The New Century PDF

C H A P T E R 4 The New Century H O U S E " was what some independent producers called Standard Oil among themselves. It rose up as a vast and imposing structure, casting its shadow in all directions, dominating every inch of the oil landscape in the United States. While foreign competitors were...

C H A P T E R 4 The New Century H O U S E " was what some independent producers called Standard Oil among themselves. It rose up as a vast and imposing structure, casting its shadow in all directions, dominating every inch of the oil landscape in the United States. While foreign competitors were challenging the "Old House" abroad, there was a certain resignation throughout the United States; it seemed inevitable that Standard would end up owning or controlling everything. Yet developments in the 1890s and the first decade of the new century would pose threats to the preeminence of the Old House. The markets on which the oil industry was based were about to shift drastically. At almost exactly the same time, the producing map of the United States would also change dramatically, and significant new American competitors would emerge to challenge Standard's dominance. Not only was the world becoming too large even for Standard Oil, so was the United States. THE " O L D 1 Markets Lost and Gained At the end of the nineteenth century, demand for artificial light was met mostly by kerosene, gas, and candles, where it was met by anything at all. The gas was derived by local utilities from coal or oil or by direct production and transport of natural gas. All three of those sources—kerosene, gas and candles—had the same serious problems; they produced soot, dirt, and heat; they consumed oxygen; and there was always the danger of fire. For that last reason, many buildings, including Gore Hall, the library of Harvard College, were not illu­ minated at all. The dominance of kerosene, gas, and candles would not last. The polymath inventor Thomas Alva Edison—among whose major innovations were the mim- eograph, the stock ticker, the phonograph, storage batteries, and motion pic­ tures—had turned to the problem of electric illumination in 1877. Within two years, he had developed the heat-resistant incandescent light bulb. For him, invention was not a hobby, it was a business. "We have got to keep working up things of commercial value—that is what this laboratory is for," he once wrote. "We can't be like the old German professor who as long as he can get his black bread and beer is content to spend his whole life studying the fuzz on a bee!" Edison immediately applied himself to the question of commercializing his invention, and in the process, created the electric generation industry. He even worked very carefully to price electricity so that it would be highly com­ petitive—at exactly the equivalent of the town gas price of $2.25 per thousand cubic feet. He built a demonstration project in Lower Manhattan, whose territory just happened to include Wall Street. In 1882, standing in the office of his banker, J. P. Morgan, Edison threw a switch, starting the generating plant and opening the door not only on a new industry but on an innovation that would transform the world. Electricity offered superior light, it needed no attention from its user, and it was hardly resistible where available. By 1885, 250,000 light bulbs were in use; by 1902, 18 million. The "new light" was now derived from electricity, not kerosene. The natural gas industry had to shift its markets to heating and cooking, while the United States market for kerosene, the staple of the oil industry, leveled out and was increasingly restricted to rural America. The new technology of electricity was quickly transferred to Europe as well. An electric light system was installed in the Holborn Viaduct Station in London in 1882. So swiftly and so thoroughly did electricity—and the electrical indus­ tries—penetrate Berlin that the city was called Elektropolis. The development of electricity in London was more haphazard and disorganized. In the early twentieth century, London was served by sixty-five different electric utilities. "Londoners who could afford electricity toasted bread in the morning with one kind, lit their offices with another, visited associates in nearby office buildings using still another variety, and walked home along streets that were illuminated by yet another kind." To those who had access to it, electricity was a great boon. But its rapid development was deeply threatening to the oil industry, and, in particular, to the Old House. What kind of future could Standard Oil—with its massive in­ vestment in production, refineries, pipelines, storage facilities, and distribu­ tion—look toward if it were to lose its major market, illumination? Yet just as one market was about to slip away, another was opening—that of the "horseless carriage," otherwise known as the automobile. Some of those vehicles were powered by the internal combustion engine, which harnessed a channeled explosion of gasoline for propulsion. It was a noisy, noxious, and none too reliable means of transportation, but vehicles powered by internal combustion gained credibility in Europe after a Paris-Bordeaux-Paris race in 1895, in which the remarkable speed of fifteen miles per hour was achieved. The next year, the first auto track race was held in Narragansett, Rhode Island. It was so slow and so boring that there was first heard the cry, "Get a horse!" Nevertheless, in the United States, as well as in Europe, the horseless carriage quickly captured the minds of entrepreneurial inventors. One such 2 79 person was the chief engineer of the Edison Illuminating Company in Detroit, who quit his job so that he could design, manufacture, and sell a gasolinepowered vehicle that he named after himself—the Ford. Henry Ford's first car was sold to one man, who in turn sold it to another, one A. W. Hall, who told Ford that he had caught "the Horseless Carriage fever." Hall would deserve a special place in the hearts of all future motorists as the first recorded purchaser of a used car. By 1905 the gasoline-powered car had defeated its competitors for auto­ motive locomotion—steam and electricity—and had established total suzerainty. Still, there were doubts about the ruggedness and reliability of the car. Those questions were laid to rest, once and for all, by the San Francisco earthquake of 1906. Two hundred private cars were pressed into service for rescue and relief, fueled by fifteen thousand gallons of gasoline donated by Standard Oil. "I was skeptical about the automobile previous to the disaster," said the acting chief of the San Francisco fire department, who commanded three cars for roundthe-clock work, "but now give it my hearty endorsement." That same year a leading journalist wrote that the automobile "is no longer a theme for jokers, and rarely do we hear the derisive expression, 'Get a horse!' " Even more than that, the car had become a status symbol. "The automobile is the idol of the modern age," said another writer. "The man who owns a motorcar gets for himself, besides the joys of touring, the adulation of the walking crowd, and . . . is a god to the women." The growth of the automobile industry was phenomenal. Registrations in the United States rose from 8,000 in 