Oil and Gas Industry
Source: The Handbook of Texas Online
PANHANDLE FIELD
CARBON BLACK INDUSTRY
MESA PETROLEUM
CORPORATION
SANFORD AND NORTHERN
RAILWAY
PANHANDLE
FIELD
Panhandle field is a giant gas and oil producing area
that draws production from several horizons of
Pennsylvanian and Permian age granite wash and dolomite,
covering 200,000 surface acres in Hartley, Potter, Moore,
Hutchinson, Carson, Gray, Wheeler, and Collingsworth
counties of the Panhandle. The field was classified as
one reservoir by the Railroad Commission of Texas until
January 1, 1940, when cumulative production totaled 346.8
million barrels of oil.
At that time oil production from the reservoir was
separated into fields named Panhandle Carson County,
Panhandle Gray County, Panhandle Hutchinson County, and
Panhandle Wheeler County. The primary recovery of oil
from the reservoir was driven by solution gas and gas-cap
expansion and reservoir pressure has been maintained by
gas and water injection. Secondary recovery attempts in
the oilfield were begun with water flooding in 1946, but
results were mixed. The vast gas reservoir, known as
Panhandle Hugoton field, flanks the areas of oil
production and is centered around the city of Pampa in
Gray County. By 1994 the oilfields of the Panhandle
district had yielded a cumulative total of nearly 1.42
billion barrels of oil and between 1973 and 1993 dry gas
production was 8.1 trillion cubic feet.
Oil was first found in the Osborne area of Wheeler County
in 1910. Called Panhandle Osborne field, the area gave up
nearly 6 million barrels of oil before the Railroad
Commission consolidated it with Panhandle Wheeler field
on May 1, 1989. However, it was in Potter County, three
counties to the west, that exploration resulted in the
discovery of the nation's largest natural gas reserve. In
1916 Amarillo Oil Company, a locally funded venture,
hired Charles N. Gould to study the Amarillo fold for
petroleum exploration.
Gould was a University of Oklahoma geology professor who
had first mapped the area for a water study beginning in
1904. The area that Gould and his associate, Robert S.
Dewey, studied and mapped for Amarillo Oil was located on
either side of the Canadian River on two large ranches in
northern Potter County, belonging to R. B. Masterson
north of the river and to Lee Bivins south of it. When
Gould and Dewey completed the study, they mapped a
prominent structure that was ten to fifteen miles in
diameter and exhibited 400 feet of uplift.
Gould and Dewey named the structure John Ray dome for the
nearby butte. Amarillo Oil was so impressed with the map
and the salient anticline that the company leased 64,000
acres and spudded the No. 1 Masterson on John Ray dome in
Masterson's high prairie, 225 miles from known
production. The well was completed on December 9, 1918 to
a total depth of 2,269 feet where 10 million cubic feet
of gas were produced daily. In 1919 three additional
wells were completed in the Masterson high prairie, and
all four were tested on an open-flow gauge in March 1920,
where they yielded 160 million cubic feet of gas a day.
When other strong wells were brought in on locations
several miles apart in the ever-widening field, it was
obvious that the subsurface of the Panhandle held
enormous natural gas reserves. Engineers have estimated
that those reserves numbered 15 to 25 trillion cubic feet
of natural gas at discovery.
This major gas discovery in a then-isolated section of
the state captured the interest of major and independent
oil companies, although they questioned the economic
significance of even a giant field that had no market for
production and no transportation system. Oilmen doubted
that the reservoir would produce crude, the only form of
hydrocarbons they sought. However, explorationists could
neither deny nor ignore the possibilities of the
discovery and they began leasing large blocks. On May 5,
1921 the Gulf Production Company No. 2 S. B. Burnett in
Carson County reached a total depth of 3,052 feet and
gave up 190 barrels of oil a day. The well was shut in
after pumping 1,000 barrels of oil because there was no
way to store it or move it to refineries. Although it was
evident that oil could be produced in the Panhandle
district, oilmen noted that production before mid-1923 in
Carson and Hutchinson counties was by pump and was
limited to field use.
