By Gerald Forbes
While the South Burbank pool is being cited as an example of the economic advantages of unitization,1 it is an interesting fact that the first two decades of oil development in the Osage Reservation contained similar features of community interest and concerted control. Between the years 1896 and 1916 the petroleum of the Osage Reservation was developed under a single contract, known as the Foster Lease, the only enduring and successful "blanket" lease in Mid-Continent's history. The Foster Lease undoubtedly was a monopoly,2 but just as certainly it was an instrument of conservation.
The former Osage Reservation, the present Oklahoma county by that name, contains about one and a half million acres that were bought from the Cherokees, preparatory to moving the Osages from Kansas in 1872. This territory is bounded by the ninety-sixth meridian on the east, the Arkansas River and the former Creek Nation on the south and west, and Kansas on the north.3
It was nearly twenty years after the Osages had bought the land that the possibility of producing petroleum began to be investigated. The American Civil War had interrupted the beginning of the oil industry in Kansas, but in the final decade of the century the production of petroleum became an established industry in that state. In 1895 the oil production of Kansas was 44,430 barrels.4 Among those persons interested, in the oil industry was Henry Foster, who had moved to Independence, Kansas, from Rhode Island. Foster suspected the presence of petroleum beneath the land of the Osages. In 1895 he applied to the Secretary of the De-
1John J. Arthur, "Unitization vs. Competition," The Oil Weekly, V. 83, No. 2, September 21, 1936, pp. 22-26; The Oil Weekly, V. 82, No. 13, September 7, 1936, p. 51.
2Kate P. Burwell, "Richest People in the World," Sturm's Oklahoma Magazine, II, No. 4, pp. 89-93; United States Geological Survey, Mineral Resources of the United States, 1905, p. 885.
4United States Geological Survey, Mineral Resources of the United States, 1889-90, 355; University Geological Survey of Kansas, IX, Special Report on Oil and Gas, 1908, pp. 21-23.
partment of the Interior for a lease of the Osage Reservation. Henry Foster died before the contract was consummated, but his brother, Edwin B. Foster, assumed his interests and obligations. The lease finally was signed, March 16, 1896, by Edwin B. Foster and the Osage National Council, with James Bigheart, principal chief of the Osages, Saucy Chief, president of the Council, and several other Indians writing their names or making their "X's."5
The terms of the contract, which soon became known as a "blanket lease," conferred on Foster the exclusive right of producing oil in the entire Osage Reservation. The term was for ten years. Foster, in turn, agreed to pay a royalty of ten per cent of all crude petroleum removed from the ground and fifty dollars a year for each gas well, as long as it was used. The royalty was to be based on the market value at the place of production, and was to be paid to the National Treasurer of the Osage Nation. Foster further agreed to settle the royalty accounts between the fifth and tenth days of January, April, July, and October.6 Even at this early period there was dissention, and in less than a month a protest was filed with the Secretary of the Interior. The leading protestant was Saucy Chief, who had placed his "X" on the original Foster Lease. The protest was not attested and not clearly genuine. It declared that a full council had not been present when the leasing had been discussed and that the contract did not represent the wishes of a majority of the Osage Tribe. An investigation followed, and the Osage Agent reported that two white men had taken about fifty Indians across the Arkansas River to Cleveland, Oklahoma Territory, where the Osages had been induced with whiskey to sign a protest to the Foster Lease.7
Edwin B. Foster and the heirs of Henry Foster, having organized the Phoenix Oil Company, arranged with McBride and
5Osage Indian Archives, Pawhuska, Oklahoma, D. M. Browning to Henry Foster, January 24, 1896; Hines, E. P., Osage County, in Snider, L. C., Oil and Gas in the Mid-Continent Field, p. 208; Kappler, Charles J., Indian Affairs, Laws and Treaties, III, 1913, p. 137.
6Exact copy of the original lease—Mining Lease, Osage Agency, Oklahoma Territory, 1896, for Prospecting and Mining for Oil and Gas upon the Osage Reservation, Oklahoma Territory.
7Osage Indian Archives, D. M. Browning to U. S. Indian Inspector Duncan, April 6, 1896; D. M. Browning to Acting Agent Freeman, June 13, 1896.
