Triton Energy Corporation
Triton Energy Corporation
Triton Energy Corporation is one of the largest U.S. independent oil and natural gas exploration and production companies. It is distinguished from its U.S. peers by its emphasis on overseas operations. Triton’s roller coaster ride to success was punctuated by infighting, brushes with bankruptcy, allegations of fraud, and high-risk ventures.
Triton was founded in Dallas by L. R. Wiley in 1962, just as the oil industry was entering a decade of defeat. Although many “wildcat” oil and gas exploration firms in the southwest of the United States had reaped huge profits from the booming energy industry during the 1950s and early 1960s, most of the 1960s and early 1970s were fraught with obstacles to success. As mismanaged federal energy policies and flat oil prices stumped producers, the number of oil and gas exploration industry participants plummeted from 30,000 in 1960 to a beleaguered group of 13,000 by the early 1970s.
Despite industry woes, Triton managed to survive, and even profit, during the 1960s and early 1970s by finding and exploiting large reserves. Like many other companies of that era, Triton augmented its U.S. activities with overseas exploration and drilling, resulting in several important oil and gas discoveries. In 1971, for example, a well drilled in the Gulf of Thailand encountered natural gas zones that promised as much as 29 million cubic feet of natural gas per day—a major find. Typical of many overseas energy ventures, however, political roadblocks kept Triton from capitalizing on the find until the 1990s.
Just as it had done in the 1960s, when it built its company amidst the ruins of many of its competitors, Triton displayed its maverick bent again in the mid-1970s. During the early 1970s, the Organization of Petroleum Exporting Countries (OPEC) began limiting its oil production in a bid to boost profits. As oil prices vaulted to $30 per barrel, many U.S. exploration and production companies began to focus on developing domestic reserves in lieu of more risky overseas ventures. Triton bucked this trend by continuing to engage in high-risk, though potentially lucrative, foreign endeavors.
During the 1970s and 1980s Triton stuck its neck out in almost every corner of the globe. Scavenging for untapped reserves of oil and natural gas, Triton opened subsidiaries and invested in ventures in Australia, Indonesia, Thailand, Malaysia, Europe, Argentina, New Zealand, Canada, and other places. As the company bypassed less perilous domestic opportunities that it viewed as offering relatively low returns, it became known as a savvy industry maverick with a knack for scouting out and exploiting international profit opportunities.
Although the company suffered several defeats, its few big winners provided enough income to allow it to continue searching for new reserves and to gain favor on Wall Street. Indeed, by the early 1990s the company boasted at least eight major discoveries totaling more than 2.5 billion barrels of oil and ten trillion cubic feet of gas. The find in the Gulf of Thailand, for example, offered potentially large returns if Triton could overcome the political stalemate between Thailand and Malaysia concerning the reserves. Similar successes that brought more immediate returns were achieved in the United Kingdom, Canada, and Australia.
One of Triton’s most prolific triumphs during the 1970s and 1980s was its foray into France. In 1980, Triton became the first independent U.S. oil company to obtain an onshore exploration permit in that country. It teamed up with France’s Total Exploration S.A. in a venture that yielded important discoveries in the Paris Basin of north central France. Those French oil reserves, 50 percent of which were owned by Triton, swelled to more than 15 million barrels in 1985, representing a significant portion of Triton’s total reserves going into the mid-1980s. “This accomplishment, which started from just an idea, is the result of good planning, geology, geophysics, engineering, politics, and also a little good luck,” exclaimed Mike Mclnerny, vice president of corporate planning, in a July 1985 issue of the Dallas Business Journal.
Triton’s success in France reflected its ability to detect and cultivate opportunities that had been overlooked by its competitors. Indeed, both large and small U.S. oil firms had ignored the Paris Basin because of deceptive geological characteristics, which made it appear that the region was not worth drilling. In contrast, Triton, suspecting that the neglected area could hide large reserves, was willing to risk failure. After actually discovering a healthy supply of oil, moreover, Triton benefited from extremely low production costs, which were less than 20 percent of those in the United States. “They are the only company that is doing what they’re doing in their particular way,” noticed oil analyst Lincoln Werden in the Journal article.
By the mid-1980s, Triton was producing oil or owned reserves in France, Australia, New Zealand, Colombia, Thailand, Great Britain, West Africa, the United States, Canada, and the North Sea. Furthermore, it was planning to drill new wells in Nepal, Gabon, and several new regions in the countries in which it was already active. Largely as a result of its breakthrough discovery in France, Triton’s assets had ballooned to about $200 million by 1985. Likewise, revenues jumped 100 percent during fiscal 1985 (ending in June) to roughly $50 million. Profits jumped similarly. Furthermore, Triton management expected sales in 1986 to surge to nearly $90 million. In addition, the company planned to drill an additional 200 wells worldwide during that year.
