STRANGLING OUR OIL GOOSE
NO. X. IN THE SERIES “CANADA REVISITED”
AGNES C. LAUT
IN THE month of May, 1920, I set down the opinion of the great fuel experts of the world —that the next great oil find, the next great oil fields, the next great oil stampede—would be in Canada; and that great oil find would be worth to Canada $300,000,000 in yearly royalties and would make Canada the great fuel base of America for the Imperial and American Navies, as well as merchant marines of the world; for the simple reason that the United States is today using from 90,000,000 barrels to 100,000,000 barrels a year more than the wells of the United States are producing; and Mexico can no longer be regarded as an exhaustless reservoir of oil.
Mexican producers are being harassed by too much confiscatory legislation; and the big wells in Mexico are not held in storage sands but are basins of pure oil that exhaust in ten years.
With confiscatory legislation and taxes that take 33 per cent, of proceeds, and revolutions that threaten new confiscatory forms of decrees every year—the days of Mexican oil fields as liquid seas of exhaustless gold are over. The next big oil field would be Canada.
Big American oil operators did not say “If” we find oil in Canada. They said “When the oil, which we know is there, is found.”
I know the editor of MacLean’s wanted to believe the big fuel engineers were right; but it seemed too fantastically good to be true, or to be within the realm of the immediately probable. As one of the biggest men in the Canadian Northwest said to me: “We’ve got to have a boom. Unless we have a boom in oils, in coal, in mines, our backs will crack under the weight; but to expect one in oil seems too good to be true.” In the spring of 1920, one of the greatest Government oil experts said to me: “Oh, now, it’s all very well for your American experts to be so cocksure we’ve got the oil in Northern Canada; but if we have, why don’t they find it? We’ve been trying to find it since 1888. We don’t let ourselves bolster up rainbow hopes till we are sure. We need it too badly. ICwould be too good to be true. I grant you geologically the oil has been there at some time, but what if it has seeped away, or evaporated?”
Don’t Knock — Boost!
IN MY soul, I groaned! O, my country, my country, why do you always put your wrong foot foremost? Why do you always piously and resignedly hope for the very worst? Why do you knock instead of boost? Please note—I said boost not boom!
The editor prefaced my article with a saving clause “if,” “perhaps,” “maybe”—true to the Canadian form of being cautious always, safe rather than sorry. “If it were only true; but then, you know,” and so on. We have had some boom hopes ditched in Canada; and the coming down was hard. The point of contact was sore. “Hope deferred maketh the heart sick.” The war and the aftermath of the war had been deferring some of our hopes till our optimism resembled slightly the reflection of a face on the wrong side of a tablespoon.
Well. I would recommend the turning up of the other side of that spoon.
I wrote those predictions in May, 1920. By late in August, 1920, of six outfits drilling in the North, three or four had struck oil—at Fort Norman.
It does not matter much whether the drillers follow the wave of the coast line East of the Rockies, West of the Rockies, North of the Arctic Divide, South of the Hinterland. The point is—they expected the find'of oil along the wave of the Coast Line and they found it as they expected it; and where six drilling outfits have operated this year more will operate next year.
The point is—they have found the oil, which science— and the old trappers—all knew was there.
Get that fact hard! Canada has the oil. Canada holds the naval and merchant marine key of America. Edmonton in your generation and in mine will be a second Pittsburg. Great tankers will float out from Prince Rupert to supply the Orient. Tank cars will become as common across our prairies as grain cars. Our National Railways will become oil burners at a saving of three to one, in wages and fuel, and will not set fire to adjoining forests with sparks from lignite and bituminous coals. Lignite can be utilized for colloidal coal and oil processes, that will reduce the cost of fuel to the prairie householders. To ten million fuel users in the Middle Western States, the cost of fuel and light fell from $200 and $300 a year to $35 a year after the discovery and utilization of fuel oils and gases through community pipe lines. If you want to know the details of this, write to Dr. McDowell of Pittsburg, or the Bureau of Standards, Washington. They will send you a graph that will look quite incredible to fuel users on our prairies now paying $20 a ton for
Building Railroads on Frozen Rock
WITH oil in the North, you have the oil for engine power to haul the tank cars out; and building railroads in the North on a tie bed that is adamant frozen rock seven months a year is an easy proposition compared to building switchbacks up 10,000 feet of mountains in South America and down 10,000 feet of mountains to the sea. Storage isn’t going to be such an expensive thing in the North, nor haulage either. Arctic tankers will do the job in the summer, rail haul over frozen roadbeds in the winter. Alberta can laugh now at her heavy municipal and provincial indebtedness. The men, who thought they were “broke” putting in Northern railroads that began somewhere and ended nowhere, will find they are not “broke,” “only bent.”
