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Small Business in the Peruvian Oil Industry: Lobitos Oilfields Limited Before 1934*

Published online by Cambridge University Press:  11 June 2012

Rory Miller
Rory Miller
Affiliation:
Lecturer in Latin American History, The University of Liverpool
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Abstract

For much of the twentieth century, the petroleum industry of Peru was dominated by the International Petroleum Company (or IPC), a subsidiary of the Standard Oil Company of New Jersey. Yet IPC never obtained a monopoly. Other firms, such as Lobitos Oilfields Limited, a concern founded by British merchants, produced a significant amount of Peru's output. In this article, Professor Miller examines Lobitos's development from the time of the company's founding in 1900 through the pivotal year of 1934. Although the fortunes of Lobitos were closely linked to the pertubations of the international market and the shifting policies of the Peruvian government, corporate management enjoyed an unusual flexibility not only because the firm's interests were sometimes identical with those of its powerful rival IPC, but also because its merchant founders had established a vast trading network throughout South America. These additional factors allowed Lobitos to survive as a relatively small, unintegrated independent in an age of giant, fully-integrated multinationals.

Type
Research Article
Information
Business History Review , Volume 56 , Issue 3 , Autumn 1982 , pp. 400 - 423
Copyright
Copyright © The President and Fellows of Harvard College 1982

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References

1 See, for example, Solís, Luis Laurie, La Diplomacia del Petroleo y el Caso de la Brea y Pariñas (2nd ed., Lima, 1967)Google Scholar, Zavala, A. Zimmerman, La Historia Secreta del Petroleo (Lima, 1968)Google Scholar, Pinelo, Adalberto J., The Multinational Corporation as a Force in Latin American Politics: A Case Study of International Petroleum Company in Peru (New York, 1973).Google Scholar The most balanced treatment of the industry is in Thorp, Rosemary and Bertram, Geoffrey, Peru, 1890–1977: Growth and Policy in an Open Economy (London and New York, 1978), 95–111, 163–169, 221–229.CrossRefGoogle ScholarHohagen, Jorge, “La Industria Minera en el Perú, 1932 y 1933,” Boletín del Cuerpo de Ingenieros de Minas y Aguas 111 (Lima, 1935), 169Google Scholar; Peruvian Times, August 23, 1968.

2 The most concise introduction to the early history of oil in South America is Wilkins, Mira G., “Multinational Oil Companies in South America in the 1920s,” Business History Review, Vol. 48. (Autumn, 1974), 414–446.CrossRefGoogle Scholar

3 Garland, Alejandro, Reseña Industrial del Perú (Lima, 1905), 35–36Google Scholar; Hunt, W.G.G., Heirs of Great Adventure: the History of Balfour Williamson and Co. Ltd., (2 vols, London, 1957 and 1960), II, 70–71Google Scholar; Thorp and Bertram, Peru, 1890–1977, 95–96. Hohagen, “Industria Minera,” 169; Thorp and Bertram, Peru, 1890–1977, 97. The market was mainly limited to domestic kerosene, though in 1901 the first crude exports were made to Chile: London to Valparaiso, May 17, 1901, MS 11471/69, Antony Gibbs and Sons Archive, Guildhall Library, London; Alejandro Garland, “La Industria del Petroleo en el Perú en 1901.” Boletín del Cuerpo de Ingenieros de Minas y Aguas 2 (Lima, 1902), 11. Hunt, Heirs of Great Adventure, II, 71, 72; A. Milne, “Short History of Lobitos Oilfields” (typescript, 1907), 1–5, LOL/UCL. Peruvian Corporation to Balfour Williamson, November 29, 1906, file 10, box marked “Lobitos Oilfields (origins of),” LOL/UCL; London to Lima, January 3, 1907, Caja 39.1, Peruvian Corporation Archive, Lima; Hohagen, “Industria Minera,” 169. Archibald Williamson to Harry Williamson, September 5, 1908, Archibald Williamson's outgoing letterbook, no. 1 (hereafter AW1 etc.), BWA/UCL.

