They seemed like the perfect couple.
Wright Energy Corp., a tiny, struggling Newport Beach oil exploration company with aging, but productive Kentucky oil fields, had been borrowing millions of dollars since 1979 and desperately needed a massive infusion of capital to stay alive.
Whittaker Corp., a $1-billion-plus Los Angeles conglomerate, was flush with cash from a lucrative Saudi Arabian health-care contract and looking to invest in the oil industry.
So, Whittaker agreed to loan Wright up to $10 million, with the option to either buy Wright or its oil fields.
But a marriage that seemed made in heaven was never consummated.
Whittaker never exercised its options. Last March, Wright, swamped by $26 million in debt, filed for protection from creditors under the federal bankruptcy law. In November, Wright sued Whittaker for $112 million in federal court in Los Angeles. The suit alleges Whittaker committed fraud by failing to merge with Wright or purchase the Kentucky fields. The suit also claims that Whittaker tried to take control of Wright's Kentucky oil fields without paying Wright shareholders.
The suit is still pending, and Whittaker officials have denied all the charges. Meanwhile, Whittaker has lined up behind Wright's other major creditor, Barclays Bank International Ltd., in an attempt to collect its $9-million debt. Wright owes Barclays $13.7 million.
Typical of Many Firms
Wright is typical of a large number of small oil exploration companies that sprang up during the domestic drilling boom of the late 1970s and early 1980s. Many of these companies poured all their resources into exploration, believing economists and industry experts who predicted oil would be selling for $50 or more a barrel by now. Scores of these tiny companies have perished; others, like Wright Energy, are struggling to survive with the prices of $25 to $26 a barrel paid now for domestic crude oil.
Wright's tale of woe shows the difficulties that can arise when attempts are made to unite a small company with a large one. In the case of Wright Energy and Whittaker, sources close to both companies say, personality conflicts between independent-minded Wright Chief Executive Don Wright and Whittaker's representatives helped spoil what seemed to be, on paper, a perfect fit.
"I've written off my share of this and it hurts," said Harry Derbyshire, executive vice president and chief financial officer of Whittaker. "I should be suing them (Wright)."
Donald Wright, the affable, sandy-haired president, chief executive officer and treasurer of the company bearing his name has another view of the imbroglio.
"This is a classical situation of a lender, in this case Whittaker, over-reaching its power," said Wright. "The day Whittaker started advancing us money, they took over control of Wright Energy."
Wright said he spends virtually all his time trying to raise funds to keep the company alive. "We are really broke," the 53-year-old Wright said.
Wright said he wants the bankruptcy court to let his company borrow another $785,000 to continue operating. Wright believes that, with the additional funds, he can boost oil production and begin to pay off creditors. But there is a hitch. The lender, Newport Beach businessman Jack Bennett, wants to be repaid before Barclays Bank, Whittaker and Wright's other creditors. An attorney for Barclays and Whittaker executives have said they will oppose this plan.
The controversy surrounds 6,300-acres of oil fields, in the heart of Appalachia southeast of Lexington. Wright bought the fields in 1980 for about $7 million. Seeking proven reserves, Wright said he based the purchase on information he found in public government reports.
Wright needed Whittaker's money to boost oil production in the shallow fields. After protracted negotiations in the spring of 1983, Whittaker agreed to pay for an experimental water-flooding program which injected millions of gallons of water into the Kentucky wells in an attempt to raise the oil to the surface.
Dispute Doomed Deal
Wright and Derbyshire agree that a dispute over the water-flooding project ultimately doomed the deal.
Several oil men who invested in Wright stock because they believed Whittaker would buy the company or the fields, said there was one basic problem: Wright wanted to drill new wells and develop the fields quickly to boost oil production so it could begin paying off its bills. Whittaker, taking a more long-range view, wanted to complete the sophisticated water-flooding program to determine just how much oil was in the ground before agreeing to buy the fields or the company.
Sitting in his office overlooking Westwood Village, Whittaker's Derbyshire tells a tale of bad faith and poor communication with Don Wright. He said Wright met with him and Whittaker President Joseph Alibrandi in March, 1984, to iron out their differences and try to salvage the deal, but Wright went ahead and filed for bankruptcy a few days later without telling them.