If all this is true—and if it isn’t, throw the facts at me— why won’t our North boom ahead at express train speed? Because our fool laws throw a monkey wrench in our national development. They lock our national resources up so tightly that nobody is getting the benefit of them.
Before going on with that, I want to take up “only 25 barrels a day.” I know another well in Peace River that “gave only 20 for only a few days at only 700 feet” and then spewed up several barrels of 12 gravity tar in sheer disgust; for the well ought to have gone on down to 2,000; and the company hadn’t the capital to go. I know another well near Wainwright that witnessed similar results. No, I don’t refer to the well down which some scoundrel promoters poured gasoline and then sold a million and a half dollars of worthless oil stocks to the gullible investors, for which the said gentry are now serving time in a Canadian penitentiary.
I refer to honest made-inGod’s-laboratory oil.
Don’t be discouraged by all these reports “only 25 barrels a day.”
The average for the best wells in Pennsylvania to-day i s nearer 9 than 25, and the average for all the wells in the United States for 1920 was 4Yi barrels. It is the big well s bring the wealth to a nation; and here is the way the bi g wells have been found. Cecil Rhodes spent
$450,000 drilling for oil in Mexico and didn’t find it. Mexico was so sure there was no oil that her geologists were furious when Doheny and Canfield of California went in and proved there was. They said it would hurt Mexico’s credit to have a false boom and then a boomerang. Doheny and Canfield went into Mexico. They saw the pitch beds. They stuck a rail into them and stirred the foetid muskegs up. The lower end of the pole stank of petroleum, which science said had seeped away and didn’t exist, just as certain specimens I have from our North emanate such an oil smell you can scent it across a room. Doheny and Canfield smiled. They got a lawyer to buy up a lot of old Spanish land titles, subsoil products included. The Spanish seignors thought “the gringoes crazy” and said so. Mexico’s oil experts put their condemnation of Doheny and Canfield in State Reports. But Doheny and Canfield went ahead and bought up worthless jungle lands at $2.50 to $1.00 an acre; and the hacienda owners chuckled how they were “putting one over on the gringoes.” (They have since called those “gringoes” “predatory interests”); and I believe one Bolshevik bishop in the United States has ascribed every revolution in Mexico for ten years to oil; and though each revolution as it has come up on top has enacted worse and worse decrees against those “predatory gringoes.” There is nothing like hoping for the worst and being good about it and unctuous and obstinate, especially in oil.
Doheny bought up first 450,000 acres, then 150,000 acres before they had produced a barrel of oil. Both men were past fifty years of age. Each had cleaned up two or three millions in oil in California. If I had done that and were past fifty years of age,-1 don’t think I would have had the courage to throw it in a jungle, where everybody said there was no oil. But they did. Then they began to drill; and the jungle climate was worse than the Arctic. Men died of tropical pests likg flies. Ideal housing conditions for workers had to be created in a jungle of tropical diseases. It didn’t take long for those California millions to evaporate, or rather to disappear down the drilling shafts. Motor roads had to be built from one hundred to two hundred miles in a tangle that resembles the Orinoco. “I’ll have a motor road through here in four years,” said Doheny; and the natives thought he had been touched by a sun stroke.
The lawyer who got the title deeds through warned the Americans they were throwing away their money.
Then they began drilling. I think it was 4 barrels they got the first whack; but being Americans, they didn’t say “only 4.” Then they got 25.
Then a few thousand barrels a day, when finally—I think it was the fourth year—came the gushers.
