Chapter One—
Not All Beer and Skittles

The Porfiriato, that period of Mexican history dominated by General and President Porfirio Díaz, from 1876 to 1911, was a time of unprecedented economic expansion. Compared to the economic decline and political instability that had plagued Mexico since the beginning of the rebellion for independence in 1810, the Díaz administration seemed to have provided peace and prosperity. Exports grew by 5.6 percent per annum, national income by 2.3 percent, population by 1.4 percent, and per capita income by .93 percent. Foreigners found Mexico so attractive that they pumped an estimated 3.4 billion pesos into the country by 1911. Depending upon their own national economic strengths, foreign investors specialized in different sectors of Mexico's economy. French and Dutch capital financed the public debt. The Germans invested in manufacturing; the Americans, in mining and later petroleum; Britons and Canadians, in public utilities; and the Americans and Britons, in railways. It was said that two-thirds of all capital investment in Mexico, outside of the agriculture and handicraft industries, came from foreign sources. The United States led all investors, but Mexican political encouragement had developed effective competition from British and French capital investments as a foil to U.S. economic dominance. A coterie of immigrant entrepreneurs developed a vibrant domestic manufacturing sector. Political supporters of Díaz often reminded Mexicans of these basic facts. They neglected to mention, however, that the distribution of income remained skewed toward the elite.^[1]

Growth of the economy, in turn, generated growth of the Mexican market for petroleum products, lubricants, and illuminants. Railways, mining operations, domestic and export agriculture, industrial and artisan manufacturing, and internal consumption all expanded. In the oil tank car, railways provided an efficient method of bulk transport. The trackage of Mexican railways expanded from 1,073 to 19,280 kilometers between 1880 and 1910. The moving stock of trains needed lubricating oils. So did agricultural processing equipment and the machinery in the mining, textile, and agricultural export industries. In the cities, increasingly prosperous and sophisticated consumers purchased imported lamps that burned kerosene. Kerosene lanterns also became standard equipment in a number of industries, and parlor oil stoves for home heating appeared in the homes of the well-to-do when fuel became more widely available throughout the nation. Even the Irishmade light buoys, equipped with oil lamps and placed by the Mexican government at the entries of the nation's harbors, had tanks large enough to hold fuel for a month of steady light. Nineteenth-century mining operations were starved for fuel, because deforestation hampered the use of wood for the steam boilers of the mines. American investors reopened some colonial mines and applied modern technology to the extraction of silver and gold from low-grade ores. Coal, copper, and lead also came to be mined.^[2]

Mexico's domestic market, nonetheless, did little to stimulate Mexican private entrepreneurship in the production of petroleum. Several early Mexican efforts to produce, refine, and sell oil products had failed. To develop the infrastructure of a successful private marketing business in Mexico, the entrepreneur needed capital, management skills, and technological expertise. These commodities, developed in more advanced capitalist economies, meant that only foreigners with prior experience in the oil business could succeed. Their success may have forever blocked effective competition in petroleum from Mexican entrepreneurs. More than that, the foreign entrepreneurs came from another world, not a seignorial but a business world.

American businessmen such as Henry Clay Pierce and Edward L. Doheny found a kind of logical interest in the Mexican marketing and production of petroleum. After all, the United States shared some 1,952 miles of border with Mexico. ("Poor Mexico," Porfirio Díaz supposedly remarked, "so far from God and so close to the United States.") When Standard Oil began exporting Pennsylvania petroleum products, Mexico along with Canada and Cuba represented the nearest

foreign markets. A second rationale for American investment in the Mexican oil industry concerned the earlier American investment in the critical element of Mexico's economic modernization, the railways. Nevertheless, American oilmen had competition not from Mexican entrepreneurs, who in any case lacked the capital and technological resources, but from the British — specifically from Sir Weetman Pearson.

These entrepreneurs operated in the half century before the First World War, the initial stage of economic modernization in Latin America.^[3] How much of the results of this growth can be attributed to external forces, represented by foreign investment and technology? How much to internal forces, represented by economic policy and sheer political will? Can scholars distinguish the outcomes of policy from those of politics? Mexican politicians struggling among themselves for power have had an important role in shaping their nations' modern economic environment. Foreign entrepreneurs, therefore, owe much of their success and failure not only to their manipulation of production and markets but also to their individual relationships with domestic politicians.

In particular, British success in the Mexican oil industry was willed by influential Mexicans engaged in a nuanced and delicate political contest. They desired to promote economic development to enhance their internal political control without appearing to be dominated (and thereby discredited) by American business. Politicians surrounding President Porfirio Díaz encouraged all foreign oilmen, but they promoted Sir Weetman Pearson's interests above others. Their political support — in combination with Sir Weetman's business acumen — enabled this British entrepreneur successfully to challenge better-placed American competitors. Nonetheless, the new forces of modernization were beyond the capacity of the Porfirians to control. They may have favored the British, but Americans could not be totally eliminated.

Buy your Lubricating Oils from Us

The Waters-Pierce Oil Company was an American firm with an important mission in Mexico: the development of the domestic oil market. Because of its peculiar niche in the United States petroleum industry, Waters-Pierce came into monopoly control of Mexican petroleum sales during the Porfiriato. Waters-Pierce neither produced nor

refined oil products within the United States; it only sold them. A combination of Waters-Pierce's marketing specialization and its connection to the powerful Standard Oil group worked to develop the necessary sales infrastructure and to widen the growth-induced market for petroleum products. But growth of Mexico's consumption of petroleum products, while enlarging Waters-Pierce's profits, at the same time invited competition. (Profits beget competition, as the old capitalist adage goes.) Once it had developed the market in Mexico, by 1900, Waters-Pierce became vulnerable to competition from producers. Only other foreign businessmen — not Mexicans — had the technical and financial resources to break the marketing monopoly that Waters-Pierce enjoyed in Mexico.

It was not as if no one had known that Mexico possessed petroleum resources. In the Huasteca and Tabasco, pre-Columbian Indians had located a number of pools that oozed sulfurous gases and thick pitch, from which they extracted the substance they used for patching canoes, earthen jars, and baskets. Pitch was also used to cover idols and stucco, to stoke cooking and bonfires, and as a curative salve. In the 1540s Bernardino Sahagún noted that Indian merchants were bringing chapuputli from the Gulf Coast to marketplaces in the highlands. "This chapuputli is odorous," the Franciscan friar reported, "and when it is thrown into the fire, its smell spreads far." Indian women chewed the tar in order to clean the teeth.^[4] During three centuries of colonial rule and an additional half-century of troubled independence, both the markets and production of oil in Mexico remained about as limited as these pre-Columbian origins.

Nevertheless, the possibilities of Edwin Drake's 1859 experiment at drilling for crude oil, resulting in history's first oil boom, were not lost upon the Mexicans. The emperor Maximilian gave out a total of thirty-eight oil concessions to Mexicans and Frenchmen in 1865. But nothing happened. After Maximilian fell from power, Ildefonso López had requested the permission of the governor of Tamaulipas to exploit the asphalt bubbling in pools on his Hacienda de San José de las Rusias west of Tampico. He needed a concession from the political authorities, because they had inherited the ownership of subsoil resources — hydrocarbons as well as gold and silver — from the Spanish Crown. What became of López's project is not known. At San Fernando, Tabasco, a priest named Manuel Gil y Sánchez scooped petroleum from what he called a "mine." Apparently thinking of developing an export market, he sent ten barrels of oil to New York. But the Pennsylvania oil

boom begun by Drake's discovery had depressed the price of crude to such a degree that no one there was motivated to buy imported oil. Subsequently, Dr. Silmon Sarlat Nava, the governor of Tabasco, bought the San Fernando property. Changes in the mining laws in the meanwhile had reversed the colonial legal traditions and permitted private ownership of oil. In 1894, Sarlat registered his property with the government, also describing it as a "mine." "In a well of three-meters depth, which I ordered to be dug," Sarlat reported, "the petroleum emerges in a fluid and green state, as that of Pennsylvania in the United States."^[5] Considering the enormous obstacles to developing these "excavations," the lack of transportation, the isolation and climate of Tabasco, the lack of either domestic or foreign markets, and the limited production of a three-meter well, it is not surprising that none of these native entrepreneurs brought in an oil field.

The Mexicans were not alone in these early production failures. Several foreigners also failed to initiate the Mexican oil boom during the latter quarter of the nineteenth century. In 1876, a Boston naval captain dug some shallow wells at the Hacienda Cerro Viejo near Tuxpan. The climate, vegetation, poor infrastructure, and lack of capital depressed the seaman, and he committed suicide. Cecil Rhodes, of South Africa fame, then joined in a British consortium, the London Oil Trust, that took over the Cerro Viejo property of the deceased. The Britons attempted to bring inland the most up-to-date drilling equipment. The multiple infrastructural problems were daunting, and Rhodes and his associates, none of whom were experienced oilmen, also gave up.^[6] In the meanwhile, exploration was also proceeding farther south near Papantla. A Confederate sympathizer of Irish ancestry, one Dr. Adolfo Autrey, in 1869 took over a prospective oil property and distillery close by the ruins of the sixth-century Totonac city of El Tajín. The oil was described as being "as dense a liquid as cooked linseed oil."^[7] Autrey displayed the kerosene produced from his small still at the Exposition of Querétaro in August 1882. By then, he had acquired four haciendas near Tuxpan. Containing large lakes of floating oil, the Hacienda Juan Felipe was described as the "fountainhead" of the petroleum supply in the region. A French engineer visited the oil properties near Tuxpan. He was struck by the incessant bubbling of "hydrogen and naphtha" from these oil springs.^[8] Despite the good prospects for production (Juan Felipe later became a booming oil field), ultimately the Boston entrepreneur had to give up the property. His problem was transport. Autrey sent his product out of the rain

forest on mule-back rather than via pipelines. He finally gave up.^[9] Other entrepreneurs with greater financial, technological, and marketing resources would eventually open up production on these very same properties — but twenty years later.

As for pioneer oil sales, a Spanish merchant at Tampico, Angel Sáenz Trápaga, had brought some kerosene and gas oil lamps from New York. He was unable to sustain any kind of volume trade in the new product, for which no market as yet had been developed. Later as a broker, Sáenz aided the American marketer Waters-Pierce. The firm had broken off negotiations with the governor of San Luis Potosí, who had requested a personal fee of 100,000 pesos from the company for a permit to build a refinery there. Sáenz helped Waters-Pierce establish the refinery to process imported crude oil at Tampico.^[10] This practical Mexican entrepreneur understood that if he himself could not sell oil products directly, he might as well make what profit he could by assisting the Americans.

No doubt, poor waterways, jungle growth, debilitating climate, torrential summer rains, a lack of roads, and a dearth of experienced laborers worked to disable these attempts by Mexicans and foreigners to open up the Mexican petroleum industry. In truth, there was an even greater obstacle. The capital necessary to put in pipelines, hire drilling teams, purchase equipment and barges, and establish refineries was large. To do these things in a rain forest cost significantly more. But no financier, national or foreign, would be willing to place such large amounts of capital into these oil projects until there existed a market for Mexican petroleum products. The logical place to develop a new market was in Mexico itself, since the United States in the late nineteenth century was awash with petroleum. Only foreigners who had prior experience in the oil business were prepared to undertake such an endeavor. For that, Mexico had to await events elsewhere.

Col. Edwin Drake's discovery in 1859 that oil could be drilled for like water revolutionized the industry. Previously, there existed a very small niche in the illuminant markets for oils distilled laboriously from coal and for kerosene distilled from crude oil skimmed — also laboriously — from pools and creeks. No wonder candles and whale oil remained the primary illuminants of the mid-nineteenth century despite the primitive manufacturing methods in candle making and the declining population of leviathans. Technology and capital had played a role in Drake's breakthrough. He had needed capital for equipment and experienced drillers. Some financiers from New Haven, Connecticut, be-

came interested. With new capital, Drake hired a team of experienced water and salt drillers, adopting the existing technology to search for crude petroleum. The Drake well was hardly a gusher. It was only sixty-nine feet deep and flowed at a rate of 25 bd (barrels per day). But it did prove that oil could be produced in commercial quantities by drilling for it.^[11] Before too long, petroleum illuminants replaced candles and whale oils, first in U.S. markets, then in markets elsewhere in the world.

Standard Oil had become the most successful business organization in the world within just one generation of Colonel Drake's first oil well in Pennsylvania. Previously associated with a New York mercantile house, John D. Rockefeller in 1865 became a partner in one of Cleveland's oil refineries. By 1870, he had created the Standard Oil Company (Ohio) in order to combine several specialty oil companies into a multi-million-dollar concern. Standard next worked to secure a monopoly of oil transport to the eastern seaboard via rail and pipeline. In 1882, Rockefeller's associates organized the first vertically integrated company. The Standard Oil Trust created a business structure in which each subsidiary company carried out a different, specialized economic function. A leader in export, Standard's East Coast refineries soon handled about 90 percent of U.S. petroleum exports.^[12] Standard accomplished its expansion into and domination of oil markets in the American Southwest and in Mexico through an affiliate, the Waters-Pierce Oil Company of St. Louis.

Ironically, Henry Clay Pierce had once been a successful competitor of Standard Oil. The year 1867 found the twenty-two-year-old Pierce in St. Louis distributing oil products for one of the first marketers west of the Mississippi River. He became the oilman's son-in-law and eventually bought out the business. In 1873, Pierce formed a partnership with William H. Waters, who helped him keep the growing Rockefeller interests out of the Southwest.^[13] But Pierce needed capital for further expansion and to buy out Waters. His powerful competitors provided it. In 1878, Pierce sold majority interest in his company to Standard in order to get capital for expansion. Together they bought out Waters, Standard taking a 60 percent controlling share of the stock and Pierce the remaining 40 percent.^[14] As president of the company, Henry Clay Pierce then became signatory to the famous Standard Oil Trust agreement in 1882. He helped the trust standardize products regularly adulterated by independent jobbers and speculators. Standard's components, the Standard Oil Company (New Jersey) and

the Standard Oil Company (New York) handled most of the nation's export of petroleum on the East Coast whereas the Standard Oil Company (California) eventually engaged in exporting from the West Coast. By the 1880s, petroleum ranked as the nation's fourth largest export.^[15]

The tie to Standard Oil defined the powers and limits of Waters-Pierce. It only marketed oil products produced and refined by other Standard Oil subsidiaries and affiliates. In turn, Waters-Pierce expanded as Standard's exclusive agent in the states of Texas and Arkansas, Oklahoma and Indian territories, parts of the states of Missouri and Louisiana, and all of the Republic of Mexico. Pierce's company already had sales in these territories, but now its volume sales grew appreciably. Other marketing companies in the Standard group did not operate in Waters-Pierce territory, and it did not operate in theirs. Waters-Pierce did not own a single oil well or refinery in the United States. This relationship to Standard Oil made Waters-Pierce at once a powerful, prosperous, but dependent oil company.

Its experience in Texas bears examination, for Waters-Pierce's vulnerability there presaged its later demise as a monopoly firm in Mexican oil sales. Before the nineteenth century was out, Waters-Pierce had expanded its sales and competed with a tenacity that gained Henry Clay Pierce some enemies among competitors and politicians within his marketing area. In 1889 and 1895, the state of Texas passed antitrust laws requiring licensing of all firms that engaged in interstate business. State statutes outlawed any business combination that fixed prices or restricted competition. At the time, before oil was discovered anywhere in the state, Texas consumers depended upon petroleum goods — mostly kerosene and lubricants — imported in boxes and tins via ship and rail. Pierce controlled 95 percent of this Texas market. His agents charged prices that were 10 to 25 percent higher than those in other marketing areas.^[16] Normally, Waters-Pierce extended sixty-day credit to their jobbers on a long line of axle greases, lubricants, and engine oils. "We hope that you will continue to buy your lubricating oils from us," the company would write to Texas merchants. "[We] are willing to make contracts with you for one year at lower prices than you could purchase the same quality of oils for from any of our competitors."^[17] The Waters-Pierce agents gave rebates of 15 percent to Texas merchants who signed exclusive contracts with the company.

