Drilling to the Source

The early history of the petroleum industry, as most capitalist breakthroughs, abounds in willful, driven men. John D. Rockefeller, who consolidated the first oil trust, and Henry Clay Pierce, who dominated Mexico's market, were such men. So was Edward Laurence Doheny. Doheny personified a type of American business entrepreneur who abandoned family and security in search of wealth on the American frontier. His discovery of oil in California seemed to have been accomplished by chance. Doheny built that opportunistic discovery into a worldwide organization that pioneered in the production of Mexican crude oil. He capitalized on the rapid expansion of markets for petroleum and even contributed in the process to developing additional uses of the substance in Mexico. Doheny succeeded in Mexican production because he had superior resources of capital and technology. One might also observe that he entered Mexico in 1901, during a period of intensive domestic economic growth partially attributable to, among other things, Pierce's having promoted the use of petroleum products. No contractual limitations to a superior organization inhibited Doheny's entrepreneurship. If pluck contributed to his California oil success, it played no role in Doheny's far superior achievements in Mexico. He was a willful, wealthy, competent, and now oil-experienced entrepreneur. Almost until the end of his life, Doheny thought himself a man capable of molding destiny.

Doheny's thirty-year journey from his youth in Wisconsin to Mexico resembles the classic Greek odyssey. It combined both caprice and fate. In 1892, after two decades of mine prospecting in New Mexico and Arizona, Doheny and his partner, Charles Canfield, arrived in Los Angeles with scarcely $1,000 between them. Doheny noticed that the local ice plant obtained pitch for fuel from the La Brea tar pits at West Lake Park. As Doheny later explained:

Without ever having seen an oil district or an oil derrick, as I had never been east of Chicago in my life, my natural prospecting instinct told me that these tar exudes bore the same relation to the petroleum below that the resin on the outside of a pine tree bears to the more limpid sap within. I felt sure that by drilling to the source of these exudes I would develop a supply of petroleum.^[46]

Doheny and Canfield had begun the Los Angeles oil strike with a seven-barrel-per-day, hand-bailed well that was only 170 feet deep. Within five years, however, experienced well drillers from Pennsylvania moved into the area, opening up some three hundred wells within a 160-acre area. Well riggings stood "as thick as the holes in a pepper box" among residential homes in the West Lake Park suburb of Los Angeles. To compete with rival oilmen attracted to California, Doheny learned the technology and hired drillers from back east. He expanded into the Fullerton, Bakersfield, and Kern River oilfields.^[47] The Los Angeles discovery ultimately directed his entrepreneurial talents to Mexico, where some of Doheny's U.S. buyers already had investments.

Perhaps years of prospecting had prepared Doheny to survive the rigors of intense competition in the U.S. petroleum industry. The new oilman refused to depend entirely on selling his production to existing marketing companies like Union Oil and the growing Standard Oil Company of California. Doheny organized the Producers Oil Company and began to build his own marketing apparatus. He approached the Souther Pacific Railroad. Collis P. Huntington's company ran its locomotives on coal and wood obtained in the East and Northwest. The California crude was heavy, especially suitable as fuel oil. It prepared Doheny, in a way, for the even heavier oil he would discover in Mexico. The prospector-turned-oil-businessman set up a demonstration oil-burning steam boiler. He introduced a force-fed jet to a locomotive fuel system that had been burning petroleum in Peru.

He then approached other western railroad men. The Atchinson, Topeka, and Santa Fe Railroad was always on the lookout to buy oil close to its operations. Coal was more expensive to ship, and created

much waste.^[48] Doheny's California properties produced enough petroleum to supply the Santa Fe Railroad with one million barrels of oil per year for use on its ferry steamers and yard engines in California and for sprinkling the railway roadbed through the Mojave Desert to San Francisco. The contract was worth $1 million in sales.^[49] Doheny was following destiny.

