The Coastal Corporation

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The Coastal Corporation

Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046
U.S.A.
(713) 877-1400
Fax: (713) 877-6752

Public Company
Incorporated: 1955 as Coastal States Gas Producing Company
Employees: 13,900
Sales: $9.38 billion
Stock Exchanges: New York Amsterdam Dusseldorf Frankfurt Hamburg Munich London

The Coastal Corporation is the 14th-largest refiner of crude oil in the United States. The company is also one of the most profitable U.S. oil companies. Oil refining, however, is only one of Coastal’s many enterprises. Natural gas production, petrochemicals, marketing and distribution of petroleum products, and gas and oil exploration are all important profit-generating activities.

To a great extent, Coastal’s success can be attributed to the dynamic leadership of its founder and chief executive, Oscar Wyatt. Wyatt served in World War II as a bomber pilot, earned a mechanical engineering degree from Texas A&M University, and gained experience in the oil business as a partner in Wymore Oil Company. In 1955, Wyatt founded Coastal States Gas Producing Company in Corpus Christi, Texas. Compared to the monolithic enterprise it became in later years, Coastal States began business in modest circumstances, with 68 miles of pipeline and 78 employees.

From the beginning, Wyatt demonstrated an almost intuitive understanding of the energy business. His pipeline company purchased small amounts of gas from different producers, packaged it, and then sold the gas in larger volumes. Gas gathering became the company’s primary business. Wyatt developed effective pipeline systems that connected both buyers and sellers and still left room for profits. Most pipeline owners set output quotas to make an oil field last for up to 20 years. Wyatt ignored this convention and generally purchased from producers as much gas as they could pump. This practice enraged other pipeline owners. The arrangement worked to Coastal’s advantage and by 1960 revenues exceeded $17.6 million.

As the U.S. economy grew in the 1960s, dependence on all energy sources, notably oil and gas, also increased. Coastal took full advantage of soaring demand. By the early 1960s Coastal’s newly created subsidiary, Lo-Vaca Gathering Company, supplied gas to San Antonio, Austin, Corpus Christi, and other cities in south Texas. In 1962 Coastal purchased 800 miles of crude oil pipeline from Sinclair Oil Corporation, including a major refinery in Corpus Christi with a capacity for almost 30,000 barrels of oil per day. Coastal extended this capacity in later years as oil refining became one of its principal activities.

Much of Coastal’s subsequent expansion came through takeovers—often hostile—of rival companies. Wyatt acquired a reputation as a tough business competitor and corporate raider. In 1968 Coastal acquired a 965-mile system from United Pipeline Company. In that same year, Wyatt won control of Rio Grande Valley Gas Company. In June 1970 the company announced plans to link its west Texas natural gas reserves to the Dallas area.

Events in the Middle East overshadowed the triumphant rise of Coastal in the early 1970s. The Arab-dominated Organization of Petroleum Exporting Countries (OPEC), by presenting a united front, won a price increase from oil companies in 1971. OPEC cut production and raised prices by 70%. By 1974 prices had again quadrupled, leading to the energy crisis of the mid-1970s.

Lo-Vaca, Coastal’s pipeline subsidiary, had signed fixedprice contracts to supply cities of south Texas with natural gas. With energy prices soaring and supplies dwindling, Lo-Vaca could not meet its contractual obligations, and at one point cut off gas supplies to the cities of San Antonio and Austin during the winter. Ignoring his contracts, Wyatt obtained regulatory permission to increase prices beyond the contract limit.

Inevitably Lo-Vaca became a target for lawsuits from outraged customers. Lo-Vaca haunted Coastal for years. Finally, after much legal wrangling, Coastal settled the $1.6 billion in lawsuits by agreeing to spin off Lo-Vaca. The spin-off company, Valero Energy Corporation, was formed on December 31, 1979, from Lo-Vaca and other Coastal assets, and had annual revenues of about $1 billion. The customers suing Coastal got 55% of Valero’s stock. The remaining Valero stock was split among Coastal shareholders, except Wyatt, who the plaintiffs insisted be excluded from the agreement.

Despite the impact of the energy crisis, Coastal maintained its profitability and continued to expand throughout the 1970s. Expansion was not confined to Texas. In 1973 Coastal acquired Colorado Interstate Gas Company along with its three refineries with a $182 million hostile bid. With this acquisition Coastal became a truly national company. In 1973 Wyatt renamed the company Coastal States Gas Corporation. In the first half of the decade, Coastal also sought to diversify into other energy markets. In 1973 Coastal entered the coal-mining field with the acquisition of Southern Utah Fuel Company. Also in 1973, with the acquisition of Union Petroleum Corporation, renamed Belcher New England, Inc., Coastal began the marketing and distribution of petroleum products. By 1975 revenues had reached $1.9 billion. Coastal’s expansion continued in 1976 with the purchase of Pacific Refining Company’s Hercules, California, plant. This plant increased Coastal’s refining capacity to about 300,000 barrels per day. In 1977 Coastal acquired Miami-based Belcher Oil Company, one of the largest marketers of fuel oils in the Southeast.

