OIL: The Great Speculation

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.