However, on June 1, 1923 the Sanford No. 1 J. C.
Whittington in southwestern Hutchinson County reached a
depth of 3,077 feet and found flowing oil of 38°
gravity, offering the encouragement oil explorationists
needed. During 1925 three surrounding counties were
opened to oil production and the first casinghead
gasoline plant in the field, owned by American Refining
Company, came on line. In January 1925 a well in Wheeler
County drilled to a depth of 2,175 feet and began
spraying oil. In March oil production was established in
Gray County and in May 1925 Potter County was opened to
oil. By January 1926 a second gasoline plant and a
carbon-black plant were operating in the field.
By June 1926 pipelines owned by Gulf Oil Corporation,
Humble Oil and Refining Company (later Exxon Company,
U.S.A), Magnolia Petroleum Company, and Bar-Tex, Marland,
Pan-Tex, Plains, and Sinclair companies offered outlets
for crude produced in the field. By late September 1926
Panhandle field reached a daily production average of
120,870 barrels of oil from 427 wells, and between 10,000
and 14,000 barrels of oil were shipped by railroad tank
cars from the field to refineries. In February 1927 the
Morton No. 1 Reeder in Moore County came in with initial
production of 225 barrels of oil from a depth of 3,422
feet. Peak yearly production occurred in 1927 when more
than 40 million barrels of oil were reported. By January
1930 voluntary proration was in practice in the
five-county oilfield and met moderate success until
statewide proration was installed by the Railroad
Commission on August 14, 1930.
Even though development of Panhandle field was directed
toward oil exploration after the first oil well was
completed, natural gas reserves proved prolific.
Beginning in 1925 gas pipelines were laid to move
production to distant markets. From 1925 to 1930 lines
were built by Northern Texas Utilities, Lone Star Gas,
South Plains Pipe Line, Cities Service Gas, Canadian
River Gas, and Consolidated Gas Utilities companies. By
1929 the field supported forty-four gasoline plants and
fifteen carbon-black plants, but by 1931 the number of
plants increased to fifty-three gasoline and twenty-four
carbon black. By mid-1937 the number of carbon-black
plants climbed to thirty-one. The rapid growth of these
plants and the small number of gas pipelines led to waste
of natural gas and to the drainage of gas from leases
with no pipeline connection.
Although the state legislature enacted the Common
Purchaser Act in 1931 to give gas market equality, the
courts struck down the order of the Railroad Commission
to enforce the law. In 1933 the Sour Gas Law was passed
by the state legislature at the lobbying of gas-stripping
operators. It allowed owners in Panhandle Hugoton field,
where the common pool consisted of as many as 300,000
acres, to use 25 percent of open-flow capacity for
stripping the gas of its natural gasoline and for blowing
the residual gas into the atmosphere when no reasonable
market was available. Although pipeline companies wanted
to buy the gas and the public protested the health
hazard, operators flared over a billion cubic feet of gas
each day in the field. It was 1935 before the law was
repealed and upheld in the courts, effectively ending
stripping and flaring procedures in Panhandle field.
Although gas flaring presented serious problems for
operators and the public in the Panhandle, the field
became known nationally as a helium reserve. Careful
analyses of gas in the vast reservoir revealed the
presence of helium in the Cliffside area in central
Potter County. Since the only known helium for the nation
existed in a near-depleted field near Petrolia, Texas,
and one at Dexter, Kansas, the estimated reserve of 100
billion cubic feet at Cliffside represented an important
find. The federal government acquired 50,000 acres on the
producing structure and an extraction plant was
constructed near Amarillo in April 1929.
By January 1, 1994 Panhandle field, the largest-volume
gas field in the United States, reported annual
production of 165,664,617,000 cubic feet of gas from
4,499 producing wells. The cumulative production from
1973 through 1993 was 8,108,125,146,000 cubic feet of
gas. Annual oil production in the giant field was
5,023,878 barrels, and the combined cumulative yield from
the original field and its successors totaled
1,419,994,844 barrels. With its gigantic yields of both
gas and oil over three-fourths of the twentieth century,
Panhandle field represented one of the greatest petroleum
reserves ever found in Texas.
