ELEPHANT
WELL
At
the Penn Square Bank closing, FDIC closing personnel were assigned portfolios
of large, complex,
distressed
oil and gas loans to evaluate for potential recovery. A certain wildcat
drilling company, whose
owners
were notorious for both their wild and extravagant lifestyles and their lack of
success in the oil patch,
had
an $18 million loan outstanding. The loan initially was valued at a complete
$18 million loss. A few
days
later, a local newspaper ran a front-page article proclaiming in the headline
that the drilling company
had
hit an “Elephant Well.” As it now appeared that the borrowers were rich and
their debt would be paid
in
full, the valuation estimate was changed to reflect full recovery of the $18
million loan. Nearly a week
passed
before it was discovered that the company had drilled into the Oklahoma Gas
& Electric
underground
storage facility. Both claimed that they had no idea.
--Robert
Carman
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