Among U.S. oil companies, Amerada Petroleum Corp. is relatively small (28th in income), and virtually unknown to the public. But when little Amerada brought in a new oil well in North Dakota’s rich Williston Basin last week, its stock jumped 10 points in a few hours. Such jumps, however, are routine for Amerada. It is that rarity of Wall Street poker: a true-blue chip backed by a handful of wild cards.
Amerada always looks high-priced; last week it was selling at $225—43 times earnings. Ordinarily, conservative investors would shun such a seemingly overpriced stock. Nevertheless, Amerada’s biggest stockholders are conservative U.S. investment trusts; they own 15% of Amerada’s 3,688,300 shares. They like it because it is a speculation which has paid off again & again. It has been split twice in six years. Last week it was selling at 22 times its 1929 high; its price has nearly quadrupled since 1949.
Amerada lures investors because it makes fat profits ($16.9 million last year, or about 25% on its gross of $70 million), and plows most of them right back into digging more & more oil wells to make still greater profits. Since Amerada produces only crude oil and gas and does no refining, it can charge off 27½% of its income from each producing well as a depletion allowance, and write off the “intangible” development costs, such as drilling, etc. Thus it pays relatively small income taxes, paid less than 10% in taxes on 1950’s gross profits. (Such benefits are shared by all crude producers.) What also distinguishes Amerada is the uncanny ability of its president, Danish-born Alfred Jacobsen, 64, to find more oil, more cheaply, than almost anybody else.
Scientific Wildcats. A tall, spare man with a sad, gentle face, Jacobsen is so obsessively modest that Who’s Who has never been able to get him to fill out a questionnaire. Oil is his one passion. He gets up at 6 in the morning to work at it, often works six days a week in his Manhattan headquarters, has no recreations except an occasional stuffing on smorgasbord, downed with aquavit. His unpretentious office is cluttered with huge section maps of oil districts; masses of documents, data and statistics are spread in untidy profusion across his window ledges. His 36,000 shares of Amerada make him worth close to $8,000,000.
Jacobsen left Denmark at 18 for Mexico, where he sold hardware, clerked for a lawyer, worked for a bank, and gathered an encyclopedic knowledge of Mexican land laws which got him a job with the Mexican Eagle Oil Co. In six years, he was Mexican Eagle’s managing director. In 1919 the company sent its chief geologist, a Kansan named E. (for Everette) de Golyer (TIME, April 3, 1944), to the U.S. to found Amerada and direct its hunt for oil in the U.S. and Canada (the name is a compound of “America” and “Canada”). Seven years later, De Golyer brought Jacobsen in as his deputy. Together, they built Amerada’s fame as the outstanding U.S. wildcatter and a pioneer in developing scientific methods to find oil. Among the first to use a gravity-measuring instrument to detect underground faults likely to yield oil, De Golyer struck the rich Nash salt dome in Texas. Later, he was the first to use the seismograph in wildcatting. In 1929, three years before De Golyer retired to found his own Dallas oil consulting firm, Jacobsen took over the presidency.
Untold Treasure. Amerada has bet on its scientific methods ever since, takes nearly all of its leases where oil has never before been found. As long ago as 1938, Standard Oil Co. of California had drilled as far down as 10,281 feet in North Dakota’s Williston Basin without finding anything. A year ago, not more than six miles from Standard’s dry hole, Jacobsen’s crews brought in the Clarence Iverson, the basin’s first producing well in a pool which Jacobsen estimates to be bigger than Texas’ famed Spindletop. Since then, Amerada has brought in five more producers near by, has leases of 1,500,000 acres in the basin. But Amerada never has all its eggs in one basket, is already pumping from 16 wells in Alberta, where it has 2,000,000 acres, and is the biggest single producer in the state of New Mexico. All told, it has 2,400 producing wells, and although Jacobsen is mum on total reserves, they are estimated at 450 million barrels, apart from Williston.
Jacobsen is so conservative that he writes off Amerada’s drilling cost completely each year, though many other companies amortize it over several years. Thus, he shows a smaller profit than necessary. He also values his assets conservatively; one block of stock in another company, which is carried at a cost of $95,000 on Amerada’s books, paid $657,500 in dividends last year and is actually worth $14 million. And against the day when oil gets too hard to find in North America, Amerada has 200,000 acres on lease in Venezuela which it has never touched.
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