4 A. Williamson to H. Williamson, September 27, 1910 and July 9, 1908, AW1/BWA/UCL, Lagunitos Oil Company, Annual Report of the Board of Directors for 1912 (hereafter 1912 Report, etc.), 6, 1913 Report, 7, 1914 Report, 5; Thorp and Bertram, Peru, 1890–1977, 100; Gibb, George Sweet and Knowlton, Evelyn H., The Resurgent Years, 1911–1927: History of Standard Oil Company (New Jersey) (New York, 1956), 96.Google Scholar A Standard Oil lawyer remarked of the Hoover-controlled Lagunitos Company: “It's a wonder they aren't all in jail”: Wall, Bennett H. and Gibb, George S., Teagle of Jersey Standard (New Orleans, 1974), 98.Google Scholar

5 In March 1906 Williamson was talking of a company capitalized at £85,000, and in December 1906 of one capitalized at £150,000-£200,000: A. Williamson to Kenneth Mathieson, March 20, 1906 and December 28, 1906, AW1/BWA/UCL. E.R. Blundstone to Sir Boverton Redwood, October 31, 1906, file 6, box marked “Lobitos Oilfields (origins of)” LOL/UCL. A. Williamson to A. Milne, January 8, 1909, and to H. Williamson, September 27, 1910, AW1/BWA/UCL; “Informe del Director del Cuerpo de Minas y Aguas” in Legislatura Ordinaria de 1917. Diario de Debates de la Cámara de Diputados (Lima, 1917), 67.

6 The changing format of the company's accounts means that net operating income from shipping and oil operations can be distinguished only for the period 1914–1926: Lobitos, Reports, 1908–1935, passim, LOL/BO. Over this period steamer operations accounted for 21 per cent of net operating income. In 1914–1916 the figure rose to 33 per cent, and in 1921–1923 to 26 per cent. Sources: Production from Hohagen, Jorge, “La industria minera en el Perú, 1932 y 1933,” Boletín del Cuerpo de ingenieros de Minas y Aguas 111 (Lima, 1935), 169.Google Scholar

Dividends from Lobitos, Reports, 1908–1935, passim, LOL/BO. The initial stock of the company was £360,000, raised to £400,000 in 1921. Further issues brought the total to £600,000 in 1925, and £1,000,000 in 1927.

7 The reasons for the 1910 ban on concessions are variously stated as fear of Chilean involvement in the oilfields, impending war with Ecuador, and the need to make a proper survey of the oilfields to regulate concessions. The latter is the explanation favored by Thorp and Bertram, Peru, 1890–1977, 100 and Luis Viliarán R., La Compañía Petrolera Lobitos y la Industria del Petrleo en el Perú (Lima, 1959), 5–6. Boletín Oficial de Minas y Petróleo 1:1 (July, 1922), 124–128; Hohagen, “Industria Minera,” 233; Thorp and Bertram, Peru, 1890–1977, 100–101, Milne and Co. to Lobitos Oilfields Limited, April 22, 1927, “Correspondence with London, 1927,” CPL. Lobitos Oilfields Limited, Report of Proceedings at Extraordinary General Meeting, February 10, 1925, LOL/BO. Field Manager's Annual Reports, 1921–1930, passim, CPL. The port of Cabo Blanco was opened to serve the new areas in 1927. West Coast Leader, July 17, 1923.

8 Lobitos Oilfields Limited, Report of Proceedings at Annual General Meeting, 3 June, 1930 (hereafter 2930 Proceedings) LOL/BO. On sales and marketing see the detailed discussion below. On some occasions when all the tankers were out on charter, freight shortages did hit the company: Field Manager's Annual Report for 1925 (typescript), 5, CPL.

9 For theoretical studies, see particularly McLean, John G. and Haigh, Robert William, The Growth of Integrated Oil Companies (Boston, 1954)Google Scholar, and Penrose, Edith T., The Large International Firm in Developing Countries: the International Petroleum Industry (London, 1968).Google Scholar The case studies in McLean and Haigh, The Growth of Integrated Oil Companies, 519–662, concentrate on refining firms in the United States. The operation in Ecuador was formed into a separate company, Anglo-Ecuadorian Oilfields Limited, in 1919: A. Williamson to F.J. Milne, May 24, 1919, AW6/BWA/UCL. For an explanation of the commercial logic of Lobitos's decision to open a refinery, see McLean and Haigh, The Growth of Integrated OH Companies, 83.

