A WILDCATTER STRIKES AGAIN : At 72, Arco Founder Robert Anderson Is Building a Second Empire at Pauley
The first time Robert O. Anderson started an oil company, things were simpler.
In 1942, all he needed was $150,000 in capital, a couple of partners and $1,400 in drilling rig equipment. He packed up his belongings and his new wife and daughter and drove half a continent from his native Chicago to settle in the arid desert of New Mexico.
It worked out pretty well. After 25 years as an independent oilman and wildcatter, Anderson helped create and run Atlantic Richfield Co., which grew into the seventh-largest oil company in the country before Anderson left in 1986.
On the way, Anderson’s annual income as Arco’s chairman exceeded $1 million a year. He became a land baron, patron of the arts, adviser to presidents and an unmistakable industry presence in his trademark bow tie and well-worn Stetson.
Now 72, Anderson could have retired to the solitude of his beloved New Mexico ranch, where he still tools around in the 1949 Oldsmobile convertible that was a perk in a long-ago deal.
Instead, he is trying again to build an oil company the way he did in the beginning -- from the ground up. “I happen to think that a rocking chair and a television screen are a quick way to the graveyard,” he says.
In January, 1988, Anderson assumed control of tiny Pauley Petroleum Inc. by merging his private Hondo Oil & Gas Co. with Pauley in a deal valued at the time at about $42 million. Pauley was founded by the late Edwin W. Pauley, himself a Los Angeles millionaire oil entrepreneur and presidential adviser perhaps best known as the namesake of UCLA’s basketball pavilion.
Anderson, eager to recapture the hands-on feel of the oil business he had lost as chairman of Arco, aims to transform Pauley from a moribund refiner and producer into a fully integrated oil company. “In a sense, I guess it is starting all over again--or picking up where I left off, depending on how you look at it,” he said last week in Pauley’s small Westwood office.
It’s been a year and a half since the merger, and he may be finding that it’s not as easy as it was the first time around. “Everything’s running, but not quite the way we want it yet. . . . For some reason, things just don’t move as fast; things are bigger, more complicated I guess,” he said. “But patience is the key to it all.”
Anderson has already transformed Pauley into a company resembling his earliest oil ventures. Like them, Pauley has oil and gas holdings largely in the Rockies, New Mexico and Texas, and is focusing primarily on exploring and drilling for oil.
Because of exploration costs, debt-servicing costs, and depressed crude and refined product prices, the company reported a loss of $9.5 million in the first six months of fiscal 1989 on revenue of $151 million. That compares to net income of $4.6 million on revenue of $65.8 million in the year earlier period.
But Anderson and other industry insiders feel that Pauley’s fortunes should turn around now that oil prices are easing back up and with expectations that natural gas demand should grow. “Next year will be the first year we’ll have the opportunity to put the whole thing together,” Anderson said.
At the same time, Anderson is leading a move quietly to divest Pauley, headquartered for many years in the Los Angeles area, of all its local holdings, including its Newhall refinery, said William R. Pagen, Pauley’s former chairman and now part-time vice chairman. The company’s headquarters have already moved to Roswell, New Mexico, the base of all Anderson’s businesses.
Sitting in his Westwood office, Anderson seems every bit the oil executive in his tailored blue suit. His hair has gone white, and his speech is more measured than it once was, although he still discourses easily on subjects from global warming to natural gas supplies to corporate dividend policies.
But then he smiles as he picks up his battered hat, fingers a fishing fly in the band and abruptly interrupts a conversation: “That’s a Rat-faced McDougall,” he says with a laugh. “With a hair body.”
Why would a man so enamored of fly fishing want to get back into oil prospecting? “You don’t get involved in this business in the first place unless there’s something burning in you to go out and drill holes in the ground and risk everything in a venture,” said H. R. (Bud) Scoggins, president of the Independent Petroleum Assn. of America.
That urge is what drove Anderson, the son of a Chicago banker, to spend summers away from the University of Chicago on oil pipeline crews in Texas, shoulder to shoulder with the roughnecks in the 1930s.
Refining Company Partner
In 1942, he bought into a partnership in a small refining company in Artesia, New Mexico. During the war, Anderson sold jet fuel to the nearby Army Air Corps station and delivered diesel fuel to a mysterious government camp in nearby Los Alamos.
He and his wife were in their mountain cabin about 50 miles away when the early morning atomic blast from the camp lit up the room like daylight, he recalled.
Over the years, Anderson completed a series of deals that increased his holdings of both oil and gas properties, refineries and retail outlets. He moved his base of operations to Roswell, New Mexico, and began acquiring land and livestock for his ranching interests.
“I live in the country because I’m very sensitive to the environment,” he says.
In the late 1950s, Anderson’s Hondo Oil & Gas Co. struck oil in the Empire-Abo oil field, one of the largest in the Southwest, with 250 million barrels in reserve. His holdings in the field caught the attention of crude-starved Atlantic Refining Co. of Philadelphia. In 1962, Hondo merged with Atlantic, giving Anderson stock worth $32 million, making him the company’s largest shareholder and putting him on the track to the chairmanship.
Appalling Discovery
Anderson, the independent oilman, was appalled to discover that many of the Philadelphia executives were unfamiliar with routine oil field jargon. Throughout his career, he worked to erase the gap between the executive suites and the drilling rigs.
