by Paul R. Spitzzeri
With the recent dramatic increase in gasoline prices on top of a surge in global inflation as we inch towards an endemic stage of the COVID-19 pandemic, there is no question that, if conditions continue this way, the midterm elections, already widely believed to favor the Republican Party, will lead to a solid GOP majority in the House of Representatives. Russia’s threats to halt exports of natural gas to Poland and Bulgaria also have sent shockwaves through the energy market and in other arenas. The continuing rise in the overall global temperature, with the last nine years all being in the top ten warmest in recorded history, continues to remind us of the crucial issue of fossil fuel production and consumption as we approach what is widely agreed to be the tipping point in the climate change crisis.
Almost a century ago, California Oil World, which promoted itself as “The Only Newspaper in the World Devoted Exclusively to Oil,” had its front-page headline in red reading, “MOTORISTS WILL PAY 2 CENTS MORE FOR GAS,” which sounds laughably minimal, except that gasoline prices in the Golden State were in the neighborhood of a quarter per gallon, which is roughly $4.20 or so in today’s dollars. Of course, there is the matter of the amount of gasoline taxes and fees (now about $1.18 per gallon) as well as the cost of having the pollution-fighting blend in our gas that distinguishes California from most of the rest of the country, so that our prices are some $1.65 more per gallon than the national average.
In any case, the publication warned that
Unless the great body of California consumers of gasoline who will pay the proposed gasoline tax get busy and make themselves felt at once they will soon be paying 2 cents more per gallon for their motor fuel . . . the matter is one of far more concern to consumers than to refiners or producers of oil. If they are satisfied, well and good. However, we do not believe they will be satisfied when they find the price of gasoline just two cents more a gallon.
It was noted that the state’s automobile clubs, with the Automobile Club of Southern California being a powerful player in our region, supported a one-cent per gallon tax.
Adding to the concern was another article about a bill that would tax crude oil as it was extracted from wells and the paper stated that “this bill will add an entirely new chapter to the revenue system of California” and implored readers that “protests against its passage should be registered immediately by all independence producing companies in California, as they are already taxed upon production at the wells, and upon oil in storage in the fields, while the marketing companies are taxed upon oil in transport by pipe lines as well as upon oil in storage in field tank farms en route to refineries, and later are taxed upon oil in storage as well as upon finished products in storage.” This was deemed to be unfair in comparison to taxes meted out to farms and ranches.
There was, however, another major problem confronting petroleum producers in the Golden State: overproduction. The discovery in recent years of massive fields in the southern San Joaquin Valley and in local super-fields like Santa Fe Springs, Long Beach and Huntington Beach brought levels to unprecedented levels, so it was reported that “one of the most important gatherings in the history of the Southern California fields will be held” at the Hotel Alexandria on 27 April, “when oil producers will assemble to discuss plans for meeting the over-production crisis now impending.”
The paper noted that other topics were to be discussed, but “that of insufficient storage and lack of pipe-line facilities to handle to constantly increasing daily output is by far the most vital to the industry.” Integral to any solution was that of “the larger companies voluntarily pinching down their wells, and when possible by shutting them in” as well as coming to an understanding about making cuts temporarily in oil sent to marketers, who had to cut their acquisition by a quarter.
It was reported that “additional storage cannot be built in time to meet the situation” as it wasn’t only a matter of supply shortages, but also that steel mills could not keep up the pace in providing tanks and other containers and were months behind in delivery. In the meantime, the blistering pace of production was such that it was expected that, within a few months, there would be a million barrels of oil extracted each day, so that “some plan must be devised to cope with the problem to prevent a break-down of the industry.”
The current thinking was “to place all of the producing companies on a pro rate basis of acceptances for delivery” and thereby avert future production cuts and the “demoralization of the industry. Moreover, pipeline industry figures were to be asked to attend the confab “regarding the capacity of transportation and storage systems,” so that, with sufficient information developed, “it is believed some plan can be evolved that will equitably and properly take care of the situation.”