10 Archibald Williamson to Alec Williamson, January 16, 1907, AW1/BWA/UCL. Lagunitos had been capitalized in 1910 at £200,000. In 1912 it had to raise a further £30,000 in preference shares. Its contract to sell oil to London and Pacific could not cover all of its production, and it was precluded by the terms of its contract from selling oil in Peru and Chile. To overcome its marketing difficulties the company estimated that it needed a further £100,000: Lagunitos, 1913 Report, 7–8. On attempts to purchase older producers, see A. Williamson to W.R. Henderson, February 29, 1908, and to B. Williamson, July 9, 1908, AW1/BWA/UCL; Lobitos Oilfields Limited, Board Minutes, December 3, 1908, Minute Book 1 (Hereafter Minutes, December 3, 1908, MB1), LOL/BO. The figure mentioned in the pooling agreement was 35 per cent of the Callao market for Lobitos, but the firm was reluctant to undertake a commitment that it could not fulfill if Keswick failed: A. Williamson to A. Milne, January 8, 1909 and March 8, 1909, AW1/BWA/UCL; Lobitos Minutes, January 14 and 28, 1909, MBI/LOL/BO. On the postponement of the distillation plant, see A. Williamson to Taltal Railway Company, June 19, 1909, and to A. Milne, October 11, 1909, AW1/BWA/UCL; Lobitos Minutes, August 5, 1909, MBl/LOl/BO.

11 A. Williamson to George Guthrie, March 27, 1911, AW1/BWA/UCL. A. Williamson to David Richardson, August 12, 1910, AW1/BWA/UCL.

12 A. Williamson to W.E. Bemis, September 22, 1910, to H. Williamson, October 31, 1910, and to Walter Teagle, November 23, 1910, AW1/BWA/UCL. Gibb and Knowlton, The Resurgent Years, 94–95; Thorp and Bertram, Peru, 1890–1977, 100; Miller, Rory, “British Business in Peru, 1883–1930” (Ph.D. thesis, University of Cambridge, 1979), 171–174.Google Scholar

13 A. Williamson to Alec Schlater (of Duncan Fox), September 30, 1912, AW2/BWA/UCL. See, for example, his letter to Teagle of April 23, 1915, when he advised Teagle to establish a board of IPC in Lima and to employ some Peruvian politicians as legal advisers, AW3/BWA/UCL. A. Williamson to W. Teagle, February 13, 1914, AW2/BWA/UCL, and June 14, 1915, AW3/BWA/UCL.

14 A. Williamson to H. Williamson, October 31, 1910, AW1/BWA/UCL; A. Williamson to W. Teagle, February 13, 1914, AW2/BWA/UCL.

15 A. Williamson to W. Teagle, July 19, 1911, May 21, 1912, August 28, 1912, AW1/BWA/UCL. A. Williamson to W. Teagle, February 13, 1914, AW2/BWA/UCL. A. Williamson to W. Teagle, November 4, 1914, December 14, 1914, March 9, 1915, June 14, 1915, AW3/BWA/UCL. Whether Lobitos had actually been taken over by IPC was unclear to the press: West Coast Leader, January 2, 1915. The press rumors caused the chairman to spend some time denying them to shareholders: Lobitos, 1915 Proceedings and 1916 Proceedings, LOL/BO.

16 McLean and Haigh, The Growth of Integrated Oil Companies, 539–540. Williamson rejected a further approach for Lobitos in 1916 on the grounds that Lobitos was protecting its interests by distancing itself from the prejudice in Peru against Standard Oil; A. Williamson to W. Teagle, June 27, 1916, and to Frederick Milne, October 7, 1916, AW4/BWA/UCL.

