The Very, Very Rich and How They Got That Way (14 page)

As soon as I’d brought in Cleaver well number one – which produced an impressive 5100 barrels a day – I cast about to find a buyer for my crude production. To my dismay, the firms I approached refused to deal with me. The motives behind this evident boycott became infuriatingly clear within a few days, when I received several calls from brokers offering to buy the Cleaver Lease at a very low price. The brokers refused to name the principals they represented.

By then I was an old hand in the petroleum industry. I recognized all the classic signs indicating a well-organized squeeze play. Certain interests wanted my lease. Either I sold out at a ridiculously low price or I would be left without any market for the oil produced by the wells on the property.

Unable to sell my oil, I had to find some way to store it. The only storage facilities available in the Los Angeles area were in a defunct refinery – two storage tanks with a total 155,000 barrel capacity, which I immediately leased. In the meantime, even while I was vainly seeking a buyer for the 5100 barrels of crude my number one well was producing every 24 hours, well number two came in for a 5000 barrel daily production. This was followed in short order by number three, which produced 5100 barrels a day, then by number four, the runt of the litter, which brought up 2100 barrels daily.

This production rate was rapidly filling the two storage tanks – and I was still unable to find an outlet for the oil. I knew that when the tanks were topped off, I‘d have no choice but to shut down my operation entirely.

Obviously, I was receiving no income from the four wells.

My fluid cash resources – already strained by drilling costs – dwindled rapidly as I paid for leasing the tanks and for trucking my crude several miles from wells to store. The situation could have easily turned into financial disaster. I decided to make a frontal attack on one of the biggest of all the major oil companies – Shell Oil. By a fortunate coincidence, Sir George Leigh-Jones, then the Shell company’s president, happened to be visiting in Los Angeles. In desperation I aimed high, asked for an interview with him personally and was informed that he would be happy to see me.

A warm, friendly man, Sir George listened attentively to what I had to say. The deepening scowl that etched across his face as he heard me was all the proof I needed that his firm was not a party to the boycott and that he heartily disapproved of such tactics. When I finished talking, he smiled his reassurance.

“Relax.” He grinned. “We’ll help you.”

As a starter the company would buy the next 1,750,000 barrels of crude oil produced by my Cleaver Lease wells, Sir George told me. In addition, a pipeline would be constructed to link my wells with the Shell Oil Company’s pipeline network – and construction work was to commence the very next day.

Sir George and the Shell company were as good as their word. Shell’s work crews arrived on my Cleaver site bright and early the following morning and started to lay the pipeline. The boycott was broken – and the Cleaver Lease was safely and profitably mine!

As the 1920s drew to a close, the American petroleum industry began to undergo a radical change. The industry was rapidly growing more complex; the cost of finding and producing oil were spiraling ever higher. Much greater capital expenditures were needed to purchase leases, machinery and equipment and to finance exploration and drilling. Most oil pools that lay near the surface in known oil belts had been located and were being exploited. It was necessary to prospect ever farther afield and to drill ever deeper to find oil.

There were many mergers and consolidations of oil companies. Some independent operators were falling by the wayside. Others were selling out to big oil companies. There was also a strange, ominous undercurrent running through the entire U.S. economy. The stock market listed shares at fantastic highs, but there were warnings and forebodings of economic trouble ahead.

It was a critical period for all wildcatters and a particularly difficult one for me. I had to look after my own mushrooming business interests – my own leases, producing wells and companies. Then, through the years, I’d bought sizable blocks of stock in my father’s companies as well. Now his health began to fail. And I found it increasingly necessary to take an active part in managing the operations of those companies.

In 1929 the stock market crashed. The following year my father suffered a stroke. Although he was over 75, he fought death bravely and grimly for several weeks, but the battle was lost on May 31, 1930, when he passed away. My mother and I were allowed but little time to grieve. We had to keep his businesses going and his companies operating. The federal government pressed for rapid settlement of the inheritance taxes on the estate. These and many other matters demanded immediate attention, and all were complicated by the economic factor of the deepening depression. Many advised me to liquidate everything – to sell out not only my late father’s holdings but my own firms and interests as well.