Now the point to observe is this. If Doheny and Canfield had not had areas of 450,000 and 150,000 acres, they could not have afforded to go on throwing millions in black tar holes; for it cost the most of their California millions before they struck the gushers of 100,000 a day, and 250,000 barrels a day; and the gushers were not worth a cent without pipe lines to convey the oil; and the pipe lines necessitated right of way through the jungle and motor roads. And the pipe lines costing two and three millions were not worth a cent without storage tanks and storage tanks were not worth a cent without sea terminals, and tank cars, and tank steamers. They had to go ahead and develop as fast as the gushers came in, before one barrel of oil had been marketed, and one partner wrote to Doheny:
“a little more of such prosperity will bankrupt us.” Long before the oil reached seaboard, Doheny and Canfield had to form a stock company and assess friends to keep providing funds. Then they had to go to banks and to float bonds — to keep providing funds, but when they went to the banks, they had collateral security of 600,000 acres to put up to get the money; so they got it, though stock of a cash par value of $100 fell to $37. It has since sold for $260. What if they had only a few thousand acres to offer as collateral security to float bonds? They would have
been stalled at “only 25 barrels” a day; and all the good people, who had been devoutly hoping for the worst, would have smiled that superior smile and said “I told you so: four-flushers: boomsters: nothing doing. Didn’t Rhodes say so? He knew.”
Now come back to Canada’s laws.
Canada’s oil regulations have recently been changed; but the essential mistake of the principle remains the same. Instead of 1,900 acres, a filer can now cover 4 square miles, or 2,500 acres. Instead of 12,000 acres being the limit of a syndicate group, as I read the law a syndicate can group up to 20,000 and 30,000 acres as in Oklahoma, where the
absolute stoppage of development in one oil area compelled an expansion of the groupings.
The point is 20,000 acres does not give collateral security to a bank floating bonds up to not less than $14,000,000 and it may be as high as $50,000,000 as in the case of Colombia and Bolivia fields. Please get a petroleum directory. Look up the capitalization of the active producers—not companies exclusively devoted to refineries. You will find scarcely any capitalized under $10,000,000. You will find the most capitalized over $30,000,000; and you will find the strongest companies capitalized over $100,000,000. And note well—that capital is cash, not water.
Look up the capitalization of Mexican Petroleum; of Pan-American; of Sinclair Consolidated; of the International; of the Transcontinental; of the Gulf; of the Texas. Some of these' are Standard subsidiaries; some are Hays Hammond properties; some are the Doheny groups.
The point is—look at the capitalization and don’t butt your head into impossible fancies and waste time over arguments. Arguments don’t cut any ice in oil.
Please contemplate these facts!
Not counting tanker cars, terminals, tank steamers,— American producers had put $300,000,000 cash in Mexican oil fields before they got a cent of profit. Counting tank cars, terminals, refineries, tank steamers, their cash investment in Mexico totals to-day $750,000,000. Two companies alone count the value of their tankers and terminals at over $50,000,000 each.
The oil game is not a boy’s play in shooting marbles. It requires more outlay before there is any income than any form of investment in the world.
What is Good Security?
XTOW face the question—do you consider 25,000 acres in a group collateral security for bonds to the value of $14,000,000 to $50,000,000? If you do, the banks don’t; and all the argument under heaven will not modify that fact.
While you are arguing, progress and development are stalling. Do you want Canada to stall on her oil development? Don’t fly off into personalities and say “this fool writer doesn’t know what she is talking about.” This fool writer had worked to protect the oil producers of Mexico off and on for three years, before going to Canada. During the war, this fool writer worked with the Fuel Board for the Allies continuously. Before the war, this fool writer worked off and on with the oil and gas producers of the Middle West again and again—for six years, this fool writer has worked off and on with the Washington Bureau of Standards as a mentor; and the Bureau of Standards is the greatest authority on fuels in the scientific world. What she does not know about fuels would fill the Encyclopaedia Britannica; but what she does know is this simple little fact that 20,000 acres, yes, 100,000 acres, do not afford sufficient collateral on which to float $50,000,000 of bonds.
Ten Cent Shares in Gushers—Maybe DUT that is not the worst feature of Canada’s regulations. After finding oil in one of the four square miles filed by the wildcatter, or promoter, the other threequarters of the claim revert back to the Crown as a Government Reserve. Fine! See how Canada is saving her natural resources for national uses! But wait! Probe deeper! What will it cost to find that oil? The well of the latest
big gusher brought in, in Mexico, cost $250,000. Wells in Southern Alberta cost $40,000; but Southern Alberta is not the Arctic Circle. You must average costs there plus terrific freights, the staff of drillers dispersed for the winter and brought back in spring, housing put up at great overhead cost owing to the distance—1,500 miles—from settlement. I venture to say no gusher can be brought in at Fort Norman under a preliminary cost of $1,000,000. Now do you think any big company is going to bring a gusher in at a cost of a million and see three-quarters of the benefit of its find revert to nationalization?
