The Last Empire
A rootless steamboat captain carved the King Ranch out of the frontier more than a century ago. Today Captain King’s descendants, rooted in the land he conquered, struggle to hold his legacy together.
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When the nominations were taken, John Armstrong immediately nominated Jim Clement. And then, to everyone’s surprise, Dick Kleberg himself, who had kept his own counsel, seconded the nomination. Dick was the chairman of the board of the King Ranch, and, with Bob gone, the titular head of the family. If he wanted Jim Clement, then Jim Clement it would be. There were no other nominations. Jim Clement was elected unanimously. To everyone’s recollection he had not said a single word throughout the two days. He simply accepted what had been given to him and went back to his office.
“There was a feeling,” one family member says, “that perhaps B would stay and mellow a little, or that Bobby would come along, and that one of them would take over from Jim.” B Johnson knew, however, that it was one thing to be part of a ranch run by a brilliant, world-renowned rancher like Bob Kleberg and another thing entirely to be part of a ranch run by a laconic businessman like Jim Clement. B decided to sell out and go his own way, as the Easts had done two decades before.
The irony, of course, is that B Johnson could have done well as head of the ranch. All his life had been spent preparing for it. But if his ability to run the ranch was not questioned, his willingness to allow the rest of the family to get their hands on it certainly was. That the rest of the family thought him too much like Bob Kleberg is understandable — he was a good deal like him. But Bob Kleberg at 22 got the chance to run the big ranch, and once he got hold of it he didn’t let go for 56 years. B Johnson never had the same chance.
Paying the Piper
B Johnson’s departure was the first important test for the new regime. As is the case with matters at this lofty financial level, the U.S. tax code defined the limits of choice. A cash settlement would have an unfortunate impact on the estate taxes of several key family members, since it would establish a high cash value for their holdings. But it would also wipe out a great deal of the ranch’s accumulated earnings and thus help reduce the family’s taxes when the oil royalties were distributed. Still, that was easier to contemplate than giving up the ranch’s status as a private corporation or, worse, disturbing the ghosts of Richard King and Bob Kleberg by giving up part of the ranch. In a tense strategy session, Bobby Shelton, Leroy Denman, Jr., and John Armstrong decided to offer B a cash deal. Not since Henrietta King died in 1925 had a price tag been put on the whole ranch-oil, cattle, and all. There was one thing the ranch’s negotiators did not want to do: haggle. They went with their best offer - $70 million (which meant that the whole ranch was then worth about $600 million). B caucused with his advisers for five minutes, then came back in. “I’ll take it,” he said.
To get the money the ranch went to Texas Commerce Bank in Houston. Instead of borrowing only enough to buy B’s stock, the ranch made the amount a round $100 million, with the extra money going to finance new drilling ventures with Shell, Chevron, and other oil companies. The debt was transferred into long-term loans with two insurance companies. Those loans had as collateral a portion of the ranch’s oil royalties and also the ranch itself. For the first time since 1933 the 825,000 acres of the ranch — its windmills, stock pens, swimming pools, Kineños’ cottages, and even the Big House — were mortgaged.
While all these negotiations were going on, the price of natural gas — and oil — was skyrocketing. In 1972 a thousand cubic feet of natural gas had brought 30 cents; in 1976 the price was over $2. The ranch’s great reserves of oil and gas, however, were running out — petroleum experts predicted that the flow would slow to a trickle in the 1990s. But before the ranch’s fields dried up, they entered a period of great production called a “blowdown.” This surge, coupled with the high prices, meant that suddenly the ranch was swimming in money. Royalties shot up from $20 million in 1970 to $100 million or so in 1979.
In theory, the ranch could have followed Bob Kleberg’s gospel and plowed the oil money back into ranching. Not everyone was for that approach. For years some family members had fought a futile battle to get Bob Kleberg to pay out more of the ranch’s royalties in dividends. Hej always refused, saying, “You’ve got too much already.” One veteran of those skirmishes recalls, “He wanted us to stay tough and hardy, like our cattle. He didn’t want us to have it easy and become soft. I think he was more afraid, deep down, of what the oil money could do to us than he was of drouth.”