Bloom, drillers of Independence, Kansas, to put down a well three or four miles south of Chautauqua Springs, Kansas, likely near the present town of Boulanger, Oklahoma.8 This well was shallow but it produced about fifty barrels of oil daily, not enough at that time to be commercially valuable, so it was capped. The rumor that the well was an excellent one became current. It was rumored that this first Osage well had been closed to permit the owners to acquire leases cheaply in the Oklahoma Territory. The first Osage well was drilled in 1897. It was in 1899 that the Osage Oil Company, another Foster concern, drilled on the eastern side of the Osage Reservation near Bartlesville, a town in the Cherokee Nation. The first well of the Osage Oil Company showed prospects of petroleum and the second well was a good producer. Several dry or nearly dry holes were drilled, but the seventh well of the group was the best producer in the entire Kansas-Indian Territory oil field.9
By 1900 Foster had done little to develop the petroleum industry in the Osage Reservation, but in that year arrangements were completed for subleasing the land in large blocks. The entire reservation was divided into tracts half a mile wide and three miles east to west. These rectangles were numbered consecutively and those in the eastern part of the Reservation were offered to sublessees on a bonus and royalty basis. The sublessees were required to pay the Foster interests a one-eighth (later one-sixth) royalty and a bonus of one to five dollars an acre.10 The next year the Foster interests were consolidated in the Indian Territory Illuminating Oil Company (usually called the I. T. I. O.) which was incorporated at Trenton, New Jersey, with a capitalization of three million dollars. This new company was authorized to own and control all the rights and properties of the Osage and Phoenix Oil Companies.11 It was the I. T. I. O. that handled the subleasing
8Hines, loc. cit. p. 208; Hutchison, L.L., Preliminary Report on Rock Asphalt, Asphalite, Petroleum and Natural Gas in Oklahoma, Oklahoma Geological Survey, Bulletin No. 2, 1911, p. 167; Tidal Topics, III, Tidal Oil Company, 1919, p. 15.
11The Tulsa Democrat, Tulsa, Indian Territory, December 27, 1901, The Osage Journal, January 2, 1902.
of the Osage Reservation, and buyers of drilling rights were sought in New York. The first well drilled by a sublessee was financed by the Almeda Oil Company on Lot 40. The Indian Territory Illuminating Oil Company announced that it planned to drill wells itself at the rate of one every twenty days, that the Standard Oil Company would buy the crude oil production at its refinery at Neodesha, Kansas, for eighty-eight cents a barrel, and that leases had been sold to New York and St. Louis companies covering rights on about six thousand acres of land. The I. T. I. O. further called attention to the quality of the crude oil which caused it to yield a high percentage of kerosene. (The name of the company itself calls attention to the fact that gasoline then was not of first importance.) The average depth of the wells was thirteen hundred feet, which made them relatively inexpensive to drill.12
Drilling in the Osage Reservation was comparatively rapid after the system of subleasing had been perfected. During 1902 the rail shipments of crude oil to the Neodesha refinery amounted to 37,000 barrels, which was the production of thirteen wells, six of which had been drilled in 1902. By January, 1903, thirty wells had been completed by the I. T. I. O. and its sublessees. Seventeen of the thirty wells produced oil, two gas, and eleven were dry holes. A year later 361 wells had been completed, and 243 were producing oil, twenty-one gas, and ninety-seven were dry. By the beginning of 1906 there had been 783 wells drilled—544 producing oil, forty-one gas, and 198 were dry. The oil production was: 1903—56,905 barrels; 1904—652,479 barrels; 1905—3,421,478 barrels; 1906—5,219,106 barrels. The average daily production of the Osage wells in 1905 was about 15,000 barrels. In 1905 there were 687,000 acres of the Osage Reservation under the control of the sublessees.13 That year the I. T. I. O. announced that it had disbursed $2,686,627 in connection with the "blanket lease."
By the terms of the contract with Foster, the Osages were to receive one-tenth royalty (later changed to one-eighth) while the I. T. I. O. Company required one-eighth (later changed to one-
13United States Geological Survey, Mineral Resources of the United States, 1905, p. 855; 1906, p. 858; 1914, pp. 1009-1010; Tidal Topics, III, p. 15.