17 A. Williamson to F. Milne, February 6, 1918, AW5/BWA/UCL. One approach was made for the firm in 1923 by Standard Oil of California: F. Milne to James Rennie, May 14, 1923, “Private Correspondence, 1923,” CPL. On the increasing glut, see McLean and Haigh, The Growth of integrated Oil Companies, 85–87; Sampson, Anthony, The Seven Sisters: The Great Oil Companies and the World They Made (London, 1975), 70–76.Google Scholar There is evidence of a secret agreement between Shell and Standard Oil; Thorp and Bertram, Peru, 1890–1977, 101. In 1930 both Anglo-Persian and Shell refused to touch anything in Peru because they regarded it as the exclusive preserve of Standard Oil: Minute by H.A. Caccia on Bentinck to Henderson, April 22, 1930, FO 371/14252, Public Record Office. On Jersey Standard's purchases, see Larson, Henrietta M., Knowlton, Evelyn H. and Popple, Charles S., New Horizons, 1927–1950: The History of Standard Oil Company (New Jersey) (New York, 1971), 33–41 and 49–50.Google Scholar

18 The chairman told shareholders in 1920 that publication of the price at which Lobitos sold its oil to IPC was “not in the interests of shareholders” and in the following year that IPC had made it a condition of the agreement that the price would not be published. One shareholder in fact complained of “the degree of secrecy or reticence which the Board pursue”: Lobitos, 1920 Proceedings andÌ921 Proceedings, LOL/BO. Lobitos Minutes, July 14, 1914 and March 9, 1915, MB3/LOL/BO.

19 Lobitos Minutes, July 5 and 13, 1920, MB5/LOL/BO. Gibb and Knowlton, The Resurgent Years, 413, 435–443. Lobitos Minutes, September 26, 1922, MB5/LOL-BO; Lobitos Minutes, October 9, 1923 and January 22, 1924, MB6/LOL/BO. In June 1924, 7,800 tons were sold to Anglo-Mexican at $2.50 per barrel f.o.b. Lobitos. Standard were apparently offering $1.85: Lobitos Minutes, June 12, 1924, MB6/LOL/BO.

20 Lobitos, 1927 Proceedings, LOL/BO;J. Rennie to Milne and Co., March 25, 1927, “Correspondence with London, 1927,” CPL.

21 Lobitos, 1925 Proceedings, LOL/BO; Lobitos Minutes, February 24, 1925 (MB6)) and April 27, 1926 (MB7), LOL/BO; J. Rennie to Milne and Co., November 15, 1927, “Lobitos Oilfields Limited, Secretary's Correspondence 1927,” CPL; J. Rennie to Milne and Co., October 29, 1929, “Miscellaneous Correspondence, 1929,” CPL. Lobitos Minutes, September 23, 1925, MB6/LOL/BO; Lobitos Minutes, January 14, 1930, MB8/LOL/BO. Lobitos, 1931 Proceedings and 1932 Proceedings, LOL/BO; de Chazeau, Melvin G. and Kahn, Alfred E., Integration and Competition in the Petroleum Industry (New Haven, 1959), 138.Google Scholar

22 Lobitos Minutes, March 22, 1932, April 19, 1933, May 30, 1933, June 13, 1933, MB9/LOL/BO

23 Lobitos Minutes, January 22, 1918, MB4/LOL/BO. The estimates of income are basedon the information available about Lobitos's sales prices and on the assumption that Lobitos took 22 per cent (the ratio of its production to the total) of total imports through Talara between 1918 and 1927.

24 A Williamson to H. Williamson, October 31, 1910, and to W. Teagle, November 25, 1910, AW1/BWA/ UCL; A. Williamson to H. Williamson, December 14, 1919, and to F. Milne, March 29, 1920, AW5/BWA/UCL. U.S. Embassy (Lima) to State Department, February 23, 1925, U.S. State Department Decimal File 823.6363/ 75; Larson et al., New Horizons, 325–326. IPC agencies' income was calculated from the figures for IPC's local sales in Thorp and Bertram, Peru, 1890–1977, 104, on the assumption that Milnes obtained a 2.5-per-cent comissionon all IPC's local sales until the end of 1924, and 1 per cent on three-quarters of IPC's sales plus 2.5 percent on the remaining quarter thereafter. This is likely to be an underestimate. Larson et al., New Horizons, 326–328.

25 Thorp and Bertram, Peru, 1890–1977, 109–110; Pinelo, The Multinational Corporation, 22. The evidence about the coup is mainly from State Department papers: see Carlton Jackson to Bureau of Foreign and Domestic Commerce, August 5, 1920, U.S. State Department Decimal File 823. 6363/32.

