Shortly after joining Hamilton Brothers Oil Company in Denver as vice president, I was fortunate to play a major role in the greatest North American oil play of all time – the boom on the North Slope of Alaska. It included a part in what the Calgary Albertan called “the most ambitious and devious stratagem ever devised to evade industrial espionage.”
The Arco-Humble Prudhoe Bay oil discovery on the North Slope in January 1968 turned out to be largest oil field in North America, with reserves reported to be 21 billion barrels of oil in place and nearly 38 trillion cubic feet of natural gas. Petroleum consulting firm DeGolyer and MacNaughton described the discovery as “one of the largest petroleum accumulations known to the world today.”
The news struck the American oil industry like a bolt of lightning. Activity soon reached a fever pitch, with 14 companies assembling 22 rigs. Security was so tight the Wall Street Journal reported that “many scouts were posted 390 miles to the south in Fairbanks where they could keep an eye on supplies being loaded aboard cargo planes bound for the Slope.”
The Bidding Round
The State of Alaska announced a Sept. 10, 1969, date for competitive bids for large blocks of unleased state lands surrounding the Prudhoe Bay discovery. This accelerated the activity and I wanted to be in the middle of it all.
Hamilton Brothers decided to get in on the action. We had several advantages over other oil companies, having Canadian cold weather operations experience, including the discovery of two large fields in northern Alberta. We owned helicopter drilling rigs and were familiar with moving them to remote locations and operating them under frigid conditions. Helicopter rigs enjoyed a special advantage in Canada, as drilling activity virtually ceased after the spring breakup, with the frozen tundra turning into a muskeg bog during summer months.
After committing to the play, we needed data for an information base. I located a firm in Denver with rights to 1,500 miles of old Sinclair Oil seismic records on the North Slope. We bought the data for $700,000 and set up a North Slope Evaluation Office in Calgary to review it. I contracted a United Geophysical seismic crew to work on the Slope to fill in the gaps.
Near the discovery we located a small piece of acreage which was held by General American Oil Company. State lands offered for sale surrounded the lease. We took a 40-acre farmout from General American which gave us a strategic position for evaluating the adjacent open lands. After many days of negotiation, I put together a bidding group consisting of Hamilton Brothers, Union Pacific, Union Carbide, Highland Resources, Ashland Oil and Signal Oil Company. We eagerly awaited the sale.
The Well
We transported our helicopter rig to the wellsite at Point Storkersen and began to drill. Several major oil companies left out of the play now scrambled to get a position, including a second bidding group of Conoco, Cities Service and Sun Oil. They were in an area of interest with us that included the test well. We agreed to bring them into the bidding process, along with Home Oil Company of Canada, which bid alone in a separate area of interest and did not have access to the log data. (Home had access to our seismic data in their area of interest. This was a valuable asset since all companies were starved for information.) Soon, our well was drilling ahead and the time came to plan our final bid session strategy.
Our partner-meeting site had to be 100-percent secure, with no opportunity for outside telephone calls or contacts. Prior to the meeting, we decided to hire a passenger train from Canadian National Railway at a cost of $10,000 per day. A train would keep all participants in a confined and isolated space, and it would be difficult to send radio messages because it would be constantly moving. The train was dubbed “Site X.”
We established extraordinary security measures at the drill site, such as covering the rig superstructure with canvas to prevent observation of high-altitude photo planes rumored to be overflying. We boxed in the shale shaker. Twin rings of barbed-wire fence enclosed the rig area, patrolled by guard dogs and Burns Security armed guards. As the industry became aware of the critical nature of our well, scouting activity reached a crescendo. Scout helicopters landed nearby and observed our activity with telescopes. Scout intrusions became intense. Small scout planes buzzed about the rig daily and several near misses occurred.
As the sale day approached our wellsite geologist, Doyle Whitaker, flew to the rig site to decide when to log the well. A command post was set up in the Calgary Inn, to be monitored 24 hours a day once the train commenced moving with our participants. Paul Marshall, former special assistant to the Canadian Minister of Defense and now a Hamilton Brothers vice president, would man the command post. Only Marshall would receive communications relayed from the rig. I would be in command of the train, and the only person allowed outside communications and authority to detrain. Marshall would relay information from the rig to me.
