Ute Oil Company – Oil Shale Pioneer
The Ute Oil Company was America’s first petroleum company to attempt to extract oil from oil shale.
In 1861, a survey party reported the Uinta Basin in eastern Utah was “one vast contiguity of waste and measurably valueless, except for nomadic purposes, hunting grounds for Indians, and to hold the world together.”
After reading the report, Brigham Young, who had founded Salt Lake City in 1847, scrapped his plans to send Mormon settlers into the area.
According to the Utah Humanities Council, Young thought the arid region better suited for a Ute Indian reservation. President Abraham Lincoln soon created the Uintah Reservation by executive order.
However, by the time Utah became the forty-fifth state in 1896, the sparsely populated region bordering Colorado had begun revealing its mineral wealth, including gold, silver, lead, zinc and copper.
Coal and a coal-like hydrocarbon – Gilsonite – brought mineral exploration companies to eastern Utah soon after the turn of the century. Gilsonite, also known North American Asphaltum, was unique to the region known for its oil shale resources.
Aspiring entrepreneurs arrived to exploit these new, elusive petroleum resources. The companies would be among the earliest anywhere seeking to make money by squeezing oil from shale.
Today, the Uinta Basin is one of the largest coalbed methane producing areas in the United States.It is estimated this remote desert plateau in Utah and Colorado contains between eight trillion cubic feet and 10 trillion cubic feet of gas reserves.
The Gilsonite Maneuver
“The first attempt at oil shale exploitation took place in 1917 by the Ute Oil Company,” notes the Bureau of Land Management in a 2007 technical report about oil shale and tar sands areas in Colorado, Utah and Wyoming.
Established in 1916, Ute Oil Company was created to refine petroleum from a dense shale mined north of Watson, Utah. Oil shales had proven abundant there. So had Gilsonite found in deep vertical veins. The coal-like natural asphalt had many industrial uses.
Gilsonite had been vigorously promoted since 1886 by Samuel H. Gilson, its principal investigator, marketer and namesake. He formed a company to mine and market Gilsonite on a commercial scale.
Gilson, a former rider for the Pony Express between California and Missouri, believed his Gilsonite (or Uintahite) practical for use in everything from a waterproof coating for wooden pilings, as an insulation for wire cable, and as paint or a varnish. He even promoted the natural, resinous hydrocarbon as an additive for chewing gum.
Utah’s Gilsonite was selling for more than $12 a ton when in 1888, despite Bureau of Indian Affairs protests, Congress opened a 7,040 acre oil shale and Gilsonite-laden strip on the Uinta Ouray Reservation for placer mine claims.
Placer claims could be filed for mining a fixed amount of acreage by a person or group. These claims on Indian Reservations often led to lengthy litigation. The law required production of resources in order for the claimant to be granted a legitimate right to the land. Read more about the Placer Act in First Wyoming Oil Well.
Ute Oil Company’s interest was in oil shale’s kerogen (naturally occurring organic matter) content. Oil shales like Gilsonite can yield petroleum when sufficiently “cooked.” The distillates boil off and are captured as in other refining operations.
In eastern Utah, Ute Oil Company made a 100 acre placer claim near Watson alongside the White River, about 100 feet up a hillside where promising oil shale deposits could be cheaply mined and then refined. Other companies had the same idea.
Oil Shale Boom Towns
The rough and tumble boom towns of Watson, Dragon Junction and Rainbow were spawned amidst new Gilsonite mines. A narrow gauge (and short-lived) Uintah Railroad was built specifically to link them to the Rio Grande Western Railway 63 miles away.
By 1911, what was called the “crookedest railroad in the West” had overcome steep mountain grades and crossed 40 bridges to reach Watson and the Rainbow Gilsonite mine, above the White River.
Crane Shale Oil Corporation, Utah Shale & Oil Company, and the Western Shale Oil Company all planned major oil and gasoline reduction plants near Watson.
The Bureau of Land Management began tracking these early efforts to make money by extracting oil from shale. Ute Oil proved to be a pioneer in the petroleum industry long before the modern shale boom.
