the renter to get the largest crop possible — but the 
way it is rented does affect the division of the earn- 
ings at the end of the year. 

By way of comparison, take the case of the 
"XYZ Corporation" and Mr. Jones, a laboring man, 
who has $400 to invest. There are two ways for 
Jones to invest his money: 

1st. Flat rent — the rate is determined in ad- 
vance. 
2nd. "On-the-Shares" — the amount it earns is 
known at the end of the year. 



158 



THE PETROLEUM INDUSTRY 

The XYZ Corporation has four kinds of securi- 
ties to offer and Jones decides to invest $100 in each 
kind — so he puts 

$100 in 6% Gold Bonds, due in 1941 

$100 in 7% Preferred Stock 

$100 in S% Gold Notes, due in 1926 

$100 in Common Stock 
Each of these securities is distinctly different 
from the others — but as soon as the $400 is paid in 
ft does not remain separate, any more than water 
flowing from four wells into a tank remains sepa- 
rate. All of the money promptly starts to work on 
the same job, and with equal effectiveness — but 
when the end of the year comes Jones receives a 
different amount from each $100 investment, re- 
gardless of the fact that each dollar of the $400 
worked side by side, doing exactly the same work 
and earning exactly the same returns for the cor- 
poration. 

The above represents only four general types of 
investments, but there are a great many different 
kinds of Bonds, Short Term Notes and Stocks on 
the market today and the variations are increasing 
ever year. They differ in rate of interest or divi- 
dends — and in the amount and quality of security 

159 



THE PETROLEUM INDUSTRY 

back of each issue — and in the preference of one 
issue over others in the payment of interest or divi- 
dend — and in the preference of one issue over others 
in the distribution of the assets if the business is 
liquidated, etc. 

This confusing multiplicity of types, and varia- 
tion of types, has resulted in the organization of 
highly specialized Bond Houses, Investment Bank- 
ing Organizations and other distributors of securi- 
ties, each with its force of salesmen thoroughly 
trained to render a genuine service in the selection 
of the particular type of security that will best meet 
the needs of each individual investor. 

This service is constantly used by practically all 
of the largest business organizations in the land, 
and although they handle millions of dollars in their 
own business with which they are thoroughly famil- 
iar, they do not trust wholly to their own judgment 
in the selection of the investments which they make, 
either as corporations or as individuals. 

Had the "small investors" of America followed 
the practice of "large investors," if only to the ex- 
tent of establishing the integrity of the securities 
offered, they would have been saved hundreds of 
millions of dollars — their confidence in the spirit 

160 



THE PETROLEUM INDUSTRY 

and purpose of corporate organizations would not 
have been shattered — and much of the difficulty 
tTiat absolutely meritorious propositions have en- 
countered when seeking additional capital, would 
never have existed. 

During the world war we passed through a 
period of "dear money" and as a result the Bonds, 
Stocks, etc., issued during that period carried higher 
rates of interest and dividends than the average for 
a great many years. Bonds that during periods of 
"cheap money" could have been floated at 5'%> were 
issued during the war at 7% and 8%. Preferred 
Stocks that would have been issued ten years ago 
at 6% were issued at S% . Short Term Notes issued 
during the war were almost uniformly at 8 a . In 
addition to these unusually high rates a great many 
Bonds, Preferred Stocks, Short Term Notes, etc., 
were quoted, at the time of issue, at prices below 
par, thereby making them more attractive to the 
investor. 

Like the ebb and flow of the tides, the money 
market, over varying periods of time, goes from 
cheap to dear and back again — and this fact is one 
of the reasons why interest and dividend rates vary 
on the same type of security issued at different 
times. 

161 



THE PETROLEUM INDUSTRY 

Life insurance companies, colleges and institu- 
tions Xwith endowments that produce a fixed in- 
come) , trustees of estates, wealthy people, etc., want 
investments that run for 10, 20, 30, 5D years and 
with "absolute safety" — this class of investors buy 
Bonds. 

Some investors want their money back in 5 
years — they can invest in Real Estate Mortgages. 

