SHIPS, OIL, AND INVESTMENT BANKING
Burmah Oil, a Scottish company had invested in oil fields since 1886. It was a safe and stable stock for risk-averse investors in 1972. It owned 25% of British Petroleum, which was created in the 1920s with the help of Winston Churchill.
Burmah had made a series of acquisitions and new ventures. One was Signal Oil and Gas in California. Burmah also acquired or built 42 ships, a fleet that transported Liquified Natural Gas (LNG). After the 1973 Embargo, the oil and gas market thrived. Burmah’s Very Large Crude Carriers (VLCCs) cost up to $150 million each, but were very profitable. They carried LNG around Africa to Europe. (The Suez Canal was closed by the Middle East conflict.) But in 1974, the global economy slowed, and the Suez Canal reopened. The VLCCs were too big to go through the canal and were not competitive. Short-term “spot charter” shipping rates fell 97%. Burmah had borrowed $650 million ($4.6 billion, 2024) from U.S. banks and faced bankruptcy.
On Christmas Eve 1974, Burmah requested a bailout from the Bank of England. BOE agreed to rescue Burmah, but in exchange wanted Burmah’s 25% stake in BP. To pay its debts, Burmah had to sell assets. And as usual in a crisis, buyers wanted only the best properties and at bargain prices.
It was then that the decisions of oil people far away impacted my life. I was in Business Planning at Reynolds, a group with accounting skills who worked with RJR and its operating subsidiaries. It also did acquisitions analyses. I was in the group by chance, lacking an accounting background. So, I got the Burmah project by default.
In May 1975, Burmah’s investment bankers approached Aminoil and asked if RJR would like to buy Burmah’s Signal Oil. Aminoil’s success in 1974 encouraged RJR to consider the purchase. My boss and I had lunch with the Burmah bankers and the Aminoil managers in New York. I didn’t know much about investment banking or Aminoil, and I knew nothing about the oil and gas industry. I wrongly thought this deal would not go further than a few initial meetings.
Until year end 1975 I spent most of my time in New York, Dallas, or Houston where consultants worked with Aminoil to value the Burmah oil field properties. This was hard for my wife, who had to care for two young children by herself. She was supportive and never complained. RJR made a purchase offer that Burmah rejected. The deal seemed to have died by year end.
I was drawn to the oil industry, and Aminoil allowed a New York employee and me to swap jobs for half a year. I moved to Manhattan and started working at Rockefeller Center in January 1976. If I did well at Aminoil, I might move to Houston. A small team there was forming oil exploration partnerships with other oil firms, customary practice in the “oil patch.”
But soon after I got to New York, Burmah asked us to look at the deal again. We now realized that Burmah had no other potential buyers. It had to be a cash deal. And the only ones who had that much cash to spend on oil were either big oil companies or Reynolds. Oil companies would not touch the deal; they feared that anti-trust law would stop such a merger. We understood that we had the upper hand in the negotiations. Our only worry was making a bid for the whole company so low that Burmah would reject it and sell their assets piecemeal. Then, buyers would “cherry-pick,” leaving Burmah with low-quality properties that they could not sell.
RJR closed the deal June 30, 1976 for $522 million dollars, a new record for a cash purchase of a company. That same day, my six-month assignment ended. The CEO of Aminoil said he was sorry, but there was no place for me in Houston now – they already had too many people there. So, I took a train south, dejected that my dream of being a Texas Oil Man was never going to come true.
In Part IV – What happened to me and to Burmah (now Aminoil USA) in Houston.
Heady days
Interesting story!