The Week Before the Sale
About a week before the sale, we logged the well to determine what formation had been reached and found no shows of oil or gas. Whitaker felt confident we had not reached critical depth. The logs would, however, furnish critical information on how much farther to drill. We decided to entrain an expert log analyst from each company in our bidding group. This would allow them to familiarize themselves with the log data and be better prepared when the final information arrived.
Oilfield scouts swarmed about us like bees around a hive. Float planes perched on shallow ponds that surrounded the drilling rig while half-a-dozen helicopters at once tried to set down alongside the rig. More than one scout, about to disembark from a helicopter, changed his mind lest one of the dogs accompanying an approaching guard “accidentally” got loose.
We still didn’t know if we could reach our projected depth before the sale date. We planned to log and test the well before the sale, but time was running out and tensions mounted.
On Sept. 4, Ashland Oil positioned their Sabreliner jet in Fairbanks, on call to fly the log and test data to Calgary. Several days later, Conoco positioned their Jet Star in Calgary on alert to fly the bid forms to Anchorage, later joined by an Ashland backup jet. Marshall and I flew to Calgary to make final preparations for Site X on Sept. 5.
Just after midnight on Sept. 6, the passenger train, now code-named “The Blue Sky Special” by the railway, pulled into the Calgary yards, fully staffed and ready to go. In the morning, Marshall and I met with Bill McLeod, the CN officer in charge of running the train. We took along a tough-looking Burns Security agent I hired out of Seattle who specialized in de-bugging. The four of us walked through the train and were eyed with curiosity by the staff. They had no idea of our identity or what we planned to do. McLeod briefed us on the train makeup and operational details. He would be my contact on the train but would stay out of sight in the crew car, just behind the engine, unless I called him.
I instructed the Burns de-bugger to electronically sweep the train for any possible bugs before our people boarded. His job was to constantly monitor radio frequencies and inspect crew laundry, food, or anything brought on or off the train. He watched to ensure no garbage or papers or anything else left the train without his knowledge.
The train was impressive, consisting of three diesel units and a steam generator, 14 cars, plus a caboose. The crew slept in the car next to the engines and security personnel and supervisors slept in the following car. Then came the car reserved for log analysts, isolated from the bidding groups. Sleeping quarters had to be rearranged due to executives from one group quartered next to others. I asked McLeod to whitewash the large windows traversing the cars so nobody could see in. He then introduced two CN detectives accompanying the train.
After running through our checklists and assuring ourselves of the arrangements, we left the train and told McLeod to have it on standby for an afternoon boarding. I then held a management orientation and briefing meeting in Calgary and informed the participants that the log analysts would depart for Site X immediately after the meeting. Company executives would follow the next day. After the meeting, Marshall returned to his command post, to remain until the morning of the sale. I escorted the log analysts and geologists to the train and ordered the train to depart for Edmonton.
I then checked out the car placement. Despite our telephone planning, the personnel logistics wouldn’t work under the existing arrangement. I spent hours planning and rearranging a new car sequence. We arrived in Edmonton late in the evening. I got off the train, found a phone booth and called Marshall, who reported no new information from the rig. We still hadn’t reached objective depth.
The train went back to Calgary and I had it pull into the nearest siding enroute to rearrange the cars. Some 65 oil executives in three bidding groups requiring privacy had to be separated and handled. Each bidding group had to be separated from each other.
I got no sleep that night.
Three Days Before the Sale
The oil company executives and their staffs arrived at the train at 9 a.m., Sept. 7. We strained to withhold laughter when some arrived carrying fishing rods and golf clubs, thinking we were taking them to a resort. I showed them their quarters, gave them the timing of their meals and discussed the security measures to be followed. All were dumbfounded to learn that the train itself was Site X!
Canadian Business later reported: “Many persons never knew that the journey to nowhere was simply the last step in a long campaign of industrial counter-espionage that at times seemed to have been structured by Ian Fleming.”
The Burns detective monitored local radio stations and said we had a problem because everybody in the country was talking about the “mystery train.” No one told us the Calgary-Edmonton track hadn’t been used by passenger trains for decades, stirring up excited interest. I asked McLeod to head off to a more remote track going west toward the mountains to escape publicity, but the grade and track conditions made this most uncomfortable. So, we returned and continued the Calgary-Edmonton run.
Canadian newspapers headlined stories about the mystery train, but up on the Slope, Whitaker had a separate problem. Our underpowered rig inched along with only a 3.5-inch drill bit. He knew the bidding group anxiously awaited the data, but if he logged too soon everything would be for naught. Whitaker began to see fluorescence in the samples. This was the Sadlerochit pay, unknown to him at the time, but the key reservoir at Prudhoe Bay field. He decided to log without further delay, knowing that time was running out.