In 1980 Wyatt changed the company’s name to Coastal Corporation. In the same year, revenues exceeded $5 billion. Yet Wyatt, in his enthusiasm to secure profits for Coastal, overstepped the law. In 1980 in Houston, Wyatt and two other oil executives pleaded guilty to criminal violations of federal crude-oil pricing regulations. Wyatt and the president of Coral Petroleum were each fined $40,000 for the misdemeanor. Each company was required to refund $9 million to the U.S. Treasury Department and each incurred $1 million in civil penalties.

The early 1980s witnessed a temporary setback in Coastal’s successful profit record. Economic recession and oversupply of oil and natural gas, as well as consumer conservation, led to Coastal’s first loss, which amounted to $96.4 million for the year 1981. Wyatt responded to the crisis with characteristic forcefulness. He trimmed the work force, cut budgets, and within six months had restored company’s profitability.

In the mid-1980s, the U.S. government sought to foster competition in the natural gas industry. This so-called deregulation, together with falling prices, created difficulties for many energy companies. Coastal not only survived deregulation but took full advantage of the competitive atmosphere by launching hostile takeover bids for other struggling energy companies. The mere threat of a takeover by Coastal could send stock prices of the target company soaring. In 1983 Coastal’s attempt to secure Texas Gas Resources failed, yet Coastal’s initial investment in the company generated a total of $26.4 million profit. Intervening companies that came to Texas Gas Resources’s rescue were forced to buy up shares held by Coastal at inflated prices. Wyatt’s unsuccessful attempt to take over Houston Natural Gas in 1984 yielded a similar return of $42 million. In 1985 Wyatt set about acquiring American Natural Resources (ANR), one of the most profitable Midwest natural gas pipelines. Despite ANR’s initial determination to remain outside of Coastal’s clutches, Wyatt soon pushed through an all-cash deal of $2.45 billion, which ANR shareholders could not refuse. This acquisition transformed Coastal into a major power in the U.S. gas business.

While Coastal’s success and profitability has drawn the admiration of many in the business community, some of Coastal’s activities have skirted the spirit of the law. In 1987, despite sanctions prohibiting U.S. companies from dealing with Libya because of its terrorist connections, Wyatt negotiated a deal in which Libya supplied oil to Coastal’s refinery in Hamburg, Germany. Wyatt’s deal was legal because the foreign subsidiaries of U.S. companies are exempt from U.S. regulations.

In the late 1980s Coastal took advantage of improved economic relations between the United States and the People’s Republic of China. In 1988 Coastal concluded an agreement with China National Chemicals Import and Export Corporation (Sinochem) for joint ownership of Coastal’s Pacific Refining Company. Coastal and Sinochem each hold a 50% interest in this West Coast refining company. For both sides, the agreement provided certain advantages. Sinochem obtained an opportunity to invest in the United States as well as a long-term outlet for crude oil. Coastal secured a dependable supply of crude oil in a volatile world oil market. This joint venture represented the first investment in U.S. energy assets by the People’s Republic of China.

A key to the company’s successful strategy is the continued high productivity of all Coastal employees from unskilled to management levels. Coal workers employed by Coastal produce twice the industry average. Much is expected of Coastal’s management staff. Indeed, the constant pressure for results has led to a high management turnover. Coastal’s refinery business alone had five different managers between 1980 and 1989.

Coastal’s position seems secure. Demand for natural gas has improved considerably. Public awareness of pollution and government regulations have made relatively clean-burning natural gas a preferred energy supply. The growing uncertainty about foreign oil supplies, as a result of political turmoil in the Middle East, has also stimulated domestic energy production of oil and gas. Under the energetic leadership of Oscar Wyatt, it is likely that Coastal will take full advantage of these dramatic developments in the energy business.

Principal Subsidiaries

ABCO Aviation, Inc.; ABCO Leasing, Inc.; ANR Supply Company; Coastal Capital Corporation; Coastal Gas Marketing Company; Coastal Holding Corporation; Coastal Limited Ventures, Inc.; Coastal Mart, Inc.; Coastal Midland, Inc.; Coastal Multi-Fuels, Inc.; Coastal Natural Gas Company; ANR Credit Corporation; ANR Development Corporation; ANR Erie Pipeline Company; ANR Finance B.V. (Netherlands); ANRFS Holdings, Inc.; ANR Gasification Properties Company; ANR Gulf Pipeline Company; ANR Intrastate Gas Company, Inc.; ANR Ocean Pipeline Company; ANR Offshore Gathering Company; ANR One Woodward Corp.; ANR Pipeline Company; ANR Production Company; ANR Ren-Cen, Inc.; ANR Storage Company; Coastal Oil & Gas Corporation; Coastal Pan American Corporation; Coastal Power Production Company; Coastal Power Revere Company; Coastal Remediation Company; Coastal States Energy Company; Coastal States Gas Transmission Company; Coastal States Management Corporation; Coastal States Trading, Inc.; Coastal Technology, Inc.; Coastal Unil-ube, Inc.; Cosbel Petroleum Corporation; Coscol Petroleum Corporation; Holborn Oil Company Limited (Bermuda); Jade Carriers Corporation (Liberia); Texas Tank Ship Agency, Inc.