Hydril Company

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Hydril Company

3300 North Sam Houston Parkway East
Houston, Texas 707032-3411
U.S.A.
Telephone: (281) 449-2000
Fax: (281) 985-3376
Web site: http://www.hydril.com

Public Company
Incorporated: 1933
Employees: 1,400
Sales: $239.6 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: HYDL
NAIC: 333132 Oil and Gas Field Machinery and Equipment Manufacturing

Based in Houston, Texas, Hydril Company designs, manufactures, and markets products used in petroleum drilling and production. The company built its reputation in the 1930s when it produced the first hydraulically operated blowout preventer. Since that time, the company has continued to focus on blowout preventers and piping connections that undergo tremendous levels of pressure. Not only do these products save money for oil producers, they protect the environment from unnecessary oil and gas spills, both on land and in the ocean. In recent years, most of Hydril sales are related to offshore drilling and derived from outside of the United States. Among the company’s other products are high torque tool joints, diverters, pressure control systems, drill stem valves and actuators, sub-sea drilling systems, high performance chokes, and custom rubber products for the oil industry. Hydril is a worldwide operation with 13 manufacturing plants and 22 sales and service offices located around the globe. Major production facilities are located in the United States as well as Canada, Mexico, Scotland, Nigeria, and Singapore. Although publicly traded, Hydril is controlled by the heirs of its founder, Frank Roger Seaver, and includes a charitable foundation in his name. His brother is the chairman of the board and his nephew the current president and chief executive officer.

The Early Career of Frank Seaver

The foundation of Hydril is very much the story of Frank Seaver, a man of varied interests who in addition to becoming a respected businessman was well known in Republican Party circles and earned a reputation as a great philanthropist, becoming a major benefactor of Pepperdine University. Born in the 1800s, the son of a banker in Pomona, California, Seaver came of age in the twentieth century, graduating from high school in 1901. He earned an undergraduate degree from Pomona College, then read law for a year in preparation for taking the bar examination, which he passed in 1906. Although he was now able to practice law, according to the custom of the day, he elected to spend a year at Harvard Law School in post-graduate study. He then moved to Los Angeles and opened his own law office. His brother Bryan soon joined him and they practiced together for nine years before World War I intervened and Seaver, a member of the National Guard since his college days, was called into military service.

During the final months of the war, Seaver served as a deck officer on a U.S. Navy cruiser, used primarily as an escort vessel for ships transporting troops and supplies to England. When hostilities ceased, he was transferred to New York City and assigned the task of disposing some 300 Navy transports. It was in New York that his wife, Blanche, made the acquaintance of industrialist and oil magnate Edward L. Doheny and his wife. The two couples began to socialize and Doheny grew so impressed by Seaver that he offered him a job. Rather than rebuild his law practice, and eager for a new challenge, Seaver agreed and began his involvement in the oil business.

After successfully completing a number of assignments, Seaver was named General Counsel and Managing General Agent for Doheny’s Mexican operations. It was in Mexico that Doheny launched his often controversial business career. While Seaver lived and worked in Mexico from 1921 to 1927, Doheny was caught up in the Teapot Dome scandal, in which he was accused of making a $100,000 bribe to Secretary of the Interior Albert B. Fall. Fall was forced to resign and both men endured years of legal tribulations. Ultimately, in 1930, Doheny was acquitted of giving the bribe, although Falls was convicted of receiving it. Having lost his only son, killed by a servant in 1929, Doheny was already a broken man by the time he was free of Teapot Dome. He fell ill and was bedridden for three years before finally dying in 1935.

When he sensed that the political climate had turned against foreign investors, Seaver returned to the United States in 1927 after selling off Doheny’s Mexican interests. Back in Los Angeles, he helped Doheny organize a new company, the Pacific Petroleum Products Company, which was to market gasoline through service stations it built in the San Francisco area. Doheny soon sold the business, and Seaver began to seriously consider striking out on his own. He targeted the Doheny Stone Drill Company, a subsidiary of Doheny’s Petroleum Securities Company. Doheny agreed to lease some of the buildings and equipment of the business for a ten-year term.

