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"There ought to be limits
QUOTE OF THE MONTH: "If you don't think
it's a gamble to put a man in the White House who believes we should have guns in church,
who thinks the Taliban is a rock band, who was such a failure as a businessman that his
company was nicknamed "El-Busto," who wants to turn our Social Security system
into a Wall Street boiler room, who can't name a single thing he disagrees with Jerry
Falwell and Pat Robertson on, who smeared a bona fide hero named John McCain, and whose
principle policy proposal is to give America's surplus to the idle rich in the form of a
$1.3 trillion tax cut, you're either nuts or a Republican."
George W. Bush made his fortune in the Texas oil busines leveraging other people's money - and leaving his investors high and dry
|A few miles south of Midland, Texas, travelers can
"explore the world of oil" at the Petroleum Museum. There one finds the world's
largest collection of oil-field equipment -- antique drilling derricks, blowout
preventers, pump jacks, and heater treaters, all sitting in a field of mesquite looking
like they're waiting for a crew of roughnecks to show up for work. Inside is a huge
Texas-tacky geological chart of the substrata of the Permian Basin, using multicolored
shag carpet to depict the various formations. There's a gift shop, a cheesy re-creation of
a 1920s oil-field boomtown, and a slide show that tells the story of oil as an energy
The center of the museum is the Petroleum Hall of Fame, a large gallery dedicated to the heroes of Permian Basin oil exploration. Hanging from the dark, paneled walls are portraits of the men -- and one woman -- who opened up the oil fields of West Texas: Fort Worth wildcatter Sid Richardson; William and Tex Moncrief; Raiford Burton, who discovered the largest oil field in nearby Ector County; Will and Hugh Liedtke, the Pennzoil barons who co-founded Zapata Oil with their partner George Bush. That's the George Bush who was elected president in 1988. The founder of Zapata Oil would have made the cut even if he'd never been elected president. He made his first million dollars in Midland, founded a company, and discovered a lot of oil. "That generation discovered the oil that paid for the development of the North Slope, which is now financing exploration in Indonesia," said a Midland oilman, complaining that all the big deals were done 50 years ago. The portraits are suspended on hardwood tracks and can be advanced as new members are inducted into the Hall of Fame.
But there's no need to make room for George W. Bush, the president's eldest son. He is not destined to be included in the gallery of heroes.
By now the stories of George W. Bush, struggling West Texas oilman, are part of Texas entrepreneurial folklore. Some of his friends, who fondly refer to him as "Dubya," tell the story of the poor boy who started with just a tiny trust fund, and reporters too often repeat it without slowing down to ask questions. After a few years adrift in Houston, young George impulsively drives west to Midland, where he lived as a child. All he has is his 1970 Olds Cutlass, $15,000 remaining from his educational trust fund, and a resolve to make it on his own -- by bootstrapping his way up from land man to CEO of a drilling company. Barely slowed down by the loss of a race for Congress, he ties up some mineral rights, lines up some investors, and starts drilling. It is 1978, and George W. Bush is in the by-God West Texas "awl bidness."
A bidness, according to one independent oilman, that is easy to understand: "It's the real-estate business, with a revenue stream."
There's one thing to keep in mind as you read the many stories about George W. in the oil patch. He got the first half of that equation. Dubya bought up mineral rights and discovered oil. He just never found a revenue stream -- unless you count investors' dollars flowing from New England and New York into the alkaline West Texas soil.
