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Leon Hess

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2025-02-10

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2025-02-10

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1. “Like gangster to him, and I don't mean that as a pejorative, I mean like he believed in like a handshake handshake agreement between gentlemen. He thought it was your duty to keep your mouth shut. He would talk about don't write anything down. Even when he was like bribing people, he did it in an honorable way. So he writes a letter to shareholders. Remember, this is a publicly traded company. And he has to write a letter to shareholders because the regulations in the oil industry are changing. So I just want to read some excerpts from this letter to the shareholders. He goes, in the hope of obtaining a benefit for our corporation, I made a series of payments substantial in the aggregate to a foreign government official. The bribery was unsuccessful, he told shareholders. The payments were made in the hope of promoting a project which never materialized, and the company received nothing as a result of the payments. The bribery money was his, it did not come from the company's coffers, and he hadn't sought any reimbursement and no deduction.”

   2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

2. “Hands in every single stage of Oil's journey from discovery to gas tank. Leon had joined the board eleven months before the merger was announced. To get that seat he had to make a massive investment, so Hess made a big investment two years earlier. They spent $100 million to buy 9.7% stake in the company. And so this is another example of Leon getting closer to the source to the actual discovery of oil, right? and having more control over his business because after he drastically expands his refining capability, which I just told you about, he's having to buy more and more oil. In fact, he is Shell's biggest single customer. And one thing that Leon was worried about, he's like, he didn't want his company to be held captive to producers anymore. And the reason the combination of Hessen Amerida was actually interesting. So Hess was...”

   2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

3. “And 16 states. There was an interesting line here that I didn't realize he purposely did the opposite and simplified what his gas station did compared to the existing competitors. Unlike his competitors, the Hess station attendants didn't change your oil. They didn't carry batteries, tires or windshield wipers or have car mechanics on site. And for a long time, they wouldn't even take credit cards because Leon felt that slowed the refueling process down. And so two separate times, Hess merges with another company. This is very important. So the first time, it reads to me that he merges with this company just to take Hess Public.”

   2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

4. “Other industries or other companies in your same industry, they attempted something in the past that was similar and yet forgotten. He's building this in, I think, in the 1960s. He wasn't the first to look in the Caribbean. He wasn't the first oil baron to build a refinery in the Caribbean. Shell built one in 1918 in Cura ⁇ ao and Standard Oil had built a refinery in Aruba in 1929. And so there's all these stories in the book about how important this one refinery was to his business. And you see this with his actions. The refinery is incredibly important to Leon. He would fly in every Friday to inspect his refinery to review its operations, finances, and crude state. Across the refining industry stories of Leon's persistence at the plant became legend. Leon would show up and check units at two AM to make sure they were running properly. At the same time, he's building his refineries, he's also starting to expand into gas stations. He opens his first gas station in nineteen sixty in New Jersey by the end of the decade that he had gas stations.”

   2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

5. “By bars. So he took apart his large ships, had the engine propulsion cut in two, and the bulkheads wheeled on each side and then pinned them back together. The pins were huge, so technically the drive portion could be disconnected from the cargo portion. While it may not appear so to the untrained eye, legally, these boats qualified as barges, so the massive quantities of oil they carried were exempted from the taxes that would otherwise be levied. So now he has the largest refinery in the Western Hemisphere. It's perfectly located because he's able to refine oil coming from the Middle East and South America. He refines it in the U.S. Virginia Islands and then ships that fuel to customers on the East Coast of America. Now, there is an idea in here where if you're looking to do something in your business, I bet you if you study...”

   2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

6. “Local monopoly. There was only going to be one company allowed to build a refinery on the island. Leon had to win this, in fact, there's a funny interview with the governor of the Virgin Islands talking about how he negotiated with how Leon Hess negotiated. Says from the day Leon Hess entered my office, he did not leave the Virgin Islands until the deal was consummated. And then Leon also negotiated for another series of benefits, so he also gets 16 years tax-free in St. Croix, partial government reimbursement for dredging a channel, and free use of that channel for 16 years. Now, this minute reading of regulations, it's not like this is a one-off, this is not something that Leon did one time. He found another loophole and another regulatory advantage. Leon figured out ways to make laws work to his advantage. In one instance, he found that oil would not be considered an import, and thus therefore taxed, right, as one, if he bought it from St. Lucia to St.”