Others want their money back in 1 to 5 years — 
they can buy Short Term Notes. 

Others want to feel that they own an interest in 
a business from which they will receive a fixed re- 
turn, usually 6% to 8% — they buy Preferred Stock. 

And still others want to own an interest in a 
business from which they will receive the "full earn- 
ing power" of their money — these buy Common 
Stock. 

According to the New York Journal of Com- 
merce the aggregate capitalization of all of the new 
corporations of all kinds organized in the United 
States during the year 1920 amounted to almost 
Fourteen Billion Dollars. This vast amount is near- 
ly twice as much as the estimated assets of the en- 
tire petroleum industry — it is almost twice the value 
of the 8,500,000 motor vehicles in the United States 

162 



THE PETROLEUM INDUSTRY 

in 1921 — it is about twice the total "money" in the 
United States June 30, 1919. 

The question naturally arises, "If the public 
has the money to invest in hundreds of millions of 
dollars worth of securities ever year — and if bond 
houses, banks and other agencies distribute these 
securities to the investing public — who creates 
them 7" 

There are two widely different sources from 
which investment securities may be created : 

Fiy^st — Bonds are issued by our national gov- 
ernment, our state governments, counties, town- 
ships, school districts, incorporated towns and cities. 
These bonds are "secured" by the ability of the peo- 
ple to pay taxes and they rank as the very highest 
type of security. Although their interest rates are 
uniformily low they are tax-free, and therefore 
their earning power is about the same as the net 
earning power of the average 6% and 7% industrial 
investment. 

Second — ^Bonds, Stocks, Short Term Notes, etc., 
issued by industrial corporations. Such investment 
securities are "secured" in two ways, although most 
people give very little thought to but one of them: 
They are secured by the "physical assets" of the 

163 



THE PETROLEUM INDUSTRY 

corporation in the shape of land, buildings, machin- 
ery, raw materials, rights of way, roundhouses, ter- 
minals, pumping stations, rolling stock, etc. These 
are the things that most investors think of when 
they think of the "security" back of the Corporation 
Stocks or Bonds that they own. But there is an "in- 
visible" form of security that the investor should 
endeavor to assure himself is back of the Stock or 
Bond before he invests in it — for if this form of 
security is not there, then his investment will return 
him no interest or dividends and probably little or 
nothing of his principal. 

This security is the ability of the men in charge 
of the corporation's affairs to operate the business 
successfully — and the most satisfactory proof of the 
presence of that ability lies in the payment of inter- 
est on the outstanding Bonds and Notes and divi- 
dends on the outstanding Stocks. 

The great majority (it has been estimated 
90%) of new corporations never arrive at the divi- 
dend-paying stage — therefore if the investor con- 
fines his investments to "dividend-paying stocks" 
he has thereby eliminated 90% of the chance of loss. 

As our first industries sprang up in "the East" 
so our first financing sprang up in the East — mostly 

164 



THE PETROLEUM INDUSTRY 

in "Wall Street." And as the industries spread over 
the United States the financial organizations spread 
with them. Most of the short-term financing (30, 
60 and 90-day loans) needed by the tens of thou- 
sands of industrial organizations scattered over the 
United States is done by the local banks, but the 
majority of the long-term financing, in large 
amounts, is arranged for in a few large financial 
centers, the greater part of it still being done in 
the East. 

There are today probably four thousand houses 
in the United States that are recognized distributors 
of securities. Of this number there are not more 
than 1,000 that make any pretense of buying entire 
issues, and there are probably not more than a few 
hundred who are willing and able with their own 
resources to purchase issues of a million dollars or 
more. 

Any one of the larger of these financial insti- 
tutions will "underwrite" (buy outright) issue after 
issue, today $5,000,000 for an irrigation project, 
next month $2,000,000 for a street railway com- 
pany, then $1,000,000 for a coal mine, $10,000,000 
for a railroad, then $25,000,000 for a foreign gov- 
ernment and so on, the total issues handled in one 

165 



THE PETROLEUM INDUSTRY 

year by some of the larger of these houses often 
running into many millions of dollars. 