sixth) royalty of its sublessees, making a profit of one-fortieth (later one-twenty-fourth) in addition to rentals and bonuses. There were less than twenty-five hundred members of the Osage tribe on the official rolls. The rolls contained Indians on the list January 1, 1906, and all children born to them by July, 1907, and those children of white fathers who had not been enrolled previously. There was no distinction between males and females, age, or degree of Indian blood. The equal share which each member of the tribe received from the communal mineral receipts was known as a headright. Headrights, it was provided by law, could be inherited, subdivided or consolidated, and as time passed different members of the tribe did not receive equal shares, as was the case at the time of the Osage allotment. This allotment differed from that of the other Oklahoma tribes, for it provided that only the surface of the land be held in severalty while the minerals of the subsurface remained communal property. As the sublessees of the I. T. I. O. developed the oil industry, the royalties of the Osage tribe mounted and were divided into headright payments.14
The days of the quarterly payments at Pawhuska, seat of the Osage agency, were colorful. On the first and second days of the payments, the full bloods received their monies; then the mixed-bloods were paid on the following two or three days. By 1906 the quarterly payment period kept force of eight men busy for four or five days. The merchants and professional men of Pawhuska who had extended credit to the Indians were on hand to collect their bills before the Osages had spent their money elsewhere. The amount of the payment depended on the number of barrels of oil taken from the ground, the number of gas wells being used, and the market price of petroleum. Accurate figures on the receipts from oil and gas are difficult to acquire, for the Osages also received payments for grazing permits, pipe line damages, and other revenues. Between July 1, 1904, and May 13, 1905, a total of $108,567 was paid to the Osages as oil and gas royalties.15
14United States Statutes At Large, XXXIV, p. 540; Kappler, op. cit., p. 256; United States Geological Survey, Mineral Resources of the United States, 1906, p. 855; Daniel, L. H. "The Osage Nation," The Texaco Star, V. Nos. 7-8, pp. 10-14.
Congress began considering the renewal of the Foster Lease in 1905, although it did not expire until March, 1906. Several of the tribal leaders went to Washington to watch the action of Congress, and there were some who wished to prevent renewal of the contract.16 There were oil operators who called attention to the profits they believed the I. T. I. O. company was making and objected that one firm should have such a monopoly. After an investigation, Congress compromised by renewing the Foster Lease and all the subleases made by the I. T. I. O. on a total area of six hundred and eighty thousand acres on the eastern side of the Reservation. All the original conditions of the Foster Lease were to apply for another decade, with the exception that gas well royalty was increased from fifty to one hundred dollars for each well. The status of the western half of the Reservation was left undetermined until 1912. The renewal with reduced acreage left the Indian Territory Illuminating Oil Company with only 2,060 acres that had not been subleased, and caused that firm to lease from its own sublessees.17
Before 1904 the Osage oil was transported by railroad, but in that year the Department of the Interior approved two applications for pipelines to move the crude petroleum. The amount of damages to be paid the Osages puzzled the Federal officials, for there was no precedent for laying pipelines across Indian lands. The Prairie Oil and Gas Company wanted to lay a line to the refinery at Neodesha, while Guffey and Galey sought to pipe gas to Tulsa.18 Damages were fixed at ten cents a rod. In 1905 the Prairie constructed the "Cleveland discharge" line, which connected the Osage wells near Cleveland, Oklahoma Territory, with the trunk line to Kansas. Another outlet for the Osage petroleum appeared with the construction of a refinery by the Uncle Sam Oil Company at Cherryvale, Kansas. The disagreements of the Uncle Sam and the
17"History of twenty-three Years of Oil and Gas Development in the Osage," "National Petroleum News," V. No. 11, pp. 66-68; Kappler, op. cit., p. 137; Osage Indian Archives, Memorandum, p. 1; Osage Indian Archives, C. F. Larrabee to Frank Frantz, June 7, 1905; Hines, E.P., loc. cit., p. 208; Department of the Interior, Commissioner of Indian Affairs, Annual Report, I, p. 307.
18The Osage Journal, March 18, 1905; The Cherokee Advocate, Tahlequah, Indian Territory, April 4, 1903.
Standard companies were dragged through the courts for years.19 In 1910 the Gulf Pipe Line Company became a buyer of Osage oil, since inadequate transportation facilities had resulted in 1909 in a decrease of production.20 Drilling and production received no more setbacks until 1915, when little drilling was done because of the uncertainty resulting from the struggle over the second renewal of the Foster Lease.
