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1970 - 1979: A Decade of Megaprojects

The rules began to change in the 1970s. These changes were driven by major shifts in global economies and the gradual unraveling of the post–World War II order. The first Earth Day, celebrated in April 1970, would affirm broad public sentiment in favor of more stringent environmental safeguards. In the United States, that sentiment was given regulatory teeth in July, when President Richard M. Nixon created the Environmental Protection Agency.

In the realm of global business, the nations that made up the Organization of Petroleum Exporting Countries (OPEC) flexed the cartel’s muscle and raised oil prices by more than 100 percent in 1973. It was an act of instant inflation that shocked the economies of most of the world’s developed nations. By decade’s end, inflation in the United States had reached double-digit proportions. Bechtel executives found themselves managing in a drastically altered business milieu, where the parameters could change at any minute, where social and environmental considerations could take precedence over growth and profits.

The company did not have to acquire a sense of environmental responsibility. An avid hiker and outdoorsman, Steve Jr. had a personal concern for the environment. “When we did the Trans Mountain pipeline in the early 1950s,” recalled Steve, “it was the first pipeline across the Rockies, and our environmental concern was major.”

Steve Jr. realized, as did Bechtel managers, that the much tougher environmental regulations were not only a social mandate but also a business opportunity. “Our primary effort should be in-house,” he said, “to build up the expertise and capacity to help clients meet environmental considerations in siting, designing, and building facilities.” For instance, an environmental laboratory established in Belmont, California, laid the groundwork for later heavy involvement in hazardous-waste handling and treatment. The decontamination and decommissioning of Three Mile Island would be the most visible such assignment.

Succeeding in these times required a company to be socially aware, politically savvy, and totally flexible—in short, to be a kind of company different from what Bechtel had been. Remaking Bechtel into a nimbler organization dominated discussion of the company’s first five-year plan at the April 1970 meeting of the company’s Directors’ Advisory Group. The plan was built on four major projections for the half decade ahead: Business would expand, the international workload would grow, revenue and profit increases would shift to nonenergy-related areas, and revenues from big jobs would increase.

The company’s 1970 decision to expand its international business and to go after big jobs was prescient, since the U.S. economy would soon go through hard times. 

Taming the North Sea

When the price of crude rose to about $40 a barrel, finding new reserves of oil and gas became a most attractive economic prospect. After all, the fear was that the price was headed for $100. With Europe desperately seeking indigenous energy sources, the North Sea, with its known but untapped deposits of oil and gas, became the world’s most promising area for new energy exploration. And with the signing of a contract to develop the Argyll field in 1972, Bechtel entered North Sea history.

When Hamilton Brothers contracted with Bechtel to develop Argyll in the British sector of the North Sea, it wasn’t the biggest, most technically complex, or the most costly job Bechtel had ever undertaken. But Steve Jr. would always think of it as a landmark because Argyll affirmed Bechtel’s role as a leader in petroleum production technology.

Bechtel’s experience in oil platform work dated to the early 1950s with Saudi Arabia’s Safaniya field, then the world’s largest offshore development. But as one Bechtel marine specialist said, “Those platforms, situated in relatively shallow water, were dwarfs compared to the 40,000-ton giants in the North Sea.” Within three years of securing the Argyll job, Bechtel was at work on three large North Sea projects—Argyll and the Occidental Group’s companion Piper and Claymore fields—all located in churning, frigid waters more than a hundred miles off Scotland’s rugged northeast coast.

Never before had oil been recovered from fields thousands of feet beneath a seabed, which itself lay 480 feet below some of the world’s roughest waters. The prize was a bonanza in light, easily processed crude.

In the North Sea projects, design and construction technology was constantly evolving, and each new platform seemed to incorporate a major breakthrough. Argyll was the first anchored semisubmersible drilling rig converted to service as a production platform. Piper was the largest offshore structure ever launched at sea from a barge. Claymore was linked to Piper by a 30-inch submarine pipeline that enabled them to work as a coordinated pair.

