Continued . . . The Black Hills were at that time Sioux lands, recognized as such by the U.S. Government when it signed the 1851 Treaty of Fort Laramie, which recognized the Black Hills to be part of the Great Sioux Reservation, set aside for the exclusive use of the Sioux people. But by 1868 illicit prospectors discovered gold in the Black Hills and, as everybody understands, gold is superior to treaties.
The initial discoveries were small, but promising. Larger deposits near Deadwood Gulch followed in 1875, resulting in swarms of prospectors by 1876. Doheny found no luck in gold mining and left for Prescott, Arizona, where the 1880 census listed him as a (house) painter. Later that year he moved to Kingston, New Mexico Territory, and interested himself in silver mining. He worked briefly at the famous Iron King mine before he returned to prospecting, mining, and trading in mining claims. Kingston is important because that is where Doheny met two men who later played significant roles in his life: Charles A. Canfield, who became his business partner, and Albert Fall, who was one day to become the Secretary of the Interior.
Doheny and Canfield briefly worked the Mount Chief Mine, but with only limited success. In 1886 Canfield left the Mount Chief to explore other promising sites in the Kingston area. He did a little leasing and developing before stumbling onto the Comstock Mine (unrelated to the famous Comstock Lode of Virginia City). Doheny declined to accompany Canfield in this venture, but Canfield endured and made a small fortune from it. Doheny, who chose to be left behind, was eventually reduced to doing odd jobs to support his family.
Doheny had met the woman who was to be his first wife, Carrie Louella Wilkins, three years earlier in Kingston. Their daughter, Eileen, was born in late 1885. When Eileen was six, in 1891, Doheny left his family in New Mexico and moved to Los Angeles where he had heard prospects were better. The attraction was flipping land. It was not too difficult to buy acreage just beyond the expanding irrigation ditches, subdivide it into housing sites, and flip it just before the zanjeros arrived. Canfield, who’d left New Mexico with $110,000 in then-money ($3,400,000 in now-money) from his Comstock Mine venture had multiplied the sum into extensive real estate holdings. He was not the only one trying his hand at land flips, but once the land boom collapsed, as booms are historically prone to do, Canfield lost everything. He was deeply in debt when Doheny arrived in Los Angeles in 1891.
It was back to prospecting for both men, this time in San Diego County. The search was unsuccessful, and they soon returned to Los Angeles. By 1892 Doheny was so poor he could not afford to pay for his boarding room. Carrie, still in New Mexico, apparently wrote to him of Eileen’s death. Doheny returned temporarily to New Mexico to succor Carrie. Their only son, Ned, was born less than a year later.
Edward Doheny took his wife and son back to Los Angeles, where he became interested in the pools of natural asphalt seeps at the La Brea Tar Pits. He sought out Charles Canfield, who by this time had made a little money doing something in the mining industry and negotiated a $400 ($12,500 now-money) loan for explorative purposes.
There is a reason petroleum became suddenly the stuff of riches: Samuel Kier found a way, in 1851, to distill kerosene out of crude oil. Doheny turned the discovery to his benefit. His years of poverty were approaching their end.
Drilling For Tar
The legend is that sometime in early 1892 Edward Doheny, then in Los Angeles, asked a teamster about the black substance dripping from his wagon. He was told it was tar. Further questioning revealed that it came from the Westlake Park district and would be burned for fuel at a nearby ice plant. (https://icwblog.wordpress.com/2017/11/03/edward-dohenys-early-oil-well/).
Doheny had seen the seeps at the La Brea Tar Pits, and through the teamster he learned that tar was found over much of Los Angeles. He also knew that it could be refined to produce the more valuable petroleum oil. Armed with these two bits of knowledge, Doheny borrowed $400 from Canfield ($12,500 in now money) and together they leased a tar pit south of what is now the Echo Park District, near Glendale Blvd and West 2nd Street. The exact location is not available, but somewhere between Belmont High School and Vista Hermosa Park would probably be a reasonable guess.
Doheny began drilling in the second half of 1892, first using the pick-and-shovel approach to open a 6 ft x 4 ft vertical shaft. Later, as the well deepened, a winching system was used to remove debris. Pick-and-shovel drilling is not easy work, and it’s slow. The well deepened at about one foot per day. No petroleum was found until the well reached 225 feet. At that point Doheny struck what was later known as the Los Angeles Oil Field. The well began producing 40 barrels of oil a day. Oil sold for $0.51 / barrel in 1893 ($16.29 now money). For comparison, today’s spot market price of a barrel of oil ranges from $102 (Louisiana Light) to $109 (Brent Crude). The real (inflation-adjusted) price of oil has been net positive over the last 130 years.