Although its future seemed bright as it entered the latter half of the 1980s, Triton began to experience financial setbacks. The entire oil industry, in fact, began to spiral into a down cycle in 1986 as the oil market became glutted and oil and gas prices plunged. Triton’s sales continued to grow, but slimming profit margins were diminishing the concern’s ability to fund expansion or to even remain profitable. Although the company realized an increase in revenues to $68 million in 1987, it posted a crushing loss of $7.8 million. In 1988, moreover, Triton realized a similar loss after boosting sales more than 100 percent.
To alleviate the negative influence of oil and gas prices on its bottom line, Triton stepped up its efforts to diversify into related businesses. For example, it accrued a major ownership share of Input/Output, Inc., a Houston-based manufacturer of seismic equipment, and bolstered investments in its domestic pipeline system. In 1988, Triton purchased two airport service operations, one in Texas and one in Oklahoma, in a bid to establish itself as a leading supplier of aviation fuels and services. The company, through its Triton Aviation subsidiary, planned to sell its crude oil to refineries in exchange for aviation fuel, thereby eliminating the cost of operating its own refinery. The two 1988 acquisitions, along with smaller purchases, quickly propelled Triton to the status of major player in the aviation services industry. “They’ll have to prove themselves,” cautioned Greg Wheeler, vice president of competing Avfuel, in a May 1988 issue of Dallas Business Journal.
Triton’s efforts at diversification only seemed to exacerbate its problems. As profits continued to lag into the late 1980s and early 1990s, management struggled to find a way out of the ever-deepening hole into which it had fallen; unable to profit from its devalued oil and gas reserves or its sinking subsidiaries, the company was having trouble stabilizing its earnings and generating sufficient cash for an aggressive exploration and development program. Furthermore, Triton stammered under the pressure of an entirely unrelated set of problems that followed the company through the late 1980s and early 1990s like a lost puppy.
Triton was forced to battle an array of allegations in the early 1990s that it had falsified accounting records during the 1980s. A Triton official confirmed the problem when he acknowledged that the company had made payoffs to officials in Indonesia that had led to “creative” accounting methods. Company employees admitted to routinely overstating expenses, altering bookkeeping entries, and bribing auditors. Triton’s accounting firm resigned amidst controversy.
The blow-up over Triton’s Indonesian affairs followed on the heels of a more costly problem. Jimmy Janacek, who worked at Triton from 1981 to 1989 and served as controller, filed suit against Triton for wrongful termination. Janacek claimed that Triton had fired him for refusing to violate state and federal securities laws in fulfilling the company’s reporting requirements. The jury agreed with Janacek and elected to award him $124 million—a potentially deathly blow for his former employer. Stunned Triton officials, who had turned down a $5 million settlement just days before the award, paid $9.4 million while Triton’s insurers paid an unspecified reduced settlement.
As Triton floundered into the 1990s, it experienced increasing pressure from shareholders to start producing some results. One major investor, in a move that smacked of a takeover threat, actually sent a letter to Triton executives in 1990 encouraging them to liquidate their major assets. Although Triton had already begun to restructure, it stepped up its reorganization efforts in an attempt to appease investors and improve its performance. It cut 25 employees from its Dallas headquarters, announced plans to dump the majority of its non-oil subsidiaries, and decided to shuck major portions of its underperforming overseas oil and gas operations.
Battered by slumping oil prices, a U.S. recession, legal battles, the effects of inconsistent management practices, and failed attempts at diversification, Triton slouched wearily into 1991. Management believed that the company was undervalued on the stock market and that its long-term outlook was generally positive, especially given the fact that oil and gas prices would likely recover in the near future. Nevertheless, detractors shunned the organization as a sloppy, overweight, unfocused corporation whose high-risk strategy had finally caved in.
Critics’ suspicions were supported by Triton’s inability to move some of its holdings—when it tried to sell its European subsidiary for $200 million, the highest bid came in at $100 million and Triton chose not to sell. Furthermore, Triton losses had increased to $12.5 million in 1989 and to a whopping $54 million in 1990. Triton’s bleak condition was reflected in articles about the company’s woes. A Barron’s article, for example, referred to Triton as “a wisp of an oil-exploration firm” that was “burdened by self-dealing and impropriety.”
After a five-year period of torment and suffering, Triton blasted its critics and turned its entire organization around with a single, momentous breakthrough. In July of 1991, elated Triton executives confirmed rumors that the company was on the verge of a major oil strike in central Columbia. In the most meteoric rise of a U.S. energy stock since the 1970s, the price of a Triton share rocketed from a 52-week low of $4 to nearly $50 by the end of August. Analysts estimated that the new discovery could yield three billion barrels or more of oil, making it the most important find in the Americas since Prudhoe Bay in the Arctic Circle.
Triton had been actively searching for oil in Columbia since the summer of 1981. Convinced that there was oil to be found, Executive Vice President John Tatum initiated years of fruitless efforts and hefty capital investments. Finally, in 1987, Triton and its partner, British Petroleum (BPX), found an area that they believed might produce oil. In an extremely risky venture, Triton and BPX began drilling in one of the most geographically and socially challenging regions of the world. To reach the jungle-covered oil, they had to drill holes two miles deep at a cost of $27 million per hole; each hole required six to ten months to drill.
