P. Getty, Sr. – Dec 12, 1892 – Jun 6, 1976
(Jean, pronounced “John” with a soft “J”) Paul Getty was born in Minneapolis, Minnesota on December 15, 1892, to George Franklin Getty, an attorney, and his wife, Sarah Risher Getty. He was to be George and Sarah’s only child.
The father, George Franklin, eventually found lawyering dreary and longed for the excitement of the oil fields then rapidly developing out west. Oklahoma had been synonymous with oil and gas since the late 1800’s, but expansion accelerated in the early 1900’s with the advent of motorcars. Oil lamps, a major use of petroleum prior to automobiles, would burn through approximately ½ ounce of oil per hour.
At that rate one gallon (128 oz) of oil would service a wick lantern for 256 hours. If we presume four ounces of lamp light per evening, lamp oil would be consumed at the rate of one gallon every two months.
Then came automobiles. The Model T Ford was introduced to the market in 1908. It averaged somewhere around 16 miles per gallon (range: 13 – 21 mpg). If driven 100 miles per month, the Model T would consume in two months 12.50 gallons of gasoline. Cars consumed 12 times the fuel of the then-current oil lantern. One can only imagine how the increased demand was reflected in the oil fields.
Oklahoma’s First Oil Well
Oklahoma, in the heart of the Mid-Continent Oil Region, benefited wildly. Some of the largest oil and natural gas fields in the country were found there.
It started before 1900. On April 15, 1897, Jennie Cass dropped an explosive charge down the borehole of a well and brought in the state’s first commercially successful oil well, the Nellie Johnstone Number One, at fifty barrels per day. Things would never be the same again, as it was the discovery well for the giant Bartlesville-Dewey Field. It ushered in the oil era for Oklahoma Territory. The Nellie Johnstone Number One produced more than 100,000 barrels of oil in its lifetime.
By the time it became a state in 1907, Oklahoma was the largest oil producer in the nation. Between 1900 and 1935 Oklahoma ranked first among the Mid-Continent states in oil production. The state placed second in the nine years following 1935.
In response to his raging oil fever, George Franklin moved his wife and young son to the petroleum fields of Oklahoma in 1904. Jean Paul was twelve years old.
G.F. Getty found work in Oklahoma as an oil field attorney, presumably dealing mostly with petroleum leases, contracts, and breaches of the same. The work was lucrative and after two years the G.F. Getty household moved to Los Angeles with (i) more money than they arrived with and (ii) an intimate knowledge of oil leases and contracts. G.F. (George Franklin) did not resume his general law practice in California. He still had the specific oilfield knowledge gleaned from his Oklahoma days, but no longer had to be local to the oil fields, for he was buying and selling on his own hook. G.F. Getty had become an oil investor, and oil investors can live anywhere.
His father’s enthusiasm was an education for the boy, Jean Paul Getty. He listened at the dinner table. He watched his father at the desk. He learned. On school breaks, he would join his father on his travels to Oklahoma to inspect the oil fields. Even an absentee business needs a squinted eye now and then. George Franklin would confirm that his existing investments were percolating right along, and once he was satisfied with his current investments he would scout for new opportunities. The boy J. Paul was at his side and missed very little.
In his 15th year, Jean Paul applied directly to his father for a summer job in the family company, Minnehoma Oil. George Franklin agreed but gave his son no special treatment. J.P. Getty worked 12-hour shifts as an unskilled laborer for $3 per day.
At the end of the summer, J.P. returned to his high school studies. Following graduation, he took courses at the University of Southern California and the University of California at Berkeley while working between terms as an unskilled laborer in his father’s company, still at $3 a day. George Franklin Getty did not willingly pay more money to an employee, even his son, who was doing the same work as he did last year.
In 1912, at the age of 20, Jean Paul entered Oxford University in England, receiving a degree in Economics and Political Science the following year. Along the way he gained fluency in French, German, and Italian. He was conversational, but not fluent, in Spanish, Greek, Arabic and Russian.
Upon graduating from Oxford, George Franklin encouraged Jean Paul to work as an agent for Minnehoma’s Tulsa office, buying and selling leases. Jean Paul reluctantly agreed, but it did not prove a good match. He was there only one year before he walked out the door to become an independent operator. In 1915 Jean Paul threw $500, the last of his savings, into a half-interest in an oil lease on the Nancy Taylor allotment northwest of Haskell, OK., about 35 miles southeast of Tulsa on State Route 51.
He now had a half-interest in an oil lease, but the price tapped him out. J.P. had nothing left for working capital. He could not pay for the necessary drilling. He resolved the issue by establishing the Lorena Oil Company. Eager partners were found whose combined investments would provide the necessary drilling funds. Drilling started in January 1916, with Jean Paul working right along with the crew. His time as a roustabout turned out to be well spent. In February 1916, the well came in at 700 barrels a day. A few days later he sold his share of the lease and production to Cosden Oil Company for forty thousand
dollars. Everyone likes to be associated with a winner, and on the day that J.P. Getty’s last $500 exploded into $40,000 he suddenly became the person everyone wanted to be seen with.
Later in that year, J.P. Getty accepted a position on the board of directors of the Minnehoma Company, his father’s business. The appointment did not require him to devote his time exclusively to Minnehoma, and he continued his independent operations. Things must have worked out for him because he soon became a millionaire. Like his father, he moved out of Oklahoma as fast as he could.
From George Franklin Getty’s appointment of his son to the Minnehoma board, it was obvious he recognized J.P’s success. As quickly as reasonable, the father and son melded the Lorena Oil Company with Minnehoma, forming the Getty Oil Company. With both father and son now drawing salaries from the Getty Oil Co., J.P. took a Dionysian sabbatical. In his 1976 obituary, the Los Angeles Times reported “he lived a gaudy, girl-filled life for two years.” Money was again proved to be a splendid aphrodisiac. Who could have guessed?
