OIL

The Porfirio Diaz dictatorship (1876-1911) had strong incentives to develop this industry because Mexico faced high energy costs.

Stephen Haber, Noel Maurer and Armando Razo, 2003109

In 1859, the modern petroleum era began in Titusville, Pennsylvania, with the discovery that oil could be drilled for, much like water. Petroleum derivatives replaced candles and whale oil for illumination and wood and coal for fuel. Lubricants derived from petroleum facilitated the rapid expansion of shipping, railroads, and manufacturing. By the end of the nineteenth century, the United States had become the world’s leading producer of oil as well as the major exporter to world markets, including Mexico. U. S. oil exports to Mexico increased from an annual average of 400 barrels between 1880 and 1884 to 670,000 barrels between 1905 and 1909.110

Mexicans rapidly increased their use of oil for the same reasons Americans had. At the beginning of the twentieth century, British rail companies operating in Mexico imported Welsh coal, while the American ones relied on coal from West Virginia and Alabama. These imports totaled 4.5 million tons annually. Mexico’s lack of a domestic fuel source also affected manufacturing, as the U. S. consul in Chihuahua reported in 1908: “It will thus be seen that the matter of fuel makes the cost of manufacturing so high as to offer very little encouragement to such industries.”111

An independent American oilman, Edward Doheny, was largely responsible for breaking Mexico’s dependence on oil imports. He had prospected for minerals in the U. S. southwest for fifteen years before moving to Los Angeles. There he entered the fledgling U. S. oil business by digging a well, using picks and shovels. The well yielded seven barrels a day, bailed out by hand. Other more productive wells soon followed, and Doheny grew rich producing oil in California, much of which he sold to the Southern Pacific and Atchison, Topeka, and Santa Fe Railroad Companies to fuel their locomotives.112

After A. A. Robinson, the president of the Mexican Central Railroad, informed Doheny that oil was seeping from the ground near Tampico, Doheny made a trip to Mexico, prospecting for oil from the back of Robinson’s private rail car. Doheny considered the area so promising that he began to buy land near the seeps to obtain oil rights. He soon purchased 450,000 acres of land and leased an additional million acres. As he later admitted, he often bought land for $1 an acre from owners who knew nothing of its oil prospects.113

In the northern Veracruz region, known as the Huasteca, where Doheny prospected, as late as 1885 a majority of the population spoke an indigenous language. Many lived within a tropical forest, replete with vines and epiphytes. In 1909, travel writer Philip Terry described the Huasteca as a “primitive biblical region flowing with milk and honey.”114

The indigenous population readily agreed to lease their land to oil companies since, before drilling began, petroleum extraction did not seem as invasive as the milpa-eating cattle from nearby haciendas. Oil company agents offered undreamed-of cash payments for leases and promised residents they could continue their slash-and-burn agriculture. If Indian residents refused to sign, companies were not averse to resorting to violence to obtain the leases they sought. Local hacendados, who understood the notion of land titles, oil leases, and royalties far better than the indigenous population, sold or leased their property simply because the sums oil companies offered far exceeded the potential income from cattle raising.115

Before it marketed any crude, Doheny’s company, the Huasteca Petroleum Company, laid 125 miles of eight-inch pipe and constructed ten pumping stations and twelve 55,000-barrel steel tanks. For a time, Doheny’s drilling at El Ebano, forty miles west of Tampico, produced only dry holes. As Doheny teetered on the verge of bankruptcy, well number six came in at 15,000 barrels a day and soon filled all available storage facilities. Then number seven came in at 60,000 barrels a day. When workers tied to cap it, oil sprung forth from a fissure in the earth 300 feet from the well. Workers feverishly constructed a 750,000-barrel earthen reservoir to contain the oil.116

Doheny signed a contract to supply the Mexican Central Railroad with 6,000 barrels of fuel a day and soon began supplying Mexican smelters. After investing more than $4 million, and nearly going bankrupt, Doheny began to earn about $10 million a year from his Mexican oil holdings.117

The Mexican government welcomed Doheny’s oil venture, since domestic oil production replaced expensive imported fuels. To stimulate oil investments, the government waived import duties on machinery and granted him a ten-year exemption on all taxes except the stamp tax.118

Doheny cultivated a personal relationship with Diaz, who became a close friend. To seal this friendship, he made 508 preferred shares of his company available to him. Governors of the states in which he operated received similar attention. He also hired as his attorney, Joaquin de Casasus, a former Mexican ambassador to the United States and a close associate of Diaz.119

Although the Diaz administration welcomed Doheny’s efforts to produce Mexican petroleum, it felt that Mexico was becoming dangerously dependent on the United States and sought to offset U. S. influence by turning to Weetman Pearson, a successful British businessman and engineer. Pearson first visited Mexico in 1889, at age thirty-three, and for more than twenty years continued to spend considerable time there. In England, where he held a seat in the House of Commons, Pearson was known as the “Member for Mexico,” which is also the title of his biography by Desmond Young.120

To encourage Pearson, who had no prior oil experience, Diaz granted him a fifty-year oil concession on national lands, lakes, and lagoons in six states including oil-rich Veracruz. Enrique Creel, the governor of Chihuahua, Guillermo de Landa y Escandon, the governor of the Federal District, and Porfirio Diaz, Jr. sat on the board of Pearson’s Compania Mexicana de Petroleo “El Aguila.” By 1906, Pearson reported owning “about 600,000 acres of land in the oil country and hav[ing] royalty leases for 200,000 or 300,000 acres.” Pearson’s early wells were dry holes, just as Doheny’s had been. He began to make a profit from oil production only after investing ?5 million of his own money.121