1900 to 902,000 in 1912. In a decade, the automobile went from a novelty to a familiar practicality, changing the face and mores of modern society. And it was all based on oil. Heretofore, gasoline had been an insignificant part of the output of the refining process, with some small value for solvents and as a fuel for stoves, but with little other use. In 1892, an oil man had congratulated himself for managing to sell gasoline for as much as two cents a gallon. That changed with the motorcar, which turned gasoline into an increasingly valuable product. In addition to gasoline, a second major new market for petroleum was developing with the growth in use of fuel oil in the boilers of factories, trains, and ships. Yet even as the worrying question of future markets for oil was swiftly being resolved, a new question was asked with increasing pessimism: How were these exploding markets going to be supplied? Pennsylvania was clearly in decline. The Lima field in Ohio and Indiana was inadequate. Were new oil reserves to be found? And where? And who would control them? 3 Breakouts Standard's hold on the oil industry had begun to erode even before the end of the nineteenth century. Some producers and suppliers were at last able to escape the trust's vise of gathering systems and pipelines and refineries to win some measure of real independence. In the early 1890s, a group of independent oil men in Pennsylvania, teaming up with refiners, organized the Producers' and Refiners' Oil Company. Recognizing that they had no real chance against the Old House if they could not find a way to get their petroleum out of the Oil 80 Regions and to the seaboard at competitive cost, they undertook to construct their own pipeline. The construction workers were forced to brave armed attacks from railway men, as well as steam, hot water, and hot coals poured over them from locomotives. Such may have been the "gloved hand" of Standard Oil at work. Nevertheless, the pipeline got built. In 1895, various independent interests formed the Pure Oil Company to organize marketing overseas and on the East Coast. Pure Oil was set up as a trust, with the trustees designated "champions of independence." Standard Oil, as was its wont, persistently tried to buy out and gain control of Pure's constituent parts; but, despite some close calls, it failed to do so; and within a few years, Pure turned itself into a fully integrated company, with significant export markets. While Pure was small compared to the mammoth Standard Oil, the independent producers and refiners had at last realized their dream: They had successfully challenged Standard Oil and had managed to insulate themselves from it. And Standard Oil, though certainly through no choice of its own, was now forced to accustom itself to the distasteful reality of significant and lasting domestic competition. m e s e 4 But Pure was entirely based in Pennsylvania. The conventional wisdom remained that oil was a phenomenon of the Eastern United States, and pessimism con­ tinued to be the order of the day when it came to new supplies. Yet new oil fields were being discovered farther west across the continent—in Colorado and Kansas. There was another land even farther west, across the Rockies—California. Asphalt seepages and tarpits had signaled to some the possible presence of oil. A heavily promoted boomlet had developed north of Los Angeles in the 1860s. The distinguished Yale professor Benjamin Silliman, Jr., who had provided the imprimatur for George Bissell's and Colonel Drake's venture in the 1850s, and who was always interested in extra work, took on a job as a consultant to various of the California oil promotions. He did not hold back in his enthusiasm. The value of one ranch "is its almost fabulous wealth in the best of oil," he wrote, and of another, "the amount of oil capable of being produced here is almost without limit." Silliman's research, however, was not exactly overwhelming. While he had visited some of the areas on which he had passed judgment, others he had seen only from a horse-drawn stagecoach while traveling to Los Angeles, and one he had not seen at all. The reason that his tests showed such a high kerosene potential was that the sample he analyzed had been salted with a firstrate refined Pennsylvania kerosene taken from the shelves of a general store in Southern California. The Los Angeles boom fizzled by the end of the 1860s, severely tarnishing the prospects for California. Professor Silliman's reputation was hurt even more. Indeed, so great was the humiliation and disgrace that Silliman, heretofore one of the preeminent figures in American science, was forced to resign his professorship of chemistry at Yale. Yet, only a decade or so later, Silliman was to be vindicated. Modest production began in the regions that he had praised—in Ventura County and at the northern end of the San Fernando Valley, north of Los Angeles, which was then a town of all of eight thousand. At one point, there was widespread 81 fear that cheap foreign oil would flow in, aided by a removal of the tariff on imported oil, and so stifle the local California industry. But as the result of adroit political maneuvering, the tariff on foreign oil was not reduced, but indeed was actually doubled. In the early 1890s, the first large find, the Los Angeles field, was discovered, followed by additional major finds in California's San Joaquin Valley. The growth of California production was dramatic—from 470,000 barrels in 1893 to 24 million barrels in 1903—and, for most of the next dozen years, California was to lead the nation in oil production. By 1910, its output would reach 73 million barrels, more than that of any foreign nation, and 22 percent of total world production. The dominant producer in California was Union Oil (now Unocal), the only major American corporation outside of Standard Oil to have maintained a continuous independent existence since 1890 as a major integrated oil company. Union and the other smaller California companies were kindly disposed toward professional geologists, which contrasted sharply with the attitude in other parts of the country. Indeed, the profession of oil geology in the United States first established itself in California. Between 1900 and 1 9 1 1 , forty geologists and geological engineers were employed by California companies, which was prob­ ably more than were employed in the rest of the United States combined, or for that matter, in any other part of the world. Though Union Oil itself eluded its grasp, Standard quickly developed a hammerlock on much of the petroleum marketing and distribution in the West. In 1907, operating as Standard Oil of California, it began to move directly into production. Though California had by the turn of the century emerged as a major oil province, it was far from the rest of the nation, isolated, and its external markets were in Asia and not east of the Rockies where most of the citizens of the United States happened to live. California might as well have been another country from a business point of view. The answer to the growing oil thirst of the rest of the United States would have to be found elsewhere. 