His California oil business led Edward L. Doheny directly into Mexico. The Santa Fe Railroad's A.A. Robinson, builder and president of the Mexican Central Railroad, informed Doheny that his line running between San Luis Potosí and Tampico had been depending upon imported Alabama coal of "indifferent quality." Moreover, Robinson had just constructed the spur line to Tampico under pressure from the Díaz government; development of a new industry in the territory would provide revenues for his beleaguered line. Therefore, Robinson asked the enterprising Doheny to investigate rumors of bubbling pits along the railroad's right-of-way. Canfield and a California railway man, A.P. McGinnis, accompanied Doheny in May 1900 as he traveled in a private Pullman car, complete with cook and porter. They stopped thirty-five miles west of Tampico. The party descended from the luxurious Pullman, were stunned by the stultifying humidity of Mexico's hot lands, plunged into the lush underbrush behind a Mexican guide, and found some exudes.^[50] The chapopotes, as the residents called them, were ponds of brown pitch through which gas bubbled from deep underground. The inhabitants for years had maintained fences around these oil pools to keep the livestock from disappearing into them. Doheny concerned himself, however, with the industrial potential of the exudes.

The American entrepreneur next turned to assembling the necessary capital and technology from his own economy that could be used in the Mexican venture. Returning to Los Angeles, Doheny, now forty-four years old, absorbed himself in establishing a home for his twenty-five-year-old second wife and in organizing a Mexican production company. He collected capital from a group of investors and railway men in California and formed the Mexican Petroleum Company.

Back in Mexico in August 1900, Doheny and Canfield announced that they would pay five pesos to any inhabitants who led them to a tar pit.^[51] He acquired his first property along the eastern border of the state of San Luis Potosí. Mariano de Arguínzoniz was offering for sale 283,000 acres of the Hacienda del Tulillo. Arguínzoniz was difficult. Doheny and Canfield were unknown, could not speak Spanish very

well, and were without means of establishing their credibility. "I wired to the City of Mexico, to an attorney whose name had been given to me by a friend of mine in Chicago, and asked him to meet us at Aguascalientes," Doheny explained later. "The attorney we wired was the Hon. Pablo Martínez del Río, since deceased. He was, perhaps, the most prominent English-speaking Mexican attorney in the City of Mexico."^[52] Martínez del Río served as Doheny's legal representative in Mexico and introduced him to the heads of various government departments. Because Doheny was establishing a new industry, he obtained certain rights to import machinery duty free for ten years. This was to be an exclusive privilege, but Doheny discovered that a British oilman later received the same rights. Of Pearson, Doheny said that he was "placed on even a better footing than us — getting a 50-year concession — although our efforts to discover petroleum were eminently successful and his efforts, commenced several years afterwards, were based upon our success."^[53] As soon as he learned that these Yankees were oilmen, however, Arguínzoniz raised the price from $250,000 to $325,000. Doheny then purchased the Hacienda de Chapacao of 150,000 acres next to Tulillo.

The Chapacao property gave him access to existing rail lines and to the Tamesí and Pánuco rivers leading to the port of Tampico. For his assistance in closing the land deals and serving as Doheny's retainer in Mexico City, attorney Martínez del Río received 600,000 pesos (approximately $300,000). But Doheny insisted that the previous owners sign over the mineral rights, a clause Doheny had included in all his land purchases in the United States.^[54] After all, Mexican mining laws since 1884 had copied Anglo-American precedents. Doheny and other foreign oilmen obtained subsoil rights through lease and purchase directly from the Mexican landowners. Foreigners were quite comfortable with this arrangement, because it paralleled the legal practices of private property in the Anglo world.

The Mexican government welcomed Doheny's new petroleum venture, providing encouragement and tax breaks. The U.S. minister to Mexico, Gen. Powell Clayton, introduced Doheny to President Porfirio Díaz. Mexico's chief executive said that domestic petroleum production would save a country already deforested and dependent upon imported fuel. At the time, as Doheny explained later, "I was very busily engaged in denying rumors published in Mexican periodicals to the effect that we were an agent of the Standard Oil Company or a subsidiary of that organization." Díaz, no doubt aware of Pierce's association with Stan-

dard Oil, did not want the infamous oil trust to capture Mexico's petroleum. The president secured Doheny's promise to sell his oil properties to the Mexican government before offering them to Standard Oil. President Díaz was also interested in the demonstration effect of foreign capital. "He told us that his greatest desire for our prosperity in Mexico," said Doheny, "was the example which our workmen would present to the Mexican workmen of how to work, how to live, and how to progress."^[55] In the meantime, attorney Martínez del Río assisted Doheny in securing all the lawful tax breaks from the government. Despite the political support he received, Doheny was convinced that none of the Mexicans — Díaz and Martínez del Río included — thought that his oil venture would succeed.

