Oil Slicks

Tim Marquez and Rod Eson were on their way to revolutionizing the oil industry when they ran into Erin Brockovich, Katie Couric, Enron, and a confluence of problems that would tear them apart.

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There is a moment on that sunny day in the fall of 1995 when the partners begin to sense that the prospects for their new oil company have no limit. As they walk the grounds of Beverly Hills High School, of all places, they survey, analyze, do the math, and begin to get excited. See Mr. Vision, Tim Marquez, then 36, fit, square-jawed and intense, with his Rockefeller-size oil-baron dreams walking the site but already looking past it: This is just the start, baby. See Mr. Reality right beside him, Rod Eson, then 44, silver-haired, stout, and quietly assured, with his oil veteran's pragmatism and a taste for stability: Yeah, but let's make sure we get this right.

A wise wedding of daring and diligence, the partners are inspecting the walled-off less-than-an-acre parcel where 16 oil wells are pumping 24-7 less than 100 meters from where the high school football team practices for Friday's game. Eson checks the pumps and drills and dismisses them as inefficient and out of date. We can pull up more oil at less cost, he'll observe, without all the big-company overhead. Marquez will crunch the data with the help of a geophysicist, peer through his desktop computer and into a 3-D simulation of the geologic faults and folds looking for untapped sweet spots, and he'll find them.

Some type of oil well has been operating on the Beverly Hills site since the turn of the century. In fact, all across Los Angeles, big and small producers are still trying--in parking lots, under shopping malls and high schools, in neighborhoods rich and poor--to suck the vestiges of what was once one of the largest reservoirs in the nation. This facility was built in 1978 and is owned by Wainoco, a Houston oil company traded on the New York Stock Exchange (and now part of Frontier Oil). But litigation, environmental regulation, and falling prices are turning urban drill sites like this one into a liability for companies like Wainoco.

Three years after founding Venoco Inc. in 1992 on nothing but will and hope, Marquez and Eson decide to buy the mineral rights to the Beverly Hills site for pennies on the dollar. They gamble that a nimble, low-overhead organization can use fresh technology to squeeze oil out of places the big boys are too inefficient to tap.

"These properties are everywhere," says Eson.

"We'll be the biggest independent oil company in California," says Marquez.

It will take them 10 years to build the prototypical entrepreneurial success story--and one year to destroy it.

A New Kind of Oil Company

It used to be there really were only two options in the oil business. One was to work the old wildcatters' game, crisscrossing the Southwest for one big score. But that route has always been a sucker's bet; drilling a well can cost upward of $20 million, and the odds of striking sweetness are maybe one in 10. For the less daring, there was always work in the supply chain of the so-called Seven Sisters, the "majors" such as Exxon or Shell. But the bureaucracies of those vertically integrated goliaths stole all that was fun--and most lucrative--about the oil industry.

Marquez had worked in the business as a roustabout--"a flunky," he says--since he was a teenager paying his way through the Harvard of geosciences, the Colorado School of Mines. Eson was a mechanical engineer who'd run his own service company, hooking up big companies with new technologies that helped them get more oil out of their wells. Brought together by a mutual friend, the two men believed there was an emerging third option: the independent.

Independents--the industry term for companies that have more capital and know-how than the typical wildcatter--can grow either by exploring and finding reserves or by buying a company that already has them. Drilling is risky, because finding oil is only half the job. The real challenge is finding the money to pump the oil. But Venoco wouldn't explore or drill new holes, the men decided; the company's competitive advantage would come from buying properties that had not been fully tapped. "The best place to find oil and gas is where [you already know] there is oil and gas," says Eson, stating an industry maxim that became the company's founding principle.

Oil wells never really run dry. A big company will drain maybe 40% of a field. Pulling out the rest of the oil, which requires an outlay of incrementally more cash per barrel, often proves uneconomical for big companies with big overheads. In the late '80s and early '90s, however, huge technology gains were enabling the independents to get in the game. "The industry was undergoing as many technological advances as it had undergone in the previous 100 years combined," says Marquez. In short, what once required a Cray supercomputer could now be done on a $5,000 desktop.

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