Mike Benedum: A portrait in oil

placeholder spreadProfile of a wildcatter 
Pittsburgh and steel are virtually synonymous. Less well known is Pittsburgh’s rich heritage in the oil business. In 1854, inventor and businessman Samuel L. Kier built the nation’s first oil refinery as a crude, five-barrel still 100 feet from today’s U.S. Steel Building. In 1859, Colonel Edwin L. Drake drilled the first oil well and struck oil at 59 feet in Titusville. Drake’s well opened the western Pennsylvania oil fields, setting the stage for the auto industrial age and the 20th century economy that surged on a sea of oil. Andrew Carnegie made his first big money speculating in oil. In 1874, Charles Lockhart sold Pittsburgh’s largest refinery, Lockhart & Frew, to Standard Oil for stock. He rode the ballooning fortunes of Standard to a considerable fortune.

And, of course, the Mellon fortune, Pittsburgh’s greatest, rested in large measure on oil. In 1901, A.B. and R.W. Mellon backed Anthony Lucas, the Austrian prospector who brought in Spindletop, a spectacular, 100,000-barrel-a-day gusher near Beaumont, Texas. Thus the first big Texas oilmen were not Texans, but Pennsylvanians. Their nephew, W.L. Mellon, went on to build Gulf Oil into one of  the so-called Seven Sisters international oil companies.

However, the preeminent figure in Pittsburgh oil history is Michael Late Benedum. The “king of the wildcatters” found more oil in more places in the world than anyone in history. He was born in 1869, 100 miles south of Pittsburgh in Bridgeport, W.Va. He was the fifth of six children born to Caroline Lantz Benedum and Emanuel Benedum. Emanuel was a close friend of Civil War Confederate General Thomas J. “Stonewall” Jackson and a prosperous landowner and merchant. But when his financial prospects faded, young Mike quit school at age 16 to support the family.
 
His first job in a Bridgeport flour mill paid him $16 a month for a 12-hour day. He left after two years to manage a competing mill for $35 a week and soon after took a third position at $50 a week. His career as mill manager ended, however, when his coat sleeve got caught in the massive gears of a grinding mill, badly mangling his arm.

He secured a sales job for a line of mill equipment and a bounteous $100 a month. Most important, he learned he could sell.

Still unsatisfied, though, he quit, seeking opportunity in the bustling river town of Parkersburg, 75 miles west. He boarded the train but never made it to Parkersburg. Seated in the B&O smoking car, young Benedum observed an older man searching for a seat. He insisted the man take his seat, and their conversation set Benedum on a new course.

The stranger was John Worthington, general superintendent of the South Penn Oil Company,  a unit of the gargantuan Standard Oil Company. South Penn ran all Standard’s operations in W.Va. Worthington was immediately impressed by the tall, blue-eyed, straight-backed young man and offered him a job. “Well,” said Benedum, “I’m looking for a job.  What’s the future in it?” A soft smile broke over Worthington’s face. “Oh yes, there’s a future,” he replied, and Benedum said, “Thank you sir, I’ll do it.” So began a 70-year run.

Worthington assigned Benedum to lease targeted property for future drilling. He received $500 in twenties and fifties and a list of names. One name was a prominent farmer who had been a consistent holdout. This happened frequently in the leasing business, and such target names were called “king bees.” Benedum set out to see this “king bee” but first stopped at a bank and turned in his large bills for all singles. He figured that, as he counted out the dollars, a stack would be more impressive than a few large bills. When he met the farmer, he suggested the man’s wife join them. And she knew exactly what she could do with the mounting stack of $1 bills. The farmer signed, and Benedum engaged him for $10 a day to accompany him to see his friends and neighbors on the list.

When Benedum reported back the next day, his bosses asked if he’d made a dent in the list. Benedum said he had leases from every property holder, putting them on the table, along with the remaining half of his allotted money. When Worthington heard the news, the 20-year-old Benedum was on his way.

Worthington always referred to Mike as “my son.” Benedum, however, soon asserted his independence. When Worthington sought a “must have” 1,200-acre tract in Monongahela County, he authorized Benedum to go as high as a   dollar an acre. The parcel’s owner flatly told Benedum he was a “one price man.” There would be no bargaining.  The price was 10 cents per acre, and Benedum said he’d have to call the office for approval. Worthington was overjoyed and said, “See if you can get it for 5 cents an acre.” Benedum  exploded: “I’ll be damned if I do,” and slammed down the receiver. He closed the 10-cent-per-acre deal,  and Worthington recounted the story endlessly.

