from: http://www.onlinejournal.com/Special_Reports/Oiligarchy-2-1/oiligarchy-2-1.htm l Click Here: <A HREF="http://www.onlinejournal.com/Special_Reports/Oiligarchy-2-1/oiligarchy-2 -1.html">Oiligarchy-2-1</A> ----- August 15, 2000 Reprinted from Consortium News The Bush Family "Oiligarchy" Part Two: The Third Generation By Sam Parry At times grudgingly, George W. Bush traced virtually every early step his father took. Like his father, George W. went to both Andover Academy and Yale and joined the secretive Yale fraternity Skull and Bones. Like his father, George W. joined the armed forces. Like his father, George W. benefited from wealthy family connections while starting out on his own. But the most important similarity between the careers of George W. and his father is the link between oil and politics. Like his father, George W. made his first business investments in West Texas oil ventures in Midland. Like his father, George W. sought to establish his political career by seeking elected office in Texas, where he ran for Congress at an early age. While the cadence and direction of his steps match, George W.'s early record seems like a child walking around in his father's oversized shoes. In school, George W. was a C student, while his father graduated Phi Beta Kappa. In sports, George the father was captain of the Yale baseball team while George the son was captain of the cheerleading squad. In the oil business and politics, too, George W.'s early record was eclipsed by his father's. But what George W. may have lacked in accomplishments, he made up for in ambition and charm, two traits that served him well in both oil and politics. In 1978, this ambition led George W. to embrace both family legacies, oil and politics. To some, this decision to pursue both goals at the same time might smack of bravado or even cockiness. But George W. was eager to try. George W.'s Drive With practically no political experience of his own, George W. launched an unsuccessful bid for U.S. Congress. He lost badly to the Democratic incumbent. George W. later said that his biggest mistake that year was running a race "he couldn't win." The loss still gave George W. a taste of politics he would never lose. That same year, he incorporated his own oil-drilling venture, Arbusto (Spanish for bush) Energy. Both his race for Congress and his oil business were based in Midland, his father's old stomping grounds. In fact, George W. opened an office in Midland's Petroleum Building, the same office building where his father started out more than 25 years before. [See the Washington Post's profile, "The Turning Point After Coming Up Dry, Financial Resources," by George Lardner Jr. and Lois Romano, July 30, 1999, and Harper's Magazine's "The George W. Bush Success Story: A heartwarming tale about baseball, $1.7 billion, and a lot of swell friends," by Joe Conason, February 2000.] While his run for Congress fell short, his oil business venture seemed promising at first. Just as his father had done nearly 30 years prior, George W. Bush sought financial assistance from his uncle, Jonathan Bush, a Wall Street financier. Jonathan Bush pulled together two dozen investors to raise $3 million to help launch Arbusto. Among the investors was Dorothy Bush, George W.'s grandmother. At the same time, Jonathan Bush was lining up investors for Arbusto, he also was raising money for George H.W. Bush's presidential explorations. Many of the funders were the same. [WP, July 30, 1999] Unfortunately for George W., 1978 was not the best time to start up an oil-drilling company in West Texas. After a brief price spike in the late 1970s, the price for a barrel of oil dropped throughout the 1980s to less than $10, which in turn sank many small businesses in the West Texas oil industry. Still, while other oil ventures failed, George W. kept his afloat in the 1980s thanks to family connections and international financiers attempting to build and nurture relationships with his father, who was elected vice president in 1980. The Bush Family "Oiligarchy" Part Two: The Third Generation The lifelines The first of three major bailouts occurred in 1982. That year, despite the millions already pumped into Arbusto, George W. faced a crisis. His balance sheet read $48,000 in the bank and $400,000 owed to banks and other creditors. George W. realized that he had to raise additional cash. He decided to take Arbusto public. [WP, July 30, 1999.] With the company so deeply in debt, however, George W. would need a new infusion of money to clear the books. In stepped Philip Uzielli, a New York investor and friend of James Baker