Contempt for Our Efforts

Those first years in Mexico began to consume Doheny's capital. His backers lost heart in the financial depression of 1902. Doheny and Canfield had to buy back much stock, raising their ownership from 8 to 40 percent. The Mexican Petroleum Company, incorporated in California and capitalized at $6 million, had spent $2.8 million just on the asphaltum refinery and paving business. Although Doheny's operations were in a fledgling state, the prospectus of 1905

expressed enthusiasm about new properties he had acquired at Cerro Viejo and Cuchillo del Pulque near Tuxpan. He obtained a pipeline concession exempt from state and municipal taxes. He had every expectation of selling kerosene to fifteen million Mexicans — cutting into the Waters-Pierce market. Doheny also had visions of exporting to Great Britain — cutting into another Standard Oil market.^[76] As of 1905, these were but expectations. Reality had forced Doheny to expend $750,000 of his own money between 1902 and 1905 merely to attract other investors and remain in business. Harold Walker claimed that $6 million had been sunk in the Mexican Petroleum Company before the first barrel of Mexican oil was exported in 1911.^[77] Nevertheless, 1906 rewarded some of the optimism.

Doheny's persistence yielded results when railways and other industries began to convert to oil. Mexico's economy had been growing on the energy source of coal and coke. By 1900, 2.7 million tons of this hydrocarbon were used by railways and steamships (67 percent), metal smelters and mining mills (22 percent), and the iron and steel foundry at Monterrey (10 percent). The opening of a coal field in the state of Coahuila lessened somewhat the need to import coal. But Mexico still depended upon annual imports of 1.1 million tons of coal and coke from Great Britain, the United States, and Germany.^[78] Finally and characteristically, Doheny solved his marketing problem by equipping his own locomotive with an oil-burning boiler. He proved that his heavy Ebano oil could be burned as fuel. In 1905, Doheny negotiated a fifteen-year contract to sell oil to the Mexican Central Railroad, despite the fact that Henry Clay Pierce was still its board chairman. By now, the price per barrel was about half of the original contract, but the Central was soon taking 6,000 barrels per day.^[79] By 1906, the Mexican Central operated fifteen locomotives on El Ebano petroleum; the remaining fifteen still burned coal from West Virginia and Alabama. Large earthen reservoirs along the rail lines dispensed the "heavy molasses" oil to the Central's engines. The Central saved about 150,000 pesos per year using domestic sources of fuel — perhaps one of the reasons that the oil importer and Central chairman, Henry Clay Pierce, had little choice but to cooperate with Doheny. Railroad engineers found that oil burned cleaner and with less residue than coal. Ton per ton, oil saved railway managers 3.02 pesos over coal. Even the mining industry, like the smelters of ASARCO, began to convert their boilers to use Ebano oil.^[80]

Moreover, the Mexican government's purchase of the nation's railways, beginning in 1902, opened up additional prospects for domestic

sales of Ebano fuel oil. His Mexican associates especially were exuberant about being able to circumvent Pierce's obstacles. As Ordóñez observed, one of the government's reasons for gradually taking over the railways concerned the protection of new industries like Doheny's oil-producing company. All Mexicans assumed that freight rates would be lowered. "I cannot explain [to] you fully the advantages you got with the acquisition of the Interoceanic RR by Mexican Government," Ordóñez wrote to Doheny, "because the product of Mexican Petroleum Co. will come to Mexico at better conditions of freight than before."^[81] Mexico's oldest railway, the Interoceanic ran between Veracruz and Mexico City. It too was considering the substitution of fuel oil for imported coal. Doheny's attorney in Mexico, Pablo Martínez del Río, approached one of its officials, who agreed to accept one hundred barrels of Ebano oil for testing in their locomotives. The Interoceanic was also importing fuel from Texas for experimentation. "This shows that they are very seriously endeavoring to use petroleum," said Martínez del Río. But he also warned, "This road, belonging principally to the Government, can perhaps import its fuel without paying duties. This circumstance must be borne in mind in making the charge of this shipment and at the time of negotiating the whole supply."^[82]

At first, the National Railways did not become the sales solution for the Ebano production. A. W. Cockfield, a machinery superintendent for the Veracruz-Mexico City line, cornered the Mexican patents on eight different kinds of oil burners for locomotives. Doheny's representatives in Mexico thought that Cockfield was a Pierce agent. He could rig those burners not to operate on Ebano oil. "Evidently if Mr. Pierce has control of the oil business," they wrote Doheny, "Mr. Cockfield has control of its use for fuel."^[83] Up to this moment, nothing that Doheny had accomplished in Mexican production threatened very much the established sales monopoly of Waters-Pierce. The Standard Oil affiliate had never imported fuel oil for Mexican railways nor sold much imported asphalt. Doheny merely introduced new oil products and diversified Mexico's consumption of petroleum.

