Wild speculation and wasted energy marred Turner Valley, British Empire’s biggest oilfield

Line-up of investors waiting to buy stock, Calgary, May 13, 1914. Glenbow Museum Archives NA-601-1.

Epic oil

In the foothills of Alberta, some 20 miles southwest of Calgary, lies Canada’s first big oilfield, the largest in what was once the British Empire, and among the largest in North America.  It took 22 years to reveal the full extent of the energy stored in the Turner Valley oilfield. Most of it was lost, in Canda’s largest wasted energy.

The first stage, the 1914 discovery of a small amount of oil and gas in shallow, Cretaceous age porous rock, roughly 100 million years old, set off a wild stock market spree that left a number of Calgarians papering their homes with worthless oil company share certificates.

For ten years, Turner Valley yielded a trickle of oil and gas from its Cretaceous rock. Much below this, in Mississippian age rock more than 300 million years old, lay vastly greater accumulations of natural gas (discovered in 1924) and crude oil (discovered in 1936).

We’ll look first at the 1914 discovery and the wild stock market spree it generated before considering the 1924 and 1936 discoveries of Turner Valley’s older and much larger accumulations of natural gas, and how so much of it was lost and wasted.

The story of the discovery of Turner Valley starts with William Stewart Herron who rode into Alberta in 1903, a husky 33-year-old widower from Gelert, Ontario, to take up farming at Okotoks, some 25 miles southwest of Calgary, not far from Tuner Valley when it was still just a valley. Overloaded with energy, Herron was a Jack of all traders: farmer, rancher, bronco buster, real estate speculator, amateur geologists, prospector, and promoter. He seems to have been a little too rough cut to join the upper crust of Calgary society, to which he ardently aspired.

Herron recognized an anticline at Turner Valley as the possible host of oil and gas; collected samples of gas bubbling from a spring; sent the samples to the Universities of Pennsylvania and California for analyses; then acquired leases to as much of the oil and gas rights as he could obtain. Needing money to drill a wildcat well, Herron turned to Archibald Dingman, a well-connected veteran from the oil and gas fields of Ontario. Dingman organized Calgary Petroleum Products, with money from such prominent Calgarians as lawyer and future Prime Minister R.B. Bennett, and James Lougheed, later senator and father of future Alberta Premier Peter Lougheed. The well they drilled, Calgary Petroleum Products No. 1, was also widely known as the Dingman well, to the great consternation of Herron, the real discoverer of the Turner Valley field.

What happened in 1914 is perhaps best told in the following excerpt from my book, The Great Canadian Oil Patch, second edition.

City of lunatics

Anyone visiting Calgary in mid-May of 1914 would have concluded, according to the Calgary News Telegram, that the city “had a population of 80,000 people, mostly lunatics.” This Stampede town “never saw such a Saturday night,” observed the Calgary Albertan. “It was the wildest, most delirious, most uproarious, most exciting time that had ever entered into human imagination to conceive.”

The cause of all the excitement was oil. For more than a year, an oil fever had gripped Calgarians as they followed the plodding progress of a drilling rig nestled in the foothills of nearby Turner Valley, its timbers shaking and its boiler hissing steam while the steel bit banged and clunked its way through hundreds of feet of rock. In late September and early October, at shallow depths the well had encountered small flows of natural gas that bore with it a spray of light gravity oil, variously described as condensate, naphtha, natural gasoline, or pentanes plus, and hereafter referred to as condensate.

For months the newspapers had been full of conflicting reports as to whether or not a commercial discovery had been made. Stockbrokers’ offices displayed samples of the oil to convince Calgarians that it really did exist. So volatile was the condensate, that it was pumped into the tanks of cars that brought visitors to the well site, and the cars actually ran on this fuel. “Experts” had been freely predicting that “Calgary will soon be in the throes of one of the greatest oil excitements ever known.” Hundreds of thousands of acres of oil leases had been filed on with the federal government, and the value of these leases was skyrocketing. There were riots in the Dominion Land Office as eager speculators lined up to file on anything available — even the municipal Bowness Park. Dozens of new oil companies had been formed, hopefully to drill on those leases, and shares were sold in the hundreds of thousands to Calgarians thirsting to get in on the ground floor and eager to part with their savings.

“Many Calgarians are suffering from a mild form of insanity,” said the News Telegram in October, while the Albertan concluded simply that “the city is oil mad.”