III from their Princeton days. According to George W., Uzielli was introduced by George Ohrstrom, one of the original Arbusto investors and Uzielli's business partner. Ohrstrom and Uzielli had, three years before in 1979, purchased a building products firm, Leigh Products Inc. by buying all common shares for $25 per share. At the time, Baker was a director of Leigh Products. Uzielli worked out a deal with George W. to purchase a 10 percent stake in Arbusto for $1 million. The entire company was valued at less than $400,000. In a 1991 interview, Uzielli recalled the investment as a major money loser. "Things were terrible," he said. [WP, July 30, 1999.] As bad as Uzielli's investment turned out, George W. now had enough money to take his company public. Not, however, before he made one more change. In April 1982, perhaps realizing the negative connotation of "bust," George W. changed the name of his company to Bush Exploration. The name change also may have had something to do with the fact that George W.'s father at the time was the Vice President of the U.S. In June, George W. issued a prospectus. George W. sought $6 million in the public offering, but only managed to raise $1.14 million. The shortfall was due in large part to the waning interest in the oil industry among investors. The price for a barrel of oil was falling and special tax breaks for losses incurred in oil investments had been slashed. [WP, July 30, 1999.] Within two years, it was clear that Bush Exploration was in trouble again. Michael Conaway, George W.'s chief financial officer, told the Washington Post, "We didn't find much oil and gas. We weren't raising any money." Something had to be done. In walked bailout number two in the persons of Cincinnati investors, William DeWitt Jr. and Mercer Reynolds III. Heading up an oil exploration company called Spectrum 7, DeWitt and Mercer contacted George W. about a merger with Bush Exploration. For Bush and his struggling company, the decision wasn't a hard one to make. In February 1984, George W. agreed to a merger with Spectrum 7 in which Dewitt and Reynolds would each control 20.1 percent and George W. would own 16.3 percent. George W. was named chairman and CEO of Spectrum 7, which brought him an annual salary of $75,000. [Harper's Magazine, February 2000.] DeWitt, whose father had owned the St. Louis Browns baseball team and later the Cincinnati Reds, would become a useful partner for George W. a few years later when he made his move to pull a group of investors together to buy the Texas Rangers. Even though the merged companies still failed to make any money, the pieces were finally starting to fall into place for George W. A chief asset was that George W. brought connections and name recognition to the enterprise. Paul Rea, president of Spectrum 7, remembers Bush's name as a definite "drawing card" for investors. [WP, July 30, 1999.] With oil prices collapsing in the mid-80s, however, it became clear that George W.'s name alone would not save the company. In a six-month period in 1986, Spectrum 7 lost $400,000 and owed more than $3 million with no hope of paying those debts off. Once more, the situation was growing desperate. [Harper's Magazine, February 2000.] In September 1986, George W. was given his third lifeline. Harken Energy Corp. was a medium-sized, diversified corporation that had been purchased in 1983 by a New York lawyer, Alan Quasha. Quasha seemed interested in acquiring not just an oil company, but the son of the Vice President. Harken agreed to acquire Spectrum 7 in a deal that handed over one share of publicly traded stock for five shares of Spectrum, which at the time were practically worthless. [WP, July 30, 1999.] Page 3: George W. Strikes Success George W. strikes success After the acquisition, George W. was named to the Harken board of directors. He was given $600,000 worth of Harken stock options and landed a job as a consultant that paid him $120,000 a year. By any account, this was not bad for an oilman who had never made any money in the oil business and had lost investors fortunes, large and small. [Harper's Magazine, February 2000.] But Harken's investment in George W. appreciated. In 1986, the company had acquired the son of a vice president. By 1989, it had in its camp the son of a president. Harken began looking for oil investments in the Middle East where business and family connections also are very important. In 1989, the government of Bahrain was in the middle of negotiations with Amoco for an agreement to drill for offshore oil. Negotiations were progressing until the Bahrainis suddenly changed