Hydril Company Formed in 1933

Doheny Stone Drill Company, named for its founder Fred Stone, was located in Torrance, California, and struggling for survival. The number of its employees ranged from 50 to 75, depending upon sporadic demand for its heavy oil drilling machinery, threads for oil piping, and blowout preventers. Seaver decided to drop the drilling equipment in order to focus on the specialty items, but soon had to contend with the onset of the Depression. With his life savings at risk, he had no choice but to succeed in the venture. His employees, thankful to have jobs during uncertain times, were committed to helping him. Within two years they turned the company into a profitable concern. In 1933, Seaver was able to become the proprietor of the business, which he now named Hydril Company, derived from “hydraulic drilling equipment.”

Seaver was very much a benevolent dictator who demanded a great deal from his employees while also keeping information as compartmentalized as possible. Employees knew what was important to their function, and little more than that. In this way, Seaver was able to cut out organizational clutter and operate efficiently, personally setting all policies and making all major decisions. Any matters he delegated were strictly scrutinized. He believed in simplicity and quality, as evidenced by his decision to focus on specialty products. When Hydril’s blowout preventers proved to be so durable that it was costing the company replacement sales, Seaver was flexible enough to change the company’s marketing efforts. Instead of selling preventers, Hydril now began to lease them.

Early on, Seaver recognized the need to have a presence in the Texas oil fields. He bought far more land in Houston than was necessary for a manufacturing plant, which some considered a waste of money. Decades later, however, it would be deemed an act of genius. All of the space was utilized by Hydril, and the company would have liked to acquire more land if only the real estate values had not grown so high. In 1937, Seaver bought a manufacturing plant in Rochester, Pennsylvania. When it opened, the large facility housed just a single machine, but Seaver anticipated that the company would soon have need for the extra space. Two years later, he was about to open a New York office when Hitler’s invasion of Poland prompted him to postpone his plans. With the onset of World War II, this decision proved to be wise, since steel rationing curtailed the company’s ability to manufacture oil field equipment. Now the extra capacity of the Rochester plant was put to good use, as Hydril began to manufacture war materials. In 1940, Seaver organized Hydril Company of Texas, which produced military ordnance during the war under the name of Texord Manufacturing Company.

Hydril did not profit excessively from World War II. Seaver did not care to serve as a government contractor and did not build up the business by taking advantage of available sweetheart deals for equipment and land. Moreover, Seaver was a hard-line Republican who considered the 1932 election of Franklin Roosevelt to the presidency an unmitigated catastrophe. War did not soften that belief, but Seaver remained a patriot and played his part in helping to win the conflict. As soon as hostilities ceased and steel rationing and oil drilling limitations lifted, however, he returned Hydril to its former line of business, which thrived without the benefit of government contracts.

As Seaver neared 70 years of age with no children, he settled on his brother’s son, Richard C. Seaver, as the man to one day take over Hydril. Even with this endeavor, he dispensed knowledge on a need-to-know basis. For years he groomed Richard as his heir apparent without bothering to tell his nephew. Richard graduated from the Law School of the University of California in 1950 and was immediately elected secretary and a director of Hyrdil. Rather than go to work for the company, however, he accepted a position with a San Francisco law firm, heading up its Los Angeles office. His uncle subsequently hired the firm to represent Hyrdil, and Richard served as corporate counsel, which allowed Frank Seaver to familiarize him with Hydril’s business. After three years of this arrangement, Frank suggested that since Richard was already doing so much work for the company he might as well become a Hydril employee. Richard declined, but over the course of the next four years his uncle slowly reeled him in, occasionally dropping a suggestion that he join the company. It was not until 1957 that Richard seriously considered accepting the offer. Realizing that if anyone other than his uncle had presented him with such an opportunity he would have readily accepted, he overcame his reluctance and finally took a job with Hydril. Still, his uncle did not reveal his intention of ultimately making Richard the president of the company, although he now familiarized him with all aspects of the business, including numerous discussions with a number of suitors interested in buying the company. Far from being possessive about Hydril, Richard claimed that about once a month he wrote his resignation from the company, none of which he actually submitted to his uncle.

Company Perspectives:

Quality, service, technology, and reliable products: the cornerstones of Hydril’s continuing effort to provide the highest customer value to today’s demanding oil and gas industry.