But not even Bob Kleberg could have easily diverted so much wealth into cattle. And after his death the foreign operations no longer had a strong champion. There was no one looking for new empires. Then, too, the gusher of money created serious tax problems. The wealth of the family was locked up in the ranch. On paper they were well-off, but actually if one of them died his heirs would be hard pressed to pay the estate taxes. So in 1977 the ranch decided to distribute 75 per cent of its oil and gas royalties to the individual family members, thus allowing each to invest his own share, while the money lasted, without having to account to anyone.
At the same time, without the responsibility of having to manage so much royalty income, the ranch’s leadership could concentrate on what it did best — ranching. No longer would the oil money cover up any mistakes, so the pressure to make ranching pay would be intense. As a far-flung business, the King Ranch is no longer the simple agricultural operation Captain King handled with his own ledger books. It needs a man like Jim Clement, with his legions of lawyers, accountants, and management consultants. More and more the real work of the ranch is not done on horseback. It’s done where Jim Clement works — behind a desk.
Clement is the ranch’s president and runs the larger corporate affairs of the ranch. Next in command, with primary responsibility for the foreign operations and for the ranch’s larger public role, is John B. Armstrong. Armstrong and Clement married sisters, the daughters of Bob Kleberg’s sister Henrietta. Armstrong, a vigorous sixty, is still a world-class polo player. He comes from a neighboring ranching family whose roots run as deep in South Texas as the Klebergs’. His grandfather was first sergeant with the small band of McNelly’s Rangers that won the cattle wars and saved Captain King’s cattle empire. A few years later his grandfather captured John Wesley Hardin and invested the reward in a ranch wedged between the Norias and Encino divisions of the King Ranch. John Armstrong’s brother Tobin (who is married to former ambassador Anne Armstrong) runs the Armstrong Ranch.
As chairman of the Texas Animal Health Commission, Armstrong recently won acceptance from both government and cattlemen of the most controversial program in modern ranching history, the campaign to rid the state of a cattle disease called brucellosis, a campaign as far-reaching — and as unpopular to cattlemen — as was Robert Kleberg’s drive to wipe out Texas fever.
The oil operations are handled by W. B. Yarborough, the husband of Dick’s sister Katherine. He and Tio Kleberg are the ranch’s two vice presidents. Tio oversees the four Texas divisions, the original ranch. Other family members have their own duties and serve on the management committee that monitors ranch policy, but these four men are in charge. Almost a three-decade span in ages separates Clement, Armstrong, and Yarborough from Tio’s generation, palpable evidence of the gap in leadership left when Dick died and B and Bobby departed.
The Younger Brother
Unlike B, Bobby stayed with the ranch awhile, helping to negotiate the ranch’s financing and its new drilling projects. But it soon became apparent that Bobby, who was a fountain of ideas, wasn’t selling his family on very many of them. He wanted to set up the ranch as a limited partnership, with himself as the leader of a small group of general partners. He opposed the royalty distribution. He pushed for Santa Gertrudis “dealerships” near the major population centers to market cattle like cars. To Bobby the family was maddeningly difficult to push to a decision. And it appeared that Jim Clement, far from being an interregnum “Pope John,” as he refers to himself, would be in charge indefinitely.
And so in June 1977 Bobby decided to leave the ranch. It could not have been an easy decision. He had spent years building a sprawling house for himself and his growing family on a rise opposite the Big House, right next to Highway 141. It was a symbol, clear and unmistakable, that he was at the ranch to stay. Today that house stands empty, a monument to the frailty of human ambition. When he left, Bobby moved his own ranching empire to a ranch near Kerrville that he bought as his headquarters. He’s building another house there. “He’s the biggest thing to come through Kerrville since the Guadalupe,” one local rancher says.
His departure, however, was on somewhat different terms than that of his half-brother. Instead of getting cash, Bobby got land and other assets in Texas and Florida. When that deal was settled, it appeared that the ranch had concluded a fairly difficult passage, the equivalent of the partitioning of 1935 and the Easts’ departure in 1958. But when B learned what Bobby had gotten, something didn’t seem quite right. There was in Bobby’s deal a reference to an “Exxon claim.” There had been no mention of that during his negotiations. When he realized what was at stake Johnson was thunderstruck. It appeared to him that the ranch — his family —had concealed the possibility that Exxon underpaid the ranch by as much as $300 million between 1973 and 1976, a period when gas prices sextupled. If Exxon really did owe the ranch that money, B believed he had been denied his fair share of the income from it, as much as $35 million.
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