Constructing the 30-inch Piper pipeline—the largest ever at this depth—was a major achievement because bad weather limited the 1974 construction season to just 131 days. The 14,000-ton Piper platform was a worldwide effort. Pilings came from the United States, bottom leg bottles from Japan, platform superstructure from the Netherlands, much of the drilling equipment from Canada, the upper part of the jacket from France, and the bottom-half template and pumping and production modules from Scotland.

And there was a huge amount of additional work to come: the Beryl “B” platform for Mobil; a project services contract with Conoco for the Murchison platform, the most northerly field developed at the time, 120 miles northeast of the Shetland Islands; the Hutton platform, with its revolutionary tension legs that enabled it to operate in waters twice as deep as any previously worked; and the Flotta oil and gas terminal in the Orkney Islands, which began operation in 1976.

As immense and important as the British sector work was for Bechtel, many thought the potential for future North Sea offshore work was even greater in the Norwegian sector to the northeast. One was Israel Leviant, former Bechtel vice president, director, and veteran European consultant, who had lobbied long and hard to promote this belief within Bechtel, initially with little success. “The Norwegian offshore,” he said, “is comparable to Saudi Arabia. If you take the length of the Norwegian coast and make it straight, it will go around the Earth. They are just beginning to scratch the surface of it, and there will be several decades of work there.” That promise began to be fulfilled when massive tugs guided into place the unwieldy Gullfaks “A” oil and gas production platform, a facility benefiting from project planning, engineering supervision, and construction and hook-up assistance by a Bechtel joint venture. Tall as the Eiffel Tower, the gravity-base platform was towed upright some 150 miles offshore Norway. It began producing oil in 1987 as part of Norway’s planned multibillion-dollar development of its North Sea petroleum resources. 

Syncrude: Oil from Sand

In the 1970s, as oil prices skyrocketed, Canada resolved to fully develop its abundant domestic energy reserves. Syncrude Canada Ltd. enlisted Canadian Bechtel Ltd.’s help to extract synthetic crude oil from the Athabasca tar sands—a desolate 21,000-square-mile area in northern Alberta, where Bechtel had helped develop the Suncor project in the early 1960s.

Much of the work on the new project was performed 300 miles to the south of Athabasca, in Edmonton. At Bechtel’s field operations office there, skilled tradesmen drawn from every Canadian province preassembled modules and component parts on a scale never before attempted. Included in the 800,000 tons of equipment preassembled in Edmonton and trucked to the job site were more than a million linear feet of pipe. This massive preassembly was a key reason the project team completed the $1.8 billion Syncrude complex within budget and four months ahead of schedule.

When construction was completed in 1978, the Syncrude facility was one-third larger than any other mining operation in the world, it was the biggest plant of its kind in the world, and it included the largest fluid cokers ever erected. Most important for Canada, the facility produced up to 125,000 barrels of high-grade synthetic crude oil daily—nearly 10 percent of the country’s total oil production. 

Jubail: The Gigaproject

Never has there been anything like Saudi Arabia’s Jubail Industrial City: a self-contained complex built from the ground up to accommodate 370,000 people. The Jubail program--still ongoing and growing--would include all the requisite infrastructure, roads, sewage and irrigation systems, and schools.

Jubail owes its existence to the fact that most of Saudi Arabia’s oil fields are charged with abundant quantities of natural gas under high pressure. Traditionally, the standard procedure was to burn off this gas. Bechtel legend has it that while flying into Dhahran from Beirut, as he did so many times, Steve Sr. would look down and see the flicker of bright orange-red flares dotting the desert below like dozens of Bedouin campfires and wonder about ways to utilize this energy resource.

There was little economic incentive to move the gas to world markets. “It had been common knowledge,” he said in a 1983 interview, “that the flaring of gas was going on all over Saudi Arabia. It was a question of what they should do with it, how best the Saudis could utilize this excess energy for the development of their country. My initial concept was for the design and construction of an industrial complex in the Eastern Province of Saudi Arabia, to include such facilities as refineries, petroleum and petrochemical plants, and steel, fertilizer, and aluminum production facilities.” These were all heavy energy users that would devour the excess gas.