BIBLIOGRAPHY: William E. Galloway et al., Atlas of Major
Texas Oil Reservoirs (Austin: University of Texas Bureau
of Economic Geology, 1983). Charles N. Gould, Covered
Wagon Geologist (Norman: University of Oklahoma Press,
1959). David F. Prindle, Petroleum Politics and the Texas
Railroad Commission (Austin: University of Texas Press,
1981). Charles Albert Warner, Texas Oil and Gas Since
1543 (Houston: Gulf, 1939).
Julia Cauble Smith
CARBON
BLACK INDUSTRY
Carbon black is produced from "sour"
gas-natural gas that contains more than 1½ grains of
hydrogen sulfide or more than two grains of sulfur per
hundred standard cubic feet. Although J. K. Wright, a
Philadelphia ink maker, discovered the process of
manufacturing carbon black in 1864, it was little used
until improved technology in the twentieth century
reduced the high cost of production. After 1915 carbon
black became widely used as a reinforcing agent in the
production of automobile tires. In early 1923 the first
Texas plant for manufacturing carbon black by burning
residue gas from gasoline plants was constructed in
Stephens County.
Two other plants were erected in the same county later
that year; together the three plants annually produced
2,633,013 pounds of carbon black valued at $184,306.
Carbon black production was limited to Stephens and
Eastland counties until March 11, 1926, when the Railroad
Commission permitted the Phillips Petroleum Company to
build a plant in the Panhandle for the casinghead
gasoline plants in Carson and Hutchinson counties. This
plant, initially run by the Western Carbon Company, was
later owned and operated by the Columbian Carbon firm.
By 1926 there were seven carbon black plants in Stephens
County and two in Eastland County, as well as the one in
Hutchinson County; that year Texas produced 20 percent of
the nation's output of carbon black. In 1928 the Cabot
Carbon Company established the first of several plants
near Pampa, and in 1931 a plant was erected at Big Lake.
Such corporations as Coltexo, Texas-Elf Carbon, Peerless
Carbon, and United Carbon continued to expand and
sometimes established their own company towns in more
remote areas to house employees and their families.
In 1931 thirty-one plants in Texas produced 210,878,000
pounds of carbon black, or 75 percent of the nation's
output. In 1937 forty Texas plants, thirty-three of them
in the Panhandle, produced 82 percent of the nation's
carbon black; the Panhandle plants alone yielded
405,247,000 pounds. Plants were also operating in Winkler
and Ward counties during the late 1930s and 1940s. By the
close of World War II there were forty-two carbon black
plants in the state, including one at Bunavista, west of
Borger, built shortly after the Japanese bombing of Pearl
Harbor.
During the 1950s, when eighty-eight billion cubic feet of
gas were burned annually to produce carbon black, Texas
retained its position as the nation's leading carbon
black producer. In 1954 thirty Texas plants with a total
daily capacity of three million pounds were located in
eighteen counties and produced 65 percent of the nation's
total carbon black. Rubber companies absorbed most of the
total production; smaller quantities were used as
pigments in ink and paint.
Production continued to be concentrated in the Panhandle,
although some carbon black plants were built along the
Gulf Coast. Major locations included five plants (four
furnace-type and one channel-type) at Borger, two
furnace-type plants at Big Spring, and two plants (one
furnace-type and one channel-type) at Seagraves. Other
plants were located at Skellytown, Baytown, and Aransas
Pass. Of the two methods of production, channel and
furnace, the latter was becoming more popular by the
1960s.
In 1964 the industry recovered 1,165,593,000 pounds of
carbon black valued at $86,494,000. Thirty-nine plants
employed 1,954 persons and had a value added by
manufacturing of $29,957,000. The total daily capacity of
Texas carbon black plants had increased by that year to
3,945,300 pounds. By 1969 Texas carbon black production
was valued at $110,816,000.
