Heritage at stake Featured

8:00pm EDT July 21, 2002
No one is quite certain why Sam Jack-the third generation to run S.W. Jack Drilling Co.-walked into the shower one day in 1990, put a .357 Magnum-caliber pistol to his head and pulled the trigger. Certainly a string of dismal years and an unpromising future for the natural gas industry meant the business he had poured his life into would be a long time, if ever, recovering. And a man whose behavior was characterized by ebullient joy one day and deep, dark lows the next could easily be inclined to commit the ultimate act of controlling one's destiny.

Christine Jack Toretti, his daughter and now president and CEO of the Indiana, Pa.-based company that he tried to keep out of her hands, speculates that the man who idolized Gen. George S.Patton and ran his company like a draconian field commander had become despondent over the downward spiral the business took in the anemic gas industry of the 1980s. His age-he was a month shy of his 65th birthday when he died-may have signaled to him the beginning of the end of his life, the final stage of which promised to reveal itself as all too dark as his company continued to decline.

Those close to him knew that Jack was obsessed with being in control of every detail of his business, his life and even his death and what was to transpire after it.

"My father wouldn't let anyone make a move without him," says Toretti.

Try as he might, though, his intentions were circumvented by a daughter whom he was convinced was incapable of carrying on his business. But she was, and she did carry on-to the point of restoring her father's dying company.

The road back hasn't been an easy one. Since she took over in 1990, she has had to regain the confidence of customers and employees, introduce a more nurturing management style and substantially reduce the company's workers' compensation losses. And she has had to endure her share of personal and professional crises along the way-including a divorce.

But in fiscal 1997, Toretti's efforts began to pay off. The company broke even for the first time since she took over. Moreover, she has doubled the size of her workforce to 350, thanks in part to two acquisitions and a strategic alliance accumulated since 1990. And Toretti herself has built up her own prominence in the process, becoming known for her active leadership role in Republican national politics and in her industry. Indeed, she has come far since facing her father's tragic death and the formidable business challenges left in its wake.

Sam Jack left no real succession plan, save some life insurance and detailed written instructions to his wife, Nell, and Toretti, their only child, as to how to divest themselves of the company and its assets after he died. Toretti says her father likely saw liquidation as more profitable than a sale of the company, given that the natural gas and gas-drilling industry was foundering at the bottom of its cycle at the time. And the prospect of bringing in someone from the outside to run it wouldn't have sat right with Jack, she says.

All told, Toretti recalls, it became clear to them that Jack had intended that the company not survive him. His wife had had little involvement in the business. Toretti, at the time 33 and the mother of two with a third on the way, was chief financial officer, but she hadn't had nearly the preparation that a successor would need.

Besides, she concedes, it was quite clear that her father had little confidence in her ability to take over, and perhaps not without reason. Jack simply had not been inclined to groom her as his successor.

Yet, to be fair, Toretti's father's sentiments weren't much different than those of many others, including her mother. Nell Jack was skeptical about letting her daughter take on the business and, until relatively recently, even refrained from expressing her pride in her daughter's efforts to jump-start the stalled company.

"A lot of people were convinced that there wouldn't be a company," Toretti says now. The industry wasn't showing any signs of recovering, many of the company's assets had been sold off, and Jack's successor had never inspired the confidence of her father enough to be groomed for the takeover.

"I encouraged her to sell the company," says James McElwain, now the company's chief operating officer for a second time, when he heard of Jack's death. Sixteen months before Toretti hired him, Jack had fired him after the last of many heated arguments between the two.

But Toretti was determined to keep the business going, saying she felt an obligation to the people who worked for S.W. Jack Drilling-many of whom would be hard-pressed to find jobs in the industry.

"I asked my mom if she would give me two more years and bet on me," says Toretti. She eventually convinced her mother, who had inherited her husband's company initially, to give her a chance.

Robert Duggan, chairman of S&T Bank, where Toretti serves on the Indiana, Pa.-based bank's board, says he views Toretti as the person the company needed at the time.

"There's no doubt about that," he says. "She made a commitment and dedicated herself to making sure it got done."