“The business situation can only get worse,” they predicted. “The economy is going to disintegrate completely!”

I didn’t see things that way at all. I was convinced the nation’s economy was essentially sound – that though it might sag lower in the near future, it would eventually bounce back, healthier than ever. I thought it was the time to buy – not sell.

Many oil stocks were selling at all-time lows; they were spectacular bargains. I began to envision the organization of a completely integrated and self-contained oil business, one embracing not only exploration and production – the operations in which I’d been exclusively engaged until that time – but also transportation, refining and even retail marketing.

In business, as in politics, it is never easy to go against the beliefs and attitudes held by the majority. The businessman who moves counter to the tide of prevailing opinion must expect to be obstructed, derided and damned. So it was with me when, at the depths of the U.S. economic slump of the 1930s, I resolved to make large-scale stock purchases and build a self-contained oil business. My friends and acquaintances – to say nothing of my competitors – felt my buying spree would prove a fatal mistake. Then, when I announced my intention to buy into one of the seven major oil companies operating in California, even those who had been my supporters in the past were inclined to believe I had taken leave of my senses.

Major oil companies could, and often did, buy out independent operators’ firms. But for an independent operator to buy a major oil company? That was heresy – an attempt to turn the established order upside down!

Nonetheless, I went ahead with my plans, for I was looking to the future. The oil companies I controlled or in which I held substantial interests were engaged exclusively in finding oil and getting it out of the ground. To insure markets for this oil and for that to be produced by new wells drilled in the future, I had to invest in a company that needed crude oil and that also had adequate refining and marketing facilities. There were only seven such companies in California – all majors.

The list was headed by the Standard Oil Company of California – obviously far too big a chunk for any independent to bite off and digest. The same held true for the Shell Oil Company. The next possibility was the Union Oil Company, but this firm had its own crude-oil sources. So did the General Petroleum Company, which, in any event, was virtually a closed corporation, and its stock was not available for purchase. That left three firms: Richfield Oil, then in receivership and consequently not a very tempting prospect; the Texas Oil Company, which was amply supplied with its own crude; and, lastly, the Tide Water Associated Oil Company.

Tide Water Associated seemed the logical choice. The company met only half its refineries’ crude requirements from its own reserves, buying the rest from other producers. Tide Water also had a good marketing organization, and its products enjoyed a good reputation with the consuming public.

I saw great advantages in linking my companies up with Tide Water. My firms – George F. Getty Inc. and Pacific Western Oil Company among them – would have assured outlets for their crude production, and they would guarantee steady crude oil supplies for Tide Water’s refineries. Furthermore, with the firms working interdependently, large-scale economies could be effected. The savings could be passed on to the consumer in lower gasoline and oil prices and shared by Tide Water’s 34,668 individual shareholders in the form of higher dividends.

I began my Tide Water campaign in March 1932 by purchasing 1200 common shares at $2.50 per share. Within the next six weeks I’d increased my holdings to 41,000 shares. Nearly 20 years were to pass before I gained clear-cut control of the firm. In that time my producing companies and I would buy millions of shares of Tide Water common. I didn’t guess wrong when I started buying at depressed 1932 prices. In the next five years Tide Water’s common shares rose to more than $16 – and eventually each share came to be worth many times that amount.

It was not easy to gain control of the Tide Water Associated Oil Company. Many risks were taken, much opposition encountered, many no-holds-barred proxy and legal battles were fought. Countless critical situations developed. The outcome was often in doubt.

My first attempt to obtain a voice in Tide Water’s management was made in May 1932. I went to the annual stockholders’ meeting armed with my own 41,000 shares, plus a proxy for 126,000 additional shares. At the last moment the proxy was revoked. My efforts ended in failure. I bought more stock and tried to sell my ideas to Tide Water’s directors. They, however, did not see things my way and dug in for a long, hard fight. Why? Well, I suppose there were several reasons. First of all, I was an outsider. I’d had little or no experience in the heady atmosphere of boardrooms.

