Who Put The 'Z' in Pennzoil?
By 1955, Zapata was involved in two distinct oil businesses, offshore drilling and land drilling. Business seemed to be running smoothly. Soon, however, the Liedtke brothers began to grow impatient with the control Uncle Walker sought to establish over Zapata. To restore harmony, a series of stock swaps orchestrated by Bush resulted in divided control over Zapata Offshore and Zapata Petroleum. Bush and Uncle Walker won control over the offshore business and the Liedtkes gained control of the original Zapata Petroleum. By 1963, Hugh Liedtke was ready to expand Zapata Petroleum by merging it with the Penn Oil Company. The combined company took the name Pennzoil, with Hugh Liedtke at the helm as president and chief executive officer.
The Bush Family "Oiligarchy"
Part One: The Early Years
By Sam Parry
The news media has made note of the curious ties between the oil business and three of the four major party candidates for president and vice president: George W. Bush, Richard Cheney and, to a lesser extent, Al Gore. In one column, David Ignatius referred to "the bizarre prospect of a presidential campaign in which three of the four candidates" have ties to oil. [WP, July 30, 2000]
But these stories have not detailed for the American people how strong - how fundamental - are the business and political connections between the Bush family and the oil industry, a relationship dating back at least 50 years and inextricably tied to the family's wealth and power. Gore's ties to Occidental Petroleum - through family stock ownership and his father's work for the company - and even Cheney's five years at the helm of Halliburton, the giant oil-service company, pale by comparison.
Also left unexplored in the press accounts is how a restored Bush family's "oiligarchy'' would deal with the environment and its defenders - at odds with oil drillers from Texas to Nigeria, from the Arctic Ocean to the Persian Gulf. Another untapped question is how an oil-friendly George W. Bush presidency would treat the New Economy, whose technologies cut demand for energy and thus pose a long-term threat to the oil industry, a pillar of the Old Economy.
An examination of these relationships finds that the Bush family network of close associates, business partners, political supporters and advisers are so intertwined with the oil industry that to understand the Bush family legacy - and its emerging political dynasty - you must start at its confluence where politics and oil meet. Those interconnections spread out like the countless rivulets of a fertile delta, one that has nurtured and sustained the Bush family's power and influence for half a century.
Former President George H.W. Bush's personal ties to the oil industry date back to 1950 when the Bush family encountered the first of many forks linking oil and politics. That fall, banker Prescott Bush, President Bush's father, ran for the U.S. Senate from Connecticut, mounting a strong but unsuccessful challenge to a popular Democratic incumbent. At about the same time, his son, a decorated World War II veteran and newly minted Yale graduate, launched his first oil company in Midland, Texas.
With financial backing from Wall Street connections cultivated by his uncle, Herbert Walker, the 26-year-old George H.W. Bush joined an associate, John Overbey, to establish the Bush-Overbey Oil Development Co.
According to one of the few serious biographies about the 41st president, George Bush: The Life of a Lone Star Yankee by Herbert S. Parnet, the new company received $350,000 in startup money from Uncle Walker's connections, including $50,000 from Prescott Bush. Washington Post publisher Eugene Meyer chipped in more than $50,000, some of which he put up in the name of his son-in-law, Phil Graham, who had married Katharine Graham, today the chairman of the executive board at the Washington Post Co. A web of influential connections was already forming.
At this pivotal moment, a father and a son had launched new careers: one in oil and one in national politics, surrounded by allies who would come to exercise broad power in the last half of the 20th Century.
Through hard work and a dependable line of Wall Street investors provided by Uncle Walker, Bush-Overbey company remained in the black, if barely. For his first experience in the oil business, Bush touted a successful record, if not one of blockbuster deals or million-dollar profits.
In those heady days, Midland had not yet become the capital of the Permian Basin oil industry. Midland was a small, close-knit community where people knew each other and pulled together. In this setting, Bush honed his skills as a professional oilman while building his own network of close personal associates. When Bush and Overbey were ready to expand their business in March 1953, they tapped their Midland network of oilmen friends to establish a new partnership, Zapata Petroleum Corp.
Like Bush-Overbey, Zapata received generous startup contributions from Uncle Walker's East Coast money connections. Establishing Zapata also pulled Bush out of the grinding work of buying and selling oil rights leases into the more glamorous work of contract drilling for major suppliers. Bush was now in the big game, and by the end of 1954, Zapata had 71 wells producing 1,250 barrels of oil per day. [See Parmet's George Bush.]
Politics and Oil Meet
Back in Connecticut, Prescott Bush had won a special election to gain a U.S. Senate seat on his second try in 1952. He had been in office two months when his son launched Zapata. Early on, Prescott Bush established himself as a moderate, somewhere between an Eisenhower and a Rockefeller Republican on issues such as labor and immigration.