Starting at the bottom

The company Toretti took over was in dismal condition, indeed, wracked by the blows suffered by the gas industry since the mid-1980s. The Tax Reform Act of 1986 had stripped oil and gas companies of some of their tax advantages and the stock market crash in 1987 took its toll on the overall economy.

The stagnant years eroded much of the company, as business dried up and customers fell into bankruptcy. Gone were not only the two corporate helicopters and jet, but also the 2,200 wells which S.W. Jack Drilling had once operated in the Appalachian region, then sold when the price of gas no longer justified the cost of pumping it out of the ground.

The company retreated to operating only contract-drilling jobs, but its clients, too, had little incentive to open up the ground because of the depressed prices. Moreover, Jack had driven such hard bargains with customers-in an industry where everyone knows each other-that few were inclined or in a position to break his fall during the company's descent. S.W. Jack Drilling was in anything but optimum shape as an acquisition target.

Still, Toretti describes her father as "brilliant in what he was able to achieve." Jack took the drilling company from four rigs when he took over in 1954 to 25 rigs operating seven days a week, 24 hours a day in the boom years of the 1980s.

Clark Nicklas, president of Vista Resources Inc., a gas exploration company, and a 20-year veteran of the gas industry, knew Jack and describes him as someone who was tough but fair.

"He was tough, but the thing was, you knew where he stood," says Nicklas. "You don't mind someone who's tough as long as you know where they're coming from."

Others describe him as a driven man with boundless energy who knew every detail of his business, from the financials to the drilling rigs. They say he was an entrepreneur who was just as likely to turn up at a drilling site as the company's offices in Indiana.

Whatever his demeanor, Jack had been much more generous over the years than his tough hide would have revealed. He could go on a tirade and have a dozen people fired or get into an acrimonious battle with a subordinate or a customer. But, McElwain says, he would just as readily open his wallet to Penn State or Indiana University or any number of charitable causes. "All through Indiana and Clarion counties," says McElwain, "there are backstops that Sam's money built."

Toretti's management style, meanwhile, is in many ways in sharp contrast to her father's.

"Chris is more of a team-builder," says S&T Bank's Duggan, who has known her for nearly two decades. He describes her as an executive with a knack for striking a balance between employees' needs and the requirements of the business, and, he adds, she has been an important board member when it comes to scrutinizing the acquisitions that S&T has made in recent years.

Rebuilding relationships

When Toretti finally bucked her father's wishes and mother's concerns, her first order of business was to get on the phone and assure customers that the company was going to continue in business. In a market where drilling companies were scrambling for jobs, it was essential that existing customers be assured that work would go on uninterrupted, says Toretti.

Although she had been the company's CFO since 1984, Toretti was shielded from many details of the business and made few decisions without consulting Jack.

"My father walked around with everything in his head," she says.

Among her first changes was the creation of a system that would more accurately determine costs. Now, she says, S.W. Jack Drilling can tell what drilling costs will be with precision wherever a rig is placed.

Toretti knew that other things would have to change as well if the company was to survive in both strong and weak markets. Take, for instance, her father's autocratic style. She quickly decided it wasn't going to work for her, so she began to decentralize control, giving her managers and the field teams more autonomy and freedom to make decisions.

"He was right," says Toretti of her father. "I couldn't have run it the way he did."

The decentralized control, Toretti admits, by no means became the company's end-all panacea overnight. At first, she says, employees reacted with uncertainty and tentativeness-especially the "drill pushers," the supervisors who ran the field crews. Eventually, though, they saw that their new boss was serious about a new way of doing business, so most of the employees began to open up. The changes were not without fallout, however, and some employees who were used to the old ways wound up leaving the company.

New safety and savings

Another serious area of concern for Toretti had been worker injuries. Worker injuries had taken their toll over the years, she says, pushing the drilling company's workers' compensation rates through the roof. Well drilling is rife with risks anyway, but a strong market for gas had given the industry a drill-them-as-fast-as-you-can sort of philosophy, one that Jack had embraced as well.

But with insurance rates soaring, Toretti says she realized that the company couldn't continue to sustain the level of workers' compensation losses that it had in the past if it was to become profitable. So one of the first things she did was initiate a comprehensive safety program for the field employees, including team and individual financial incentives for good safety performance.

