Wednesday, October 10, 2007

The Robbing of Penn Square Bank

While it is true that the eighties oil bust adversely affected every oil hub in the United States, Oklahoma City maintains a unique position in the episode because it was the location of the infamous Penn Square Bank debacle.

Penn Square Bank occupied a stand-alone building in the parking lot of the Penn Square Mall, still located in the northwest corner of Pennsylvania Avenue and Northwest Expressway. During the go go days of the last oil boom, officers of this bank began making oil and gas loans, then selling the paper to eager upstream banks like Continental Illinois. The problem was, many of these loans were secured by little more than a “lick and a promise.”

One story that has circulated for years now involves an oil company that borrowed millions of dollars to purchase drilling rigs. Auditors, attempting to account for the bank’s collateral after the company went bust, learned that Rig 13 (I don’t know if this is the actual number) was really a Lear Jet. Clients, supposedly with little or know oil experience, could get a million dollar loan with only a signature and the promise of drilling a few oil wells.

Many nouveau operators purchased jet planes, helicopters, luxury vehicles and lavish offices and lifestyles with the seed money they borrowed from Penn Square Bank, and then parlayed into millions more with money raised from largely unsophisticated investors. It is safe to say that most of these investors had little more than a “lick or a promise” of ever seeing any return from their investment.

While drilling a well in western Oklahoma, one company encountered a large pocket of natural gas. The well blew out and the gas ignited in a huge burst of flame. Instead of worrying about the raging fire and its ensuing consequences, the company chartered a commercial jet and flew a planeload of investors and various company people to the blowout site. There they had tents erected, catered barbecue and beer, and a band to entertain everyone at an elaborate blowout party, ostensibly to raise even more money.

Elaborate parties were the norm during the last oil boom. Christmas parties hosted by operators and service companies boasted hundreds of guests, all enjoying free food, drink and entertainment. I attended one oil company party where Mel Tillis and the Oakridge Boys were flown in by jet helicopter to entertain for an hour or so. One of the Penn Square loan officers was there, dressed in an Alpine costume complete with hat, shorts and lederhosen. The party took place on a farm near Edmond, the cars and party-goers so thick that they blocked the adjacent county road for hours.