Part VII – Survival in the Eighties

DanPedrottiGen7Our style and expertise in putting drilling deals together and finding oil peaked in the early eighties. Instead of studying up on the new technology like other professionals were required to do, we diversified.

Much to our dismay the city had just passed a bond issue for a convention center and as we looked down from our offices, up on the hill, at all the vacant property on Ocean Drive, and we mused that we were going to have all these conventioneers without any hotels for their accommodations.

Bill had a great idea. Property is cheap so let’s buy a block on Ocean Drive and promote or build a modern hotel. We started buying parcels in the block where the Omni Marina now sits. We had all but one tract under option, but the owner, Josephine Sparks, had the same idea and would not sell or participate with us. In desperation we sold our options to her, got Joe Baria and Margaret Turnbull as partners and purchased the block where the Omni Bay Front Hotel sits. Josephine got her hotel going first, a Marriott, and we sold our block to the Hershey Foundation of Pennsylvania, and they built the beautiful Hershey Hotel that after several name changes became the Omni Bay Front Hotel.

In the mean time we got the bright idea of building a Petroleum Building to house all of our independent friends. We would move a log library in and become the center of oil and gas exploration for all of South Texas. We optioned the block between the two hotel sites and contacted our fellow independents and got eight more of the leading explorers and producers to commit to a tenth interest and bought the block. We had an architect draw up a conceptual design for the building and while we were reviewing the plans a man named Jim Kozak, representing Bruce Stark, a high profile developer from Honolulu, contacted me. Jim was aware that we controlled two city blocks across from a proposed fourth landmass in the Corpus Christi Marina.

When he showed us his design for an office building (One Shore Line Plaza) connected by an overhead walkway to a hotel in much the same design as the office building, and then connected to the proposed new landmass we were blown away and began negotiations. Unfortunately, we were too far long in our dealings with the Hershey people who were ready to break ground for their design, and thus we were unable to interest them in the joint project. Even though by now the new landmass had been voted down, Kozak convinced Bruce Stark to go forward with the office building. We entered into an agreement whereby we would put our land in as equity and be co owners of the project, but as time passed it became necessary for Bruce Stark to own the property in order to acquire proper financing. They purchased our interest for a sizeable profit to all our partners. Although we were disappointed in not having ownership, by the time the building was completed, oil and gas values had plummeted, the South Texas economy cratered and the building had to be sold for the bank note. Had we stayed in the deal we would have lost not only the huge profit but our investment as well.

Not all of our diversified ventures were so successful; in fact one was a total disaster. This time several of our peers came to us with a great idea. They were familiar with the shallow offshore production activity and knew that most of the platforms were getting old and in dire need of maintenance. The idea was to build portable jack-up work over rigs to service the shallow Gulf of Mexico well platforms. They had a design, and an engineer who thought he could build one. This sounded great so we acquired a lease from the Port of Corpus Christi on Rincon Channel, a commercial development on the west side of North Beach, promoted up a couple more partners and started a ship yard.

After huge cost overruns and delays our first jack-up named “Popeye”, was launched with much fan fare, but on its maiden voyage it almost sank. We fired our engineer, hired a former employee of Cinco Drilling Company, and then the disaster began. Our new manager turned out to be not only incompetent, but was also a crook. He started a ponzi scheme that nearly broke all of us. Not content to build deck barges that we were capable of completing with reasonable expense, he launched into such complicated projects that even the most experienced ship yards would not take the contracts. His scheme was to take large pre-payments that he used to cover cost overruns on existing jobs, so his only means of survival was to continue to obtain new contracts on more complicated projects while still unable to complete the work he already had in the yard. He was also skimming money and hiding our payroll tax checks in order to use the money to keep the yard open, and of course his job.

Finally at one of our meetings where we needed another cash call to cover payroll taxes that had not been paid, one of our partners noted that the only people making money on this venture were the vendors, the employees and the manager. We had already lost millions as we tried to float this sinking ship, and there was no end in sight. Then J M Smith uttered the unthinkable words “BANK RUPTCY”. There was no possible way that we could collectively provide enough funds for these projects that were impossible to complete. After getting over the shock and realizing that this was our only alternative we hired a bankruptcy lawyer and like flying into a black cloud without instruments, we embarked on a seemingly unending series of meetings with banks, clients and lawyers. I learned a hard lesson — don’t try to get into something you know nothing about, and don’t try to run a company when all you’ve ever done is manage yourself.