I leave that question unanswered.
When I brought these facts to the attention of a Peace River promoter, who wanted to sell paper shares to the public at 10c to raise money to continue drilling, he flew up in mid-air and called me everything from Ananias to Billy Sunday. But wait! Let us get at facts again!
If you sell 10c shares to the public before you have found your oil, you are selling a gamble, with the chances bigger against the buyer than a lottery. If you sell the 10c shares after you have found your oil, you are still selling shares in a lottery. Why?
Well, suppose you find your oil, as Peace River has—equal to Mexico’s in basic fuels—what are you going to do with it? Sell it! To whom? To the big companies, who have pipe lines and tank cars to bring it to market. Looks simple,fdoesn’t it, on paper? But right here is one of the bitter tragedies of the oil world. Unless there are competing big companies bidding against one another for that oil, as in Texas and the Middle West, they will pay you just what they sweet please; and they may sweet please to pay you from lc to 10c a barrel. Or they may freeze you out, so you may have to sell to them your claim at their price. Find out what happened in Mexico and the Middle West in the early days if you want to know that early tragedy of oil development. Doheny’s first big gusher in Mexico nearly bankrupted him because he couldn’t find a market for it; and his bitterest enemies in Mexico to-day arise from the fact that his companies have so much oil of their own they cannot buy all the output of the little independents to run it through his pipe lines.
“Then,” demanded my Peace River protagonist, “do you mean to tell me this is purely a rich man’s game? Is there no chance for the little independents, for the prospector, for the finder, for the ‘wildcatter,’ who risks his all and first finds the oil?”
He seemed to think I was personally offensive, or hostile to Peace River, for telling him the facts of the oil world. “Can you raise $50,000,000 by selling 10c shares to the public?” I asked.
“Then how have the little independents made such fortunes in Texas?” he asked belligerently.
“By getting in a lot of competing big companies with pipe lines to bid for the oil. When that happens, the big companies prefer to let the prospector and “wildcatter” do the preliminary work. Then the big companies either buy the oil at so much a barrel, or buy the claims outright at all they have to pay, or pay the little fellow a royalty of a sixth, an eighth, a tenth of gross oil output; and it is the last way that the little fellows have made their big fortunes. That is the way Osage Indians to-day are individually drawing royalties of $25,000 to $50,000 a year — Indians, who are still going round in moccasins.”
Takethecost of pipe lines alone. In Colo m b i a and Mexico, pipe lines and the right of way cost $2,500 a mile. A pipe line from Fort Norman to Edmonton would cost more than $10,000 a mile, but it would pay the Government to put in such pipe lines itself. But the pipe linas are not there yet; and the big companies will not put them in till they know how many wells they will have as feeders; and the big companies are not going to hurt themselves with
exploratory work till they know they will get back 100 per cent, of their outlay, and not just 25 per cent, of the benefits. And that is human nature as well as corporate nature.
It is right for Canada to refuse to deed away her heritage for nothing to big foreign corporations, that might blanket vast claims and leave them undeveloped for years. It was natural to want to preserve for Canada a big slice of profit from her seas of liquid gold; but has she done it in the best way? If you strangle a goose, how do you purpose getting its golden eggs?
We’ll suppose the companies grouped in Canada have spent a million on wells, of small production, hoping for the big gushers. They can’t sell stock to the public yet. Till they find a gusher, such sale would be a gamble and a swindle; so they go to the banks to issue bonds, or borrow. What security have they to offer? A small area not yet producing in pay quantities, on which they are paying big royalties because they have small producers. The banks say “Nothing doing.” The small developer is stalled. Only the big corporation can go ahead; and Canada’s laws, which were designed to keep oil areas for small independent producers, are hindering that very class and making it impossible for any group to go ahead, but the big powerful groups, who are in a position to go ahead anyway. The largest co-ordination of groups I know of in Canada is 9,000 acres, and the largest individual ownership of a big company through groups is rumored to total 60,000 acres, though promoters are now going round getting oil leases from farmers on the basis of a future royalty if oil is found; and the land sold by one big company from henceforth reserves oil rights, which any buyer is a fool to permit. If he buys the land and pays its price, he ought to have all there is in it. And I think the farmers, who are signing away sub-soil bases for a song, are splitting a probable future profit with middlemen, who are not paying them figures commensurate with returns if oil is found. Now is the time to waken up, not afterwards; for a lot of things are happening under the surface of promoters’ operations as well as under the surface of the driller’s point; and Canadian farmers should know that if oil is struck in their locality, it might mean on a sixth and on an eighth returns, incomes of í100,000 a year to them for life. I see no reason for Canadian farmers signing away half that income to middlemen, who are doing nothing as to drilling or anything eke but fastening themselves like parasites to the real owners of the land and the real developers of the oil.
