The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters by Gregory Zuckerman

stockholders. It was best if they took their cash and left, Hauptfuhrer figured.
    Some employees backed the deal, worried that if Oryx didn’t buy the shares they might fall into the hands of a rival, resulting in a merger and severe job cuts. Many had gone through layoffs at other oil companies during the industry’s difficult period and didn’t want to do so again.
    But others worried about Oryx’s rising debt levels. The company already had piled on debt to buy the properties from British Petroleum. Now it owed more than $3 billion, equal to nearly Oryx’s entire market value. Credit rating company Moody’s Investors Service cut its rating for Oryx’s debt, citing the company’s decision to borrow more money when its leverage was “already high.”
    Some employees grumbled that Hauptfuhrer was trying to help his father-in-law, who some believed was part of the Pew family. In reality, Robert Dunlop, the former Sun chairman, wasn’t one of the Pews. But he was on the board of the Pew trusts and a director of the firm managing the family’s money, raising other potential conflicts of interest in the buyback agreement.
    Unbeknownst to most Oryx employees, the buyback resulted from a behind-the-scenes chess match that Hauptfuhrer appeared to have misplayed. The president of the Pew trusts, Dr. Thomas Langfitt, had indeed convinced Hauptfuhrer and Oryx executives that the trusts would sell their shares to a rival, threatening Oryx’s independence, unless the company bought the shares from the trusts, according to a lawsuit later filed against the trusts related to the deal. The genteel Pew Charitable Trusts, known for their support of civic journalism and other like-minded causes, had embraced a tactic that Jack Willoughby in
Institutional Investor
magazine later likened to “greenmail,” the hard-nosed tactic usually employed by corporate raiders.
    “They put a gun to our heads,” Hauptfuhrer recalled. “They said, ‘If you don’t buy us, we’ll shop the shares to another company.’ And I thought we were in the beginning of an important period for the company,” so it wasn’t the right time for a merger.
    It turned out to be a bluff by the Pew trusts, however.
    “Despite the fact that our own advisers told us that there was no third-party buyer out there on the horizon, we were able to induce them to believe that in fact there was,” Peter Brown, chief operating officer of the firm managing the trusts’ money, later asserted in court testimony, as reported by Willoughby. “And so they wanted to get control of the block.”
    Brown testified that Oryx developed a “genuine paranoia . . . about word getting into the market” that the trusts were considering selling shares to an outside company. 8
    “The president of the Pew trusts told our board that they intended to sell their block,” Hauptfuhrer said later. “That may have been a bluff—in which case he lied.”
    Had Hauptfuhrer and Oryx rejected the buyout idea and told the Pew trusts to unload their stock on the open market, the selling likely would have weighed on Oryx shares. But the company would have been left in a healthier position to pursue horizontal drilling across the country. Instead, Oryx bought the shares back and found itself in a weakened state.
    “Now we had a lot of debt,” Hauptfuhrer acknowledged.
    Hauptfuhrer assured investors that the company’s growth, as well as firm oil prices, would enable Oryx to pay down the borrowing. He didn’t think prices would keep soaring, but he also didn’t plan on any kind of plunge.
    But oil prices did plunge soon after the United States overran the Iraqi forces, ending fears of a global oil shortage. Prices remained low the rest of the decade, Oryx’s profits dried up, and its shares crumbled. The company soon tottered under all its debt. Hauptfuhrer restructured operations and froze salaries, as production from the Austin Chalk area tapered off.
    Searching for a way out, Oryx