Forty barrels a day @ $16.29 comes to about $652 per day for the two of them. It’s not Croesus-rich, but in those days it was enough to encourage others and suddenly it seemed like everybody was bidding for oil leases. By 1896, three years after Doheny’s strike became publicly known, he and other entrepreneurs had sunk a total of about 300 wells. It has been noted that 81 of the wells might have been Doheny’s, but that’s a soft number as there were many ways to obscure both full and partial ownership.
Doheny’s was not the first petroleum well in Los Angeles. The first was sunk by a man named Baker, who in 1863 sunk a well on Hoover Street, between 7th St and Wilshire Blvd. That would be somewhere between where MacArthur Park and Southwestern Law School are now. In Baker’s time oil wells were dug by their proprietors, repaired by their proprietors, and any oil that resulted was sold by their proprietors. It was a business much like a family farm: one man did it all.
Oil Lease Rights
Then Doheny came along and changed all that. It struck him that the big mine owners in the small towns of New Mexico did not do their own digging: they hired people to do that. Taking a page from those days, Doheny bought oil leases (rights) but employed other people to work them. The Doheny – Canfield partnership poured most of their profits back into additional leases, and the growth of their business, for a while, approached exponential.
At first the oil was sold to nearby factories. When the factory market was sated, Doheny persuaded the railroads to switch from coal to oil to power their locomotives. That massively increased demand and was a tectonic shift in the market. It was then that the post-civil war oil boom found its legs.
The local fruit having been picked, Doheny acquired a geologist’s map and methodically traveled the state to stake claims, organize the digging of wells, and open new fields. Croesus was beginning to look like a piker.
Doheny expanded his interests to Mexico, where in 1901 he drilled the country’s first well in Tampico, 300 miles south of Brownsville Texas. Nine years prior he’d arrived in Los Angeles too poor to pay for his boarding room, and now he was an international oilman.
Doheny used the confusion of the Mexican Revolution (1910 – 1921) to expand operations. During that period, while the Mexican government was otherwise occupied, Doheny opened several oil fields to the west of Tampico. He was responsible for drilling Cerro Azul No. 4 which, in February, 1916, became the world’s largest producing well. It pumped over 260,000 barrels per day. When Doheny opened the Los Angeles Oil Field in 1892 his best (and only) well brought in 40 barrels a day; now, 24 years later, his best well (one of hundreds) brought in over a quarter-million barrels a day.
When the Cerro Azul No 4 well came in, the sound could be heard, they said, 16 miles away. It shot a stream of oil 598 feet into the air, spewing oil residue over a two-mile radius. Over the following 14 years, the well produced over fifty-seven million barrels.
Woodrow Wilson was termed out of office in 1921 and replaced by Warren Harding, who died in office two years later. During his brief presidency period Harding transferred supervision of America’s naval oil-reserve lands from the Department of the Navy to the Department of the Interior, then being run by Albert B. Fall. Soon thereafter a noncompetitive bid for exclusive rights to drill in the Elk Hills, California, naval reserves was granted to Doheny through one of his companies. At about the same time, a gift of $100,000 was coincidentally made to Albert Fall from Edward Doheny.
Elk Hills, California, wasn’t the only naval oil-reserve in play. A similar set of noncompetitive drilling rights were sold to a competing company, Sinclair Oil. This new sale was at the Teapot Dome Field in Wyoming. When the Elk Hills and Teapot Dome scandals became public knowledge Albert Fall, the Secretary of the Department of the Interior, was deemed responsible.
The press reported on both the Elk Hills (California) and Teapot Dome (Wyoming) leasing scandals under the umbrella name of “Teapot Dome”. It was the largest government disgrace until Watergate (1972).
More about Doheny’s involvement in the Teapot Dome scandal later.
Note to the Reader: This article is largely taken from the Wikipedia entry on Edward L. Doheny, which was in turn largely taken from the following three reference books: (i) The standard scholarly biography is by Martin R. Ansell, 1998, Dark Side of Fortune: Triumph and Scandal in the Life of Oil Tycoon Edward L. Doheny ISBN 0-520-22909-6; (ii) Margaret Leslie Davis, 1998, Oil Baron of the Southwest: Edward L. Doheny and the Development of the Petroleum Industry in California and Mexico ISBN 0-8142-0749-9; and (iii) Dan La Botz, 1991, Edward L. Doheny: Petroleum, Power and Politics in the United States and Mexico ISBN 0-275-93599-X. The La Botz book was “Poorly received by reviewers who noted many errors and oversights.”
This article is for informational purposes only and is not intended as professional advice. Klarise Yahya is not a financial planner. Nothing in this article is presented as investment guidance. For specific circumstances, please contact an appropriately licensed professional. Klarise Yahya is a Commercial Mortgage Broker specializing in difficult-to-place mortgages for any kind of property – BRE: 00957107, MLO: 249261.
If you are thinking of refinancing or purchasing real estate, perhaps Klarise Yahya can help. For a complimentary mortgage analysis, please call her at (818) 414-7830 or email [email protected].