80 acres with 80 open wells with billions of oil reserves waiting to be controlled. However, this oil field has a history that should have made me think twice before I bought it.

 

It began in 1935, when Professor M.R. Yant (head of Yant Petroleum Corporation) acquired four existing wells in Placerita Canyon, CA. A Native American claimed there was oil beneath the ground. Yant believed it and, in a further show of faith, purchased a parcel of undrilled land one mile to the north.  Before undertaking any drilling on the parcel, Yant had proceeded to drill a well on ground to the west of the existing wells. This decision brought forth very disappointing results.

 

As times were hard, Yant created land development syndication and raised money by subdividing and selling portions of the property he purchased. He divided the parcel into small lots, some no larger than one-tenth of an acre. The descriptions in the deeds were by metes and bounds and were based on the assumption that the property contained 80 acres. In the transaction, oil and gas rights passed to investors of the lots. Months passed, money was burning, the hole got deeper, and no oil was found. Eventually, the landowners litigated against Yant for fraud and won. The Judge found Yant guilty and divided the land and mineral rights to the owners according to the percentage of the positions they purchased in the beginning. 

 

Ramon Somavia, a partner of Yant, believed in his idea enough to put up the money for an exploratory well and the drilling began once again. A short time later and another few hundred feet, he struck the richest well to date in California.  Yant was right. The only proof he had in his trial that there was oil was a testimony from the Native American.  That testimony worked against him and made him look ridiculous enough to lose the case. Yant had it figured out from the beginning.  He knew he had to be in control of the total number of acres when he hit oil.  The field needed to be managed properly as the discovery touched off a wild scramble for leases. The parcel of land had been highly subdivided. Some of those who had purchased lots from Yant, in turn, subdivided their property, reducing parcels to as little as one-twentieth of an acre. The next discovery was that the assumption that the property contained 80 acres, in effect, that section lines were true, was not valid. There were actually only 71 acres that Yant had divided. Finally, it developed that in many cases the legal titles were tangled. In some cases, as many as three claimants to the same tiny parcel appeared. This is where the name Confusion Hill comes from.

 

Obviously, the oil that lay beneath the subdivided area does not recognize surface boundaries. The oil simply lay in the earth, waiting to flow to the surface in greatest volume to those who tapped it first. However, as soon as the well is tapped it needs to be capped and managed in order to not lose the back-hole pressure that drives the oil from the bottom to the surface.  This is one of the basic primary recovery processes.  As soon as the first well was hit, operators rushed to drill to claim the oil below before the other owners did.  Hole after hole and with each puncture the pressure was lessened until there was none left. 

 

Now organization was critical and secondary recovery methods were the only way to tap into the incredible wealth below.  Greed, confusion and the inability to gain the control necessary to invest stopped this incredible hill of wealth from being captured and tamed.  Less than 5% was recovered when I came on the scene 50 years later. A man named J. Johnson, owner of JMT oil, had managed over a ten-year period to secure the rights to all the leases on the hill from a man who spent a few thousand at a time and bought each of the original investors out one at a time.  He was a Rothschild in New York, NY. 

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Note: This history is from books and information I read and was told by individuals in my past. I can’t verify it to be 100% accurate – but it is a great story.

 

Ron Winters introduced me to the deal in 1978.  I loved the story and history.  I was a young investor and had the resources to bring the money needed to finish off this incredible opportunity. I was amazed that I was able to secure an agreement with Jim Johnson and then buy the rights from the Rothschild Family for the famous Confusion Hill. Myself and a few special friends put the final dollars and hired Johnson to manage the project for a good percentage of the recovery.  He was perfect, a John Wayne sort of a guy from Texas.  80 open wells waited fifty plus years and we thought we were about to tame this monster.

 

Six months in, Jim is diagnosed with severe lung cancer and passed away within 90 days from diagnosis. The field next to us was purchased by Arco for over $50 million and we were twice the size and three times the reserved.  The pressure was on.  The Department of Oil and Gas started putting pressure on us to start recovery or they would order us to cap all 80 wells. Only God knows how much that would cost. I found myself in a spin of confusion.  This deal was way bigger than me and my group could handle.  Now we were down to trying to get what we had in it out or lose it all and become liable to the Department of Oil and Gas for any cost they incurred capping the 80 wells. We managed to get out by the skin of our teeth.

 

The moral of this story is: Stick with what you are familiar with and know you can manage.

 

Don't take on deals that you cannot manage financially otherwise it will all crash in around you.  If you can't manage it on your own than you have no business playing with it because it may eat you for lunch.

 

~ Richard G. Stewart, Jr.