The Louisiana Land and Exploration Company
The Louisiana Land and Exploration Company
Incorporated: 1926 as Border Research Corporation
Sales: $825.3 million
Stock Exchanges: New York Toronto London Basel Geneva Zurich
SICs: 1311 Crude Petroleum & Natural Gas; 2911 Petroleum Refining
The Louisiana Land and Exploration Company (LL&E) is one of the largest independent oil and gas exploration companies in the United States. Headquartered in New Orleans, it operates a crude oil refinery near Mobile, Alabama, and conducts exploration and production operations in the United States and selected foreign countries. Of the company’s 225 million barrels of oil equivalent reserves, nearly 60 percent are garnered from domestic sources. Foreign reserves are located in the U.K. and Dutch sectors of the North Sea, Canada, and Columbia.
LL&E traces its roots to the 19th century, when midwestern businessman Edward Wisner moved to Louisiana for his health. Wisner was struck by swampy southern Louisiana’s resemblance to the low-lying Netherlands, where industrious farmers had reclaimed millions of acres for farming. Envisioning farming on a grand scale, Wisner bought hundreds of thousands of acres, built levees, and drained the land.
Wisner’s plans, however, were thwarted by southern Louisiana’s severe weather. A 1915 hurricane destroyed many of the levees that Wisner had constructed. The venture’s finances faltered and in time there were foreclosures. Much of the land was eventually taken over by a group of midwesterners led by Henry Timken, who owned an Ohio ball bearing company. Timken hoped to lease the land to fur trappers.
In 1925 speculator Edward Simms approached Timken with an idea for a company that would explore for oil in the almost 600,000 coastal acres Timken then controlled. Timken agreed and in 1926 exchanged his acres for shares in the Border Research Corporation.
It soon became apparent that the land owned by Louisiana Land and Exploration, as the company was renamed in 1927, was rich in petroleum resources. In 1928 LL&E signed a contract with Texas Co. (now Texaco) in which that company agreed to lease all of LL&E’s acreage around ten productive salt domes. (A salt dome is a raised central area of salt or rock, around which beds of sedimentary rock dip in all directions. Oil and gas often become trapped in the pockets that form around these structures.) In the contract, which was very generous for its time, Texaco agreed to pay LL&E a 25-percent royalty on production and 8!/3 percent of its net profits on a dome-by-dome basis. The contract would remain in effect for as long as Texaco continued to drill on the acreage. “It was a very unusual contract for 1928,” LL&E president Ford Graham told Dun’s Review in 1965. “The normal royalty was one-eighth (12½ percent). And profit sharing on top of the royalty was unheard of.”
In 1930 Texaco also agreed to pay LL&E’s $1.8 million funded indebtedness. In exchange for this, Texaco would retain one-half of the royalties and profits payable to LL&E up to the amount of $800,000. In 1935, after Texaco had been fully reimbursed, LL&E paid its first dividends.
On November 7, 1938, LL&E and Texaco amended their contract. Texaco released the fee lands belonging to the company not located on or near the domes or structures which were then being operated by Texaco. This released acreage amounted to approximately 557,000 acres.
Through the 1930s and 1940s, LL&E collected royalties on oil and minerals extracted from the land it owned and controlled. In addition to Texaco, which was still its major leaseholder, LL&E secured royalty agreements with Phillips Petroleum Co., Stano-lind Oil & Gas Co., Alder Oil Co., and Plymouth Oil Co., among others. In February 1943, President E. B. Tracy signed a contract with Duval Texas Sulfur Co. that gave that company sulfur exploration, development, and production rights on LL&E’s land and leased interests in Louisiana’s Terebonne Parish.
During these years, LL&E did virtually no operating of its oil projects. The company had few employees and operators shouldered the major expenses of exploration and development. As a result, LL&E enjoyed low expenses and high profits. In 1943, for instance, LL&E employed only 24 people, yet earned $1.8 million on sales of $3.4 million.
In the 1950s, CEO Robert M. Youngs began to guide LL&E into other exploration, both on its own lands and on land it leased in other U.S. areas of production. As on previous occasions, LL&E’s involvement was a financial one. It held working interests but did not actively manage projects.
