Hunt Oil Company
Hunt Oil Company
Incorporated: 1934 as Hunt Production Company
Sales: $900 million
SICs: 1311 Crude Petroleum & Natural Gas; 2911 Petroleum Refining
Hunt Oil Company is among the nation’s largest privately owned oil and gas producers. Known as the company that made its founder and original owner, H. L. Hunt, one of the wealthiest men in America in the 1940s, it has continued to make news in the 1980s with its success in high-risk overseas exploration at a time when other independent oil companies were staying closer to home.
H. L. (Haroldson Lafayette) Hunt was already one of the most successful independent oilmen before founding Hunt Oil. Originally a real estate speculator, he first became involved in the oil business in Arkansas and then Louisiana in the 1920s. His strategy was to drill in already known areas, jumping into lease-buying action immediately after a discovery was made. Hunt achieved historic success in November 1930 at age 41 when, together with a partner, Pete Lake, he bought 5000 acres in East Texas belonging to wildcatter Columbus “Dad” Joiner, shortly after a single-well oil discovery of which big oil companies were skeptical. Hunt secretly employed an oil scout to monitor test results at a nearby well and, before Joiner realized the full extent of the discovery, persuaded the wildcatter to sell all his leases for $1.34 million. Hunt paid Joiner $30,000 in cash with the rest to be paid out future production. Subsequent wells proved that Hunt had purchased rights to not only some of the richest ground in the new East Texas oil field, but to the largest single oil deposit in the continental United States (and, at that time, in the whole world), totaling 140,000 productive acres. This business deal made Hunt the largest independent in East Texas and became the financial cornerstone of Hunt Production Company, which would soon become Hunt Oil, based in nearby Tyler, Texas.
With the newly acquired valuable property, Hunt was able to secure a bank loan to expand and upgrade his equipment to make the land productive. Within a month after the Joiner deal, he founded Panola Pipeline Company and was already supplying crude petroleum from his new oil wells. By 1934, Hunt Production Company, which already had 229 wells and was still drilling on its 5000 acres, had produced 7.5 million barrels. In 1935, the company was grossing $3 million a year. At this time, Hunt’s lead over the smaller independents widened, as his company was large enough to reap the benefits of the Connolly Hot Oil Act of 1935, which regulated pumping output in order to conserve oil reservoirs and ground pressure. Hunt Production, like the major companies, had sufficient acreage leased so that it could pump oil from wells spread apart.
In 1936, Hunt split with Lake, who had held 20 percent from the Joiner deal, and incorporated his holdings under the new name of Hunt Oil Company. With assets at the time worth about $20 million, Hunt Oil was henceforth solely owned by H. L. Hunt and other members of his family. Hunt soon started a subsidiary, Penrod Drilling, composed of a fleet of eleven steam-powered land rigs to both provide his own drilling needs and to be contracted out to others. He also diversified into the refining business by buying 50 percent of the nearby Excelsior Refinery for $150,000 and renaming it the Parade Gasoline Company.
At the end of 1937, Hunt Oil moved its headquarters to downtown Dallas. The East Texas oil field no longer the company’s only center of activity, Hunt Oil managed operations in Louisiana and Arkansas in addition to other parts of Texas. During this time, the company also became involved in international marketing, making a barter deal with Germany of oil for steel drill pipe and exporting oil to Japan through a California trading company. Closer to home, H. L. Hunt purchased 7000 acres of farmland, launching Hunt Oil’s continual sideline of agricultural enterprises, which have included a cattle ranch.