The disposition of the mineral rights in the western half of the Osage county (Oklahoma became a state in 1907) became a pressing question in 1911. A committee of Osages urged the National Council to lease the western land on terms that would be more profitable to the Indians. Royalties of one-third and one-sixth were suggested. Since the Osages were interested in farming and ranching, as well as oil, it was argued that no company should be permitted to drill for oil without the "written consent" of the allottee on whose land the well was desired. After revising some of the suggestions of the committee, the Osage National Council went on record as favoring sealed bids for leases. Sealed bids would prevent leasing except at specific times, and then the lease would go to the highest bidder.21
While this discussion was current among the Indians, some oil operators met at Tulsa and decided on a plan for leasing the western side of Osage County. They proposed the organization of a large company of independent operators, each of whom would be on an equal cooperative footing. Such a company, the oil men believed, would be financially able to contract for the entire unleased acreage of Osage lands. They believed this company could deal pleasantly with the Department of the Interior. The financing of this huge company was expected to be comparatively simple, and it was argued that such a concern would be able to dictate favorable terms to crude oil buyers and thereby gain a profitable
19Osage Indian Archives, C.F. Larrabee to Frank Frantz, January 12, and January 14, 1905; The Muskogee Times Democrat, Muskogee, Indian Territory, January 8, 1907.
21The Osage Journal, January 5, May 25, August 17, September 14, and October 19, 1911; Senate Document 487, 62 Congress, 2 Sess.
price for the petroleum. Among the leaders of this plan were P. J. White, Harry Sinclair, E. R. Kemp, and David Gunsberg.22
Samuel Adams, Assistant Secretary of the Department of the Interior asked those who were interested in leasing Osage land to communicate with him.23 The Osage National Council went to Washington to confer with Adams. The proponents of the giant organization of independent producers sent representatives. Many oil men favored neither the plan of the independents nor that of the Osage Council, so a mass meeting was called at Tulsa to protest the organization of the giant cooperative firm. Some believed that the Osage oil long had been a menace to the price of petroleum, and they did not look kindly on any plan to further the production. They suggested that a plan be adopted to discover whether any oil existed in the western side of the Osage County. Several operators believed that all the oil of the Osages had been discovered. Another group, led by E. W. Marland and F. A. Gillespie, opposed any plan involving one big lease. They favored leasing the western side of the county in blocks as small as 160 acres.24
In May, 1912, the Osage National Council directed the principal chief to sign four leases that would cover virtually the entire western part of the county. In these leases were several ideas which the Osages desired, including the "written consent clause," the maintenance by the leasing companies of offices at Pawhuska, and the retention in the county of all the gas. (It was believed that the retention of the gas in the county would induce industries to come.) The leases were issued to four men, one of whom was H. H. Tucker of the Uncle Sam Oil Company, who was reported to be an adopted member of the Osage tribe. The Secretary of the Department of the Interior refused to accept these leases because no provision was made for the supervision of the Federal government. He also frowned on the "written consent clause."25
Despite the fact that Assistant Secretary Adams had said that he would not recognize their election, Bacon Rind, as Principal
25The Osage Journal, March 14 and May 23, 1912; The Tulsa World, March 16, May 25 and June 19, 1912.
Chief, and Red Eagle, as Assistant Chief, celebrated their election in July of that year (1912).26 Under the guidance of Bacon Rind and Red Eagle, the Osage National Council joined the Uncle Sam Oil Company in publicly presenting a petition to President Taft asking that the entire unleased portion of the Osage lands be leased to Tucker's company. The Department of the Interior concluded the opposition among the Indians by promptly removing from office both Bacon Rind and Red Eagle, as well as the entire National Council. Tucker responded with a final threat to President Taft that the twelve thousand stockholders of the Uncle Sam Oil Company would remember the refusal of the president to override the decision of the Department of the Interior. He vowed that the stockholders would use their influence to prevent Taft's reelection in November.27
The final decision of the Department of the Interior, issued July 13, 1912, involved elements of several of the plans suggested for the disposal of the west side mineral rights. The land was to be leased in tracts varying from three hundred to 5,120 acres, but no person was to have more than 25,000 acres. The United States Agent at Pawhuska was required periodically to advertise specific tracts for leasing on sealed bids. A person wishing to lease a tract was required to request in writing that the land be offered for bidding. Each bid was to be accompanied by a certified check for ten per cent of the bonus and the first year's rental. All leases were to endure for ten years from the date of approval by the Department of the Interior, providing no lease extended beyond April 8, 1931. The royalty on gas was fixed at one-sixth of the market value at the well, while on petroleum it was set at one-sixth of the gross production at the actual market value. Heretofore the royalty on oil had been one-eighth. Oil men who had been paying one-eighth royalty on oil produced on the land of the Five Tribes objected to giving one-sixth to the Osages, but that was the share which the I. T. I. O. had been receiving from its sublessees. A compromise was reached on the "written consent clause" whereby cultivated lands and homesteads were protected from oil prospec-
