As Pierpont banks his Woodside dividends and smiles at the scrip, he cannot help but reflect that if modern standards of corporate governance had been around when Woodside was born, it wouldn't be here any more.
Woodside Petroleum is now a mighty and respected company, but it didn't start that way.
Last year it celebrated its 50th birthday quite a feat when you consider it barely survived its first few years on the boards. It celebrated its 50th by releasing a company history Fifty Years of Woodside's Energy. The opening chapters are a vivid reminder of just how primitive our oil industry was half a century ago.
The company started as a gamble by a Melbourne accountant named Rees Withers. Withers had previously been auditor of Gippsland Oil Co a hand-to-mouth outfit that eked out an existence in the early 1950s.
Then Australia had its first oil boom after the Rough Range oil strike of 1953. Following the boom, Withers acquired one of Gippsland's permits on Victoria's Ninety Mile Beach and financed it by launching Lakes Syndicate NL.
Lakes shareholders were given the rights to buy shares in Woodside (Lakes Entrance) Oil, underwritten by Melbourne broker Geoff Donaldson's firm, Donaldson and Lynch.
Woodside sought £375,000 in the float. It was oversubscribed and Withers had to return between £200,000 and £300,000 to unsuccessful applicants something he would regret a few years later when Woodside was literally living on the smell of an oily rag.
To gain access to its first drill site the company had to build tracks through the coastal tea-tree and build a footbridge over a tidal inlet. It was only after the bridge was built that Woodside invited a council inspector to approve the construction. Withers said: "We want to build it here." The inspector said: "Impossible. It would be too close to this one," pointing at the bridge Withers had just built. So Withers just left things as they were and the council was never any the wiser.
Communications were hit and miss. The local telephone operator was a dairy farmer. Whenever he went out to milk his cows, the exchange was unattended and so the phone system stopped.
To do some seismic work, the company drilled a series of shot holes, intending to put dynamite down them for test blasting. A local farmer thought one of the shot holes was a rabbit's burrow, so he put his ferret down it. Of course, the ferret never returned.
One hole struck a substance that looked like treacle, so the founding chairman, Percival McKenzie, sent it to the chief executive of a Shell company in the US. The chief executive's son had just finished his geology exams and was looking for some income.
So the chief executive gave him the sample, promising to pay him to analyse it. The youngster tried to analyse the sample in a pot on the kitchen stove and overcooked it, so Woodside never got a report.
That incident so inflamed Donaldson that he pushed McKenzie out and became chairman himself. By 1958 Woodside was destitute, with only £70 left. Donaldson and Withers personally funded the company to keep it alive.
Donaldson kept the company alive by milking the shareholders for small amounts. Woodside would make a mildly positive announcement (it was about to drill a promising structure, traces of oil had been seen on a drill, or whatever), the shares would run up a few pence and Donaldson would announce a threepenny call on the contributing shares.
Donaldson and Withers knew the Bass Strait was highly prospective, but they didn't have the money or technology to tackle underwater prospects, and then BHP took all the good permits anyway. So Woodside hired Russian geologist Nicholas Boutakoff to find oil elsewhere. Boutakoff was most impressed by the North-West Shelf.
"So we jumped in," Donaldson said. "We knew we couldn't possibly afford it, but for a few hundred pounds, which we had, we jumped in and got all those areas."
So in 1963 Woodside controlled 367,000 square kilometres of uncharted ocean, stretching from Onslow almost to Darwin. Withers pledged to undertake a work program for £20,000 which Woodside didn't have.
However, Boutakoff had given a paper on the North-West Shelf at the Australian Petroleum Exploration Conference. It sparked interest from the majors, so Woodside enlisted as partners Burmah, Shell, BP and Chevron.
There was some tough negotiating. Shell demanded 51 per cent and applied a lot of psychological pressure before agreeing to accept one-third. But at the end of the day, Woodside retained a minority interest in the shelf, which would be one of the great company-makers of Australian history.
Thanks to partners with deep pockets, Woodside was able to endure several years of dry holes on the shelf. Then in 1971 the drillship Glomar Tasman struck gas on Scott Reef, 400 kilometres north of Broome.
Just when Woodside looked set to collect the rewards from its endeavours, it struck a risk nobody could have foreseen: Rex (Strangler) Connor. As Minister for Minerals and Energy in the Whitlam government (newly elected at the end of 1972), Strangler started making threats about his intentions for the gas industry.
Early in 1973 Woodside wrote to Canberra asking what the government's policy was. Strangler's departmental head, Lenox Hewitt, replied saying the government intended to buy all gas at wellhead and arrange the downstream distribution. He didn't bother defining the wellhead or the price.
That left Woodies in limbo. Its gas had suddenly been nationalised. The company didn't know what price it would receive or how it would be defined.
The public had no idea what had happened until the policy was revealed in Woodside's annual report. News of the policy was a political and financial bombshell. Petroleum exploration in Australia dropped like a stone and didn't resume until Whitlam was slung out of office in 1975.
Then the North-West Shelf development restarted, and readers know the rest of the story. The £70 company today has a market capitalisation of $15 billion. And a rich history.
FAR Price at posting:
5.9¢ Sentiment: Buy Disclosure: Held
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