5 PatiUo Higgins's Dream Patillo Higgins, a one-armed mechanic and lumber merchant, and a self-educated man, was possessed by an idea. He was convinced that oil would be found beneath a hill that rose above the flat coastal plain near the little town of Beaumont, in southeast Texas, some nineteen miles inland from Port Arthur on the Sabine Lake, which connected to the Gulf of Mexico. The idea first occurred to him when he took his Baptist Sunday school class for an outing on the hill. He came across a half dozen little springs, with gas bubbling up into them. He poked a cane into the ground in the area and lit the gases that escaped. The children were thoroughly amused; Higgins was puzzled and intrigued. The hill, over which wild bulls roamed, was called Spindletop, after, it was said, a local tree that grew like an inverted cone. Higgins called it the Big Hill, and he simply could not get it out of his mind. Later he said it was something about the small rocks that he lifted out of the springs that told him it was an oil field. He never could quite say what it was about the rocks. But it was something. Absolutely sure there was oil in the Big Hill, Higgins ordered a book on 82 geology and read it eagerly. In 1892, he organized the Gladys City Oil, Gas, and Manufacturing Company, named for one of the little girls in his Sunday school class. The company had a most imposing letterhead—a sketch of two dozen oil tanks, the smoking chimneys of a dozen plants, and several brick buildings—but the company's efforts came to nothing. Additional tries by Hig­ gins were equally unsuccessful. Minor oil production was just beginning elsewhere in Texas. The civic leaders of a little town called Corsicana had concluded that their fervent hopes of promoting commercial development would be frustrated by lack of water. They organized a water company, which began drilling in 1893. To their initial chagrin, they found oil. The chagrin quickly turned to excitement, much drilling followed, and the Texas oil industry was born. In Corsicana a new, more efficient method, rotary drilling, was borrowed from water-well contractors and applied to the search for oil. But Corsicana was still small stuff; by 1900, its production would reach only 2,300 barrels per day. Meanwhile, in Beaumont, Patillo Higgins refused to give up his dream and continued to promote the oil potential of Spindletop. Various geologists descended from the train in Beaumont, reviewed the prospect, and pronounced Higgins's notion nonsense. A member of the Texas Geological Society went even further and published an article in 1898, warning the public against investing in Higgins's dream. Higgins would not relent; he siphoned gas from the hill into a couple of five-gallon kerosene tins and burned it in a lamp at home. His fellow townsmen said that he was hallu­ cinating and might be mad. But Higgins would not give up. In a last act of desperation, he placed an advertisement in a magazine, seeking someone else to drill. There was only one reply—from a Captain An­ thony F. Lucas. Born on the Dalmatian coast of the Austro-Hungarian empire and educated as an engineer, Lucas had joined the Austrian Navy and then emigrated to the United States. He had had considerable experience prospecting the geological structures known as salt domes in search of both salt and sulfur. And Big Hill was a salt dome. Lucas and Higgins made a deal, and the captain commenced drilling in 1899. His first efforts failed. More professional geologists ridiculed the concept. They told him that he was wasting his time and money. There was no chance that a salt dome could mean oil. Captain Lucas could not convince them oth­ erwise. He was discouraged by the professionals' rejection of what he called his "visions," and his confidence was shaken. He ran out of money, and he needed new funds if he was to continue. He won a hearing from Standard Oil, but was turned away empty-handed. With nowhere else to go, Lucas went to Pittsburgh to see Guffey and Galey, the country's most successful firm of wildcatters. They were his last hope. In the 1890s, James Guffey and John Galey had developed that first major oil field in the midcontinent, in Kansas, which they sold to Standard Oil. Galey was the true wildcatter, the explorer. "Petroleum had John Galey bewitched," a business associate would later say. In turn, Galey had an amazing ability to find oil. Though he diligently studied and applied the geological theories of the day, some of his contemporaries thought he could literally smell oil. Quiet and lowkey, he was unstoppable and indefatigable on the hunt. Indeed, the search for 83 the treasure counted for him far more than the treasure itself. As he once said, the only geologist who could tell with certainty whether oil would be found was "Dr. Drill." James Guffey was more flamboyant. He had once been chairman of the Democratic party, dressed like Buffalo Bill, and even had long white hair flowing out from underneath his broad-brimmed black hat. "An example of the generally accepted type of an American," a British visitor said. A contemporary American oil publication saw Guffey somewhat differently. "Dash and push had charac­ terized his operations from the very first and he had not then, nor now, reached the point in life when he was content to travel by freight train if there was an express or flyer to be had." Guffey was the promoter and deal-maker. In this case, he drove a hard bargain with Lucas; in exchange for the financial backing of Guffey and Galey, Captain Lucas could retain only an eighth of the deal. As for Higgins, Guffey was sorry, but he would get nothing from Guffey and Galey. If Lucas felt sentimental and was so inclined, he could split his share with Higgins. John Galey went to Beaumont and surveyed the area. As the drilling site, he chose a spot next to the little springs with bubbling gas that Patillo Higgins had found. He drove a stake into the ground to mark the spot. With Captain Lucas out of town at that moment hiring drillers, Galey turned to Mrs. Lucas and said, "Tell that Captain of yours to start that first well right here. And tell him that I know he is going to hit the biggest oil well this side of Baku." Drilling began in the autumn of 1900, using the techniques of rotary drilling that had been pioneered in Corsicana. The townspeople in Beaumont had pretty much decided that Lucas and his crew were, like Patillo Higgins, plain crazy and hardly worthy of attention. Just about the only people who came around to see what was happening were boys out shooting rabbits. The drillers fought their way through the hundreds of feet of sand that had frustrated all previous efforts. At. about 880 feet, oil showed. Captain Lucas excitedly asked the lead driller, Al Hamill, how much of a well it might be. Easily fifty barrels per day, Hamill replied, thinking of the Corsicana wells he knew that might get up to twenty-two barrels per day. The drillers took Christmas off and resumed their exhausting work on New Year's Day, 1901. On January 1 0 , the memorable happened: Mud began to bubble with great force from the well. In a matter of seconds, six tons of drill pipe catapulted out of the ground and up through the derrick, knocking off the top, and breaking at the joints as the pipe shot further upward. Then the world was silent again. The drillers, who had scattered for their lives and were not sure what they had seen, or