But the excitement was nothing compared with what happened after word reached Calgary on the night of Thursday, May 14, 1914, that this time the Dingman well had hit it for certain: oil.

“If the city was oil crazy on Friday,” said the Albertan, “on Saturday it was demented.” The Herald noted that the stock promoters had “struck a financial gusher,” which made the discovery well “look like a lawn sprinkler.”

All day and all night the crowds fought and struggled for precedence in the offices of the most prominent oil companies, and clamoured for shares and yet more shares. Relays of policemen barely kept a clear passageway and there was never a moment when the would-be purchasers were not lined up.

Within a few months, Calgarians woke up from that monumental speculative spree with such a hangover that more than half a century later the city still remembers the event as the wildest boom that ever hit the West. More than 500 companies were formed within a few months, holding half a million acres of oil leases and with authorized capital totalling an estimated $400 million. Less than 50 companies actually started drilling, and few of those found any oil. Calgarians wiped clean of more than a million dollars of savings, were left holding thousands of share certificates worth less than wallpaper. Several homes, and the lobby of one hotel, actually were wallpapered with share certificates.

On January 25, 1913, Calgary Petroleum Products Well No. 1 (aka the Dingman well) started drilling — spudded in, in oil industry terms — and the heavy steel bit started pounding its way slowly through the rock.

From the start the hole generated a frenzy of excitement. At 467 feet it entered a series of thin sands that yielded small volumes of natural gas with vapours of condensate — enough gas at least to fuel the rig’s boiler, and enough condensate to fuel the speculative spree.

A stampede for oil shares

Almost daily, melodramatic reports in the Calgary newspapers fanned the excitement. The News Telegram reported on July 13: “Oil men are generally agreed that oil will be ‘struck’ in this well inside of the next 30 days.” Multiplying the possible facts several fold, it reported that gas at the well was being wasted at a rate of three million cubic feet per day and added that “the company is after oil and a mere matter of one thousand or two thousand dollars worth of gas a day is not considered of sufficient importance to bother with by the future Calgary oil kings.”

By October 9, the Herald reported that “a first class quality of oil has been struck at the well” and although “no gusher has yet been brought in, about one hundred gallons of high-grade oil [condensate] was brought to the surface in a bailer, and samples are now in the city.” The well by that time had reached 1,562 feet. The News Telegram on October 13 declared that reports from the well “seem to be more encouraging every day and all are of the opinion that within a short time it will be shown to the world that there exists in southern Alberta an oilfield second to none in North America.”

The boom was on, and “crowds swarmed the streets Saturday, filled the hotel rotundas and the sole topic of conversation was oil, oil, oil.” Big plans were afoot, according to an “oil broker from Montana,” who told the News Telegram that “there is no doubt but that hundreds of companies will commence drilling operations if the flow in the Dingman well turns out to be a permanent one.” New companies were already formed to peddle stock on the basis of their leases “in the oil fields.” By October 16, reported the Herald, “in the neighborhood of two dozen companies have been organized to sell stock . . . but most of them are awaiting news that a ‘gusher’ has been struck.”

And still the well kept teasing. In November, the News Telegram reported that wet gas containing three gallons of condensate to every 1,000 cubic feet of gas was “blowing off” at the well at a rate of three million cubic feet a day. The Albertan once more assured its readers that “it is only a matter of drilling now before a large quantity of oil is struck at the Discovery well.”

Calgarians were in no mood to listen to words of caution. On November 25 the Herald published a letter from Dingman in which he protested “against some of the absolutely irresponsible and ridiculous statements” that were being published. “At the present time and under the present conditions our gas cannot be utilized for the production of gasoline, but later on, under the proper conditions and character of product, we feel confident of being able to extract what gasoline nature has left in the gas.” Crude oil had not yet been discovered, but “we are all hoping, and some of us working, to determine if possible the presence of commercial oil in Alberta.” On Monday morning the Albertan published this reply: “Dingman’s article in the Knocker [Herald] last Saturday makes us think that when he makes his big strike he will be a regular Rockefeller and establish Sunday schools and endow churches.”

Some Calgarians, at least, managed to maintain a sense of humour. “The trouble with this oil situation at this formulative stage,” wrote Bob Edwards in his Calgary Eye Opener, “is that you are never sure whether the man you meet on the street is a multi-millionaire, or just an ordinary, common millionaire.”

