Cookin' With Gas
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The energy industry? Tulsa, Oklahoma? The last place you'd expect to find America's fastest-growing company* * *
Life is sweet these days for Kevin Sullivan. Six years ago, when he started American Central Gas Cos. with three Tulsa investors, he'd known there was still money to be made in the energy game. He just never expected to make so much so fast.
The 1980s brought tough times to Tulsa. At the same time that deregulation of the natural-gas industry created a newly competitive market, a six-year glut in energy supplies, with a consequent drop in prices, forced a drastic cutback in drilling and exploration. But Sullivan, now 34, found opportunity in the chaos -- and created a structure and compensation system to grasp it.
Changing times had opened up a new niche downstream from the well, gathering and processing other producers' gas, then transporting it through the maze of intra- and interstate pipelines and selling it to end users. Few end users were being adequately served by the large pipeline companies, which were slow to react to the market-pricing rules of deregulation, while few Oklahoma producers were prepared to start marketing gas themselves, given their cash-flow problems. By positioning themselves between the two, American Central was able to serve both better.
"We aren't an energy company; we're in the service business," Sullivan explains. Starting with a single gathering system linking no more than 10 wells, American Central now has a total of 23 facilities -- 16 gas-gathering systems, 3 gas-processing plants, and 4 gas-treating systems -- 11 of which it constructed. Over the past six years, it has developed a network of more than 1,200 wells throughout Oklahoma, Louisiana, Texas, Mississippi, and Kansas. With 10- to 15-year contracts at company-owned gathering systems, American Central could promise end users like Southern California Gas Co. or the Federal Reserve Bank in Chicago continual supply at a lower cost. Its strong customer base assured producers a guaranteed market for 100% of the gas produced.
Other companies would follow the same strategy, but few would execute it as well. Sales climbed from $113,000 in 1983 to $92,963,000 in 1987, an 82,168% rate of growth that catapulted the company to #1 on this year's Inc. 500. Pretax profits kept pace, rising from $20,000 in 1983 to $2.7 million in 1987.
The industry downturn created asset availability as well. Large companies were restructuring, selling off their processing plants and gathering systems, while independent drillers, who might have built their own systems in better times, now needed money to keep exploring. Human assets were available too, young men like Sullivan who were willing to take a risk on a start-up given the lack of opportunity elsewhere in the industry. Because American Central was small and unable to compete for employees by promising hefty paychecks or long-term security, it was forced to develop an organization and an incentive-compensation system radically different from industry norms.
"The system just evolved," Sullivan insists -- but it was that system that made it possible for American Central to ride the changing times so well. At large companies, managers are specialists limited to one narrow part of the business -- negotiating with pipeline companies, say, or marketing to end users. At American Central they are expected to see the whole: gathering, transporting, and selling.
"The key," says Sullivan, "is that anybody here can see a deal, then go do it' -- and be richly rewarded in the process. While base salaries at American Central run approximately 20% below salaries at the large energy companies, most of Sullivan's team earn some 50% of their compensation in bonuses, drawing 1.5% of the operating income of any gathering system they find or develop for the life of the system. With growth exceeding his most optimistic projections, Sullivan says, American Central's only problem to date has been hiring accountants fast enough to keep up with all the revenue his 105-employee team generates.
But what of the future? American Central, after all, has risen to the top thanks largely to hard times in the rest of the industry. What will happen when the gas industry comes back, prices rise, drillers expand, and more competitors enter the gathering and marketing game? Given the strength of his team, Sullivan argues, American Central can profit from good times even more successfully than from the bad. With more people drilling, there will be still more gathering systems needed, and higher prices should increase the company's revenues and margins simultaneously. "I think we can go to infinity," he insists, "as long as we hire the right people and let them go and do it.'
-- Curtis Hartman