Above: Stripper wells, courtesy of http://www.energyindustryphotos.com/texas_oil_well_photos.htm
East 86th Street figures prominently in The Bernard Olcott Story. First, my Dad lived on the corner of Fifth Avenue with his second wife and baby, James. Several years later, he moved further east to Second where he lived with his third wife and baby, Victoria. (The aforementioned son lived with this growing and eclectic family during summers).
Had you kept going further east, you would arrive at the residence of one Robert Edwards, otherwise known as “Bobby.” Whereas other residents of Yorkville typically wore suits during the workday, Bobby always looked like he was going to a rodeo.
As introduced in last week’s story, “MR. SWAGGER’S PUMP AND DUMP,” Bobby was probably the most colorful character ever to have enjoyed the select distinction of “Business Partner of Bernard Olcott.”
By the early 1980s, Dad already had experience in investing in oil and gas exploration. It was one of the best tax shelters in that the entire investment could be written off as an “intangible drilling” deduction. Then, later on, after you would have drilled for oil, found some (there are no guarantees), extracted it via a pump jack into a tank, and finally have Enron come buy it from you, you could claim it as income at reduced capital gains rate.
Potential problems? Of course there is always the possibility of a fly in the ointment.
Dad’s first investment in oil was with one Gary Michaels¹ in the late 1970s. It started in the normal way by Dad plopping down the expected initial investment of several hundreds of thousands of dollars as an “intangible drilling” expense. All fine and well. The problem was that the promised income on this particular back end proved to be equally “intangible.” Meaning, there wasn’t any. Back ends can be nasty.
Eventually, years later, litigation yielded a satisfactory recovery.
However, Dad’s lust for new investments (other than plowing retained earnings back into Olcott International, of course), no matter how dubious, continued unabated.
By the early 1980s, Dad and Bobby had somehow managed to find each other. Bobby admired Dad as the investor. Dad, for his part, appreciated Bobby’s ability to control expenses in the oil patch. If Dad had a life mission statement, it was to minimize the cost paid for anything. Preferably to below zero. Also, Dad liked a good laugh and Bobby was full of them.
“Ready to go to Kansas with me James, and feed the chiggers?” Bobby would chide me periodically at the world headquarters of Olcott International in Weehawken, New Jersey. “Hello?!” he would add rhetorically. I knew what chiggers were from my adolescence in Florida. Also called “red bugs” or “harvest mites,” these minute insects cause itchy welts on the legs of those who traverse infested areas.
About twice a month, Bobby would throw a couple of pairs of jeans into a bag and fly off to Kansas City on a Monday morning to coax goo out of pipes for the rest of the workweek. Once on the ground, it was a two-hour drive into the rolling hills of southeast Kansas. The oil leases were located near and around the booming metropolis of Coffeyville. There, the road network settles into ten mile square grids of two lane highways dissecting farms. Every once in a while, a pump jack can be seen here and there, kicking up and down slowly to suck the black gook out of the ground.
This was not an area for high production oil wells, like the land to the south across the border in Oklahoma. There, a single well could make one very rich. After all, Phillips Petroleum was based in a New York City style skyscraper in the incongruous small town of Bartlesville, 35 miles to the southwest.
Phillips corporate HQ in Bartlesville. What a big oil operation looks like.
In Kansas, the oil business is limited to small production “stripper” wells that had mostly been abandoned over the years. As the price of oil climbed in the 1980s, however, small operators like Bobby started buying up leases. Most of the wells were on lands belonging to local farmers or the Osage Indian tribe. Therefore, even if you were lucky enough to squeeze oil out of a revived well, you were obliged to pay a cut to the land owner. Oil prices were heading up! To cash in, Bobby scored a handful of leases from the Indians and families with names like Wakefield.
Once the leases were in hand, the only thing left to do was to pump oil into tanks!
Bobby was hard to pin down on either an overview or details of Blake & Blair, the name of the partnership. Where are the leases, Bobby? “Well, we got two producing wells in Wakefield #3. However the motor blew out on the pump jack and I ordered a replacement last Thursday. I got one of my guys coming out tomorrow to replace it. His wife just had a baby so he might come the day after tomorrow.”
“Hello?! James, it was 30 below zero out there yesterday. The motor freezes at 10 below so it may not work anyway when installed. At least the chiggers are fucking frozen!” He coughed and laughed at the same time.
Wakefield #3? Where the hell-o exactly was that? Probably far from Yorkville…
“Did Bobby ever give you a banking reference?” I asked Dad one day. Dad scratched his head and came back to me with a slip of paper after several hours. It was for a bank in a small town in Quebec, Canada.
This will be interesting, I said to myself as I called the bank. It was January so after some small talk with the banker about frozen lakes and ducks, I asked him about Bobby’s account. “Monsieur Edwards garde un très beau compte,” (Mr. Edwards has a beautiful account) was about as detailed as the banker was willing to admit. I imagined hearing ducks quacking in the background.
It wasn’t much of an affirmation. That and the lack of any other auditable documentation was a bit too much, even for my Dad (who tended to eschew organization anyway as an unnecessary expense). Maybe, all of a sudden, he had a bad memory from his previous oil investment. After considering the matter, he asked me to go down to Kansas the following week with Bobby and sketch out a map of the leases, and the wells in each lot.
At this period of time, I was being sent to London about 3 times a year to service the Wellcome Foundation account and a few others like BAT and ICI. That was to be a very different kind of trip.
Next week — Kansas!!!
¹ – Not his real name.