A cat ranch to skin Calgarians

And from a reader, the Albertan published this get-rich-quick formula:

“Being readers of your valuable paper and knowing you to be fair in your criticism of new companies being organized in Alberta when the prospectus is sent you, and seeing by the Albertan that there is not going to be oil stock enough to go around to all the investors, perhaps some of those having money to invest in a profitable undertaking would be pleased to know of our company.

“We expect to operate a large cat ranch near Sedgewick, Alberta, where the best farming land in the province can be bought, at least the surface rights, which will be all we need, for less than the oil barons would ask for the mineral rights.

“Now to start we will collect, say, 100,000 cats, each cat will average 12 kittens a year which will mean 1,200,000 skins. The skins will sell from 10 to 15 cents for the white ones and 75 cents for the jet black ones, making an average price of 30 cents apiece, thus making our revenue about $10,000.00 a day gross. A man can skin 50 cats a day and he will charge $2.00 for his labour. It will take 100 men to operate the ranch, therefore our profit will be about $9,800 per day.

“We will feed the cats on rats and will start a rat ranch adjoining the cat ranch. The rats will multiply four times as fast as the cats so if we start with say 1,000,000 rats we will have four rats a day for each cat, which is plenty. We will feed the cats on the rats and in turn will feed the rats on the stripped carcasses of the cats, thus giving each rat one-fourth of a cat. It will be seen by these figures that the business will be self acting and automatic. The cats will eat the rats and the rats will eat the cats and we will get the skins.”

Perhaps no one actually called the stock promoters “rats,” but they certainly managed to skin Calgarians. The method was more foolproof than a cat ranch, and even simpler. The promoter would file on a lease for mineral rights with the Calgary office of the Dominion Land Agent, paying a filing fee of $5 for each lease and first-year rental of 25 cents per acre. A one-section lease (640 acres) could thus be picked up for $165, a quarter-section lease for $45. The promoter would then organize a company to which he would sell his leases for cash and/or stock at a price which in November 1913, according to the Herald, “usually runs from $10 to more than $25 per acre,” or from 40 to 100 times the initial cost. Shares would then be offered to the public.

The Magnet Oil Company, Ltd., according to its prospectus dated June 17, 1914, issued shares with a par value of $350,000 to one Frank Frankel for 8,840 acres of leases that had cost $2,215 to acquire by filing. “Undoubtedly large bodies of oil will be found on the holdings of this company,” consulting geologist G.F. Hayes advised in the prospectus. “After looking over your holdings I must say that you have a very strong proposition to put before the public.” The prospectus noted that “fortunes made in oil by comparatively poor people in the oil fields of Ohio, Oklahoma, Texas, California, and Calgary have been numerous,” pointing out that “$25.00 invested in the stock of the Home Oil Company returned $10,500.”

Rex Oil Company contracted to pay its founders $15,000 in cash and $50,000 in stock for its sole lease holdings of 960 acres acquired for $290. The $15,000 for its founders would come from the public sale of shares to hopeful Calgary investors. Rex Oil boasted, “There is probably no industry in the world which yields such enormous profits as money invested in oil.” It claimed, “The element of chance is practically eliminated.” Chance, in fact, was totally eliminated; since it never drilled, the company had no chance of finding oil.

In a series of articles in November on “The Flotation of Oil Companies,” the Herald attempted to dampen the speculative fever in an exposè of the promoters’ methods and profits:

“One has only to take a stroll through the business section of the city at the present time to observe the traps being laid for the unwary by the numerous oil concerns that have sprung up like a crop of overnight mushrooms.

“One thing that strikes a person in viewing these displays is the inevitable sample of oil from the Dingman well. Some of these samples are of a dark brown colour, strangely like linseed oil; others are of a light shade, similar to sewing machine lubricant; others still are difficult to see clearly because of the stains smeared on the outside of the bottles. One can only conclude that ‘age cannot wither nor custom stale the infinite variety’ of the product of the Dingman well. A lot of the money that will be lost in oil stocks will go right out of Calgary into the pockets of men who know how to float oil companies and get the public crazy about the ‘profits’ so vividly portrayed. Those who either through the press or by example or inducement are inciting the public of Calgary to gamble in oil stocks are doing a great and irreparable injury, not only to the individual affected but to the moral tone of the city and to its public and business interests.”