Although the company would never complete its ambitious construction of a retorting plant for processing shale, it explored new technologies to maximize production.
The 2007 BLM report explains how the company planned building its plant at Watson, today a Uintah County ghost town.
“Construction began on a tramway and processing plant located near Watson,” the report adds. “Processing was supposed to extract 90 percent of the oil contained in the pulverized oil shale to produce an average of 54 gallons of oil per ton of shale.”
By November of 1919, construction of Ute Oil’s new refinery was nearing completion near the old White River stagecoach station. The company predicted yields of 51.5 gallons of oil and 3.6 gallons of gasoline per ton of processed oil shale when the 18 retorts went on stream. The new plant had a projected capacity of 400 tons daily.
Even using modern technology, the U.S. Geological Survey has reported typical shale yields are between 15 gallons and 25 gallons of oil per ton.
In 1920, industry trade publications continued to praise oil shale developments in Utah and Colorado, but noted that high processing costs for limited production were proving hard to overcome with the day’s technology.
Hard Oil Shale Lessons
Oil shale possibilities intrigued investors and the “American Gas Engineering Journal” of January 3, 1920, crowed: “Twenty-Two Billion Barrels of Oil a Possibility of the Process – Estimates of Production Cost Show Possibility of Shale Oil Competing with Gasoline at Its Lowest Previous Level.”
A Geological Survey investigator proclaimed oil shales offered “more than eight times all of the oil available from the oilfields of the United States!”
Industry publications of the day nonetheless recognized that petroleum products extracted from Gilsonite and other oil shales might supplement production from America’s booming oilfields, but the business model was risky.
Much hung on a small margin – limited by technology and the price of crude oil on the open market.
“Crude shale oil, obtained by retorting oil shale, cannot find a general market until the price of well oil is above the cost of producing shale oil,” reported the October 1921 Mining and Oil Bulletin.
“This cost has been conservatively estimated at $1.85 a barrel, for mining and retorting,” the trade publication added. “When the price of well petroleum approaches or better – exceeds this figure – the production of crude shale oil will take on renewed activity.”
Ute Oil Company had optimistically projected its cost at only $1.02 per barrel. In 1918, the year after the company formed, oil sold for about $1.98 per barrel, but in 1920, it dropped to $1.73 – and it would get much worse. By 1931, oil prices had dropped to only about 65 cents per barrel.
Ute Oil company’s profit margin depended a high price for oil – but surging oil supplies from traditional oil wells in Texas and other states drove down the price.
End of Ute Oil
In addition to the financial and technological risks that Ute Oil faced, regulatory issues added to its misery. In 1920, Congress passed the Mineral Leasing Act, updating the archaic 1872 law and requiring for the first time that the federal government receive royalty payments from successful placer claims. An ominous 1921 “Petroleum Times” article noted work had been delayed “by a controversy with the Government over title to the land.”
The litigation among private, state, federal and Indian tribal interests would last decades. The controversy came from renewed congressional interest in rectifying injustices that had historically deprived the Uinta Basin Indians since the reservation had been formed in 1861.
Although legal battles would continue, Ute Oil’s fate was sealed. Trade publications reported that the company undertook reorganization in 1923, but did not survive. The BLM would later note that “interest in oil shale production rebounded when oil prices peaked in the 1970s.”
During the 1920s Earl Douglas, a paleontologist who discovered Dinosaur National Monument, became an eloquent spokesman for Utah’s oil industry after several small oil discoveries. After drilling for oil in Utah for more than 25 years, J.L. “Mike” Dougan made the state’s first major oil strike in 1948. Read more in Utah Uinta Basin Oil Discovery.
In the Energy Policy Act of 2005, the Congress declared U.S. oil shale and tar sands strategically important domestic energy resources that should be developed to reduce the nation’s growing dependence on oil from foreign sources.
As of 2010, Utah produced more than 8.1 trillion cubic feet of natural gas valued at more than $1.7 billion. Today’s market price of Gilsonite can range from $250 to $1,800 per ton, compared to $10 to $12 per ton in the late 1800s. It’s still used in paints, inks and in certain cements. The modern petroleum industry uses it in oil-based drilling muds.
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