Merchants in various parts of the Pierce marketing area sometimes broke the exclusive agreement and began to sell the illuminating and lubricating oils of competitors. Waters-Pierce responded by dropping

prices in that locale until the jobbers reconsidered. "Stringent methods were usually followed to keep out competition," reported a long-time Waters-Pierce employee, "and wherever a small concern endeavored to invade the territory occupied by the Pierce interests prices were lowered until the smaller concern was driven out of business."^[18] To create the appearance — if not the substance — of competition, Pierce bought out firms like the Eagle Company and the Texas Oil and Gasoline Company of San Antonio and kept them in operation as "apparent" competitors. The state's attorney general remained skeptical. In a popular and widely publicized trial, Waters-Pierce was convicted of acting as a "trust" to fix or manipulate prices and restrain competition. Waters-Pierce in 1898 lost its license to operate in Texas.^[19] The Texas case represents the continuing efforts of government bodies in the United States to regulate the volatile competition in the petroleum industry and to prevent the consumers from getting fleeced.

Henry Clay Pierce, however, soon recovered his lucrative market by colluding with Standard Oil to reorganize Waters-Pierce. As he later told a Missouri court, he wanted it to appear that he was managing and controlling the company "absolutely free from the dictation and direction of the Standard Oil Company."^[20] In 1900, he took back all Waters-Pierce stock from Standard Oil but secretly returned two-thirds of the shares. The stock strategy — and a timely loan to a Texas congressman — enabled Pierce to apply for a new Texas license. Waters-Pierce thought it was back in business as before.

In any case, the second license had not returned Waters-Pierce to its monopoly position in Texas for long. Discovery of the Spindletop oil field in 1901, ushered in with Anthony J. Lucas's 100,000-bd gusher, abruptly transformed the state's petroleum market. Large new consortiums that combined production, refining, and sales, like the Gulf Company and The Texas Company, came to dwarf Waters-Pierce. The latter, after all, had remained a marketing concern. Just a few acres at Spindletop in 1902 now produced about 20 percent of the nation's petroleum.

Several of the new Texas refineries would have exported to Mexico, if Waters-Pierce had not already had a refinery in place at Tampico. When these first Texas wells began to flow to salt water in 1903, the wildcatters opened up new booms elsewhere in Texas and, by 1907, in Louisiana and Oklahoma as well. By 1902, Texas produced more than 18.5 million barrels of oil, second only to the new boom state of Ohio. As other companies — such as Joseph Cullinan's The Texas Company — expanded refining capacities along the Gulf Coast from 700 bd in 1902 to 200,000 bd in 1905, Waters-Pierce was left out.^[21] In the fullness of

time anyway, the company's reorganization had come to seem the fiction it actually was. The state of Texas filed another lawsuit in 1907, resulting in a second revocation of Pierce's license. The continuation of Waters-Pierce's exclusive relationship with Standard Oil had violated the 1903 Texas statute against unfair competition. The Texas courts found that even after the breakup of the Standard Oil Trust in 1892, the Standard Oil Company "controlled, managed and directed" Waters-Pierce.^[22] Its connection to Standard Oil that had once made the sales company such a powerful business entity in the American Southwest now, after 1901, relegated Pierce's firm to second-class citizenship within the booming industry. Waters-Pierce would be condemned to repeat the same cycle of power and vulnerability in Mexico.

Shipped Down from New York

It is unclear exactly when Waters-Pierce began exporting, but American petroleum products had found a small market in Mexico relatively early. Soon after the U.S. Civil War, production in the Appalachian field had expanded so rapidly that the classic capitalist syndrome of overproduction and falling prices motivated the petroleum exports. Crude oil's first valuable product, kerosene, rapidly replaced tallow candles and whale oil as the world's foremost illuminant. In addition, the manufacture of kerosene also produced the byproducts of naphtha (gasoline), lubricants, paraffin wax, and tar. The wealthiest of Mexico's consumers were already using imported oil during the empire of Maximilian in the mid-1860s. Their kerosene lamps and cans of illuminating oil arrived on consignment through merchant houses in New York and Mexico City. The Standard Oil Company in the 1870s exported such products worldwide through rather conventional mercantile organizations that traded in a variety of merchandise besides oil. Waters-Pierce also sold through jobbers in Mexico as part of its marketing in the American Southwest. It is certain that Pierce established a permanent and specialized sales force in Mexico soon after Standard Oil purchased the company. In 1887, Waters-Pierce had three salaried agents, a traveling salesman, offices in Mexico City and Monterrey, and a small refining operation in Mexico.^[23] Here Pierce managed the market differently from his United States market areas.

Assisted by Standard Oil, Waters-Pierce built and operated oil refineries in Mexico. J.J. Finlay and Company, a subsidiary of Waters-

Pierce named for Pierce's brother-in-law, operated a refining company in Mexico City called La Compañía de Petróleo. Waters-Pierce began construction of a second refinery in January 1887. Each invested approximately $60,000 in their ventures, paying duties on the imported crude oil they processed and claiming to have from the government an "exclusive privilege." Without mentioning his connection to Waters-Pierce, Finlay therefore protested vigorously when a certain Gilberto Crespo y Martínez obtained a concession to import crude petroleum duty free from the Department of Public Works. Despite the fact that the government refused to revoke Crespo's concession, nothing came of this domestic competition. The Tampico plant had a refining capacity of 450 bd; Veracruz, 250 bd; and Mexico City and Monterrey, 100 bd each.^[24] Nowhere else did Waters-Pierce also handle the refining end of the business.

In Mexico, the refineries processed crude obtained from Standard Oil — affiliated terminals on the mid-Atlantic coast and, later, the Gulf Coast of Texas. At first, the crude was transported in five-gallon tincans. The tins were then washed out with gasoline and filled with refined kerosene. So ubiquitous had petroleum marketing become in Mexico that visitors traveling over the Sierra de Ajusco south from Mexico City noticed Indian huts roofed with cut-up oil tins bearing Standard Oil brand names.^[25] As Pierce explained, "[W]e shipped nearly everything that went into the upkeep of refineries in Mexico from New York, and the tin for the manufacture of cases went from there and iron for tanks, in fact everything that entered into the manufacture of oil down there was shipped from New York."^[26] The company's best grade of oil, Eupion, was refined in the Mexican plants, whereas the Eupion that Waters-Pierce sold in the United States originated in refineries controlled by other Standard companies. Its small refining plants processed Pennsylvania crude shipped from Philadelphia. After the Texas oil discoveries, crude was shipped from Corsicana and Beaumont. Pierce transported it to Veracruz and Tampico aboard Waters-Pierce's own bulk steamers. When Standard Oil's California refineries came on line, Waters-Pierce obtained kerosene and other finished products in San Francisco.^[27] Mexico's west coast would thence-forward be supplied from California refineries.

Certainly not all of Waters-Pierce's success in Mexico derived from the quality of his three Mexican refineries. Apparently, the distillation they performed on the imported crude oil was quite minor — really a subterfuge to evade the higher import duties on refined products. "The

Company made a practice of bringing in `crude oil' which, as a matter of fact, contained perhaps 90% of the refined product, but was colored by the crude, so as to pay the lower import duty," explained a manager of the Waters-Pierce refinery at Tampico. "The small amount of crude was then refined out, and the whole product sold by the Company at a much less cost than if it had been entirely crude," the manager continued.^[28] At the height of its operations in 1902, Waters-Pierce maintained twenty tank-distribution stations and additional sales agencies in Mexico. It owned 104 tank cars and leased another 148 tank cars for transporting oils on the rail lines. In Mexico City, the largest of the marketing areas, Pierce's distribution plant maintained twelve two-horse tank wagons manufactured in St. Louis, ranging in capacity from 160 to 398 gallons each. Pierce sold kerosene-burning heaters in the biggest cities.^[29] The company's operations in Mexico had developed unimpeded by competitors since its entry into the country.

Growth of petroleum sales responded to the expansion of the Mexican economy, and the profits of Waters-Pierce expanded accordingly. In order to stimulate Mexico's consumption of imported kerosene, the company sold as many as fifty-five thousand small glass lamps per year — nearly at cost. Its exports to Mexico accounted for 60 percent of all Standard's exports of crude to Latin America and 20 percent of the conglomerate's total crude exports. Saying that he maintained no division of his business between the United States and Mexico, Pierce declared that his total oil sales for 1902 amounted to 2,677,362 barrels. United States trade statistics for the fiscal year ending 30 June 1902 indicate that 287,369 barrels of petroleum products were exported to Mexico. Assuming that all the exports belonged to the monopoly marketer, therefore, Mexico accounted for just ten percent of Pierce's volume sales.^[30] (See table 1.) Presumably, the Mexican market provided more than 10 percent of the company's fiscal sales, since his monopoly permitted Pierce to charge higher prices than in its U.S. sales area, where it competed with non-Standard Oil marketing companies. In 1906, Pierce admitted that he had competition of other "tank wagon companies" in its United States territories but not in Mexico.^[31]

Certainly, there was no lack of profits. Waters-Pierce Oil Company's capital stock in 1911 was just $400,000, identical to its capitalization when it joined the Standard group in 1878. Still, Pierce paid yearly dividends amounting to 600 percent of its capitalization during the first six years of the twentieth century. One contemporary author placed Waters-Pierce profits at $1.8 million in 1900, $2.0 million each

in 1901 and 1902, $2.3 million in 1903, and $2.8 million in 1904. The latter figure represented 672 percent of capitalization.^[32] Considering that Henry Clay Pierce was the only other stockholder besides Standard Oil, his personal income must have been considerable.

When he faced a rash of litigation in the first decade of the twentieth century, Pierce claimed that he alone controlled the destinies of the Waters-Pierce Oil Company. Indeed, if one surveys the top management of the company, dominated by family and long-time associates, his claim seems convincing. Pierce, in his mid-fifties, was the chairman of the board. His brother-in-law, Andrew F. Finlay, had been the manager in Mexico and in Galveston before 1890, at which time he became one of the directors of Waters-Pierce. Finlay served as the company's president from 1900 to 1905. Clay Arthur Pierce, the chairman's son, began working for the company in 1898 as assistant treasurer. Serving from 1900 to 1905 on the executive committee, he helped set prices throughout the sales area. Clay Arthur succeeded to the presidency in 1905. The secretary and treasurer of the firm, Charles M. Adams, who had been with the firm since 1878, was responsible for coordinating crude-oil requisitions between Mexican refineries and New York exporters.^[33] The management arrangement seems to have given Henry Clay Pierce a measure of autonomy despite the fact that Standard Oil directors were controlling 60 percent of his stock.

In actuality, Standard Oil Company managed the operations of Pierce's company rather closely, a fact that ultimately became a source of some contention. Day-to-day direction of operations from 1900 to 1908 — especially for Mexico — resided in Waters-Pierce's New York representative, Robert H. McNall. McNall was, in fact, an employee of Standard Oil. The address appearing on his Waters-Pierce letterhead, 75 New Street, was actually the rear entrance of Standard's legendary headquarters at 26 Broadway. McNall coordinated Mexican transactions through Standard's export committee, whose offices were also at 26 Broadway. Not even bothering to seek prices and supplies elsewhere, he arranged for the delivery of crude oil to Tampico and Veracruz from Standard affiliates like the Atlantic Refining Company of Philadelphia. McNall also arranged for shipment of Standard California refined oil products from San Francisco to Mexico's west coast ports of Acapulco, Manzanillo, La Paz, San Blas, and Guaymas. He also helped maintain the Waters-Pierce refineries. McNall spent much time ordering pipes, engines, valves, and "a thousand and one articles that are used in a refinery." Refining experts were always nearby for consultation at 26 Broadway.^[34]

Standard Oil established a normative and unitizing management over Waters-Pierce, as it did over other affiliates, and coordinated the company's Mexican operations into its all-inclusive information-gathering system. Branch managers routinely dispatched reports from Mexico City to St. Louis, thence to 26 Broadway. Those reports were made on the organization's standard forms, which McNall obtained directly from Standard's refining, transportation, and export departments. He sent the reports to the operating companies. Mexico dispatched forms to fill out to St. Louis on deliveries of naphtha and refined oils, on refinery performance, and on sales. These completed reports eventually returned to McNall. In this manner, Standard Oil even had semiannual statements as to the bad debts charged to the profit-and-loss statement of the Mexican division.^[35] Most telling of all, Standard Oil accountants regularly audited the books that Waters-Pierce maintained in St. Louis.

In fact, McNall's authority extended beyond the duties of coordination and information gathering. He and others at 26 Broadway not only evaluated reports of all kinds and audited the Waters-Pierce books but also approved of personnel matters. Concerning Mexico, he once wrote Finlay, the Waters-Pierce president:

I beg to acknowledge receipt of your favor of the 21st. inst., enclosing list showing suggested changes in salaries of Mexico employés. I have been over this matter with Mr. Van Buren [of Standard Oil], and as I telegraphed you today he agrees with your suggestion that these changes be made effective as of January 1st.^[36]

Clearly, the Standard Oil Company and its managers retained a large measure of control over the operations of the Waters-Pierce Oil Company both in the United States and in Mexico. The connection accounted for the early success of Waters-Pierce in Mexico — and its ultimate failure.

Although Waters-Pierce dominated the Mexican market as an importing petroleum company roughly from 1880 to 1905, the company did not have to exert its market muscle to subdue either Mexican entrepreneurs or North American competitors. No Mexicans had sufficient expertise or capital. No other U.S. company had business patronage as powerful as that of Standard Oil. Yet competition did finally arrive in 1901, first in the person of a California-based oil prospector, Edward L. Doheny, then in the person of a British engineering contractor, Sir Weetman Pearson. Each had access to technology and capital — and Mexican political support, as we will see below—to discover,

refine, and market domestic petroleum resources. Siege of the Waters-Pierce monopoly in Mexico would ultimately produce a breach between Pierce and his Standard Oil associates.

To meet this new competition in the first decade of the twentieth century, Henry Clay Pierce and Standard Oil initially resorted to price cuts, to flooding the market with competitive products, and to personnel changes in Mexico. Although Mexican petroleum prices were higher than in the United States, Waters-Pierce dominated a market in which consumer prices were actually falling from the moment that the company had begun refining domestically. From 1886 to 1911, petroleum prices declined steadily, and competition provoked more price cutting after 1901.^[37] Doheny's oil discovery at El Ebano in 1902 brought domestic supplies of tars and residual products into the market. Because Pierce enjoyed the status of monopoly oilman in Mexico, the figures for U.S. petroleum exports to Mexico in table 1 accurately reflect Waters-Pierce's response. Waters-Pierce increased its imports of residual products from 20 barrels in 1899 to 3,902 barrels in 1902. Likewise, the monopoly importer greatly increased the lighter ends. In order to offset the expected production from Pearson's new refinery on the Isthmus of Tehuantepec, Waters-Pierce expanded the imports of illuminating oils from 461,266 gallons in 1904 to nearly 1.5 million gallons in 1906. Eventually, the company had to shut down its inefficient Monterrey and Mexico City refineries and expand the Tampico facility to 5,000 bd. Pierce even began to buy and process Mexican crude in limited quantities.^[38] These initial tactics, however, proved insufficient to arrest the competition of Doheny and Pearson.

Next, the oil monopoly tried reorganizing its management in Mexico. In 1904, an employee from the Standard Oil comptroller's office, R.P. Tinsley, came to St. Louis to serve as Finlay's vice-president. He also brought a Standard-appointed comptroller. In Mexico, meanwhile, the resignation of Thomas Ryder, a manager there, shook the organization. He took many Waters-Pierce employees with him to work for the competing British Pearson firm. In 1905, Tinsley forced out President Finlay, Pierce's brother-in-law, who departed immediately for Europe "to restore his health." Tinsley himself took over as president and immediately proceeded to make personnel changes, dismissing directors selected by Pierce and replacing many of the managers in the field. Pierce later expressed some bitterness about Standard Oil's meddling in his company's personnel management. The chairman of the board complained that Tinsley sent a Standard Oil general man-

ager to Mexico "who was entirely unfamiliar with Mexico, its customs, people, languages or the business of the company. The effect of that was to cause the very efficient manager of the company to resign his position."^[39] Tinsley apparently replaced old Waters-Pierce men in as many as three hundred positions. Pierce protested vigorously. He ultimately succeeded in getting Standard Oil to withdraw Tinsley. Pierce's son, Clay Arthur, became the new president. Yet the company's position in Mexico as well as in the United States continued to erode.