The Herald series, retorted the Albertan, is merely an attempt “to keep out the small investor . . . until the big profits, if there are to be big profits, are all made by the more wealthy people.” It described the Herald and its series in such terms as “evil work . . . venomous hatchet . . . this disloyal alien,” and concluded that “if companies will be unable to develop these areas, it will be because this unpatriotic newspaper wafted the damp breath throughout the country in its attempt to kill this promising undertaking.” Investors appeared to agree with the Albertan that “for a man who can afford to take a chance with the money, it is a good speculation.”

The flotation of oil companies, as the Herald described it, was only half of the action in 1913 and 1914; the other half took place in the second-floor quarters of the Dominion Land Office where speculators could file on a lease for a fee of only $5. Until the regulations were changed on February 28, 1914, the first year’s rental of 25-cents-per-acre did not have to be paid until 30 days after the lease was filed. Since quite a few of the filers did not get around to paying the 25 cents per acre rental, there was a continual supply of dropped leases available for re-filing.

Would-be leaseholders camped overnight in front of the building in order to be first in line when the office doors opened at nine in the morning. Men were hired by syndicates to hold down positions in the line, working on a rotation basis. When the front doors opened there was a wild melee as men raced, shoved and fought up the steps and along the corridor to reach the land titles office. Violence frequently broke out, office windows were smashed, and eventually, the police were called to maintain order.

The leasing rush was well underway by August 2 when the Herald reported how a pair of ranchers from Cardston beat out representatives of the law firm of Lougheed, Bennett and McLaws for first place in line for filing on a lapsed 640-acre lease three miles from the Dingman well. “It was easy,” reported the Herald. “The athletic countrymen, assisted by a husky 300-pound friend who is engaged in the piano moving business, repeatedly handed their opponents off the steps by their linen collars, and when they were out-numbered they occasionally managed to pick up a couple at once and deposit them carelessly over the railing of the land office stairs.” The ranchers later reportedly turned down an offer of $15,000 for their leases.

On October 10, the News Telegram reported that “from Thursday afternoon until noon Friday no less than 75 oil leases were filed on, amounting to approximately 48,000 acres. “Leases which had been lapsed for some time were thrown open for filing on that Friday. One of the successful filers was a J.W. Travers, who “had two men stationed on the land office steps for two weeks. The Albertan reported that “800,000 acres of land have already been filed on, and still the craze for filing is in no way abated.” In November, the Herald reported on a group of speculators who had “employed something like two dozen men, some of whom are employed regularly at $15 a week,” to maintain positions on a rotational basis “on the steps of the land office throughout the 24 hours of the day . . . at night the men are permitted to rig up a cover of canvas over the steps with cushions, blankets and a coal oil stove.” By December, however, “cooler weather and the recent regulations as to loitering on the land office steps has effectively put a stop to the all-night vigils in front of the door.” Police replaced the shoving system among would-be filers by organizing a lottery. “Numbers are put into a hat and every filer draws one.”

The events throughout 1913 and early 1914 were building up to the climax that arrived on the night of Thursday, May 14, when the word reached Calgary that Dingman’s well had struck oil.

“On Friday, every available motor vehicle in Calgary was forced into service carrying hundreds of men to the foothills to the Dingman well,” the Herald later reported. “Enough was seen to enable the pilgrims from Calgary to return home with the most optimistic reports of the discovery and stimulated with determination to make Calgary the greatest industrial city on the map.

“Then came the wild scramble after shares of stock. New companies were organized every day. Every spare bit of space in stores and offices forming the main business streets of Calgary was hired by the selling end of some new oil company. The whole downtown district was really swathed in cotton streams bearing the names and prices of new issues of stock.

“In the ticket office of the railway company, an oil company had succeeded in renting a small space for stock-selling purposes. People were lined up for yards outside the door trying to get in to spend their money. One of the railway company’s office inspectors from Winnipeg happened to arrive in Calgary just at the height of the excitement. The selling of railway tickets had been side-tracked entirely. Wastepaper baskets stood about the floor conspicuously filled with cheques and paper money. The entire staff was receiving money from the crazy mob which merely demanded shares and receipts for its money.

“The inspector soon found himself engaged in the same popular business. Afterwards he told of one old lady who had finally succeeded in getting close to the share counter eagerly demanding ‘some oil stock.’ She had one hundred dollars to invest. The ‘inspector said he didn’t know anything about the stock being sold and didn’t even know the name of it. ‘Oh, that doesn’t matter, she exclaimed, ‘anything will do so long as I get some stock’.”

