A Flame Seen for Thirty Miles
In Mexico, the oil companies developed differently than had the big petroleum firms in the United States. Standard Oil began as a refinery group that integrated forward and backward into sales, transport, and production. Gulf and The Texas Company had started out in Texas as producers, then became integrated by acquiring refining and sales divisions. Perhaps such techniques of organization building
were denied the firms in the less-developed Mexican marketplace precisely because they had to compete with the more dynamic, integrated U.S. firms. Both Pearson and Doheny from the beginning attempted to form integrated oil firms in Mexico. Doheny set up a small refinery at El Ebano and developed his own sales network, which was limited, however, by having available only heavy crude. Unable to challenge the Waters-Pierce monopoly on sales of lighter oil products such as kerosene and lubricants, Doheny's company used El Ebano's heavy oil as paving asphalt and as fuel for the nation's steam locomotives. In similar fashion, Pearson built a refinery and acquired a transport and sales organization at the same time that he was trying to develop production. Because part of his sales organization, Bowrings, was in England, perhaps the fledgling foreign oil company in Mexico might qualify as a multinational corporation.[128]
Waters-Pierce did not participate in simultaneous integration at all. The marketing company developed oil field production very slowly, because its long-term contract committed Waters-Pierce to purchase petroleum products only from other Standard Oil — affiliated companies. Although the parent firm permitted Pierce to have refineries in Mexico in order to avoid import tariffs on refined products, Waters-Pierce had no refineries of its own in its larger southwestern U.S. markets. Therefore, Waters-Pierce was destined to lose its monopoly sales position in Mexico to the two fully integrated companies belonging to Doheny and Pearson.
The difficulty of discovering Mexican crude oil initially created a bottleneck in the simultaneous integration within both Doheny's and Pearson's organizations. Sir Weetman's immediate solution was to buy crude. After his refinery at Minatitlán came on line, Pearson contracted to purchase crude oil from Percy Furber, another British oilman. Although Furber lacked the financial and technological backing that Doheny and Pearson were able to muster, he had found a modest deposit of high-grade crude oil at a wilderness location about seventy-five miles southwest of Tuxpan. He named the place Furbero, for Percy Furber was not as modest as his assets, and anyhow the natives could not pronounce Furber. Drilling began in 1904, and six wells were completed. According to his own account, Furber's small production, coming in around 1905, attracted the interest of both Henry Clay Pierce and Standard Oil. Colonel Weller of the 26 Broadway headquarters traveled by donkey into Furbero in order to test the production. The Standard Oil man found Furber's crude to contain a high degree of sul-
fur, which emitted the odor of rotten eggs. Furber claimed that the Standard Oil chemists concluded that the sulfur easily could be separated from the oil. Furber claimed that Standard Oil offered to buy his oil field but he turned the big company down. Furber's account, however, differs from the one found in Standard Oil's documents, which reveal, as we shall see below, that Standard Oil was reluctant to enter Mexico.