The question naturally arises — "How can these 
financial institutions, however large, have among 
their officers and directors men who are qualified 
to pass on a dozen, or fifty, absolutely different in- 
dustrial propositions, in one year, scattered over 
this and other countries and amounting to many 
millions of dollars? What do they know, down in 
New York City, or in any of the other large cities, 
about an irrigation project in Arizona, a street rail- 
way in Omaha, a coal mine in southern Illinois, the 
buflding of an extension to a railroad in Montana 
or the internal development of the Argentine?" 

These men can't know all these things — and 
they don't pretend to. But what they do know is, 
where the money is — and how to cause it to flow 
to where it is wanted. If the issue is a very large 
one several houses may combine to underwrite it, 
but with smaller issues one house will underwrite 
the entire issue of Bonds, Stocks or whatever the 
type of security — write one check for the entire 
amount — and then get in touch with their "corre- 
spondents" scattered over the United States. These 
houses get in touch with their own houses, and so 

166 



THE PETROLEUM INDUSTRY 

on down the line, until the last distributor, maybe 
a bank in a small town, gets his "allotment" of these 
Bonds or Stocks, possibly only a few hundred or a 
few thousand dollar's worth. There are hundreds 
of instances on record of entire issues amounting to 
millions of dollars being over-subscribed within 24 
hours — some within one hour — after they were 
offered. 

But before this issue is distributed, or the check 
written, the Bonds or Stocks must be "created" — 
and to do this requires the use, by these great finan- 
cial organizations, of many different kinds of serv- 
ice, by many different kinds of organizations scat- 
tered over the country. 

As an example, let us take the $5,000,000 Bond 
issue for the irrigation project in Arizona with "the 
money" in Chicago. 

Briefly the steps in the proposition would be 
about as follows : The people back of the irrigation 
project would go to Chicago with complete maps, 
plans, statistics, general information, etc. and lay 
the entire proposition before the proper "commit- 
tee" of one of these large institution^. Years of 
experience in handling many different kinds of in- 
dustrial propositions, in every part of the country, 

167 



THE PETROLEUM INDUSTRY 

enable these men to make a quick and thorough 
analysis of the more important points of the irri- 
gation project. If the proposition, in a general way, 
appeals to them and looks to be fundamentally 
sound, they get in touch with their special agencies, 
trained in handling irrigation projects. Among 
these are general investigators who are qualified to 
"size up" big propositions. These men would per- 
sonally inspect the site, investigate the men back 
of the project, the industrial condition of the terri- 
tory to be served, the water supply, etc. Civil En- 
gineers, Mechanical Engineers and other technical 
men, each qualified by years of experience to pass 
on his particular line of work, would personally 
visit the site of the project and make a thorough 
investigation. Attorneys would ascertain the le- 
gality, terms, etc. of the franchise and the corporate 
powers and responsibility of the irrigation com- 
pany, etc. Each of these special investigators 
would send his report to Chicago where statisticians 
and experts would tabulate all of the information, 
condense it into a report and submit it for final 
action. If approved, the check for $5,000,000 is 
written, the bonds are sold, the interest is paid 
when due, the Bonds are paid off as they mature, or 
before — and everybody is satisfied. 

168 



THE PETROLEUM INDUSTRY 

Every proposition submitted to every "house of 
issue" is different from every other proposition — 
each is handled separately, and a half-dozen may be 
undergiong investigation by different specialists, in 
widely separated sections of the country, at the 
same time that many others are undergoing their 
preliminary investigation in the main office. 

Even though most of the great financial institu- 
tions have a national and many of them an inter- 
national reputation, they don't act, they can't act, 
on their own judgment, except as that judgment is 
fortified and broadened and deepened by the serv- 
ices of these specialists many of whom likewise 
have national reputations in their own particular 
line. The methoci followed in the $5,000,000 Irriga^ 
tion Bond issue illustrates only one method, and 
probably the highest type method, used in the issue 
of industrial securities. 