Meanwhile, Doheny was also engaging in a wholesale process of expanding production. His agents and prospectors had been searching for exudes in the Huasteca Veracruzana. Stretching from Tampico and El Ebano to Tuxpan and Papantla, the region had remained relatively uncharted. American and Mexican leasing agents surveyed the territory on yachts, motor launches, canoes, horses, donkeys, and foot. George J. Owens, who had drilled for Doheny in Peru, found some lands west of Tuxpan in the Casiano Basin. The Barber Asphalt Company of New

York acquired properties known as Cerro Azul and Juan Felipe, and the London Oil Trust (Rhodes's old company) still retained properties called Cerro Viejo and Chapopote. Owens led an inspection team consisting of Doheny, Wylie, and Dr. Norman Bridge to the properties. "The lighter character of the exudes we also noted with much satisfaction," Doheny wrote.^[84]

Within two months, the Mexican Petroleum Company acquired the oil properties. Many local landowners such as the simple herdsmen and subsistence farmers preferred to sell their land for cash rather than to lease it for promises of future royalties. As Doheny observed, few had faith that oil would be found. Larger landowners, having greater investments and profitability in their estates, generally preferred the lease and royalty arrangements. So Doheny created the Huasteca Petroleum Company to hold the fee-simple lands and the Tamiahua and Tuxpan Petroleum companies to hold the leased properties. He also created the Pan American Transportation Company in Delaware to provide for the tanker fleet by which he was planning to export Mexican oil.^[85] All four were wholly owned subsidiaries of Mexican Petroleum of Los Angeles. Ever hopeful, Doheny not only persevered but expanded his operations.

The potential for land-title problems also existed in the sparsely and informally settled area along Mexico's Gulf Coast. Doheny had his share. In 1901, Mexican Petroleum purchased lot no. 2 along the Tamesí River from Paulino Morate. A problem arose because the previous owner, Amado Garabaldi, had sold the same parcel a second time. The second buyer was the Tampico Sugar Company, a local agricultural company employing seventy workers in the area. Tampico Sugar put up a fence across the property, denying access by the drilling crews. Jacobo Váldez of Mexican Petroleum called in the rurales to tear down the fence and protect the oil workers. The Mexican courts subsequently decided that the sugar company and the original owner, Garabaldi, had conspired to defraud Mexican Petroleum. Garabaldi spent six months in jail.^[86] More serious title disputes were to arise once the oil industry became very wealthy — disputes that the Mexican judicial system would be incapable of handling.

Mexican politics, meanwhile, could not be discounted. By the time that Doheny formed Huasteca and applied for government concessions to build three pipelines to connect the oil wells of the Faja de Oro to Tampico, Doheny changed Mexican attorneys. "Mr. [Martínez] del Río being attorney for the Railway Company could not continue to act for us, we being customers of the Railway Company," Doheny ex-

plained, "and we employed in his stead, [the] Hon. Joaquín de Casasús," a former ambassador to the United States.^[87] In fact, Martínez del Río suggested that Doheny hire Casasús. The latter had more influence in the government, because President Díaz had not forgotten that Martínez del Río's father had served in Emperor Maximilian's cabinet.