Planning for the industrial development began in earnest on April 27, 1973, when Steve Sr. called a meeting to outline his ideas. Among those present were two men who would play key roles in the ultimate success of the project: Suliman Olayan, Bechtel’s longtime associate in Saudi ventures, and Parker T. Hart, a Bechtel consultant and former ambassador to Saudi Arabia.

The best location for the complex was Jubail. A fishing village of around 7,000 people, Jubail was the only undeveloped port in the Eastern Province with access to deep water. It lay close to developed areas such as Ras Tanura, Ad Dammam, Al Khobar, and Dhahran, and just southeast of the major Berri oil field. A deep-draft port could be built at Jubail to handle ore carriers for the proposed steel mill and bulk cargo carriers that would be needed during construction and operation.

Steve Bechtel Sr. presented his plans for the plant to King Faisal on the afternoon of June 4, 1973, in Geneva. At the meeting, the personal rapport between the two was instantly apparent. Steve had been a friend of Faisal’s father, King Abdul Aziz, and had worked with him to develop his country. And Faisal himself had visited the Marinship facility during World War II, with Steve Sr. as his personal guide.

Along with new industry, a planned city would provide housing and residential amenities. A power plant of perhaps 1,000 megawatts, provided in staged increments, and a ready supply of cooling water would be critical elements of the infrastructure. A third key element would be gas-gathering facilities and pipelines to bring natural gas from the production fields to the industrial area.

The Saudis were determined to include, as part of the project, a strong manpower training program to prepare their people for all sorts of tasks. Dr. Jameel Al-Jishi, the first director general of Jubail, emphasized the training of Saudis. “If all we get is the buildings and the infrastructure and you leave, what will we have?” he asked. “But if you teach my people, when you leave, we will have a city. And this is what I want.” Every department or project manager had a Saudi counterpart, and, at some point, the Bechtel employee would no longer be needed.

The Saudi government signed a contract on June 2, 1974, calling for Bechtel to oversee a long-range industrialization program on behalf of the kingdom. It was thought that the work could go on for 10 years or more. Jubail would be the principal site for industrial development in the kingdom, and it would be paired with a smaller development at Yanbu on Saudi Arabia’s Red Sea coast.

The effort showcased the company’s growing ability to manage complex projects. Even for a company where multibillion-dollar deals would become commonplace, the ultimate numbers on Jubail were awesome. “Before any industries or permanent housing could be built, we had to install all the infrastructure needed to support it,” said Project Manager Mort Dorris. That meant raising the mean elevation of the site and moving more than 440 million cubic yards of earth, enough to build a road around the Earth at the equator nearly 30 feet wide and more than 3 feet deep. Power and water supplies had to be installed, with generators, wells, and small desalination plants gradually replaced by a national system. A total transportation system was built from scratch—a network of national highways, an airport, and a huge port complex.

Bechtel’s initial concept was to serve as the agent for the Royal Commission for Jubail and Yanbu, vested with full authority for executing contracts and free to do detailed engineering-construction for specific projects. The final contract precluded Bechtel from acting as a vendor or contractor, but allowed it to perform detailed engineering when requested by the Commission, and gave it authority over contract management, administration, and a few other specified areas. On June 24, 1976, a 20-year program management services agreement for the development of the Jubail region was signed in Riyadh.

Today, Bechtel continues work on Jubail under a contract extension and expansion of scope signed in 2006. Jubail II will add a second industrial area to house up to 22 new primary industries. The project calls for the expansion of King Fahd Industrial Port, pipeline refurbishment, increasing capacity of the cooling system, and new desalination plants. The team will tailor plans to meet demand over the next 25 to 30 years. 

From construction to focus on management

Bechtel had evolved into a full-service engineering and construction company. If the customer desired, Bechtel could develop the concept for a project, perform feasibility studies, help arrange financing, perhaps invest some of its own money, do the engineering, and either perform or manage construction. By the mid-1970s, engineering and construction would be increasingly divided. Often, Bechtel would do neither the engineering nor the construction, but would serve as project manager, representing the owners.