In 1965, shortly after his election as chairman, Anderson and President Thornton Bradshaw used a transatlantic plane trip to formulate a six-point strategy that was to eventually see the company through its greatest period of growth. That strategy included focusing on key areas of the business and keeping them in balance.
“Most companies don’t take an objective view of what they do,” he said. “But I think a company should philosophically review its activities and what it’s doing every few years. If you don’t, certain segments of a company will grow faster than the rest.”
A fishing trip with Charlie Jones, chairman of the Richfield Oil Corp. cemented the merger that would create Arco and bring the company its greatest asset: leases on the North Slope of Alaska.
Anderson made his first trip to the North Slope in 1966, wearing a suit and carrying his boots and jeans in a duffel bag, he recalled. At the time, many oil companies had abandoned unsuccessful efforts to find oil there--and Arco, under Anderson’s direction, was among the last to drill exploratory wells.
Prepared to be Wrong
“There’s no question that if we hadn’t made a discovery, it would have been the last well drilled on the North Slope for a good many years,” he recalled of the decision to proceed after a series of failures. “But you shouldn’t be an explorer for oil and gas unless you’re prepared to be wrong 80% or 90% of the time.”
Eventually, Arco under Anderson’s chairmanship would be one of the players in the costly and frustrating construction of the trans-Alaska oil pipeline. Anderson recalls the high emotions surrounding the proposed pipeline: during one speech in Washington, a young woman walked up and doused him with a can of motor oil.
During this time, Anderson became one of the largest landowners in the world. He still owns major ranches in New Mexico and Texas.
He advised and befriended presidents, became an active figure in Republican politics and was considered for numerous civic appointments.
The namesake of the Los Angeles County Museum of Art’s newest wing, he also became known for his devotion to the arts and world affairs, a passion he imprinted on Arco as well. He chaired dozens of cultural groups, helped revive the Aspen Institute for Humanistic Studies, underwrote research into global problems and engineered bailouts of respected but financially troubled publications like the London Observer and Harper’s magazine.
Grabbing the Public Eye
Curiously, Bradshaw seemed to grab more of the public’s attention. But even that was part of Anderson’s design. At his busiest, Anderson devoted only a couple of days a week to Arco and traveled as much as 500 miles a day. A given week might take him from an Arco board meeting in Los Angeles to a seminar at the Aspen Institute in Colorado to his ranch in Roswell to spend time with his wife, Barbara, his two sons and five daughters.
Even now, he estimates, he devotes a third of his time to interests outside Pauley and still travels several thousand miles a year.
In 1985, as crude oil prices were poised to plunge and oil company takeovers were in the wind, Anderson was part of the management team that engineered a major restructuring of Arco that included a major stock repurchase, staff reductions, divestment of Eastern retailing and refining operations and curtailment of exploration. Later that year, Anderson resigned his chairmanship, and in 1986, left the company completely.
“He left a company that was very well poised to take advantage of a very tricky environment,” said oil consultant Thomas Wachtell.
Current Arco executives declined to discuss Anderson’s new venture, but Arco Chairman Lodwrick M. Cook said in a statement: “Bob left us a firm foundation on which to build, and we are grateful for his leadership during those pivotal years.”
After leaving Arco in 1986, Anderson and the British conglomerate Lonrho PLC bought some of Arco’s marginal oil and gas properties for an estimated $180 million in a bidding process that drew some criticism and a shareholder lawsuit that was later dismissed. At the time, critics accused Anderson of having insider knowledge about certain drilling rights that were not listed for sale--charges Anderson denied. The drilling rights were eventually sold back to Arco.
“It was a cat and dog collection that still needs some sorting out,” he says. “But it made good sense from the point of view of an independent company. . . . A small company can operate properties like that better than a big company.”
With the properties, Anderson reconstituted his old Hondo Co., with Lonrho holding a little less than half interest.
Assuming Control
Anderson assumed control of Pauley in January, 1988, when Anderson’s Hondo Co. received 10 million shares, or about 77%, of Pauley’s outstanding common stock, in exchange for which Pauley took over Hondo’s oil and gas subsidiary. With other purchases, Hondo eventually ended up holding about 81% of Pauley’s stock.
In the merger, Pauley gained Hondo’s sizable oil and gas reserves in the Arco properties. Pauley’s reserves stood at 16.7 million barrels of oil and 108.7 billion cubic feet of natural gas at the end of the last fiscal year.
In the past two years, the company has pursued an aggressive drilling program, drilling about 39 new wells a year, Pagen said. About $18 million is slated for drilling in fiscal 1989, with $12 million going to new prospects.
Anderson said he intends to remain actively involved in the company’s management, though he maintains a stiff travel schedule. He has cut back on many of his outside involvements, preferring to concentrate his activities in New Mexico. He has also sold off his foreign land holdings and most of his outside business interests.
Anderson has involved his two sons, Phelps, 38, and Robert B., 42, in the management of his new company. Each is also an officer of Hondo and owns about 5% of that company.
“One of the reasons I decided to go back into the business was my two very bright young sons,” he says. Asked whether he’d like them to mirror his own career, he says simply, “That would please me very much.”