   2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

7. “Now, as a result, the company would no longer just be a middleman between refiners and their customers. It could now make its own product at its own facility. And then he starts adding other refineries, builds one in Texas. But eventually, the reason I want to read this part to you this entire section, which this actually blew my mind because again, speaks to the size and the scope of his ambition. He starts out as this 19-year-old kid, used truck. I'm just going to try to make my own way in this world. Now, fast forward three decades later, he winds up building the largest refinery in the western hemisphere and he does so in the US Virgin Islands. Why? Why U.S. Virgin Islands? Because U.S. Virgin Islands hold a key advantage. So the location that he chooses for this refinery allowed Leon to take advantage of federal tax benefits. This may be the only place in the world he could have done this. So the refinery is able to secure foreign refinery status, which allows it to circumvent federal rule.”

   2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

8. “David died in 1988. And after David died, someone else described David's view and relationship with Leon says, David didn't mind rich people. He liked them. But the ones he really liked started out poor, like his son-in-law, Leon, whom he loved. And it's also from David where Leon learned, you have to balance working family. So says Hess was fully established as Leon's first child before he met Norma, and he spent long evenings and weekends dedicated to the company's birth and early upbringing. But just as David had balanced a demanding career with dinner at home each evening, Leon did the same, sometimes having to return to the office for long hours at night after spending time with his wife and children. So then Leon continues his march to getting closer and closer to the actual source. At this point, he's buying and selling and storing fuels, and Leon wasn't going to be content with just buying oil from refineries. He's going to start his own refineries. So he actually builds his first refinery in New Jersey in 1957.”

   2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

9. “So, actually, David helps Leon build a relationship with Chase Manhattan Bank. That bank at the time is being run by David Rockefeller, which is an interesting connection here. And one of the most important traits for Leon was loyalty. He expected loyalty and he gave it in return. And so because he says he gave all of his business to Chase because of the effort they put into building the relationship with him, he says they were the only ones who ever paid any attention to me. The rest of the banks never took me seriously. David saw a lot of potential in Leon. In fact, David is the one that introduced his daughter Norma to Leon. They're going to be married for the rest of their lives. At the time where he does this, Leon doesn't have a lot of money. All the money's going back into the business. So he actually has to borrow money to buy a suit for their first date. The contrast between their classes was obvious. This is the daughter of the Attorney General who had grown up with a great deal of privilege, was in a different class from the owner of a fledgling fuel business. And yet David and Leon continued to share a deep connection until”

   2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

10. “America's insatiable appetite for all types of oil. And then number five, he finally unlocks relationships in capital, including going public, which I'll talk about in a minute. But I need to talk about one of maybe the most important relationship that he ever builds is this relationship with this guy named David Willens. David is almost like, essentially, it's going to wind up being his father-in-law, but I would think of him as almost like the father that Leon chose. So David is actually the attorney general of New Jersey. And the book says that Leon's connection to David was critical in helping shape his success. David would become his friend. His advisor, ultimately his father-in-law, and help support Leon's transformation from Cole Holler to Oil Baron. Leon met David before the war, in fact while he was fighting in the war, David oversaw Leon's business. So he comes back from the war. His business has growing demand, but he's in dire need of money.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

11. “Oil drilling and exploration number four, this is a massive increase. This is wild to me. The expansion of the industry that HESS is operating in in 45 years, okay? So let's start. The dawn of the 20th century when Rockefeller was at his peak, right? Production was $174,000 barrels a day. Even at that size, I can make Rockefeller probably the richest person on the planet, right? You fast forward 45 years where we are in the story where young Leon Hess is building his oil company. The production is now 4.6 million barrels a day. And then number five, Leon starts building relationships and contacts, which are going to lead to greater sources of capital. So if you really think about what the Leon's post-World War II wave, number one, he's got the logistics expertise, right person, right set of skills, right time. Number two, the demand for fuel oil is exploding. Number three, the U.S. economy expands drastically, increasing the purchasing power of the middle class and as a result, demand for gasoline skyrockets. Number four.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Faster and more efficiently than anybody else. So number one, he's just able to get the job done. Number two, fuel oil is now going to have a massive increase in demand. Demand for fuel oil search to unprecedented levels as it's used for power generation, electricity plants used it, and in shipping expanded. Hess called fuel oil the workhorse fuel of industrial America for its uses in utility boilers, factory machinery, and heating large buildings. Number three, you have this massive explosion in demand of driving. The industry grew to serve a burgeoning U.S. middle class that wanted and needed to drive more, and Hess metamorphosed from a small dealer into one of the largest gasoline retailers on the East Coast. This is part of Hess's constant march to go to the source. Memory starts a fuel delivery, then storage, then refineries, then retail gas stations, and then finally.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

