Coastal Corporation - The 1970s : Rapid Expansion

The 1970s : Rapid Expansion

In the early 1970s events in the Middle East overshadowed the rise of Coastal. The Arab-dominated Organization of Petroleum Exporting Countries (OPEC), by presenting a united front, began to win price increases. In 1971 OPEC cut production and raised prices by 70 percent, and by 1974 prices had quadrupled, leading to the energy crisis of the mid-1970s. LoVaca, Coastal's pipeline subsidiary, had signed fixed-price contracts to supply cities in south Texas with natural gas. With energy prices soaring and supplies dwindling, LoVaca could not meet its contractual obligations, and at one point it cut off gas supplies to the cities of San Antonio and Austin during the winter. Wyatt then obtained regulatory permission to increase prices beyond the limits specified in the contracts.

LoVaca was the target of lawsuits by outraged customers, and the problems of the subsidiary caused problems for Coastal for years. Coastal finally settled $1.6 billion in lawsuits by agreeing to spin off LoVaca. The spinoff, Valero Energy Corporation, which was formed on December 31, 1979, from LoVaca and other Coastal assets, had annual revenues of about $1 billion. The customers suing Coastal received 55 percent of Valero's stock, with the remaining split among Coastal shareholders, not including Wyatt. At the plaintiffs' insistence, he was excluded from the agreement. Despite the impact of the energy crisis, Coastal maintained its profitability and continued to expand throughout the 1970s. Expansion was not confined to Texas. In 1973 Coastal acquired Colorado Interstate Gas Company, formerly the Derby Oil Company of Wichita, Kansas, along with its three refineries, in a $182 million hostile bid. With the acquisition Coastal became a national company. In 1973 Wyatt renamed the company Coastal States Gas Corporation.

In the first half of the decade, Coastal also sought to diversify into other energy markets. In 1973 Coastal entered the coal mining field with the acquisition of Southern Utah Fuel Company. Also in 1973, with the acquisition of Union Petroleum Corporation, renamed Belcher New England, Inc., Coastal began the marketing and distribution of petroleum products. By 1975 revenues had reached $1.9 billion. Coastal's expansion continued in 1976 with the purchase of Pacific Refining Company's plant in Hercules, California, which increased Coastal's refining capacity to about 300,000 barrels per day. In 1977 Coastal acquired Miami-based Belcher Oil Company, one of the largest marketers of fuel oils in the Southeast.