In 1894, Worthington appointed him assistant general land agent at a salary of $150 per month. He had responsibility for all of South Penn’s operations in Marshall County, W.Va. and Greene County, Pa.

In the oil industry’s early days, leases were often disputed, and occasionally property was leased more than once. Some disputes went to court while others were settled on the spot with the threat of violence and sometimes raw force. In his new position, Benedum faced a Pittsburgh promoter who strong-armed a South Penn crew operating on a bona-fide lease. Taking along a couple of burly roughnecks, Benedum rode to the property on horseback and found 10 armed men. Benedum walked toward the oncoming trouble, and seconds before violence erupted, their leader, a giant of a man, yelled “Stop, it’s my friend Mike Benedum.” Two weeks earlier Benedum had made the man a small loan. Benedum explained the situation, agreeing to pay the invading crew more than their Pittsburgh employer, and the big man walked away happy.


A partnership begins


With his more conservative brother, Charlie, Benedum had invested in lease royalties, which are created when a lease holder sells his future income stream for cash today. The royalty income gave Benedum a taste of the compounding power of capital and whetted his appetite for independence. One summer day in 1895, Joseph Clifton Trees, a former engineer at South Penn, spotted Benedum having lunch at a hotel. He had a proposition. The fateful meeting was the beginning of a remarkable 50-year partnership.

Drilling was about to begin on a very promising farm in Pleasants County, W.Va. Needing cash, the owner would sell half of his one-eighth interest for $2,000. Trees optioned the property for $2,000 and sealed the deal with $45. It was all the money he had after drilling 17 dry wells in a row. He asked Benedum to put up the remaining $1,955.

Benedum had known Trees at South Penn and held him in high regard. The red-headed Trees was 6 feet, 3 inches of solid muscle, a former football standout at Western University of Pennsylvania (now the University of Pittsburgh). In those pre-NCAA days, Trees also played professional football for a desperately needed $75 a game. Collegiate schedules were irregular then, and Pitt had scheduled a Saturday game with Penn State the same day Trees had a pro game. Knowing they couldn’t win without Trees, Pitt convinced Penn State to reschedule. Trees got his $75, and Pitt later won the game.

Benedum studied the property maps for a few minutes and agreed to back Trees for a three-quarter interest in his royalty. It was a bet on Trees as much as on geology, the first of a long run of winning bets. How good was it? Benedum said, “In three or four years, it paid me my interest several times over. I sold it to my brother Charlie at a nice profit. Charlie got his money out of it with a good profit and sold it to Joe Trees. It returned Joe’s investment three times over, and he sold it back to me. I got my money back again and a piece of the royalty continued to bring me small returns for 30 years.”

That summer, Benedum leased 1,500 acres south of Cameron, near Fish Creek. He paid a pricey $5 per acre, or $7,500 in all. With Worthington on vacation, Benedum’s immediate supervisor came down from Pittsburgh and accused him of taking a kickback on the leases. Benedum quit on the spot. But, convinced that he had caught a thief red-handed, the South Penn executive insisted Benedum personally buy the leases. Dead certain of their value, Benedum borrowed $7,500 and bought the leases from South Penn.

Noah Clark, president of South Penn, rushed down from Pittsburgh to save their rising star. Benedum didn’t change his mind, but agreed to help Clark pick up some valuable leases in Greene County. He paid his own expenses and did not charge Clark for his work. Two days later, a gracious letter arrived from Clark commending Benedum for his contribution to South Penn; enclosed was a check for $5,000.

In May 1896, Benedum married Sarah Lantz, the daughter of a prosperous farmer from whom he had leased oil rights. In Benedum’s words, the Lantzes were “well informed, friendly, God-fearing—a family like my own.” A year later, their first and only child was born, a boy named Claude Worthington Benedum in honor of John Worthington.


Driving a hard bargain
 
 
The value of oil leases depends on the success of wells drilled nearby. In mid 1896, the Fish Creek leases for which Benedum had paid $7,500 were becoming hot properties as South Penn drilled a succession of producing wells bordering Benedum’s leases. Unwisely, South Penn sent down the man who had forced Mike to buy back the leases to negotiate a buyback. He opened with Benedum’s initial purchase price $7,500; his final offer was $75,000. Benedum turned them all down.

South Penn turned up the heat by drilling several wells right on the line, in some cases slanting the drill bore onto Benedum’s property and  threatening to drain his oil. It was at best unethical and probably illegal.  Benedum had to drill several wells on his leases and drill them fast, but he  had no money. He asked several drillers, hat in hand, to drill on the come. And they did, partly because they believed in the leases but more importantly because they believed in Benedum. Nineteen wells came in, but Benedum still needed to come to terms with South Penn’s parent, Standard Oil.