even if they had actually seen it, sneaked back to the derrick to find a terrible mess, with debris and mud, six inches deep, all over the derrick floor. As they started to clean the mess away, mud began to erupt again from the well, first with the sound of a cannon shot and then with a continuing and deafening roar. Gas started to flow out; and then oil, green and heavy, shot up with ever-increasing force, sending rocks hundreds of feet into the air. It pushed up in an ever-more-powerful stream, twice the height of the derrick itself, before cresting and falling back to the earth. Captain Lucas was in town when he heard the news. He raced to the hill in his buckboard, pushing his horse at a dead run. As he got to the hill, he fell 6 84 out of the buckboard and rolled onto the ground. He stood up, fighting to catch his breath, and ran to the derrick. "Al! Al! What is it?" he shouted through the din. "Oil, Captain!" replied Hamill. "Oil, every drop of it." "Thank God," said Lucas, "thank God." Lucas 1 on Spindletop, as the well became known, was flowing not at fifty barrels per day, but at as much as seventy-five thousand barrels per day. The roar could be heard clearly in Beaumont; some people thought it was the end of the world. It was something never seen before anywhere—except in the "oil fountains" of Baku. The phenomenon came to be called a gusher in the United States. The news flashed across the nation and was soon on its way around the globe. The Texas oil boom was on. What followed was riotous. The mad scramble for leases began immediately, with some plots traded again and again for ever more astounding prices. A woman garbage collector was thrilled to get $35,000 for her pig pasture. But, soon, land that had only two years before sold for less than $10 an acre now went for as much as $900,000 an acre. Much land was sold and resold on the basis of small, error-ridden maps, and with actual titles totally unclear. The town swelled with sightseers, fortune seekers, deal-makers, and oil field workers; each train disgorged new hordes drawn by the dream of instant wealth embodied in the dark gusher. One Sunday alone, excursion trains dropped off at Beaumont some 15,000 people, who tramped through the mud and slime and oil just to see this new wonder of the world. Upward of 16,000 people were said to be living in tents on the hill. Beaumont's own population ballooned in a matter of months from 10,000 to 50,000. Tents, lean-tos, shacks, saloons, gambling houses, whorehouses—all sprang up in Beaumont to serve the various needs of the lusting population. According to one estimate, Beaumont drank half of all the whiskey consumed in Texas in those early months. Fighting was a favorite pastime. There were two or three murders a night, sometimes more. Once sixteen bodies were dredged out of a local river, their throats slit, the victims of a night's mayhem. One of the most popular entertainments in the saloons was betting on how long it would take a rattlesnake to eat a bird that was put into its cage. Even more popular were the prostitutes who swarmed into Beaumont, and the names of some of Beaumont's madams—Hazel Hoke, Myrtle Bellvue, and Jessie George—became legendary. At the barbershops, folks stood in line an hour to pay a quarter for the privilege of bathing in a filthy tub. People did not want to waste time when there was oil business to be done, so spaces near the head of the long line at the outdoor conveniences went for as much as one dollar. Some people made forty or fifty dollars a day, standing in line and selling their spaces to those who didn't have time to wait. There were, of course, many more losers than winners, and there were endless frauds to make sure that money changed hands quickly. The stock salesmen, with shares of dubious value at best, were so numerous and so busy that Spindletop became known to some as "Swindletop." A fortune-teller named Madame la Monte did a brisk business telling her customers where new gushers could be found. Even better was the "boy with the X-ray eyes," who could see 85 through the earth and find oil. Thousands of shares were bought in the company promoting the talented lad. Within months, there were 214 wells jammed in on the hill, owned by at least a hundred different companies, including one called the Young Ladies Oil Company. Some of these companies were drilling on postage-stamp-size sites, just large enough for one derrick. As the Spindletop wells continued to flow, a glut of oil developed very quickly. By midsummer of 1901, oil went for as little as three cents a barrel. By comparison, a cup of water cost five cents, providing testament of a sort to the initial prolificacy of Patillo Higgins's Big Hill. 7 The Deal of the Century No one needed markets for his oil more than James Guffey, who was the major producer at Spindletop. But he had no intention of being swallowed up by Standard Oil, so he wanted other customers. He soon found a very large one. For among those most electrified by the news from Spindletop was the alderman of the City of London, next in line to be Lord Mayor, Sir Marcus Samuel. He had recently rechristened his rapidly growing company Shell Transport and Trading—again, like the names of his tankers, in honor of his father's early commerce in seashells. Now, Samuel and his company saw the oil flowing from the Texas plain as a way to diversify away from Shell's dependence on Russian production and to obtain oil that could be exported directly to Europe. Texas production would strengthen Samuel's hand against all competitors. Another factor also riveted Marcus Samuel: The Texas crude, while a poor source for illuminant, was well suited for use as fuel oil for ships. One of his consuming passions was the conversion of coal-burning vessels to oil—his oil. He proudly announced in 1901 that his company "may clearly claim to be the pioneers of ocean consumption of liquid fuel." So, when the news from Spindletop reached London, it immediately set off frantic and comical efforts by Shell, first to find out where Beaumont was—it could not to be found in the office atlas at all—and then to make contact with Guffey. The Shell people had never before heard of Guffey, and he took some tracking down. Guffey allowed that, for his part, he had never heard of Shell, which rankled and offended London, and resulted in further cables and letters pointing out that Shell was a company "of great magnitude," the second-largest oil company in the world, and "Standard Oil Co.'s most dangerous opponent." Meanwhile, intelligence that Standard Oil's tankers were regularly picking up cargoes of Spindletop oil from Port Arthur only increased Shell's anxiety to move swiftly. Samuel dispatched his brother-in-law to the New World—to New York, then to Pittsburgh, then to Beaumont—to seek a contract with the un­ known Guffey. The negotiations were hastily pursued. Shell made no inde­ pendent geological evaluation; it did not even bother to hire an American lawyer to review the eventual contract. At one point, the brother-in-law had to scurry around to buy a wall map of the world to explain to Guffey Shell's activities elsewhere in the world. After his tour and discussions with Guffey, the brotherin-law felt confident in reassuring Samuel, back in London, on a crucial point— 