13. “Business. Okay. So at this time, again, it goes back to he's still moving fuel oil. This is that, you know, that has a consistency of molasses, other oilmen would call it the bottom of the barrel because it was so heavy. It was the heaviest of all the refined products, okay? Why is that important? And why at one point I think they said that I think the book says that Leon has something like 80% of the market share for fuel. Why? Because to move fuel oil successfully, right, you are required to move quickly and you have to have a mastery of logistics because if it's not kept at the right, first of all, it's not delivered fast enough and if it's not kept warm enough, it will transform from liquid into like it cools and it hardens. So the first part of Leon's post-World War II wave is the fact that now he is maybe has maybe the most advanced logistics training for any of his competitors and he's able to transport this.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

14. “And so when he says, when a man is lying in a shellhole, if he just stays there all day, a German will get to him eventually. To hell with that, my men don't dig foxholes. Foxholes only slow up an offensive. Keep moving later in the speech. He says, I don't want to get any messages saying I'm holding my position. We're not holding a goddamn thing. We're advancing constantly. And Patton wouldn't have been able to advance constantly. You know, he was a tanker without the way to transport fuel rapidly and to follow him essentially as he just marches through France and the way that he was able to have uninterrupted supplies was the red ball express which a young Leon Hess was working on. So the Red Ball Express was a marvel of logistics and helped ensure the Germans crumpled under the onslaught of a quick moving opposition. Said the Germans were still heavily reliant on moving things through by horses, moving fuel and supplies by horses.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

15. “So as a young Leon Hess is trying to build his oil business, World War II breaks out. This winds up becoming excessively important because he's going to go to Europe. Leon actually serves as the fuel supply officer for General Patton. This experience helps Leon develop a talent for logistics and moving fuel efficiently. They create this thing called the Red Ball Express. The Red Ball Express was a vital ally logistics operation during World War II. It was established to rapidly transport supplies from Normandy to advancing troops following the D-Day invasion. So if you've ever studied General Patton, and I have a few books on them, including his autobiography, which I'll probably do an episode on eventually, one of his main things was that he's just going to move faster than everybody else. He thought speed was one of the best weapons. In fact, he's got this great, if you haven't listened to Patton's speech to the Third Army, it's one of those famous speeches ever given. I've listened to it a bunch of times, but there's a couple of lines that kind of give you what was important to.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

16. “Teeth on residual oil from refiners and built his business in the logistics around transporting oil to refineries as efficiently as possible and distributing the freshly produced fuel effectively. Now he is very unusual. Leon's very unusual most of the oil barons that you might read about because essentially he works backwards to the source. A lot of people, you know, they write a ton of books about the people that are actually discovering oil, right? He actually, Leon comes into the industry incrementally. So he starts with the sale of the”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

17. “Other option but to succeed where others had failed. So five years later, okay, now we're at 1938. Leon now has a fleet of about 10 trucks that are buying this previously disposed fuel oil from other refiners, doing this light boiling, this light refinering, and then transferring it and delivering it to other customers throughout the East Coast. He eventually is buying so much of this fuel oil that he has to buy a piece of land and he purchases some secondhand oil storage tanks and he starts an oil storage terminal on this river in New Jersey. Now keep in mind, this is one of the fascinating things about this part of the book. Leon's 24 years old at this point and he's still living with his parents. And his dad is now working for Leon helping him. In fact, Leon provides a job for his dad all the way until his dad was in his 90s. And so for the first few years of his oil business, this is what his business consists of. It says, Leon cut his tail.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

18. “And then repurpose it as a cleaner alternative to coal. So, what he realizes is that they call it light refining. It's really like essentially boiling, just boiling this black oil, this fuel oil. You could actually then go and resell it. So he sells it to businesses and manufacturers use it as heating oil. So he sells it to for large ships, can use it. Power plants. So a lot of like early electricity plants would use it. And then if you have like a giant factory that you need to heat in the winter, if you could use fuel oil for industrial heating as well. And so when I got to this section of the book, I went and pulled out my notes and highlights for the book on Sam's Murray, which is called The Fish State the Whale. It's episode 255. If you haven't listened to it yet, the parallels routine Sam and Leon are remarkable because they're both 19 at this exact same time when they find what will turn out to be their life's greatest opportunity. So I want to read some quotes here that sounds exactly like what's happening in Leon Hess's life. Sam spotted an opportunity where others saw nothing.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