The 1970s and 1980s saw a general decline in the number
of carbon black plants, due mainly to the decrease in
output of natural gas. This was particularly true of the
Panhandle, where by the 1980s only a few plants near
Pampa and Borger remained in operation. Even so, Texas
remained the largest producer of carbon black. In 1973
the state produced 1,511,127,000 pounds of carbon black,
valued at $128,144,000. By 1981 only 3,213,899 cubic
feet, or about .05 percent of all the natural gas in
Texas, went to produce carbon black. In 1984 carbon black
was manufactured from 2,456,809 cubic feet, or .04
percent of Texas natural gas.
BIBLIOGRAPHY: R. G. Allen, H. W. Price, and E. V.
Reinbold, "The History, Use and Manufacture of
Carbon Black," Panhandle-Plains Historical Review 12
(1939). Gray County History Book Committee, Gray County
Heritage (Dallas: Taylor, 1985). Charles Albert Warner,
Texas Oil and Gas Since 1543 (Houston: Gulf, 1939).
H. Allen Anderson
MESA
PETROLEUM CORPORATION
Mesa Petroleum, also known as Mesa Limited Partnership,
the nation's largest independent producer of domestic oil
and gas and one of its largest gas producers, is a
publicly held corporation with headquarters in Dallas and
offices in Amarillo, Fort Worth, and Las Colinas.
(Independent operators are distinguished from major oil
companies primarily by their smaller size and lack of
vertical integration.) It was founded by Thomas Boone
Pickens, the son of a landman, a person whose job is to
find landowners willing to lease mineral rights and then
sell their leases to oil companies.
Pickens was born on May 22, 1928, in Holdenville,
Oklahoma, moved to Amarillo while in high school,
attended Texas A&M for a year, and received his
geology degree from Oklahoma A&M in 1951. After
working as a roughneck and in a refinery, he became a
geologist for Phillips Petroleum, but difficulties in
dealing with company bureaucracy forced him to resign in
1954 and start out on his own. For two years Pickens was
self-employed in well-site and consulting work. He
founded the company that became Mesa Petroleum in 1956,
when he entered into a partnership known as Petroleum
Exploration, Incorporated, with Eugene McCartt and John
O'Brien, his wife's uncle.
McCartt and O'Brien owned quarter interests and supplied
a line of credit that enabled work on bigger ventures,
while Pickens owned the remaining half and served as
president. In its early deals, PEI made money by selling
prospects it had discovered and retaining a "back-in
interest" or percentage of the profits made by the
well in its first few years. Eventually, the firm
attracted a group of Amarillo investors who allowed it to
drill its own wells, and in 1958 PEI discovered eight gas
and one oil well in sixteen tries.
In 1959, with the help of PEI investors, Pickens formed
Altair Oil and Gas Company to explore for oil in Canada,
once again serving as president and major stockholder. In
1960 the company acquired a Utah mining company, Standard
Gilsonite, and in 1962 PEI drilled ninety-eight
successful wells and made more than $750,000 in profits.
Company employees increased from two to twenty-three, and
investors to nearly 300.
In 1963, when McCartt wished to sell his share in the
company, Pickens and PEI lacked sufficient money to buy
him out. PEI signed a three year note with McCartt to pay
him for his interest in the company. McCartt threatened
to take over the company when it almost defaulted on its
payments, a situation avoided in 1964 when Pickens led
the company in an initial public offering to raise
capital. At the same time, Pickens renamed the company
Mesa Petroleum for "the picturesque, table-topped
lands that rise out of the Texas Panhandle." In this
process, Mesa combined the properties of Altair and PEI,
and acquired 239 stockholders from the two original
firms. In its first year, Mesa produced revenues of $1.5
million and a net income of $435,310. The company grew
steadily, and by 1968 had revenues of $6.2 million,
profits of $1.4 million, and stock traded on the American
Stock Exchange.