Prescott Bush's positions on issues related to the oil industry were more complicated. In 1953, Sen. Lister Hill of Alabama promoted legislation that would federalize offshore resources, including oil, in order to raise revenue for the government. The money would go to increase funding for education.
Sen. Bush became a point man for denouncing Hill's legislation. Bush wrote that the issue of funding for schools "should be an entirely separate question from that of submerged lands and warrants careful study because of the danger of federal control of education." Sen. Bush's leadership was central in defeating Hill's legislation. [See Parmet's George Bush.]
Whatever the merits of federalizing offshore deposits of natural resources and of federal aid to education, a backdrop for the Bush family was the coincidence that George H.W. Bush was moving into offshore oil drilling by establishing the Zapata Offshore Oil Co. The defeat of Hill's legislation removed a potential obstacle to those plans.
While Prescott Bush was establishing himself in the Senate, his son was earning the grudging respect of West Texas oilmen. Oil tycoon Henry Hunt III wrote some years later that George H.W. Bush "wasn't yet a full-fledged self-made millionaire, but for a 35-year-old Yalie who had learned the oil business from scratch, he was doing very well."
Bush's early Zapata Petroleum partners included Overbey and two brothers, J. Hugh Liedtke and William C. Liedtke, who ran a law firm across the street from Bush-Overbey's office in downtown Midland. The Liedtkes, whose father was the chief counsel for Gulf Oil, were widely respected in the oil business.
Hugh Liedtke seemed to have a special knack and became the oil brains behind Zapata Petroleum as it quickly grew into a successful business. Bush's role in Zapata was to use his family connections to provide the needed capital investments while the Liedtkes brought the know-how.
By 1955, Zapata was involved in two distinct oil businesses, offshore drilling and land drilling. Business seemed to be running smoothly. Soon, however, the Liedtkes began to grow impatient with the control Uncle Walker sought to establish over Zapata.
Negotiations began between Bush and the Liedtkes to try to find a more harmonious balance. A series of stock swaps orchestrated by Bush resulted in divided control over Zapata Offshore and Zapata Petroleum. Bush and Uncle Walker won control over the offshore business and the Liedtkes gained control of the original Zapata Petroleum. [See Parmet's George Bush.]
Business Networks Pay Off
The Liedtke brothers and Bush steered Zapata through leaner years in the late 1950s while continuing to grow the company's two businesses. By 1963, Hugh Liedtke was ready to expand Zapata Petroleum by merging it with the Penn Oil Company. The combined company took the name Pennzoil, with Hugh Liedtke at the helm as president and chief executive officer.
Liedtke's instincts, his business know-how, and his aggressiveness would combine to help build Pennzoil into one of the world's largest oil companies. In 1999, Pennzoil-Quaker State's revenue was almost $3 billion and its market capitalization was almost $1 billion. [See Pennzoil-Quaker State's Annual Report.] Not bad for a company that started with less than $1 million from Bush's Uncle Walker.
The Bush-Liedtke relationship also was destined to become a financial cornerstone for George H.W. Bush's political career. The relationship attracted the well-connected and wealthy by the dozens. It was partly through this connection that Bush first came into contact with James Baker III.
Baker's family had established itself in the Texas legal profession going back almost to the Civil War. Beginning in 1870, Baker's grandfather helped build Baker & Botts, established four years earlier by two Confederate partisans, Judge Peter Gray and Walter Browne Botts. By the late 1800s, a major client was the railroad empire of E.H. Harriman, Union Pacific Railroad.
Because of a strict anti-nepotism rule within Baker & Botts, James Baker III was not permitted to join the firm out of college. Instead, he became a boss of Houston's Andrews, Kurth, Campbell, & Jones law firm, a satellite of Baker & Botts located in Houston. [See George Bush: The Unauthorized Biography by Webster G. Tarpley & Anton Chaitkin.]
After the 1963 merger of Zapata and Penn Oil, Baker & Botts became the chief legal firm to the growing oil conglomerate. Baker & Botts enjoyed a remarkably close relationship with this client. Wall Street Journal business journalist Thomas Petzinger described the close connections between Baker & Botts and Pennzoil this way: "For 25 years, the internal legal department at Pennzoil had been almost indistinguishable from Baker & Botts." [See Parmet's George Bush.]
By this time, Bush, Baker, and Hugh Liedtke were all headquartered in their respective businesses in Houston, a much larger city than Midland. In Houston, Bush's connections expanded beyond the oil industry to include a variety of country club social circles. Still, for Bush, oil remained the blood of the Houston network.
The Oilman Politician
Bush's entrance on the political scene was a modest step. In 1963, Bush ran a successful campaign for chairman of the Republican Party of Harris County, winning a unanimous victory. Though he probably didn't realize the full implications of it at the time, Bush was entering Texas politics at just the moment that the Democratic Party's statewide political monopoly was showing serious cracks.