Doheny's managers informed the Díaz government about everything his companies did in Mexico. They needed political protection in these formative years. The 1905 depression produced something of a nationalist reaction against foreign investors. Doheny's leases and sales were investigated, though the committee upheld the Mexican laws that had adopted the Anglo-American concepts of private property. Clearly, some influential Mexicans were getting nervous about the rapidity and direction of the Díaz-era economic development. Doheny identified Finance Secretary José Yves Limantour as one of those who, suspicious of Americans, attempted to discourage Doheny by disputing the wealth of his properties in official Finance Department reports. Limantour also may have exerted influence on Mexico's Geological Institute to produce an unfavorable report on El Ebano.^[88] Doheny's managers also suspected that Limantour (prompted by agents of Pierce) had prevented Doheny from obtaining the right to export Mexican oil duty free.^[89] As Doheny later said, Limantour tried "to create an atmosphere of dislike, almost contempt, for our efforts." Díaz himself was said to have favored Doheny. But several powerful men serving Díaz "considered our interests as being inimical to theirs," Doheny stated; they were suspicious that the American oil companies would become an active competitor to the government itself.^[90] Doheny seemed to take a kind of perverse pride in the "open hostility" and obstructionism he encountered from some Mexican politicians. It made his ultimate success that much sweeter. It confirmed he was a man of destiny, and they were among the unbelievers. Yet Mexican opposition did exist in the highest political circles.

Consequently, Doheny reinforced his companies' expansion with all the proper concessionary contracts with the government. Huasteca negotiated a concession in 1908 to explore and exploit the whole of the Faja de Oro and adjacent Tamaulipas and San Luis Potosí regions wherever Doheny's companies already had private rights. The government approved of Huasteca's plans to build a refinery at Mata Redonda, across the river from Tampico, and to construct pipelines through the Huasteca to the refinery. The company, which was obliged to invest 500,000 pesos ($250,000) on the project within five years, had to

submit to the ministry of development all plans for construction. It could import the equipment duty free. The contract also specified that "the concessionary company could export free of all taxes or duties the natural or refined products that come from the exploitations referred to in this contract."^[91]

Additional contracts such as Huasteca's concession to pump water from local rivers established a number of considerations that later governments, less lenient to the foreigners, were to use to increase taxes. According to the contracts, for example, the government retained the right to review oil company activities. The companies signing the contract were to be regarded as Mexican, subject to the laws of the Republic and having no rights of recourse to foreign diplomats. The first of many tax hikes also came during the Díaz presidency. In 1910, the government raised the bar duties collected at ports to fifty centavos per ton of oil.^[92] In effect, this was to become a tax on all exports of petroleum as well as a tax on crude oil brought by barge from Tuxpan to the Tampico refineries. Some of the oil could be taxed twice, coming in and going out. If it went to another Mexican port, it might be taxed thrice.

The precedent for future government-company conflict was already in place before Díaz even fell from power. Yet, Doheny later claimed that his visits with various presidents of Mexico and heads of different departments never led him to conclude that bribes were necessary to accomplish business in Mexico. "I can testify that the treatment was uniformly courteous, considerate," he said. No "other means were necessary to obtain the rights and privileges which we were requesting, than the statement of a good reason therefore."^[93]

Other evidence seems to bear out Doheny's assessment. In Chihuahua, state officials were so eager for oil investments that they were prepared to pay. Governor Creel of Chihuahua, who had leased some of his own extensive properties to American drillers, in 1908 offered a prize of 10,000 pesos ($5,000) to the person who brought in the first well producing 60 bd or more. At the time, imported coal cost as much as 18 pesos per short ton; kerosene, 68 centavos per gallon; and gasoline, 93 centavos per gallon. "It will thus be seen," reported the U.S. consul in Chihuahua, "that the matter of fuel makes the cost of manufacturing so high as to offer very little encouragement to such industries."^[94] Meanwhile, Doheny's search for production continued — not in Chihuahua but in the Huasteca.

Map 1.
the Major Oil Fields of Mexico

Doheny was gambling over a ten-year period that he would be able to produce a lighter grade of Mexican petroleum — and in sufficient quantities to justify pipelines, refineries, and tankers. Doheny found it in the Huasteca. By 1906, he had leasing agents traveling through the tropical forests seeking out leases on the larger haciendas. It was here, in the region just north and west of the small port of Tuxpan, fifty miles south of Tampico and connected only by water, that Doheny's producing interests first began to compete with those of the British businessman, Sir Weetman Pearson. In fact, Doheny entertained the local gentry lavishly, bringing them to his oil camp of El Ebano by boat and his private rail car for the 1906 Christmas celebration. On this social occasion, Doheny did buy the La Pitahaya Hacienda of 5,000 acres — and its mineral rights — from Manuel Saldívar, for $49,000. Afterwards, Doheny traveled by train to the capital, where he saw Martínez del Río, visited the bank, lunched at the American Club, and visited American and Mexican friends. "Everything is progressing favorably," he wrote to his wife, Estelle; "Inform Canfield and Bridge."^[95]

