Hilton sat in his office and thought of everyone rummaging through Prolea’s records. Eventually, he just put it out of his mind, knowing that if they somehow found out, it would be easy. He would be dismissed immediately, and he wouldn’t have to explain anything to anyone. He might get fired anyway, given their results from the last four months. Out of courtesy, Gerard had asked him to join the visiting French contingent for dinner last night. It would have been good form for him to join them, but he just hadn’t felt up to spending the night trying to placate his little foreign tribunal. Instead, he’d indicated that he and the wife already had plans and suggested later in the week. When he left at 7:30, they were still in the big conference room with stacks and stacks of paper, financial reports and laptop computers, talking energetically in French and filling the office with cigarette smoke.
The next morning, Thursday, Hilton had agreed to get going early since he had a luncheon engagement that he could not break. He did have an appointment, but it was to meet Martin. According to Anita, Martin had some intelligence about some big timber or pulp and paper idea that “nobody knew anything about.” Martin sounded pretty unsophisticated. He needed an investor to make this happen. Hilton’s immediate thought was that he could check out Martin’s idea and if it was good, he’d simply steal the idea from Martin.
Gerard had three empty coffee cups in front of him when Hilton entered the conference room. He was running on Paris time and had come in early. There were a half dozen cigarettes in the ash tray even though it was forbidden to smoke in the building. Clearly, Gerard had come in early to prepare for the meeting. Hilton put his fine-grained buckskin leather portfolio down on at the head of the table and eased into the cool, leather chair.
“Before we get going, Hilton,” said Gerard—he had always pronounced the name as Heeeltin—“Maybe you could summarize your view of Houston’s performance since we last met.”
Momentarily, Hilton was stunned because he had long grown accustomed to the grilling style of Gerard. The truth of the matter was that things were still under water for Hilton. Product prices were not recovering as he had expected. At this moment, he had two clear choices: he could doggedly stick to his strategy and see how Gerard responded, or he could eat some of his pride, and take a conciliatory approach. Things had deteriorated over the last thirty days.
“Well,” Hilton said, “there are a number of different views that one could take of outcomes over the last month,” he said, speaking very slowly, not sure himself which path he would choose.
“At the end, there can be only one view,” Gerard needled him; “a view on which we are all aligned.”
Hilton’s immediate thought was to go for the jugular. He had done just that in front of the Board when he had been at Transamerican. That was his first big break, and he had ended up President of the Company. This time, things were different. Gerard was testing him, letting him know who the real boss was.
“First of all, I have got to tell you that I believe that the strategy we are on makes a lot of sense. I would say that our performance over the last couple of months has been unfavorable, however. Gerard, if you want me to continue to execute against this strategy, I will do just that. Over the last twenty years, I have learned to trust my instincts. I will put my performance over the last twenty years in the industry up against anyone.” No one said a word. Even with the heavy doors closed, Hilton could hear his secretary taking a message over the phone. The smoke from Gerard’s cigarette seemed to curl oddly around his knuckles and then turn increasingly blue as it moved upwards toward the lights in the conference room. Into the silence, Hilton continued.
“Now, as you know, over the last three months, our program has been based on a series of market and planning assumptions. If you guys are willing to work with me to review these, and see if we need to make some modifications, then I’m ready to take a serious look at it.”
“For my part,” said Michel, “I cannot understand the forward pricing you are using on New York gasoline. One, two, three months ahead you have projected much higher prices than our analysis would suggest is appropriate.” It wasn’t Gerard talking now, it was Michel.
“Well I don’t know if “appropriate” is the right word,” said Hilton, trying to maintain his cool, “but we do feel that prices are going to firm.”
“Your forward inventory is not based on prices firming,” shot back Michel. “It is based on prices that by most standards would be described as dramatically improved. Some Americans, I believe, might say they are “pie in the sky.”
“There are good reasons why we expect prices to improve, and Gerard and I have talked about it a number of times,” said Hilton, deferring to Gerard.
“Indeed, you have, a number of times,” answered Michel before Gerard was able to respond.
“It appears from our analysis,” Gerard went on, “that you have continued to actively purchase products under this strategy, even though when I last visited, we had agreed we would hold firm on our current positions. In fact, you just rolled over an entire month of contracts.”
“Well, Gerard, you know better than anyone that if you are running a trading house you can’t just stop trading products for a month without paying a price. If the other oil companies know that we are under orders to hold or liquidate our refined products positions, we’ll have to sell at fire-sale prices. We couldn’t just stop trading.”
“Indeed, I may just be a silly Frenchman,” said Gerard, garnering a snicker from his young lieutenants around the table. “However, it occurs to me that if we had bought a number of products contracts during the month, but also sold even more during the month, it seems we would today have fewer barrels exposed than we did a month ago. Instead, it appears we have nearly two million more barrels this month than we did last month. Is this correct, Mr. Sinclair?”
“Nearly two million barrels at an additional three and one eighth cents per gallon out of the market, since our last meeting,” offered Michel. “I believe that equates to an additional loss of approximately 2.6 million dollars since we last met.”
