Taking Advantage of Opportunities

Nevertheless, Jersey agents began to participate in the search for prospective oil lands and leases. So as not to attract attention or to force up prices, the agents always took out the leases in their own names. The first was James W. Flanagan. A flamboyant Texan of Irish descent, Flanagan claimed to have been a conductor on the Mexican Central Railroad and, later, to have fought with the rebels in the Cuban war for independence. He earned the title of captain in the Spanish-American War. Flanagan was an unusual Standard Oil man. He had no particular education nor experience in the oil business, and he was a Catholic in something of a white Anglo-Saxon Protestant organization. Good with languages and having a charming personality when the occasion called for it, Flanagan became the confidential employee of Walter Teagle. He was tapped for special and secret missions, often having to do with making political connections, as he did later in Peru and Colombia. His tie to Teagle and Standard was never to be admitted, seldom even to Standard's top men in the field. Flanagan was a man made for legend and intrigue.

Armed with introductions to important men of different revolutionary groups, Flanagan entered Mexico in June 1914. He arrived at a moment when the revolutionary turmoil of the highlands had just descended upon the tranquility of the oil zone. "It is impossible to convey to you in an intelligent manner the extreme chaotic conditions that exist in this country," he reported to Teagle.^[160] The rebels were assessing forced loans and fines on the oilmen. The Americans had just occupied Veracruz, and some armed groups harbored hostility to the gringos. He reported that he had to talk himself out of one holdup. On a trip to Tuxpan, he said, he was "taking no arms whatever, believing that I had best take my chances talking than fighting through any difficulties."^[161] Nonetheless, he persevered in a search for oil properties that took him, by foot and by dugout canoe, into the monte.

It may be that Flanagan was more flamboyant than effective, more flimflam and boastful than successful, at his work. He constantly wrote to his benefactor Teagle of his multiple difficulties. One American engineer pretended to offer Flanagan an "unbiased" professional opinion on a property that the engineer himself was secretly selling. The Cuban war veteran, however, did provide useful intelligence to Teagle, informing him of the problems of obtaining safe titles to properties in an area where the complexity of ownership was extreme. The Hacienda Moyutla near Tuxpan, for example, had been so hopelessly divided among heirs that proof of ownership was nearly impossible to establish.^[162] And Flanagan waxed eloquently about the graft and corruption of Mexican politicians and public officials. But as far as the documents show, Teagle never authorized Flanagan to offer graft money nor did Teagle advance him any funds for that purpose.^[163] In truth, Flanagan had very little to show after two years in the country. Teagle finally sent him on a mission to obtain an oil concession from the Peruvian government (in which he did not succeed) and brought in John Kee of the Carter Oil Company. Within a year, Kee had obtained thirty-three leases in such promising areas as Zacamixtle, Chinampa, and Amatlán.^[164] So much less flamboyant than Flanagan, Kee nevertheless was a more fitting Standard Oil man: quiet, unassuming, low profile, but effective.

Yet up to 1917, Standard Oil for all practical purposes had not been a party to the enormous development of the Mexican oil industry. Besides a small topping plant and a few leases, Jersey had no production in Mexico at all. Not only were Huasteca and El Aguila expanding into Standard Oil markets in the United States and South America, but others of the fabled Seven Sisters (the seven largest oil companies of the world) already had operations in Mexico. Shell had established a production company in 1912, at the same time that it obtained the largest oil concessions in Venezuela. Mexican Gulf of the Mellon group and The Texas Company also entered Mexico, and Standard Oil Company of New York had just acquired the Penn-Mex concern through its South Penn subsidiary. "[A]ll of our principal competitors are more strongly entrenched in Mexico than we," said Sadler. "They were earlier in the field and bought their property under more advantageous conditions than will probably ever exist again. They are all in shape to make deliveries from the moment that steamers will be available for the purpose."^[165] These big competitors were developing their own refineries and marketing organizations. The danger was that soon none of

the producers in Mexico would have to sell their crude petroleum to Jersey Standard. Then what?