Unfortunately not all issues of Bonds and 
Stocks are "created" under such conditions as the 
foregoing, which practically insure the investor 
against loss of either his income or his principal. 

The marvelous rate at which wealth is increas- 
ing in the United States, the thrift of the people as 
reflected by the Billions of Dollars on deposit in the 

169 



THE PETROLEUM INDUSTRY 

national, state and savings banks, together with the 
universal desire to "make the saved dollar work" 
for us — after we have worked for it — have all com- 
bined to pile up hundreds of millions of dollars ev- 
ery year that should be wisely invested. 

Long years of our earlier life are spent in 
school, to be followed in many instances by more 
years spent in professional or technical school, or 
other special preparation, in learning "how to make 
money," Until recently not a great deal has been 
said in any of these institutions about "how to save 
money" — and a pitifully small amount of time has 
been given to learning even the simplest principles 
underlying "how to invest money." Judged by the 
attention that has been given to the "investment" 
education of either the youth or the adults of our 
country one would conclude that the investment of 
money was a matter of small importance in human 
lives — instead of one of tremendous importance — 
for while money can be earned only by labor, it can 
be multiplied only by investment. 



170 



CHAPTER XII 

PETROLEUM'S INDUSTRIAL POSITION 

Petroleum's industrial position is best revealed 
by comparing it, as an industry, with other indus- 
tries, and then ascertaining how far they are de- 
pendant on petroleum and how the loss of the 
products of petroleum would affect these industries 
— and the world's progress. 

When our national government talks of 
"wealth" it means the "developed resources" of the 
country. The first fewXensuses of the United States 
furnished little information in addition to giving 
the number of inhabitants, but beginning with 1850 
tTie Census Bureau has made the following estimates 
of the wealth of the United States : 

1850 $ 7,135,000,000 

1860 16,159,000,000 

1870 30,068,000,000 

1880 43,642,000,000 

1890 65,037,000,000 

1900 88,517,000,000 

1904 107,104,000,000 

1912 187,731,000,000 

171 



THE PETROLEUM INDUSTRY 

The occupations of mankind are usually di- 
vided into four groups: 

1 — Agriculture (producing) 
2 — Mining (procuring) 
3 — Manufacturing (altering) 
4 — Commerce (distributing) 
The wealth of the United States as shown by 
the Census Bureau's figures for 1912 (see Table 20) 
was divided among these groups as follows : 

Agriculture $123,882,000,000—66.0% 

Mining 3,431,000,000— 1.8% 

Manufacturing . . 36,756,000,000—19.6% 
Commerce 23,662,000,000—12.6% 



$187,731,000,000—100% 
The use of machinery on the farm began with 
the threshing machine about 1825, followed by the 
reaping machine about 1841 (invented 10 years 
earlier) followed by the self-binder, the grain drill 
and other horse-drawn implements. 

After 40 centuries without machinery, the 
farmer has had almost one century with machinery 
and about 20 years of "motorized" farming, with 
gasoline engines, tractors, motor trucks and auto- 
mobiles. 

172 



Table 20 — Sum/mary of tKe distribution of 

wealth by industries: 

AGRICULTURE 
Real property (land and buildings) $110,676,000,000 

Live stock 6,238,000,000 

Agricultural products 5,240,000,000 

Farm implements and machinery. 1,368,000,000 
Irrigation enterprises 360,000,000 

Total 123,882,000,000 

MINING 

Gold and silver coin and bullion 2,616,000,000 

Mining products 815,000,000 

Total 3,431,000,000 

MANUFACTURING 

Manufacturing machinery and tools. 6,091,000,000 

Manufacturing products 14,693,000,000 

Imported merchandise 826,000,000 

Clothing' and personal ornaments... 4,295,000,000 

Furniture and carriages, etc 8,463,000,000 

Private owned water works 290,000,000 

Private owned central electric light 

and power stations 2,098,000,000 

Total 36,756,000,000 

COMMERCE 

Railroads and Equipment 16,14,8,000,000 

Pullman and private cars 123,000,000 

Street railways 4,596,000,000 

Telegraph and telephone 1,304,000,000 

Shipping and canals 1,491,000,000 

Total 23,662,000,000 

Grand total, Wealth in the United 

States 1912 $187,731,000,000 

173 



THE PETROLEUM INDUSTRY 

If the United States is to be self-supporting in 
the matter of producing food stuffs and clothing 
materials, with more than 20,000,000 families in the 
United States and about 7,000,000 farms, each 
farmer must produce enough for his own family 
and for two other families who don't live on farms 
— who are consumers of farm products, not pro- 
ducers. 

