Power Politics
How one company’s wheeling and dealing brought the energy crisis into your life.
(Page 6 of 12)
Did Spice fake the study? San Antonio Congressman Henry B. Gonzalez thinks so. In a series of speeches on the House floor he has accused Spice of falsifying his report to save the contract for Alamo Gas. Gonzalez points out that more than one-third of Spice’s $34,200 fee was eventually paid by Alamo, which in 1962 reimbursed CPS $12,475 for Spice’s work. The current CPS board chairman has described this transaction as “at best, a gigantic conflict of interest.” There are also indications (which Martin denies) that Martin—who, more than his partner Schoolfield, was the force behind Alamo—was deep in debt in 1961. If this is true, the Alamo contract could have insured his financial recovery. Any hope of exploring Martin’s financial dealings during this period was erased in 1974, however, when San Antonio District Judge Preston Dial quashed a grand jury subpoena for Martin and his records.
Spice himself says he doesn’t know what happened to the gas. He points out that many of the fields had little production history, making it impossible to use the most accurate method of measuring reserves—comparing the volume of gas produced with the drop in pressure of the well. Any other reserve measurement, Spice says, is educated guesswork and could be off 15 to 25 per cent either way. He speculates that after Coastal States took over Alamo in 1963, it may have produced and sold gas without telling anyone, including the Railroad Commission.
There is another explanation which lies somewhere between intentional fraud and honest mistake. People in the oil and gas industry joke that the first question a consultant asks when he is hired to verify reserves is, “Are you buying or selling?” Reserve estimates are exactly that; petroleum geology is an inexact science. One of the leading oil and gas consultants in Texas says that Spice is a good man to have when you’re selling; he tends toward optimism. Ostensibly his client, the City Public Service Board, was buying—but were they? Spice must have known how badly the CPSB wanted to do business with Alamo and avoid going back to United. The CPSB wanted those reserves to be there just as much as Martin and Schoolfield did.
While Spice was completing his study of Alamo’s reserves, White, Weld & Co. was having second thoughts about financing the venture. Martin said in a deposition taken in early 1975 that White, Weld withdrew its offer because United Gas had applied pressure in New York financial circles. (Alamo sued United in 1963, claiming that United had interfered with its financing arrangements, but never pursued the lawsuit.) White, Weld, on the other hand, recently told investigators from the Bexar County district attorney’s office that it withdrew because Alamo’s reserves were deficient. Both stories could be true, because United was proclaiming loudly to anyone who would listen that Alamo did not have enough gas.
Meanwhile, in Corpus Christi Oscar Wyatt and Coastal States Gas Producing Company had troubles of their own. Coastal had just swung its first big deal, an agreement with El Paso Natural Gas which required Coastal to build a pipeline to West Texas. Wyatt had already purchased tons of pipe when the Federal Power commission ruled that Coastal’s pipeline network would thereafter be subject to FPC regulation. Wyatt wanted no part of that, so he was left wit ha lot of pipe rusting away on the Corpus Christi docks. If ever two businessmen needed each other, it was Wyatt and Martin. Wyatt had pipe and money, but no market; Martin had the San Antonio market but no money for a pipeline. One of Alamo’s directors knew of Wyatt’s plight, mentioned it to Martin, and Alamo’s promoter wasted no time. The same day White, Weld backed away from financing Alamo, Martin turned to Coastal States. That was May 2. By May 11, Coastal had arranged to finance the pipeline through an Illinois bank. Coastal would guarantee half the debt and in return would share ownership of the pipeline with Alamo.
At last Alamo was ready to satisfy the terms of the conditional contract. Its reserves were verified (though not by DeGolyer-McNaughton) and its financing was assured (though not by White, Weld). But the City Public Service Board had gone too far with Alamo to back out now, even if Alamo by this time meant Alamo-Coastal States. On June 14, the CPSB awarded the final contract amid much ceremony and self-praise about saving rate-payers $33 million.
Coastal States was already a partner in supplying gas to San Antonio, and before long it became the dominant partner. The Illinois bank hedged on its financing offer when United sued to set aside the Alamo contract; the bank feared that a United victory would leave Alamo without funds to repay the loan. The bank asked for personal guarantees from Alamo’s directors, but only Martin agreed. That ended all hope of borrowing money; the pipeline would have to be financed through other means. Once again Alamo turned to Coastal States. This time Coastal purchased 25 per cent of the outstanding Alamo stock from Alamo’s directors, who used the money for a pipeline. Martin, however, sold no stock, but placed his shares in a voting trust whose trustees were Martin, Schoolfield, and Coastal States attorney Norman Davis. Theoretically Alamo remained independent, but as a practical matter Martin sided with Davis and Coastal against Schoolfield, giving Coastal effective control of 51.18 per cent of Alamo. Schoolfield, judging by notes Davis took at the time, didn’t like it but there wasn’t much he could do about it. By the time Alamo delivered its first cubic foot of gas in April 1962, it was already little more than a subsidiary of Coastal, and Davis was referring to Alamo as “we” in his notes. In October 1963, Coastal States made it official: it acquired all the remaining Alamo stock and two years later dissolved Alamo entirely.