Jean Paul returned to the oil business, probably thoroughly worn out, in 1919. By the time his father passed away eleven years later, J.P. had experienced three weddings, two divorces, and two children. Eventually there were a total of five marriages and five children. Like his parents, J.P. had one child per marriage.
After his fifth marriage failed, J. Paul directed his libido to a “fixed repertoire of lovers and mistresses, whom he would pit against each other using what many claim was the most important thing for him: money”.
Father and son continued to acquire wealth during the “Roaring Twenties” through lease brokering and drilling. When George passed away in 1930 Jean Paul received a token inheritance of $500,000 but also became president of the oil company he shared with his father. His mother, however, retained the controlling interest.
Over time, J. Paul reorganized Getty Oil into a vertically structured business. Business structure is all about the supply chain. A vertically structured business controls the supply chain from egg to Sunday dinner. The purchaser of a gallon of gas in a vertically structured oil company activates a profit chain that starts with acquiring the petroleum lease and runs through transport pipes, refinery, storage, shipping and finally to the gasoline station from which the purchaser pumps his gasoline.
A horizontally structured business model acts within a given layer of the supply chain. Example: One party master-leases all the public parking spaces in town. It doesn’t make any difference where a driver pays to park; all parking income flows to the same lessor.
Both business structures can be lucrative. The horizontally organized business, however, is limited by their footprint: if the preferred parking space was not one of the master-leased units – if it’s outside the lessor’s footprint – the lessor gets nothing.
A vertically structured business is not geographically limited. A refinery that sells products to someone other than their downstream partner still makes money. A refinery in Houston, as part of a vertically structured business, can sell excess products to any buyer anywhere in the world. A vertically structured business essentially has an infinite footprint.
P. began to organize Getty Oil into a vertically structured business. He began by purchasing Pacific Western Oil, Skelly Oil, and Tidewater Oil, all before WWII. These companies were not immediately folded into Getty Oil but, for unknown reasons, were held separate. After WWII he invested millions in the “Neutral Zone” between Kuwait and Saudi Arabia. His middle-eastern gamble paid off in 1953 when oil was struck and began to flow at the rate of 16,000,000 barrels a year. To place this into perspective, and with the understanding that not all oil is the same, on the day this is written a barrel of OPEC Basket oil cost $84.16. Multiplying out, the Getty Oil’s Neutral Zone wells provided annual sales of $1.33 billion (in now-money).
Four years later Fortune magazine named Getty as the richest man in the world.
Ten years after that J.P. the Getty Oil Company absorbed Pacific Western, Skelly, and Tidewater. By the mid-1970’s J.P. Getty’s personal fortune was estimated at around $3 billion, plus or minus (now-money: $16.62 billion).
The “plus or minus” requires a word or two, because the truly rich usually don’t know how much they’re worth at any given moment. For example, a large part of a wealthy person’s asset base is generally illiquid. Example: How much is that 400
unit apartment complex worth? We don’t know until it’s sold. However, it is not certain that it would sell, nor when it would sell, nor at what price it would sell. There’s a lot of slippage in estimates of wealth.
Interest rates strongly influence asset value. If interest rates climbed, the asset value would probably decline with every rate increase. Rates go up, values go down.
The reverse is also true: when rates go down, values tend to go up. Witness what has happened to investment values between 1982 and early 2022, when interest rates ratcheted lower and lower over a 40-year period.
What about Scrooge McDuck’s collection of da Vinci’s? We know that a buyer reportedly acting for Arabia’s Crown Prince Mohammed bin Salman purchased the Salvadore Mundi in 2017 for $450,000,000. But we also know that not too long after that sale the famous Museo Nacional del Prado downgraded the painting from “by Leonardo” to “attributed to Leonardo”. That was a big tumble from grace, in that the Prado was no longer willing to attest that Leonardo himself painted the work. It had to have affected the painting’s subsequent value, but there’s no way to tell until the painting is again auctioned.
As surprising as it might be to non-investors, a person isn’t truly wealthy until he no longer knows how much he’s currently worth. Even as a young man, Jean Paul Getty didn’t know for sure how rich he was. Consider his first oil well. One day in February, 1916, J.P.’s share was worth $500. The next day it was suddenly sold for $40,000. Six months later Getty was a millionaire. Shortly after that he was off to kiss the girls. At no instant in time could he have known exactly what his then-current worth was.
Note to the Reader: This article is largely sourced from Wikipedia, expanded where appropriate by the following:
https://www.oklahomaminerals.com/look-back-one-biggest-oil-gas-fields
https://wwwbiography.com/busioness-figure/j-paul-getty
https://www.notablebiographies.com/Fi-Gi/Getty-J-Paul
https://www.thegentlemansjournal.com/article/life-j-paul-getty-richest-man-history-world
https://www.getty.edu/about/whoweare/history.html
https://www.investopedia.com/articles/financial-theory/09/getty-oil-takeover-fiasco.asp
This article is for informational purposes only and is not intended as professional advice. Klarise Yahya is not a financial planner. Nothing in this article is presented as investment guidance. For specific circumstances, please contact an appropriately licensed professional. Klarise Yahya is a Commercial Mortgage Broker specializing in difficult-to-place mortgages for any kind of property. If you are thinking of refinancing or purchasing real estate, perhaps Klarise Yahya can help. For a complimentary mortgage analysis, please call her at (818) 414-7830 or email [email protected].