As LL&E operations grew, both sales and revenues increased. In 1955 it reported $13.4 million in profits on sales of $22.4 million. In 1960 Youngs signed a second contract with Texaco that subjected 275,625 additional acres to six years of exploration and development. Under the agreement, LL&E retained a 25 percent working interest and a 20 percent royalty in Texaco’s share of production. “We pay 25 percent of the cost,” Ford Graham enthusiastically told Dun’s Review “and get 40 percent of the income. Texaco pays 75 percent and gets 60 percent. And they paid us a $4 million bonus on the lease!”
The early 1960s proved very successful for LL&E. In 1964 the company reported profits of $32.1 million on sales of $64.1 million. In addition to the Texaco royalties, which were still significant (of 25 Lake Barre Field wells Texaco completed in 1964, 21 produced oil, two produced gas and only two were dry), LL&E had signed royalty agreements with Union Oil of California, Signal Oil, Amarada Hess, and Humble Oil and Refining. Moreover, because of varied corporate exploration philosophies and changes in drilling and seismic forecasting techniques, LL&E was constantly leasing and re-leasing the same acreage to different operators.
Outside of Louisiana, Youngs acquired mineral rights and royalty interests on 152,870 acres in Texas, New Mexico, North Dakota, South Dakota, Montana, Colorado, Florida, and Mississippi. By 1964, non-royalty, working-interest or joint-venture income had increased to 45 percent of LL&E’s total sales.
As the company expanded into working interests, it hired geologists, geophysicists, and engineers. It continued, however, with its policy of contracting other firms to perform seismic surveys and other exploration and development tasks. In 1965 LL&E had only 145 employees. Graham worked hard to keep expenses down. “Our organization,” he told Dun’s “is the non-rigid, non-army type. For example, we don’t hesitate to use consultants. When we have a project we’ll go to Houston, rent a computer and run it through. And when we’re finished we don’t own the computer or have the people on our permanent payroll.”
But while Graham focused on controlling costs, he, like other CEOs of that era, also sought profits in new businesses. In 1966 he acquired Jacintoport Corporation, an industrial real estate firm with Gulf Coast holdings such as the Houston Ship Channel. Forbes later criticized the Jacintoport purchase, maintaining that LL&E had gotten into industrial real estate, “just at the time when the play was going out of it along the Gulf Coast.”
Continuing to diversify, in 1968 Graham obtained the rights to participate in the resort development of approximately 50,000 acres on the western half of Molokai Island, Hawaii—an island previously best known for its leper colony.
LL&E continued to do quite well in the late 1960s and early 1970s, reporting income of $51.9 million on 1970 sales of $114 million. In the early 1970s, however, its Louisiana reserves began their natural decline. To make up for this, LL&E participated in additional working interest wells and in 1970 discovered a major reserve estimated at 720 million barrels of oil in the Jay Field in Santa Rosa, Florida. In 1971 revenues from working interests exceeded those from royalty interests for the first time.
The company continued to look for new sources of oil and in October 1972 newly named CEO John G. Phillips announced a $75 million offering to finance a new subsidiary, Louisiana Land Offshore Exploration Co. (Lloxy), that would explore for oil and gas in the Gulf of Mexico. Forbes criticized the offer, charging that the company had waited too long to get into explorations and would be left with expensive deeper water wells. This criticism was borne out in December of that year when Lloxy paid $60 million for Gulf leases covering land under 300 feet of water.
As LL&E expanded its exploration efforts (by 1974 it was exploring in southern Louisiana, the Rocky Mountain area, a geological stratum from northern Louisiana to Florida, and off the coasts of Louisiana and Texas) it began to act as operator in an increasing number of its working interest efforts. In 1975 the company opened a small refinery in Mobile, Alabama, to process 30,000 barrels a day of Jay Field crude.