Confident of the potential of the properties he acquired in 1906, crews immediately began constructing the pipeline from Casiano to Tampico. They built 125 miles of eight-inch pipeline, ten pumping stations, and twelve 55,000-barrel steel tanks. But a recalcitrant landowner prevented them from extending a seven-mile section through his hacienda. Evidently no geological work preceded the exploratory drilling at Casiano. Doheny's men relied on the principles that Ordóñez had taught them at El Ebano. The first five holes were dry.^[96] Even before the pipeline came on line, drilling crews at the nearby Casiano properties had brought in wells 6 and 7. The first had a flow-rate exceeding 15,000 bd, filling all available storage tanks. Casiano no. 7 proved to be the big one — flowing uncontrollably at the rate of 60,000 bd. In September 1910, crews attempted to cap no. 7, but its pressure of 285 pounds-per-square-inch forced oil out through cracks in the casing and through a fissure in the earth three hundred feet from the derrick. Before they could control the flow, crews lost thousands of barrels of crude, which flowed into a creek and had to be burned off. Because no. 7 defied capping, employees reduced the flow to 23,000 bd, enough to stop the leak through the fissure. They then worked feverishly to construct a 750,000-barrel earthen reservoir and more than a hundred storage tanks. President Diaz himself finally interceded with the recalcitrant landlord so that the oilmen could complete their pipeline to Tampico.^[97] To his advantage, Doheny's company had discovered a light

oil. Measured at 20 degrees Baumé, the Mexican crude of the Huasteca region yielded kerosene, fuel oil, lubricating oil, and gasoline.

The new discoveries pressed Doheny for funds to pay for the infrastructure needed to market the vast supplies of crude oil. Pipelines, storage tanks, oil loading terminals, expanded refining capacity, oil tankers, and buyers were needed. Once again, he turned to U.S. financial circles. Doheny contacted the successful Pittsburgh-based wildcatters Joseph C. Trees and Michael Benedum. They were partners in the South Penn Oil Company. Trees toured the Mexican properties and was impressed by the tar pits and the new wells. Together, Trees and Benedum invested $500,000 and received 5,000 shares of preferred stock, plus an additional 2,500 shares of common stock in the Mexican Petroleum Company. Two other Pittsburgh financiers invested lesser amounts.^[98] Doheny used the money to pay for the pipelines and loading facilities. Then Mexican Petroleum required additional funds to develop a marketing system within the United States. William Salomon and Company, a New York financial house, agreed to purchase $5 million worth of the company's securities, guaranteed by a mortgage on the Mexican properties. Two American geologists evaluated the Mexican oil holdings. Stanford University's Ralph Arnold appraised the oil fields at El Ebano and Casiano and the undeveloped Cerro Azul properties at $20 million.^[99]

Doheny took special exception to Arnold's appraisal, which he considered far too conservative. Some of his prejudices toward geologists were revealed in his critique of Arnold's estimate. He accused Arnold of certain erroneous conceptions of the facts. "[W]e not only do not accede to one approximate valuation given to the properties," Doheny complained, "but we do not agree with the opinion of the geologist as to the area of land, at the different localities, which will prove to be oil-containing." Doheny never again hired Arnold. He had another evaluation completed by I. B. White, whose evaluation of $62 million Doheny approved. (In 1912, Arnold went on to work for Shell Oil Company in accomplishing the first evaluation of Venezuela. Here, Arnold would identify the potential of the Maracaibo Basin, which within fifteen years would supplant production in Mexico.)^[100] In the meanwhile, Doheny received his loan and began constructing tank farms, pipelines, and terminals.

Building so large a marketing organization also took time; the Mexican Petroleum Company had a lot of oil in its tanks right now. The disposition of the enormous quantities — at least 40,000 bd from just

two wells — had to be sold to someone with established marketing networks. In 1911, the Mexican and Huasteca Petroleum companies did have market contracts with a diversified set of institutional buyers. They had long-term sales contracts for some 25,450 bd of crude and processed petroleum at prices fixed between 39 cents and 93 cents per barrel. The problem was that the Mexican market was somewhat inelastic. It could not absorb even at low prices the vastly increased domestic production, and Doheny's companies still relied upon these domestic consumers for 60 percent of its sales (see table 2). Doheny needed to break into the North American market if he wanted to survive the flush production of the Faja de Oro, "the Golden Lane," as the prolific oil zone just west of Tuxpan came to be known.

