Pan American Petroleum and Transport Company

The Pan American Petroleum and Transport Company (PAT) was an oil company founded in 1916 by the American oil tycoon Edward L. Doheny after he had made a huge oil strike in Mexico. Pan American profited from fuel demand during World War I, and from the subsequent growth in use of automobiles. For several years Pan American was the largest American oil company, with production assets in the United States, Mexico and Venezuela and marketing operations in the United States, Mexico, the United Kingdom and Brazil. In 1924 Pan American was involved in the Teapot Dome scandal over irregularities in the award of a U.S. government oil concession. Standard Oil of Indiana obtained a majority stake in 1925. The company sold its foreign properties to Standard Oil of New Jersey in 1932. What was left of Pan American, was merged with Standard Oil of Indiana in 1954, later renamed to Amoco after the American Oil Company, a Pan American subsidiary.

Origins

+ Oil production in Mexico Barrels <1901 0 1901 10,345 1902 40,200 1903 75,375 1904 125,625 1905 251,250 1906 502,500 1907 1,005,000 1908 3,932,900 1909 2,713,500 1910 3,634,080 1911 12,552,798 1912 16,558,215

Edward L. Doheny was a prospector who became wealthy in the 1880s from silver mines in the Black Range of New Mexico.

In 1892 he moved with his family to Los Angeles, where he sank a mine and found oil at the corner of Patton Street and West State Street. This began an oil boom in Los Angeles. Doheny overextended himself and his company went bankrupt in August 1896.

The setback was temporary, and a long-term contract with the Atchison, Topeka and Santa Fe Railway gave him the opportunity to develop and expand a growing number of oil properties.

In 1900 he visited Mexico with his associate Charles A. Canfield and Almon Porter Maginnis of the Santa Fe railroad, saw the oil potential of the country near Tampico and began acquiring property.

Doheny found heavy oil in El Ebano in 1901, which he exported to the United States for use in paving. He formed the Mexican Petroleum Company and funded it with $6 million of his own money.

In 1905 he bought properties near Tuxpan, and formed the Huasteca Petroleum Company to hold them. In 1910, his wells in the Juan Casiano Basin in the Faja de Oro field started to produce good quality oil. The Casiano No. 7 gusher spewed out 60,000 barrels a day, and by 1918 had delivered over 85 million barrels of oil. In 1911 Doheny signed a contract to supply Standard Oil. In October 1910, Doheny signed a deal with the Waters-Pierce Oil Co. (part of the Standard Oil trust) for delivery of 2,500,000 barrels of the new plentiful supply.

Doheny's Mexican Petroleum Company made a major strike in February 1916 with the Cerro Azul No. 4 in Cerro Azul. When the well struck it shot a stream of oil into the air. It was world's largest oil gusher, flowing 260,000 barrels per day. Over the next fourteen years the well produced over 57 million barrels. The Mexican Petroleum Company eventually acquired ownership or leasehold rights to of land.

Expansion

+ Oil production in Mexico Venezuela 1913 25,696,291 0 1914 26,235,403 1915 32,910,508 1916 39,817,402 1917 55,292,770 120,000 1918 63,828,000 333,000 1919 87,073,000 425,000 1920 157,069,000 457,000 1921 193,398,000 1,433,000 1922 182,278,000 2,201,000 1923 149,585,000 4,201,000 1924 139,678,000 9,042,000 1925 115,515,000 19,687,000

The Pan American Petroleum and Transport Company was incorporated by Doheny in Delaware in 1916 as the holding company for his Mexican Petroleum Company, Huasteca Petroleum Company and California oil properties. What was initially a 51% controlling interest in Mexican Petroleum increased over time. After the minority shareholders of Mexican Petroleum were offered to exchange their shares for class B nonvoting stock of the parent company, Pan-American at the end of 1922 owned 96% of the shares of Mexican Petroleum.

World War I drove up demand for oil-fueled transport, and Doheny responded by expanding pumps, tanks and loading sites in Tampico. By July 1917 Pan American had a fleet of 31 tankers. The company paid $1.1 million in dividends in 1917 and $3.1 million in dividends on its common stock in 1918. 1918 revenues were $17 million and net profits were almost $7 million.

In 1918 the Carib Syndicate, a concern owned by Americans, bought the Barco oil concession in Colombia. They sold 75% of their interest to the Colombian Petroleum Company the next year, a subsidiary of Pan American. Doheny was also interested in plans to develop the oil industry in Venezuela, and in building a pipeline from Colombia to Venezuela to make it more economical to export the Barco oil production from the west coast of Lake Maracaibo. In 1921 Pan American was the largest oil company in the United States, ahead of Sinclair Consolidated Oil Corporation and the Standard Oil Company of Indiana. Automobile production was booming and oil prices were high. The Mexican Petroleum Company was the largest in Mexico, and Mexico was the largest oil producer in the world.

In 1922 Albert B. Fall, U.S. Secretary of the Interior, leased the oil field at Elk Hills, California, to the Pan American Petroleum & Transport Company. Around the same time, the Teapot Dome Field in Wyoming was leased to Sinclair Consolidated Oil Corporation. Both oilfields were part of the US Navy's petroleum reserves. Neither lease was subject to competitive bidding. In 1924 rumors about corruption in the deals escalated into the Teapot Dome scandal.