tors. Producers strongly condemned the new regulations and the Osage National Council.28
The conflict over leasing the west side of the county hardly had ended before it was time for the renewal of the Foster Lease on the east side of the Osage Reservation. The I. T. I. O. minimized the profit it received from the Foster Lease, but in June, 1914, a renewal of the lease was asked. The request of the I. T. I. O. was supported by the company's sublessees. The next month the Osage National Council requested that no blanket lease be approved for the land then held by the I. T. I. O. The leasing company issued a financial statement to show the benefits that it had brought the Osages. The statement said that the I. T. I. O. had received over two million dollars in seventeen years, but that more than a million dollars had been paid to the Indians. The company cited the fact that it had furnished more than one hundred thousand dollars worth of gas free to operating companies. The statement of the I. T. I. O. indicated that the company had spent more in developing the Osage petroleum than it had received from the sublessees.29
When 1915 opened it was clear that some decision must be made regarding the Foster Lease. Secretary Lane of the Department of the Interior called a public hearing at Washington to discuss the lease. Members of the Osage National Council, officials of the Indian administration, and oil operators attended.30 Charles N. Haskell, first governor of Oklahoma, appeared for P. J. White and Harry Sinclair, and declared that the decision would affect the entire Mid-Continent. He asserted that the I. T. I. O. would develop the oil industry in an orderly manner, but that if the district were thrown open to competitive drilling there would be a
28Oklahoma Geological Survey, Bulletin No. 19, Part 1, Petroleum and Natural Gas in Oklahoma, 1915, p. 32; Department of the Interior, Regulations to Govern the Leasing of Lands in the Osage Reservation, Oklahoma, for Oil Gas, and Mining Purposes, 1912, pp. 1-4.
29Estimate of Profit and Loss under the Leases and Subleases of the Indian Territory Illuminating Oil Company in the Osage Reservation, compiled by Charles F. Leech, (nd) Osage Indian Archives.
30The Oil and Gas Journal, February 11, 1915, p. 2; Osage Indian Archives, Cato Sells to J. George Wright, February 10, 1915, The Osage Journal, February 11, 1915.
flood of oil that would swamp the marketing facilities. Charles Owen, in a letter that was made a part of the record, took the stand that if the I. T. I. O. were to be protected for the pioneer development, its lease should be renewed where it actually had put down wells, not subleased the land to other companies. Some sublessees objected to the policy of the I. T. I. O. in separating the oil and gas rights, for they argued that they had found the gas, but now that a market was available the I. T. I. O. held it. (By the Foster Lease, the I. T. I. O. owned all gas discovered.) The Osage National Council demanded that leases be made directly with the operating companies without the I. T. I. O. as an intermediary.31 The hearing was concluded in June and the Department of the Interior refused to renew the Foster Lease, deciding to eliminate the I. T. I. O. except as a producing company.
The new regulations provided that the east side of the county be broken up into quarter-section units combined in such a way that none would exceed an aggregate of 4,800 acres, except in such units where producing wells were capable of averaging twenty-five barrels a day on July 1, 1915. These units were to be offered at public auction for lease by the Osages under the supervision of the Department of the Interior. Oil and gas rights still were to be kept separately. The royalty on oil was fixed at one-sixth, except on quarter-sections where the average daily production equalled or exceeded one hundred barrels daily. There the royalty was one-fifth. Former sublessees of the I. T. I. O. were allowed to keep those quarter-sections they then were developing provided there would not be a total exceeding 4,800 acres.32 In general these rules were much the same as those governing the oil leases in the lands of the Five Civilized Tribes.
March 16, 1916, the Foster Lease expired, ending the only successful blanket lease of the lands of an Indian tribe. The lease
31Osage Indian Archives, J. George Wright to Cato Sells, March 2, 1915, Stenographer's Minutes of Hearing Before Cato Sells, Commissioner of Indian Affairs, in the Matter of the so-called Foster Lease on Oil and Gas Property Owned by the Osage Indians of Oklahoma, Washington, March, 1915, pp. 675-680, 682-683, 686-687, 692-694-703, 710-711, 715, 730; The Osage Journal, May 15, 1915.
was a monopoly, but it had good features for all concerned. The Osage lands continued to produce an increasing volume of oil until 1923, whereas the immense deposits in the Creek Nation (Glenn Pool, Cushing Pool, Okmulgee County) were dissipated very rapidly. In the Osage area there was a tendency to avoid competitive drilling because of the large leases. The Osage gas was conserved, thereby retaining much of the natural pressure. Gross overproduction never was one of the evils found in the district. The Osages themselves certainly benefited under the Foster Lease, although their individual wealth generally was over-estimated.