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Stupid Business Decisions: Drake Neglects to Patent Oil Drill

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He taught the world how to extract the fuel, then watched everyone else get rich.

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When you think about how many trillions of dollars have been made on oil, how many lives have been lost over access to the fossil fuel, and how much the commodity has contributed to the advancement of developed nations during the past century, it's almost impossible to believe this: The man responsible for the first oil drill died poor, and so did the investor who originally backed him.

In 1858, Seneca Oil Company was formed in Pennsylvania by a group of investors who wanted to explore ways to extract oil from the ground. The company sent Edwin Drake, a shareholder and acquaintance of the company's founders, to Titusville, Pennsylvania, to investigate. Drake was no engineer -- he'd gotten his start as a train conductor. James Townsend, the president of Seneca, chose Drake for the mission primarily because he had free rail passes.

Drake was met with skepticism in Titusville. Sure, the oil bubbled up in the area and sometimes it was collected from the surface, but drilling for it seemed downright crazy. The name Crazy Drake was officially born.

Drake spent the first year coping with one failed attempt after another. He had difficulty finding the right workers and equipment to drill for oil in the same way salt mines were drilled at the time.

By 1859, Seneca Oil pulled the plug on the project. It had already financed the project with $2,000 and it refused to invest more without more promising evidence the drilling would eventually work.

Drake was undeterred and Townsend continued to support the effort. Despite the fact that his company had given up on the venture, Townsend gave Drake another $500 to continue his efforts.

As it turned out, it didn't take much longer to strike black gold. Drake and a capable conductor managed to figure out how to get a cast-iron pipe deep into the earth's surface and, on the morning of August 28, 1859, the men arrived at the drilling site to find they'd struck oil 69 feet down. They began bringing the oil up with a hand pump, poured it in bathtubs, and transferred it to whiskey barrels. Oil was officially in business.

So what happened to Drake and his determined backer, Townsend? It seems neither man had the business acumen to patent the drill. Almost immediately, other entrepreneurs began using his method to extract oil in the surrounding areas of Titusville, and an oil boom began.

Townsend left Seneca Oil and eventually lost all of his money on Wall Street.

According to some sources, in 1900, Seneca Oil sold its leases to a subsidiary of Standard Oil, which was formed by John D. Rockefeller shortly after Drake created the drill. The Supreme Court later determined Rockefeller's firm to be a monopoly and split Standard Oil into seven new companies. These later evolved into Exxon Mobil (XOM), British Petroleum (BP), Chevron (CVX), and others.

As for Drake, the rapidly increasing output of oil led to lower prices, which put him out of business just four years after his invention launched the boom. By 1870, Drake was ailing and impoverished, and the people of Titusville convinced the Pennsylvania legislature to help him out. To thank him for his efforts, the state granted him a $1,500 stipend, which was paid annually until his death in 1880.
No positions in stocks mentioned.
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