Pearson’s first discoveries were quite dramatic. In 1908, one of his wells blew in at Dos Bocas, midway between Tampico and Tuxpan. The American consul at Tampico described the ensuing gusher, which was set on fire by flames from a nearby steam boiler:

The heat was so intense that it is impossible to go nearer than several hundred feet. Considering the great quantity of oil coming out, there is little gas. The internal pressure is tremendous. The height at which the oil first ignites is forty feet. The steady height of the column of oil is 850 feet while gusts of wind are constantly deflecting the main flame and portions of the burning air to an immense height, oftentimes exceeding fourteen hundred feet. The flame itself is visible at thirty miles while the light, under favorable atmospheric conditions, can be seen [at a distance of] two hundred miles.122

The gusher flowed at the rate of 100,000 barrels a day, in ten days equaling Mexican production for 1907. Burning crude floated as far as thirty-one miles from the well. Since there were no Red Adairs at that stage of the oil industry, the well burned from July 4 to August 30, 1908, when the fire finally exhausted itself.123

A gaping, bubbling crater of salt water and sulfur gas remained. A 1913 visitor to Dos Bocas reported:

The potent hydrogen sulfide gas had killed everything. What had been a lush monte was now a

Gaunt specter of dead trees. The air stunk with the smell of rotten eggs. There was no sign or

Sound of animal, bird or insect life. Nothing stirred in the breeze. The silence was appalling.

It was eerie and frightening.124

Pearson’s next big strike came on a hacienda named Potrero del Llano, fifty miles northwest of Tuxpan. In 1910, a 250-foot gusher erupted there. Unlike the gusher at Dos Bocas, it did not catch fire. The 100,000 barrels a day that shot out of the well flowed into the Tuxpan River and fouled the Gulf Coast as far as Tampico, 200 miles to the north. More than 3 million barrels of oil were lost. When it was finally controlled, the well produced 30,000 barrels a day, more than many entire fields. That single well became the most productive well in the world, yielding 117 million barrels of oil in twenty-eight years.125

Pearson, who is said to have made more money in Mexico than any foreigner since Cortes, enjoyed access to Mexico’s political insiders. He learned such social graces as leaving a case of whisky with the appropriate Mexican officials. His firm paid retainers to prominent politicians not only to ensure cooperation but also to avoid making political enemies. His leasing land from elite families, including Diaz’s in-laws, ensured that he would not fall from official favor.126

Pearson’s insider contacts gained him tax benefits, generous concessions, and contracts to sell fuel to the national railway. He also received insider information on bids, often by U. S. contractors, so he could successfully underbid them. This, combined with good business sense, the latest technology, and the financial resources of London bankers, allowed him maintain his business momentum for an entire decade while he competed against more experienced American oilmen.127

By the end of the Porfiriato, the oil industry had become Mexico’s star economic performer. In 1901, only 10,345 barrels were produced. By 1910, Mexico had become the seventh largest producer in the world, and production had reached 3.6 million barrels. The next year production jumped to 12.6 million barrels. Doheny and Pearson together controlled 90 percent of this production.128

Early Mexican production was concentrated in an area along the Gulf Coast south of Tampico called the Faja del Oro, or Golden Lane. Further south, Pearson drilled in, but missed what became the fabulously rich, but deep, Reforma Field of the 1970s. The cable tool drilling apparatus used in 1905 could not drill below 3,000 feet. In the 1970s, wells drilled in the same area perforated as deep as 30,000 feet.129

During the first decade of Mexican oil production, Doheny produced roughly 10.5 million barrels out of the total Mexican production of 12.3 million barrels. Much of the remainder came from Weetman Pearson’s oil company and Oil Fields of Mexico, a company started by another Englishman, Percy Furber. In 1911, Great Britain had 57.2 million pesos invested in Mexican oil production, while the United States had 40.0 million, and France had 6.8 million. This production saved Mexico the considerable cost of imported fuels.130

to favorable legislation and the example provided by early strikes, nearly 500 oil companies, almost all foreign, opened offices in Mexico. Oil development would remain in the hands of foreigners for decades since Mexicans lacked the technical expertise for oil production. In addition, the costs of refineries, pipelines, and drilling exceeded Mexicans’ investment capital. New oil fields almost invariably required extensive investment in transportation and oil storage facilities for their successful exploitation. The isolation of most fields forced oil companies to absorb the costs of warehouses, saw mills, electric generators, roads, ice plants, and hospitals.131

Working in the oil fields provided many Mexicans with an escape from rural poverty and hacendados’ tyranny. Oilfield workers received as much as two pesos a day, to the consternation of highland hacendados, who complained that oil companies were stealing their labor. Skilled workers came either from the highlands or from abroad since very few skilled laborers lived near the Golden Lane. Ninety percent of the adult population of Tuxpan, the nearest population center, was illiterate, and no manufacturing whatsoever existed there. As a result of the unprecedented influx of labor, the area’s indigenous population was soon displaced in number and social importance.132

By the end of the Porfiriato, Mexico had become the fourth largest oil producer in the world. The petroleum industry bolstered Mexican development in a number of ways. Railroads and other industries could operate at lower costs thanks to the use of petroleum fuels and lubricants. Paying workers in cash stimulated the development of local industry.133

Much of the potential stimulus to the economy, however, was never realized. As with railroads, most of the equipment used in the production of oil was produced outside Mexico. Even many of the oil workers’ daily necessities were imported, since most of the work occurred near a port. As with the mines, profits were sent out of Mexico, rather than being reinvested locally. Finally, the bulk of oil produced in Mexican fields during the first decade of the twentieth century was refined in the United States.134