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Exxon Corporation

Exxon Corporation

5959 Las Colinas Boulevard
Irving, Texas 75039-2298
U.S.A.
Telephone: (972) 444-1000
Toll Free: (800) 252-1800
Fax: (972) 444-1348
Web site: http://www.exxon.com

Public Company
Incorporated: 1882 as Standard Oil Company of New Jersey
Employees: 79,000
Sales: $117.77 billion (1998)
Stock Exchanges: New York Boston Cincinnati Midwest Philadelphia Basel Dusseldorf Frankfurt Geneva Hamburg Paris Zurich
Ticker Symbol: XON
NAIC: 211111 Crude Petroleum & Natural Gas Extraction; 324110 Petroleum Refineries; 324191 Petroleum Lubricating Oil & Grease Manufacturing; 325110 Petrochemical Manufacturing; 447100 Gasoline Stations; 486110 Pipeline Transportation of Crude Oil; 486910 Pipeline Transportation of Refined Petroleum Products; 212110 Coal Mining; 212234 Copper Ore & Nickel Ore Mining; 212299 All Other Metal Ore Mining; 221112 Fossil Fuel Electric Power Generation

As the earliest example of the trend toward gigantic size and power, Exxon Corporation and its Standard Oil forebears have earned vast amounts of money in the petroleum business. The brainchild of John D. Rockefeller, Standard Oil enjoyed the blessings and handicaps of overwhelming poweron the one hand, an early control of the oil business so complete that even its creators could not deny its monopolistic status; on the other, an unending series of journalistic and legal attacks upon its business ethics, profits, and very existence. Exxon became the object of much resentment during the 1970s for the huge profits it made from the OPEC-induced oil shocks. The uproar over the Exxon Valdez oil tanker spill in 1989 put the corporation once more in the position of embattled giant, as the largest U.S. oil company struggled to justify its actions before the public. At the end of the 1990s Exxon stood as the second largest of the worlds integrated petroleum powerhousestrailing only the Royal Dutch/Shell Group. In addition to its oil and gas exploration, production, manufacturing, distribution, and marketing operations, Exxon was a leading producer and seller of petrochemicals and was involved in electric power generation and the mining of coal, copper, and other minerals. Exxon was also once again making history, through a proposed merger with Mobil Corporation, to create the largest petroleum firm in the world in one of the biggest mergers everand to reunite two of the offspring of the Standard Oil behemoth.

Prehistory of Standard Oil

The individual most responsible for the creation of Standard Oil, John D. Rockefeller, was born in 1839 to a family of modest means living in the Finger Lakes region of New York State. His father, William A. Rockefeller, was a sporadically successful merchant and part-time hawker of medicinal remedies. William Rockefeller moved his family to Cleveland, Ohio, when John D. Rockefeller was in his early teens, and it was there that the young man finished his schooling and began work as a bookkeeper in 1855. From a very young age John D. Rockefeller developed an interest in business. Before getting his first job with the merchant firm of Hewitt & Tuttle, Rockefeller had already demonstrated an innate affinity for business, later honed by a few months at business school.

Rockefeller worked at Hewitt & Tuttle for four years, studying large-scale trading in the United States. In 1859 the 19-year-old Rockefeller set himself up in a similar ventureClark & Rockefeller, merchants handling the purchase and resale of grain, meat, farm implements, salt, and other basic commodities. Although still very young, Rockefeller had already impressed Maurice Clark and his other business associates as an unusually capable, cautious, and meticulous businessman. He was a reserved, undemonstrative individual, never allowing emotion to cloud his thinking. Bankers found that they could trust John D. Rockefeller, and his associates in the merchant business began looking to him for judgment and leadership.