Calgary’s paper oil companies maintained their brisk sales of shares for a couple of months, but as one by one the promoters folded up their corporate tents and left with bulging pockets, Calgarians soon suspected that they had been had. By September Canada had joined the Great War and the men who had lined up to buy oil stocks were now lining up to enlist. Calgary’s oil stampede was over.

The Mississippian Reservoir

While Calgary’s stock market spree was over in August 1914 with the start of the First World War, the Turner Valley saga continued for another 22 years, before a deeper and vastly larger store of oil and gas in rocks of the Mississippian epoch was fully revealed. It showed an oil field as big as the wildest claims of the 1914 stock promoters. But by the time the size of this energy store was known, most it had already been wasted or lost.

Think of an exceptionally large, corked bottle that lays prone, tilted up toward the cork, as an extremely rough model of the Mississippian oil and gas reservoir at Turner Valley. The bottle is filled with tiny pellets, perhaps the size of shotgun pellets, to represent the porous Mississippian rock. Natural gas has migrated through the pellets, its path blocked by the cork, in reality a layer of impervious rock. A layer of crude oil crude, being somewhat heavier, lays below the gas. And an almost endless layer of water, heavier yet, lays below the oil. All this is a buried three-quarters of a mile underground, so that the water, oil, and gas are under tremendous pressure. In 1924, Royalite Oil Company (a subsidiary of Imperial Oil, in turn a subsidiary of John D. Rockefeller’s Standard Oil) drilled Royalite No. 4 well, penetrating the gas cap. The gas rushed up the hole with such forced that it lifted more than 3,700 feet of drill pipe that rose 130 feet into the air to the top of the drilling derrick. The gas exploded with a sound heard more than a mile away with the gas burned in flame that could be seen at a much greater distance. The drilling rig was demolished. It took weeks to bring the wild well under control

The gas was sour and wet—sour with the rotten eggs odor of deadly hydrogen sulphide, and wet with natural gas liquids, mostly propane, butane and, of greatest value, condensate.

During the next 12 years, before a deep well discovered the layer of crude oil downdip in the reservoir, dozens of wells were drilled in Turner Valley to strip out the condensate from the natural gas. The residue gas was simply burned in flares so large that some Calgarians claimed they could read their evening newspapers by the light. At its peak, the gas was being burned in dozens of flares at a rate equivalent to burning 25,000 tons of coal per day. In 1931, it was described as “By far the greatest waste of natural gas taking place on the continent.”

But the flared gas was the least of it. Turner Valley originally contained trillions of cubic feet of natural gas and 1.1 billion barrels of oil. An estimated 1.8 trillion cubic feet of gas, equivalent to roughly 300 million barrels of oil, was flared and wasted during the 12-year period. That flared gas robbed the reservoir of the pressure needed to produce the oil. Under good conservation practices, Turner Valley should have yielded more than 60 percent of the oil in that reservoir. Now it is estimated that only 14 percent of that oil will ever be produced. That’s a loss of more than half a billion barrels of oil. Including the wasted gas, the total loss is equivalent to more 800 million barrels of oil, quite possibly as much as a billion barrels. At 2016 depressed crude oil prices during a cyclical supply glut, the market value of the lost oil and wasted gas amounts to between $40 billion and $50 billion.

The oil section at Turner Valley was Canada’s first big oil field. The 1936 discovery well, Turner Valley Royalties No. 1, was a costly shoestring gamble by Calgary promoters. Drilling, in the Depression years, paused several times while the promoters rustled more money. The gusher provided the first trickle of fortune money for two pioneer icons of the Canadian oil patch, Frank McMahon and Max Bell.

In 1938, the Alberta government created the Petroleum and Natural Gas Conservation Board to establish and enforce conservation measures, with maximum production allowable rates for every oil and gas well in the province. When the Leduc oil discovery came in 1947, Alberta had in place a regulatory regime for sustainable oil and gas development that matched the best in the world, and exceeded most. Throughout the period of maximum production of conventional oil, Alberta was remarkably successful in capturing economic rewards for its citizens, the owners of the resource; in minimizing loss and waste; and in encouraging competition in the oil patch with a prorationing system that equitably shared market demand on the basis of sustainable production allowables for every oil well in the province.

Turner Valley made Alberta a trend setter in sustainable oil development.

Unfamiliar Canadian history stories

 

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