“Paul Getty should stay where he belongs – on a drilling rig,” a Tide Water director supposedly snorted when told I was buying the company’s stock right and left. I fear there were others on the board even less kindly disposed toward me and my ambitions.

I’d studied Tide Water’s organization and operations carefully and recommended that the company make certain changes and practice certain economies. These recommendations, apparently too radical to suit the conservative directors, caused considerable resentment.

I’d also concluded that much of Tide Water’s refining plant was obsolescent and would soon be obsolete. I believed the company should make provisions for modernization and replacement, but management was reluctant to make capital expenditures during the business slump. The directors called it “necessary caution.” I viewed it as shortsighted and dangerous penny-pinching.

By 1933 Getty interests owned nearly 260,000 Tide Water shares – a block too large to be ignored. I was elected to the company’s board, but it was a hollow victory. I was only one among many, and the other directors were still ranged solidly against me and my proposals. I continued to buy Tide Water stock. Proxy fights, lawsuits and countersuits ensured. Injunctions, restraining orders and writs flew in blizzards. By late 1937 Getty interests owned enough stock to obtain a voice in management. Three years later we held 1,734,577 shares – a shade over one-fourth the voting stock – and many changes I proposed were being implemented. By 1951 I held enough Tide Water stock to have numerical control. (By then the
Associated
had been dropped from the company name and
Tide Water
contracted into a single word.) Two years later, with all but one director elected by Getty interests, the campaign was finally over. Today Tidewater’s assets exceed $800 million.

In 1938 I turned momentarily from the oil business and bought the Hotel Pierre in New York City, purchasing it for $2,350,000, less than one-fourth its original 1929-30 cost. Later I bought several hundred acres of land in Acapulco, Mexico, where I eventually built the Pierre Marques Hotel on Revolcadero Beach. These, contrary to reports that have me owning a string of hotels, are the only ones I own.

In 1937, as part of the Tide Water campaign, I obtained control of a firm known as the Mission Corporation. Among Mission’s holdings was a 57% interest in the Skelly Oil Company, a major oil firm with headquarters in Tulsa, Oklahoma. Thus, almost as a windfall, I acquired the controlling interest in a company with a 1937 net income of $6,500,000 – and which, today, has more than $330 million in assets.

But this is not the whole story. Among Skelly Oil’s subsidiaries was the Spartan Aircraft Corporation, a Tulsa concern engaged since 1928 in manufacturing aircraft and training pilots and navigators. I paid my first visit to the Spartan plant on December 7, 1939. Its aircraft-manufacturing operations were rather limited; there were only some 60 workers employed in the factory. The pilot-training school was much more active. It was, in fact, the largest private flying school in the U.S.

I’d just returned from a trip to Europe, which was already at war. I was convinced that the United States would eventually have to throw its weight into the war against the Axis. Consequently, I felt Spartan Aircraft would have an increasingly important role in the nation’s defense program – but I could not guess then how very important it was destined to be.

Two years to the day after my first visit to Spartan, the Japanese attacked Pearl Harbor and the United States was at war. It was in that same month that my beloved mother died. It was a heavy blow. Although I was by then almost 50, I felt the loss as keenly as though I had still been a youngster.

War news filled the newspapers. I had not been allowed to serve in World War One, and I now hoped for the chance to serve in the second world conflict. I had studied celestial navigation and had owned – at various times in my life – three yachts, the largest a 260-foot, 1500-tonner with a crew of 45. On the basis of this, I volunteered for service in the United States Navy. To my chagrin, I was politely but firmly informed that the navy didn’t have much use for a middle-aged businessman unless he was willing to take a routine, shore-based administrative job. After exhausting all other avenues, I obtained an interview with Navy Secretary Frank Knox and pleaded my case. I told him I wanted a navy commission and sea duty.