Sen. Edward M. Kennedy (D-Mass.), the leading challenger for the Democratic presidential nomination, is well known as a political critic of the oil industry and the tax loopholes it enjoys.
What is not well known is that Kennedy, as an investor, is something of an oilman.
He and his children own an interest in dozens of oil and gas properties in Texas, Oklahoma, Lousiana and several other states, at least 39 leases and 101 royalty properties.
The precise value of his oil stake is unrevealed but, based on the ranges of investment interests that U.S. senators are required to disclose, Kennedy's oil holdings range somewhere between $254,000 and $887,000, representing 14 to 17.4 percent of the assets held in blind trust for his immediate family. The bulk of his personal wealth is invested in real estate.
This appears to be only a small slice of the oil properties owned by the entire Kennedy dynasty, including the senator's sisters, nephews and nieces. The Kennedy oil stake was put together, apparently beginning in 1950, by the patriarch, the late Joseph P. Kennedy, and has been passed on to various family members in the form of inherited shares and family trusts.
The elder Kennedy first paid about $2.5 million for royalty interest in about 30,000 acres of largely nonproducing oil land. Later, he got into drilling and producing, including two going Texas companies called Mokeen Oil Co. and Kenoil Corp.
For Kennedy the presidential candidate, the political implications suggested by his oil interests depent largely on subjective values, not the formal standards of public and private interests. It is possible to argue, as the senator's press spokesman does, that Kennedy's oil ownership demonstrates conclusively that Kennedy's public policy positions are not influenced by his private wealth, since he attacks the sources of his own income.
Others, who are less sympathetic, instead may see an element of inconsistency in a politician who regularly denounces an economic enterprise that pays his and yields him tax advantages.
Tom Southwick, Kennedy's press secretary, said the senator put most of his personal oil and gas and real estate assets into a blind trust last year, when he was about to become chairman of the Judiciary Committee, and he doesn't pay much attention to the subject.
"Basically, he has had very little knowledge of or interest in them," Southwick said.
"His positions on issues have never been influenced by his holdings. The stands he's taken on oil depletion and other matters are consistent with his views and those of his constitutents."
On the other hand, Kennedy is in the same position as any other wealthy politician who takes critical positions on tax laws or private enterprise: his rhetoric may collide with his investments.
Last spring, for instance, Kennedy lambasted President Carter's energy policy, "whose primary effect is to boost the already ample profits of the oil industry, put millions of consumers through the wringers and sharpen the class divisions of our society."
When Kennedy proposed legislation restricting acquisitions by major oil companies, he made a distinction between "small struggling oil producers" and "the already cash-rich major companies."
At the dedication of the John F. Kennedy Library in October, Joseph P. Kennedy III, the senator's nephew, delivered an emotional call to rally against "the vested interests . . . that are picking our bones clean."
The younger Kennedy scolded the Federal Reserve Board chairman's remark about the need for Americans to lower their standard of living. "But what about the standard of living of people on the boards of oil companies?" he asked.
Kennedy, unlike his opponent, Carter, has never made a full public statement detailing his net worth, though he does file the limited reports required by Senate rules. In 1974, in a letter to The Boston Globe, Kennedy explained that his reluctance was based on the fact that his finances "are so intertwined" with other family members that a public statement from him would affect their privacy.
Kennedy added, "I would expect, however, that were I to be a candidate for national office, they would understand that the circumstances would require this sacrifice be made and I am sure they would understand."
Kennedy's campaign staff, when asked about that old promise to issue a statement on net worth, was noncommittal.
Kennedy's oil and gas holdings have theoretically increased in value over the past year because of rising prices, but he is not kept informed under the terms of the blind trust. He is to be notified whenever any of his original assets have been sold and, so far, no such notice has been given.
John W. Douglass, a Washington lawyer having a long, intimate relationship with the family, administers the trusts for Kennedy and his children. He declined to discuss any aspects of the investments.
"The purpose of a blind trust is to shield the senator from any appearance of a conflict of interest," Douglas said. "I am under an obligation not to disclose to him and, therefore, to the public, the operation of those trusts."
The full extent of the Kennedy oil business, including holdings in various trusts set up by the late Joseph Kennedy for his other heirs, remains undisclosed. The man in charge of oil and gas investments for the Kennedy's is Thomas J. Walsh, a New York accountant, who could not be reached for comment.
A Kennedy campaign spokesman suggested that a talk with Walsh would be fruitless in any event.
"He wouldn't tell you if your pants were on fire," the spokesman said.
Walsh is president of both the Kenoil Corp. and the Mokeen Oil Co. He also makes out Kennedy's tax returns and he is an official of Park Agency Inc. at 200 Park Ave. in New York. The Park Agency was once described by Walsh, in a court deposition, as "a real estate management firm that conducts all of the financial operations of the real estate owned by the Kennedy family, in addition to their own personal records of a financial nature. . . ."
Author Richard J. Whalen, who first described some of the Kennedy oil ventures in a biography of the elder Kennedy entitled "The Founding Father," said Walsh is the day-to-day manager who handles the Kennedy fortune though Stephen Smith, Kennedy's campaign manager is considered the responsible "family presence." The real estate assets include Chicago's Merchandise Mart, a mamoth office building Joseph Kennedy bought at a bargain price in 1945.