By February 1901, Doheny's men were preparing to open Mexico's first oil field — at El Ebano. Some experienced oilmen from Spindletop in Texas may have come to look over Doheny's properties. Walter Sharp, who along with Howard Hughes, Sr., would later develop the Hughes drill bit, went to Tampico and Matamoros in 1901. "The Standard and Water's Pierce [sic ] Oil Company are fighting the oil business very hard," Sharp wrote, "and it will take every bit of energy and good business plans or they will own it all."^[56] Doheny's men established an oil camp at KM 613, a marker denoting the distance in kilometers from Aguascalientes along the right-of-way for the rail and telegraph lines to Tampico. The Mexican Central Railroad constructed a four-hundred-foot siding so that freight cars could unload imported equipment. Herbert G. Wylie came from Los Angeles as the general superintendent at Ebano. He immediately set three thousand Mexicans to clearing the "impenetrable jungle," making roads, building wood-frame houses, and constructing a small refinery. In an incident that portended future problems, Wylie had to fire an American foreman who displayed impatience toward the Mexican laborers. From Pittsburgh, Doheny brought in the equipment for the ice and cold-storage plant, water distillery, electrical plant, sawmill, machine shop, boiler, and blacksmith shop. Boilers were disassembled, hauled into Ebano on boats, then transferred to pack animals and reassembled at the well sites.^[57]

North American drillers began the first well in May, and within two weeks the night crew struck oil at a depth of 525 feet. "Oil had come into the hole in such quantity as to lift the tools off the bottom and interrupt drilling," Doheny wrote later. "[The driller] immediately put out the fire under the boiler and shut down, to await daylight and our

inspection."^[58] These first shallow wells produced about 10 to 50 bd of heavy, viscous crude oil. Measured at 10 degrees to 12 degrees Baumé, the crude oil of El Ebano was as "thick as cold honey." It served as a heavy fuel oil and asphalt but contained little of the valuable lighter ends such as kerosene. As they began to drill deeper in search of a lighter crude oil having greater rates of flow, Doheny's men used cable tools manufactured in Pennsylvania. Drilling crews first sank an eight-inch pipe into the soil until it struck bedrock. After dropping some two tons of drilling tools into the pipe, they engaged the machinery that raised and dropped the drill bit forty to fifty times per minute. The bit turned on each blow and pulverized the rock. Injected water mixed with the pulverized rock and was pumped out of the well as the drill worked downward. On average, the drilling teams could bore about one hundred feet per day into the earth.^[59] Exploration proceeded slowly, and the oil proved disappointingly heavy.

Doheny's subsequent explanations of the El Ebano oil strike under-estimated the technological obstacles of the Mexican strike. Doheny tended to exaggerate his own entrepreneurial role, great as it already was. To a financial writer years later, and in his appearances at congressional hearings, Doheny depreciated the value of trained geologists. "Geology profs don't find oil," he used to say.^[60] Nevertheless, he was a smart enough businessman to make use of available knowledge. Doheny hired Mexican geologist Ezequiel Ordóñez, who had written an optimistic report on Mexico's oil prospects for the Mexican Geology Institute. His report had become so controversial that Ordóñez was forced to resign from that organization when he encountered the wrath of the powerful finance minister, José Yves Limantour. The Mexican geologist found the American entrepreneur optimistic, domineering, unable to accept being contradicted, and strangely lacking in original ideas. Ordóñez located Doheny's prolific well at the base of Cerro de la Pez (Pitch Hill) at El Ebano. Pez No. 1 came in on 3 April 1904, flowing at a rate of 1,500 bd. Several years later, a Stanford University geologist would remark that all the successful Ebano wells had been put down practically on the seepages. Other geologists and engineers also served Doheny by mapping all the oil exudes on the El Ebano properties.^[61] For the moment, the larger well that Ordóñez brought in permitted the pioneer oil producer to continue his operations.