Phillips, meanwhile, continued to diversify. In 1974 Jacinport reported $2 million in real estate sales. In 1975 the Kalua Koi Corporation, LL&E’s 50-percent-owned Hawaiian operation, began construction on the first phase of a 298-unit hotel condominium complex. In addition, in December 1976 LL&E acquired the Warrior River Coal Company, owners of a small surface mine in Tuscaloosa, Alabama. The following June a wholly owned subsidiary of LL&E, the Sun Fire Coal Company, began to develop an underground mine near Hazard, Kentucky.
Seeking new profit sources and seeing links between fossil fuels and mineral extraction, Phillips laid out $51 million for the Copper Range Company in May 1977. The Copper Range Company owned a copper mine in White Pines, Michigan; refined and fabricated copper bars, strips, plates, and sheets; owned 185 thousand acres of mixed hardwood timber; enjoyed extensive mineral rights in upper Michigan; and owned a one-half interest in a Nevada gold mine.
The Copper Range acquisition did not please the financial community. Forbes called Copper Range “a company so bad that some analysts wondered whether it was acquired to make Louisiana Land unattractive as a takeover candidate.” As if to bear out this description, LL&E’s mining operation lost $7.8 million in 1977 and $6.6 million in 1978.
Phillips, however, remained committed to Copper Range. Construction began on a new catalytic reformer that would provide more highly valued refined products. Due to higher prices for refined copper, the mining operation even turned a profit of $9.7 million in 1979.
These diversification adventures were possible in part because of high profits in the oil industry. Between 1978 and 1980 LL&E’s sales jumped from $549.4 million to $1.075 billion while earnings increased from $94.8 million to $180.2 million, despite $64 million in 1980 windfall profits taxes.
But while business was very good in the late 1970s there were doubts about LL&E’s future. With no more than 4.4 years of proven reserves on hand in 1980, Phillips needed to find new reserves at a reasonable cost if he was to insure the company’s continued profitability. To do this, he committed major amounts of capital to new exploration initiatives. In 1980 he formed CLAM Petroleum, a 50 percent owned unconsolidated affiliate through which LL&E would invest $250 million in the U.K. North Sea’s South Brae Field. In 1981 he budgeted a still-record $653 million for exploration and development. This figure included $181 million for-215 wells; $64 million for leases in Wyoming, the Gulf of Mexico, Australia, Indonesia, Columbia, and the North Sea; and $286 million for construction at Brae Field, platforms in the Gulf of Mexico, and a tertiary recovery project at Jay Field.
In the early 1980s, industry economics changed LL&E’s fortunes. Deteriorating economic conditions, windfall profits taxes, high dry hole costs, narrower profit margins, and declining demand all pressured earnings. In 1981 earnings fell to $145.2 million despite revenues of almost $1,277.5 million. To make matters worse, copper revenues declined and precious metals margins shrank.
In 1982 matters continued to deteriorate as a recession caused a downturn in prices for liquids, lower demand and prices for copper, a halving of refinery margins, and reduced demand for natural gas. Responding to these problems, Phillips curtailed and then suspended copper mining, reduced staff, eliminated high-risk exploration ventures, cut back on capital expenditures, and in November reduced the cash dividend. At year’s end, he was able to salvage earnings of $76.3 million despite mining operations that sustained a pretax loss of $38 million.
The company’s troubles climaxed the following year as investor Délo Caspary mounted a proxy fight to remove Phillips and the rest of management. Supported by the Hunt family, which boasted a 12.3 percent block of LL&E stock, Caspary attacked LL&E’s record since the mid-1970s, pointing to declining earnings, reduced dividends, falling reserves, and the copper acquisition.
Caspary’s charges had some legitimacy. Business Week called Louisiana Land’s record “dismal” and noted that despite spending $1.4 billion over the previous four years Phillips had failed to increase oil and gas reserves. The magazine went on to comment that LL&E’s finding and developing costs were among the industry’s highest and noted that the company had closed its Michigan copper mine after completing work on a $78 million dollar copper smelter. Management trumped Caspary, however, when it pledged to spin off to stockholders a tax-sheltered royalty trust holding oil and gas properties that generated $30 million a year.
After winning the proxy fight in 1983, Phillips sold LL&E’s coal properties and bought back 71 million shares for $212.8 million. That year the company also saw initial returns from both the tertiary recovery project at Jay Field and the “A” platform of the Brae Field in the North Sea. By year’s end, Phillips could boast of $94 million in profits on sales of $1.25 billion.