The governor's oil-field career can be summed up in a
single paragraph: George W. arrived in Midland in 1975, set up a shell company, lost a
congressional election in 1978, restarted building the company he'd put on hold, lost more
than $2 million of other people's money, and left Midland with $840,000 in his pocket. Not
bad for a guy who showed up with an
In fairness to the governor, who was one of the more
ordinary failures ever bailed out of the oil business, it was easy to fail in Midland in
the mid-'80s. In fact, when oil fell to $9 a barrel over the winter of 1985-86, Midland
itself failed. The Tall City, which is visible for 30 miles in any direction because of
the office towers that oil built, hunkered down, took its
In 1978 Dubya turned his attention to Arbusto Energy (that's "ar-BOOST-o," the Spanish word for "bush," according to George W., although Cassell's Spanish dictionary gives "shrub" as the only translation). Arbusto found its start-up money in Greenwich, Connecticut, and other Northeastern cities where Uncle Jonathan Bush could open the doors to executive suites. It was investors from Greenwich -- and one fat-cat doing business in Panama -- who took the hit when Bush's West Texas oil business went south. Russell Reynolds Jr. -- the sort of investor your average West Texas land man bootstrapping his way up through the oil patch would find a hard sell -- was a cold call for Jonathan Bush.
"Jon Bush called me one day and told me about his
nephew George, who was in the oil business," Reynolds told the right-wing magazine
American Spectator. "He asked me if I would be interested in investing. So George W.
came to see me. And I thought he was an absolute star. A very attractive guy. Being a
great friend of the Bushes, I put in a small
George W. raised a total of $4.7 million in "small amounts," but he has not been too eager to tell the story. What the public knows about Bush's oil-field days has been turned up the hard way:
Reporters from the Dallas Morning News, Time, and the Texas Observer have pored over Securities and Exchange Commission documents to piece together the story of Arbusto Energy, Bush Exploration, Spectrum 7, and finally Harken Energy, the company that provided Dubya his less-than-graceful departure from the oil business.
The money flowed like fresh oil. Prudential-Bache
Securities CEO George L. Ball invested $100,000. Celanese Corporation CEO John D. Macomber
and venture-capital investor William H. Draper III put together $172,550. (Both later got
political appointments to the Export-Import Bank during the Reagan and Bush
administrations.) Lewis Lehrman, a multimillionaire from New York (who was 10 years ahead
of the checkbook politics of Ross Perot and Steve Forbes -- he spent $7 million of his own
money to lose the governor's race in New York in 1982), provided $47,500. FitzGerald
Bemiss, a childhood friend of President Bush and godfather to Dubya's brother Marvin,
invested $80,000. W. "could go to New York and talk people into giving him
money," a Midland oilman said. "That made him a success."
The A-Team couldn't keep Dubya afloat when the price of
oil started to fall. Arbusto had drilled almost 100 wells, and half of them hit oil --
about average for Permian Basin exploration in the '80s. But all the big, easy discoveries
had been made decades earlier, when President Bush made his first million in Midland. The
younger Bush -- who on occasion
By 1982, with little more than tax deductions keeping the A-Team in the oil field, Arbusto was badly undercapitalized -- almost Ar-busted. Then a white knight appeared, offering to buy 10 percent of the company for $1 million. This was not a steal for Philip Uzielli, considering that the company's book value was $382,376, according to financial statements.
"A company balance sheet can be misleading,"
Bush would later say. "There was leaseholds, there was momentum." There was?
Even if you don't have a Harvard M.B.A., you can run the numbers and place your bets that
Uzielli, the CEO of a Panamanian company called Executive Resources, had not earned his
millions on investments like the one he made in Midland. For a million dollars, Uzielli
purchased 10 percent of a company worth $382,376 --
Uzielli isn't talking anymore (in fact, since Dubya locked up most of the Republican money over the summer of 1999, no one is talking for the record), but it would be nice to know what he was buying. At the time Uzielli bailed out W., George Herbert Walker Bush was vice president, and a sure bet to run for president.
How did Bush and Uzielli get together? The governor says he never met Uzielli until the CEO stepped forward with $1 million to bail out Arbusto. Uzielli said he met George W. three years earlier. Bush press secretary Karen Hughes said she does not know when the two men met. What is known is that this old Princeton friend of James Baker dropped a million dollars on a losing venture owned by the son of the vice president of the United States. "What Uzi was betting on was, he's betting on me. He's betting on the oil business, he's betting on the ability for the industry to expand," Bush told the Dallas Morning News in 1994, when his business dealings were questioned by then-Governor Ann Richards.