In a separate notice urging anyone interested in the oil business to attend the meeting, the publication emphasized how critical the issues were and added,
If producers do not act themselves, the marketing companies will be compelled to do act, for the can not do physical and mechanical impossibilities, and it will be physical imposibility [sic] to handle the still growing production unchecked, now practically certain to reach the million-barrels-a-day mark within a few weeks.
It was declared that “the problem is one which the producers themselves ought to handle” and, in so doing, the situation would get better for everyone. In particular, those working the Huntington Beach, Long Beach and Santa Fe Springs fields were implored to show up.
As an illustration of just how dominant those fields were, a small sidebar on the front page noted that for the week ending the previous Saturday, the Torrance field generated 3,300 barrels, while Huntington sent forth 120,000, Long Beach, 149,000, and the kingpin, Santa Fe Springs was at 225,000. That same week, there were 33 new wells drilled in the state, eight more than the one prior, and the total for the year to date was 510, more than 100 for the same period in 1922.
Of the new wells for that week, ten were at Santa Fe Springs and another eight at Long Beach, while Huntington Beach had just two, as did Torrance. Montebello, where Walter P. Temple’s lease with Standard Oil Company (California) began production a half-dozen years prior but which proved to far more shallow after a brief period of major output, had one new well. In the San Joaquin, the Midway-Sunset field had seven new wells, with a few more in other localities.
A separate section on “Drilling Wells” showed just how active Santa Fe Springs was, with a dozen firms, led by General Petroleum and Union Oil as the largest, but also including the colorful (and criminal) C.C. Julian and George F. Getty, father of future oil titan J. Paul Getty, in the list. Long Beach also had a large number of working wells, with Shell and Petroleum Midway the most active, while Getty, Fred B. Foster, Union and others conducting substantial operations. At Huntington Beach, Union and Petroleum Midway were the top drillers, with Amalgamated, Shell, Southern California Drilling and Miley-Keck among other major players. Only four active wells were at Montebello, three by Union and the other by St. Helena.
To show just how important Santa Fe Springs was in the roughly 7% increase in statewide production from February to March, 90% of that gain came from that field, which went from below 43,000 barrels in September 1922 to 107,000 in February and then over 152,000 in March. Virtually every other field held steady month-to-month, with Long Beach increasing about 5.5% and Huntington Beach growing about 3% From the previous September, however, the former leapt close to 60% and the latter about tripled in production. Again, most field were relatively stable or had modest losses and gains, but Montebello slipped more than 35% during that six-month period—not a good sign for Temple who was ramping up spending on real estate development projects as his oil revenue dropped dramatically.
National statistics showed that California, for the week ending 21 April, had 715,000 barrels of oil produced, representing 36% of all the petroleum yields in the country. The next biggest producing state was Oklahoma with 450,000 barrels, of 23%, with Texas coming in third at 187,000 barrels or just shy of 10%. There was a slight drop of about 6,000 barrels in aggregate from the prior week.
Other interesting reporting concerned the shipments during April of under 8 million barrels of oil from the Port of Los Angeles with its noted that they “will be much greater than they were during March” as more tankers were loaded and the sailed from the harbor, with not far under half being strictly for Pacific Coast trade. Elsewhere, the American Petroleum Institute reported that gross domestic crude oil inventories east of the Rocky Mountains grew by some 3.3 million barrels, including crude from the United States and México, gasoline, gas and fuel oil, and other types.
With respect to crude oil prices, there was a definite drop since the start of the year at all gravity levels, save the lowest of 14 to 20 degrees which held steady at 60 cents a barrel. The declines increased as gravity did, so that the highest level of 35 degrees and above dropped nearly 30%. Despite this, it was reported that, in 1922, Standard had net profits of some $27 million on earnings of just shy of $43 million and a surplus on the books of north of $262 million and this was after accounting for depreciation, interest and estimated income taxes.
