Sonat, Inc.

P.O. Box 2563
Birmingham, Alabama 35202
U.S.A.
(205) 325-7686
Fax: (205) 325-7490

Public Company
Incorporated: 1973 as Southern Natural Industries, Inc.
Employees: 5,800
Sales: $1.5 billion
Stock Exchanges: New York

Sonat, Inc., is a global company based in Alabama whose principal areas of activity are natural gas transmission and marketing, oil and gas exploration and production, and oil services. The company has been a leader in Deepwater drilling, and its principal subsidiary, Southern Natural Gas Company (SNG), has operated a natural gas interstate pipeline system for more than sixty years.

Although incorporated in 1973, Sonat’s roots go back to those of Southern Natural Gas Company, which dates back to the oil boom of the late 1920s. In 1928 Southern Natural Gas Corporation was incorporated under Delaware laws. The name changed with reorganization and reincorporation in 1935. In 1929 SNG completed a natural gas pipeline from the oil fields of northern Louisiana to Birmingham, Alabama, and then on to Atlanta, Georgia. These two cities were then the largest in the South, and, despite the Depression, SNG was paying dividends by 1936. Christopher T. Chenery, the company’s first chief executive, served until 1965. Over the years, SNG became a major gas supplier to the Southeast, buying and transporting natural gas for distribution to municipalities, direct customers, and other pipelines.

Throughout the 1940s, SNG acquired other gas companies, such as Mississippi Gas Company and Chattanooga Gas Company, Inc., establishing its presence in the region and growing steadily. In 1956 SNG purchased the Offshore Company, a pioneer in offshore drilling, which later became one of Sonat’s greatest strengths.

SNG diversified slightly in the 1960s, forming Southern Natural Resources, Inc., in 1968, which became Southern Forest Products, Inc., and later brought to Sonat a forest-products joint venture. There was also a Southern Natural Realty Corporation.

Incorporated in 1973 as Southern Natural Industries, Inc., Sonat acquired SNG that same year. Under John S. Shaw, who became chairman in 1967, the company diversified from the interstate pipeline base provided by SNG and its various interests, and became a giant growth company. In 1978 Sonat completed acquisition of the Offshore Company, which had by then established itself as a pioneer by developing the first jack-up drilling platform.

Offshore—now Sonat Offshore Drilling, Inc.—launched the first floating rig with a jack-up in 1955. These rigs stand on the ocean floor with their drilling platforms elevated above the water. They became the industry’s staple for drilling in water up to 300 feet deep. In 1963 Offshore began designing and implementing rigs specifically for use in the North Sea. The company was as active in building and designing for other companies as it was in contract drilling, and continues to lead the industry in Deepwater drilling technology and equipment development. During the 1960s emphasis moved from rigs to drillships and Offshore developed the Discoverer Seven Seas, a drillship that has set world records for Deepwater drilling of oil and gas wells, working in nearly 7,000 feet of water. The strengths of this subsidiary would later affect the overall direction of Sonat.

Sonat began early on to diverge from its roots in the regulated interstate gas pipeline business, seeking areas of faster growth. The steady pipeline business provided a strong base for diversification. With the solid earnings record of SNG, Sonat began expanding the its offshore drilling and exploration and its forest products venture. The timber and paper business, Boise Cascade, suffered severe losses in the late 1970s due to a poor housing market and mechanical problems at the mill. A joint venture, Boise produced newsprint, linerboard, and wood products.

On solid ground in the late 1970s, despite turbulence in the oil industry and the economy, Sonat’s reins passed to Henry C. Goodrich in 1980, whose immediate plans were more acquisitions and a broader identity. It was toward that end that the company name was changed in 1982 to Sonat. At this time, the company was in top place in Forbes ’ ranking of producers and pipelines. In 1981 company revenues were $2.4 billion. The only subsidiaries performing under par were Boise and Interstate & Ocean Transport. Boise owned and leased 800,000 acres, more than half of them with mineral rights. Interstate, a petroleum products carrier working along the east and gulf coasts, was purchased by Sonat in 1980 for $109 million. A Philadelphia-based tug and barge business, Interstate became Sonat Marine and suffered a $7 million loss due to strikes, debt services, high interest rates, and a poor market.

By 1982 Sonat had a reputation based on 22 consecutive years of record earnings. At this point, half of the company’s profits were coming from its 8,000 mile interstate natural gas pipeline, supplying gas to seven southeastern states, primarily Alabama, Georgia, Mississippi, and Louisiana. The turbulence in petroleum prices in the late 1970s and early 1980s affected Sonat, which had one of the nation’s largest offshore drilling fleets.