19. “In the book The Fish That Eat the Whirl. You could think of the same business the same way that Sam Zaurray built his business as the same way that Leon Hess built his business in the sense that they discovered opportunity hiding in plain sight. Literally the product that both of both Samson Murray and Leon Hess are going to sell was just being thrown away. This is one of the most important parts of the book and of Leon's life. So Leon realizes that he could sell what was called number six fuel oil. It's called residual oil. It's called black oil. Essentially, it's this heavy, almost like molasses thick oil that other refiners are just throwing away. So Leon's plan is, say, I'm going to take this seven-year-old secondhand use truck, right? It holds 615 gallons of oil. I'm going to go collect this fuel that you're throwing away anyway so he gets a good deal on it from area refineries in New Jersey.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

20. “Specifically fuel oil instead of coal as a more economical way to get energy. So in his own words, later on, there's only a few quotes from Leon. He's a very quiet person. He says he started a quote unquote little oil company. So he starts his little oil company in 1933. Leon is 19 years old. And as Leon describes this, you couldn't start from more humble beginnings. His entire oil company, his fuel company's fuel delivery service, he says, I bought a secondhand truck and I started selling heating oil and I built this company up over a number of years. So 1933, 19 years old, one used truck. That is going to be the beginning of the Hess family dynasty. So he is going to find buyers for residual oil that refiners didn't want. What is residual oil that refiners didn't want? This is going to remind you or reminded me at least of San.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

21. “And the profit margin is tiny, and with what might be one of the most important ideas Leon ever has, arguably the most important idea ever has, he decides he's going to switch from delivering coal to delivering fuel oil. So I get to this part of this book. Leon reminded me of Sam Brothman. So Sam Brothman and Leon Hess both started multi-billion dollar family dynasties and both started by fixing the mistakes of their father. So I did not know who Sam Bromfon was. I didn't know about the Bromford family many, many years ago. I'm actually reading, this is all the way back on episode 53. I was reading Mike Ovitz's excellent autobiography, which is called Who Is Mike Ovatz. And in that book, it talks about Mike Ovitz's brokering a deal between Seagram, which is the Bromffman's family company. Seagram buys MCA Universal for $5.7 billion. And so that led me to start researching.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

22. “One of the benefits that Leon gets from being a kid and working for his father in a coal yard delivering coal is that he got used, he was accustomed to handing him a large workload. It says the hard labor at the coal yard helped shape Leon's ethic of working long hours. He worked every weekend, you'll see even when he has this giant vertically integrated oil company. He would still work tirelessly all the time. There's stories of him popping up at plants at two in the morning to check on things to make sure everything's going well. Now there's something that's I think this is one of the most important parts of the book is he's going to start this company at 19 years old, right? He's going to get into the fuel delivery business. So the reason I think this is one of the most important parts of Leon's life story is because Leon realizes that his dad picked the wrong business. This also shows how shrewd and smart Leon was from a young age because he's like the coal business is a dead end. We're hauling these hundred pound bags of coal.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

23. “His brothers do try to help the family survive. One of them is they would go down to the Jersey shore and actually dig up clams and then sell the clams to local restaurants. So they would work all day and they'd be lucky to make 50 to 75 cents a day from digging up clams.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

24. “In many things, but never had great success at any of them. He had strong entrepreneur energy, and he tried his hand on a lot of things. He tried to sell produce, and he opened a bunch of butcher shops, and he tried in real estate, and finally he tried to deliver coal. So Leon's dad begins a small coal distribution business in New Jersey. This is very important. Without his dad doing this and then Leon realizing that they were in the wrong business, there would be no Hess Oil Corporation. So during the Great Depression, Leon's dad actually goes bankrupt. And as a result of this, Leon's family is unable to send him to college. He's the youngest son, the three older children all get to go to school. So even though Leon never went to college, he later succeeds in a cutthroat and highly technical business despite lacking a quote-unquote formal education. There's a series of odd jobs that Leon does.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source

25. “Leon's legacy is starting to be erased from popular memory. This book is an attempt to capture his life, the company he created, the man he was in the ways in which his life in industry changed the nation. He should not disappear from public view after reading the book, after spending the last several days rereading all of my notes and all of my highlights and really just thinking about the outline and the conversation I wanted to have with you. I couldn't agree more. He should not disappear from public view. I want to start the story of Leon Hess. I think the best way to start the story of Leon Hess is actually talking about his father and really the failures of his fathers or of his father that led to in large part that led to the success of his son. I always think of this maxim that repeated throughout the history of entrepreneurship that you can always understand the son by the story of his father, the story of the father is embedded in the son. So Leon's dad was a failed entrepreneur. Said Leon's dad dabbled.”

    2025-02-10 · Founders · #378 The Last Oil Baron: Leon Hess · IDENTIFIED FROM THE TRANSCRIPT · source