In 1961, John Tower became the first Republican senator from Texas since Reconstruction when he won a special election for the seat vacated by Lyndon Johnson. Throughout the 1960s, conservative Texas Democrats, feeling betrayed by Democratic support for civil rights and labor, began to shift to the Republican Party.
Over the next decade and a half, with Baker as a confidant and Liedtke tapping oil money to fund campaigns, Bush served two terms in the U.S. Congress, ran two unsuccessful but competitive bids for U.S. Senate, and became a recognized leader in the national Republican Party. He served as Ambassador to the United Nations and chaired the Republican National Committee under President Nixon. Under President Ford, he served as ambassador to China and director of the Central Intelligence Agency.
On the national scene, Bush continued to cash in on his many oil connections to help finance his political ambitions. Bush's connections also became generous donors to the national Republican Party and its leaders. In addition to the Liedtke brothers, oil-money men at the center of the Bush political funding included: C. Fred Chambers, Bobby Holt, Earle Craig Jr., Robert Mosbacher, and Hugh Roy Cullen. [See Parmet's George Bush.]
In 1966, Bush won a congressional election from Houston and headed off to Washington. As the son of a prominent Senator, Bush commanded immediate attention on Capitol Hill, a fact evidenced by his selection to the powerful House Ways and Means Committee.
The selection of a freshman congressman to serve on the powerful Committee was a remarkable choice. No freshman had served on the committee for 63 years. From his seat on the tax-writing panel, Bush was perfectly positioned to defend the interests of the Texas oil industry.
Big Oil needed Bush's help. Two of the industry's sacred cows were in danger. One was a 27.5 percent tax depletion allowance, which dated back to 1926. The allowance benefited the oil industry by removing much of the financial risk investors faced when they invested in oil ventures, which required substantial start-up capital investment. Drillers argued that the risks of hitting a dry spot would be prohibitively high for most investors and national oil production would suffer if the allowance were repealed.
The other major national oil policy of the time was a system of high quotas put in place to protect domestic oil companies from cheaper foreign oil. Removing the quotas, the oil industry argued, could produce a national security threat and would risk domestic oil production. It would pose a direct threat to their profits earned through domestic drilling ventures, too.
In the late 1960s, a spirited band of liberals in Congress were eager for reform, and the inequalities of the tax code were major targets. The oil industry found itself on the defensive as the reformers targeted the oil depletion allowance as a government "giveaway" for Big Oil. Today, it would be called corporate welfare.
For the coming fight over oil policy, newly sworn in President Nixon appointed a Cabinet-level task force headed by Labor Secretary George Schulz to examine the issue in early 1969 and find compromises to present to Capitol Hill.
While Big Oil had many friends in Congress eager to defend their interests, Congressman Bush could be counted on as one of their most loyal supporters. He argued against reducing the allowance and strongly opposed changing the quota system. [See Parmet's George Bush.]
By 1969, however, the reformers were gaining momentum. It was becoming clear that compromise would have to be reached. The Nixon Administration Task Force proposed a reduction of the 27.5 percent tax allowance to 20 percent. With that as a starting point, the debate moved to Congress, where the oil industry's allies were able to increase the proposed allowance to 22 percent. The bill passed 394-30, with Bush voting for passage.
Bush's primary strategy during these policy fights was to give a bit on the depletion allowance while protecting the quotas. Bush warned that reducing the quotas threatened to reduce domestic prices, thereby threatening domestic production.
In mid-November 1969, Bush invited Treasury Secretary David Kennedy and a group of oilmen to his Houston home. The oilmen made it clear to Secretary Kennedy that they would not budge on quotas. The secretary carried the message back to President Nixon. [See Parmet's George Bush.]
When the Schulz Task Force recommended to Nixon that the quota system be replaced with a sliding scale, the President had to choose between domestic oil interests and the findings of his own task force. Heeding the warning delivered by Secretary Kennedy, Nixon ignored the Schulz plan and upheld the quota system. Bush and his oilmen had won the day.
Bush wrote a thank-you note to Secretary Kennedy in which he confessed, "I was so appreciative of your telling them [the oilmen] how I bled and died for the oil industry. That might kill me off in the Washington Post but it darn sure helps in Houston." [See Parmet's George Bush.]
Bush left Congress to run for Senate in 1970, but lost to Lloyd Bentson. He then went on to work for the Nixon and Ford administrations until 1977. When Jimmy Carter became president, Bush found himself temporarily out of politics. With the elder George Bush briefly on the political sidelines, his oldest son, George W. Bush, began building an oil/politics nexus of his own.
Next -- Part Two: The Third Generation
add a comment on this article