During World War II, the increased demand for oil led to the opening of new offices for Hunt Oil, which produced a total of over 100 million barrels during the period from 1941 to 1945, averaging 60,000 barrels a day. Following the war, Hunt Oil was able to maintain high output through expanded operations. It opened a refinery in Tuscaloosa, Alabama, and started a chain of gasoline stations in Alabama and Louisiana under the name Parade. Hunt Oil explored for oil under the names Hunt Oil and its subsidiary Placid Oil Company, drilled for oil under the name Penrod, and transported oil under the name of the Panola Pipeline. The company also acted as an umbrella corporation that provided accounting and other services for the rest of the Hunt family enterprises, which encompassed scores of separate entities, companies, partnerships, and trusts in several states, and which were spread out among the members of H. L. Hunt’s families. “A maze of interlocking and interdependent relationships, the Hunt corporate structure was confusing even to employees hired to help operate it,” wrote Hunt biographer Harry Hurt.
Beginning in the 1950s, H. L. Hunt began to entrust more responsibility to top associates and to his sons from his first marriage. Ownership of Penrod Drilling, which possessed about 25 drilling rigs and was worth over $25 million by the 1960s, had been transferred to three of his sons in 1948. Placid Oil also came to be managed by the children of Hunt’s first marriage, and, in the early 1960s, had production double that of Hunt Oil. As H. L. Hunt became less involved with the oil business, he began devoting more energy to a food and drug subsidiary of Hunt Oil, HLH Products, which he started in 1960—partly as a means to integrate his vast farmland holdings. This food division continuously lost money, however, partly due to being overextended with too many product lines (up to 1340), but also because of problems with salesmanship, management, sponsorship ties to conservative political media, and even embezzlement.
In the early 1960s, Hunt Oil’s production began to level off. Although by the early 1960s production was estimated at 65,000 barrels a day—the same it had been in the late 1940s—the increase in the price of oil meant that revenues were still climbing. Wells 20 to 30 years old were declining in production, while additional production from new wells was barely offsetting the depletion of the old fields. Moreover, these new wells were being drilled by subsidiary companies and not Hunt Oil itself. For the first time since Hunt Oil’s inception in 1936, the company’s income was based solely on wells that had been found in past years. One reason for decreased drilling by Hunt Oil was its financial obligation to cover the losses of HLH Products, which by 1969 had totaled more than $30 million—averaging $4 million per year.
Consequently, in early 1971, H. L. Hunt auctioned off nearly all of the property of HLH Products for $9 million, leaving only the drug and cosmetics plant in Dallas which continued to do business under the name H. L. Hunt Sales. As a result of the sale, Hunt Oil could afford to resume drilling and made a recovery. Another revenue boost at the beginning of the 1970s was the company’s participation in the five-member consortium headed by Getty Oil, which in 1969 won a lease on Alaska’s North Slope. Hunt Oil invested $50 million for a one-fifth share, thus becoming partial owner of one of the last great oil fields in North America. Its original investment was returned many times over. These successes, however, were no longer under H. L. Hunt’s leadership. For some time already his sons Herbert and Bunker, as vice-presidents, and his nephew Tom Hunt, production manager, had become the real operators of Hunt Oil.
Upon H. L. Hunt’s death in November 1974, his share of Hunt Oil—80 percent—passed to his second wife, while its management went to their son Ray, leaving the children from his first marriage with 181/2 percent. Two of the latter, Herbert and Bunker, who were still vice-presidents of Hunt Oil, were already becoming increasingly involved in their own business operations, while Ray, who had been employed by Hunt Oil since graduating from college in 1965, had become the one most involved with the management of Hunt Oil. Herbert and Bunker decided to form their own independent oil company, Hunt Energy, from the subsidiaries of Hunt Oil they owned, leaving Ray to become president of Hunt Oil in February 1975. Two years later, Ray obtained the remaining shares of Hunt Oil owned by his half-brothers in exchange for a specified cluster of Hunt Oil properties, including oil leases, a pipeline in North Dakota, and Florida timberlands.
After his half-brothers split off from Hunt Oil, Ray Hunt modernized the company, hiring new managers and consolidating the diverse enterprises that remained with his branch of the family: oil and gas, timber and farm properties, H. L. Hunt Sales, and his own real estate companies of Hunt Investment and Woodbine Development Company. He introduced new methods of management and operating efficiency, instituted new medical benefits and pension plans for employees, and elevated salary scales.