86 that "there is no likelihood of failure of supplies." The only thing to worry about was overproduction. By June of 1901, only half a year after the gusher had burst out at Spindletop, the two companies had completed their negotiations and signed a contract. For the next twenty years, they agreed, Shell would take at least half of Guffey's production at a guaranteed twenty-five cents a barrel—a minimum of almost 15 million barrels. It could take more if it desired. To each side, this appeared to be the deal of the new century. Marcus Samuel ordered four new tankers to be built swiftly to implement what he regarded as another great coup—the new Texas trade. Spindletop was to remake the oil industry, and with its huge volumes move the locus of American production away from Pennsylvania and Appalachia and toward the Southwest. Spindletop also helped open up one of the main markets of the twentieth century and the one Marcus Samuel was championing—fuel oil. This, however, was more by default rather than design; the Texas oil was of such poor quality that it could not be made into kerosene by existing processes. So it went, primarily, not for lighting, but for heat and power and locomotion. A host of industries in Texas converted almost immediately from coal to oil. The Santa Fe Railroad went from just one oil-fired locomotive in 1901 to 227 in 1905. Steamship companies, as well, rushed to switch from coal to oil. These conversions, the result of Spindletop, pointed to a major shift in industrial society. Spindletop also became the training ground for the oil industry of the Southwest. Farm boys and city boys and ranch hands all learned the tricks of the trade there. A new language was even born on the hill, for it was at Spindletop that a "well borer" first became known as a "driller," a skilled helper as a "roughneck," and a semiskilled helper as a "roustabout." A cash-short "shoestringer" would "poor boy" a well by splitting his interest with his crew, the landowner, his supply house, his boardinghouse owner, his favorite saloon keeper and, if need be, his most cherished madam, as well. The boom at Spindletop, with all its madness and frenzy and honky-tonk, was to be repeated many times over in the Southwest in the course of the next few years, beginning with other salt domes along the Gulf Coast of Texas and Louisiana. But the Gulf Coast was about to meet its match in Oklahoma. A string of Oklahoma oil discoveries, beginning in 1901, culminated in the great Glenn Pool, near Tulsa, in 1905. More strikes followed in Louisiana. Meanwhile, North Texas ranchers who were trying to drill for water instead encountered oil, setting off another boom. Still, Oklahoma, not Texas, became the dominant producer in the area, with over half of the region's total production in 1906; only in 1928 did Texas recapture the number-one rank, a position it would continue to hold in the United States until the present day. 8 Gulf: Not Saying "By Your Leave" James Guffey, the promoter who had backed Lucas, became a national symbol of instant wealth—on his way, it was said, to being another Rockefeller. That was the appearance, at least. Guffey himself may have even believed it for a 87 while. After all, he had made the largest oil deal in the world, to last twenty years, with Marcus Samuel of Shell. But, by the middle of 1902, within a year and a half of the Spindletop strike, Guffey and his company were in real trouble. The underground pressure gave out at Spindletop because of overproduction, and especially because of all those derricks on postage-stamp-sized plots, and production on the Big Hill plummeted. But the problems of Guffey Petroleum were also of its own making; James Guffey's skills were those of the promoter, not the manager. As a manager, he was about as poor as the quality of his oil. This situation greatly distressed the Pittsburgh bankers who had put up the original capital to back Guffey and Captain Lucas—Andrew W. and Richard Mellon. Their father, Judge Thomas Mellon, had handed over the family bank to Andrew when he was only twenty-six; and he and his brother had built Mellon and Sons into one of the nation's great banks, central to America's nineteenthcentury industrial development. The two brothers had a special feeling of affection and respect for John Galey, Guffey's partner. Galey's father and their own, Judge Mellon, had both come over as small boys from Ireland to the United States on the same boat. They knew John Galey was a great finder of oil, even if they worried about his financial carelessness. In 1900, Galey's partner, Guffey, had managed to convince the Mêlions to put up the three hundred thousand dollars for the wildcat at Spindletop, plus several million dollars more to get Spindletop into production. Now, in 1902, only a few months later, with the pressure and flow having given out at Spindletop, the Mêlions feared that Guffey would lose not only their money, but also that of the other investors they had brought in on the deal. They thought they had a solution in the person of their nephew, William C. Mellon, only a decade or so younger than the two banker brothers. One could count on William. At age nineteen, he had heard about an oil strike in a town near Pittsburgh called Economy. The smell of oil, and the excitement of the business, captured him; and he threw himself into it. In the next few years he scrambled all over Appalachia, looking for oil and finding it. He once brought in a thousand-barrel-a-day well in a church graveyard. The church did handsomely out of it. William knew he was caught up in a fever. "For a great many" of the oil men, he was to recall, "the oil business was more like an epic card game, in which the excitement was worth more than great stacks of chips. . . . None of us was disposed to stop, take his money out of the wells, and go home. Each well, whether successful or unsuccessful, provided the stimulus to drill another." But his uncle Andrew had instilled in him the lesson that such was not the way to run a serious business. Rather, the aim should be to integrate—to control every stage of operations. "The real way to make a business out of petroleum," said Andrew, was "to develop it from end to end; to get the raw material out of the ground, refine it, manufacture it, distribute it." Any other way, and one was at the mercy of Standard Oil. William acted on his uncle's advice. Despite opposition from Standard Oil and the Pennsylvania Railroad, he built up an integrated oil company, which produced in western Pennsylvania, refined at both ends of the state, transported by its own pipeline, and sold from Philadelphia to Europe. By 1893, the Mêlions' 88 company was shipping an estimated 10 percent of total United States exports, and it had a million barrels in storage. Then Standard Oil offered to buy the Mêlions out. They were not sentimental; they built businesses and then sold them and went on to something else, and this was the time to cash out on their oil company. The Mêlions made a considerable amount of money from the sale. William went into the streetcar business, thinking he was through with oil forever. Now seven years later, and only twenty-seven, William discovered that he was wrong. At the behest of his uncles, he went down to Spindletop to inspect the family's