Clark & Rockefellers already healthy business was given a boost by the Civil War economy, and by 1863 the firms two partners had put away a substantial amount of capital and were looking for new ventures. The most obvious and exciting candidate was oil. A few years before, the nations first oil well had been drilled at Titusville, in western Pennsylvania, and by 1863 Cleveland had become the refining and shipping center for a trail of newly opened oil fields in the so-called Oil Region. Activity in the oil fields, however, was extremely chaotic, a scene of unpredictable wildcatting, and John D. Rockefeller was a man who prized above all else the maintenance of order. He and Clark, therefore, decided to avoid drilling and instead go into the refining of oil, and in 1863 they formed Andrews, Clark & Company with an oil specialist named Samuel Andrews. Rockefeller, never given to publicity, was the Company.

With excellent railroad connections as well as the Great Lakes to draw upon for transportation, the city of Cleveland and the firm of Andrews, Clark & Company both did well. The discovery of oil wrought a revolution in U.S. methods of illumination. Kerosene soon replaced animal fat as the source of light across the country, and by 1865 Rockefeller was fully convinced that oil refining would be his lifes work. Unhappy with his Clark-family partners, Rockefeller bought them out for $72,000 in 1865 and created the new firm of Rockefeller & Andrews, already Clevelands largest oil refiners. It was a typically bold move by Rockefeller, who although innately conservative and methodical was never afraid to make difficult decisions. He thus found himself, at the age of 25, co-owner of one of the worlds leading oil concerns.

Talent, capital, and good timing combined to bless Rockefeller & Andrews. Cleveland handled the lions share of Pennsylvania crude and, as the demand for oil continued to explode, Rockefeller & Andrews soon dominated the Cleveland scene. By 1867, when a young man of exceptional talent named Henry Flagler became a third partner, the firm was already operating the worlds number one oil refinery; there was as yet little oil produced outside the United States. The year before, John Rockefellers brother, William Rockefeller, had opened a New York office to encourage the rapidly growing export of kerosene and oil byproducts, and it was not long before foreign sales became an important part of Rockefeller strength. In 1869 the young firm allocated $60,000 for plant improvementsan enormous sum of money for that day.

Creation of the Standard Oil Monopoly: 187092

The early years of the oil business were marked by tremendous swings in the production and price of both crude and refined oil. With a flood of newcomers entering the field every day, size and efficiency already had become critically important for survival. As the biggest refiner, Rockefeller was in a better position than anyone to weather the price storms. Rockefeller and Henry Flagler, with whom Rockefeller enjoyed a long and harmonious business relationship, decided to incorporate their firm to raise the capital needed to enlarge the company further. On January 10, 1870, the Standard Oil Company was formed, with the two Rockefellers, Flagler, and Andrews owning the great majority of stock, valued at $1 million. The new company was not only capable of refining approximately ten percent of the entire countrys oil, it also owned a barrel-making plant, dock facilities, a fleet of railroad tank cars, New York warehouses, and forest land for the cutting of lumber used to produce barrel staves. At a time when the term was yet unknown, Standard Oil had become a vertically integrated company.

One of the single advantages of Standard Oils size was the leverage it gave the company in railroad negotiations. Most of the oil refined at Standard made its way to New York and the Eastern Seaboard. Because of Standards great volume60 carloads a day by 1869it was able to win lucrative rebates from the warring railroads. In 1871 the various railroads concocted a plan whereby the nations oil refiners and railroads would agree to set and maintain prohibitively high freight rates while awarding large rebates and other special benefits to those refiners who were part of the scheme. The railroads would avoid disastrous price wars while the large refiners forced out of business those smaller companies who refused to join the cartel, known as the South Improvement Company.

Company Perspectives:

Ours is a long-term business, with todays accomplishments a reflection of well-executed plans set in motion years ago. Likewise, Exxons success at building shareholder value in the future is dependent on plans we develop and implement today.

The following strategies have and will continue to guide Exxon as we strive to meet shareholder and customer expectations: identifying and implementing quality investment opportunities at a timely and appropriate pace, while maintaining a selective and disciplined approach; being the most efficient competitor in every aspect of our business; maintaining a high-quality portfolio of productive assets; developing and employing the best technology; ensuring safe, environmentally sound operations; continually improving an already high-quality work force; maintaining a strong financial position and ensuring that financial resources are employed wisely.