Furber and whatever financial backers he could find thus had to bear the extra costs of operating in Mexico, if they were going to be oilmen at all. Furber's oil field manager, Arthur C. Payne, was not an oilman but an investor in Mexican real estate and tropical products. He noted that the cost of drilling was more expensive in Mexico than in the United States. All supplies and equipment had to be imported from the United States, incurring heavy freight costs. American drillers demanded U.S. wages plus traveling and living expenses. The jungle had to be opened, and a camp infrastructure had to be erected, of which sanitation was the most important.[129] Furber looked for a wealthy partner, but the Mexicans were opposed to having Standard Oil enter into domestic production. Afraid that the giant "trust" might buy out Furbero, the Díaz regime brought Furber together with Pearson. The Mexican government agent in London, Luis Camacho, introduced Pearson to Furber, and the two signed a contract, as Furber claimed, just before a second Standard Oil offer arrived, which he had to reject. At any rate, Pearson's group contracted to purchase from 2,000 to 6,000 bd of Furbero crude.[130]
Unlike Doheny's property at El Ebano, Furber's holdings lacked a preexisting infrastructure, a problem that Pearson's engineers now worked to correct. The plan was to expand production in order to justify a new six-inch pipeline and two pump stations. First, they constructed a narrow-gauge railway into the jungle, complete with three iron bridges. Rail cars facilitated the delivery of equipment for drilling, storing, and pumping the crude oil. A team of six American surveyors, assisted by a crew of Mexican macheteros to clear jungle paths, began work in February 1908. They promptly set out to locate a route along the high ground so as to avoid arroyos, rivers, and steep grades. The Americans had experience in handling the survey equipment and mapping routes. As the survey chief wrote in his field book, "Nibbi ran check levels, Bittle X-sectioned, Anderson worked on profiles, while I went on locating."[131] The difficulty of the jungle terrain and not a little sickness — one of the Americans died — slowed the completion of the
survey until the summer rainy season. American construction engineers followed. Supervising crews of local peons and some three hundred workers from Cuba, they completed the narrow-gauge line and necessary bridges between Furbero and Tuxpan in April 1910. Furber also acquired drilling experts through an agent in the United States.[132] This independent oilman used foreign capital in order to buy foreign equipment and hire foreign technicians. Many common laborers were also foreigners.
Furber gained more from the Pearson contract than Pearson himself. As producer, Furber used his long-term sales contract in order to expand — a direction his drilling program did not sustain. He eventually bought another six hundred square miles from landowner Pedro Tremari, thus avoiding offset wells from competitors. In the process, Furber acquired what would be Mexico's most prolific oil field of the 1930s, Poza Rica. The Pearson-Furber contract provided for the delivery of 2,000 to 6,000 bd, but Furber was unable to produce this much. His American drillers simply failed to discover a large well. On one exploratory well begun in April 1908, oil flowed at the rate of 120 bd at only 432 feet. The manager was hopeful. "I would venture to say," he wrote in the well log, "it is absolutely proved that there is oil-bearing sandrock below this show, and the oil must have come up through fissures and cracks into this strata."[133]
But the second well prophesied a different outcome. After showing only slight oil flows at numerous levels, the drill bit struck salt water at 2,608 feet. The crew abandoned the well. "This is a great dissapointment [sic ]," noted the driller, "as the striking of salt water is a very favourable indication, as it frequently overlies the Oil strata." The American drillers working at Furbero, used to working in the oil sands of Spindletop, did not understand that they were drilling in limestone formations. Mexico was the oil world's first experience in the more porous limestone. Salt water lay under the crude, not over, as the drillers believed. As they frequently drilled far below sea level, salt water promised eventually to invade even the most productive wells. Further well-testing at Furbero yielded more disappointments. By 1910, Furber's properties were producing not more than 600 bd. Nine of seventeen wells did not produce anything at all. Guillermo de Landa y Escandón, director of Pearson's new oil organization, suspected that Furber might have been telling his workers to hold back production.[134] Clearly, buying crude oil from so unreliable a source provided no solution to the production needs of Pearson the refiner and marketer.
Because Mexico's oil industry, like its general economy, was linked to that of the United States, Pearson did not have to rely exclusively on Furber for supplies of fuel oil. Low prices, especially on the Gulf Coast, encouraged Pearson to buy Texas crude, refine it at Minatitlán, and sell it throughout the country. In a way, Mexico's nascent oil industry benefited from low U.S. oil prices in the first decade of the twentieth century. Pearson was able to break the Waters-Pierce sales monopoly with cheap imported oil before the even cheaper Mexican production had come in.