Frank Seaver Dies in 1964

A month after Frank Seaver died in 1964, the board of directors of Hydril elected 42-year-old Richard Seaver to serve as the company’s second president. By this point Richard was dedicated to continuing his uncle’s legacy at Hydril. He never moved into Frank Seaver’s large office, preferring instead to keep it essentially the way his uncle left it, employing it only for periodic board meetings. The business continued to grow over the next 20 years, due in large part to the structure its founder put in place. Hydril also continued to devote significant resources to research and development to maintain its edge in its specialized products, although the market shifted from land drilling to deep-water operations, which placed even greater demand on blowout preventers and secure tubing. In a similar way, the source of Hydril’s revenues shifted from the United States to overseas, with domestic business soon accounting for just 35 percent of revenues. Other products were also introduced to provide some diversity during the various cycles of the boom-or-bust oil industry. Moreover, the corporate offices were eventually moved to the Houston facilities. In 1986, Richard Seaver stepped down as chief executive, although he stayed on as chairman of the board, and John B. Griffiths took over as president.

The 1980s were a difficult period for the oil industry and companies like Hydril that served it. Because of the company’s sound foundation and Frank Seaver’s belief in not taking on debt, Hydril, unlike many other oil-field equipment companies, was able to survive two significant drilling slumps caused by the collapse of oil prices. Griffiths took over during one of these lean periods, during which the price of oil plummeted from nearly $30 a barrel to under $10. Revenues for the company that totaled $170 million in 1985 fell to $110 million over the following three years. He was forced to cut Hydril’s payroll from 2,100 to less than 1,000. Some facilities were also shuttered and outside contractors hired to take over the work. These cost-cutting measures allowed Hydril to quickly regain profitability, while at the same time Griffiths invested heavily in computer-aided design systems. Although a large initial outlay, the investment paid off handsomely. Not only were engineers far more productive, they were now able to spot problems in a product before prototypes were even built. The CAD systems were also important in the development of products to serve such new techniques as horizontal drilling, which permitted a wide range of access to petroleum deposits from an extremely small footprint.

After six years Griffiths resigned, replaced as president and chief executive officer by Lynn L. Leigh. His tenure, however, would be brief. Less than two years later, in August 1993, Christopher T. Seaver, son of Richard Seaver and nephew of Frank Seaver, succeeded Leigh. He was well versed in Hydril’s operations, having worked at the company for eight years. Like his father and uncle, he first pursued a legal career, serving as a corporate and securities lawyer before joining Hydril. By 1991, he was named executive vice-president and was primarily responsible for the company’s tubular products. In July 1993, he was promoted to chief operating officer of Hydril, but when Leigh quit the company a few weeks later, he assumed the presidency.

With a third-generation Seaver running Hydril, and his father still serving as chairman of the board, the company had to operate in volatile conditions during the rest of the 1990s, with price swings in oil and gas having a dramatic impact on the need for the company’s products. When prices were high, customers pressed Hydril to add capacity, but by the time a new manufacturing plant would come on line, the company could not be certain that conditions would permit the same level of demand. When oil prices hit their highest levels in a decade in 2000, Chris Seaver took advantage of the favorable conditions to take Hydril public, although family interests would continue to own a majority of the stock. With the money raised in the offering the company was now able to invest in capital spending, boosting capacity at a number of its facilities. In 2001, Hydril posted net profits of $25.6 million on revenues of $239.6 million. Despite the cyclical nature of drilling, the company proved to be consistently profitable. Under management of the Seaver family, Hydril harbored no grand plans for expansion, content to stay out of debt, exploit its niche operations, and maintain its reputation as a well respected, well run company that produced quality products.

Principal Business Segments

Premium Connection Segment; Pressure Control Segment.

Principal Competitors

Varco International Inc.; Grant Prideco Inc.; Lone Star Technologies Inc.; Peerless Manufacturing Co.

Key Dates:

1933:: Frank Seaver founds the company.
1957:: Seaver’s nephew, Richard Seaver, joins company.
1964:: Frank Seaver dies, Richard Seaver named president.
1986:: Richard Seaver relinquishes presidency but remains as chairman of the board.
1993:: Richard Seaver’s son, Christopher Seaver, assumes presidency.
2000:: Hydril goes public.