investment. He reported back that they would never get their money out so long as Guffey was in charge. As they had seven years earlier, the Mêlions offered the new enterprise to Standard Oil. But Standard said no because of the legal assaults that Texas kept launching against the company and, in particular, against John D. Rockefeller. "We're out," a Standard director explained. "After the way Mr. Rockefeller has been treated by the state of Texas, he'll never put another dime in Texas." After that, said a disappointed William Mellon, there was only one solution to "just about as bad a situation as I had ever seen," and that was "good management, hard work, and crude oil." The first obstacle was James Guffey, whom William Mellon regarded as an incompetent blowhard. Mellon took over the management control of the intertwined Guffey Petroleum and Gulf Refining companies, both founded in 1901. Of course, Guffey was deeply resentful; after all, the press had pronounced him the greatest oil man in the United States. Sometimes William Mellon found that he had to be quite arbitrary and harsh with the greatest oil man in the United States. "The main problem," Mellon said, "was to translate crude petroleum into money." Something had to be done about Guffey Petroleum's contract with Shell, which committed the American company to sell half of its production to Shell for twenty-five cents a barrel for the next twenty years. That contract had been drafted when production seemed unlimited, even unstoppable, when the company needed markets, and when oil was selling for ten or even three cents a barrel—a fine profit by any calculation. Though the contract was to run twenty years, the world had changed a great deal in less than two. In the latter part of 1902 and into 1903, as a result of the plunge in production at Spindletop, oil was selling for thirty-five cents or more a barrel. So, in order to meet the contract, Guffey Petroleum would have to buy oil from third parties and then sell it at a loss to Shell. Guffey may still have thought this was the deal of the century; Mellon certainly did not. He thought it was a rotten deal, and knew that he had to get out of it quickly. But Marcus Samuel was counting heavily on the contract. Thus, the bad news from Texas—that Guffey's oil supplies had failed—was a great shock. Whatever the pain for Guffey, Shell had every reason to want to keep to the letter of the contract, or if not, to be generously compensated for its cancellation. Samuel ordered that the four new tankers that had been built to transport Texas oil be converted to carry Texas cattle to the East End of London, making the best out of a bad situation. But this was only meant to be a temporary expedient until the oil shipments could be resumed. He prepared to sue; but the outcome of a court battle, an American legal expert warned him, was not at all certain, 89 as the contract had been so poorly and incompetently drawn in the first place. Andrew Mellon himself came to London to pursue the matter, and traveled down to Kent to talk with Samuel at his estate, the Mote. Mellon "greatly admired the Park," Samuel wrote in his diary of August 18,1903. The next day, Samuel added to his diary, "Went to London by the 9:27 train upon important business. . . . Had very busy day in negotiating with Mr. Mellon to try to avoid legal proceedings with Guffey Co. but did not succeed in reaching a modus vivendi and subsequently consulted solicitors." Andrew Mellon was courteous, charming, mild in manner, but persistent and absolutely firm. By the beginning of September, the two sides did reach a modus vivendi, a new agreement. The deal of the century—so critical to Marcus Samuel's vision—was replaced by a contract that guaranteed Shell practically nothing in the way of oil. Guffey Petroleum—and the Mêlions—were completely off the hook. Meanwhile, William Mellon was pursuing a strategy that would be central to the oil industry for the entire twentieth century—to tie together all the disparate activities of the industry and build a coherent, integrated oil company. His strategy was intentionally different from that of Standard Oil. Mellon observed that Standard exerted its power and protected and enhanced its position because it was practically the sole buyer of crude oil and because of its control of transportation. "Standard made the price," said Mellon, and practically every producer was dependent on the company. While producers could and did do well out of the arrangement, they nevertheless were "at the mercy of this company." Mellon worried that, eventually, as more fields were discovered and developed in Texas, Standard would extend its pipeline system into the state, and the Mêlions' operation would inevitably become drawn into Standard's production system. That was not what he was after; his ambitions were larger than merely to be an appendage of Standard. Echoing his uncle's lesson, Mellon concluded "that the way to compete was to develop an integrated business which would first of all produce oil. Production, I saw, had to be the foundation of such a business. That was clearly the only way for a company which proposed to operate without saying 'by your leave' to anybody." And the Mêlions had no intention of saying "by your leave" to anyone, least of all to Standard Oil. One of the biggest problems facing Mellon was the fact that the capacity of the company's new refinery at Port Arthur was about equal to that of the production of the entire state of Texas. Moreover, it was dependent upon poorquality oil that could give out at any time. But then, in 1905, with the discovery of the Glenn Pool in Oklahoma, better-quality oil was available. Here was the way out of the problem—oil of "marketable Pennsylvania quality in Texas quantities." But the company would have to move fast. Standard Oil was busy extending its pipeline network from Independence, Kansas. "Unless we could hitch onto that Oklahoma field," Mellon warned his uncles, their whole enterprise might fail. In order to speed the forced-pace construction of a 450-mile pipeline from Port Arthur to Tulsa, Mellon put four crews to work, one starting south from Tulsa; one starting north from Port Arthur; and two starting in the middle and working toward each end. It was a race against time—and against Standard Oil. By October of 1907, oil from Glenn Pool was flowing through the 9 90 pipeline into the Port Arthur refinery, and the Mêlions were firmly established as major players in the oil industry. The construction of the pipeline had been matched by corporate reconstruction. The Mêlions would not pour money into the existing ramshackle setup. William Mellon engineered a reorganization of Guffey Petroleum and Gulf Refining that resulted in the Gulf Oil Corporation. It was now resolutely a Mellon company. Andrew Mellon became president; Richard B. Mellon, treasurer; and William, vice-president. Guffey was pushed completely aside. "They throwed me out," he bitterly complained later on. And what became of the pioneers of Spindletop? "Owing to the fact that Mr. Guffey and the Mellon group had a lot of money and I had not," Captain Anthony Lucas subsequently said, "I accepted their offer and sold my interest to them for a satisfactory sum." He set himself up in Washington, D.C., as