We have had too much of that sort of thing in our land booms. Don’t let us get “touched” again in oil.
“We would rather any day float bonds for a $14,000,000 oil project than a million project,” said one of the great oil experts of the United States to me, a man, who has launched five million acre projects in Bolivia and six million acre projects in Peru. “It is purely a banking problem in figures. A million will not finance an oil project through to a finish; and the banks know it. If there isn’t collateral for $10,000,000 to $14,000,000, the banks are scared of it; and so are we.”
How is Canada to give collateral for $10,000,000 to $14,000,000, and not blanket her resources, or see them gobbled up?
I wish I could give the name of a very big Western man; but it might be used against him politically; and I can’t. He is a provincial man, not a federal leader; and he is a farmer. “This is the way it frames up to me,” he said. “Take Alberta. She has millions and millions of acres of socalled oil lands undeveloped and doing nobody any good. She has known there was oil there for almost a century. Has it done her any good? Now let a big company take to-day a million acres. Do you suppose any sane company is going to spend a million dollars finding oil and then let an interloper come in and sink a drill next to his pool and
pump out of it? No! Let the big company take its million acres. Let them go in for nothing. Charge them nothing while they search and develop. Then when they find the oil and begin to ship, let us charge them a stiff but fair royalty on output, not on acreage. British Columbia laws do this now on Crown Lands. Suppose Alberta
were shipping $300,000,000 of oil a year, either from oil wells, or tar sands, and were getting a royalty of a sixth, wouldn't $50,000,000 a year pay her better than the Dominion subsidy of $640,000 a year? Give us local con-
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trol over our Western provincial resources; and I venture to say Alberta electors would vote for that policy to a man.”
There is the case in a nutshell. That is what is holding Canada’s oil development
Or take the case of potash deposits.
THE same rumors exist of those deposits on the Liard as of oil in Mackenzie River areas. Trappers and engineers have brought out the reports. Canada’s potash deposits are supposed to be on the Liard. The Liard is hundreds—I might almost say thousands—of miles from trunk line transportation. What company is going to build a line to get it out? No line unless it has big enough guarantee to get its railroad financed at the banks.
Since 1871 (read Selwyn’s Report), it has been known there was an enormous body of low grade gold ore on Selwyn Mountain, a bed of low grade ore similar to the iron ores of Lake Superior; but Selwyn is also hundreds of miles from a railroad; and this is a smelting ore. What company is going to put in smelters and a railroad unless it has big enough areas and long enough lease on the ore beds to finance railroad and smelter? The same thing might happen to it as at Phoenix. If it paid
royalty on acreage instead of output, the vein might peter out; and a town of 3,700 dwindle overnight to 1,000 or 200.
It would be laughable if it were not so stupid as to be pathetic to think that one of Canada’s largest single items of imports is anthracite coal, while prairie provinces pay $20 a ton for it, when they can get it at all. Canada has a huge bed of anthracite between Peace River and Prince George on Bear Creek, which would make her independent of all foreign anthracite. Lack of railroads again. Capital doesn’t know where it would be at if it began spending millions to get that coal out. Would it be “nationalized?” Would soap box orators say: “We’ll take it back. It’s ours.” Well, like the gold on Mt. Selwyn, the pulp wood in British Columbia, the oil on Mackenzie, the potash on the Liard, it is alt Canada’s now. It is nationalized now to the dearest nationalizer’s heart’s content, and what good is it all doing him; and what good is it doing Canada?
Will it pay Canada better to lock her natural resources up so tightly nobody can develop them? (She has been doing that for a century now.) Or will it pay her to throw the doors wide open to capital, then take such a stiff royalty out of the production that the nation gets a revenue, while the country gets the benefit of production? Which is best for Canada?