If Furber did extend to the Pearson group a short-term benefit, it came in directing their attention to the Faja de Oro. Pearson's agents were in the Huasteca Veracruzana as early as 1906, competing with Doheny's agents over the purchase and leasing of potential oil properties. Once again, the unstructured nature of land titles in an area of only limited agricultural development caused some problems. The Pearson and Doheny interests moved into what would be a prolonged conflict over the estate of the widow Gorochótegui. The first prospector, A.R. Skertchly of the undercapitalized London Oil Trust, acquired the original oil lease on Cerro Viejo. Skertchly sold the lease to Doheny. The widow Gorochótegui proceeded to contract a second lease to Theodore Gestefeld, who represented the Pearson interests. The widow thereupon brought suit against the London Oil Trust to invalidate the first lease. A judge in Tuxpan placed Skertchly in jail for failing to vacate the property. Meanwhile, Doheny arrived in Tuxpan, for he had a number of leases with the local jefe politico of Chapopote. Apparently, Doheny threatened the Pearson agent, Gestefeld. Both parties appealed to the American consul in Tuxpan, who declined to be involved in a legal dispute that ought to have been settled by the Mexican legal system. Doheny and his Mexican lawyer appealed to Veracruz state authorities in Jalapa. Gestefeld, a Prussian who had lived for a time in Chicago, wrote to the secretary of state, Elihu Root, that Doheny was flaunting his American citizenship in Mexico.[135] Pearson's lawyers worked for years attempting to untangle the titles to oil properties both in the isthmus and the Faja de Oro. Ultimately, Pearson arranged leases with a second influential family in Tuxpan, the Peláez. Pearson concluded a lease for the family's estate at Tierra Amarilla and even retained the eldest son as one of his Mexican legal consultants.[136] Competing foreign oilmen, representing an infusion of wealth into an agrarian society, became inextricably involved in local alliances and disputes so politically tangled that the Mexican courts had little capacity
to settle them. Both the Cerro Viejo dispute and the Peláez family would affect subsequent oil operations in the Faja de Oro.
Meanwhile, in the spring of 1908, Pearson was growing despondent about his failure to make a breakthrough in the oil business. He lamented having relied more on the commercial knowledge and hard work of his own organization than on outside expertise. Yet Pearson remained the consummate business manager. "The oil business is not all beer and skittles," he wrote to his son Clive. "Far-seeing provisions have to be made to ensure success. Wise principles have to be followed. Much detail should hour by hour be gone into to avoid all waste. Everyone, on an oil-field that has been proved, is naturally inclined to be extremely wasteful as it is considered to lead to untold wealth. And beyond all, it is essential to know the business."[137] Pearson was learning the business while in the business, as his family's adage had directed.
Pearson's move toward Doheny's oil properties in northern Veracruz proved a momentous setback and spur — all at the same time. Pearson had drilling crews who were putting down wildcat wells at the Haciendas San Diego and Dos Bocas in the region west of Tuxpan. In the spring of 1908, a 2,000-bd well came in at San Diego. It was Pearson's first oil production outside the isthmian region. In July, a crew of Americans using the standard cable drilling tools of the era had already reached a depth of 1,800 feet in a second exploratory well, named Dos Bocas. The American consul at Tampico described what happened next:
The oil was struck on July 4th at a depth of 1832 feet. . . . [W]ith a terrific roar of gas and oil and a clap not unlike thunder, which shook the earth violently, a solid stream of oil began to pour out with such a force that the drill and the pieces of casing over thirteen hundred feet of which were hurled hundreds of feet into the air while pockets of oil were formed in all directions.
The workmen immediately put out the fire underneath the boilers but the oil, which the immense pressure had forced up along the outside of the casing and through fissures over the surface, ignited from the red-hot pipes, which were impossible to cool quick enough, and, within a few minutes, the well and surroundings was [sic ] a seething roaring conflagration beyond all control and from which the manager and laborers on the ground saved their lives only after great difficulty.