In 1984 Phillips was replaced by E. L. Williamson, who worked to sustain profit margins and increase reserves. In 1986 Williamson rid LL&E of the Copper Range Company—taking a $91 million charge in the process. The same year he paid $486 million for Inexco Oil Co., an oil company with reserves that included 9.9 million barrels of liquids and 392.7 million cubic feet of domestic natural gas reserves. These moves strengthened LL&E’s overall position, but plunging oil prices and the Copper Range charge took their toll. LL&E reported 1986 losses of $20.6 million.
In 1987 the company began to acquire newly opened low cost leases in the shallow waters of the Gulf of Mexico. Given narrow margins, however, LL&E’s major interest was in purchasing additional interests in proven properties.
In 1988 crude prices fell by more than $3 a barrel and newly named CEO and chairman H. Leyton Steward was forced to take an $81.8 million restructuring charge and a $33.3 million loss. Steward announced that LL&E would sell nonstrategic oil and gas properties and use the proceeds to repay long-term debt and repurchase up to 10 percent of outstanding stock.
Earnings recovered in 1989 as oil prices rose while replacement costs remained low. Steward used excess cash flow—including $198 million from asset sales—to repurchase nearly 2.6 million shares and reduce LL&E’s total debt by one-third. That year also marked Steward’s conclusion of a property exchange that substantially increased LL&E’s interest in the Madden Field in Wyoming.
As the largest owner of environmentally sensitive wetlands in the continental United States, LL&E had long been careful to protect its investment. It insisted that drillers bury pipe so as to not disrupt grasses or aquatic life, and it constructed pumps and water control structures to prevent erosion or saltwater intrusion. In 1989 the Department of Interior recognized this effort and awarded LL&E its Conservation Award for Respecting the Environment.
LL&E enjoyed a good exploration year in 1990. It replaced 203 percent of expended reserves, adding 55 million equivalent barrels of oil and natural gas, 46 percent of which came from the East Brae Field. Costs were low at $3.23 per barrel and by year’s end, LL&E’s reserve life index stood at 8.4 years, nearly double that of 1980.
LL&E’s company earnings, $54.9 million in 1990, fell to $20.9 million in 1991 as falling oil and natural gas prices combined to make the year a difficult one. Nevertheless, the company budgeted $200 million for capital and exploration and continued to drill in the Gulf of Mexico, Madden Field in Wyoming, the gas-rich Anadarko Basin of Western Oklahoma, the North Sea, southeastern Alberta, and Columbia, where it was garnering positive results from a drilling program begun in 1978. It also sought to expand riskier but potentially more lucrative foreign exploration. To this end, in 1991 LL&E acquired two interests in Australia and applied for a concession in Papua New Guinea.
Founded as the Border Research company in 1926 and renamed Louisiana Land and Exploration a year later, LL&E, for its first twenty years, essentially collected royalties from fossil fuels extracted from nearly 600,000 acres it controlled in southern Louisiana. During the 1950s, CEO Robert M. Youngs began investing in working interest wells. During the 1960s, CEO Fred Graham began a process of diversification that would eventually include a Hawaiian resort, a coastal industrial real estate operation, and coal, gold, and copper mines. During the early 1980s, lackluster exploration results and fluctuating prices destabilized the company’s finances and forced it to sell its non-oil and gas efforts and concentrate on finding new low-cost reserves.
CL&E Corp.; Inexco Oil Co.; Wilson Bros. Drilling Co.; Molokai California Ltd.; LLOXY Holdings, Inc.; White Pine Leasing, Inc.; LL&E Properties, Inc.; Westport Utilities Systems Co., Inc.; LL&E (Netherlands) Inc.; CLAM Petroleum Co.; MaraLou Netherlands Partnership (50%).
Weiner, Jack B., “Look at Louisiana Land!” Dun’s Review, October 1965; “The 1983 Battle of New Orleans,” Business Week, May 16, 1983; Reier, Sharon, “Unlikely Champion,” Financial World, January 23, 1990.