By now Hilton was steaming, but they had him. He knew that they had added to their stocks since the last meeting. He had rolled over an entire month of contracts. There were other timing problems with some deals with Chevron. In fact, if Gerard’s boys had added products and natural gas liquids together, they would have found he was down over four million dollars from last month, using the same pricing assumptions.
“Well, this is exactly what I am talking about,” said Hilton. “We just don’t have access to some of the research staff and market data that they do at corporate. If you guys are willing to spend some time helping us, maybe it’s time to make some adjustments.”
As the focus swung to Gerard, the pressure built. Gerard had to take firm and decisive action, or it would be reported back to Paris that the Americans in Houston were calling the shots. At the same time, Gerard knew Hilton as one of the savviest trading company presidents in the business. Hilton had only eight months left on his employment contract, and it would be a simple thing for Gerard to dismiss him. Yet, Gerard had approved putting Hilton in this position to begin with, and it would not necessarily reflect well on him if he had to go back in, two years later, and push Hilton out. Suddenly, he rose from his chair abruptly and moved toward the coffee pot on the credenza at the end of the room.
“Well, it seems to me that the answer here is really quite simple,” said Gerard. “I have a very experienced trader running our Houston operations, but as he has indicated, he does not have the most ideal or most timely access to the research, to the data, and to the analysis we are performing with our staffs in Paris.”
No one knew where this was heading. “So therefore, we need to try and do a better job of getting those skills and that information to Hilton, so he can work with us to bring his trading programs in line with our corporate needs. Obviously, I need a strong, experienced individual who is wired into our organ
ization and methods in Paris. I need someone who can come here and fulfill this need. It seems to me that we will make arrangements for Michel to be here on a full-time basis beginning on the fifteenth of next month. I assume there are no questions; Hilton, Michel?”
It would have been the end for Hilton to speak at this point. Michel was dumbfounded. Now Michel had inherited accountability for the problem, and he would have to move to Hicktown Houston to deal with it.
“Very well then,” said Gerard. “Now I will be going to the airport for the afternoon flight, and I expect that the analysis team will provide the results of their analyses, alternatives and recommendations to myself, Hilton and Michel in written form, before leaving here Friday evening.” With that, Gerard set down his nearly full cup of coffee, picked up his files and walked out of the room.
Hilton had dodged a bullet. He still had his high-paying, high-profile job. Only now he would be battling with Michel from dawn to dusk, until one of them grew weary and managed to find a way to get out of the situation. Hopefully, prices would dramatically improve, and the sooner the better. Slowly, everyone filed out of the conference room. As Hilton left the company parking lot on the way to meet Martin for lunch, it occurred to him that he was going to need to be on his toes at Prolea. Hilton wasn’t broke, by any means, but after doing well initially he had been taking some heavy trading losses of his own. He needed to hang on to this job.
CHAPTER 21
Hilton had wanted to meet at the Men’s Grill at The Petroleum Club downtown and Martin had readily agreed. On most days Martin would wear a casual pair of slacks, a shirt and tie to the office, but no coat. Now as he drove downtown, he had decided to stop by his apartment and pick up a jacket. He expected Hilton to show up in a suit, and he didn’t want to be out of place. He didn’t think the Grill required a jacket anymore, but the main dining rooms certainly did. After looking through his closet, he’d finally found some nice slacks, a black polo shirt and a favorite hound’s-tooth sport coat. Hilton was just handing his keys to the valet as Martin pulled up and they laughed when they found themselves wearing nearly identical outfits. Prolea had gone to casual dress about two years earlier and this was a standard outfit for Hilton. However, Hilton’s polo wasn’t store-bought. In gold letters were embroidered “George Washington Ball 1985, Singapore,” no doubt a memento from his oil trading days in southeast Asia.
After some easy chit chat, Hilton found Martin a very pleasant fellow. Although he guessed Martin to be only two or three years younger than himself, to Hilton he seemed much younger—and more naive. Hilton had had a number of men just like Martin work for him and found he could pretty easily get them in line, work them like dogs, and pay them a modest salary. Some of the young ones would get dissatisfied and claw their way into a higher paying—but riskier—career role in sales or trading or management. Those who didn’t, by the time they got to Martin’s age, had settled in for the long haul and become pretty loyal.