There were also proceeds of almost $4.5 million from the sale of stock, which more than doubled to $250 million, while oil discovery values and adjustments topped $22.6 million. Standard produced almost 40 million barrels of all petroleum products, more than a quarter above 1921 levels and had 877 oil and five gas wells. At Santa Fe Springs alone, production was north of 17,000 barrels each day.
Another issue plaguing the oil industry and the stock market was reflected in a front-page article’s opening lines:
The bubble has burst! With it has gone dreams of untold wealth in some instances, and hopes for an “income for life” in many others, according to the guillability [sic] of the investor. But something more vital has been dissipated—faith in one’s fellow man.
The piece continued that “outraged unit-holders” were pursuing a Los Angeles County Grand Jury investigation against “the outlaw promoters,” while there were also efforts to seek legal redress “financed by the victims of oil promoters in general who have failed to make good their promises.”
It was reported that a meeting was held at the Old Soldier’s Home at Sawtelle that, it was stated, “fired a shot that is destined to be heard across the continent, at least, for these investigators come from every state in the Union.” The idea was to eventually cleanse the oil business of the so-called “bally-hoo crowd” who targeted tourists, soldiers, and “the sick and the infirm,” as well as the con man assuring oil promoters they had an inside track to public officials and the permitting process and, thereby, “have buncoed the bunco artist to the limit.” One regional lawyer was said to charge $6,000 for permit assistance, but never filed with the state corporation commissioner on behalf of clients.
As for the “outlaw promoter,” these “fakers” who could fill a bus, offer a free lunch, and then “landed the unsuspecting victims out on the desert where one of the big companies was drilling a wildcat.” They then asserted it was their well, or promised they could do the same, but then turned around and sold “units” of stock sold to suckers and were found to be “‘cleaning up’ to the tune of several hundred thousand dollars.
Another target of investigation was the promoter “whose methods of financing are reprehensible . . . but who made an effort to keep his promises . . . [and] have actually drilled for oil.” Such figures “come through the deal with nicely feathered nests, with beautiful homes, elegant limousines, diamonds and all the accoutrements of riches.” Somewhat aligned with this type was Julian, who did successfully drill producing wells at Santa Fe Springs and whose folksy ads drew plenty of investors. When his projects failed, however, to deliver on the early results, while he continued to rake in money with questionable tactics and the likelihood of delivering on his promises, state officials and county prosecutors pounced.
There are other items of note, including a short report that Union was “planning a big expansion program, including the increase of its capitalization to $10,000,000” along with acquiring another plant near its absorption facility at Long Beach; the completion of two new wells at Torrance, the boosters of which were optimistic about the field’s future; efforts to find oil at La Mirada near Santa Fe Springs; the federal government’s plan to lease 1500 acres of the Kern County Naval Reserve #2, near the first, which became part of the infamous Teapot Dome scandal that took place during the administration of President Warren G. Harding, who died in August 1923; and that the Oil Workers’ Union did not plan to call for strikes, demands on producers “or other radical action at this time.
Finally, there was a short article that observed that
Since the price of oil has gone down in such marked degree, [California] Corporation Commissioner [Edwin M.] Daugherty will hereafter require a more conservative capitalization of enterprises applying for permits to sell stock or units.
It was added that the commissioner previously had a maximum of $200,000 per acre, though was considered too high, but more than what promoters valued property at before regulation was introduced. The price decline “has hastened the time and increased the necessity for such action.
Moreover, it was reported that Daugherty “informed a number of promoters that before they can get any more permits they must get production on some of the property which they have already induced the public to finance under previous permits.” This was to forestall the tendency of some to launch project after project before there were any results and “others have had failure after failure but still seek to finance more companies.”
It is instructive and interesting to see where the regional and state oil industry was a century ago, when concerns of overproduction and tax increases loomed large, and compare the state of the situation to our condition now, as the future of fossil fuel production and use is hotly debated and, at this moment with Russia’s war in Ukraine, made part of the political calculus in the conflict.