John D. Archbold was John  D. Rockefeller’s right-hand man and the operating head of the Standard Oil behemoth. Archbold was 48, Benedum was 27. His youth probably worked in his favor. Through intermediaries, including Archbold’s son, who had worked with Benedum at South Penn, a meeting was arranged with the oil titan in New York. By all odds, Benedum should have been squeezed out by Standard with only modest compensation. By Benedum’s reckoning, his properties were worth $250,000. Until the very last, though, he insisted on $600,000 and made a strong case. He finally settled for $400,000, or $8 million in today’s money. It was the first big-league demonstration of Benedum’s legendary negotiating skills.


A string of losses
 

From 1897, until the Illinois Play in 1905, Benedum had lean years. By 1902, he had lost the whole $400,000 and was deep in debt. Several factors propelled his fall.

In 1901, the Mellon-backed Spindletop blew near Beaumont, Texas, at the incredible rate of 100,000 barrels a day.  The price of crude plummeted to 10 cents a barrel, pressuring Benedum’s royalty payments and making future drilling in West Virginia far less profitable. Before the turn of the century, Standard had been built on oil found in a triangle bounded by northwestern Pennsylvania to western Ohio (Lima), and northern West Virginia. No less a figure than Archbold, when told about promising signs of oil in Oklahoma, exclaimed: “Are you crazy man? Why I’ll drink every gallon of oil produced west of the Mississippi.”

In the new century, however, the center of gravity for oil moved southwest to Oklahoma, Texas, Louisiana and, later, California.

Compounding Benedum’s problems, he had decided, at his brother Charlie’s urgings, to diversify his holdings out of oil into much “safer” banking and manufacturing. He put significant money in the First Citizens Bank and became its chairman. In three years’ time, his glass and pottery manufacturing companies were bankrupt and First Citizens closed its doors. And Benedum and Trees had drilled a long string of dry holes.


A new company
 

In 1904, Benedum and Trees set up the Benedum Trees Oil Company with offices in Wheeling. It was more of a holding company than an operating company, and each new play stood on its own. If Trees came in with Benedum on a project, most often they were 50/50 partners. Either could come in or opt out as they chose, with Benedum invariably in.

In 1905, a leaseholder requested they come to a town named Casey in southeastern Illinois. Prospects didn’t look good. Benedum’s old mentor Worthington knew the territory and said, “Don’t get burned, my son.” About ready to decamp for the site, they came upon a bizarre-looking itinerant dressed in formalwear, claiming to be a geologist. The locals regarded him as a crank. Prevailing wisdom saw the “trend” (the path of the underlying oil) as going northeast to southwest. The stranger said that, in this case, the trend ran northwest to southeast, and that they might hit pay-dirt in Robinson, 30 miles southeast. After investigating Robinson, they leased 50,000 acres for 10 cents an acre. Almost nobody expected oil there. Being short on funds, they parceled out 45 percent to Pittsburgh investors and kept the rest for Benedum Trees.

The first well came in at 25 barrels a day, the second at 2,000.  It was a major field. In 1904, Illinois had not been credited with a single barrel of oil production. In 1907, it produced 24 million barrels and ranked third nationally. An army of prospectors moved in and sank wells by the hundreds. Benedum Trees had to drill furiously to protect their reservoir. Trees was the driller and engineer and Benedum the financier, trader and salesman. Their talents meshed perfectly.

They ended up selling, on extended payment terms, to the flamboyant Theodore Barnsdall. When the first payment was due, Barnsdall didn’t have the money but sold a piece of the increasingly valuable property. He did the same thing all the way through and never laid out a nickel. Benedum and Trees ended up with $2 million ($40 million in today’s money) on the deal.

On Barnsdall’s advice, they decided to investigate opportunities in Caddo Parish, La. Characteristiclly, they leased big—130,000 acres. After drilling four dusters, well No. 5 came in at 3,600 barrels a day. That opened up the fabulous Caddo field, which by the end of 1952 had produced 185 million barrels of oil.


Dealing with the giant 


Finding oil is one thing; selling it is something else. The buyer of last resort was as always the Rockefeller behemoth, Standard.  They offered 39 cents for oil they resold at $1.40, squeezing the life out of Benedum Trees. So Benedum donned his selling cap and set out peddling his oil to Standard customers at 70 cents a barrel. He could live with the price, and it was a bargain for the buyers. A call soon came from Standard, summoning Benedum to their headquarters at 26 Broadway.