Establishing a commercial oil producing venture in the wilderness at El Ebano proved a daunting task. Armed with capital, technological experience, a reasonably developed infrastructure, and access to growing

Fig. 1.
An El Ebano well blows in, c. 1904. One of the first oil wells in Mexico,
this El Ebano gusher blows out gas and thick crude petroleum shortly
after being drilled in. the workmen next disassemble the remainder of the
wooden derrick, remove the equipment, and place a valve over the
well casing. from the Estelle Doheny Collection, courtesy of the Archive
of the Archdiocese of Los Angeles, Mission Hills, California.

domestic and foreign markets, Doheny was the first oilman equal to the challenge. First, the land was cleared. "A narrow gauge railroad had to be built," the superintendent, Herbert Wylie, reported, "and the whole region opened up before oil could be produced."^[62] Moreover, a pipeline for the heavy oil was undesirable. "The continued heating of the oil, especially to a temperature that would enable us to pump it through a long pipe line, would render this oil unfit for fuel," Wylie observed. A railroad spur was absolutely necessary to get the oil out. The porous adobe soil prevented wagon traffic during the rainy season.^[63] Then the managers needed to secure an adequate supply of water for drilling operations and for the workers. A neighboring hacendado would charge $500 for allowing the company to run a water line across his land from the Pánuco River. Besides, the Pánuco water had an unpleasant odor. Wylie favored water pumped from the Tamesí River.

The Mexican Petroleum Company had a difficult time selling Doheny's heavy petroleum. Wylie approached foreign railway men, but many as yet had no way of transporting the fuel. Worst of all, the Mexican Central Railroad reneged on its promise and refused to purchase the thick stuff from Doheny. Just nine months before its first strike, the management of the Mexican Oil Company had concluded a sales contract with the Mexican Central. The oilmen were to convert the Central's locomotives at their own expense and keep those locomotives supplied with fuel at set prices of 90 cents to $1.20 per barrel. Financially strapped in 1902, the old board, dominated by Doheny's associate Robinson, sold out to new investors led by rival oilman Henry Clay Pierce. Apparently, Pierce used his influence to cancel the oil purchases.^[64] The Doheny interests were disheartened.

In the midst of the depression of 1902, when oil prices were depressed and Ebano oil had few buyers inside or outside of Mexico, the Doheny interests considered selling Mexico's first producing oil field. "In my judgement," board member R. C. Kerens wrote, "we should, if possible, sell a half interest (of Mexico Petroleum Co. [sic ]) to Standard or Pierce Co. . . . If we could make satisfactory contract & price with Pierce for our product I should favor that." Kerens even offered to close the deal with Pierce during a hunting trip. "Pierce is the most accomplished sportsman in America," he said.^[65] Within six months, Pierce's managers came to inspect the operations at El Ebano. Wylie took Thomas J. Ryder, Pierce's supervising manager in Mexico, to the Pez oil wells. He demonstrated the quality of the Pez crude by burning it

under a drilling boiler. "I had great pleasure in demonstrating to them that the fire was under perfect control," reported Wylie. Other officials of the Pierce group were inspecting a run of crude oil at the Ebano refinery. They arranged to have sixty barrels shipped from Pez No. 1 to the Tampico refinery of Pierce. Wylie was enthusiastic about their visit. "From the investigations and inquiries of these gentlemen, I would judge that they had in mind the purchase of the property, rather than the production."^[66] As it turned out, however, Pierce was really not interested. He would have had to contravene his contract to buy crude from Standard, on whom he was hopelessly dependent.

Doheny had little choice but to bring in a small refinery at El Ebano and organize his own asphalt paving company in Mexico City. The paving business introduced a young man to the oil business who would become a long-time associate of Doheny. Harold Walker was a graduate of Columbia Law School. His father, Aldice F. Walker, was chairman of the Atchison, Topeka, and Santa Fe Railroad "when I induced them to commence the use of fuel petroleum," as Doheny explained.^[67] The elder Walker became a stockholder in the Mexican Petroleum Company. He had once served in the administration of President Grover Cleveland, and Doheny was also a lifelong Democrat. Young Walker had come to Mexico to check on his father's interests. Doheny made him manager of the paving company and his principal agent in Mexico City. The Cía. Mexicana de Pavimentos de Asfalto y Construcciones had a board interconnected with the Mexican Petroleum Company.^[68]