On 24 January 1924 Doheny testified before the U.S. Senate Committee on Public Lands and Surveys, and admitted that he had loaned Fall $100,000 in cash with no security some months before the oilfield leasing arrangement was made. Doheny said the loan was a personal one. Pan American had been the lowest bidder for a contract to build and fill crude oil storage facilities at Pearl Harbor, and had offered to undertake this contract in exchange for the oilfield lease, being paid in oil and then paying royalties to the government for oil extracted in excess of costs. Eventually the Supreme Court nullified both leases. It was not until 1930 that Doheny was cleared of all charges.

In 1923 Louis Blaustein and his son Jacob Blaustein sold a half interest in their American Oil Company to Pan American in exchange for a guaranteed supply of oil. Before this deal, American Oil had depended on Standard Oil of New Jersey, a competitor, for its supplies. At the end of 1923 Pan American had a net worth of $173 million, with net earnings that year of over $20 million. The company paid dividends of $20.4 million that year.

Standard Oil of Indiana subsidiary

+ Oil production in Mexico Venezuela 1926 90,421,000 36,911,000 1927 64,121,000 63,134,000 1928 50,151,000 105,749,000 1929 44,688,000 137,472,000 1930 39,530,000 136,669,000 1931 33,039,000 116,613,000 1932 32,805,000 116,541,000

On 1 April 1925, the California assets of Pan American Petroleum and Transport were transferred to a new holding company, the Pan American Western Petroleum Company, in which Doheny retained control. He sold a majority of shares in the remainder of the Venezuelan facilities of the Pan American Petroleum and Transport Company and his Mexican Petroleum Company to Pan American Eastern Petroleum, a new subsidiary of Standard Oil of Indiana. This included the Mexican holdings, Atlantic and Gulf Coasts holdings in the United States, refineries, pipelines and 31 tankers. Standard of Indiana increased its stake over time and by 1931 owned 95% of both classes (voting and non-voting) of common stock of PAT.

At the end of 1925 Pan American Western gained control of Lago Petroleum Corporation from C. Ledyard Blair's Blair & Co.. The transaction was to be the subject of a stockholder action in 1933, alleging that there had been a conspiracy by the bankers, who were represented on the Pan American board, to make excessive profits. In 1926 Venezuelan Eastern Petroleum Corporation was organized as a subsidiary of Pan American Eastern with the purpose of buying and developing Venezuelan oil properties.

On March 14, 1925 the Turkish Petroleum Company was granted a concession in Iraq, in which no petroleum industry existed at the time. 25% of the stock belonged to an American group of 6 oil companies, among them the Mexican Petroleum Company. In 1926 Pan American Petroleum & Transport replaced Mexican Petroleum. The famous Kirkuk field was discovered in 1927, but in 1931 Pan American sold its % interest in the American group to the Standard Oil of New Jersey which increased Jersey's share to %, before any commercial production in the concession got underway. In other words, a prelude to the 1932 sale of Pan American's foreign properties to Standard of NJ. The Kirkuk-Haifa oil pipeline was completed in 1934 to an initial capacity of 85,000bpd and remained so until 1948. PAT's share of 16.6% of 23.75% would have provided the company with 3,350bpd at an Eastern Mediterranean port, far away from any existing company-owned refinery capacity and would have made it a minor part of a company that was in the initial stages of an effort to control almost the whole Middle East through its various affiliates.

In June 1930, PanAm bought for ca. $5 million the assets of the Tide Water Oil Export Corp., subsidiary of Tidewater Oil and a distributor of refined products primarily in Brazil and Argentina.

In 1932 Standard Oil of New Jersey offered $50 million in cash and $98 million in Jersey shares for all foreign assets of Pan American Petroleum as part of a deal arranged with Standard of Indiana which then sold its entire stake of 96% in these subsidiary assets. With this acquisition, Standard Oil of New Jersey became Mexico's largest oil producer. The deal also included large oil concessions in Venezuela and Pan-American's UK subsidiary Cleveland Petroleum Products.

However, a few years later the Mexican properties were nationalized. President Lázaro Cárdenas expropriated all foreign oil concessions on 18 March 1938 and placed them under the government-controlled Pemex, paying compensation to the former owners.

In the 1940s, the case of Blaustein v. Pan American Petroleum & Oil Transport Co. was heard by the Supreme Court to determine whether the directors of Pan American had been in breach of their fiduciary duty. The directors were all officers of directors of Standard Oil of Indiana, which held almost 80% of Pan American's shares, and it was charged that they had deprived Pan American of profitable opportunities to drill and refine oil. The majority finding, setting an important precedent, was that it should be assumed that they had acted in good faith and without personal gains to themselves.

Effective August 17, 1954, Pan American merged with Standard of Indiana, the latter's board of directors increased by one seat to 16, to which Jacob Blaustein was appointed. At the time of the merger 78% of the stock of Pan American was owned by Standard Oil of Indiana. Substantially all of the assets were transferred to the American Oil Company (the former PanAm subsidiary, and now a directly and wholly owned subsidiary of Standard OIl of Indiana). Most important minority shareholders in the late PanAm corporation were the Blausteins, who received 0.777 Indiana shares for each of their PanAm shares (which amounted to ca. 22% of 4,702,945 common stock, the only class of stock outstanding for PanAm). The plan was to issue 777,716 new Indiana shares on top of the then current number of 15,386,519 (+5.1%). The Blaustein interests thus became one of the big shareholders of Standard.

To form the American Oil Company, Amoco. Amoco was in turn acquired by BP in 1998.

Production

Map of Mexican leases and pipelines belonging to Pam American subsidiaries:

Ebano