Role of independent producers in the early development of California’s oil and gas industry

Michael Giberson

The Summer 2010 issue of Business History Review included an interesting article on the role of independent producers in the development of the oil and gas industry in California. In the article, Michael Adamson makes the case that official statistics on oil production overstate the role played by large, vertically integrated oil companies (the “majors”) at the expense of contributions of independent companies. While the majors did produce most of the oil in California, from the early days to the present, they did so in a kind of complex coordination with independents, sometimes cooperating and sometimes competing. Independents were particularly valuable in the high-risk exploration stage and in the championing of the development of regions neglected or deprecated by majors, occasionally turning unattractive prospects into major producing areas. The Summer 2010 Business History Review was a special issue devoted to the oil industry (unfortunately the articles are gated, so you’ll need a subscription or access through a library.)

This same kind of complicated coordination between independents and majors has existed through most of the history of the oil and gas industry, but it is taking a new turn with the development of oil and gas shale resources. The preliminary work in the Barnett Shale was pursued by independents, as was most of the subsequent development there and elsewhere. Only as the techniques used became better developed and clearly demonstrated have the majors taken significant notice – sometimes pursuing their own shale projects directly, sometimes buying properties from independents, and sometimes buying the independents outright.

Adamson tells his story mostly by focus on one key independent developer, Ralph Lloyd. Here is a bit of the conclusion from “The Role of the Independent: Ralph B. Lloyd and the Development of California’s Coastal Oil Region, 1900–1940” (BHR, 84:2, Summer 2010, pp. 301-28):

Lloyd benefited Associated and Shell as an entrepreneur acting on his conviction that he could mobilize their “static” power to mutual advantage. He cooperated with firms that had the resources to tackle the formidable geology of the Ventura Avenue field. Subsequently, he assumed the risk of drilling its unproven areas. As a result, his Lloyd Corporation became one of California’s leading producers of crude oil. Yet, even as he competed against majors, Lloyd recognized that maximizing his profits required ongoing cooperation with them. Such symbiotic relations constituted an important factor in the oil business: one that is buried under an avalanche of academic and popular literature that pits independents against majors on matters of business and politics.

Statistics on exploratory wells drilled explain why many an independent made its name in the search for oil. … At the same time, the numbers conceal the role of independents in developing extractive regions in cooperation with other firms. After demonstrating the presence of crude-oil reserves in a wholly neglected area, Lloyd and his partners participated for two decades in the development of a gigantic field in ways that do not show up in statistics. This approach to the oil business is underplayed, if not generally overlooked, in the literature. It is entirely absent in the literature on the California industry.

Lloyd’s relation with Associated and Shell illustrates why the oil business during the “gusher age” was in large part “shaped by risk” …  Since the organizational capacities of the “first movers” in the industry were not decisive in the search for oil, companies had an incentive to cooperate in their exploitation.