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Spotting kickbacks launched an oil giant
Starting a business service
Raymond Plank came out of the army after World War II sure that America was primed for an economic boom, driven by technological innovation and by goods and services whose availability had been deferred. The Depression and the war, he reasoned, had built up vast market potential. Others thought the opposite. Every new business would need tax and accounting help, so he started the Northwest Business Service for small businesses.
He found clients by joining professional clubs. One of them, the One Two Club, allowed just one member from each type of business: one bank, one accounting firm, one employment agency, one securities broker, one building contractor, one insurance agency, one mortgage company, and so on. Every member pledged to deliver business prospects to the others.
Uncovering the kickbacks
Through that network, he began doing accounting and tax work for Minneapolis oil investors. Drilling had been scarce during both wars, American resources were being depleted, and the government was offering tax incentives to drill. When he saw charges that were out of line with the costs of drilling, completing wells, or holding acreage, he checked directly with the oil field service providers. That uncovered kickback checks that were fattening the pockets of unscrupulous promoters.
Apache begins
He reported what he found to a group of investors, and their response was instant and unanimous: take over and manage our assets. The assets were substantial, and he and his colleagues knew nothing about finding oil or completing and producing wells. They did not feel qualified, and they proceeded anyway. In 1954, Apache Corporation began with $250,000, a geologist, an executive assistant, and a landman. By mid 2008, that $250,000 had become $50 billion.
How could promoters pad costs in drilling deals?
Investors in a drilling program usually saw only summary reports, while the promoter controlled the contracts with drilling crews and suppliers. If a promoter charged the program more than a service was worth and received part of the payment back, the markup stayed hidden unless someone compared invoices with the supplier's own records. Auditors catch this kind of billing scheme by tracing payments to outside vendors. Comparing a company's invoices with the vendor's ledger is a standard audit step known as third-party confirmation.
Why do clubs allow one member per profession?
Rotary International, founded in Chicago in 1905 by attorney Paul Harris, built its membership around classifications, with one member from each line of work. The rule keeps members from competing with one another and gives each member a distinct set of referrals to send out. Business Network International, founded by Ivan Misner in 1985, uses the same one-seat-per-profession design.
How does a landman help an oil company?
A landman researches who owns the surface and mineral rights under a prospect by reading county records. The landman then negotiates leases with those owners, which give the company the right to drill in exchange for a bonus payment and a royalty on future production. A one-eighth royalty was the traditional standard in many US states.
Why did demand for oil surge after the war?
Gasoline rationing ended in 1945, and car factories that had been building military equipment returned to civilian production. Highway building, suburban growth, and the switch from coal to oil for home heating pushed demand upward through the late 1940s. The US had long been a net exporter of oil, and in 1948 it became a net importer, according to the US Energy Information Administration.
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