From this point onward, Waters-Pierce and Standard departed in their policies over Mexico. Waters-Pierce, after all, was involving Standard Oil in a number of state antitrust suits that would eventually reach the United States Supreme Court. The Standard officials did not hide their dislike of Pierce. One executive confided that when Henry Clay Pierce got into a jam, he became nasty: "He was the meanest fighter you ever saw."^[40] In addition, the sheer weight of the antitrust litigation undertaken by Texas and Missouri began to sap the business initiative of Waters-Pierce. In 1908, a two-year trial in Missouri terminated in Pierce losing his charter to do business in his home state. The Missouri court had found that Waters-Pierce and another Standard affiliate, Republic Oil Company, headed by a young Walter J. Teagle, had colluded to divide the market territory.^[41]

Further troubles remained in store for Waters-Pierce in Mexico. It was Texas all over again. By 1908, one of the competitors, Sir Weetman Pearson, had established a refinery and a sales organization in place in order to challenge Pierce for the Mexican marketplace. "Mr. Pierce thought himself so strongly entrenched in the oil business that he `went to sleep' on the job," his Tampico refinery manager reported later. "The competition [with Pearson] for a number of years was of the cut-throat variety, and there was no love lost between the two companies."^[42] Nonetheless, a market for specialty oil imports would survive the onslaught of domestic production. Foreign miners continued to buy foreign oil as late as 1908, even though they had to pay import duties. "The reason why we ship these goods from the states," confided a Philadelphia mining capitalist in Etzatlán, Jalisco, "is on account of the very inferior grades that we obtain in Mexico, which will not do our work. . . . [The oils] that are used for machinery purposes cannot be obtained in that country, as the quality that is sold is so inferior that it had almost ruined our machinery."^[43] But of course Waters-Pierce wanted to remain more than just the Mexican marketer of specialty imports.

In November of 1908, the increasing strength of Doheny and Pearson brought Clay Arthur Pierce to Mexico City. Mexican newsmen sensed a great struggle in the making. They found Clay Arthur at the Palace hotel. "Of course you cannot expect me to discuss future plans regarding our business in Mexico," the president of Waters-Pierce told the Mexican reporters, "but I can call your attention to the fact that a company, with as much capital invested as that which the Waters-Pierce Oil Company has in Mexico, and with as many years of activity as it has had here, cannot but be prepared to meet whatever situation may come up." Clay Arthur Pierce detailed a litany of services that his company had provided for Mexico over the past three decades. He said that he doubted that another company would be able to organize its marketing in order to give the Mexican public equally as good service as Waters-Pierce. "Where it has been found necessary to cut the price of oil against competitors' initial cuts," Pierce concluded, "the Waters Pierce company has necessarily done so but it has kept up the standard of its products and service. Consumers of our materials get the product of the Pennsylvania fields, which is the very finest oil found anywhere." Pierce refused to respond to reporters' queries about when his company would begin to develop Mexican oil fields.^[44]

The younger Pierce's sometimes inopportune comments to the Mexican press illustrate another of Pierce's weaknesses. Like many other American entrepreneurs, he did not consider it to be absolutely essential to be a business diplomat in Mexico. It was enough that the Americans were bringing the fruits of capitalism to this backward country. "The American `generally tries to hog the whole thing' and is often short-sighted in his dealings with the Mexican people," a former Pierce employee observed later. "The English and the Germans, on the other hand, are much more considerate, and in this way gain very considerable business advantages over the American."^[45] Such would be the case with Pierce's adversary, Sir Weetman Pearson.

Having lost its market dominance in the southwestern United States, Waters-Pierce was preparing to defend its last lucrative monopoly sales area — not from Mexican entrepreneurs but from other foreigners. The long-time monopoly importer was vulnerable. Initially, Henry Clay Pierce had concluded a contract with Standard Oil that bequeathed him enormous advantages. He had access to as much refined petroleum as he needed, and no other Standard-affiliated firm could enter Pierce's market area. The Mexican market fell into his lap. The profits of Waters-Pierce were very high in Mexico, where it had little com-

petition. But the Standard Oil contract prevented Waters-Pierce from diversifying. It could neither produce nor refine crude oil. The refining capacity of Waters-Pierce depended upon Standard's patronage, which did not extend at all to production in Mexico. Consequently, new sources of production — such as Spindletop, Oklahoma, and Kansas — flooded Waters-Pierce's territory with cheap crude oil out of Standard's control. New refining centers along the Gulf Coast in Louisiana and Texas encouraged the development of powerful and fully integrated competitors. Moreover, growing U.S. legal problems were also poisoning the working relationship between Standard Oil and Waters-Pierce. The American business environment had already humbled Waters-Pierce. Soon thereafter, competition in the Mexican market-place would do the same.

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.

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.

Looking to Strike Oil at Any Moment

As an oil pioneer in Mexico, Sir Weetman Pearson's career could not have contrasted more starkly to that of Doheny. Pearson had no previous experience in the oil business at all. As grandson of the founder of a modest British construction firm, S. Pearson and Sons, young Weetman grew up in comfortable circumstances.^[105] He attended a public boarding school but eschewed training in engineering and the sciences at Oxford or Cambridge. Instead, Pearson entered his grandfather's firm. His family believed that sons should "learn their business in the business," as the saying went. By the age of twenty-three, Pearson had become a partner and was managing the construction of the main drainage system at Ipswich and a dock at King's Lynn. Pearson moved the firm to London in 1879 and competed for construction contracts throughout the world: docks and harbors in Egypt and Canada, rail lines in Spain, and the Hudson Tunnel in New York City. Taking over construction from less capable companies became Sir Weetman's specialty. He tried to save the Hudson Tunnel project by introducing the Greathead shield, complete with hydraulic jacks and segment erectors, to protect men and equipment from cave-ins during digging. He also engineered a recompression chamber that prevented workers from getting the bends as they emerged from their subterranean work. Pearson's company already had an international reputation in engineering before he came to Mexico.

Porfirio Diaz himself was responsible for bringing Sir Weetman to Mexico, where the Englishman proved himself a worthy champion. In 1889, the Mexican president sent emissaries to New York in an effort to interest the famous engineer in salvaging Mexico's Grand Canal.^[106] An American firm had floundered in attempting to construct the Mexico City drainage system, abandoning the poorly placed capital city to its centuries-old problem of flooding. Pearson drove a hard bargain, obtaining in negotiations with Diaz much autonomy in the work. To complete the twenty-nine-mile-long Grand Canal, Pearson brought in giant steam-powered dredgers from the German firm of Lobnitz, whose equipment had widened the Suez Canal. For most of the financing of the drainage project, Pearson depended on his partner, the Mexican government, which at the time enjoyed budget surpluses and quantities of silver provided by the American mining companies.

Díaz's administration had an impeccable rating in European credit markets. Mexico was one of the few countries to be able to borrow at the preferential rate of 5 percent, and after 1905 at 4.5 percent. Pearson also had independent sources of capital. His company at any one time had contracts worth from £5 million to £10 million, and London bankers and the stock market provided Pearson additional capital.^[107] Pearson thus was able to buy the forty-one-mile-long Veracruz-to-Alvarado railway and build and operate various Mexican tramworks and utility companies. His connections in England were impeccable. The wealthy businessman in 1895 had won a seat in the House of Commons, where he was known as "the Member for Mexico."

Indeed, success with the Grand Canal also earned Pearson an unassailable reputation in Mexico. The president personally made contacts with Pearson, and Pearson's direct link to Díaz — he entertained Porfirio Díaz, Jr., on the son's tour of Europe and England — also insulated the British engineer from having to submit to the corruption of the bureaucrats surrounding the Mexican president, Díaz willingly used the British engineer as a foil to the Americans, who already dominated the smelting and railway businesses. Pearson was the logical choice to construct the modern harbor and port at Veracruz. He also hired American medical technology and built a new water and sewage system to control the perennial scourges of el vómito negro (yellow fever), malaria, and cholera. Sir Weetman, the world's foremost engineering contractor, had won the implicit admiration of a Mexican president suspicious of Americans.^[108] As a foreigner and British gentleman, Pearson may also have been politically more trustworthy to Díaz even than most Mexican businessmen.

In the meanwhile, the Tehuantepec railway was turning out badly. Díaz had given the concession to another British firm in order to break the American-owned Panamanian Railroad's monopoly of transisthmian transport. Once completed, however, the 190-mile line was plagued with frequent breakdowns, roadbed washouts, insufficient port capacities, and undersized rail cars.^[109] Díaz summoned Pearson to the rescue. The Díaz government provided the capital, often paying Pearson in silver bars. But the British company retained managerial control. Once completed, the company would operate the entire complex as managing partner, sharing with the government one-half the loss and one-third the profit. Finance Minister Limantour, who had been in Europe when the Tehuantepec contract was signed, criticized the liberal terms and autonomy given to the foreign capitalist. But Díaz

supported Pearson. Nevertheless, a second contract, renegotiated in 1902, tightened the restrictions. Article 106 of that contract stipulated that after seven years, Pearson had the right to transfer his contract to another company, which could be organized in Mexico, Great Britain, France, Belgium, or Germany — but not the United States.^[110] Sir Weetman benefited from anti-American political sentiments.

By now, Pearson had an experienced staff in Mexico. J. B. Body had served as assistant manager of the Grand Canal and was chief of the Veracruz harbor construction. Since 1889, he had come to speak fluent Spanish, often translating at meetings between Díaz and Pearson. Body took charge of rebuilding the transportation complex. Pearson's isthmian project involved survey and construction of a new roadbed through the lowlands of Tehuantepec, flood control, extensive bridging, breakwaters and docks at the Pacific terminus of Salina Cruz, and dredging and dockwork at the gulf terminus of Coatzacoalcos. The latter river port was rechristened as Puerto México. Body supervised the work of two thousand to five thousand Mexican workers recruited from the highlands and provided with housing, medical care, and food. J. N. Galbraith, the new general manager of the Tehuantepec National Railroad, estimated that about twenty-four trains a day would pass over the two-hundred-mile route. When he inaugurated the Tehuantepec complex with a train ride in 1907, Díaz was effusive in his praise. "Portions of the Isthmus have been literally remade," the Mexican president said.^[111] "Flourishing new towns with pretty and comfortable houses and contented inhabitants owe their existence to the energy and courage of Sir Weetman Pearson, whose name will endure and be held in honour in this historic region of Mexico, long after the rails on which our party has glided so smoothly have become eroded by age."

Sir Weetman was no less effusive in his praise of Diaz. In his speech, Pearson said, "It was only owing to great hardships and personal sacrifices, ungrudgingly made, the exercise of unvarying patience and the determination and courage which have had for their inspiration the glorious example furnished by the career of General Díaz that the results you have seen and are to see have been arrived at." He had good reason to thank Diaz. The Mexican government had provided up to 85 million pesos to complete the Tehuantepec project.^[112] Pearson owed his success in Mexico to his worldwide business experience, his access to the engineering technology of the day, his financial resources among London bankers, and the capital and patronage of President Díaz. All these factors enabled S. Pearson and Sons, engineers and contractors,

Fig. 3.
Lord Cowdray (formerly Sir Weetman Pearson), c. 1915. in Great Britain's
House of Lords, he was known as the "Member for Mexico" because of his
varied business interests in that country, including the Compañía Mexicana de
Petróleo El Aguila. from the Pearson Photograph Collection, British Science
Museum Library, London, courtesy of Pearson PLC.

to become oilmen as well. All except one: Díaz provided no capital for oil projects. His government would help Pearson in other tangible ways.

Pearson's decision to exploit Mexico's oil resources, although it proved sound from a business standpoint, had come to him in a roundabout fashion. Body had come upon tar pools at San Cristóbal and mentioned them to Pearson as another oddity of the tropical environment. Later, in 1901, as he was traveling by train between Mexico and New York, Pearson stopped over in Laredo, Texas. Lucas had just brought in the oil strike at Spindletop. Everyone on the Texas Gulf Coast was in the grip of "oil fever." Pearson made inquiries about this new oil business, spending time in San Antonio as well. He learned that prospectors had been attracted to Spindletop by the occurrence of tar pools. Pearson immediately wired Body to "secure option not only on oil land, but all land for miles round" in the Isthmus of Tehuantepec. Pearson added, "move sharply, and be sure that we are dealing with principals."^[113] By the end of 1901, he had men exploring the isthmus and in Tabasco. They began immediately to buy and lease land. Pearson's general manager in Mexico City, J.B. Body, gained an education — like Doheny and Pearson themselves — on the job. He negotiated for purchase of numerous large estates in the isthmus, rejecting some after a "visual look for prospects" and buying others for as little as 6,000 pesos. He took out leases with important elite families such as that of the Rubio Romero in-laws of President Díaz. Doña Carmen Rubio de Díaz, in fact, became lessor to Pearson on contracts that provided for royalties of two to five centavos per barrel [of 150 liters] of crude produced in the San Cristóbal fields. By 1903, his Mexican managers were moving drilling equipment from the Veracruz docks to the isthmian oil properties.^[114]

At the same time that work progressed on the transisthmian project, Pearson's agents in Mexico also assembled an experienced team to make their Mexican oil properties productive. Body hired Thomas Ryder away from Waters-Pierce and engaged drillers who had worked for Doheny at El Ebano. Pearson had even traveled to Washington, D.C., to hire Capt. Anthony F. Lucas, discoverer of Spindletop and later called the first petroleum engineer. Lucas spent two years as a consultant, investigating Pearson's isthmian properties. After an exhaustive survey, he recommended drilling at Jaltipan, San Cristóbal, Los Tigres, and El Chango. Lucas spoke enthusiastically of their prospects on the isthmus. In the conclusion of one report, he considered that his client

would soon be able "to change oil for coal on all of your locomotives, dredges on both oceans, and any motive power, with perhaps plenty to spare not only for refining and for the Republic's consumption, but for the export trade as well."^[115] A heady appraisal. Unfortunately, of the sites Lucas investigated, only San Cristóbal ever yielded oil in commercial quantities. In time, however, other oil fields outside of the isthmus would fulfill Lucas's prophecy.

Early work did not prove at all promising. Many wells blew out gas, mud, and water but little in the way of crude petroleum. The first Tabasco wells produced oil in such insufficient quantities that the Pearson managers used it in its crude state as fuel oil; it did not warrant expensive refining. Yet the expectations remained high. Those wells that did produce yielded a high grade of crude suitable for fuel oil, lubricants, illuminants, and naphtha. Body, therefore, expressed confidence, as in this account in 1905 of a trip to the isthmian fields:

Ryder has just returned from the Lucas field, and he tells me that No 3 started to gas just before he arrived there, and to such an extent that they were not able to get anywhere near the well, and that they heard the noise whilst on the river when approaching San Cristobal landing. Yesterday morning the gas subsided, and they recommenced drilling, but only to break through into another big gas pocket, and they are still stopped from working. The drillers are looking to strike oil at any moment, after they resume operations. Ryder tells me this gas was coming out with terrific force, carrying mud and water with it several hundred feet in the air.^[116]

Body's letter represented greater expectations than, in fact, the foreign interests were ever to realize in southern Veracruz, Tabasco, and Campeche, where the Pearson group owned 600,000 acres of oil lands and leased an additional 300,000 acres. The Lucas well soon played out. Despite Pearson's financial ability to hire the best managerial talent, drilling expertise, and legal and political minds available in Mexico, his company was incapable of opening up the area that in the mid-1970s would become the prolific Reforma oil fields. They could not drill deep enough. Rotary tools in 1905 seldom penetrated three thousand feet below the surface. Drillers for Petróleos Mexicanos (Pemex, the national oil company of Mexico) in the 1970s perforated on and offshore to thirty thousand feet.^[117] Had they lived long enough, Pearson and Body might have been gratified that their initial optimism was borne out. Back in 1905, however, the geology confounded them.

Gambling that the slight production of the isthmus would soon increase, the Pearson interests undertook to construct a refinery at Mi-

natitlán. At the time, Minatitlán was just a small commercial town of four thousand persons forty kilometers inland on the Coatzacoalcos River. In 1905, the Pearson group laid a pipeline from the San Cristóbal oil field to the new refinery at the same time that it brought the 3,000-bd facility on line. Obtaining experienced refinery personnel, not merely good mechanics, proved to be a more difficult problem than acquiring good drilling crews. Waters-Pierce had always relied upon the expertise of Standard Oil. Pearson acquired at least some of the technology and expertise of Standard Oil by hiring Thomas Ryder and other managers from Waters-Pierce. Otherwise, Pearson had to settle for businessmen of no special oil experience. John Purdy, a long-time railroad contractor and shipping manager for Pearson, helped build the Minatitlán Refinery.^[118] Then Pearson proceeded to make a contract with Bowrings and Company, a marketing company, for the distribution of Mexican oil products throughout Great Britain. Pearson's confidence tended to get ahead of both his Mexican production and his ability to refine it. In 1908, a fire shut down the Minatitlán plant, providing Pearson the opportunity to correct certain processes and improve the quality of the product.^[119] Ultimately, Pearson wanted to enlarge the refinery to a capacity of 40,000 bd, supply fuel oil to the Mexican railways, and export to Great Britain.