The constantly increasing proportion of non- 
producing consumers of farm products was empha- 
sized by the census of 1920 that showed over half of 
our entire population living in cities. Table 21 
shows the rapid change in the last 40 years in the 
percentage of our population living on farms and in 
towns and cities. 

According to the United States Census Bureau 
"urban" inhabitants are those living in incor- 
porated places of 2,500 inhabitants or more; all 
other inhabitants are classed as "rural." In 1920 
there were 9,864,196 people (9.3% of the entire 
population) living in incorporated places of less 
than 2,500 inhabitants, therefore only 38.8% 
(48.1% minus 9.3%) of our population lived in the 
"country," while 61.2% lived in incorporated places. 



174 



THE PETROLEUM INDUSTRY 

Table 21 — Changes in urban and rwal popula- 
tion : 

Census Urban Rural 

1880 29.5% 70.5% 

1890 36.1% 63.9% 

1900 40.5% 59.5% 

1910 46.3%) 53.7% 

1920 51.9% 48.1% 

From 1910 to 1920 our population increased 
13,710,842, or 14.9%, but dividing this increase be- 
tween the incorporated places and the country we 
find that the incorporated places increased 13,938,- 
197 while the country actually decreased 227,355. 

The essential resource of agriculture is the fer- 
tility of the soil, but with the percentage of man- 
power on farms decreasing at the same time that 
the demand for farm products is increasing , there 
is but one answer to the demand for more food : and 
that answer is "motorized farming." Some idea of 
the results from "power" farming, in the shape of 
increased production of crops, can be gleaned from 
the following figures which show the increase in the 



175 



THE PETROLEUM INDUSTRY 

value of our farm crops from 1880 to 1917 : 

1880 $ 1,212,000,000 

1890 1,460,000,000 

1900 3,191,000,000 

1910 5,487,000,000 

1917 13,610,000,000 

From 1795 to 1807 the Napoleonic wars so oc- 
cupied the nations of Europe that American agri- 
cultural products found ready markets and our 
farming, shipbuilding and commerce flourished. In 
1807, in an attempt to remain neutral to both Eng- 
land and France, our Congress passed the "Em- 
bargo Act" which immediately closed most of our 
markets and paralyzed shipbuilding. Capital in- 
vested in shipbuilding and commerce soon sought 
new channels much of it going into the manufacture 
of products we had been importing in exchange for 
our agricultural products. In 1810 the products 
of our factories were valued at $173,000,000 — in 
1914 they were valued at over Twenty-Four Billion 
Dollars. 

The last 50 years has marked a definite "tran- 
sition period" in American history during which 
our vast development of Machinery and Power has 
turned the current of our Industrial life into the 
channels of manufacturing and commerce. 

176 



Figure 54 — First railroad train in New Jersey in 1831. 





Figure 55 — First central power station in the United 
States at Appleton, Wisconsin, 1882. Capacity 250 lamps. 
The Edison dynamo, shown in the center, was built 
in 1883. Compare this plant with the modern hydro- 
electric plant shown in Figure 57. 



O 00 



O § 



3 S 




THE PETROLEUM INDUSTRY 

Table 22 — Growth in value of manufactured 
products. 