We hadn’t given up completely on exploring for oil and gas, so we tried hiring geologists to do the work for us. Here again our inexperience at managing employees became our “Achilles Heel.” At one time or another we had four different geologists in our office on the pay roll. We drilled a few dry holes, and finally one little 500 mcf a day well. We didn’t think much of it, but you know it is still producing 500 mcf per day. We eventually hired Duncan Chisholm who got us to buy a few lines of 2-D seismic on several leads and even got us to shoot a two mile line in Hidalgo County.

Based on this line we acquired leases offsetting some great wells that had been drilled by Roger Steward, Forest Oil Co. and Neil Hanson and drilled our first protection pipe well. This was a big step as we had a firm policy to operate only wells that did not require intermediate pipe or fracking, so that we could afford to keep a quarter interest. The well was a marginal producer that lost money, but Duncan pointed out that one of the leases had an old shallow well with an oil show, so we renewed it.

Then in 1985 when the bottom of our industry fell out, we basically became inactive. Fortunately, we were debt free and owned several parcels of prime property. Bill was cruising the world’s oceans, and I was following my quest for the wild sheep of the world from Baja California across western United States, Canada, Alaska over to Asia, Siberia, Mongolia, Nepal, Kirgestan, Kasikstan, Azerbajan and Pakistan. While Bill and Maureen were dining and dancing in luxury aboard the QE-2, Carolyn and I were sleeping on the ground in tents on the sides of goat trails in the mountains and deserts of Asia. I don’t know who was having the most fun, but Carolyn loved camp life.

So while the smart independents such as Harkins and Tana, were furnishing their explorers with large 2-D data sets that were available everywhere and very inexpensive, we were giving our geologists one line at a time. Even though natural gas was selling for less than $1.00 per mcf, and oil around $5.00 per barrel these companies were doing just what all of us should be doing this year – finding new prospects, buying acreage and developing reserves. Everyone was longing for the good old days, but as J M said “these might be the good old days.” Fortunately he was wrong although it took over a decade to improve.

But, miracles do happen to those of us who take risks and expose ourselves to unknown opportunities. Sun Oil Company wanted to drill a deep well on the lease we kept with the shallow oil show. They had the offset acreage, and we agreed to farmout the deep rights for a quarter back in and keep three quarters of the shallow rights in case the oil show was real. One Sunday morning Bill got a call from a Sun geologist who informed him that they had already logged the intermediate hole down to 7,500 feet and forgot to notify us. Bill was furious at first, but when the geologist told that they had logged over 300 feet of gas saturated sand, Bill apologized and called me with the news. I then reminded him that we still owned a fifty percent interest in the lease. Sure enough Sun’s deep objective was dry, so all we had to do is complete what became the Suemaur #1 Acevado, discovery well for Suemaur Field.

In order to keep up with Sun’s direct offset that they produced wide open, and although we were unsuccessful in any serious development as the structure covered less than 60 acres we had to open our chokes and were thus flush with income. That is when Bill Maxwell walked into our office to give us the news that Harkins Drilling Company was liquidating their exploration department, and he and the staff were looking for someone to buy the assets, hire the staff and let him run the new company. The assets consisted of hundreds of miles of re-processed 2-D seismic data, leases on eight or ten Wilcox prospects, and a team with a very successful record at finding oil and gas in South Texas. Bill and I had made several unsuccessful attempts to hire Bill Maxwell, so when he walked out of our office, Bill Miller asked me “What should we do?” I immediately answered don’t let him talk to anyone else this is a chance of a lifetime, and we have to figure out how to make it happen.

This was 1990 and our business was still in a slump. Our next move was to contact J M Smith, an experienced Geological Engineer, owner of Genesis Petroleum, a very successful operator and a former partner of ours in the ship building disaster. He agreed to take a one third interest in our venture, let us keep the Suemaur name, and we began negotiations with Burt Harkins to buy the assets and closed the deal within weeks. This was the beginning of a very fruitful and exciting venture under the leadership of Bill Maxwell, which has grown into one of the most successful and technically advanced independent oil and gas companies exploring the onshore areas of the Texas Gulf Coast.

Next month – Suemaur Exploration and Production Co. the challenges of the 90’s and the new millennium.

Dan Pedrotti

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