Business

The man Gulf poured on its troubled waters

Peter Brimelow April 4 1977
Business

The man Gulf poured on its troubled waters

Peter Brimelow April 4 1977

The man Gulf poured on its troubled waters

Business

Peter Brimelow

Dark clouds and driving rain outside Jerry McAfee’s corner windows on the thirtyfirst floor emphasize the dramatic industrial landscape of downtown Pittsburgh. But the 60-year-old chairman of Gulf Oil Corporation switches on his large blue eyes and cheerful grin like an electric light as he greets me with southern grace and the news that he’s having a good day. Good days were in short supply for the 55,000 inhabitants of Gulfs $13.4-billion corporate empire when McAfee was recalled last January from Toronto, where he had headed Gulf Oil Canada Limited since 1969. The former chairman, Bob Dorsey, had been ritually sacrificed, along with two of his chief officers, after a long series of revelations about Gulfs $12 million of dubious political contributions over some 13 years, which had originally been stumbled across by the Watergate investigators. Simultaneously, Gulf had been attacking its normal business problems in a particularly strenuous way. The company has spent the year coming out of shock, with McAfee engaged in such comforting activities as regularly answering employees’ questions over an internal TV hookup. But its future is not yet clear.

Gulf is the fifth largest of the “seven sisters,” the great oil companies that allegedly control the world market. Things seem more precarious from Gulfs hushed, carpeted corridors, not just because of the neurotic security imposed after the building was bombed in 1974. Just recently, the company was really vulnerable. It had been slow in acquiring oil reserves and had become overdependent on the rapacious Kuwaitis for crude; its earnings were weakening and it was carrying so much debt that analysts speculate its AAA rating was threatened. (Companies are “rated” on their financial health by independent agencies, whose assessment effectively dictates how easily more money can be borrowed.) Since then, Gulf has launched a frantic drive to find energy sources in North America, has strengthened its financial position considerably, and tried hard to reassure investors. Only last month McAfee was warning that first-quarter earnings would be down, partly due to poor prices for Gulfs burgeoning chemical output.

Gulfs reaction was perhaps to the credit of Bob Dorsey, McAfee’s predecessor, who took control in 1972. An abrupt and unpopular man, Dorsey imposed a reorganization of Gulf into functional rather than the traditional geographical divisions, planted a number of outsiders

among the Texas oilmen at the top of the company, including at least one academic and a journalist, and even imported another academic and a nun on to the board, in line with the fashionable enthusiasm for public-interest directors. Another fashion pursued was diversification, although Gulfs attempts not only failed but, particularly in the case of an attempt to buy Ringling Bros, circus, were public relations disasters. Ironically, Dorsey’s progressive-

ness did not save him from being dragged by fashion to the guillotine, with his own public-interest directors nodding happily over their knitting, when the company was forced to reveal a long history of questionable political contributions at home and abroad in a report by two Gulf directors, including Brigadier Beverley Matthews, a Canadian and senior partner with McCarthy & McCarthy. The payments outside the United States, including the four million dollars in Korea that was all Dorsey admitted knowing about, are part of business cultures that no amount of North American outrage can alter. Some of the payments in the United States may have been the kind of campaign contributions perfectly legal in Canada, particularly since the recent tightening of U.S. law had caused much confusion. One theory is that they began as bribes to protect the depletion allowance long before Dorsey’s time, and were rapidly converted by avaricious U.S. politicians into a shakedown, (from which Gulf derived little visible benefit). The truth will never be known.

because while Dorsey has been disgraced and forced to disgorge personally to help recompense shareholders the recipient politicians of all stripes have united to let themselves off the hook by reducing the statute of limitations on illegal contributions from five to three years, thus proving once more that the “post-Watergate morality,” like the streaking fad, may be just another American craze.

McAfee came to the rescue with a fine record at Gulf Canada and astonishingly unanimous praise from observers. He likes Canada, has kept his farm at Palgrave, Ontario, and has made favorable public noises about the investment climate here following the resolution of the federalprovincial fire fight over revenue shares. But in conversation, he is quietly bitter about the Foreign Investment Review Agency’s refusal, after endless haggling, to let Gulf Canada (31.7% Canadian owned) buy Mosbacher Oil & Gas Ltd. ( 100% U.S. owned). He says it’s “almost criminal” that the federal government still has no definitive northern land regulations, seven years after the last set were unilaterally withdrawn. There’s been “no return—not a single cotton-picking dollar”—on the major companies’ exploration efforts, which he candidly admits are difficult to justify to shareholders (“It’s an act of faith”). McAfee doesn’t regard Canada as a potential exporter of oil and gas. Like the United States, it will be hard pressed to meet its own needs, and if the Arctic Gas pipeline is rejected, leaving Canada’s only really new reserves stranded in the Mackenzie Delta, McAfee says ominously that he will be “very, very discouraged.”

Sometimes, McAfee’s world seems almost as gloomy as the view from his windows. Gulf, he estimates, needs a 14% return on equity to raise the additional financing it needs. It isn’t coming close. For example, the return on the Syncrude plant in the Athabasca tar sands will probably be a mere 6% to 7%. Meanwhile, he believes politicians are more interested in breaking up the oil companies than in doing something about the impending physical shortage of energy in North America—this winter’s U.S. gas shortages were merely a foretaste, he claims, which had been masked for a couple of years by the interruptible contract system.

A Hilton Hassel hangs in McAfee’s office, full of brooding Arctic mountains and ice floes. An oil well would be appropriate in the foreground, I suggest. “Not yet,” murmurs McAfee ruefully. The matter has gone beyond a joke.