direction. Michael Ameen, who was serving as a State Department consultant assigned to brief Charles Hostler, the newly confirmed U.S. ambassador to Bahrain, put the Bahraini government in touch with Harken Energy. In January 1990, in a decision that shocked oil-industry analysts, Bahrain granted exclusive oil drilling rights to Harken, a company that had never before drilled outside Texas, Louisiana, and Oklahoma and that had never before drilled offshore. [Harper's Magazine, February 2000.] In a matter of weeks, the stock of Harken Energy shot up more than 22 percent from $4.50 to $5.50. While George W. was finally finding some success in the oil business, President George H.W. Bush was experiencing the high point of his presidency. In August 1990, the forces of Iraqi leader Saddam Hussein invaded the oil-rich sheikhdom of Kuwait, choosing to settle a simmering border dispute over oil lands by force. President Bush responded with a denunciation of Saddam for violating international law, though Bush himself had ordered the invasion of Panama less than a year earlier to capture Panamanian Gen. Manuel Noriega on drug charges. Yet, with the Middle East's vast oil reserves at risk, international law gained new respect as an inviolable principle. President Bush vowed that the Iraqi invasion "will not stand" and dispatched 500,000 U.S. troops as part of an international force to drive Iraqi forces from Kuwait. In the early months of 1991, the United States led first an aerial assault on Iraqi military and civilian targets, followed by a 100-hour land assault that routed the overmatched Iraqi army and restored the Kuwaiti royal family to power. Bush saw his popularity ratings soar above 90 percent among the American people. Public face for the Texas Rangers Back in Texas, George W. was winning acclaim himself as the popular new owner of the Texas Rangers. The beginning of that deal traced back to an idea of George W.'s Spectrum 7 partner, Bill DeWitt, who wanted to make a play for the purchase of the baseball team. DeWitt understood that he needed a native Texan in his group of investors. George W. fit the bill. George W. also brought with him family connections to the owner of the Rangers, Eddie Chiles. An aging Midland oilman, Chiles's ties to the Bushes dated back to George W.'s father's days in the Midland oil business. [Harper's Magazine, February 2000.] George W., who had never given up his political aspirations, recognized at once the opportunity this would bring. He could establish his name in his own right and do so as part owner of a highly visible organization. What story line could be better for an aspiring politician than to be part of the old American pastime, baseball? The group of investors was missing only one thing � money. To address this nee d, George W. tapped a Yale fraternity brother, Roland Betts, who brought with him a partner from a film-investment firm, Tom Bernstein. Betts and Bernstein were from New York, which became a problem when Major League Baseball Commissioner Peter Ueberroth insisted on more financial backing from Texas-based investors. Commissioner Ueberroth, eager to put together a deal for the son of the President, brought in a second investment group headed by Richard Rainwater, who had made much of his fortunes working for the Bass family of Fort Worth. >From 1970 to 1986, Rainwater had turned a modest family fortune of nearly $50 million into a stunning $4 billion empire. Rainwater agreed to join Betts, Bernstein, and George W., who borrowed $600,000 for his share of the $86 million purchase. But Rainwater did not join without imposing a strict limitation on George W.'s role. George W. was granted 2 percent ownership of the Rangers and was named one of two "managing partners." But George W. would have effectively no say in running the team. He would be the handsome public face. Rainwater and his lieutenant Rusty Rose would be the brains. [Harper's Magazine, February 2000.] George W.'s connections to Harken and his investment in the Rangers � which had been made possible by his ties to the oil industry � soon made him a millionaire. At last, he had a record of accomplishment to point to. George W. finally was ready to make the leap he had been waiting for. In 1994, George W. ran for and won the governorship of Texas. Next -- Part Three: Politics and Oil, the Sequel Copyright � 1999 Consortium For Independent Journalism All rights reserved. Republished with the permission of the Consortium For Independent Journalism Copyright � 1998-2000 Online Journal. All rights reserved. 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