Mesa's fame initially developed from its acquisitions. In
early 1968, Pickens targeted the Hugoton Production
Company of Garden City, Kansas, for a possible merger.
Hugoton owned a substantial portion of the Hugoton gas
field in southwestern Kansas, then the nation's largest
gas field. When the Hugoton management rebuffed Pickens's
offer, Mesa introduced a hostile tender offer that would
give Hugoton shareholders 1.8 shares of Mesa's common
stock for every share of Hugoton's. Because Pickens was
not yet forty years old and his company was the smaller
of the two, Hugoton's management and board of directors
failed to take him seriously.
In 1969, however, Mesa acquired nearly one-third of
Hugoton's shares, and in April stockholders of both
companies approved the merger. Hugoton assets gave Mesa
the leverage it needed to expand its business and
complete bigger deals. Shortly after completing the
Hugoton deal, Pickens diversified with the purchase of
the Swisher County Cattle Company and the Harmon and
Toles Grain Company, a cattle-feeding operation in
Hutchinson County, Texas. He also acquired Randall County
Feed Yard, and began to increase the capacity in its
yards.
Within three years, Mesa was the second largest cattle
feeder in the country, with the capacity to feed more
than 160,000 cattle. By 1973 the firm also owned more
than 150,000 head of cattle. Cash flow from cattle
operations enabled Mesa get into offshore exploration,
but the cattle industry experienced a downturn in 1973.
Despite Pickens's efforts to hedge his cattle, the
diversification effort ultimately failed and Mesa sold
its cattle operations at a substantial loss.
Mesa's next attempt at diversification linked it with a
company closer to its line of business and with sizable
oilfield reserves. Its offer to Southland Royalty Company
of Fort Worth was terminated after the Southland
management waged a successful legal battle against Mesa.
In 1970, Mesa acquired Pubco Petroleum, based in
Albuquerque, New Mexico, as well as undeveloped acreage
and personnel that produced an aggressive rate of growth.
In 1972 Mesa reported $92 million in revenues, $15
million in profits, and $189 million in assets.
In 1976 the company discovered the largest field in its
history in the North Sea. The Beatrice Field, named for
Pickens's wife, netted the company a $31.2 million profit
before Mesa sold it to the British National Oil Company,
established by the British Labor Party. Faced with
government requirements that BNOC participate in local
finds made by non-British exploration companies, Mesa
decided it was easier to sell than have BNOC as an
unwelcome partner.
Between 1973 and 1981, Mesa grew into one of the largest
independent oil companies in the world, with assets of
more than $2 billion. In 1980 reserves totaled more than
twenty-five million barrels of oil and natural gas
liquids and, by the end of the decade, almost 2.5
trillion cubic feet of gas. In 1979, facing a new
Canadian tax policy, Pickens sold Altair Oil and Gas and
founded the Mesa Royalty Trust to restructure the firm by
spinning off a large portion of its reserves to
shareholders. Mesa distributed trust units on the New
York Stock Exchange equal to the number of shares each
stockholder had in Mesa common stock. Stockholders
received 90 percent of the profits from assets directly,
while Mesa retained a working interest to manage the
properties. In 1984 the Tax Reform Act dissolved such
trusts.
Pickens also succeeded in oil futures, but it was his
repeated attempts to take over companies much larger than
his own that led to his and the company's greatest fame.
By the 1980s he came to believe that acquiring other
companies had become more profitable than oil exploration
and production. His skill lay in an ability to identify
undervalued companies and make a profit when outside
parties and the markets recognized their value. In the
spring of 1982, Mesa made an offer for Cities Service
Company of Tulsa, Oklahoma, a company more than twenty
times the size of Mesa.