1870 $ 4,232,000,000 

1880 5,369,000,000 

189T) 9,372,000,000 

1900 11,406,000,000 

1910 20,672,000,000 

19r4 24,246,000,000 

It has been estimated that the coal resources of 
the United States, based on present consumption, 
are sufficient for about 6,000 years — but in order 
to ''see" what one year's coal 'production in the 
Unfted States means, imagine the coal loaded into 
cars each 40 feet long and holding 45 tons — the 
"train" would be 100,000 miles long — long enough 
to reach four times around the world — and yet this 
represents the production for just one year, 1916, 
which amounted to 581,000,000 tons. 

If the pig iron produced in the United States 
in 1916—39,126,000 tons— were loaded into the 
same kind of cars it would make a train 6,700 miles 
long — or twice across the United States from Bos- 
ton to San Francisco. 



177 



THE PETROLEUM INDUSTRY 

Aside from agriculture the steam railroads of 
the United States represent our largest individual 
industry, with physical assets in 1912 of approxi- 
mately $16,000,000,000. In order to arrive at the 
wealtli represented by "Transportation and Com- 
munication" (see Table ZO) we must add to this 
gigantic sum the wealth represented by the tele- 
phone, the telegraph and the cable companies, the 
canals and our merchant marine. 

Our steam railroads are less than 100 years 
old. After years of experimenting the South Caro- 
lina Railroad in 1830 finished 6 miles of track, had 
a locomotive built in New York City and January 
1831 placed it on the tracks in Charleston, thereby 
launching the American railroad industry. In 1833 
there were 22 railroads in operation in the United 
States, none of them 140 miles long — in 1837 there 
were 1,497 miles of track — and in 1916 there was 
enough to reach 10 times around the world. This 
mileage was equipped with 65,000 locomotives 54,- 
000 passenger coaches and 2,362,000 freight cars. 

In 1917 the railroads of the United States em- 
ployed almost half as many people as the total pop- 
ulation of the United States in 1790, when the first 
census was taken. 

178 



THE PETROLEUM INDUSTRY 

Table 23 — Increase in railroad mileage operated 
in the United States. 



Year 


Mileage 


Year 


Mileage 


1837 


1,497 


1880 


93,262 


1840 


2,818 


1890 


167,191 


1850 


9,021 


1900 


198,964 


1860 


30,626 


1910 


249,992 


1870 


52,922 


1916 


266,381 



In 1918 there were 48,000 miles of electric rail- 
way in the United States equipped with 83,000 pas- 
senger cars whose combined carrying capacity prob- 
ably equaled that of the steam roads — and yet the 
interurban electric road is today in its infancy, so 
far as mileage is concerned. 

The total amount of pole line for telegraph use 
in the United States in 1912 was 247,000 miles, and 
it used 1,814,000 miles of single wire — enough to 
encircle the globe 72 times. To supplement this 
land service there were 44,000 miles of submarine 
cable that carried 2,845,000 messages in 1912. 



179 



THE PETROLEUM INDUSTRY 

In 1917 there were 11,713,000 miles of tele- 
phone wire in use in the United States that carried 
Twenty-One Billion Eight Hundred and Forty Two 
Million telephone calls, or an average of 200 calls 
for every man, woman and child in the United 
States. 

Lloyd's Register estimated the world's shipping 
tonnage August 1, 1919 at 50,919,000 gross tons, a 
slight increase over July 1914. This tonnage was 
distributed as follows: 

United Kingdom 16,340,000 tons 

United States 

(27,000 vessels) 11,933,000 tons 

Japan 2,325,000 tons 

No other nation owned as much as 2,000,000 
tons of shipping. Our merchant marine finds the 
world's markets for the products of our rapidly ex- 
panding manufacturing industries, and in our 
struggle today for a commanding position in the 
commerce of the world we find that the increasing 
demands for more power (engine power) for our 
merchant vessels are finding a new answer in fuel 
oil and distillate from petroleum. 

That the internal combustion engine has influ- 
enced the course of history and the fate of nations, 

180 



THE PETROLEUM INDUSTRY 

is obviously true. Three great distinctly American 
industries — the automobile, the motor truck and the 
farm tractor — have been built around the internal 
combustion engine — and aviation is in the building. 

