Monday, March 19, 2007

Why They Don't Call it "The Walton Museum"

In a previous post, I talk about the Getty Center and the Getty Villa (link). You can't quarrel with this kind of success: the Getty is a great institution. Still, it is worthwhile to keep in mind that these things don't happen by themselves. Here is the background, from Daniel Yergin's indispensable history of the oil business, The Prize:

At the end of the war only rekindled his consuming ambition to make much, much more money. He first devoted his efforts to what he was convinced would be the sure route to fabulous wealth as Americans took to the roads and highways in the postwar years: the manufacture of mobile homes. But he gave that up for something he knew more about—oil. Getty was certain he wanted the Saudi concession for the Neutral Zone even before he had it surveyed. “If one is to be anybody in the world oil business,” he declared, “one must have a footing in the Middle East.” This was his chance.

The head of exploration in the Rocky Mountain division of Getty’s Pacific Western oil company was a young geologist named Paul Walton, A Ph.D. from the Massachusetts Institute of Technology. Walton had worked in Saudi Arabia for Standard of California in the late 1930s and he knew his way around there. Walton would be Getty’s point man in making a deal with the Saudis. Getty summoned him to the Pierre Hotel for a few days of discussion and briefings. Getty, Walton remembered ever afterward, had a “half-mad” expression on his face—a sort of angry, disagreeable scowl that he had developed, Walton figured, to keep people at a distance from him and his money. Walton found Getty overbearing, though a man of considerable intelligence. But their discussions about the Saudi concession went smoothly, and Getty set the boundaries for the deal—at what price to start bidding for the concession and how high Walton could go. He also gave Walton a firm order: When Walton got to Saudi Arabia, he was not to discuss anything with anybody.

Walton left for Jidda and soon found himself face to face with Abdullah Suleiman, the [Saudi] finance minister… . Suleiman arranged for Walton to go up in a DC-3 and fly low over the Neutral Zone desert. Walton could barely believe what he saw from the plane: a small mound rising up from the flat expanse. He was elated. It looked almost exactly like the mound in Kuwait’s Burgan field, then the largest known oil field in the world.

Though very excited when he came back to Jidda, Walton, remembering Getty’s injunction about security, was also very cautious. There were no locks on the rooms in the in his hotel in Jidda, so he left no pieces of paper around. He did not dare send a message to Getty by wireless, since he was sure it would be intercepted. Instead, he dispatched a handwritten letter by airmail. Judging by that little mound, he told Getty, the odds of a major oil play were fifty-fifty. He would have set the odds higher, but he had been in Saudi Arabia after the original discovery in 1938 and had remembered two seemingly perfect structures that had been drilled, each of which was “as dry as hell.” Still, fifty-fifty was a lot more promising than the exploration odds in the Rocky Mountains, which were one in ten or even one in twenty.

Walton opened negotiations with Suleiman, which were mostly conducted on the porch of Suleiman’s house in Jidda. Clearly, the deal was going to be expensive. Once again, Saudi Arabia needed money, badly, and as in 1933, Suleiman wanted a large bonus payment up front. As instructed by Getty, Walton opened at $8.5 million. The deal they finally struck was $9.5 million up front, a guaranteed million dollars a year even if no oil was found, and a royalty of fifty-five cents a barrel—far higher than what was being paid anywhere else.

By the last day of 1948, Suleiman had given assurance to Walton that Getty had won the concession. However, Suleiman also took the precaution of telling [two competitors], if either would top the Getty offer, the concession would be theirs. But the price tag was too high and the risk too great; neither took it. Of course, Walton, for his part, had played a pretty good game of poker. Suleiman had stopped at $9.5 million. He never found out that, at the Pierre Hotel, Getty had authorized Walton to go up to $10.5 million. Still, Getty’s company, Pacific Western, was paying an unprecendentedly high price to wildcat in an unknown desert….

[At first, the deal did not look promising.] Exploration took longer, and proved to be more difficult and, thus, much more costly than anticipated. As time passed, anxiety among the American oil men was rising rapidly, and with good reason. By the beginning of 1953, half a decade had elapsed since the concessions had been granted, both groups were looking at expenditures in excess of $30 million, and there was nothing to show for their efforts except five dry holes.

Still, Getty’s patience and confidence were wearing thin. Not only was the string of dry holes exasperating, but so was the outflow of expenses, including his million-dollar-a-year payment to Saudi Arabia. Getty made it clear that he was disgusted with the whole approach. The Amnioil team [Getty’s development partner] resolutely ignored the little mound that Walton had seen from the airplane. Getty insisted that the sixth hole be drilled at that site. Furthermore, sunk costs were sunk costs; if the sixth hole was dry, he was going to pull out. Such extreme action proved unnecessary. In March 1953 the Amnioil team struck oil where Walton had thought, all along, that oil would be found. To call it a major discovery would prove an understatement. Fortune was to describe it as “somewhere between colossal and history-making.”

Getty used [the profits from the strike] to build up vast integrated oil operations in the United States, Western Europe, and Japan. He reorganized all his holdings, putting Getty Oil at the top and making himself the sole commander of a great oil empire. By the end of the 1950s, Getty was the seventh-largest marketeer of gasoline in the United States. Fortune magazine announced in 1957 that he was America’s richest man and its sole billionaire. He was stoic in the face of that news. “My bankers kept telling me,” he said, “that it was so, but I was hoping I wouldn’t be found out.” He added a sensible admonition. “If you can count your money, you don’t have a billion dollars.” He achieved further fame as the Billionaire Miser. He spent his final years as squire of Sutton Place, an exquisite, 72-room Tudor manor house in Surrey, and there, amid the splendors of his priceless collection of art and antiques, he installed a pay phone for guests to use.

Paul Walton, the geologist, had come down with amebic dysentery while negotiating in Saudi Arabia in 1948. It took him three years to recover. Getty gave him a $1200 bonus, and Walton returned to Salt Lake City to work as an independent geologist.

Daniel Yergin, The Prize, 441-5 (1993)

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