Concentrating once again on the oil business, Ray Hunt hired new geologists and gave Hunt Oil a bigger exploration budget. The headquarter’s staff increased from 50 to 200 by the end of the 1970s, and within a few years of taking control, Hunt had increased the area of offshore drilling leases from 100,000 to 1 million acres. The value of domestic oil reserves under Hunt’s control increased from $100 million to $300 million in five years, also due in part to the sudden increase in oil prices caused by the Arab oil embargo of 1973. He also became involved in other facets of the energy business by making a deal with Dallas-based Energy Resources to provide drilling technology for uranium mining. Under Ray Hunt, Hunt Oil increased its annual revenue by 300 percent to $750 million by 1990.
The main contributor to this phenomenal regrowth of Hunt Oil from the late 1970s onward was its good luck with new overseas drilling ventures. Up to this point, all of Hunt Oil’s production, unlike that of its former subsidiary Placid Oil, had been only in the United States. Although previous attempts at foreign ventures had been made, it was not until 1976 that Hunt Oil got involved in foreign exploration. A representative of the Sabine Corporation, a small Dallas-based oil company, was seeking a buyer for its 15 percent stake in a British North Sea exploration led by Mesa Petroleum for a price of $50,000. The representative first tried to approach Bunker Hunt at Hunt Energy but, not finding him in, went instead to the neighboring office of Ray Hunt, who decided to buy the stake. The Beatrice Field in the North Sea turned out to contain a total of 150 million barrels, more than doubling the reserves belonging to Hunt Oil. With oil prices rising in the late 1970s the value of this holding grew to more than $500 million. “We were in the club now. It allowed us the vehicle to quickly establish ourselves in the international arena,” Ray Hunt told the New York Times Magazine.
By 1980, Hunt Oil’s leases overseas had reached 21.9 million acres, including interests in Australia, Portugal, and South Korea. The company was even trying to gain an offshore lease from China, although talks broke off without an agreement. Hunt Oil’s strategy with foreign exploration has been to look for oil in less-developed regions of the world, even if politically unstable, focusing on high-risk, high-return investments. Then, after a discovery is made, the company forms joint-venture partnerships to absorb the cost of drilling development wells. Hunt Oil has been one of the few companies to do well in out-of-the-way foreign sites, due to several factors. First, it is large enough to finance its own exploration operations without help from the larger oil corporations. Second, its private ownership structure allows it to pursue higher risk, longer-term investments which shareholders of a publicly traded company might not tolerate. In yet another advantage over major corporations, foreign governments in some cases may be reluctant to work with large corporations perceived to represent the “Western monopoly.”
Hunt Oil’s most profitable success of the 1980s was in Yemen, where it was responsible for the country’s first oil discovery. In 1981 Hunt Oil received a production-sharing contract from the government of North Yemen to drill for oil within a 5000 square-mile concession. According to the contract’s terms, the Yemeni government would initially keep half of the oil, its share increasing as production increased. With its first well, Hunt Oil in January 1984 discovered the Alif Field, an oil basin measuring more than four million acres in a vast desert containing estimated reserves of 400 million barrels of recoverable oil. “North Yemen will mean as much to Hunt in the 1980s and beyond as the purchase of Dad Joiner’s oil rights in East Texas meant to H. L. Hunt in the 1930s,” Jim Oberwetter, Hunt Oil government affairs director, told the Dallas Business Courier in 1986.
