THE BRIDGE TO CARACAS (Volume 1 of The King Trilogy)

CHAPTER 28

The winds of change had begun to blow. The governments of oil producing countries were openly expressing concerns about the day when their oil reserves would be depleted. They worried that the price the world was paying for their oil was insufficient to replace the incomes they enjoyed while the oil was still in the ground. They had concluded that, as demand for oil continued to rise, a sellers' market would soon arise. But if they were ever to succeed in increasing the price they received for oil, they must do so by acting in consort. A loose relationship of oil producing countries was solidified into a cartel known as Oil Producing and Exporting Countries, or OPEC.

In early 1973, OPEC convened a meeting in Tehran, Iran. The attendees included the oil ministers from the OPEC countries, representatives of the world's seven largest oil companies, and politicians from oil consuming countries. The implications of the event induced thousands of members of the media from around the world to converge on Tehran. With the threat of cut-backs in oil production and the expropriation of oil production facilities owned by the oil companies, OPEC succeeded in extracting an agreement from the oil companies that forced them to pay an additional thirty-five cents for each barrel of crude oil produced and exported from OPEC countries.

The OPEC ministers then convened another meeting in Vienna, Austria. Its purpose was to force an agreement on further increases in the price of crude oil. While the meeting was in progress, the Arab-Israeli War broke out and, as a result of the war, the meeting failed to produce an agreement. Shortly thereafter, the meeting was reconvened in Kuwait City. There, an agreement was reached to cut back OPEC crude oil production. The diminished output quickly resulted in huge increases in the world price of crude oil.

Mike's improbable miracle was at hand. As the price of crude oil escalated, so too did the margin XG Petroleums enjoyed on gasoline it purchased from Golden National. Paul Conrad deeply regretted that he had agreed to include the price escalation clause in the gasoline supply agreement between Golden National and XG Petroleums. The clause limited the gasoline price increases Golden National could pass on to XG to fifty percent of crude oil cost increases. While North American wholesale gasoline prices increased by forty percent, the price increase to XG Petroleums was limited to twenty percent.

Suddenly, XG was not only alive and well, it was on the threshold of an enormous bonanza. Its retail margin expanded to absurd levels. By Mike's most conservative estimates, XG's annual pre-tax profit would be at least eight million dollars. With slightly more than two years remaining on the Golden National supply contract, he had been blessed.

He decided to use the enormous profits to consolidate the company. He planned to purchase key pieces of real estate that were still being leased by XG from third parties. If the opportunity presented itself, he would also purchase any properties that Fletcher attempted to sell. To Fletcher's dismay, the holding company still held rights of first refusal on all of his properties.

It wasn't long before Paul Conrad arranged a telephone conference with Mike. He initiated the discussion with a classic understatement. "I guess you're fairly happy with the agreement."

Mike grinned. "My only regret is that we didn't make it for ten years, Paul."

"I'm sure that's true.... But listen up—I'll give you ten years if we can renegotiate the price escalation clause."

"Not possible. I need this agreement more than you can ever know, Paul," Mike said. He would never tell Conrad explicitly that XG had come within a month of bankruptcy.

"It's hurting Golden National more than you could ever know. I need some concessions," Conrad pleaded.

Mike resorted to the same tactic he had used with Fletcher. "Suppose that the price of crude had gone down, instead of up. And suppose the price clause had been written to cover decreases. Tell me honestly: would you have been prepared to make concessions to XG?"

"That's hypothetical, Mike," Conrad retorted, even though he couldn't help but concede Mike's point. "We're talking about reality here. Now I'm asking you for concessions. Is there any way we can work this out?"

"I'm sympathetic to your problem, Paul, but the reality is our agreement," Mike said. "Both of us entered into it in the cold light of day with our eyes wide open. It's not my fault that you suddenly see it as improvident."

"Well said," Conrad conceded. "I'll share a private thought with you, Mike. If I were in your position, I would be just as tough. I'm going to warn you, though—if I can find a legal way to recover something out of that contract, I'm going to do it."

Mike suspected that Golden National would attempt to recover part of its losses by increasing its gasoline trucking charges to XG. He studied the contract and discovered that the pricing strategy they had worked out applied only to gasoline bought from Golden National at the refinery gate, and did not include delivery. To eliminate the vulnerability, he set out immediately to replace his mode of transportation. His search led Mike to Amerada Tank Lines in Fort Erie, Ontario. Amerada's geographic positioning and its vast trucking capability made it by far the most logical candidate to handle XG's haulage. The logistics were so perfect that Mike was prepared to pay a premium to Amerada if it could handle XG's entire requirement.

In a meeting with Dave Lasker, the president of Amerada, he negotiated a gasoline transportation agreement under which Amerada Tank Lines would pick up gasoline at the Golden National refinery in Buffalo and deliver it to XG's retail outlets. The agreement effectively eliminated any possibility that Golden National could recover its losses by raising its trucking charges to XG. Even better, Amerada's haulage rates were marginally lower than Golden National's.

Seconds after Mike left Lasker's office, Lasker telephoned his boss: Jim Servito.