Crews get $1 a day for every day a rig goes without a lost-time accident, and a safety-awards bank, and full-page ads in the local paper congratulating workers who have avoided accidents recognize adherence to safe work practices. Those efforts likewise have paid off, with costs pared by 75 percent over a three-year period.

Now, ongoing safety training keeps workers aware of hazards on the job, and a tough drug-testing program that offers rehabilitation for workers who test positive keeps impaired workers-potential hazards to themselves and their fellow workers-off the rigs.

New loyalty and trust

Toretti says the company's core customer base that stuck with S.W. Jack Drilling through the transition was key in getting the company through the early years of her tenure. Veteran employees, too, were instrumental in keeping the company going.

"The better employees could have found someplace to land," she says, but many chose stick it out.

That loyalty and trust in the company paid off dramatically in 1995, when Penn Virginia Corp., one of Jack Drilling's customers, approached Toretti with a proposal for a strategic partnership, a development that she cites as a turning point of her tenure as CEO.

"They approached us, and it was in a buyer's market," says Toretti. The deal involves S.W. Jack Drilling taking on as much of Penn Virginia's drilling work as it can handle. That show of confidence, by a company that had come to S.W. Jack Drilling not as a previous customer but because of its reputation in the industry, has led other companies to seek similar arrangements, says Toretti.

Another testament to the positive change taking place at Jack Drilling is McElwain, the company's chief operating officer. McElwain had taken a job in the health-care field after his stormy break with Jack, but he stayed in touch with Toretti from the time she took over. Knowing that McElwain had a depth of understanding of the drilling business, she asked him to return.

On the Monday in January 1995 that McElwain returned to S.W. Jack Drilling, gas prices hit rock-bottom. But what he found was a company that was better run and a CEO who had been tenacious enough to keep the company going through a string of difficult years.

Growth by acquisition

The fallout from the gas industry's sustained bad times over the past 15 years continues to haunt the business today. Hundreds of thousands of workers have left the industry, and equipment is in short supply.

"You can't buy new drilling rigs today," says Toretti. "They're just not available."

So to gain additional growth capacity, S.W. Jack Drilling has acquired two West Virginia-based drilling companies s. The purchases have brought additional skilled workers into the company as well as needed drilling gear. The acquisitions, as well as growth of the company, have allowed S.W. Jack Drilling to double its workforce, a prospect that seemed unlikely when Toretti took over.

In a move that is perhaps as indicative as any of the company's rebound, Toretti has put S.W. Jack Drilling back into the gas production business, an enterprise it had abandoned nearly a decade before. Now, with Toretti and McElwain forming partnerships with other firms in the industry, the company drills about 15 wells a year, a tiny fraction of the more than 2,200 it owned during its boom years, but a clear sign of the "cautious optimism" that is emerging in the industry, says McElwain.

The challenges ahead

The gas industry faces future challenges that are different but no less critical than those it encountered in the past. A shortage of qualified labor and drilling equipment and a need to come up with new ways of finding and extracting natural gas will mean critical strategic decisions for S.W. Jack Drilling and its industry peers.

"All the easy stuff is over," says Toretti, indicating that deposits which were the most accessible have, for the most part, been exploited. In the future, she says, drillers will have to make some difficult choices as to where they want to put their resources to make the best use of techniques to tap harder-to-reach reserves. New technologies which allow horizontal drilling are available, yet will require significant capital investments.

And seismic processes are available to reveal more accurately where gas deposits are located, but again, they require large capital commitments. Furthermore, drillers will have to decide whether they want to invest in gear that will allow them to drill deeper into existing wells, where additional unrecovered reserves may exist.

The company is now in the process of attempting to map out how it will do business in the future and where it should make investments. For now, Toretti sees its nearer-term interests in West Virginia.

Overall, Toretti describes her ability to survive the tough years this way: "I never knew until I had a child the limits of what I could endure," she says. "I knew I had enough self-discipline to stay the course. No matter how hard it got, no matter how much abuse I had to take from customers, I kept looking at the big picture and kept going. I had my mom's future and my dad's heritage at stake."