While Hunt Oil acted alone in the exploration and drilling of the Yemeni find, it signed on partners to help with the production. Sales of shares allowed Hunt to recover almost all of its investment costs by early 1988. In 1985, Exxon bought a 49 percent share in a venture to build a refinery and a pipeline, while a consortium of South Korean companies purchased another 24.5 percent share. The following year, Hunt Oil began construction on a $300-million, 263-mile pipeline from the Alif Field refinery to the port of Hodeida on the Red Sea, across three mountain ranges and through territory controlled by sometimes unruly tribes. The line, with a 200,000-barrel-per-day capacity, was completed in December 1987, whereupon Hunt Oil made the first oil shipments out of the country after an investment of more than $600 million. By the following year, Hunt Oil was delivering an estimated 150,000 barrels a day to tankers. By December 1990, Hunt produced more than 100 million barrels of oil from Yemen, and in 1991 had a staff of 220 that produced $100 million for the year. Although the refinery and pipeline operated by Hunt and financed by Exxon will eventually revert to the Yemeni government, Hunt Oil has drilled subsequent successful wells in Yemen beyond the Alif Field and offshore in the Red Sea.
Hunt Oil hoped to duplicate its success in North Yemen with two new oil and gas exploration programs in Jordan and Chile in 1988, signing production sharing agreements with authorities in each country. Although no oil was found in either country by 1992, Hunt Oil continued to drill in new places near the border of Bolivia and Peru into 1993. Elsewhere in South America, Hunt Oil obtained exploration rights to property in Guyana in 1991 after a Canadian competitor actually found oil but withdrew, believing the jungle site lacking commercial potential. In another distant country and after several years of negotiations, Hunt Oil received exploration rights with a production sharing agreement to more than 7 million acres in southern Laos.
In response to Hunt Oil’s rapidly expanding oil exploration activities, a reorganization of the company was announced in July 1986. The restructuring included the formation of a new holding company, Hunt Consolidated, under which all the firm’s profit centers, including Hunt Oil, became subsidiaries. A new president was named for Hunt Oil—the first non-member of the Hunt family—while Ray Hunt, owner of Hunt Consolidated, remained as chairman. In a press release, Ray Hunt stated that the growth of the company “necessitated a streamlining of our corporate holdings” in order “to operate efficiently.” In 1991, as part of a strategy to shed businesses not related to its core real estate and energy exploration and production units, Hunt Consolidated sold off its health and beauty products subsidiary, Hunt Products, Co., which had been purchased by the Hunts in 1962.
In the early 1990s, Hunt Oil increased emphasis on exploration in the United States as well as overseas. Previous drillers, believes the company, have overlooked major fields that modern technology can uncover, particularly in natural gas. The new Oryx Gulf of Mexico offshore platform, of which Hunt Oil owns one-third, started producing 26 million cubic feet of gas and 720 barrels of condénsate per day in January 1991. A year later, the company drilled a deep wildcat well to 25,000 feet in western Texas. Gas prices and the potential to drill deeper than before were the key to developing such gas fields.
Thus Hunt Oil continues to grow, both domestically, where it operates in 11 states, and overseas. In 1992, the company was ranked 35th out of the 469 U.S. companies (public, private, or subsidiaries) engaged in crude petroleum and gas production, and was the fourth-largest private petroleum company. Larger than most independents, yet distinct from the major corporations, Hunt Oil is almost in a class of its own.
Hunt Refining Company
Hurt, Harry III, Texas Rich: The Hunt Dynasty from the Early Oil Days through the Silver Crash, New York, W. W. Norton, 1981; Lampman, Dean, “Hunt Oil’s Bonanza in North Yemen,” Dallas Business Courier, July 21, 1986; Cook, James, “Yemen: Felix Redux?,” Forbes, February 22, 1988; Lampman, Dean, “Hunt Oil Hopes for Big Overseas Strikes,” Dallas Business Journal, May 30, 1988; Blanton, Kimberly, “Hunt Oil Selling Health, Beauty Unit,” Dallas Times Herald, May 23, 1991; Petzet, Alan G., “Delaware-Val Verde Gas Drilling Busy,” Oil & Gas Journal, January 13, 1992; Bancroft, Bill, “Hunting Elephants around the World,” New York Times Magazine, March 24, 1992.
—Heather Behn Hedden