A good illustration of this shift was Bechtel’s involvement in the massive James Bay complex in a remote and inhospitable region of Quebec. The largest hydroelectric project in North America, involving the diversion of four rivers into one and the construction of four huge powerhouses, it took 13 years to complete, beginning in 1972. Bechtel’s main role was to help manage the activities of a workforce numbering some 12,000 people and to help oversee the supply of hundreds of thousands of tons of equipment and materials to a site more than 400 miles from the nearest town.

On New Year’s Eve 1975, the company was at work on 119 major projects in some two dozen countries with estimated values, according to Fortune magazine, totaling $40 billion. For the preceding 20 years, it had been growing at the astonishing rate of 10 to 20 percent a year. And it would continue to expand at or above that pace through the 1970s.

Bechtel was clearly entering a new phase in its evolution, and major change seemed inevitable. Its success had generated cash reserves, which needed to be invested.

In 1977, the company became part of a consortium that bought Peabody Coal Co. from Kennecott Copper Corp., its first non–real estate equity investment. In 1979, a Bechtel/Hanna combine invested in Welltech, Inc., an oil-well-servicing business in Houston. That was soon followed by the acquisition of Dual Drilling Co. Investments in such companies as Mesa Petroleum and Lear Petroleum led to a position in oil and gas exploration and development. Bechtel formed Uranium Enrichment Associates (with Union Carbide and Westinghouse) and Energy Transportation Systems, Inc. (a coal slurry pipeline project with Lehman Brothers), development companies whose missions were never brought to fruition.

These new investments were all in industries that complemented Bechtel’s construction core and would not put the company in a competitive position with any customers. Said Steve Jr., “We want to get into things where we have more to bring than just money, things that won’t confuse our primary business.”

As the decade progressed, Bechtel’s outside activities were accompanied by the creation within the company of a series of major new enterprises, including Saudi Arabian Bechtel Co., Bechtel National, Inc., Thermal Power Organization, Bechtel Financing Services, Commercial Buildings & Land Operations, and the Nuclear Fuels Operation. Each was designed to capitalize on Bechtel’s increasing specialization in a variety of fields. Characteristic of this carefully targeted effort to address new markets and shifting demands were the creation of Bechtel Energy Corp. and the acquisition and expansion of Becon Construction Co. Over the following decades, Bechtel would continue to adapt to constantly evolving business environments with new collaborations and services. 

A new generation of leaders

Given all these changes, it was logical that Bechtel of the 1970s would be led by a new generation of managers. Between 1967 and 1977, 12 of 15 board members retired. Among the new people brought in were generalists who had no experience in the construction business but had broad and impressive backgrounds in public administration, the academic world, and private enterprise.

Chief among that group was four-time Cabinet officer George Shultz, whom Steve Jr. first met while giving a speech in Washington. Shultz had been impressed enough to call Steve from time to time for advice or simply to sound him out on a particular problem. In May 1974, Shultz left government service—he was by then secretary of the treasury—to become executive vice president of Bechtel Corp. A year later, he would become president.

In addition to Shultz, board members joining Jerry Komes, John O’Connell, and Harry Reinsch on Bechtel’s executive committee in the mid-1970s included Porter Thompson, Steve White, and George Saul. More than ever since it had been established in 1959, the committee served as a high-level forum for review, discussion, and formal decision-making.

Bechtel would need the considerable talents of all its leaders in the next decade. The year 1979 started badly and then got worse. The lack of a U.S. energy plan, a slowdown in the demand for electricity, and increased financial restraints led to an epidemic of project cancellations and delays. Then, on March 28, an accident occurred in a nuclear plant at Three Mile Island, near Harrisburg, Pennsylvania, which terrified the nation and contributed to the demise of the market for nuclear power plants in the United States. Later, Bechtel would take on the cleanup of Three Mile Island—a facility in which the company had no prior involvement.

Bechtel was, by tradition and competence, a direct construction company, yet nonconstruction activities such as project management, engineering, and construction management now accounted for two-thirds of all revenues, up from 40 percent in 1970. The triumvirate of companies that bore the Bechtel name still ranked No. 1 among U.S. engineering and construction firms, but a very difficult decade lay ahead.

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