Yet up to 1908, the British businessman was still losing money. Pearson sank £5 million of his own capital in the oil venture. The Díaz government did not become his financial partner as it had for the Grand Canal, ports, and railway. Optimistically, Body expected to be able to make at least £5,000 a month selling fuel oil to the railways but admitted that such sales were not yet possible. He did not have the product. Construction of the refinery had been expensive. By 1907, Body had already overseen the expenditure of 630,000 pesos for American machinery, dock- and brick-works, machine shops, power station, warehouse, pipelines, staff housing, and a hospital.^[120] If he was going to stay in the petroleum business, Pearson had to make some sales and make them soon. Of course, that was something he could not do until he had crude oil.

Pearson, nevertheless, pressed forward in the oil business. The Minatitlán refinery commenced operation in March 1908 and in August, the first shipment of refined oil departed via tanker to England. By that time, a pipeline had been completed to Pearson's newly constructed oil terminal at Puerto México, alias Coatzacoalcos. But Pearson was not yet exporting Mexican petroleum. Poor production results on the

isthmus motivated the Pearson group to purchase 400,000 barrels of crude oil from Texas.^[121] Thus far, Pearson was not very different from Waters-Pierce — he was refining imported oil — except that Pearson had more political friends in the Díaz regime.

Sir Weetman Pearson, by dint of long engineering service to the Mexican government, had come to practice a sort of business diplomacy meant to create a favorable climate for his enterprise. In order to keep from appearing to be overrun by the Americans, Mexican politicians found much political expedience in supporting British interests. The government encouraged all foreign capital but Pearson's in particular. In fact, Secretary Limantour complained constantly that the government concessions were far too favorable to the British engineer. Pearson defended the generosity. "Unless special facilities had been given by the Government and subventions," Pearson wrote later, "no railways in Mexico could have been constructed."^[122]

The British engineer continued to solidify his friendships in Mexico through favors and gifts. When he came to visit, Pearson brought valuable European objets d'art for Secretary Limantour's home; he lent Emilio Velasco 20,000 pesos so that he could purchase a house; and Body made his home in Veracruz available to traveling notables like the Rubio Romero family. Díaz himself stayed at Body's home at the Mexican port before boarding a German liner for exile in 1911. Lady Annie Cass Pearson established a well-appointed home in Mexico City in a colonial mansion that had once been the British legation, giving large parties for Mexican society. The Pearsons donated £100,000 to found the Cowdray Hospital. Pearson considered it expedient to "lean over backwards" to favor the Mexicans in all his dealings with them.^[123]

To counter a bad press in some Mexican newspapers, Body used company funds to advertise, to print the company's views on certain issues, and to gain the cooperation of newsmen. Body was also careful to apprise President Díaz personally of all his company's activities. During the depression of 1905, when a flare-up of nationalism motivated the Academy of Jurisprudence to criticize the proposed oil law of 1905 as being too liberal and unrestricted, President Díaz himself calmed Body. The president personally assured him, Body reported, that the Pearson group could "devote a lot more time to the direct work of the fields, instead of spending so much time and worry on legal matters and titles to protect ourselves in and around our fields of exploitation."^[124] While Díaz remained in charge, the British and other oilmen too were able to concentrate on business.

Pearson's close relations with members of the Díaz regime paid a large dividend in 1906, when the engineering company received the biggest government oil concession to date. The fifty-year contract, which did not challenge the existing mining laws nor invalidate any contracts between oilmen and private landholders, covered all national land, lakes, and lagoons in the state of Veracruz. The national government was to receive a royalty of 7 percent of all production. Veracruz state obtained a royalty of 3 percent. In return, the government granted the company duty-free import of machinery and free export of oil found on subject lands. One final obligation existed: the oil company was to be incorporated in Mexico, not abroad.^[125] None of the concessionary lands were to yield any major oil discovery. Once Díaz left power, nonetheless, succeeding Mexican governments were to repudiate this generous oil concession.

Such political influence contained its own limitations and dangers to Pearson. Secretary of Finance Limantour proved a difficult man for the Pearson interests to control. While he vowed to assist Pearson against competition from Standard Oil, the nemesis of all the Mexicans, Limantour was careful to collect all taxes due the government. Occasionally, this meant taxing domestic petroleum twice, once when Pearson brought Tabasco crude oil destined for the refinery into Puerto México and then again when the refinery shipped the refined product out again.^[126] Despite occasional toughness, government favoritism toward Pearson's oil interests gained many political enemies, as will be seen. Americans resented the "conspiracy" between Díaz and Pearson, whereas Mexicans who opposed the Díaz regime also came to resent the Pearson connection.^[127] To the extent that capital investment was a political act in Mexico, foreign capitalists became involved in domestic politics — whether intentionally or not.

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.

The Great Mexican Oil War

Negotiations broke down in June 1908, signaling the beginning of "the great Mexican oil war." Pearson consulted with President Díaz and Secretary of Finance Limantour. Both had distrusted the negotiations between Pearson and Pierce. Limantour especially feared that Sir Weetman's combination with Henry Clay Pierce would only encourage Standard Oil to buy them both out and gain direct control of Mexican oil retailing. Pearson finally made a momentous decision. "After full consideration I have decided to form a Mexican Company to take over all our oil interests north of Veracruz," Sir Weetman wrote. "This Company will trade only in Mexico and I want Mexican capital to be interested. Then the Oil interests at San Cristobal and the Refinery would remain ours and be devoted to export business."^[145] In April 1909, therefore, Pearson formed the Compañía Mexicana de Petróleo `El Aguila,' S.A. (The Eagle; Sociedad Anónima, or Corporation). The new incorporated company absorbed all of the oil properties of S. Pearson and Son, Ltd., the engineering firm. The parent firm remained the primary stockholder, but going public facilitated the expansion of stock value from £100,000 to £2,550,000. On the board of directors sat many prominent members of Mexico's governing class. Guillermo de Landa y Escandón, governor of the Federal District, served as president. Other board members were Enrique Creel, governor of Chihuahua and former Mexican ambassador to the United States; Pablo Macedo, board chairman of the National Railways of Mexico; Fernando Pimentel y Fagoaga, president of the Central Bank; and Col. Porfirio Díaz, Jr.^[146] Creation of a "national" company mollified the Mexican politicians.

The organization of El Aguila provided Pearson the wherewithal to attack the Waters-Pierce monopoly, for now it became expedient for politicians to help him. The government had already raised duties on oil products traditionally imported by Waters-Pierce, placing tariffs of three centavos per kilo of crude oil and eight centavos per kilo on refined petroleum. The government stated it intended to impart "a moderate degree of protection to certain Mexican industries which are

capable of easy and vigorous development."^[147] Friends in high places also secured for El Aguila a National Railways contract to supply one-third of its lubricating oils. Before, Pierce had been the sole supplier. The cooperation between the government and Pearson did not escape the notice of Waters-Pierce either. From this point onward, Henry Clay Pierce began a publicity campaign to discredit the political connections of El Aguila. Waters-Pierce's first press salvos in Mexico were defensive:

We have created a new industry in Mexico and for Mexico. Over 90 per cent. of the employees engaged in this work are Mexicans. We have taught them a new trade, and built refineries in which they can follow it. We believe that these acts constitute as just grounds for our claim to be in essence a Mexican concern as would the assumption of a Mexican name that would simply be a veil to thinly conceal foreign ownership. . . . We are a commercial concern: we do not propose to meddle in finance, politics or religion if we can avoid it.^[148]

Other salvos were deliberately offensive. Bureaucrats in Limantour's Treasury Ministry were not amused when news stories suggested that Waters-Pierce alone had been responsible for the nation's budget surpluses. Limantour told Body in 1906 that if Standard Oil increased its influence in Mexico, the government would assist the Pearson group in competing against the American oilmen. Moreover, rumors spread through the American community in Mexico. Díaz was a silent partner in Pearson's enterprises. They conspired to compete with Standard Oil and to raise import duties on the crude that Waters-Pierce refined in Tampico.^[149] When the Revolution broke out, Waters-Pierce continued to disparage the reputation of the Pearson interests, linking them to the discredited Díaz regime.

At the time that news of the Dos Bocas blowout sent shock waves throughout Mexico, in July 1908, Pearson went public with his marketing plans. His company announced that it now had fifty forty-ton tank cars to carry fuel oil from its 6,000-bd refinery at Minatitlán to bulk storage installations in ten Mexican states. (The refining capacity at Minatitlán was only 3,000 bd; perhaps the other figures too were exaggerated.) Newspaper reports stated that El Aguila, the new "Mexican" company, by cutting prices by 20 percent, would break "Standard Oil's control of Mexico" once and for all. "The domestic consumer of Mexico will at once enjoy the luxury of cheaper oil than they have ever known before."^[150]

Within months, the war became more vicious. Thomas J. Ryder, the former Waters-Pierce agent and now chief of Pearson's oil department, began to expand Pearson's retail distribution throughout Mexico by

hiring experienced agents away from Pierce. By the end of October 1908, Pearson had seventy-two distribution agencies in Mexico. Newspaper advertising touted El Aguila's lubricating oils and greases as "the best ever sold in Mexico." Pearson began to take satisfaction in Pierce's helplessness. Pierce had tried to hire Pearson's best employees but failed. "It shows that the man must be losing his balance and becoming irresponsible for his acts," observed Sir Weetman.^[151]

Mexican oil prices, which once had been four times greater than U.S. retail prices, begin to tumble beyond the initial 20-percent cut. Kerosene fell from 13 centavos to 7 centavos, and gasoline fell from 35 centavos to 11 centavos. The newly nationalized Mexican railways in November concluded a contract in which Pearson was to supply fuel oil for about 920 kilometers of line for a seven-year period. Plans also went forward to construct an oil terminal at the port of Veracruz.^[152] At this point, the president of Waters-Pierce and son of the board chairman, Clay Arthur Pierce, made his heralded trip to Mexico.

The "great oil war" in Mexico, because it lowered prices, tended simultaneously to widen the consumption of petroleum products. El Aguila agents noted that nationwide sales of illuminating oil and naphtha had risen from nine million gallons per month in 1906 to twelve million gallons in 1909. In fact, Pierce's volume sales and imports had not decreased. The oil war had only diminished the Waters-Pierce profits at the same moment that it eroded Pierce's market domination.^[153] The final decline of the Pierce monopoly and creation of the Mexican oil industry as an oligopoly (control of the market by a few large companies) came with Pearson's giant oil discovery at Potrero del Llano.

Drilling Themselves in

Having failed to tame the Dos Bocas blowout, Pearson in 1909 decided to bring in even more expertise. He hired Dr. C. Willard Hayes, director of the United States Geological Survey, to direct the field work. Hayes had met Pearson the year before while the geologist was visiting the site of the famous Dos Bocas blowout. Pearson subsequently convinced Hayes to enter the oil industry as a highly paid consultant without giving up his position at the U.S. Survey. Hayes was to engage field geologists and inspect their exploratory work once a year. In a preliminary survey, Hayes concluded that

Mexican demand for oil still exceeded supply, that heavy Mexican crude was not competitive with lighter American crude, and that the average cost of production was high. What Mexico needed was a big discovery of light crude.^[154] Hayes brought in a bright young geology student from the University of Oklahoma. C. Everitt DeGolyer needed no passport or visa to take the train down to Tampico. Mexican immigration officials merely asked if he were an "anarchista." Tampico was not yet an oil boom town, although El Aguila already occupied the five-story building across from the Imperial Hotel. The American geology student joined a company whose superintendent was a Scot; the bookkeeper, a Dutchman; and the manager of launches and transportation, an Englishman. The other American field geologists included Chester Washburne and Edwin B. Hopkins. DeGolyer traveled with them to the El Aguila properties west of Tuxpan. He mapped the Hacienda Tierra Amarilla, home of one of the company's Mexican lawyers. A younger brother, Manuel Peláez, was managing the hacienda. Twenty wells drilled at Tierra Amarilla were to produce only moderately. At nearby Tanhuijo, another small producer was struck.^[155] The search continued for the big gusher that would put Mexico on the world's oil maps.

At an hacienda named Potrero del Llano, young DeGolyer, who had just turned twenty-four, helped to choose the drilling sites for four exploratory wells. The American geologists mapped the upthrusting rock strata for indications of subterranean rooflike domes that trapped the oil deposits. Since Pennsylvania, the Americans were trained in the anticline theory of oil detection. Capt. Anthony Lucas had used the anticline theory to bring in the first Spindletop gusher. So had Pearson's geologists in Veracruz. DeGolyer later recalled how the first well at Potrero del Llano came in:

[W]e were all in the mess hall having dinner when there was a terrific roar, like the blowing off of a boiler. Nobody could think what could cause such a noise, so we all rushed out. Potrero del Llano #1 had drilled itself in. It had been drilled to a point so close to the rock holding oil that the oil finally just broke through and finished the job. . . . This discovery well, located by Geoffrey Jeffrey [a British geologist], was a small well that flowed by heads and made three or four hundred barrels a day. There was no difficulty in stopping the free flow of a well of that size, just a matter of closing a valve.^[156]

As 1910 drew to a close, Sir Weetman Pearson was reasonably satisfied with his geologists. They had begun Mexican domestic produc-

tion in the region west of Tuxpan known as the Faja de Oro, the "Golden Lane." The region derived its name from the fact that the crude discovered here was much lighter than that found farther north around Tampico. At 28 degrees Baumé, the Golden Lane crude contained valuable components of fuel oil, gasoline, and kerosene. With his geologists and drilling crews working on additional prospects, Pearson felt assured he would soon have enough domestic crude so that he would be able to cancel the purchases of Texas oil. He wanted a big well that would not stop with the mere turn of a valve.

DeGolyer located the fourth well site at Potrero del Llano. Drilling commenced in April 1910 and was suspended in June at a depth of 1,856 feet. Drilling crews then awaited completion of the pipeline, returning to the well two days before Christmas. On 27 December 1910, after the drillers had penetrated another fifty-five feet into the Tamasopo limestone, they stopped for the night. Since no gas emission had warned them that the drills were about to strike oil, the drillers had not placed a drilling valve over the wellhead. Potrero No. 4 came on its own at 2 A.M. The bailer, a long cylinder used to scoop out samplings from the well, was blown clear out of the well. A black plume of crude petroleum rose 250 feet into the air with a deafening roar and commenced to lay a coat of oil over all the vegetation — and human and animal life — for a radius of a mile around the well. The chief driller on duty scrambled through the underbrush in the darkness in order to extinguish the fires in the boilers. That the boilers had been placed some distance from the drilling platform prevented Potrero del Llano No. 4 from becoming another conflagration like Dos Bocas.

As it was, the Potrero well, flowing wildly, presented its own technological challenges. Lord Cowdray, as Sir Weetman Pearson was to be known after his elevation to the peerage in July 1910, was in Mexico City that December, introducing his sons Clive and Harold to the Mexican enterprises. DeGolyer was on horseback with Dr. Hayes, introducing the new general manager of El Aguila, Robert Stirling, to the Furbero field. Sterling left immediately for Potrero, but Hayes and DeGolyer were summoned to Mexico City. Yet before they arrived, Lord Cowdray himself had left by train for Potrero to take charge of capping the wild well. Lady Cowdray, the British ambassador, and Governor Landa y Escandón took charge of several days of social affairs toasting the young American geologist's success. DeGolyer did not arrive at his runaway well until a week had passed. He took the train through San Luis Potosí to Tampico and a launch through the Tamiahua lagoon.

Potrero del Llano had become bedlam itself. Accompanied by a large quantity of gas, the oil spewed out of the well at the rate of 100,000 bd, the pressure heating the oil to a temperature of 147 degrees F. Everyone was caked with oil, and the Buena Vista River was filled with so much oil that one could not see the water underneath.^[157] The crude flowed into the Tuxpan River and out onto the beaches of the Gulf Coast of Veracruz. Eventually, oil washed ashore on the beaches at Tampico, two hundred miles to the north. DeGolyer and a Mexican civil engineer surveyed a route for the urgently needed second pipeline to Tuxpan. Local jefes políticos ordered ranch foremen to bring in their peons to build earthen reservoirs to catch and store the flow. Thousands of Mexican villagers worked at Potrero at one time or another, most leaving after getting their first paycheck. They had to be replaced by others. Mexican women organized kitchens under oil-soaked canvas shelters. Never had the casual population of these livestock and agricultural districts been so mobilized.^[158] Indeed, the oilmen enlisted the support of local authorities to apply some coercive measures to get them to stay.