"Uzi" -- speaking to the Morning News from his father's home in Florence, Italy -- called his Arbusto venture a "losing wicket." But, he added, management was not responsible for the company's poor performance. He had invested in a wildcatting deal and lost money, but it was "no fault of George," he said, adding that "the good Lord just didn't put any oil there." (In West Texas, there are geologists paid to find where the good Lord put the oil.)
Arbusto's next move was clearly George W.'s fault. In one of the few major business decisions he made, he changed his company's name to Bush Exploration in 1982 (at a time when his father was vice president) and offered shares to the public in order to expand and raise $6 million needed to keep the company working. He only raised $1.1 million. "I really realized that I had made somewhat of a strategic error," he said, in somewhat of an understatement. Investors outside the circle of family friends paid more attention to the bottom line than to the name on the company letterhead.
Bush admits his investors lost money -- but has maintained that a Petroleum Information Corporation report ranking Arbusto 993rd in Texas, with 16 wells producing 47,888 barrels, "sounds low." His prospectus and SEC filings offer a clearer picture: Limited partners contributed $4.67 million to various Bush funds through 1982 but got only $1.55 million back in profit distributions. They did get $3.9 million in tax write-offs. The oil bidness was not good to George W. Bush's investors.
By 1983 Bush (this time, Bush Exploration) was in trouble again. Oil-patch investment sources dried up as the price of oil, which a few years earlier had been climbing like the 1999 Dow Jones Index, no longer seemed a sure bet.
Dubya was yet again bailed out by big money. This time it was Mercer Reynolds III and William O. DeWitt Jr. -- two big-league guys who would later become major contributors to his father. Like Dubya, DeWitt had a B.A. from Yale and an M.B.A. from Harvard. His father had owned the Cincinnati Reds, and he co-owned an oil company called Spectrum 7 in need of someone to direct its Texas operation.
Instead of hiring a headhunter or placing an ad in the Wall Street Journal, he buys a failing company so he can hire its CEO, and George W. Bush becomes the third-largest shareholder in Spectrum 7.
After a good start, Spectrum 7 also began to sink, and neither its recently hired CEO in Midland nor the guys in Cincinnati could keep it afloat. Again, as predictably as the hero would pull the damsel off the railroad tracks in The Perils of Pauline, another investor showed up to save Dubya's ass. In 1986, Harken Energy Corporation, which Time magazine called "one of the most mysterious and eccentric outfits ever to drill for oil," stepped in to buy Spectrum 7 and George W. Bush -- whose father was at the time vice president of the United States. Harken, run by a New York lawyer and Republican Party funder by the name of Alan Quasha, had been all over the map, buying oil wells, oil companies, and gas stations while selling large blocks of stock to investors such as George Soros and Harvard's Endowment Fund. Bush was a good acquisition.
Bush and his partners got $2 million in stock in exchange for Spectrum 7, which had lost $400,000 in the six months prior to the sale. "The banks hadn't foreclosed," Harken director E. Stuart Watson told Time in 1991, "but that was in the wind." Bush himself received stock worth somewhere around $500,000 and an annual consulting fee as high as $120,000. Bush is fondly remembered in Midland for getting on the phone and finding work for all of his company's management and executive employees when he finally cashed in. Again this class distinction: Those who get a golden parachute instead of a pink slip are not culpable. They didn't invent the system.
"We didn't have a fair price for oil, we just had George," Watson said later. "And George was very useful to Harken. He could have been more so if he had had funds, but as far as contacts were concerned, he was terrific . It seemed like George, he knew everybody in the U.S. who was worth knowing."
If George didn't know them, they knew him. In 1990, Harken didn't strike oil, but it did strike a big deal: an exclusive 35-year exploration contract with the Persian Gulf emirate of Bahrain. The deal made no sense to anyone in the oil business. Harken was a small Texas company with no international or offshore drilling experience and, until the billionaire Bass family of Fort Worth was brought into the deal, resources nowhere near sufficient to undertake a major exploration-and-drilling program off the coast of Bahrain. "It was a surprise," a senior analyst for Petroconsultants told Time. "Harken is not traditionally a company that explores internationally."