Before Benedum left for New York, he got Trees and partner Harry Grayson to agree to give him absolute control of the talks. Trees and Grayson thought $3 million was a very acceptable price for the Louisiana property. Three of Archbold’s lieutenants led with an offer of $2 million. Benedum got up and said, “Come on boys, let’s go back to Pittsburgh.”  The Standard team excused themselves and went down the hall to confer with Archbold. Grayson and Trees were tickled to death when they came back with $3 million. Benedum said, “Boys, get your hats.” $5 million now came on the table. Grayson’s and Trees’s tongues hung to their belt buckles, but Benedum said, “Well boys, if we hurry down to Penn Station, we can catch the 5 o’clock train.”

He told the Standard negotiators he was tired of dealing with seconds and wanted to settle things with Archbold.  The big man himself finally came in, and Benedum respectfully and persuasively convinced him that the Caddo concession would yield 50 million barrels, which turned out to be a gross under-estimation. The deal closed at $6 million, yielding Benedum another $2 million. As frosting on the cake, Benedum investors retained gas rights at Caddo. Benedum combined both skills of both salesman and negotiator at the highest level and balanced them in delicate equipoise.


Going global
 

After two successful Mexican plays, in Tampico and along the Tuxpam River, Benedum was ready to extend his search for oil globally. In 1915,  his partners secured a fabulous 3-million- acre concession deep in the jungles of Columbia, 375 miles up the Magdalena River. Benedum always thought big, and 3 million acres was certainly big. An on-site inspection showed oil as knee-deep in pools. But it was almost impossible to bring in drilling equipment and men, and even more difficult to get the oil out.

Benedum proved equal to the challenge. From his Pittsburgh partners and the public he raised $50 million to fund the Tropical Oil Company. The oil was close to high-quality Pennsylvania crude, but Tropical lacked the money to build a 400-mile pipeline through to the coast.

Fortuitously, a call came in from 26 Broadway. The Standard man asked, “How much do you want?” Benedum said he didn’t want cash but would take stock and stay in the game. International Oil, a Standard subsidiary, gave them 25 percent of the company, valued at $32 million. Benedum came out with $7 million, or $140 million in today’s dollars. It was one of the great fields of all time.

Four signal events established Texas as the crown jewel of the U.S. oil industry. First came Spindletop in 1901; second, well No. 9 established the Big Lake field, a small part of the vast Permian Basin extending across West Texas into New Mexico in 1924; third, Yates No. 1 in 1926; and finally, in 1930, “Dad” Joiners’ Daisy Bradford No. 3 opened the vast east Texas oil fields, the largest in U.S. history. Mike Benedum was the only U.S. oil man to bring on two of the four fields: Big Lake/Permian and Yates.


Plymouth Oil Company
 

In May 1923, Frank Pickeral, a hustling World War I veteran and ex-soda jerk, brought in Santa-Rita No. 1 at 100 barrels a day.  It was a well, but barely. Pickeral and his Texon Oil Company brought it in on a shoestring, and he needed help.  On the advice of several Texas oilmen, he went to Pittsburgh to see Benedum, then suffering from a string of dry holes. Benedum suggested young Pickeral talk to Gulf, Jersey Standard and others, but three months later, with no takers, Pickeral re-pitched his case to Benedum.

Outstanding salesmen have an Achilles heel. They are often a soft touch for an equally skilled pitchman with a solid story. Benedum was no exception; he was bitten. He excused himself and strode across to Trees’ office. “Don’t do it, Mike,” Trees said. “If the majors don’t want it, you don’t want it.” It wasn’t the first time Benedum ignored Trees’ advice. He cut a deal with Pickeral when the latter had his back to the wall. Pickeral would have settled for anything Benedum offered, but having been a shoestring operator himself, Benedum gave him a fair deal. He would provide the money for eight wells, leaving Pickeral a generous 25 percent.

For the project, Benedum organized the Plymouth Oil Company. Turned down by several of his stalwart investors, Benedum syndicated the Plymouth flotation with a number of wealthy West Virginians. He took 25 percent, and at the last, a reluctant Trees committed for 5 percent. The eight wells were either dry holes or very marginal producers, and Plymouth was out of money.

Like a poker player going “all in,” Benedum advanced $800,000. Wells No. 9 and No. 11 proved the field with dazzling profits. In 1926, Plymouth paid dividends of $5.5 million. Unlike Caddo, Colombia, and other big strikes, Plymouth held onto the stake and moved downstream; it became the principal operating company of the Benedum interests.