Kennedy's 1978 taxable income of $702,697 included $93,971 from the 1926 Joseph P. Kennedy Trust and $428,708 from the 1936 Joseph P. Kennedy Trust. By contrast, he reported a loss of $14,465 in the operations of his 1978 blind trust.
As a senator, Kennedy has been highly critical of tax shelters, and has urged that Congress see to it "that the word 'shelter' disappears from the tax vocabulary." In a 1977 Senate statement, he called for the repeal of the major deductions used in tax shelters, including the intangible drilling deduction for oil and gas.
Kennedy was also the leader of a successful 1975 drive in Congress that killed the 22 percent oil and gas depletion allowance for major oil companies, but it is still available for small, so-called independent producers. The senator once described tax breaks available the oil industry as "huge welfare payments."
Over the years, however, Kennedy money-managers have availed themselves of those same tax breaks.
In addition to the blind trust holdings, Kennedy has taken the depletion allowance and the intangible drilling deduction on modest amounts of income from "oil operations" and "oil rentals and royalties," according to tax returns he has made public from time to time.
This additional oil income last year included $5,724 from unspecified "oil rentals and royalties" and $1,743 from unspecified "oil operations."
According to press secretary Southwick, "the vast majority" of the senator's oil and gas interests were inherited from his father. Southwick said Kennedy may have acquired a few oil and gas properties on his own, but Southwick did not know how many or what they were.
Several sources said they believe Joseph Kennedy put many of his holdings into the family trusts he created and assigned others to the Joseph P. Kennedy Jr. Foundation commemorating his first son, killed in World War II.
The elder Kennedy set up a series of trust funds for his family in 1926, in 1936, in 1949, and reportedly in 1953, all with varying terms and provisions. Under the 1936 trusts, for example, Edward Kennedy receives an annual income that will continue through his lifetime, but all of the income-producing principal in the 1936 trusts will eventually go to Joseph P. Kennedy's grandchildren. Under the 1926 Trusts, by contrast, the senator was to inherit half of the principal when he became 45, an age he reached in 1977.
Many of the oil and gas interests and other assets that Kennedy put in blind trusts for himself and his three children last year may have come from that inheritance. In any case, the senator listed blind trust holdings with a net value ranging between $1.7 and $4.9 million in the spring of 1978.
In addition to the oil and gas holdings, assets included a $2 million to $5 million interest in Chicago's Merchandise Mart, the flagship of the Kennedy fortune; a $1 million to $2 million interest in Chicago's Apparel Center; land in Florida and on Cape Cod worth between $20,000 and $65,000, and cash of less than $5,000. Offsetting liabilities consisted of a $500,000 to $1 million mortgage on the Merchandise Mart and $1 million to $2 million mortgage on the Apparel Center.
Raymond F. Kravis, a petroleum engineer from Tulsa, described how he helped Joseph Kennedy get started in the oil business 30 years ago. The Kennedy patiarch, Kravis recalled, "just thought it'd be another phase of business he'd like to get into.The energy business looked like it has a good future."
The elder Kennedy bought Artic Oil in 1950, which held a half interest in royalty properties, Kravis said. Later, in the mid-1950s, Kennedy invested in oil ventures by the Forest Oil Co., including a producing well in Louisiana in which Edward Kennedy inherited an interest.
"He made a good buy," Kravis said. "The half that he got is still producing a pretty nice income."
After John F. Kennedy became president, his father appears to have decided to step up his oil and gas investments. Kenoil, with Walsh as president, was incorporated in Delaware on Sept. 8, 1961, with a charter to serve as "nominee and agent for ownership of real property, oil, gas and mineral leases, participations, royalties" and other endeavors. Presumably, Kenoil is an elision of Kennedy Oil.
On Dec. 15, 1961, four days before the senior Kennedy was incapacitated by a stroke at his Palm Beach home, the Mokeen Oil Co., again with Walsh as president, was incorporated in Texas to do business in "oil and gas and property management."
Mokeen took its name from Joseph Kennedy and Jack Modesett, a Corpus Christi oilman active in drilling and developing. The company reportedly had estimated sales of $3 million in 1962. Modesett was killed in an automobile accident that year, but Walsh is still listed as president of Mokeen as well as of Kenoil. The Kenoil Corp. was registered to do business in Texas in October 1965 and, it appears, has had some business dealings there with Forest Oil.
A closely held, Pennsylvania-based company, Forest Oil has engaged in a number of joint ventures over the years, including exploration and drilling on a 3,000-acre tract of the McAllen Field in Hidalgo County, Tex. According to a Forest Oil executive who asked not to be named, Kenoil was one of the investors. The Forest Oil executive said the undertaking finally began to pay off in the early 1970s, when "a discovery well was drilled."
The most valuable oil leasehold listed in Kennedy's blind trust portfolio is a $100,001-to-$250,000 interest in that tract. It is not known how much other members of the family or the family trusts or Kenoil might have, but it seams unlikely that Kennedy's share represented the total Kennedy investment. The senator's personal holding, although worth as much as a quarter of a million dollars in 1976, is only .00212502 of the total ownership of the lease.