Sonat increased money spent on exploration and production—$177 million in 1981, up from $28 million in 1977. By 1984 company emphasis was on offshore drilling and expíoration with funds from the steady pipeline business providing the base. Drilling, exploration, and production income surpassed that of the pipeline business by 1983, just as the industry experienced a slowdown in contract drilling. Because of the gas glut in 1982 pipeline sales declined 16 percent. Sales improved somewhat as a result of the Federal Energy Regulatory Commission (FERC)’s approval of rate cuts in mid-1983, making Sonat more competitive. The offshore drilling division, undergoing difficulties because of the soft market, continued to add to its fleet, which included 14 land units and 24 marine rigs in 1984. Sonat Marine was still a disappointment by the mid-1980s, but Boise Cascade saw improvements due to a stronger housing market. In 1983 Sonat acquired a top gulf coast sea diving company, S & H Diving Corporation, and set up Sonat Subsea Services in order to move into the underwater-well completion and production business. In 1984 Sonat purchased Teleco Oilfield Services, Inc., a leader in the technology of sophisticated oil-drilling measurement equipment—especially measurement-while-drilling equipment which makes it possible to drill more efficiently.

Ronald L. Kuehn, Jr., became chief executive officer in 1983 and led the company in its strategic wager that offshore drilling business would revive. Despite the slowdown, in 1984 Sonat spent $425 million on six Korean-built Deepwater rigs. Its offshore drilling subsidiary had been helped by three-year contracts with petroleum companies for drilling in the Middle East. Although these contracts ran out in the mid-1980s, the company still led the way in the Deepwater market. In 1984 the pipeline business was still contributing nearly half of Sonat’s operating income.

In 1985 Sonat looked more to gas and oil acreage to increase production revenues. It formed Sonat Minerals, Inc., and Sonat Minerals Leasing, Inc., in 1984 to hold onto mineral rights while letting go of its forest products venture. Sonat bought certain gas and oil properties from Eason Oil Company in 1985, and in 1986 acquired half interest in Citrus Corporation, the parent of the Florida Gas Transmission Company and peninsular Florida’s only pipeline supplier of natural gas.

Broadening its natural gas interests in 1987, the company formed Sonat Gas Supply, Inc., and Sonat Marketing Company. Both subsidiaries provided natural gas marketing and brokerage services. The following year, Sonat Gas Gathering, Inc., and Sonat Coal Gas, Inc., were formed. At the same time, Sonat continued to acquire oil and gas properties. Exploration quadrupled the company’s reserves between 1988 and 1991, primarily because of these acquisitions. Properties purchased in 1989 were mostly in east Texas and north Louisiana. That same year, the company formed Sonat Energy Services Company. Marketing natural gas throughout the United States, Sonat Energy owns intrastate pipeline and gathering facilities.

Natural gas transmission and marketing accounted for 54 percent of Sonat’s operating income in 1990. With Citrus, the company owned nearly 14,000 miles of natural gas pipeline. This mileage was still expanding in 1991 with plans to extend pipelines in Florida as well as in the coal-seam gas area of Alabama’s Black Warrior Basin. In 1991 Sonat announced a merger agreement with North Carolina Natural Gas Corporation. Approval is pending.

Sonat’s exploration and production division was reaping the rewards of its acquisition campaign by 1990: revenues for this segment were $147 million in 1989 and $240 million in 1990. Natural gas production increased by 53 percent between 1989 and 1990. Early in 1991 Sonat purchased natural gas reserves in the Anadarko Basin of Oklahoma.

Sonat’s oil services segment was given a boost by the tenuous situation in the Middle East during 1989 and 1990. Offshore rig utilization and day rates increased, with operating income showing a profit in 1990 after two years of loss. Along with Teleco Oilfield Services, Inc.’s established position in the measurement-while-drilling industry, Sonat Offshore’s leadership in the Deepwater market gives Sonat a solid footing in that growing industry.

Principal Subsidiaries

Southern Natural Gas Co.; South Georgia Natural Gas Co.; Southern Deepwater Pipeline Co.; Southern Energy Co.; Sonat Exploration Co.; Sonat Oil Transmission, Inc.; Sonat Minerals, Inc.; Sonat Minerals Leasing, Inc.; Sonat Offshore Drilling, Inc.; Sonat Energy Services Co.; Sonat Marketing Company; Sonat Intrastate-Alabama, Inc.; Sonat Gathering Company; Sonat Gas Supply, Inc.; Sonat Gas Gathering, Inc.; Sonat Coal Gas, Inc.; Citrus Corp. (50%); Sonat Ventures, Inc., AES/Sonat Power (50%).