Chapter 8
Budding Oil Empires
In Bunwell England, in a small churchyard, stands a statue of John Blake. Several generations of the Blake family lived in the town of Bunwell, a parish of Norfolk that stretches across five miles of agricultural countryside.
The Blake family was a prominent part of the town of Bunwell, so when John died, the town erected a statue in his honor. Unknown to most people, the Blake family has a long and prestigious history. Genealogy records indicate that the family came to England under William the Conqueror, and in fact in 1185, Richard Blake was a Norman knight who fought under Prince John during the invasion of Ireland.1 In return for his duty, he was given grants to land, which were passed on to his family heirs.
One of those heirs, William, was the first to travel to the new colonies. William married and had several children, and the new lineage of the Blake family was living in America. Part of the new lineage was Isaac Blake, a reverend for the Methodist church in Vermont. The area was barely settled, and the land was harsh. Isaac owned a small farm and sawmill, which produced a small amount of money he used to supplement his income. Although older than most soldiers, Isaac joined the Union Army, where he was made Chaplain, but his time as an Army Chaplain was short lived. He left his wife and children to fend for themselves.
His son, Isaac Elder Blake was a smart boy, who read a good deal and could memorize almost anything he read or saw. It’s no wonder that schoolwork came easy to him, so much so that he advanced to the head of his class and graduated from school before his classmates. At age 16, he was granted a certificate to teach school. Certificates were normally issued only to people 18 or older, but because of Isaac’s extraordinary learning abilities, he was allowed to receive a teaching certificate at such a young age. After serving as a schoolteacher for several years, Blake took a job with a mercantile firm in a small town located just outside Boston, and it was there that Blake decided he’d like to practice law. But of course, to do so, he’d have to attend college. He began saving money so he could attend Harvard University.
But as happened with many men, Blake got caught up in the oil frenzy that was sweeping the nation. It seemed anyone willing to dig for oil could become a millionaire. Blake was faced with a most important decision—abandon his dreams of becoming a lawyer or try his hand in the oil industry.
He chose the oil industry but wasn’t about to dig for oil; instead he considered buying shares of oil companies. He heard the stories of investors who had made small fortunes investing in emerging oil production companies. If they could get rich in that way, Blake figured he could, too. So he took a few hundred dollars of the money he had saved for college and put it into two different oil companies. Unfortunately, Blake’s investment didn’t pan out, and he was not to become a rich man by investing in oil companies. Although he lost money on the investment, he still believed the oil business could make him rich. In fact, he went to Oil City to see firsthand how people were making their fortunes drilling for oil.
During that visit Blake got the idea that shipping oil from the area might be a better path to his future fortune. As oil was often shipped to refineries on flat-bottom boats on the nearby rivers, Blake saw an opportunity to make money transporting oil in this manner. So he bought a flat-bottom boat for $230.2 Blake asked his brother-in-law to join him in Oil City, and the two began transporting oil on their boat. But Blake would not see his oil fortune yet. The river water receded so low that the boats could barely float, especially when they were loaded down with heavy barrels of oil, so Blake sold his boat. Now he needed a job, and as much as he didn’t want to dig for oil, that’s exactly what he wound up doing. He took a job with a drilling company already operating the area.
Blake had no experience handling drilling equipment and knew little about the machinery. But because he could memorize almost anything he saw or read, he learned what to do by watching other men perform the same tasks. Although he earned the company’s respect, Blake had no intentions of making his long-term career as a hands-on driller. He was in it to get rich. So from his drilling job, he moved on to another large oil firm. But this time, he held a more responsible desk position. While at the firm, he secured the rights to piece of land that showed the promise of oil. Soon after acquiring the land, he struck oil at 1,000 feet.3 The well produced as much as 12,000 barrels a month, the largest amount of oil in the region.4
Isaac Elder Blake found his fortune in oil, but this fortune didn’t last. The more money Blake made, the more chances he took. Sometimes instead of opening more wells, he speculated on oil itself. Around 1872, Blake agreed to purchase 1,000,000 barrels of oil at about $2.5 per barrel for delivery in the summer months. It was around this time that experts believed that large amounts of oil could no longer be produced from certain areas. Because of the mass drilling that had occurred, with derricks only hundreds of feet apart, experts said that continued drilling for oil would yield minimal quantities.