In the meantime, the immediate task was to prevent the spread of oil. Workers set fire to the crude on the river in an effort to minimize the damage to crops and farmland. The conflagration started five miles downstream from Potrero, lifting great billows of black smoke and soot into the humid air. Men constructed flumes, troughs that carried the oil swiftly downriver to the fire, and built a dam farther downriver to catch the crude that escaped the flames. Some of the oilmen's experience in the Baku oil fields of Russia contributed to the tactics used during the Potrero crisis.^[159]

The second task remained to control the ferocious plume of oil that spewed directly out of the well casing. Experienced engineers devised an elaborate valve dubbed the "Bell Nipple," after a design that an American driller had seen used on much smaller Texas gushers. The device, lying sideways, was attached to one side of the well casing by means of extended ratchets. The men worked slowly. They were beset by gas fumes that burned the eyes (a slice of potato held over the eyelids was found to provide relief), by the gusher's noise, and by sheets of oil constantly falling around the well. Eventually, they winched the bell nipple upright and over the blasting spout of crude. It was not until 25 January 1911 that the crews had tightened the bell nipple over the casing, but the valve device proved unable to control the flow and had to be replaced by a second, larger bell nipple in March. Then workers

constructed a mound of concrete and pipes over No. 4. Gradually, they diverted the flow into valves, earthen reservoirs, and the hurriedly constructed pipeline.

The work of El Aguila's geologists made hollow Doheny's boast that geology professors had not been successful at finding oil. Moreover, the fury of Potrero No. 4 challenged experienced British and American oilmen to devise additional technological solutions to problems peculiar to Mexican production. Best of all for El Aguila, the crude oil at Potrero No. 4 had an American Petroleum Institute rating of 21 degrees gravity. Unlike the heavy crude produced at Doheny's El Ebano in the north, the wells in the Faja de Oro contained large increments of fuel oil, kerosene, and gasoline — the valuable products of oil.^[160] El Aguila no longer had to import crude from Texas but, in fact, began to export to Texas and elsewhere.

The Britons and Americans who had directed the Potrero operation eventually gathered enough knowledge of geological conditions in the Huasteca to realize how fortunate they were to have saved the giant well. For the first time in petroleum history, they were exploiting deposits lying in limestone rather than a sandy formation. Holes drilled into the mare and limestone seldom collapsed, and the fierce flow of oil did not disturb the strata. They learned that the oil sands tended to plug fast-flowing wells in places like the Baku and Trinidad. If a well having the force of Potrero No. 4 had flowed uncontrolled in oil sands, it would have destroyed itself within days. It was rarely safe to allow a well sunk in oil sands elsewhere to produce at a rate faster than 2,000 bd, whereas Cowdray's men in Mexico had harnessed a well that, once it was pinched back, produced at the rate of 30,000 bd.^[161] These oil engineers also did not know on 31 March 1911, when they had definitely brought Potrero on line, that this well's future was to be equally as eventful as its discovery. Nor did they understand yet the long-term weakness of oil production in limestone formations.

El Aguila had other concerns in 1911. Finding itself suddenly awash in oil production, the company now had to move quickly to provide transport and markets. J.B. Body devised a floating loading dock in the shallows before the river port of Tuxpan, so that gulf tankers could take on crude oil approximately one-half mile from shore. Eventually, the Tuxpan terminal accommodated four tankers at once, loading at the rate of 120,000 gallons per day.^[162] The drilling crew at Potrero del Llano slowed down while others built a pipeline that carried the modest production of Tierra Amarillo and the first Potrero wells down to

the Tamiahua lagoon. From there, barges ferried the crude oil over to Tampico. Pipelines were completed from Potrero first to Tuxpan then to the deep-water port of Tampico. Almost immediately, El Aguila purchased land along the Tampico ship channel and began to build a second refinery. Shipping traffic in the Tamiahua lagoon and along the coast multiplied as El Aguila shipped oil in barges to Tampico and Veracruz. Potrero del Llano crude was shipped to Puerto México and pumped to the Minatitlán refinery. Lord Cowdray's son, Clive Pearson, as chairman, expanded the new Anglo-Mexican Petroleum Company into an eight-hundred-person firm distributing Mexican oil throughout Great Britain and the Continent.^[163]

Steam tankers began to arrive from the United States, and Lord Cowdray laid plans to build his own fleet to carry Mexican oil to Europe and Canada. Now, the prolific wells of both Pearson and Doheny had made Mexican oil competitive on the U.S. market, even though prices softened a bit. Mexican production burgeoned from 3.6 million barrels in 1910 to 12.6 million in 1911 (see table 4). Armed with technological superiority, financial wealth, access to foreign markets, and the political favor of Porfirio Díaz, the foreign businessmen had at last made Mexico not only a consumer of hydrocarbon energy but also a major producer. The oil industry was a powerful force for social change as well.

Poorly Defined Boundaries

Foreign investment in Mexico's economy contained profound social consequences. The oil boom severely disrupted the society of Mexico's Gulf Coast, and for a simple reason: prior economic development of the region around Tampico and on the isthmus, having been rather lethargic, had not conditioned the people's social relationships to change and mobility. Despite being the second largest port on the east coast and home of the Mexican Central Railway and the Waters-Pierce refinery, Tampico lacked the infrastructure of a modern economy. Few exports had yet integrated the gulf port either with the Atlantic economy or the Mexican economy. Stockraising, subsistence agriculture, and fishing were the leading economic pursuits in the area — as they had been since colonial days. Just at the time Doheny arrived to prospect for oil, however, the rural population of the Mexican Gulf Coast was beginning to grow behind a migratory flow from the highlands.

These recent arrivals tended to fill in the empty land as subsistence squatters rather than as commercial farmers. American farmers grew cash crops, hired wage workers, and introduced efficient production methods. The isthmus did not share even this modest development. The inhospitable and isolated Tehuantepec region lay deserted except for rustic squatters and large, unproductive estates when the Pearson interests constructed the railway. At the turn of the century, economic development in Mexico's future oil zones had been quite weak. The majority of the rural population was illiterate, unskilled, and socially differentiated by race, income, and prospects for advancement. The educated, property-owning commercial class remained quite small.

Although modernizing, society in the Mexican oil zones was unprepared for the rapid pace of change to which the oil boom subjected it. The state of Veracruz, dominated by the port city of Veracruz and the highland cities of Córdoba and Jalapa, was growing during the Porfiriato. Inmigration increased. Typical of migrant populations, Veracruz had several thousand more males than females. The Huasteca and isthmian regions, however, were among the least populated in the Veracruz state. Of the future refining cities and oil ports, Tampico had a population of 17,500 persons in 1900; Tuxpan, 13,000; and Minatitlán, 6,100. Puerto México, Pearson's gulf oil terminal on the isthmus, known as Coatzacoalcos up to 1903, was a town of 4,487.^[164] Many of these cities counted farmers in their populations. In fact, the largest category of the working population in and around Tampico consisted of farmers and field workers (peones del campo ). Although 855 tampiqueños were in commerce, only 49 worked in industry. The port had a relatively mobile population: only 9,000 were natives, more than 1,000 were foreigners, and 7,000 had migrated from other Mexican locales. Nearly half of the natives of Tampico older than twelve years of age were also illiterate. Tuxpan was even more rustic. In the entire Canton (county) of Tuxpan there was but one industrial worker; 14,000 of the residents of Tuxpan were farmers or rural peons, and more than 90 percent of the adult population was unable to read. Only 123 natives in these four oil zones had a working knowledge of metals.^[165] Mexico's future oil cities at the turn of the century had greater administrative than commercial importance, and they completely lacked any manufacturing base whatsoever.

Moreover, the Gulf Coast was isolated from the more populous highlands. In Mexico, railways had begun the process of economic development. Although the Veracruz-Mexico railway was complete in 1877, when Díaz came to power, primitive conditions at the port of

Veracruz limited the rail traffic on the line. The rail boom of the latter half of the nineteenth century benefited Mexico's north central plateau. There old silver mines were reopened by foreign companies. Lacking mining resources, the Gulf Coast north and south of Veracruz languished in comparison.^[166] They served as underpopulated livestock and agricultural zones attractive to modest numbers of foreign immigrants and mestizo migrants. Spaniards and Mexicans from Hidalgo and Puebla came to Tuxpan; potosinos and tamaulipiqueños migrated to Ozuluama; and Americans, Spaniards, and potosinos came to Tampico. In the city of Tampico, in fact, only half the residents had even been born in the state of Tamaulipas. Seven thousand had migrated from the other states of Mexico; another 1,100 were foreigners. Lethargic coastal vessels served as the only link between Veracruz and the future oil towns of Tampico, Tuxpan, and Minatitlán.

The Eastern Sierras effectively prevented large-scale commerce between these places and the more prosperous and populated highlands. During much of the nineteenth century, local trade at the port of Tampico suffered from a lack of suitable roads to draw produce from the towns and villages. Foreigners were unwilling even to build rail lines to the Gulf Coast. Initial construction was abandoned in 1873. A. A. Robinson of the Mexican Central Railway finally agreed to construct the spur line from San Luis Potosí to Tampico only under government pressure. The Mexican Central began construction in 1881 and completed it in 1889, extending the line beyond San Luis Potosí to Aguascalientes for a total of 654 kilometers. Nevertheless, traffic remained light, and the Central Railroad had to spend an additional four million pesos ($2 million) on port construction at Tampico. Part of the problem of the delay in rail construction had to do with the importation of materials. Rails, bars, bolts, switches, cars, and locomotives came from merchant specialists in New York and New Orleans, who first had to order these items directly from the American steel mills.^[167] Soon, Tampico became a center for the distribution of fuel throughout the nation. Welsh and West Virginian coal cost twelve pesos per ton at the port, but after transport by rail to the highlands, it cost nearly thirty pesos per ton. Its high price somewhat inhibited the use of coal. West Indians were brought in to work in the coal and coke piles at the docks, because Mexicans refused to do this work.^[168] It is little wonder that expensive imported coal would soon yield to domestic petroleum.

At the beginning of the twentieth century, great variation existed in the landholding patterns and social organization of the future oil

zones. Although land was widely distributed, the population nonetheless lived a dispersed but clearly hierarchical lifestyle. Traditionally, Veracruz society for centuries had blended the descendants of the colonial black slaves to Spaniards and to native Indians. Except for a narrow elite of mostly white Europeans (many of whom were recent Spanish immigrants), the majority of the population consisted of racially mixed mestizos. Migrants from the highlands too were mestizos. Few ethnic Indian groups remained in the future oil zones. The Pánuco region at the northern extremity of Veracruz had no Indian-language speakers at all, the only census category of 1900 that indicated preservation of Indian ethnicity. Ozuluama, midway in the Huasteca between Tampico and Tuxpan, still had four thousand persons who spoke huasteco and mexicano. The latter groups represented just 12 percent of the area's mostly rural population. Approximately eight hundred residents near Minatitlán also spoke mexicano. In the Tuxpan region, especially south near Furbero and what later would be the Poza Rica oil field, Indian speakers were found in larger numbers. Nearly one-third of the inhabitants of the Canton of Tuxpan spoke huasteco, mexicano, totonaco, or otomí.^[169] If the Indians of these areas were like their highland brethren, they probably remained isolated from the neighboring mestizo society except to sell their labor. Spanish-speaking, hispanicized mestizos looked down upon those who spoke an Indian dialect and wore Indian clothing.

Besides race and ethnicity, additional social distinctions divided the rural society of Mexico's Gulf Coast. The first oil maps of the 1910s noted the rather wide distribution of land into modest family holdings that the Mexicans call ranchos. The trend in the Veracruz lowlands was quite distinct. Agricultural settlement, especially of vacant land, had contributed to the growth of large estates, the well-known Mexican haciendas. Where wild cattle once foraged in the dense undergrowth, stockmen began to specialize in cattle raising. Mexican markets for beef opened up to the Huasteca via the railway passing between Tampico and the central plateau. Nevertheless, individual small holdings expanded much more rapidly. Small holders specialized in goats and pigs.^[170] In numbers of population involved, the ranchos were statistically significant. Growth of small holdings were appreciable compared to haciendas, according to these figures:^[171]

If the social position of the rancheros from other areas of Mexico provide any indication, these independent landowners formed a kind of rural bourgeoisie. They were indistinguishable in dress and speech from the mestizos who owned no land and served as hacienda and itinerant peons in the area. Yet the rancheros also hired landless workers, thus functioning as a middle-level mechanism for social welfare and control.^[172]

In a sense, the economic and social power to occupy land substituted for precise titles along the Gulf Coast. Legal boundaries meant little to illiterate squatters who settled on terrain of little value for short durations and who were anyway beholden, in one way or another, to their social superiors. Undoubtedly, many of those listed by the census of 1900 as peones de campo were squatters who worked as rural proletarians while still having access to vacant land. The situation delayed the legal process of land transfer, even between the new American buyers. Numerous clouded titles and overlapping claims for land only complicated the delays normally caused by a deliberate Mexican court system characterized by the required certificates, stamps, fees, and "all the siestas between times."^[173] Americans never understood that local courts practiced a tradition of accommodation and compromise rather than outright decision. Mexican geologist Ezequiel Ordóñez explained how ill prepared such a society was for the legal exigencies of free-market capitalism based on private property rights:

The boundaries were not well defined [and] no one bothered to measure or to fence his property; the transfer of ownership was done from fathers to sons, almost by tradition and [transfers] done by sales or exchanges followed a vague and at times uncertain specification of the boundaries. In other cases, the actual extension of land was hid in order to escape the tax collector and finally, as the majority of the land remained uncultivated and covered by virgin jungle, the proprietors did not actually know the size of their [properties].^[174]

The oilmen who came seeking leases desired precise legal titles. Common enough in American oil fields, fraud and litigation also accompanied the rapid escalations of land values in the Mexican oil zone.

One should not conceive of this rural society as existing in a state of democratic egalitarianism. By virtue of their family background and economic leverage, the few large landowners exerted a measure of decentralized control over the rural population. Among the hacendados of the Huasteca were numbers of Spaniards who had immigrated during the Porfiriato. The Peláez, who owned the Hacienda Tierra Amarilla west of Tuxpan and whose eldest son served as El Aguila attorney,

were such a family. So strong was the Spanish presence that Tuxpan harbored intense hostility toward Americans residing there during the Spanish-American War of 1898.^[175] Despite their recent arrival, Spaniards used strong family ties and educational and capital resources (all of which the mestizos lacked) to form a narrow elite. Racially European, religiously Catholic, lingually Spanish, and there to stay, these immigrants easily worked their way into the upper and middle bourgeoisie of the multiracial society. The larger estates owned by Spaniards specialized in cattle production as well as agriculture. Here, as in northern Mexico, the opportunities enjoyed by these immigrants occasionally caused resentment among the mestizo lower bourgeoisie and workers. As Andrés Molina Enríquez noted, "These Spaniards . . ., if you scratch the modern man, you discover beneath the skin an old Conquistador."^[176]

The easy movement of the Spanish immigrants into positions of social prominence indicates a measure of fluidity in Mexican Gulf Coast society. Indeed, mestizos emigrating from the highlands also found opportunities in modest landownership, as rancheros, in the sparsely settled region. Such opportunity might have been denied these newcomers had the land already been more densely populated — or its products more valuable. Rancheros probably worked the land more intensively, producing more agricultural products than livestock. In the more sparsely settled Ozuluama region, many rancheros were small cattlemen, but they must have been beholden to the elite for short-term credit and for sales of agricultural products in local marketplaces. At any rate, the larger number of landless and squatters who served as peones de campo were dependent on both hacendados and rancheros for employment. The number of landless persons was by no means small. This fact unified the interests of the hacendado and ranchero, socially separated as they might have been, in protecting the rural status quo from being overrun by a rootless rural proletariat. All three social groups were united in their disdain for the Indians. In 1900, the future oil zones had a rural society organized in the following fashion:^[177]

Additional characteristics probably worked against mobility for the landless. In the first place, these were the inhabitants most apt to be illiterate. Second, the informal family structure — that is, only one in five

females in Ozuluama and one in seven in Tampico were married — provided little support for a sibling attempting upward mobility. Single men and women outnumbered married persons in the adult population of the Gulf Coast oil zones by a factor of five to one. The census of 1900 also suggests that spatial mobility in Mexican society might also have undermined the possibilities for family units among the rural and urban working classes. Only 1,344 out of 6,247 adult women in Tampico were married, which testifies to the fact that a formal family structure was even less prominent in this migrant town than in the rural areas of the Gulf Coast.