As the largest transporter, refiner, and marketer of petroleum in the country, Standard Oil remained the logical buyer of Mexican crude. Doheny requested that his new stockholder, Mike Benedum, negotiate a sales contract with Standard. Benedum concluded a tentative agreement for the sale of 12,000 bd of Mexican crude at 52 cents per barrel. Doheny, who was himself dealing with the Gulf Oil Company, however, allowed the Standard negotiations to lapse inconclusively. An-

noyed, Benedum subsequently broke with Doheny and began to sell off his Mexican Petroleum stock. Benedum and his partner made a nice profit on one year's investment.^[101] Then the Gulf negotiations also broke down. Mexican Petroleum Company appeared on the brink of drowning in its own flush production. The United States Supreme Court in 1911, however, had just dissolved the giant Standard Oil Company. The centerpiece of the old organization, Standard Oil New Jersey, inherited refineries, oil tankers, and marketing apparatus — but no oil-producing subsidiaries. Both Jersey Standard and Waters-Pierce used the dissolution as an opportunity to sever their formal if strained ties. Thereafter, Jersey Standard was receptive to Doheny's need to sell a lot of crude oil, and quickly. It is no exaggeration to say that the Standard company saved the Mexican Petroleum Company in 1911 when it contracted to purchase 2 million barrels of Mexican crude per year for a period of five years.^[102] At least, Doheny could maintain that he had kept his word to President Díaz. He had not sold his oil properties into Standard Oil's control, although Jersey Standard was purchasing Mexican crude petroleum. (Control would follow in due course — in 1932, to be precise.)

Doheny at last was able to compete in growing United States markets. He supplied oil-fueled steamships and gasoline-powered automobiles as well as traditional kerosene and lubricating markets. The first regular export cargo of crude oil left Tampico in May 1911 on the steam tanker Captain A. F. Lucas, named for the discoverer of Spindletop. The tanker delivered 30,262 barrels of Huasteca crude to the Magnolia Petroleum Company's refinery at Sabine, Texas.^[103] One historian estimates that after the oil strikes in the Faja de Oro, Doheny began to earn about $10 million a year on his Mexican ventures. Another places the fortune at $75 million.^[104] In the meantime, Mexico had become a net exporter of petroleum.

By 1911, the Mexican Petroleum Company had survived the vicissitudes of Mexican geology and the competition of the oil business. Not a little of the success is attributed to Doheny's entrepreneurial spirit and tenacity, attributes he no doubt developed while prospecting in the American West. Yet, several other factors also contributed to his achievements in opening up Mexican petroleum production. First of all, Mexico's economic development had created demands for a cheap, domestic source of efficient fuel. To Pierce goes the credit for developing demand in Mexico for sufficient petroleum products to support a domestic oil industry. Second, the political will of the Diaz regime had

Fig. 2.
Doheny at the site of an El Ebano well, c. 1904. When the wells came in, the
gas pressure splattered the thick oil over the vegetation in the immediate
vicinity. Edward L. Doheny (third from left) leads a delegation of oil executives
to the well site. Mexican geologist Ezequiel Ordóñez stands to the left, and
Herbert Wylie is the heavyset man at center right. from the Estelle Doheny
Collection, courtesy of the Archive of the Archdiocese of Los Angeles,
Mission Hills, California.

created an atmosphere in which long-term investments could be nurtured. Third, Doheny's prior experience in California oil production had given him access to the capital and technological resources needed to organize an advanced industry such as petroleum. It was simply beyond Mexico's ability in the first decade of the twentieth century to accomplish what the foreign entrepreneurs were able to do. Without foreigners, Mexico would have had no oil industry this early. Indeed, the country would have had little demand for petroleum. It was natural, in a way, that a successful American oilman should follow successful American railroaders across the border to the south. The Mexican journey of the third great foreign oil entrepreneur, Sir Weetman Pearson, differs not only in particulars but also in substance. That he was British made all the difference.