Comments: A Momentous Day

Abstract

On 18 March 1938, the first successful well from a fixed offshore facility in the Gulf of Mexico was completed. Several attempts at building drilling sites offshore there—borrowing from ideas that had been used in California, Lake Maracaibo in Venezuela, and elsewhere—failed in the face of hurricanes and other strong storms. But the success of the Creole platform offshore Louisiana, a structure 320 ft by 180 ft supported by 300 piles driven 14 ft into the seabed, began a new era in oil production. Despite some damage from a fierce hurricane in 1940, Creole went on to produce 4 million bbl during its 30-year life. But that was not the only significant event to occur that day, which turned out to be one of the most significant in the history of the oil and gas industry. Some 800 miles to the south, Mexico nationalized all foreign-owned oil properties, a decision that affects oil operations in Mexico and across Latin America to this day. And, halfway around the world, the discovery well for the first oil found in Saudi Arabia came in, transforming the industry in an even bigger way. The expropriation of oil properties by Mexican President General Lazaro Cardenas was the culmination of a long and bitter fight between the Mexican government, private oil companies, and U.S. and British interests. To some, it was the logical extension of Article 27 of the 1917 Mexican Constitution that states that underground resources belong to Mexico, not to those who own the property. U.S. and British companies disputed this view, claiming that property they had invested in before the constitution was adopted could not be seized by the state. As author Daniel Yergin recounts in his excellent history of the oil industry, The Prize, Cardenas had been a military commander in the country's oil region and had acquired a distaste for the foreign oil companies operating there, and it became clear that nationalism and foreign oil interests would not mix. March 18 is still celebrated annually in Mexico, and a giant bust of Cardenas sits in front of the Mexico City headquarters of Pemex, Mexico's state-owned oil company. And attempts to find wriggle room in Article 27, to allow more private capital to flow into Mexico's cash-strapped oil and gas industry, are ongoing. During the 1990s, the administration and Pemex tried several times to persuade Congress to liberalize the oil law to allow private money into petrochemicals, natural gas, refinery construction, and upstream projects. Some of those attempts have been successful. The Mexican government recently announced new legislation that would allow private participation in natural gas exploration and production and in the storage, transportation, and distribution of oil and refined products. Those issues undoubtedly will be debated in this year's elections. But both the offshore well milestone and the clash of state vs. private oil pale compared to the discovery of oil in Saudi Arabia, which would soon become the world's most important producer. The first major commercial discovery in Saudi Arabia was the Dammam field, and it followed the discovery of oil in Kuwait by just weeks. While historical accounts agree on the month, not all histories put the date of the Saudi discovery as March 18. Saudi Arabian King Abdel Aziz had granted a concession to Standard Oil allowing exploration in the country's eastern province. The joint enterprise became known as the Arabian American Oil Co., or Aramco. Saudi Arabia and Aramco eventually had a 50-50 profit-sharing agreement, but the Saudis gained control of the company from 1973 through 1980 through a series of agreements. In 1988, the Saudi Arabian Oil Co.—Saudi Aramco—was created, replacing Aramco.