Society on the Mexican Gulf Coast was not a yeoman democracy. Although its sparse population and relatively open land provided a measure of social opportunity, the future oil zone displayed many of the social divisions and rigidities that characterized other parts of Mexico. In the absence of egalitarianism, one found clear lines of social distinctions and hierarchy. In the absence of democracy, one found authoritarianism at all levels of society. Personal service of one kind or another was quite prominent. This postcolonial society, in particular, degraded the position of women, who vastly outnumbered men in positions of subservience such as household servants and homemakers. Shut out of jobs as farmers, cattlemen, peones de campo, merchants, artisans, and public employees, women dominated only as laundresses and seamstresses. They formed a majority of the school teachers but a minority of the students. There were more quehaceres de la casa (homemakers) than married women in this society, an indication that informal conjugal relationships were the norm. In this, the periphery of Mexico was much the same as the core of the nation.

Not Satisfied to Go in Peace

The expanding agrarian society of the Veracruz lowlands assumed a more rapid pace of change when the impact of the economic revolution began to reach the Gulf Coast. Both the southern and northern ends of Veracruz state lagged behind the central corridor in the development of a commercial infrastructure.^[178] But they did develop. First the railway link and then the petroleum exploration began to transform the northern port of Tampico. Channel dredging, a crew of boat pilots, and new lighthouses somehow always seemed insuffi-

cient to handle the modest foreign trade. Captains of foreign ships complained of long waits (in capitalism, time is money) for a Mexican pilot to guide the ship up the Pánuco River to Tampico. Incomplete and submerged jetties made the trip dangerous. Longer ships, now able to pass over the dredged sandbar at the mouth of the river if they did not draw more than twenty-two feet, nonetheless could not come about at the docks before the city because the channel remained too narrow. The Díaz regime accomplished what it could to encourage the development of the transportation infrastructure. In 1908, canal construction for intercoastal shipping between Tampico and Tuxpan was only half complete. The government awarded an American engineer the $2 million contract to finish the final sixty miles of the waterway. The crew of two hundred laborers lived and worked on a flotilla of five large dredges, two colliers, a ninety-foot material barge, a machineshop barge, and a number of houseboats. Mexican officials intended the completed five-foot-deep, forty-foot-wide channel to benefit agricultural development in the area.^[179] The waterway would soon facilitate exploration, supply, and transportation in the fledgling oil industry.

The ports of Tuxpan and Coatzalcoalcos developed rather more lethargically. Coatzalcoalcos received a new lighthouse at the harbor in 1890. Navigational aides, featuring a fixed light visible sixteen miles from the coast, made safer the arrival of coastal vessels to this slumbering southern Veracruz port. Foreign contractors stimulated much activity here in the 1890s when construction of the first Tehuantepec railway got under way. Pearson's reconstruction of the railway and his building of port complexes at Coatzalcoalcos and Salina Cruz brought heightened activities to the isthmus, beginning in 1900. Improvements at Coatzalcoalcos, renamed Puerto México, included jetties, railway tracks, a terminal station, warehouses, and three steel piers.^[180]

Tuxpan's development came last. Its poor harbor remained the largest drawback to Tuxpan's becoming another important gulf freight terminus, after Veracruz, Tampico, and Puerto México. Although the channel had a depth of twenty-five feet for thirty miles up the Tuxpan River, the sandbar at the mouth of the river was just four to seven feet deep. The Tuxpan region too was racked with tropical illness, sustaining from five to seven deaths per week in a population of 14,000 persons. In an age of few tourists, Tuxpan had a magnificent two-hundred-mile beach — until fouled by local oil activity. Located 230 kilometers from Veracruz and 125 from Tampico, the city remained on the itinerary of American steamers trading in hides and tropical products.

Coastal steamers obtained no coal at Tuxpan. Spanish and Mexican merchants collected the export products at the port, and a U.S. consul there helped them prepare the customs invoices for entry at New York.^[181] Although the Mexican authorities established a lighthouse and buoys at the mouth of the river and maintained a customshouse and pilot services at Tuxpan, the port was not considered important enough to support the trunk line that the Mexican Central Railway once had planned between Mexico City, Tuxpan, and Tampico. Nor did the government float bonds in European money markets in order to finance port improvements at Tuxpan.^[182] No one here had the political clout necessary to obtain such largesse from the government.

Then came the foreigners. Drifters from the United States passed through Tampico looking for work on the railways and seeking land to buy for farming. Like the natives, they too fell sick to the yellow fever and malaria, as in the epidemics of 1898 and 1903. Mexicans discovered an additional measure of modern economic opportunity with American colonists. In 1865, a number of ex-Confederate soldiers had emigrated from the American South to Tuxpan with their families. They produced vanilla on plantations, occasionally importing West Indian blacks to harvest the crops.^[183] Attracted by government propaganda, cheap land, and even cheaper labor, farmers also came from Wisconsin, Nebraska, Iowa, Illinois, and Texas. They imported the machinery to which they had been accustomed in the states, raised hogs and mules, grew corn and onions, and employed Mexican peons. American ranchers imported short-horned stock such as the Hereford from the American Midwest.

Like many Spaniards who settled around Tuxpan, the Americans came with capital and families. They hired their American countrymen as administrators. Assisted by American real estate firms based at Tampico, some colonists paid a down payment of as much as 30,000 pesos ($15,000), taking mortgages on the balance.^[184] American land speculators purchased large Mexican cattle estates, such as the Hacienda Atascadero, and broke them up into smaller lots for resale to other Americans from Texas and Oklahoma who wanted to plant corn, wheat, and other crops. Even some Chinese immigrants, having made capital in various business ventures, were buying ranches near Tampico.^[185] Just as the big oilmen dealt with lawyers influential in the federal government, so too American land purchasers used the services of Mexican lawyers in Tampico who looked up land titles and dealt with municipal officialdom.^[186] Not all these immigrant farmers found

prosperity. American land companies, whose activities often bordered on fraud, exaggerated the rumors of success in their "misleading" circulars. "There are a few American colonies in the vicinity of Tampico," the American consul warned a prospective American immigrant. "Their prosperity to date has not been a remarkable success. Unremitting work and hardship have been their portion."^[187]

If the Americans had spoken Spanish and been Catholics, they might have fit perfectly into the pattern whereby Mexican society since the Conquest had absorbed European immigrants into positions of privilege. Mexican authorities certainly treated American landowners the way they did their own countrymen. Local officials in Tuxpan were motivated by the traditional nonchalance that permitted the rural workers subsistence in the face of economic change, all for the sake of social peace. They refused to remove squatters and defaulted renters from American-owned properties. Confronted by indignant protests from American landowners, the jefe politico and the rurales at Tuxpan responded with inactivity. Occasionally, there was land fraud perpetrated by Mexicans and Americans alike on potential American buyers. Americans from time to time bought land from those unable to transfer legal title or from others who charged inflated prices for "improved" land still covered with tropical vegetation.^[188] Despite setbacks, during the first decade of the twentieth century, American owners and American administrators were hacking back the rain forest and planting vanilla and rubber trees and other tropical products.

In addition to the big plantations owned by foreigners, small foreign family farmers could also be found in the area. Most of the farms belonging to the American colonists — as opposed to those belonging to planters — consisted of an American-sized farm of 250 acres, less than an hacienda but larger than most ranchos. Their productivity supported higher wages among the peons. In 1919, one of these American farmers testified about the changes brought to Mexican labor relations:

Question: What did [the American farmers] do in reference to exploiting the Mexican peon?

Answer: Well, their first effort to exploit the Mexican peon was to raise his wages from 25 or 30 cents up to one peso, Mexican dollar.^[189]

When, in 1890, an American landowner arrived to begin a banana plantation near Tampico, the common peon was receiving a daily wage of twenty-five centavos. Agricultural expansion and construction of the Mexican Central Railway raised wages to fifty centavos by the time the

first oilmen arrived. As the demand for labor increased, Mexican hacendados petitioned the government to hold down wages. Wage stabilization was impossible to enforce, however, and the oil boom soon lifted wages to one peso and more per day. Although American landowners never resorted to debt peonage (or so they claimed), a banana plantation operator in Tampico never had any trouble securing workers. The Mexicans preferred to work among the bananas. There was shade, water, and the right to eat all the bananas they wanted.^[190] And, of course, higher pay. Good wages improved the material life of the Mexicans. Shoes replaced the sandals called huaraches, and the peons began to wear better clothing. American oil managers noted that the Mexicans soon began to demand the same clothes worn by the Americans and to imitate their ways. Not all Americans were pleased by the imitation. "Mexicans demanded these things too quickly," commented one employer.^[191]

Mexico's Gulf Coast was not completely immune to the economic development represented by American farmers. Still, these stimuli occurred late and in isolated forms. But the slight development did not so much raise pay levels as it brought more persons into the wage labor system. Dampened by inflated prices for necessities, real wages on the Gulf Coast rose from only twenty-five to thirty-three centavos between 1885 and 1908.^[192] The Huasteca region lay outside and somewhat isolated from the main regions of economic transformation in Porfirian Mexico. Yet, the entire state of Veracruz led the rest of Mexico in the population explosion. A zone of in-migration, Veracruz enhanced its population from 854,000 inhabitants in 1895 to 1,133,000 in 1910. It moved from sixth to the second most populous Mexican state.^[193] Even so, the railways and shipping merely embellished — but did not change — the multiracial and multiethnic social order that had developed there since the Conquest.

Nevertheless, Mexican workers had never been hapless victims of the economic system. They continued to manipulate the world in which they lived. American landowners found themselves the object of insults and abuses of their own peons, especially when the latter became drunk. They stole the landlord's cattle, killed steers merely for the tongues (a prized delicacy), and tore down fences. Then, complained one American landowner near Pánuco, the local authorities would free the disorderly peons. "I firmly believe these depredations would not have occurred," he complained, "had the early offenders been properly punished."^[194] Although the local authorities enjoyed considerable li-

cense to deal with the recalcitrant rural workers, inertia and lassitude often prevented the social control system from becoming truly draconian. Village caciques around Ozuluama and Pánuco often rounded up the "vagrants, those with bad inclinations, or whomever was around" for service in the Mexican army. After some assignments sweeping the streets, however, the new recruits ran away, adding to the Americans' concern about lawlessness and danger in the countryside.^[195]

It is difficult to know just how much this underclass assertiveness contributed to banditry in Mexico. Yet bandits, especially in the Huasteca Mountains of San Luis Potosí, had never succumbed completely to the government's pacification of the countryside. In 1906, rural Mexicans identified as "bandits" and "Revolutionists" by American landowners preyed on foreign-owned haciendas and threatened the lives of American managers.^[196] And woe to the foreigner who could not pay his workers. One hacienda manager at Ciudad del Maíz in 1905, when he neglected to issue the pay, found himself surrounded by one hundred armed peons demanding horses, money, and food. A desperate cablegram prompted the state governor to dispatch a unit of the rurales by special train. The rurales did not shoot the peons but resolved the problem peacefully. Whenever foreigners violated certain accepted standards of reciprocity, the "moral economy" of Mexican rural society, the peons knew how to gain justice.^[197] Certainly little in this social and economic organization prepared the Mexicans of the Gulf Coast to manage the oil boom that descended upon them like a sustained hurricane when in 1910 the Casiano and Potrero wells came in.

Like the American miners and railroaders, the first oilmen imported much of their skill from the United States and Europe. Mexican workers were needed only as peons and gang laborers. Local personnel who could handle machetes and teams of mules sufficed to clear the jungle for wildcat wells, pipelines, and small-gauge railways. If not cut back every six months by the macheteros, tropical vegetation soon grew over buildings, installations, and equipment. "The breaches that were cut especially for the automobile roads and pipelines," wrote geologist Ordóñez, "had to be widened to at least twenty or thirty meters in order to prevent the shade of the trees from retaining the moisture in the soil, forming great quagmires during the rains."^[198] Additional unskilled Mexicans loaded, unloaded, and carried equipment. Permanent workers who learned skills and mechanical procedures were needed only in limited numbers. The first Mexican boiler workers, carpenters, and mechanics came from the highlands, where shopwork in mines

and railroads imparted to them some limited familiarity with the new job requirements.

Foreign oilmen satisfied their initial needs for semiskilled and unskilled workers through the enganche system. Literally translated as "hookers," the Mexican enganchadores established themselves in the plazas of Tampico and Ciudad Victoria and in the towns of the Bajío surrounding Guanajuato. These labor contractors offered bonuses and transportation to workers who were attracted by the adventure, status, and high pay of working in the foreign oil sector. The first wages for these jobs were seventy-five centavos per day. Doheny brought workers down from Cerritos, located in the highlands along the Mexican Central railway line. Both the hacendados and the railway men protested that Doheny's high wages were spoiling the workers. "We usually got our native workers from the little towns in the sierras," recalled pioneer oilman Percy Furber. "I would send up a letter to the jefes mayors [sic ] and negotiate for a hundred or more men for a month or two at a time for a special piece of work. At the height of our work at Furbero we had from four to five hundred native workers."^[199] Yet neither the low-lands nor the mountain villages entirely supplied Furber's early labor needs. He still had to bring in three hundred Cubans, many of whom were blacks and mulattoes. In a way, the early oil industry contributed additional diversity to an already pluralistic Mexican Gulf Coast society.

Porfirio Díaz had been hoping for the transformation of the Mexican worker. Doheny himself offered a poignant glimpse into the president's intentions. In 1903 Doheny and several other American businessmen paid their respects to Díaz. The president turned to the subject of Mexican workers:

He told us of his early hopes with regard to the bettering of conditions of his own people, and in the midst of his conversation about the futility of his endeavor to alleviate the working conditions of his own people he stopped, choked up with emotion, and the tears rolled down his cheeks. He begged our forbearance, and later proceeded to apologize for his emotion by saying that he never contemplated the failure of his design in bringing good conditions to the working people of Mexico without being overcome as we had seen him. . . .

He told us that we must be patient with the ignorance and the lack of initiative in the Mexican workman. He called our attention to the fact that they could not learn by instruction, that they must be taught by precept, by example; that they were very imitative, that anything they saw others do they could learn to do, and do well; that they would be faithful to those whom they worked for if they were treated well. He told us that his greatest desire for our prosperity in Mexico was the example which our workmen would present to the Mexican workmen of how to work, how to live, and how to progress.^[200]

At first, the oil managers at El Ebano had great difficulty in finding workers in order to carry out Díaz's plans. The locals worked in agriculture or owned their own small-holdings. Wylie engaged enganchadores to bring the men down from the central plateau for a week. Gradually raising wages from thirty-five to seventy-five centavos and finally from one to two pesos, Wylie induced many Mexicans to stay and work regularly for the company. They were trained at the same time. "These boys were put first into the copper works," Wylie said, "then advanced to the machine shops and carpenter shops as they showed special aptitude and faithfulness in their work." Shifts lasted ten hours, and the work was done under the tarea (piece-work) system. Unlike some of the American mining firms, the oil company did not have to resort to bonuses to exhort their workers' steady performance. Wylie said he was able "gradually to weed out the undesirables and more shiftless."^[201] Doheny believed that El Ebano's relative isolation contributed to the absence of the kind of prejudice and dislike between Americans and Mexicans found along the border. He noted with pride that few racial frictions had occurred in the Ebano camp, despite the fact that the local people were "primitive."^[202]

Living conditions in the first oil camps were also as primitive as some managers regarded the native Mexicans. The oilmen had to build warehouses, sawmills, electric light plants, ice plants, and provide for sanitation, hospitals, and nurses simply to maintain the work efficiency of both Americans and Mexicans. American roustabouts could not rough it in the tropics as they did in the Texas and Oklahoma oil fields — without regard for sanitary conditions. The first foreigners at El Ebano developed sores and fevers. Superintendent Wylie had to order the burning of dirty blankets, bedding, and clothing of the sick men. Their laundry was washed every week and their rooms kept well aired and cleaned. As a result, only two Americans died, one from peritonitis and the other from smallpox. The company attended to the health needs of the Mexican labor as well, maintaining a hospital at El Ebano and a doctor at Tampico. Normally, workers regularly suffered from a swamp fever. Yellow fever appeared at El Ebano only once, forcing the company to take a greater interest in the housing of the Mexican workers. Wylie instituted a system of quarantine, had lime scattered and distillate sprayed throughout all the houses. Many Mexican huts, built with earthen floors "in defiance of company regulations," had to be torched. Those residents who refused to vacate were forcibly removed. Meanwhile, the company erected houses with wooden floors

and organized a "sanitary gang" to inspect them. Wylie was not adverse to using coercion. He noted without apology that the violator of these sanitary laws was taken before the local magistrate, fined, and jailed for a few days.^[203]

Social relationships in the early oil industry also tended to retard skill transfers from foreign to native workers, no matter what Díaz had hoped. Mexican workers were accustomed to short-term agricultural work. They treated the oil industry as the same kind of employer. Workers hired on for a month or two, then went back to their native villages, to a plot of land, or to the next job. The element of coercion traditionally found in Mexican labor relations also remained. Furber had thought nothing of placing a worker prone to drink in the stocks overnight. The leg-stocks had been set up by a Mexican labor contractor.^[204] The jefes políticos contributed toward work discipline in the early oil fields by extending hacendado-like authority to the foreign managers. Company officials could have men arrested and expelled from the camp. The old system of decentralized social control worked effectively in the oil fields, where the workers were isolated and dispersed, almost as if they were working on a large hacienda. Managers easily dealt with disorders. Few serious disciplinary problems actually arose, according to Manager Payne of Furbero, who exerted hacendado-like powers over American workers as well. For several months, Payne would not allow three disgruntled California oil workers to leave camp until they had repaid their travel advances. They complained that Furbero was like a tropical prison. The company prevented escape because it owned all the land, operated the only railroad, and had all the horses "a round this place." Even the rurales helped the management, so the Californians claimed.^[205] Sir Weetman Pearson relied on local political authorities to discipline workers to stay on the job longer during the blowouts at Dos Bocas and Potrero del Llano. None of these practices were particularly new to Mexico. As the foreign employer discovered, higher wages at first did not provide sufficient incentives for Mexican workers to change their traditional work habits. Therefore, foreign management accepted corporal punishment as a method of "teaching" the benefits of progress, as if the Mexicans were children.