The heat was so intense that it is impossible to go nearer than several hundred feet. Considering the great quantity of oil coming out, there is little gas. The internal pressure is tremendous. The height at which the oil first ignites is forty feet. The steady height of the column of oil is 850 feet while gusts of wind are constantly deflecting the main flame and portions of the burning air to an immense height, oftentimes exceeding fourteen hundred feet. The flame
itself is visible at thirty miles distance while the light, under favorable atmospheric conditions, can be seen two hundred miles.[138]
Veteran Pennsylvania oilmen claimed that the Dos Bocas blowout, which had created a crater one hundred meters wide, was the largest blaze they had ever seen.[139] The government sent two hundred army sappers to help the foreign engineers, who tried blowing steam, water, and dirt into the flames with centrifugal pumps. Nothing worked. The giant torch burned so hot that workers were unable to get near enough to start capping the enormous hole through which the crude oil continued to blow at the rate of 100,000 bd. Later, Pearson's rival, Edward L. Doheny, was to call Dos Bocas a "freak well." He claimed that it was basically a blow-out of gas, the well yielding not more than 10,000 to 15,000 barrels of oil. "[A]ll of the oil and gas flow ... was burned in the air, without a drop of it striking the ground."[140] It burned like this for two months, leaving Dos Bocas a gaping, bubbling crater of salt water and sulfur gas.
Pearson now decided to move against the Waters-Pierce sales monopoly. He grew confident that he would ultimately discover a large oil field in Mexico, and he was encouraged by his own modest production and what he purchased from Furbero and Texas. In fact, much of Pearson's negotiations with Waters-Pierce were proceeding simultaneously with his crude oil purchases and exploratory programs. Sir Weetman had approached Henry Clay Pierce at the end of November 1907. The British engineer speculated that Pierce's profit margins — calculated at 100 pesos per ton — were too high. He proposed that together the two oilmen reduce those margins closer to the break-even point of 25 pesos per ton. What Pearson suggested was a combination between the two companies that would keep out other competitors. In other words, they should form a cartel. In New York, the British capitalist proposed that his company provide Pierce with Mexican crude oil (even though Pearson did not have much of it yet) and receive one-third of Pierce's total profits. Pearson estimated that, at any rate, Pierce would be saving some 150,000 gold pesos per year over the import of foreign crude oil. Waters-Pierce was to serve as Pearson's exclusive marketer in Mexico. Pearson would be the sole producer.[141] Pearson proposed to imitate Standard Oil's initial relationship to Waters-Pierce. Limantour agreed to the proposal beforehand, as long as Mexican oil prices did not rise.
The two oilmen came to a deadlock over fuel oil, however, which promised to be the most important Mexican product. Pearson wanted to include only traditional Waters-Pierce products, like lubricants and
Fig. 4.
the Dos Bocas well after the blowout, c. 1911. Geologist Ralph Arnold
photographed the crater and wrote the following caption: "At present this
is a lake of about 1,000 ft. in diameter, around which numerous hot water
springs flow, from which emanate deadly gas. Notice the desolation of the
country around the well." from the Ralph Arnold Photo Collection, courtesy
of the Huntington Library, San Marino, California.
kerosene, in the cartel agreement. But Pierce, who had never had any fuel oil sales in Mexico, wanted to make fuel part of the deal. As the British learned later, Henry Clay Pierce was at the same moment negotiating to buy Doheny's surplus production at El Ebano.[142] At the time, a second round of court battles in Texas was distracting Pierce, and rumors said he was "racked with illness." Pearson suspected that Pierce was delaying for time. He ordered Body to begin buying railroad tank cars and distribution depots in the ten largest Mexican market centers. Offering petroleum products at a 20-percent discount, Body was to enter Mexico's retail trade.[143] Nevertheless, negotiations continued. Believing that Pierce and Standard Oil were not on speaking terms, Pearson established contact with the directors at 26 Broadway. Pearson did not desire Pierce to "use us as [a] pawn" in settling his differences with Standard Oil. President John D. Archbold of Standard Oil informed Pearson that because it was facing its own court litigation, Standard Oil was momentarily unable to do anything in Mexico.[144] Pearson was pleased. With Doheny stuck in his heavy oil,
and Standard Oil preoccupied by court proceedings, the Pearson and Waters-Pierce groups were left to struggle over the Mexican market.