Worse yet, the region in which they were drilling was brimming with danger. Three separate groups of Marxist guerrillas, organized criminals seeking to protect their interests in nearby emerald mines, and other violent elements combined to produce a murder rate averaging 80 per day—ten times the U.S. per-capita average. Bullet proof vests could not protect the drillers from the equally distressing threat of kidnapping, a relatively common practice in Columbia.
Triton’s assumption of risk reaped major rewards in the early 1990s. Although the company’s losses continued to mount, its stock price soared as enthusiastic investors sought a piece of the action. Triton’s losses were attributable primarily to its investments in the Columbian drilling operation, which would not begin to produce positive cash flow until at least 1995. Triton’s losses swelled to $94 million in 1992 and to about $90 million in 1993.
Triton’s revenues also plummeted. Indeed, when the magic bullet that Triton managers had hoped for finally arrived, they began a rapid reorganization plan that emphasized development of the Columbian drilling operations. After all, in just one year the percentage of Triton’s proved reserves (the amount of oil still underground to which it had rights) represented by its Columbian division rocketed from zero to 68, making the importance of its holdings in all other regions of the globe comparatively negligible. To carry the company into a new era of profitability, Triton moved William Lee, who had served as president since 1966, to the position of chairman of the board. Lee was succeeded as president by Thomas G. Finck, an engineer and industry veteran.
As a result of its new focus, Triton decided to shed all of its non-oil subsidiaries, liquidate its U.S. and Canadian oil and gas reserves, and “reassess” its development prospects in France. Its reduction of working operations contributed to a decline in sales from $209 million in 1991 to $125 million in 1992 and $110 million in 1993. At the same time, however, the company’s total proved reserves increased from 83 million net equivalent barrels (a measure that incorporates both oil and natural gas reserves) to 130 million, boding well for Triton’s future.
As though the sun was finally breaking through the clouds that had darkened Triton’s balance sheet during the late 1980s and early 1990s, recovering gas and oil prices accelerated in 1994 and were expected to rise through at least 1995. Estimates that the Columbian operations would be producing 150,000 barrels per day by the end of 1995 and 900,000 barrels per day by the end of the decade suggested potentially enormous profits for Triton. Furthermore, Triton’s ongoing exploration in other regions, such as Argentina, could yield more surprise additions to the company’s reserves.
In keeping with its long-time strategy of engaging in high-risk, long-term international exploration and development ventures, Triton entered the mid-1990s determined to sustain its search for new reserves. “As our future lies in creating value through exploration, management must look beyond the current development projects to the future,” stated Finck in the company’s 1993 annual report. “Large-scale, high-potential international exploration projects take many years to develop. Triton must identify and pursue attractive opportunities.”
Crusader Limited (Australia) (49.9%); Triton Argentina, Inc. (Argentina); Triton Colombia, Inc. (Columbia); Triton Indonesia (Indonesia); Triton Oil and Gas Corp.; Triton Oil Company of Thailand (Thailand).
Fine, Jennifer, “Triton Energy Hits It Rich with Finds Near City of Lights,” Dallas Business Journal, July 29, 1985, Sec. 1, p. 1.
Lampman, Dean, “Triton Aviation Fuels Expansion Effort with Acquisitions,” Dallas Business Journal, May 30, 1988, Sec. 1, p. 5.
Majors, Stephana, “Triton: Columbian Well Big; Country May Take 50 Percent,” Dallas Business Journal, July 12, 1991, Sec. 1, p. 6; “Investors Gambling on Triton Oil Strike,” Dallas Business Journal, July 5, 1991, Sec. 1, p. 17.
Manning, Stuart, “Triton Canadian Unit to Sell Natural Gas to Massachusetts Utility,” Dallas Business Journal, November 14, 1988, Sec. 1, p. 6.
Preston, Darrell, “Triton Attacks Lawyer over Huge Jury Award,” Dallas Business Journal, July 24, 1992, Sec. 1, p. 1; “Justice Department Launches Probe of Triton Energy,” Dallas Business Journal, March 26, 1993, Sec. 1, p. 3.
Steffy, Loren, “Big Investor Urges Triton to Divest Bulk of Its Operations,” Dallas Business Journal, August 31, 1990, Sec. 1, p. 3;
“Axed Whistle Blower Sues Triton,” Dallas Business Journal, July 9, 1990, Sec. 1, p. 1; “Colombia Gusher, Fires Triton Stock,” Dallas Times Herald, August 24, 1991, p. B1.
Totty, Michael, “Triton Nudged to Drop Production Companies,” Dallas Times Herald, August 28, 1990, p. B2.
Zipser, Andy, “Trials of Triton,” Barron’s, July 26, 1993, pp. 14–15.