Foreigners mixed the disdain they harbored toward Mexican workers with an equal portion of paternalism. Doheny's camp at El Ebano held Christmas parties complete with games and presents for the children. The boss himself financed the technical education in the United

States for the son of one of the Mexican engineers working for the dredging company at Tampico.^[206] At El Ebano, the resident manager, Herbert Wylie, prided himself on the loyalty that the peons developed for the Mexican Petroleum Company. He was personable and a man of his word (if we may believe Wylie's own testimony), which contributed to his ability to gain the men's respect. Wylie had an imposing, bulky figure, joked with the men, knew their names, and gave a "pat occasionally on the back." Wylie claimed that they treated him with deference, saying "Si él dice, está bueno." Despite their regard for Wylie, the Mexicans were very reluctant to leave El Ebano when in 1910 he ordered them to move south to the new operations in the Huasteca. Wylie had to give them extraordinary assurances. Finally, the men and their families boarded the three large barges that transplanted nearly the entire camp to the south.^[207]

The Pearson interests developed this same kind of noblesse oblige in order to attract labor as they began building the railway across the Isthmus of Tehuantepec. The region was notoriously short of workers and the climate inhospitable; the Pearson group was beset with high labor turnover on the isthmus. By 1905, Pearson approved the construction of company housing for the cargadores (carriers or porters). As he noted, the government would not build houses at Salina Cruz and Coatzacoalcos, the two terminals of the Trans-Isthmian Line. "[T]here is very little time to lose," Sir Weetman wrote to his superintendent, J. B. Body.^[208] Generally, company housing was reserved for semiskilled Mexican workers rather than peons. Such accommodations built at company expense seldom housed all the skilled workers and later was to be a matter of contention when it became apparent that even better housing was made available to foreign personnel. Nonetheless, the promise of such solid company housing contrasted sharply with the earth-floored, thatch-roofed jacales common to the tropical lowlands. Moreover, the demand for labor in the advanced, foreign-owned industries and in the inhospitable, isolated, and infectious lowlands pushed common wages to two to four times the average agricultural wage.^[209] Mexican workers approved of these benefits of modernization, although the high rate of turnover indicated that Mexican workers accepted them on their own terms and not on those of the foreigners.

Other characteristics of the modern petroleum industry proved less pleasing. In a nation not yet distinguished for safe working conditions, Mexicans soon discovered that work in the "modern" sector contained its own element of danger. By 1905, Waters-Pierce already had a con-

gregation of 350 workers and their families living near the phosphorus fumes of its Tampico refinery. Their homes had no sanitation or lights; pigs, chickens, and children ran freely through the yards. Yellow fever, malaria, and dysentery crippled many Mexicans from the more agreeable highlands. Americans and foreigners too suffered these maladies, but companies provided more health care for foreign employees. Employers provided no benefits and showed little responsibility for Mexican unskilled day workers. Sooner or later, everyone would get one form of vómito or another.^[210]

But gas explosions confirmed in the new industrial worker his occasional helplessness and fatalism before the forces of modern technology. On 8 December 1908 one of the stills at the Minatitlán refinery exploded in flames. Soon the conflagration spread to four other stills and five storage tanks. Apparently only a foreign chief of the guards was killed and eight injured. Workers and their families fled their homes, which had been built close to the oil storage tanks, in terror. Even the small refinery hospital had to be evacuated.^[211] Then there were the great conflagration at Dos Bocas and the enormous loss of crude from the wells at Potrero del Llano and Casiano. Oil fouled the rivers and beaches and seeped into the fields. Life in Mexico, whether in the highlands or lowlands, seemed fickle enough. But the Minatitlán refinery fire and the Dos Bocas blowout proved that modernization had introduced a kind of technological savagery.

Racism — another feature of the foreign-controlled oil industry that soon became manifest to every Mexican connected to the business — also tended to retard technology transfer. This is not to say that Mexicans were new to racism. But Mexican racism was subtle. It noted gradations of race mixture and permitted movement from one category of race and ethnicity to another. Indians could become mestizos by speaking Spanish and donning mestizo clothing. American racism, however, was crude. Formed in the crucible of a majority European society, American racism recognized all gradations of color as equally tainted. To some Americans, the proud, educated, but olive-skinned Mexican bourgeois was the same as the swarthy, illiterate peon. It mattered very little that Mexicans may have served as legal advisers and even as board members of the foreign companies. Everyone who spoke Spanish was a "spic" or a "greaser." "Would a man have to bring his own labor," inquired an American driller, "or could he find `greasers' with enough sense to operate machinery?"^[212]

Foreign workers occupied the privileged supervisory and skilled positions. The technological expertise, the knowledge that ran the industry day in and day out, resided in the foreign workers and supervisors. Sir Weetman Pearson and Percy Furber, although British, hired American drillers and even experienced workers from the Baku oil fields in Russia. Such practices did not assure uniform excellence, for even the so-called skilled foreigners occasionally drilled a crooked well hole and had to be relieved of their duties.^[213] Doheny relied exclusively on American skilled workers. Take Charley Sackett. He was white, a native of Parkersburg, Wood County, West Virginia, and had traveled to the oil fields near Beaumont, Texas before moving to a place he spelled "Lampasopa Mexico." Like his fellow American workers, Sackett looked down on the darker-skinned people who spoke "spic lingo" and wore sandals and cotton "pajamas."^[214]

Neither the Europeans nor the Americans, as a group, were enlightened, understanding supervisors. First of all, American workers who held the skilled jobs were very mobile. They never remained at any one job in the oil zone to establish more than just casual relationships with the Mexicans whom they supervised. In the second place, those from Pennsylvania as well as the Southerners were racists. They valued the Mexican mestizos about as little as the African Americans back home. In the Texas refineries and oil fields, for instance, the dirtiest and most menial tasks were reserved for blacks and Chicanos. African and Mexican Americans did not work directly in the oil fields of West Texas at all in the 1920s. They did the hot, dirty, and unskilled jobs: clearing land, doing laundry, cooking and washing, cleaning buildings, and carrying equipment.^[215] Multiracial hierarchy was not new to Mexico. Nor racism, nor privileges based on birth. But Americans and other foreigners did nothing to break down these social traditions. In fact, these "agents of modernization" reinforced them. They compelled the Mexicans to overlook their own subtle racism whenever confronted with the blatant prejudice of the Americans and Europeans.

The social distance that race, language, and culture established between the foreign industrial "teacher" and the Mexican "student" worked to reduce the amount of skill transfer. One American's daily work log reveals this disdain for the Mexican employees. Surveying the route for Percy Furber's rail line in 1908, the American complained frequently of the lethargic work habits and delays of the Mexicans. He encountered trouble among the forty peons of his survey party. "Fifteen

Fig. 5.
Doheny's drilling crew at El Ebano, c. 1902. the Mexican Petroleum Company
imported the equipment and management expertise to open up Mexico's first oil
field. a steam tractor driven by an American worker hauls well casing and a
boiler to the wooden derrick in preparation for drilling. a crew of seven Mexican
workers assist, supervised by a second American on horseback. from the
Estelle Doheny Collection, courtesy of the Archive of the Archdiocese of Los
Angeles, Mission Hills, California.

of the peons announced their departure on account of poor eating arrangements," he wrote in the log book. "Not satisfied to go in peace they tried to get all the peons to leave and ended up by two of them coming out 2nd best in a row, one with several loose teeth to remember me by. After that most of them begged to be taken back and I let 3 stay. May live to regret it. Am probably foolish to put any confidence in these animals." Such morally inane sentiments flowed easily from the pen of this ambassador of the American way of life. At another point, he proposed in his notebook that a "nigger is a colored person who had no money." Nevertheless, his prejudices did not prevent this American, during a village celebration of Cinco de Mayo, the national holiday of "this detestable nation," from dancing all night with "a Mexican princess."^[216] Back in the States, these men willingly taught the oil field

business to their white brothers who had come off the farms. They did not teach the skills of modernization, however, to those whom they considered racially or ethnically inferior.

As long as expanding production provided continued employment opportunities in the oil zone and as long as nothing threatened their higher incomes, the new Mexican oil workers tolerated these petty vexations of working in the foreign-owned oil industry. In fact, they welcomed the opportunity. There were no strikes in the oil zone during the Porfiriato. Unlike their brethren in the older railway and mining industries, Mexicans working for the foreign oil companies did not organize or agitate to reduce the numbers and privileges of the skilled foreign workers. They did not participate in the great strikes of 1906 and 1907. They did not engage in the campaign of "Mexico for the Mexicans" that in 1906 disconcerted American employers and skilled workers in other industries in Mexico. The quiescence of Mexican oil workers would change after 1911. In the succeeding decade, more Mexicans would be attracted to the industry, other work opportunities would shrink, and the Revolution would create the machinery for unionization. This is not to say that, later, these oil workers would become revolutionary. They were not to attack capitalism, per se. But they would seek, and succeed to a certain degree, to change how capitalism operated, according to Mexican standards. But for now, 1910, the petroleum industry and the nation poised on the cusp. Mexico was about to have simultaneously an oil boom and a revolution. The two phenomena were bound to influence each other — even before Díaz fell from power.

The Incomplete Liberal Revolution

The Mexican economy had always been profoundly politicized. In colonial days, businessmen cultivated contacts in the royal bureaucracy in order to secure licenses to sell goods to the Indians, obtain export licenses, or settle labor disputes. The colonial government set prices, regulated employer-employee relationships, and ran monopolies on mercury and tobacco. The liberal state's prominent role in seizing and reselling Church-owned properties during the reform era of the 1850s hardly diminished the political nature of economic activity in Mexico.

Thus it was, at the end of the nineteenth century, that foreign investment also became a political act. The foreigner needed government concessions, import licenses, export permits, tax exemptions, rights of way, and notarized contracts and bills of sale. An investor was required to make reports to the appropriate sections of government ministries. Railway builders purchased contracts from Mexican concessionaires. Survey companies obtained government contracts that conferred ownership of public lands in exchange for dividing the parcels for sale. By necessity, foreigners involved themselves with local, state, and national officials. Above all, they needed Mexican representatives capable of securing the necessary documents from the byzantine world of Mexican bureaucracy. No foreign businessmen could operate in Mexico without having agents represent them before the various government offices.

Therefore, foreign investors and Mexican politicians attempted to influence each other at the end of the nineteenth century — albeit in contradictory ways. Foreign investment in Mexico promoted the economic development that lent sanction to the continuismo, or "continuance," of Porfirio Díaz in power. This may not have been their intention, because foreigners were motivated more by profit, yet they willingly supported the administration. Foreign businessmen very soon realized that profits and politics were inseparable. For their part, Díaz's supporters used the product of the foreigners' activities, namely economic prosperity, as justification for the dictator's indispensability to the nation. Díaz wanted Mexicans to believe that he alone was responsible for their economic prosperity, and he wished foreigners to think that he was indispensable to their profits. Moreover, foreign capitalists selected those Mexican representatives who could advance their interests in the country with a degree of effectiveness. Numerous political insiders began to base their individual influence in the regime upon their relationship to the foreign interests. As a result, this mutually reinforcing process between foreigners and the influence-peddlers tended, over time, to unbalance the political equilibrium. It enhanced the power and wealth of one fraction of the elite over others. Over the long haul, foreign capital tended to discredit those native politicians whom it most benefited, because continuismo meant that those who felt excluded from the largess grew more numerous each year.

To say that the foreign capitalists became involved in Mexican politics is not the same as giving the foreign interests a primacy in the direction of Mexico's internal political affairs. One interpretation of the relationship between the center and periphery maintains that the in-

dustrial power manipulates the internal affairs of the "dependent" country. Military intervention, diplomatic and economic pressures, destabilization, and playing domestic factions against each other, it is said, are some of the tactics the great powers such as Britain and the United States use as they compete against each other in the periphery. The process is sometimes described as involving the active collaboration of the domestic elite — a comprador bourgeoisie — that controls politics and oppresses the proletariat in the interests of the foreigners. A corollary issue pertains to the impact of international capital. Several analysts question its ultimate utility, emphasizing that it injured long-range economic development by stifling middle-class entrepreneurship, by keeping prices high, and by exaggerating the power of the traditional elites.^[217] It is said that developed nations benefit more from modernization and the periphery becomes more underdeveloped.

Such views underestimate the relationship between politics and the economy in Mexico. During the Porfiriato, Mexicans did not subordinate themselves to foreigners. Yet, the domestic politicos promoted the foreign interests for their own political and economic reasons, making the very entry of foreign capital an intimate domestic political issue. Association with foreign interests enhanced the short-term ability of one domestic political faction to dominate others. Economic growth provided the dominant politicians with the resources they needed to mollify political competition and to widen the patronage to accommodate larger numbers of supporters. In other words, during the Porfiriato, Mexicans retained the capacity either to manage or to mismanage their own economy. In any case, it was the Mexicans who set the ground rules for foreign investment — not the other way around.

All foreigners were involved, and the oilmen were no exception. After all, they entered a Mexican economy in the 1880s that despite the professions of nineteenth-century classical liberalism and free-market capitalism was nonetheless an economy in which political fiat determined profit and loss.^[218] The result was the undermining of domestic entrepreneurship, an excessive dependence on foreign capital and entrepreneurship, the continued maldistribution of new wealth, and an ultimately divisive competition at the highest level of government over the spoils of political power. Foreigners were inextricably involved. It was almost the universal practice, said one American businessman, "for the companies doing business in Mexico to secure favors through the control of men influential in the Government." They granted stock to Mexican officials, appointed them as legal counsels, and made them

outright gifts. Laws and procedures did not matter much. "The local officials did not often have to be dealt with if the Governor of the State or others high in the Federal Government favored the company's operations," the informant concluded.^[219]

In fact, the Mexicans subordinated economic policy and the economy itself to their needs to provide a measure of political peace and social stability. What this meant was that the economy would not develop in an unfettered fashion. The government's hand was involved in every economic decision, and the railway, financial, and land policies were determined by their ultimate contribution to the political process. Gershenkron notes that late-developing economies like Mexico's always reserved a larger role for the state in the effort to "catch up" to the industrialized world. But hitching the economy to the political wagon was also important to the Mexicans.^[220] For reasons relating to the consolidation of political power, the Díaz regime never permitted the free operation either of economic liberalism, of foreign capital, or of Adam Smith's "invisible hand." To a degree, liberal capitalism was what the Mexicans made of it.

