Coastal Corporation - Name Change and Legal Issues

Name Change and Legal Issues

In 1980 Wyatt changed the company's name to Coastal Corporation, and in the same year revenues exceeded $5 billion. In 1980 in Houston, Wyatt and two other oil executives pleaded guilty to criminal violations of federal crude oil pricing regulations. Wyatt and the president of Coral Petroleum were each fined $40,000. Each company was required to refund $9 million to the U.S. Department of the Treasury, and each incurred $1 million in civil penalties. Economic recession and an oversupply of oil and natural gas, as well as conservation by consumers, led to Coastal's first loss, which amounted to $96.4 million for the year 1981. Wyatt trimmed the workforce and cut the budget, and within six months he had restored the company to profitability.

In the mid-1980s the U.S. government sought to foster competition in the natural gas industry through deregulation. The new government policy, together with falling prices, created difficulties for many energy companies. Coastal not only survived deregulation but also took full advantage of the competitive atmosphere by launching hostile takeover bids for other struggling energy companies. The mere threat of a takeover by Coastal could send the stock price of a target company soaring. In 1983, for example, Coastal's attempt to secure Texas Gas Resources failed, yet Coastal's initial investment in the company generated a total of $26.4 million in profits. Intervening companies that came to the rescue of Texas Gas Resources were forced to buy up shares held by Coastal at inflated prices. Wyatt's unsuccessful attempt to take over Houston Natural Gas in 1984 yielded a similar return of $42 million. In 1985 Wyatt set about acquiring American Natural Resources (ANR), one of the most profitable natural gas pipelines in the Midwest. Despite ANR's initial determination to stay free of Coastal's clutches, Wyatt pushed through an all-cash deal of $2.45 billion, which ANR shareholders could not refuse. The acquisition transformed Coastal into a major power in the U.S. gas business.

In 1987, despite sanctions prohibiting U.S. companies from dealing with Libya because of its terrorist connections, Wyatt negotiated a deal in which Libya supplied oil to Coastal's refinery in Hamburg, Germany. Wyatt's deal was legal because foreign subsidiaries of U.S. companies were exempt from U.S. regulations.

In the late 1980s Coastal took advantage of improved economic relations between the United States and the People's Republic of China. In 1988 Coastal concluded an agreement with China National Chemicals Import and Export Corporation (Sinochem) for joint ownership of Coastal's Pacific Refining Company. Coastal and Sinochem each held a 50 percent interest in the West Coast refiner. The agreement provided certain advantages for both sides. Sinochem obtained an opportunity to invest in the United States as well as a long-term outlet for crude oil, and Coastal secured a dependable supply of crude oil in a volatile world oil market. This joint venture represented the first investment in U.S. energy assets by China.

A key to the company's successful strategy was the continued high productivity of all Coastal employees, from unskilled workers to those in management. Coal workers employed by Coastal produced twice the industry average, and the expectations for Coastal's management staff were high. Indeed, the constant pressure for results led to a high management turnover, with Coastal's refinery business alone having five different managers between 1980 and 1989.