The Yates field
 

The Yates field came in at the end of a notable Benedum failure—his attempt to build an integrated oil company.  In 1919, he combined several disparate Benedum units into the Transcontinental Oil Company. The stock opened in August of 1919 at $48 a share. Three years later it was slinking along at $1.50. Everything that could had gone wrong.

Then Ira Yates walked in the door.  He had a Texas ranch west of the Pecos and was certain oil lay beneath it. He finally convinced Benedum’s field    man, Levi Smith, who, in turn, sold Benedum. The 10th commandment of the Texas oil business stated flatly: “There is no oil west of the Pecos.” It was at least a 100 to 1 shot and a bold gamble even for the Great Wildcatter.  Benedum hedged his bet by bringing in the Ohio Company to drill four wells in return for 50 percent. They were not drilled on the Yates ranch, but on other Benedum lease holdings close by. All four were dusters.

Smith reminded Benedum of his promise to drill the Yates ranch. True to his word, Benedum said that, if necessary, he would do it himself. He finally convinced Ohio Oil to drill the fifth well on Yates’ ranch. And on Oct. 28, 1926, Yates’ No. 1 came in at 4,000 barrels a day. Seventy wells quickly sprang up on the Yates lease, and in 1929, 70-A came in at the Galcondic rate of 204,000 barrels a day. Yates was arguably the richest concentrated field in U.S. oil history, and Ohio bought out Transcontinental for $60 million. Today the Yates Field has produced over a billion barrels and is still going strong.


The other side
 

Over the course of Benedum’s 65-year career, he also had many failures. While wintering at the Rony Plaza Hotel in Miami Beach in the 1920s, Benedum sat in his usual beach garb—coat, tie, vest, fedora hat and black wing tips. He thought there must be some oil off Miami Beach and set to work sinking a well. It ran way over on cost, and a hurricane blew away much of the gear. There was no oil, and the project was a total loss.

Another idea focused on the abundant coal in West Virginia and Pennsylvania. Why not try the coal business? With his Wayne Coal Company, he lost millions. The most far-out prospecting he did was for gold—and in, of all places, Virginia. No luck. Trees summed it up well: “Money has always been a byproduct with Mike. The thrill of discovery has been his only goal.”

The most ambitious projects Benedum undertook never got off the ground, but they demonstrated the power and scope of his imagination. In the 1920s, a Peruvian railroad engineer presented Benedum and Trees with a claimed lease on 64 million acres deep in the Peruvian jungles, bigger than West Virginia and Pennsylvania combined. Benedum verified the existence of oil by sending down prominent Pittsburgh geologist L.G. Huntley. The scope of the project went far beyond the oil. The plan envisioned mass colonization from Germany, Spain and Italy, and perhaps the creation of a new Andean nation. Mussolini promised a million Italian immigrants. As usual with Il Duce, he promised much and delivered little. Even the cautious Trees liked this deal. It never happened.

Could there be anything bigger than the Andean Empire scheme? Yes—China. Through intermediaries’ discussions with Chiang Kai-shek and his foreign minister, the slippery T.V. Soong, Benedum was offered the exclusive drilling rights in   all of China. Benedum wasn’t sure where the oil was in China, but with the whole damned country, there had to be something. It was a reasonable hunch. However, the Japanese invasion of China in 1937 put an end to Project China.


The Benedum legacy 


In the 1950s, Benedum slowed down but remained active. In 1959, at 90, Benedum finally succumbed to old    age. He left no survivors. His wife  had    predeceased him, and their only child, Claude Worthington Benedum, fell victim to the influenza epidemic of 1919. Three Benedum nephews worked for the Benedum interests. One of them, Paul G. Benedum, took over several of his uncle’s duties during the ’50s.

Most great fortunes are accumulated over time. By contrast, Mike Benedum once said: “If you make much money in the oil business at all, you make it very rapidly.” The oil business is like a Keystone Cops movie running in fast motion. Its hits and misses are scored instantaneously.

Benedum left an estate of $70 million. Half went to collateral relatives, and half funded the Claude Worthington Benedum Foundation. In 2007, its assets were over $400 million. Two-thirds of this goes to Benedum’s home state of West Virginia.

The steady gaze from those blue eyes that first caught the attention of John Worthington in 1890 emanated a strong sense of character, and that character enabled Benedum to do the nearly impossible and do it for over 70 years.

The writer wishes to acknowledge "The Great Wildcatter" by Samuel T. Mallison (1953) in the research of this report. 

William S. Dietrich II is a trustee and chief investment officer of the Dietrich Charitable Trusts. 
 
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