If government tended to dominate the economy for political reasons, Finance Secretary José Yves Limantour's secret of success came in enhancing that control. Limantour became Mexico's economics czar by virtue of having produced the first budget surpluses since Independence. The finance secretary of Porfirio Díaz inspired the confidence of the foreign capitalists.^[221] It cannot be said, however, that Limantour was a patsy or agent of the foreign interests. He was no "comprador bourgeois." Limantour often acted as a nationalist, believing that even the subsoil wealth — the products of mines and wells, including petroleum — belonged to the nation. Yet, the state would not be able to tax minerals and petroleum unless entrepreneurs with capital first started to exploit it. Domestic entrepreneurs could not and would not do it. Therefore, politicians swallowed the bitter medicine and changed the laws in order to encourage foreign investment. The laws making minerals and petroleum subject to private ownership were passed in 1884 and 1892, before Limantour began to exact his influence on the economy.

These changes, reflecting the quite revolutionary ideas of free-market capitalism, had overturned long-standing Hispanic legal traditions. From colonial times, the underground wealth such as gold, silver, and bitumens belonged to the royal patrimony. The king granted the mines to certain of his subjects under conditions that the monarch

determined, meaning a tax of one-fifth (changed in the late eighteenth century to one-tenth) of the mine's production. If the grantee failed to meet the conditions, the king canceled the mining grant. At Independence, the sovereign's patrimony transferred to the government of Mexico, and colonial mining laws continued to obtain until 1884. In that year, the liberals in Congress attempted to overcome the reluctance of foreigners to invest in their mining industry by adopting an Anglo-American conception of property rights. The mining code of 1884 granted ownership of the subsoil wealth to the surface owner. A second law in 1892 further stipulated that the owner of the soil could exploit the subsoil wealth freely without any special concessions from the government. The laws were intended to encourage foreign investment rather than to remove mining and the future oil industries from direct government control.^[222] Thenceforward, the foreign oilmen needed only to arrange contracts and leases from landowners in order to drill their wells. At least, this is the interpretation that many foreigners chose to give Mexican laws.

Acknowledgment of private property rights only appeared to have been a significant liberal reform.^[223] In truth, mining and petroleum laws always contained a number of ambiguities, inconsistencies, and contradictions that permitted the politicians some leverage over the use of these properties. The official policy of the later administrations of Díaz, undoubtedly under Limantour's influence, recovered some measure of supervision of the economy. The law of 1901 gave power to the federal executive to issue concessions for the exploitation of mineral deposits on national lands, lakes, and lagoons, in addition to concessionary rights to import machinery duty free. A 1902 law referred to mineral deposits as eminent domain belonging to the nation. In response to the first spasms of the 1905 economic collapse, a number of congressmen proposed making the petroleum industry a public utility, requiring of oilmen that they obtain permits from the development ministry before exploiting their own private properties. The law did not pass. To deepen the legal muddle, a 1909 mining law returned to the original language of the 1884 law.^[224]

No doubt, the existence of contradictory laws affecting petroleum deposits contributed to some legal uncertainties in the oil business. A state of legal imprecision was characteristic of the authoritarian regime. Power was the absolute arbiter of conflict. The Porfirian judiciary hardly provided legal interpretations, for it lacked the necessary degree of independence. The president appointed judges, and he dismissed

them. The elected Supreme Court was also beholden to Díaz, because he controlled the electoral processes, even to the degree of deciding the candidates.^[225] In the case of Mexico, the state under Díaz and Limantour was beginning to consolidate political and economic power — indeed, the two were often indivisible. But in a new industry in which the government wished foreigners to invest, some autonomy resided with the investor. British and American oilmen, therefore, operated in Porfirio's Mexico as if they were exploring for oil in a private property jurisdiction. They misunderstood completely that the state's reaction against free-market capitalism was already apparent in Díaz's time.

In his memoirs, written with much hindsight after the fall of Díaz, Limantour expressed reservations about these mineral laws. He claimed they led to wasteful, unregulated usage of national resources. In petroleum, for example, Limantour claimed that he had tried to avoid the most wasteful aspects of free competition in oil production — that is, offset wells. "When they began to exploit the petroleum wealth in the nation," he wrote, "the secretariat of Finance proposed and sustained the idea that to avoid the waste of this precious liquid, as happened in certain parts of the United States, it ought to be assured that discovery and exploitation occur in a large enough area to protect against the greed of those who would drill wells at the side of those already opened."^[226] In other words, he had proposed a unitary method of exploitation, in which the oil companies shared production at a reduced rate to conserve oil reserves. What was ultimately to occur in Mexico's oil fields was quite the opposite of what Limantour said his vision had been. A fearsome campaign of offset drilling would lead to wasteful exploitation of Mexican petroleum in the 1910s. Limantour never did take on the oilmen directly. Others would do that later.

Nothing Causing Greater Harm

If the actions of Mexican politicians had influenced the operations of the oil companies, how did the foreign interests influence domestic politics? Did the foreign interests meddle decisively in Mexican affairs during the Porfiriato? Foreign oilmen, intent as they may have been to stick to business, became involved intimately in domestic Mexican politics. Because economics was so thoroughly politicized,

anyone engaging in business, ipso facto, also assumed a political role. Pioneer oilmen were no exception. Percy Furber's Mexican lawyer was Francisco de la Barra, whose brother was to become the interim president in 1911. With the assistance of Pablo Martínez del Río, De la Barra introduced Furber directly to President Díaz. In 1897, when Furber's purchase of oil property near Papantla was contested by American interests in the Veracruz State Supreme Court, Furber paid a personal visit to Díaz and Governor Dehesa. The court subsequently decided in Furber's favor.^[227] Little information exists on the political connections of American oil importer Henry Clay Pierce. His company imported products and equipment, bought land for tank farms, pioneered the new industry of oil refining, and hired Mexican workers. Moreover, from 1903 to 1907, Pierce served on the board of directors of the Mexican Central Railway, which operated under government permits and concessions. A document from the files of his competitor, Pearson, claims that the lawyers Pablo Macedo and Pablo Martínez del Río served as Mexican legal counsel for Waters-Pierce.^[228] The evidence is more specific concerning the political connections of Doheny and Pearson.

Doheny's principal Mexican legal counsel came from Martínez del Río and Joaquín de Casasús, two Mexico City-based lawyers and politicians. Martínez del Río was born of the social pedigree to which Díaz, the successful general of modest background, had to marry. His father at midcentury had been a conservative moneylender and financier in the risky business of lending to bankrupt Mexican governments. Educated at Stoneyhurst in England, Martínez del Río spoke four languages and was seen in the society that surrounded Limantour. He served the regime as deputy from Puebla, which was not his home state.^[229]

On the other hand, the attorney Joaquín de Casasús was from a humble Campeche family. Although not an early partisan of Díaz, Casasús cultivated elite connections and a liberal political image. By 1888, Casasús was using his gifts of oratory in the Chamber of Deputies to praise President Díaz for the economic prosperity of Mexico. He soon gained a reputation as an economist and businessman. Casasús served on the board of directors of the Mexican Central Railroad with Doheny's friend, A.A. Robinson, and later, also with Pierce. Casasús ultimately acquired such influence that he began to determine who served as governor of his home state of Campeche.^[230] Both Martínez del Río and Casasús belonged to the political faction called the

Científicos. Known for their "scientific" methods of public administration, the Científicos were the supporters of Díaz who gathered around Limantour. They wielded great influence and therefore were indispensable to foreign businessmen.

Clearly, Sir Weetman Pearson enjoyed the most substantial connections among the Científicos, once again because the Mexicans themselves promoted such intimacy. Porfirio Díaz desired a British counter-weight to the preponderant influence of the American economic interests. Guillermo de Landa y Escandón, board chairman of El Aguila, had been brought into the president's inner circle in 1886 after he joined the effort to amend the constitution and reelect Díaz. Landa's home in Mexico City became the center of numerous banquets in honor of don Porfirio and doña Carmen. He attracted a wide clientele of professionals, bankers, railroaders, entrepreneurs, merchants, and foreigners. After 1900, Landa y Escandón served periodically as Mexico City municipal president, governor of the Federal District, and senator from Chihuahua.^[231]

The foreign oilmen may have been involved in politics through association, but they recognized that a more direct foreign intervention would be counterproductive. Little documentary evidence exists to support the notion that the oilmen were willing to marshal the foreign interests in order to save the toppling regime of their Mexican patron. In April 1911, as the rebellion against Díaz was spreading, Sir Weetman Pearson (now elevated to the peerage as Lord Cowdray) visited President William Howard Taft in the White House. At the moment, American Ambassador Henry Lane Wilson had been urging direct U.S. interference, emphasizing as an excuse the adverse effects of the unrest upon foreign investments. But the oilman took issue with the "misstatements" of the U.S. ambassador. Lord Cowdray attempted to dispel the rumor that American mining interests were suffering. Since none of the rebellions against Díaz occurred in the Huasteca, the oil interests remained unaffected by the breakdown of the Porfirian regime. British diplomats also wished to temper the overreaction of Ambassador Wilson. His Majesty's envoy to Mexico, T.B. Hohler, thought little of the American ambassador's suggestion that the foreign residents arm themselves against the rebels.^[232] E.L. Doheny, who appreciated Díaz despite having experienced some friction with Limantour, was more blunt in counseling against rash action. Just three weeks before Díaz lost power, Doheny cabled President Taft, urging him not to send United States troops. He wrote:

Rumors have reached us that great pressure is being brought to bear in favor of intervention in Mexico by United States Forces. We are in daily telegraphic and mail communication with our agents in Tampico, Mexico City and other parts of the Republic and are certain that no situation exists which requires such intervention at present time. Only gainers thereby would be British and other foreign interests. Nothing could cause greater harm to Americans and American interests in Mexico than intervention at present time. If matter is receiving serious consideration respectfully and earnestly solicit opportunity to present the facts to you in full. Our interests in Mexico are the most important American interests next to the railways.^[233]

The Standard Oil Company would be implicated to a much greater degree than other oil companies in the rebellion against the Díaz regime. Accounts of Standard Oil's favoritism for the revolt of Francisco I. Madero appeared widely in the world press. Vice President Corral on a trip to Spain denounced the American foreign interests for aiding the enemies of the Díaz regime. The Standard Oil Company denied "all interference in the affairs of the Mexican Republic, with which it has no connection moral or material."^[234] Despite its denial, Standard Oil became drawn into Mexican affairs through mystery and intrigue. A man identifying himself as C.R. Troxel and claiming to be the representative of Standard Oil Company, in April 1911 attempted to make contact with the Madero forces at El Paso. Obviously the man wished to be noticed. Pretending to act in secrecy, he asked to be introduced to the Madero officials, revealing to his go-betweens that he wished to offer the rebellion up to $1 million in order to secure oil concessions. The agent made it a point that Standard no longer wished to work in Mexico through the Waters-Pierce Oil Company, on whom the Díaz government had imposed "unreasonable taxes." Troxel sought to draw up a formal contract, take it to Madero for his signature, and then deliver it to New York for the approval of Standard's president, John Archbold. Within days of the connection, the U.S. attorney general in Washington, D.C., had a full report of Troxel's meetings in hotels, Turkish baths, and massage parlors.^[235]

Soon a whole covey of intermediaries became involved, four men with English names and four with Hispanic names. At least one was an El Paso attorney. Several bragged about knowing Alfonso Madero, brother of Francisco. Then the intermediaries decided with Troxel to charge Standard Oil a 5 percent commission, while also obtaining from the Madero insurrectos an exclusive privilege to sell their cowhides in El Paso. For good measure, the intermediaries also formed a company to sell arms and ammunition to Madero, in violation of U.S.

neutrality laws.^[236] Troxel negotiated the loan for oil concessions with Gustavo Madero, uncle of the rebellion's leader, in an El Paso public park. The Maderos reportedly wanted to be able to cancel the concessions if they should be able to repay Standard Oil before the due date. Troxel compromised, agreeing that the Maderos could cancel but only after a five-year time lapse. All of this information Troxel freely related to a man whom he had not known previously but who was an informant for the U.S. attorney general.^[237] Apparently, Troxel was less interested in obtaining a deal agreeable to Standard Oil (oilmen detested short-term contracts) than in gaining maximum exposure of his "secret" negotiations.

The Department of State was concerned about the authenticity of these reports and wished to dissuade Standard Oil from intervening in Mexican political affairs. Secretary of State Philander C. Knox detailed the entire story to John D. Archbold, cautioning him not to violate neutrality laws. At the time, Standard Oil (New Jersey) was in the process of regrouping following the Supreme Court's antitrust decision of 1911. It was also severing its relationship with Waters-Pierce. For some years, the company remained very reticent about tempting the federal prosecutors and refrained from new foreign ventures. Archbold disavowed any involvement in the Madero rebellion. He had known of Mr. C.R. Troxel, however, as Archbold informed Knox. Once, in January of the previous year, Troxel had attempted to interest Standard Oil in the purchase of an oil concession in Chihuahua. He claimed his partners were Alberto Terrazas and the latter's son-in-law, Governor Enrique Creel. Standard had declined.^[238] Troxel was willing to deal with Porfirians one year and insurrectos the next.

In reality, Standard Oil was not yet ready to enter Mexico and stood to gain nothing from having Troxel negotiate a concession on its behalf. When the company did go into Mexico, as we shall see, Jersey Standard would not seek an oil concession that no Mexican politician dared give to the world's most notorious trust. It would, instead, lease lands directly from landowners and buy out an established company. Could it be, then, that Troxel acted for an unnamed competitor? A vengeful Henry Clay Pierce perhaps? Pierce certainly knew of the Mexicans' pathological fear of the oil trusts. As one whose stormy but profitable relationship to Standard Oil was nearing an end, he was certainly interested that Jersey Standard not take up a rival position in Mexico by buying out the Pearson or Doheny interests — whether Díaz fell or not. After all, Pierce was not about to leave the Mexican market just because

he lost his connection to Jersey Standard. The American consul at Tampico suggested that the Pearson interests in London had originated the allegations.^[239] But the charge does not fit the style of Lord Cowdray's organization. At any rate, very soon he would attempt to interest Standard Oil in buying his own properties. What would it profit him to defame the company he hoped would buy out his own interests? Troxel did not provide any answers, for he quickly disappeared from the annals of oil history. Yet, his crude machinations were to generate a whole decade of hostility and suspicions between Mexican politicians and foreign oilmen.

Although he had asked for the neutrality of the United States during the Madero rebellion, Lord Cowdray was not about to forsake his benefactor Porfirio Díaz. When Díaz resigned, Lord Cowdray offered Díaz an English estate for retirement. Apparently, he and other foreign businessmen cooperated to get Díaz safely out of Mexico City and on the ship to Europe. Díaz expressed his thanks for the offer but refused to stop in England. He too retired in Paris.^[240] This loyalty to his old friends prevented Cowdray from eliminating any of the old Porfirians, neither his directors nor his attorneys, from his organization. It was to cause him some embarrassment later.

The politicians surrounding President Porfirio Díaz bore direct responsibility for the success of British interests in the nascent Mexican oil industry. Mexican liberals had adopted a commitment to modernizing and strengthening the nation by encouraging the entry of foreign capital. Díaz himself supported economic expansion. It provided him with the resources to enhance federal power and assure his own continuance in office. Yet the Mexican politicians, for historical reasons, could not appear to allow the economy to be dominated by American interests. The administration therefore showed considerable favoritism toward the work of European businessmen. Díaz himself invited Sir Weetman Pearson. Deliberately contributing to Pearson's engineering and business triumphs in the country, the government agreed to liberal contracts and financially underwrote many of his projects. Although it declined to offer capital for Pearson's oil business, the government did provide other kinds of favoritism. Tariff protection, access to political insiders, tax benefits, generous concessions, and fuel sales to the National Railways helped Pearson maintain his business momentum for an entire decade while he competed against more experienced American oilmen in Mexico. Pearson's astute creation of managerial

organization and development of technological expertise accomplished the rest.

Mexican politicians contributed significantly to the manner in which capitalism developed within their own country. Porfirio Díaz's reputation has been much diminished by the Revolution, yet his economic policies had an enduring impact. El Aguila survived to become the largest foreign oil concern in the country. Furthermore, the dichotomous ownership of the oil industry promoted by Díaz's political requirements later weakened the foreign oilmen's resistance to the economic nationalism soon to be generated by the Mexican Revolution. Successive Mexican administrations after 1912 increased taxation and worked to erode the property rights of the foreign oil companies. American and British oilmen may have originated in another world, but no sooner had they arrived than Mexican elites began to refine the impact of their presence. The working class too would apply its own imperative to the activities of the foreign entrepreneurs in Mexico. But for now, the oil boom was on.

There is a final irony of the Porfirian age. On the very day that the foreign oilmen shipped out the first volume exports of petroleum — 25 May 1911 — their leading benefactor, President Porfirio Díaz, fled into exile.