a consulting engineer and geologist. Three years after his discovery at Spindletop, he returned to Beaumont and surveyed the derrick-covered but now depleted hill, which had been so rapidly overproduced. After traipsing all over the oil field, he was moved to an epitaph. "The cow was milked too hard," he said. "Moreover, she was not milked intelligently." As for Patillo Higgins, he started a lawsuit against Captain Lucas, who, lacking in sufficient sentiment, had cut him out. He also founded the Higgins Oil Company, but sold out to his partners. He tried to launch an integrated oil company, the Higgins Standard Oil Company, but that venture failed because the public had become wary of any more stock offerings bearing the imprint of "Swindletop." Still, it seems that Higgins made a sizeable amount of money along the way, and thirty-two citizens of Beaumont once signed a public letter declaring that he deserved "the whole honor of discovering and developing" Spindletop. He had not been so crazy after all. Neither James Guffey nor John Galey was able to hold on to his money. "Difficult times came upon both men as they aged, and a comeback became less and less attainable," wrote Galey's nephew. "They had muffed numerous opportunities to attain great wealth because, perhaps, of not playing the trump card at the right time. Such opportunity rarely comes. Spindletop was the great venture of Guffey and Galey as a partnership. Thereafter they struggled with trifling drilling projects here and there, largely financed through their waning prestige as the greatest oil finders of the first half-century of petroleum in this hemisphere." Guffey, the promoter, spent the last decades of his long life—he lived to the age of ninety-one—deeply in debt. His residence in a mansion on Fifth Avenue, in Pittsburgh, was maintained until his death through the courtesy of his creditors. Galey, the oil finder, was paid only a "dribble" of the $366,000 that Guffey owed him as a result of their Spindletop deal. Toward the end of his life, Galey toured parts of Kansas, sniffing out deals, in the company of Al Hamill, who had been the driller at Spindletop. One day, a heavy snow came up, and they could not get about. So the two men decided to call it quits and head home. Then Galey made a painful admission. He had never been so poor in his entire life as he was right then. Could Hamill cash a check signed by Mrs. 9i Galey? Instead, Hamill paid Galey's hotel bill and put him onto the train home through the snow. That was the last try at an oil deal by John Galey, the man who could smell oil; he died soon after. As for William Mellon, he served for many years as president and chairman of Gulf Oil, as it became one of the major oil companies of the world. In 1949, shortly before his death, he remarked, "The Gulf Corporation has grown so big I have lost track of it." 10 Sun: "To Know What to Do with It" Among the thousands and thousands who descended from the train in Beaumont, Texas, on the news of Captain Lucas's discovery was one Robert Pew, who arrived just six days after the gusher at Spindletop, on the instruction of his uncle J. N. Pew. Robert Pew quickly saw the opportunity afforded not only by the oil but by the good transportation prospects available via the Gulf of Mexico. He did not, however, like the weather or the town or the people or the boom, or much of anything else about Texas, and he became ill and left. He was replaced by his brother J. Edgar Pew, who arrived packing a revolver, which both his brother and uncle had insisted he would need for personal protection in the brawling atmosphere of Beaumont. The Pews may have been strangers to Beaumont, but not to oil; they had already been in the hydrocarbon business for a quarter century. In 1876 in western Pennsylvania, J. N. Pew and a partner had begun to collect natural gas, then regarded as a waste product, and to sell it—first as an oil field fuel. In 1883, they became the first group to supply a major city—Pittsburgh—with natural gas as a substitute for manufactured town gas. They built up a substantial business. But Standard Oil had turned its attention to gas, forming the Natural Gas Trust in 1886, and eventually J. N. Pew followed the same track as the Mêlions with their first venture in oil in the 1890s; he sold his gas business to Standard. Pew had also begun to produce oil from the Lima field in 1886. Searching the heavens for a body to name his new company after, he finally decided on the sun because of its prominence above all other bodies in the sky. The Sun Oil Company did not achieve similar prominence in the industry during the next decade and a half, but it did manage to carve out a respectable oil business in the shadow of Standard Oil. Upon arriving in Beaumont in 1901, J. Edgar Pew acquired leases for the Sun Oil Company; but he and his family knew from previous experience that production was not enough. "You could buy millions of barrels of oil at five cents a barrel," J. Edgar was later to say, "but the point was to know what to do with it." So Sun also acquired storage facilities in the region. At the same time, it built a refinery at Marcus Hook, outside Philadelphia, to receive the Texas crude shipped by boat, and set about developing long-term markets. As Spindletop's decline became evident, the company expanded elsewhere in Texas, acquiring production and establishing its own major pipeline system in the region. By 1904, Sun was one of the handful of companies preeminent in the Gulf Coast oil trade. 11 92 "Buckskin Joe" and Texaco One more major oil company was to be born out of the maelstrom at Spindletop. It was the handiwork of Joseph Cullinan, who was among the foremost pioneers of Texas oil development. In 1895, Cullinan had left a promising career in Standard's pipeline arm to form his own oil equipment company in Pennsylvania. He had acquired the nickname "Buckskin Joe," because his aggressive, abrasive personality and his drive to get a job done reminded those who worked for him of the rough leather used for oil field gloves and shoes. In 1897, Cullinan was invited to make a quick visit to Corsicana, Texas, to advise the town fathers on further oil development. Instead of merely advising, he settled in, and became the dominant oil figure in Corsicana. Within a day of Captain Lucas's gusher at Spindletop, Cullinan was on the spot in Beaumont to inspect the scene. He knew instantly that this was something wholly different and on a much greater scale than Corsicana. His first step in Beaumont was to create the Texas Fuel Company, for crude oil purchasing and marketing. Cullinan's equipment expertise came in handy; his Texas Fuel Company had an advantage over would-be competitors because Cullinan had already built storage facilities just twenty miles away. Soon Cullinan also gained control of valuable leases that a syndicate of former politicians had accumulated on Spindletop itself. The syndicate was led by James Hogg, the three-hundred-pound ex-governor and progressive cham­ pion of Texas. The former governor was also a tough businessman: "Hogg's my name," he once explained, "and hog's my nature." Hogg's group had acquired its key lease position from James Guffey, who, whatever his failings as a man­ ager, had the sound political instincts appropriate