Almost as a matter of self-defense, Jersey Standard finally relented and purchased a Mexican producing company. It was not Huasteca or El Aguila, properties found to be too expensive or politically inexpedient to acquire. Late in 1917, Jersey Standard bought the Compañía Petrolera de Transcontinental, a British company with American stockholders. For nearly $2.5 million, Jersey Standard acquired a Mexican charter, valuable leases, permits to construct pipelines and storage tanks, import tax-exemptions, one producing oil well in the northern fields, and no refinery.^[166] Why late 1917 and not sooner? By that time, Teagle and Sadler were making their opinions known among Standard Oil executives. Now that the United States had entered the war, the British government was no longer adverse to allowing a small company, at least, to pass into the hands of an ally. Furthermore, the strategic importance of petroleum supplies during wartime had tempered the hostility of the U.S. government toward Standard Oil. Jersey thus decided to go ahead with a direct purchase of Transcontinental.

The architect of Jersey's new foreign production, E.J. Sadler himself, assumed the head of Transcontinental. His plans for the new Standard Oil subsidiary were ambitious. Sadler wanted Transcontinental to purchase new production and leases from other small firms that because of the war could borrow capital only at high rates of interest and had difficulty finding transport. "We will not fail," he hoped, "to take advantage of the opportunity which is now presented to equal and surpass the greater number of our competitors in Mexico." He planned for Transcontinental's delivering 100,000 bd of Mexican crude between the northern and southern fields.^[167] Article 27 of the Mexican Constitution, which claimed national ownership (as opposed to private ownership) of all subsoil wealth, had gone into effect on 1 May 1917. Sadler did not indicate that it caused him the slightest concern when, shortly afterwards, he took up his new assignment in Mexico.

Sadler arrived at a time when world oil prices were rising to record heights. Transcontinental's expansion followed in short order. The first wells were exceptionally productive. One well in the Pánuco district was gauged at 76,000 barrels per day, and the first two producers in the southern fields reached a combined capacity of 60,000 bd.^[168] Sadler was directing an extraordinary expenditure on transportation, refining, and terminal facilities. In 1920, Transcontinental acquired the La Barra refinery near Tampico. The number of employees in Mexico rose from

751 in 1918 to 3,313 in 1920. Jersey Standard raised its direct investment in Mexico from $730,000 to more than $5.2 million. By 1922, the dollar investment in Transcontinental amounted to $32.6 million. New leases had been acquired on the Isthmus of Tehuantepec and in northern Mexico.^[169] As a parent company, Jersey Standard had the ability to draw earnings from many subsidiaries and lend large amounts of capital to designated companies. It had a great reservoir of its own investment capital. As of December 1912, Jersey's ledgers recorded loans of $110.8 million to affiliates.^[170] The war did not much inhibit the growth of these internal capital transfers. At a time when Lord Cowdray and his British-owned El Aguila were strapped for capital, Standard Oil of New Jersey poured money into Mexico.

Like others, Transcontinental's managers also began to notice the exhaustion of its new oil wells, particularly those in the southern fields, as salt water rose to replace the crude oil in the hastily exploited oil pools of Zacamixtle. The decline of some wells began in 1919. By then, Transcontinental had only two wells in the southern zone; they produced abundantly but were beginning to flow to salt water. A plan was considered to decrease the rate of flow. Representatives of Transcontinental, El Aguila, and The Texas Company met late in 1920 to discuss a joint conservation program for the Amatlán, Zacamixtle, and Chinampa. In these fields, the wells were driven by hydrostatic pressure, and the keen competition multiplied the number of wells. The underlying salt water, consequently, rose in the wells faster than if the wells had been pinched back. Yet none of these oilmen understood exactly how much retardation of flow rates would have prolonged the wells. They did not agree on any conservation policy at all. In fact, the managers decided to drill even more wells to make up for dwindling production.^[171] Dealing with the problem of salt-water encroachment was put off, although not exactly ignored, as long as total production continued rising during the great oil boom.

There was little doubt, however, that Jersey Standard had finally entered the Mexican oil industry, even though its long-expected entry had been delayed. The company did not exactly enter Mexico in order to capture all the country's oil production or to strengthen its command of the world's oil resources. Instead, Jersey Standard entered Mexico for the same reason that ultimately drove it to enter every major oil boom in the United States from 1859 to 1910. It expanded in order not to lose any more market shares than necessary to the new companies created by each new boom. When oil production went international in the

twentieth century, Jersey Standard too had to go international. If it did not enter Latin American production, Jersey stood to forfeit its lucrative markets there to upstarts like El Aguila and Huasteca. It was the same for other big companies.