Selling to a government agency in Mexico, however, flung the fledgling foreign company into the maelstrom of domestic politics. The Mexico City ayuntamiento (municipal government) held up some of Doheny's first paving contracts. His Mexican associate, Ezequiel Ordóñez, suspected that some of the council members were in the employ of the Pierce interests. "Unfortunately the President of Ayuntamiento has changed. It is now Mr. F. Pimentel, director of Central Bank who, I supose [sic ], has been engaged with the P. Co.," speculated Ordóñez. Ordóñez said he would have to go directly to the minister of finance, José Yves Limantour. Without outside intervention, he wrote, "the Council will entertain me with evasives everytime [sic ]."^[69]

The paving business did not provide great profits, although it did keep Doheny in business. Municipal paving contracts paid half up front and the rest over ten years. The company eventually paved streets in Mexico City, Guadalajara, Morelia, Tampico, Durango, Puebla, and

Chihuahua. By 1906, the Doheny group had laid 44,000 square meters of asphalt paving in the capital alone.^[70] The asphalt business had grown to the extent that the Cia. Mexicana de Asfaltos could not meet all the internal demand. Moreover, much of that demand was still governed by domestic politics. As the Centennial celebration of Hidalgo's call for Mexican Independence from Spain approached, Governor Enrique Creel insisted that the streets of his capital city be paved immediately. Walker had not scheduled Chihuahua's paving until the following year. It would require three hundred tons of asphalt and six hundred tons of flux, Walker explained, and he would need to build a plant for the job. Anyway, the company was busy sprinkling oil on the dusty streets of Mexico in preparation for the celebration. "I think that on the strength of the Tlalpam Calzada work, we can land a lot more sprinkling jobs before the Centennial," Walker wrote Doheny. By this time, the Doheny interests and others were also putting in gas pipes for public street lighting.^[71] Asphalt sales, therefore, paid Doheny some early dividends in domestic sales and staffing.

Exporting Ebano oil was even more problematic than developing the domestic market. The Spindletop discovery in 1901 increased the supply of crude throughout the gulf region and drove prices down. Between 1900 and 1905, the average price of a barrel of crude oil "at the well head" dropped from $1.07 to 65 cents. By 1910 the price was 61 cents. (See graph 1.) Thick Ebano oil could not compete with the lighter Texas crude. Doheny had sent the biggest potential buyer, Stan-

Graph 1.
Yearly Average Price per Barrel of Crude Oil at the Well, 1900-1938 (in
U.S. dollars)
Source: American Petroleum Institute, Petroleum Facts and Figures (9th edn, New
York, 1950), 170.

dard Oil, three different samples of Ebano crude. Standard Oil refused to buy any of it because it contained high amounts of pitch and asphalt and low increments of kerosene and gasoline. Doheny subsequently admitted that these early rebuffs had embittered him.^[72] Lack of markets left Doheny in a vulnerable position. For the moment, greater production of heavy crude oil, the long-term uses for which Waters-Pierce's pioneer marketing had done nothing to develop, would only bring Doheny greater problems in selling it.

Nonetheless, Doheny relied on his contacts in the western United States to enable him to export Mexican asphalt into a market heretofore dominated by Trinidad and California paving materials. As early as 1902, Doheny sent a sample of the Ebano product to an asphalt pavement contractor in San Francisco. The man raved about the sample's bitumen content (98 percent) and its temper and toughness. "[A]fter the most rigid tests we are able to report that your refined asphaltum is without question, equal to or better than any refined asphaltum which has come under our notice for many years."^[73] Eventually, the Mexican Petroleum Company also began to export asphalt to the United States. Doheny benefitted from the fact that the U.S. oil fields produced very little heavy petroleum. For a number of years, Pitch Lake in faraway Trinidad had been the exclusive supplier of asphalt for the U.S. market. Consequently, the value of Mexican asphalt exported to the United States expanded from 2,234 pesos in 1908 to 9,050 pesos in 1909.^[74] Soon Doheny was receiving inquiries as to the FOB price of his product. "[I]f there is a chance to handle it," one St. Louis sales agent inquired, "I would like to have the opportunity of so doing."^[75] In no time, Mexican tar was paving the streets of Pierce's hometown.