to a former chairman of the Democratic party. For, Guffey later explained, the sale of such obviously val­ uable leases was the price of political insurance. "Northern men were not well respected in Texas in those days," he said. "Governor Hogg was a power down there and I wanted him on my side because I was going to spend a lot of money. " Hogg had a more specific virtue as well; he was the great opponent in Texas of Standard Oil. While governor, he had even tried to extradite Rockefeller from New York to stand trial, and Hogg's participation provided some protection against Standard's familiar tactics when confronted with a new adversary. For the capital he needed to develop his leases, Cullinan turned to Lewis H. Lapham, a New Yorker who owned U.S. Leather, the centerpiece of the leather trust, and John W. Gates, a flamboyant Chicago financier known as "Bet-a-Million" Gates because of his willingness to make a wager on anything. To his Texas partners, who worried about the predominance of "foreign" capital, Cullinan reassuringly declared, "The Tammany crowd will find their match in the Southerners." His prediction would prove true—up to a point. Cullinan, with his wide experience and natural talent for leadership, quickly emerged as the foremost oil man in Beaumont. When a flaming inferno swept through Spindletop in September 1902, he commanded the efforts to control the fire; and this he did, virtually nonstop, for a week, until the fire was out and he collapsed with exhaustion. His eyes seared by the gas fumes, he even lost his sight for a few days; but, confined to bed with bandages around his eyes, 93 he continued to hold conferences and provide direction. Among those working for Cullinan were Walter B. Sharp, who had drilled Patillo Higgins's first unsuccessful attempt on Spindletop in 1893 and was now a premier driller, and another expert driller named Howard Hughes, Sr. In the spring of 1902, Cullinan established the Texas Company in order to consolidate his various operations and better enable him to exert his personal and autocratic control. Unlike James Guffey, Cullinan knew how to manage an oil company, and unlike Guffey-Gulf, the Texas Company was profitable from the beginning. In its first year of business, it sold its oil at an average price of sixty-five cents a barrel. Since Cullinan had put the oil into storage during the time of flush production, at an average price of twelve cents a barrel, the company did very well. The Mêlions, trying to sort out their Guffey problems, almost consummated a merger of Gulf with Cullinan's Texas Company. But the smaller oil producers, raising the specter of a new oil trust, managed to turn the proposed deal into the hottest issue in the Texas legislature; the chief lobbyists for each side even ended up having a very public fist fight in a hotel lobby in Austin. Finally, the Texas legislature came out against the merger, and that killed its chances. Cullinan then turned his full attention to expanding the Texas Company. It built its own pipeline from the Glenn Pool in Oklahoma down to Port Arthur in Texas. It registered the name Texaco as a trademark in 1906, and came up with the green " T " superimposed on the red star as its symbol. It began manufacturing gasoline, and by 1907, only six years old, it was able to exhibit a full range of some forty different products at the Dallas State Fair. By 1913, its gasoline production had overtaken illuminating oils as its most important product. Early on, Cullinan had predicted "that the time will come—perhaps in no distant day—when we will want our general office in Houston instead of Beaumont, as . . . Houston seems to me to be the coming center of the oil business for the Southwest." Soon after, braving the oppressively steamy heat of Houston's summer, he moved the office to that city, though significant parts of the business were also run from New York. Buckskin Joe's autocratic style of management began to grate on his investors and led to the first of the clashes between Texas and New York that would shape the company. One of the senior executives wrote Lapham to complain that Cullinan "thinks he knows everything and must butt into everything. . . . He looks upon us here in New York as the tail of the dog, and a very small tail at that." When the major stockholders tried to rope Cullinan in, he rebelled and launched a proxy fight to try to regain control. The transplanted Pennsylvanian sought to turn the battle into a sectional struggle, Texas versus the East. In his statement to stockholders, he proclaimed that the company's "original management, its corporate attitude and activities were branded with the name Texas and Texas ideals," and that its "headquarters and governing authorities should be kept and maintained in Texas." But, of course, that was not what the fight was all about. The real issue was Cullinan's one-man rule. New York had the votes, and Cullinan was badly defeated in the proxy fight. He tried to be philosophical. "It was a good boarding-house brawl," Buckskin Joe wrote to an old associate from Pennsylvania, "and some furniture was broken but our side was whipped fair and I'll be looking for another job 94 soon." He did and went on to new successes in oil. But thereafter he stuck to exploration and producing, and left refining and marketing to others. 12 "How Can We Control It?" The development of the new oil fields of the Gulf Coast and the midcontinent undermined the seemingly impregnable position of Standard Oil. These new sources of oil, combined with the rapidly emerging markets for fuel oil and gasoline, opened the doors to a host of new competitors that, as William Mellon had put it, did not have to say "by your leave" to Standard or anyone else. To be sure, Standard's sales had continued to grow in absolute terms. Its sales of gasoline, reflecting the new age, more than tripled between 1900 and 1 9 1 1 and, indeed, by 1 9 1 1 , for the first time exceeded those of kerosene. And Standard Oil was attuned to the further technological changes that were at hand. When the Wright Brothers' airplane first flew into the air at Kitty Hawk, North Car­ olina, in 1903, its engine burned gasoline and used lubricants that had been brought to the beach in wooden barrels and blue tin cans by salesmen from Standard Oil. But, in terms of overall market shares in oil products in the United States, Standard's position of overwhelming dominance was receding. Its control of refining capacity declined from over 90 percent in 1880 to only 60 to 65 percent by 1 9 1 1 . As a result of the explosion of production on the Gulf Coast, the Old House also saw its control over crude oil production in the United States—and its ability to "establish" prices—slipping away. At the same time, development of crude sources abroad was reducing its power in the international marketplace. Of course, Standard's position seemed impregnable to those on the outside, but that was not how it was seen from inside the Old House. "Look at things now— Russia and Texas," Standard director H. H. Rogers lamented to a visitor. "There seems to be no end of the oil they have there. How can we control it? It looks as if something had the Standard Oil Company by the neck." It was, he added ominously, "something bigger than we are." 13 95