Coastal Corporation
Coastal Corporation was an American diversified energy and petroleum products company headquartered at 9 Greenway Plaza in Greenway Plaza, Houston, Texas. The company was founded in 1955 by Oscar Wyatt and incorporated in 1955 as Coastal States Gas Producing Company. It merged with the El Paso Corporation in 2001. As of 1999, Coastal was a Fortune 500 company with 13,300 employees and annual revenues of $8.2 billion.
Products
Coastal produced and marketed petroleum, natural gas, electricity, and coal. It also sold gasoline at Coastal-branded gas stations. By 1999, Coastal Refining and Marketing operated 962 gas stations in 33 states and was supplied by four refineries, including a 150,000 bbl per day refinery in Corpus Christi, Texas, a 180,000 bbl per day refinery in Eagle Point, New Jersey, a 250,000 barrel per day refinery on Aruba, and a 25,000 bbl per day refinery geared for asphalt production in Chickasaw, Alabama. Coastal Corporation also owned and operated a fleet of oil tankers, tugs, and barges. Sales in 1991 totaled $9.549 billion. Coastal Corporation supplied marine diesel in the Caribbean, natural gas in Colorado, and heating oil in the Northeast.Coastal was a natural gas producer and distributor along with competitors Enron, Williams Companies, and El Paso Energy with which Coastal later merged. Coastal produced, gathered, processed, transported, stored and marketed natural gas throughout the United States and by the 1990s, Coastal's 20,000-mile pipeline network transported five billion cubic feet of natural gas daily. These pipelines include the Iroquois and Great Lakes pipeline, completed in 1991, and the Empire State Pipeline, completed in 1992.
Founder Oscar Wyatt
Founder Oscar Wyatt was born into poverty in Beaumont, Texas. He was abandoned by an alcoholic father and was raised by a single mother in Navasota, Texas. Wyatt served in World War II and was decorated and wounded twice as a bomber pilot. Earning a degree in mechanical engineering from Texas A & M University, he gained experience in the oil business selling drill bits from the trunk of his Ford Coupe. He later worked for Kerr-McGee and Reed Roller Bits before becoming a partner in Wymore Oil Company. Wyatt founded Coastal States Gas Producing Company in 1955.Like Wyatt, Coastal began business in modest circumstances, with of pipeline and 78 employees. Wyatt was both beloved and hated, litigious and charitable. As a personal friend of Iraq's Saddam Hussein and business partner to Libya's Muammar Gaddafi, Wyatt urged President George H. W. Bush not to go to war with Iraq over Kuwait and later negotiated with Saddam to secure the release of western hostages being held in Baghdad. A 2007 Texas Monthly magazine article called Wyatt the real "JR Ewing" of the oil business, and described Oscar and his wife Lynn Sakowitz together as "the beauty and the beast".
While El Paso Energy was selling Coastal's petroleum marketing and production assets off piece-by-piece to competitors Valero Energy, Sunoco, and ConocoPhillips, Oscar Wyatt was being investigated for illegally doing business with Iraq's Saddam Hussein in violation of United Sanctions that strictly regulated Iraqi sales of crude oil. In 2007, Oscar Wyatt pleaded guilty in a U.S. federal court to illegally sending payments to Iraq under the Oil-for-Food Programme. At his sentencing hearing, Wyatt's attorney Gerald Shargel pointed to a commission report, led by former Federal Reserve Board chairman Paul Volcker, that concluded that about half of the 4,500 companies in the Oil-for-Food Program paid a total of $1.8 billion in kickbacks and illicit surcharges to Saddam’s regime. Wyatt's defense also floated the issue of "vindictive prosecution"—that is, the Bush administration singling out its old nemesis in both the oil patch and politics, Oscar Wyatt, for punishment but leaving other possible violators of the sanctions alone. Prosecutors, in turn, amassed a daunting paper trail and rewarded a few former Iraqi petrocrats with help in obtaining U.S. green cards—as long as they agreed to testify against sanction breakers like Wyatt.
Coastal corporate history
Early years
Coastal was founded in 1955. The original company name was Coastal States Gas Producing Company.1970s: Rapid expansion
In the early 1970s events in the Middle East overshadowed the rise of Coastal. The Arab-dominated Organization of Petroleum Exporting Countries, by presenting a united front, began to win price increases. In 1971, OPEC cut production and raised prices by 70 percent, and by 1974 prices had quadrupled, leading to the 1970s energy crisis. LoVaca, Coastal's pipeline subsidiary, had signed fixed-price contracts to supply cities in south Texas with natural gas. With energy prices soaring and supplies dwindling, LoVaca could not meet its contractual obligations. At one point it cut off gas supplies to the cities of San Antonio and Austin during the winter. Wyatt then obtained regulatory permission to increase prices beyond the limits specified in the contracts.LoVaca was the target of lawsuits by outraged customers. Its difficulties caused problems for Coastal for years. Coastal finally settled $1.6 billion in lawsuits by agreeing to spin-off LoVaca. The spin-off, Valero Energy Corporation, formed on December 31, 1979, from LoVaca and other Coastal assets, had annual revenues of about $1 billion. The customers suing Coastal received 55 percent of Valero's stock, with the remaining split among Coastal shareholders, not including Wyatt. At the plaintiffs' insistence, he was excluded from the agreement.
Despite the impact of the energy crisis, Coastal maintained its profitability and continued to expand throughout the 1970s. The expansion was not confined to Texas. In 1973, Coastal acquired Colorado Interstate Gas Company, formerly the Derby Oil Company of Wichita, Kansas, along with its three refineries in a $182 million hostile bid. With the acquisition, Coastal became a 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 it 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 plant in Hercules, California, which increased its 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.
1980s: Name change and legal issues
In 1980 Wyatt changed the company's name to Coastal Corporation. In the same year revenues exceeded $5 billion. 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. Each company was required to refund $9 million to the U.S. Department of the Treasury, and each incurred $1 million in civil penalties. Economic recession and an oversupply of oil and natural gas, as well as conservation by consumers, led to Coastal's first loss, which amounted to $96.4 million for the year 1981. Wyatt trimmed the workforce and cut the budget, and within six months he had restored the company to profitability.In the mid-1980s the U.S. government sought to foster competition in the natural gas industry through deregulation. The new government policy, together with falling prices, created difficulties for many energy companies. Coastal not only survived deregulation it 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 the stock price of a target company soaring. In 1983, for example, Coastal's attempt to secure Texas Gas Resources failed, yet Coastal's initial investment in the company generated a total of $26.4 million in profits. Intervening companies that came to the rescue of Texas Gas Resources 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 through greenmail. In 1985 Wyatt set about acquiring American Natural Resources, a natural gas pipeline in the Midwest. Despite ANR's initial determination to stay free of Coastal's clutches, Wyatt pushed through an all-cash deal of $2.45 billion, which ANR shareholders could not refuse. The acquisition transformed Coastal into a major power in the U.S. gas business.
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 foreign subsidiaries of U.S. companies were 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 for joint ownership of Coastal's Pacific Refining Company. Coastal and Sinochem each held a 50 percent interest in the West Coast refiner. The agreement provided certain advantages for both sides. Sinochem obtained an opportunity to invest in the United States as well as a long-term outlet for crude oil, and 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 China.
A key to the company's successful strategy was the continued high productivity of all Coastal employees, from unskilled workers to those in management. Coal workers employed by Coastal produced twice the industry average, and the expectations for Coastal's management staff were high. Indeed, the constant pressure for results led to a high management turnover, with Coastal's refinery business alone having five different managers between 1980 and 1989.