Yet the population’s desire for oil was still strong. Blake figured with a strong demand and fewer reserves available, he could make a fortune speculating on oil. However, what Blake didn’t count on was that the experts were wrong. New reserves would be found, some yielding as much as 1,700 barrels a day. Suddenly there was a glut of oil on the market, which caused a dramatic drop in the price of oil to 40 cents a barrel, far below the $2.50 a barrel that Blake agreed to purchase the oil.5
Payment for the future shipments was due, and Blake was paying for oil that he couldn’t sell for more than 40 cents a barrel. He was now in debt and needed a way to make a fast fortune, so he turned his attention to Ogden, Utah. Ogden was unique because it was still using candles and whale oil to light homes. Kerosene was available to the town people, but at a steep price because the source of the kerosene was an oil refinery located in Colorado. Rather than pay for costly kerosene, the townspeople opted to use whale oil, which was much cheaper. The oil was shipped in wooden barrels, but because of the dry climate, the wood would shrink causing oil to leak from the barrels in large quantities. Having spent a good amount of time in Oil City, and seeing the oil was shipped in specially made oil tankers, Blake knew the same could be done in this area. Before the end of the year, Blake invented and patented his own oil-tank car that allowed him to ship bulk amounts of oil to Utah and surrounding areas at low prices, which made it more affordable.
On November 25, 1875 the Continental Oil and Transportation Company was born.6 Blake had progressed to building a budding oil empire swiftly. He was transporting oil from the East Coast to Utah, Idaho, Montana, and Nevada. When oil was discovered in California, he built a pipeline, which ran from Pico to Ventura. Naturally, Blake’s oil empire caught the attention of John D. Rockefeller. Because Rockefeller couldn’t stand competition, he found ways to sideline Blake’s success, and when he could no longer succeed at that, he simply bought Blake’s company. No burgeoning oil empire was going to get in his way, certainly not The Continental Oil Company. Ten years after Blake started the Continental Oil and Transportation Company, it became part of Standard Oil. It was renamed the Continental Oil Company, and Blake was appointed president and manager.
But Blake’s speculative ways would catch up with him yet again. He invested much of his money in railroads, which proved disastrous. In 1893, he resigned his post as president of Continental Oil, and Henry Tilford took over and built the Continental Oil Company into a huge oil enterprise. It gained control of 98 percent of the Western U.S. oil market.
In 2002, Continental merged with Phillips Petroleum and was renamed ConocoPhillips. ConocoPhillips enjoys the title of the nation’s third largest energy producer. In the fourth quarter of 2009, it posted $1.2 billion in profits.7
Known almost everywhere, the company sells gasoline at 11,800 service stations. But that isn’t its only claim to fame. In 2002, the Political Economy Research rated ConocoPhillips the third-worst polluter in the U.S.8 Like its barbarian counterparts, ConocoPhillips has been the culprit behind huge oil spills. In 2004, 21 miles of land was contaminated from oil that spewed out of the Polar Texas, an oil tanker owned by the company. Of course, ConocoPhillips did not admit guilt even though lab tests linked the oil directly from the tanker. Investigations showed that between 1,000 and 7,200 gallons of oil came from the tanker.9 That same year, the Alaska Department of Environmental Conservation fined the company for violating the Clean Air Act. High carbon monoxide emissions from turbine engines had exceeded posted and approved air-quality limits.10
If that wasn’t bad enough, the company is still dealing with a spill that occurred in 2003 at Nipomo Creek in California. The oil came from a leaky pipeline. Officials say the contamination area could run as deep as two to three feet below the surface. Although the spill happened in 2003, the clean-up is not slated to begin until 2011 or the summer of 2012.11
After the Deepwater Horizon oil disaster, President Obama formed an oil catastrophe commission to investigate the implications on future offshore drilling activities. To head the commission, he appointed William K. Reilly and Bob Graham as co-chairs. Reilly has some experience with the oil industry, as he served as EPA Chief for President George H. Bush. However, he also happens to sit on the board of ConocoPhillips. ConocoPhillips has a joint venture in the works with BP to drill for oil in the Gulf’s Tiber field. Executives at ConocoPhillips are worried that the Deepwater Horizon spill might hold back drilling operations in Tiber Field. But if Reilly sits on their board, is it possible he could report back to the President that things look just fine for drilling?