26 In 1910 petroleum was less than 2 per cent of Peru's exports: Dirección General de Estadística del Perú, Extraito Estadístico del Perú 1921—1933 (Lima, 1935), 67 and 117; Chocano, Eduardo A., El Desenvolvimiento Comercial e Industrial del Perú (Lima, 1928), 327.Google Scholar

27 Thorp and Bertram, Peru, 1890–1977, 104–106. According to Thorp and Bertram, Peru, 1890–1977. 100: “[After 1913 Lobitos] entered a working alliance with the Standard interests, selling all Lobitos oil through the IPC.”

28 Miller, “British Business in Peru,” 125–127. Lobitos Minutes, May 11, 1915, MB3/LOL/BO.

29 II Congreso Extraordinario de 1915, Debates, Senadores, 222; Debates, Diputados, 616. A. Williamson to W. Teagle, November 29, 1915, AW4/BWA/UCL; Lobitos Minutes, November 9, 1915, MB3/LOL/BO. Legislatura Ordinaria de 1916, Debates, Senadores, 274–281; Debates, Diputados, 1903–1916, 1989, 2024. Legislatura Ordinaria de 1917, Debates, Diputados, 50.

30 On the 1915–1918 dispute over IPC's titles, see Laurie Solis, La Diplomacia del Petróleo, 122–151; Basadre, Jorge, Historia de la República del Perú (5th ed., Lima, 1963), VIII, 3885–3895Google Scholar; Pinelo, The Multinational Corporation, 13–21; Thorp and Bertram, Peru, 1890–1977, 108–109. Legislatura Ordinaria de 1917, Debates, Diputados, 87.

31 Lobitos Minutes, September 11, 1917 and June 11, 1918, MB4/LOL/BO; A. Williamson to W. Teagle, July 11, 1916, AW4/BWA/UCL; A. Williamson to W. Teagle, September 10, 1917, AW5/BWA/UCL. Pinelo, The Multinational Corporation, 19, argues that Lobitos collaborated with IPC to starve the Lima market of fuel oil. His evidence is unclear, but appears to be a State Department memorandum of December 1918, which also stated, untruthfully, that Lobitos was owned by IPC. The evidence of Lobitos board minutes, October 8, 1918, November 12, 1918, November 26, 1918, MB4/LOL/BO, shows that the Board had no prior knowledge of IPC's action and did not make an agreement with IPC. There is also no evidence in Williamson's voluminous private correspondence with Teagle to support Pinelo's hypothesis. The ban on exports did Lobitos great harm. Its unrefined crude was of no use to the Lima market, and it is difficult to see what Lobitos might have expected to gain from supporting IPC on this occasion with the results, as far as they knew, uncertain. Lobitos certainly demanded Foreign Office support in fighting the ban (Williamson to Balfour, October 4, 1918, Rennie to Balfour, October 25, 1918, Lobitos Oilfields Limited to Foreign Office, October 30, 1918 and November 9, 1918, F0371/3276), but this seems due to the harm that the decree was doing to the company and to its annoyance that the government was stopping exports that were of no use to the domestic market, rather than because the company wished to help IPC. Both to contemporary Peruvians and to later commentators this may seem like collaboration, however, simply because the same man, the British minister, was entering protests on behalf of both foreign oil companies at the same time but for different reasons. On the causes of British support for IPC, an American-controlled firm, see Miller, “British Business in Peru,” 184–185.

32 Piesse to Foreign Office, April 28, 1922, FO 371/7241. West Coast Leader, March 1, 1922; Lobitos Minutes, Novembers, 1921 and February 14, 1922, MB5/LOL/BO. In March 1921, the sliding scale had meant that Lobitos had been paying an export duty of eight shillings per ton: Lobitos to Board of Trade, March 16, 1921, FO 371/5610. Rennie to Milne and Co., March 25, 1927, “Lobitos Oilfields Limited, Secretary's Correspondence, 1927,” CPL; Trant to Chamberlain, June 10, 1927, FO 371/12018.