Martin had begun by asking Hilton about his job, how he had gotten into the business, a lot about Prolea’s operations. Before he knew it, Hilton was telling Martin a great bit about the realities of the oil trading business. Hilton had likened it to playing pro football. There were a limited number of really talented professionals who could make it. Even so, a bad trade or two here, an unexpected market turn, or even a loss of confidence, could cut short a career and make it nearly impossible for a trader to get back to “championship form,” as he called it; like an NFL player getting a knee injury, who may or may not be able to make a comeback. Martin continued asking another series of questions related to how the market moved. Martin seemed fascinated by how large, mostly unforeseeable circumstances had sent oil prices through the roof. After they had discussed the old oil embargo, the Iranian Revolution and the Iraq invasion, Hilton had become animated with great stories. In some of these, whatever company he was with had made more money in a few days than they had in perhaps the prior few years. Recessions and global slowdowns could decrease oil demand and send crude oil prices down significantly. Also, occasionally when a giant new oil field would get discovered, especially one that would be easy to get into production, the big new discovery could generate a significant fall in crude oil prices. As an example, Hilton said, when the big Alaska North Slope discoveries hit, it had a dramatic impact on oil prices. Nobody had expected to find a big oil field like that in Alaska. As Martin knew, that’s why there was so much security, and secrecy, around the oil exploration business. There were dozens of agencies and boutique consulting firms that made a good business of forecasting global demand, projecting prices and working with international oil companies on planning scenarios. Still, it was the shock of embargoes, wars and huge new discoveries that surprised the entire industry and made some speculators, traders and investors very rich, sometimes overnight.
Near the end of the lunch, the conversation took a turn. Martin started asking Hilton a lot of questions about other natural resources like mining and paper. Martin knew a lot about the paper and pulp business; said he had always been interested in it. Hilton didn’t know much about it. Martin was clearly excited about this topic. Hilton felt that he had developed a good rapport with Martin. It was clear to Hilton that Martin liked him a lot. Hilton asked Martin exactly what he was looking for, and Martin said he thought he had discovered a business idea that was completely new for Basin Oil. Martin said he was thinking about going out on his own. Martin said that if he found something big, if his idea worked, he would need investors. He also might need someone to get some leases signed up very quickly and quietly. Hilton wasn’t sure what Martin was talking about. It sounded like oil, but Martin said it was something new to Basin Oil. Leases? Sounded like mining to Hilton. Maybe it was some type of play on timber, but Martin wasn’t sharing anything specific. Martin wondered if Hilton could find someone to help him with it. Martin said the biggest thing was to get someone good at getting leases signed from private landowners; someone who could keep a secret. “This is big,” said Martin. “I need someone who can move fast and keep things confidential.” Hilton told Martin he was flattered, said that he would be glad to help, and told him he had a few different guys who might be perfect for the job. One particular guy, Larry Walker, “could be a perfect fit,” said Hilton. Martin should let Hilton know when the time was right to move forward. Hilton said he’d reach out to Larry and see what Larry was doing. Hilton paid the bill and they parted ways.
Hilton got into his white, four-door Mercedes and sped off. The traffic was light as he headed down Memorial Drive taking the long way back to his office on Post Oak. This Martin was no fool and he was up to something. He was nothing but a shitty, little geologist out at Basin Oil. Martin told Hilton how hard he had always worked and how he got nothing out of it from the company; said he was sick of eating crap at his company. Lots of guys were frustrated with their jobs, including Hilton. His wife had kicked him out of the house. Things weren’t going great for the guy. Still, Hilton sensed Martin was on to something. Martin was asking a lot of questions about oil trading, mining, the timber business, and about Prolea. Hilton mentally ran through a dozen or so scenarios as he passed the cloverleaf at Waugh Drive. There was definitely some money to be made off this guy. Hilton’s guess was that he had stumbled on to either oil or some type of mineral deposit. Maybe it was metals, because he said it was something different for Basin Oil. Maybe he was trying to keep Hilton off the trail. Yes, thought Hilton, Martin had found something and was trying to determine what to do with it. Whatever it was, it was something Martin did not want his co-workers to know about it. Hilton wanted some of this action and had to find out what Martin was up to.
“Hey, I just had lunch with your little geologist friend. He was pretty nice, and I told him I would like to help him,” said Hilton. Hilton called Anita all the time on his car phone and she loved it. He would be driving over to some meeting during the day and just call to visit for five minutes. A couple of her guys h
ad taken the afternoon off. Anita was still mad that Hilton had taken Liz to the dinner instead of Anita, but Hilton was unpredictable. He had told Anita he was talking to Liz out by the pool at the Houstonian and, as a friend, just asked her if she wanted to go with him to the dinner. He said nothing was happening between them and Anita believed him. Anita was doing her nails and thinking about everything she needed to do over the weekend. Her car was at the Sears Automotive Center down at Memorial City Mall. It had not started the last two mornings without a jump. They had called and said it was ready. The bill was almost three hundred dollars.
“Look, Anita, I listened to Martin carefully, but I don’t know. I’m not sure what he’s up to. Being really secretive. He wants my help, but if I am going to help him, I need to know what he is up to. I need to know what prospects or areas he has been working on lately, so I can check around and see what’s going on. Also, has he taken any trips lately, maybe to copper or gold mining areas like Arizona, or New Mexico or Colorado? He says this is a new area for Basin Oil. If Martin has been working on some new stuff, is there any way you could find that out for me?”
“Piece of cake,” said Anita. She was putting on a second coat of dark red polish now, Autumn Sun. “The guys make their own travel arrangements, but I don’t remember him going out West. On work stuff, most of what he has been doing is the new Gulf leases we got back in the March auction. He’s also on the production team for the Appalachian area, but that’s not really new. He’s also working on Kazakhstan; maybe it’s related to that.”
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