Teapot Dome around the time of the scandal, featuring Teapot Rock (from postcard circa
In the early 20th century, the U.S. Navy largely converted from coal to fuel oil. To ensure that the Navy would always have enough fuel available, several oil-producing areas were designated as naval oil reserves by President Taft. In 1921, President Harding issued an executive order that transferred control of Teapot Dome Oil Field in Natrona County, Wyoming, and the Elk Hills and Buena Vista Oil Fields in Kern County, California, from the Navy Department to the Department of the Interior. This was not implemented until 1922, when Interior Secretary Fall persuaded Navy Secretary Edwin C. Denby to transfer control.
Later in 1922, Interior Secretary Albert Fall leased the oil production rights at Teapot Dome to Harry F. Sinclair of Mammoth Oil, a subsidiary of Sinclair Oil Corporation. He also leased the Elk Hills reserve to Edward L. Doheny of Pan American Petroleum and Transport Company. Both leases were issued without competitive bidding. This manner of leasing was legal under the Mineral Leasing Act of 1920.
The lease terms were very favorable to the oil companies, which secretly made Fall a rich man. Fall had received a no-interest loan from Doheny of $100,000 (about $1.4 million today) in November 1921. He received other gifts from Doheny and Sinclair totaling about $404,000 (about $5.67 million today). This money changing hands was illegal, not the leases. Fall attempted to keep his actions secret, but the sudden improvement in his standard of living was suspect.