One Day Before the Sale
On Sept. 9, Marshall phoned me to say that Schlumberger had logged the well and Whitaker was flying to Calgary in the Ashland jet with the precious log. Everyone was busy at work on the train. In the morning, respective participant groups sequentially met in the caboose to review bids, then retired to their designated compartments. Traffic was heavy but orderly. Pressure to finalize bids increased. Tensions mounted among the executives, somewhat assuaged by the lubricating balm of evening alcoholic consumption.
Whitaker finally arrived with the log, not a moment too soon, still clad in heavy Arctic gear. We had logged through the Prudhoe Sadlerochit pay zone with indicated apparent pay. The information was still inconclusive, however, since we couldn’t compare it with a log of a Prudhoe well that penetrated the Sadlerochit. If the log indicated hydrocarbons, as it appeared, we wouldn’t know if the well yielded gas or oil until receiving drillstem results.
Bid sessions continued at a feverish pace. Since we didn’t know if the potential pay was oil or gas, we prepared two separate sets of bids. Bid Group A would be submitted if we had oil pay and Bid Group B if we had gas.
Twelve Hours Before Bidding Begins
Two bid planes sat at the ready at the Calgary Airport. One would leave with identical bids one hour after the first plane departed, in case the first plane crashed. We couldn’t wait any longer for test information, so we scheduled the first plane to take off at 2 a.m. for Anchorage. Occupants of both planes had to remain in their planes upon landing and not disembark until an hour before the sale. They would be informed whether to submit the Group A or Group B bids. An armed convoy would transfer them from the plane to the bid hall. Nothing was left to chance.
The clock struck midnight as we put finishing touches on the bid forms.
The time came for the first group to leave at 2 a.m. with their bid data. The convoy of cars, with lights blacked out and led by CN security guards, managed to escape from the press and curious crowds surrounding the train without detection. The second plane took off at 3 a.m., still with no new information.
Another last-minute complication developed. Communications by radio from the rig got so bad there was no reception in Fairbanks. A jet at Fairbanks was dispatched to the North Slope and circled over Point Storkersen to maintain radio communication. Two bid planes were in the air headed for Anchorage with incomplete information as the third jet circled over the rig. We anxiously awaited test results, but still no report.
At 3:30 a.m., Marshall called with the test information from the rig, relayed by the circling jet. The report simply stated, “Test results zero, zero, zero.”
This made no sense. Our code didn’t contain such a statement. Did it mean a failed mechanical test? Or did it mean a test gave unfavorable results? I awakened the company executives and got their approval to go in the clear on the radio, as it was too late for competitors to change their bids even if they heard our results.
I phoned Marshall who relayed the instructions to the plane. But now a further difficulty presented itself. When our operations manager on the circling plane talked to the rig foreman asking him to radio the test information in the clear, he refused! He had strict orders not to go in the clear and thought this was a ruse. He would not break the code.
Clock Running, Planes in Air, Five Hours ‘Til Bidding
Time was running out. The operations manager knew the rig foreman well. He reviewed their various experiences together. The foreman asked more detailed questions and got satisfactory replies. Finally, he revealed the drill stem test was a mechanical failure with no fluids obtained from the well bore. At last, the confusion was cleared up and Anchorage was instructed to submit the Group A bids indicating the formation contained oil, the most likely scenario.
We didn’t want the oil company executives leaving the train before 10 a.m. local time, the exact moment the bids would be opened. As the train pulled to a stop in Calgary, the oilmen departed to awaiting buses. I bade a fond farewell to the CN people and stepped off the train. My job here was finished after three sleepless days and nights. The Blue Sky Special faded into the lore of oil industry history. Conoco’s Senior Vice President Bill Doty called the exercise “the greatest high tension detective story ever.”
The Hamilton Group bought ten leases for $72,763,550. The State of Alaska brought in a record-breaking $900 million, about $8 billion in today’s dollars.
Weeks later, a drill stem test at the Point Storkersen well flowed at a rate of 3,500 barrels of oil per day. Conoco subsequently developed and operated the properties. A medium-sized field developed, though it never reached the epic proportions we envisaged.
The Blue Sky Special was one of the most remarkable events in oil industry lore. We shall never see the likes of it again.