33 Lobitos Minutes, February 23, 1915 and October 25, 1916, MB3/LOL/BO Milne and Co. to T. Scott, October 31, 1917, “Field Manager's Letters, 1917,” CPL. “History of Lobitos Oilfields Limited” (corrected typescript), chapter 2, sections 2–3, LOL/UCL.

34 Lobitos Minutes, February 10 and 24, 1920, MB4/LOL/BO.

35 Boletín Oficial de Minas y Petroleo 1:1 (July 1922), 123–128. “History of Lobitos Oilfields Limited,” chapter 3, section 4, LOL/UCL; Lobitos Oilfields Limited, “Historical Notes on the Activities of the Company from Early Origins to the Present” (typescript), 55, LOL/UCL.

38 Peruvian taxes were calculated from Lobitos, Reports, 1918–1922, passim. Extracto Estadístico, 1931–1933, 108; the actual values of Lobitos exports estimated from Hohagen “Industria Minera,” 169, and Lobitos Minutes, July 13, 1920, MB5/LOL/BO.

37 These figures are based on calculations of the duty that would have been payable under the 1917 law, using prices for Pennsylvania crude as printed in the monthly market review of Petroleum World, and monthly exchange rates from Extracto Estadístico, 1931–1933, 30–35.

38 Lobitos Oilfields Limited to Milne and Co., January 19, 1923 and J. Rennie to Milne and Co., June 8, 1923, “Lobitos Oilfields Limited, Private Correspondence, 1923,” CPL. Minute by C.J.W. Torr on Board of Trade to Foreign Office, December 10, 1916, FO 371/11160. J. Rennie to Milne and Co., March 11, 1927 and August 12, 1927, “Lobitos Oilfields Limited, Secretary's Correspondence, 1927,” CPL.

39 Lobitos Minutes, February 10 and 27, 1925, MB6/LOL/BO. F Milne to H. Milne, February 1, 1927, “H.P.M. Milne's Correspondence, 1927,”and J. Rennie to Milne and Co., March 25, 1927 and April 8, 1927, “Lobitos Oilfields Limited, Secretary's Correspondence, 1927,” CPL.

40 Penrose discusses the difficulties of the established firm having to move into a technologically complex field in which the management is inexperienced: see Penrose, Edith T., The Theory of the Growth of the Firm (Oxford, 1972), 118–119.Google Scholar For Lobitos it would have been easier for the management to enter a partnership with, or to take over, an existing refining firm. Setting up from scratch was the most difficult option.

41 Lobitos, 1918 Proceedings, LOL/BO; Lobitos Minutes, March 9, 1920, MB5/LOL/BO.

42 Thorp and Bertram, Peru, 1890–1977, 110–111. Compare, for example, the 33 per cent that the Chilean government received from nitrate or the 65–70 per cent that the Peruvian government had previously earned from guano: Mamalakis, Markos, “The Chilean Nitrate Sector, 1880–1930,” in Ranis, Gustav, ed. Government and Economic Development (New Haven, 1971), 192Google Scholar; Hunt, Shane J., “Growth and Guano in Nineteenth-Century Peru” (Discussion Paper No. 34, Woodrow Wilson School, Princeton, 1973), 61.Google Scholar

43 Forres to Tyrrell, July 5, 1927, FO 371/12018. There were, as noted above, good reasons for Lobitos to be angry with the treatment it was receiving from the IPC in 1927, but by 1930 it was telling the Foreign Office that it would not participate in a Peruvian national refinery unless it were sure that IPC would not object; Minute by H.A. Caccia on Bentinck to Henderson, April 22, 1930, FO 371/14252. Since London and Pacific was not publicly quoted, news of the sale only slowly became known. The Petroleum Review, in January 1914, some months after the sale, claimed that London and Pacific was in the forefront of British interest in Peru's oilfields: Petroleum Review, January 24, 1914. Even the British minister in Lima, in November 1915, was reporting to London the threat of Standard Oil appearing in Talara, apparently unaware that the refinery there had been, for two years, under Standard Oil's control: Rennie to Grey, November 24, 1915, FO 371/2738. On the other hand, as noted above (footnote 15), other newspapers believed that all Peru's northern oilfields had fallen under Standard's control by the beginning of 1915.