Looking back on the transactions that culminated in Coastal’s takeovers, the company’s critics have suggested that Coastal planned the entire scenario from the start—that Lumar, Alamo, and Intra-Tex were only fronts for Coastal States all along. As is usually the case with such theories, this one has some superficial supporting evidence, particularly in San Antonio, where Glen Martin can be tied in with Coastal States even before he submitted his bid. Two Coastal engineers, moonlighting to San Antonio on weekends, helped prepare Alamo’s offer. Furthermore, Coastal was going to supply a portion of Alamo’s reserves. Finally, Coastal was very generous about helping Martin financially after it acquired Alamo stock. The company authorized Martin to make gas deals or his personal benefit; it gave him $3-million half-interest in an extracting plant in exchange for a $500,000 note—a transaction questioned by Coastal’s auditors; and it agreed to buy gas from Martin for ten years or until he accumulated $425,000. But the history of Alamo indicates that Martin wanted the company to stand on its own—that is, until White, Weld’s last-minute pull-out left him with no alternative; if he didn’t turn to Coastal he would have to give up his chance at a half-billion-dollar contract. After investigating the Alamo contract for almost a year, Bexar County assistant district attorneys have also reached this conclusion.
Coastal did not conceive and execute a master plan; rather, it took advantage of circumstances that never should have been allowed to exist. San Antonio and Austin could have dealt with United Gas, which at the time claimed 34 trillion cubic feet of reserves, including 4.5 trillion in the San Antonio area alone. Corpus Christi and San Antonio could have chosen Houston Natural, which many Texas oil and gas operators consider the best pipeline company in the business. Yet all three cities chose to risk their futures with new, unproven companies.
“If there’s anything Oscar Wyatt understands better than the gas business,” a former Coastal employee says, “it’s politics and politicians.” What Coastal’s critics have described as a grand scheme was in reality nothing more than political acumen at work. Austin is a city of influence; Coastal reacted by first disposing of Intra-Texas (and its influential local backers) and then working through Frank Erwin. In Corpus Christi, Wyatt worked against the local establishment to drive out Houston Natural, while in San Antonio he worked with the local establishment, rescuing Alamo and saving the City Public Service Board from having to turn to much-loathed United Gas. The tactics were different, but the result was the same: Coastal States—and Oscar Wyatt—ended up firmly, completely, totally in control.
The Winter Of Discontent
With more than a billion dollars worth of long-term contracts safely tucked away, the company’s net income doubled between 1962 (when Coastal began supplying gas to San Antonio through Alamo) and 1964. It doubled again by 1969. Earnings showed huge annual gains: up sixteen per cent in 1965, eighteen per cent in 1966, seventeen per cent in 1967, eighteen per cent again in 1968. Money was no problem. Coastal obtained a $75 million line of credit through Houston’s Bank of the Southwest in 1965 without having to pledge any physical property as security; the contracts alone were enough to satisfy the bank.
“Every year a record year” became the Coastal slogan. The hometown newspapers, Corpus Christi’s Caller and Times, seemed to run the same stories over and over in the late Sixties: “Local Gas Firm Shows New Highs,” “Coastal’s 1st [2nd, 3rd] Quarter Profits Up,” “Coastal Sets New Record.” The figures changed but not the theme.
The company that broke the monopoly of the big pipeline companies now started to put together a monopoly of its own. In December 1964 Coastal acquired Texas Gas Utilities and its 400 miles of pipelines serving Del Rio, Eagle Pass, Uvalde, and Carrizo Springs. A few months later Coastal purchased the facilities of Nueces Industrial Gas Company. In 1968 Coastal tied up the loose ends by purchasing United’s useless 965 miles of pipelines near San Antonio, and by acquiring all the assets of Rio Grande Valley Gas—including 543 miles of pipelines and 834 miles of gas distribution lines.
The Rio takeover was a classic Oscar Wyatt maneuver, a combination power play and finesse. By 1967 Rio’s management knew that Wyatt has his eye on their company. They wanted no part in Coastal, however, and started looking for anyone else who might be interested in acquiring their company. They found someone—Houston Natural Gas. On October 20, 1967, Rio and Houston Natural announced their agreement. Three weeks later Coastal’s directors voted to go after Rio anyway. Wyatt set up a command post in the Coastal board room. He installed a battery of telephones and began contacting Rio’s stockholders personally, promising each one that Coastal would beat Houston Natural’s offer for Rio stock. Houston Natural had to throw in the towel—after all, the deal hasn’t been its idea in the first place – and in January 1968 Rio’s directors voted to accept Coastal’s offer.
My Library