In 1899 the automobile business was of so little 
importance that in the census of manufacturers for 
that year it was grouped with carriage manufac- 
turers, the number of cars produced being 3,723. 

At the beginning of 1921 there were in the 
United States over 36,000 automobile dealers, over 
20,000 motor truck dealers, over 38,000 garages and 
over 47,000 repair shops for motor vehicles. With 
over 7,600,000 automobiles in use in the United 
States it is probable that the "replacement" item 
alone has reached a million cars a year. It required 
about 20 years for automobile production to reach 
"1,000,000-a-year" — but in spite of the set-back in 
1918 it will probably get into the "2,000,000-a-year" 
class in 1^1 — just 5 years later. Automobile and 
truck manufacturers years ago used to talk about 
the "saturation point," meaning the ability of the 
people to buy cars and trucks — but with the popula- 
tion, the wealth and the industries increasing at 
present rates it is probable that the limiting factor 
in the use of motor vehicles will be fuel for the in- 
ternal combustion engine. 

181 



THE PETROLEUM INDUSTRY 

In 1920 the automobile factories turned out 
1,906,000 cars with a wholesale value of $1,703,- 
000,000. The motor truck factories turned out 
335,(J00 trucks with a wholesale value of $432,000,- 
000. The farm tractor business is still so young 
that definite statistics are hard to obtain but it is 
growing faster than either the automobile or the 
motor truck grew in their early years. 

The replacement of the horse and buggy by the 
automobile, the horse and wagon by the motor truck 
and the horse and plow by the tractor and gang- 
plow are milestones in the march of our industrial 
development — in man's conquest of nature's re- 
sources. 

In the growth of our industries there is an- 
other factor, the force of which is seldom fully ap- 
preciated : the fact of the constant increase in pop- 
ulation. Until recently the percentage has varied 
within comparatively narrow limits, our population 
doubling about every 30 years. Note how nearly 
this ratio applies to the population figures given in 
Table 24. 

On the basis of the population doubling within 
the 30-year period, and beginning with 1790 we find 
that in 1820, 1850 and 1880 the increase in popula- 

182 



THE PETROLEUM INDUSTRY 



Table 24 — Growth in population of the United 

States. 

1790 3,929,000 

1800 5,308,000 

1810 7,239,000 

1820 9,638,000 

1830 12,866,000 

1840 17,069,000 

1850 23,191,000 

18¥0 31,443,000 

1870 38,558,000 

1880 50,155,000 

1890 62,947,000 

190T) 75,994,000 

1910 91,972,000 

1920 105,683,000 



tion was over 100% each 30 years — but the increase 
from 1880 to 1910 dropped to 83%. 

Beginning with 1800 we find that in 1830, 1860 
and 1890 the increase in population was over 100% 
each 30 years — but the increase from 1890 to 1920 
dropped to 68%. 

Waiving all discussion of the basic causes and 
conditions of which these diminishing percentages 

183 



THE PETROLEUM INDUSTRY 

are the result, we are face to face with the fact 
that only in proportion as these causes and condi- 
tions reverse themselves will we return to our for- 
mer 100% increase each 30 years. 

For the sake of illustration we will accept a 
"diminishing percentage" for the next 80 years and 
see how it would apply to our population as shown 
in Table 25. An increase of only 51% from 1920 to 
1950 (as against 68% from 1890 to 1920) will give 
us a population of 160,000,000 in 1950. 

An increase of only 40% from 1950 to 1980 
will give us approximately 225,000,000 in 1980 — 
while an increase of 22% for the 20 years from 
1980 to the year 2000 will give us a population of 
275,000,000 in the year 2000. 

Many boys and girls of today will see the year 
2000 — a matter of only 79 years — and a short peri- 
od when measured by the lives of nations. 

In the light of 130 years of our national history 
these three percentages (51%, 40% and 227c) for 
the next 80 years are ultra-conservative — and even 
if we do not exceed 160,000,000 population in 1950 
it is not difficult to imagine something of what the 
automobile, motor truck and tractor industries will 
be at that date. 

184 




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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 



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