Shortly after oil was discovered in Pennsylvania, California became the center of attention. Isaac Blake made a hefty fortune transporting oil through pipelines he built that ran from the Pico Canyon oil field to Ventura. Charles Mentry, an experienced Pennsylvania oilman, first discovered oil in Pico Canyon, and Mentry commenced drilling on August 22, 1975. He drilled to a depth of about 120 feet, and at that level the well produced about 10 to 12 barrels of oil per day.12
Menty continued drilling in the area for several more years and dug a total of three wells. About 1876, Mentry sold out to Demetrius Scofield and Frederick Taylor who had formed the California Star Oil Works Company. However, Mentry was kept on as the superintendent of the drilling operations. Most of the equipment the men had on hand, they got from junk piles left behind from previous oil drilling operations. It was hard drilling for oil in the area, and earlier attempts produced oil, but not in large enough commercial quantities to make the ventures worthwhile. That is until 1877, when Mentry’s decided to drill to a depth of 617 feet where he struck a gusher of oil. Mentry called his field, Pico Number 4.13 It became the first commercially successful oil drilling operation west of Pennsylvania. On top of this, the oil was often of good grade. Initially the wells pumped about 200 barrels of oil a day, and over time, the amount increased to 300 barrels.14
However, Scofield, being the numbers man in the group, decided the men needed more money to continue their drilling operations. He managed to convince some high profile businessman and Senator Charles Felton to provide additional funding. A new company was formed, the Pacific Coast Oil Company, and in its first year of operation, the company built the largest and most modern refinery in California. The refinery could produce as much as 600 barrels of oil a day.
Another refinery was built at Lyons Station in Ventura, California, but it was later moved to Andrew’s Station to be closer to the Southern Pacific Railroad stop.
In 1895, the company launched its own tanker, the George Loomis, which could carry 6,500 barrels of oil between Ventura and San Francisco. But with the company’s fate resembled that of The Continental Oil Company; the Pacific Coast Oil Company became part of Rockefeller’s Standard Oil.
Standard Oil had already opened offices in the San Francisco area. Whereas Pacific Coast Oil was exceptional at finding oil, Standard was gifted at refining oil and selling it. The Pacific Coast Oil Company couldn’t compete with Standard Oil, and Rockefeller would have it no other way. In 1900, Standard Oil bought out Pacific Coast Oil. However, Pacific Oil was allowed to operate under that name. As Standard Oil strengthened its operations in California from laying pipelines to buying several oil tankers, the company decided to consolidate Pacific Coast Oil and Standard Oil into one firm: Standard Oil Company of California. Gasoline sales nearly doubled between 1906 and 1910, and because of its growing gasoline sales, Standard Oil of California created the world’s first “service station.”15
Standard Oil steadily expanded its service station network, and by the end of 1919, it had a total of 218 stations, more than the next three rivals combined. The growth of its service stations was spectacular. By 1926, the number of service stations in the company’s five-state marketing area more than tripled, to 735 units.16 Standard maintained its position as the number one producer in California. When the United States went war in December 1941, Standard became a key supplier of crude oil and refined products for the Allies in the Pacific. After the war, Standard continued its growth, reaching tremendous revenue milestones. For example, in 1951 revenues surpassed $1 billion for the first time. Their growth never slowed, and by 1961, revenues hit the $2 billion mark and topped $6 billion by 1969.17
Just as service stations had become a major component of the company’s growth, it focused attention on developing new types of gasoline including Chevron and Chevron Supreme. Those products became two of its most recognizable brands. In 1977, the company made a major organizational change when it formed Chevron U.S.A. Inc., merging six domestic oil and gas operations into one. Chevron now holds the title of the second largest energy company in the U.S. Its third quarter profits for 2010 were $3.77 billion,18 and its share price sits at $82. See Figure 8.1.
Chevron’s growth story is incredible. But just like its oil counterparts, it also has its share of oil tragedies. The company is fighting a $27 billion environmental lawsuit in Ecuador stemming from environmental damages. The lawsuit dates back to 1964, when Texaco began drilling for oil in the Ecuadoran Amazon. Chevron bought Texaco in 2001 when Texaco was working in partnership with Ecuador’s local oil company Petroecuador. As part of normal operating procedure, Texaco dumped a mix of petroleum and water into open pits near the oil wells. When Texaco pulled out of the country in 1992, it agreed to clean up a portion of the area while Petroecuador continued to operate the wells. But plaintiffs say the cleanup was a sham, and the area’s soil and water are contaminated. Residents of Ecuador’s oil producing area are seeking damages for environmental contamination caused by Texaco, which operated in the area from 1964 to 1990. Chevron insists that any remaining pollution in the area is Petroecuador’s problem. The company insists that Texaco operated under local and international standards.
What’s more disturbing is that the Wall Street Journal reported that Chevron told shareholders that it would not pay Ecuador if it lost the suit. The $27 billion recommended as judgment for the plaintiffs would be the biggest environmental judgment against an oil company. If Chevron, which expects to lose the case, does not pay, the Ecuador government won’t be able to seize any assets, because Chevron never operated in Ecuador.19 Chevron won’t be able to get out of paying the judgment free and clear, because the matter would be turned over to the U.S. courts.
Of the matter, Chevron spokesman Don Campbell says, “We’re not paying and we’re going to fight this for years if not decades into the future.”20 Just the kind of statement you’d expect an oil barbarian to make.