Cities Service responded to Mesa's tender offer with a
tender offer of its own for Mesa. Cities Service enlisted
Gulf Oil as a "white knight," a company
agreeable to management that could defend the targeted
company, to help in their defense. Mesa eventually lost
the battle, but sold the stock it owned in Cities Service
back to the company for a $30 million profit. In the
1980s, Mesa attempted several other takeovers. It was
outbid by Phillips Petroleum in a 1983 offer for General
American Oil, a Dallas independent, but succeeded in
acquiring a 5 percent portion of shares outstanding in
Gulf Oil, the sixth largest oil company in the United
States.
Later that summer Pickens and a group of investors
acquired additional stock to bring Mesa's total interest
to 11 percent. Pickens then launched a proxy fight with
Gulf for control of a company he viewed as poorly
managed. Gulf's management offered Pickens a
"greenmail" premium, an amount paid by a target
company to repurchase its stock from a corporate raider,
but he refused. Eventually, Socal Oil merged with Gulf in
the largest merger in corporate history to date, and
Pickens and his investors profited $760 million before
taxes by tendering their shares to Socal. Mesa also
attempted to buy Phillips Petroleum and Unocal, but did
not acquire either.
In late 1985, after a friendly merger with Pioneer, a
large Amarillo independent oil and gas company, Pickens
reorganized his company as the Mesa Limited Partnership,
then the largest independent oil company in the world.
The same year, he founded the Boone Company, a joint
venture between Drew Craig, Sidney Tassin, David
Batchelder, and Pickens, to deal separately from the Mesa
Limited Partnership. In the late 1980s and early 1990s,
Pickens attempted takeovers of Newmont Mining, a New
York-based firm, Diamond Shamrock, and Koito Mfg., Ltd.,
a Japanese auto-parts manufacturer, making substantial
gains in the process. After a dispute with the Amarillo
City Council, Mesa moved its headquarters from Amarillo
to Dallas in 1989, and in 1991 restructured itself from a
limited partnership to a corporation. In that year the
company also sold significant assets to Seagull Energy of
Houston. Mesa employed approximately 300 people in 1993.
T. Boone Pickens has been at the center of controversies
surrounding Mesa. Called an "entrepreneurial
populist," a corporate raider, and a greenmailer, he
is accused of buying and breaking up companies and
putting people out of jobs. In 1986 he started and funded
a nonprofit organization called the United Shareholders
Association to fund a newspaper informing shareholders of
corporate abuses, and in 1987 he defended his position in
a best-selling book entitled Boone. Pickens, for whom the
West Texas A&M University business school is named,
has served as the university's chairman of the board and
supported other Texas universities.
BIBLIOGRAPHY: T. Boone Pickens, Boone (Boston: Houghton
Mifflin, 1987). Vertical Files, Barker Texas History
Center, University of Texas at Austin (Mesa Petroleum, T.
Boone Pickens).
Keli Flynn
SANFORD AND
NORTHERN RAILWAY
The Sanford and Northern Railway Company was built during
the oil boom of the late 1920s. It was at first privately
owned by the Riverside Sand and Gravel Company and used
to haul gravel from the company's gravel pit at Riverside
in Hutchinson County. When the company was bought by the
Moore and Moore Land and Gravel Company the new owners
applied for a charter from the state, which was granted
on May 16, 1931. The railroad had one small locomotive
and twenty cars to haul its gravel over 1½ miles of
track.
It was one of several railroads claiming to be the
shortest chartered road in the country. For a few years
the Sanford and Northern had a working agreement with the
Chicago, Rock Island and Pacific Railway Company, which
ran through Sanford, to share revenues of the caliche it
hauled for road building. Moore owned the palatial
private car of Hetty Green, legendary eastern capitalist.
The car was parked on a siding and used as living
quarters until it caught fire and burned. Revenues soon
declined, and the railroad was abandoned.
BIBLIOGRAPHY: Hutchinson County Historical Commission,
History of Hutchinson County, Texas (Dallas: Taylor,
1980). S. G. Reed, A History of the Texas Railroads
(Houston: St. Clair, 1941; rpt., New York: Arno, 1981).
F. Stanley, Story of the Texas Panhandle Railroads
(Borger, Texas: Hess, 1976).
H. Allen Anderson