Seven months after the Bahrain deal, the Bush
administration began deploying troops to the Middle East in preparation for the Gulf War.
When reporters asked W. Bush if his financial interest in the region might have
influenced his father's foreign policy, he found the idea inconceivable. "No, I
don't feel American troops in Saudi Arabia are preserving George Jr.'s drilling
prospects," Dubya told reporters. "I think that's a little
far-fetched." In all likelihood, he was right. But he got testy whenever reporters
got close to what might have been driving the deal. Asked whether his involvement with
Harken lent it "added credibility" in the Arab world, Bush told the Wall Street
Journal: "Ask the Bahrainis."
Othman was on the board, representing Sheik Abdullah Bakhsh of Saudi Arabia, a 17.6 percent Harken shareholder. On the eve of an American war over oil in the Middle East, Othman was invited to the White House with a small group of Arab Americans who were able to make their opinions known to the president of the United States.
In the end, it was a stock sale that created public relations problems for Dubya, which makes sense, because his oil-patch career had more to do with selling investments than drilling for oil. In June 1990 he sold two-thirds of the Harken stock he had acquired in the Spectrum 7 deal at $4 per share, for a total of $848,560 -- $318,430 more than it was worth when he got it. Two months later, Iraq invaded Kuwait and Harken's stock dropped to $3 a share. It later fell to $2.37.
Bush has repeatedly pointed to the Bahraini deal, saying that he sold "on good news." But as they say in Odessa -- Midland's sister city -- not hardly. In May, a month before he sold his stock, Bush, director E. Stuart Watson, and other members of a "fairness" committee appointed by the Harken board met to determine how restructuring would affect ordinary shareholders. One "informed source" told U.S. News & World Report that Harken's creditors had threatened to foreclose if debt payments were not made, although Harken's treasurer denied it. Smith Barney, the financial consultants Harken hired, warned Bush and Watson that only drastic action could save the company. Bush took drastic action. He unloaded his Harken stock before news of the company's precarious health was made public -- at a time, U.S. News wrote, when there was "substantial evidence to suggest that Bush knew Harken was in dire straits."
The reason that Bush wasn't bothered by phone calls from business reporters inquiring about his stock sale was simple: Insiders liquidating large blocks of stock are required to notify the Securities and Exchange Commission immediately. But Bush reported the sale eight months after the federal deadline. The Wall Street Journal ran a small item about Bush's late filing and said that while the SEC files civil suits against flagrant violators of insider-reporting rules, first-time violators usually get only a warning letter.
Bush didn't rob a bank or sack a savings and loan, but his unreported stock sale doesn't pass the smell test, when you consider that the SEC regulation he violated is intended to stop board members from bailing out and leaving less-informed stockholders holding an empty bag -- which is exactly what Bush did. Three years later, during his 1994 race against Ann Richards, he claimed he had filed the required report and that the SEC must have misplaced it. SEC spokesman John Heine said that no one at the agency ever found any lost document.
Since Bush made it to the White House, he and his wife Laura should have Ken Starr over for dinner. If Starr hadn't so abused the power of his office, Congress might have reauthorized the independent counsel statute, leaving the door open for a court-appointed prosecutor to investigate a president's son who flipped his oil companies faster than a Texas S&L can daisy-chain a Dallas condo; unloaded stock as a corporate board insider shortly before its price plummeted; and walked away from the whole mess with more money than Bill Clinton ever dreamed of making on a little real-estate deal now known as Whitewater.
Bush's Harken story ended in 1990. In 2000 none of it matters in Fort Worth, Dallas, or Houston. Texas loves a favorite son. We overlooked the many shortcomings of the late John Connally and cheered when patrician Tory Democrat Lloyd Bentsen reminded Danny Quayle that he was "no Jack Kennedy." We even came close to getting behind the presidential campaign of Phil Gramm, the political equivalent of kissing a toad. Now everybody loves George W. They love him even more in Midland. Just don't look for his portrait hanging in the Petroleum Hall of Fame anytime soon.
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