Enron Ascending

Chapter 1The New Houston Natural Gas

In 1984, Kenneth L. Lay left the presidency of Transco Energy Company to head Houston Natural Gas Corporation (HNG), a promotion with challenges. Sporting $2.8 billion in assets (about $5 billion in 2017 dollars), Houston-based, Texas-centric HNG, the predecessor of Enron, was cash rich and conservatively financed. But markets were going south, and HNG’s revenue and profit were receding.¹ Worse, the storied company did not seem to have a plan to reverse the decline and return to glory. That is why HNG’s board dismissed its old-school chairman, M. D. “Bill” Matthews, and brought in the youthful, affable, industry-experienced PhD economist.²

The transition away from the roaring-energy 1970s was continuing in 1984. Crude-oil prices were down 25 percent from peak-year 1981. OPEC dropped its benchmark price for the first time in history and began cutting member quotas. Meanwhile, the Crude Oil Windfall Profits Tax of 1980, collecting no revenue at current prices, was headed toward repeal.

Shale oil and coal-liquefaction projects—once thought to be the energy future at Transco, HNG, and elsewhere—were being shelved. Oil and gas in their natural state needed no help from higher-cost substitutes (submarginal supply). Although President Reagan had breathed new life into the Carter-era Synthetic Fuels Corporation with major grants in 1981, he now was ready to abolish the agency.

Recessions in the mid-1970s and in the early 1980s, in the face of rising ...