The plan was denounced immediately by Oil Region producers and many independent refiners, with near-riots breaking out in the oil fields. After a bitter war of words and a flood of press coverage, the oil refiners and the railroads abandoned their plan and announced the adoption of public, inflexible transport rates. In the meantime, however, Rockefeller and Flagler were already far advanced on a plan to combat the problems of excess capacity and dropping prices in the oil industry. To Rockefeller the remedy was obvious, though unprecedented: the eventual unification of all oil refiners in the United States into a single company. Rockefeller approached the Cleveland refiners and a number of important firms in New York and elsewhere with an offer of Standard Oil stock or cash in exchange for their often-ailing plants. By the end of 1872, all 34 refiners in the area had agreed to sellsome freely and for profit, and some, competitors alleged, under coercion. Because of Standards great size and the industrys overbuilt capacity, Rockefeller and Flagler were in a position to make their competitors irresistible offers. All indications are that Standard regularly paid top dollar for viable companies.

By 1873 Standard Oil was refining more oil10,000 barrels per daythan any other region of the country, employing 1,600 workers, and netting around $500,000 per year. With great confidence, Rockefeller proceeded to duplicate his Cleveland success throughout the rest of the country. By the end of 1874 he had absorbed the next three largest refiners in the nation, located in New York, Philadelphia, and Pittsburgh. Rockefeller also began moving into the field of distribution with the purchase of several of the new pipelines then being laid across the country. With each new acquisition it became more difficult for Rockefellers next target to refuse his cash. Standard interests rapidly grew so large that the threat of monopoly was clear. The years 1875 to 1879 saw Rockefeller push through his plan to its logical conclusion. In 1878, a mere six years after beginning its annexation campaign, Standard Oil controlled $33 million of the countrys $35 million annual refining capacity, as well as a significant proportion of the nations pipelines and oil tankers. At the age of 39, Rockefeller was one of the five wealthiest men in the country.

Standards involvement in the aborted South Improvement Company, however, had earned it lasting criticism. The companys subsequent absorption of the refining industry did not mend its image among the few remaining independents and the mass of oil producers who found in Standard a natural target for their wrath when the price of crude dropped precipitously in the late 1870s. Although the causes of producers tailing fortunes are unclear, it is evident that given Standards extraordinary position in the oil industry it was fated to become the target of dissatisfactions. In 1879 nine Standard Oil officials were indicted by a Pennsylvania grand jury for violating state antimonopoly laws. Although the case was not pursued, it indicated the depth of feeling against Standard Oil, and was only the first in a long line of legal battles waged to curb the companys power.

In 1882 Rockefeller and his associates reorganized their dominions, creating the first trust in U.S. business history. This move overcame state laws restricting the activity of a corporation to its home state. Henceforth the Standard Oil Trust, domiciled in New York City, held in trust all assets of the various Standard Oil companies. Of the Standard Oil Trusts nine trustees, John D. Rockefeller held the largest number of shares. Together the trusts 30 companies controlled 80 percent of the refineries and 90 percent of the oil pipelines in the United States, constituting the leading industrial organization in the world. The trusts first years combined net earnings were $11.2 million, of which some $7 million was immediately plowed back into the companies for expansion. Almost lost in the flurry of big numbers was the 1882 creation of Standard Oil Company of New Jersey, one of the many regional corporations created to handle the trusts activities in surrounding states. Barely worth mentioning at the time, Standard Oil Company of New Jersey, or Jersey as it came to be called, would soon become the dominant Standard company and, much later, rename itself Exxon.

Key Dates:

1870:
John D. Rockefeller and Henry Flagler incorporate the Standard Oil Company.
1878:
Standard controls $33 million of the countrys $35 million annual refining capacity.
1882:
Rockefeller reorganizes Standard Oil into a trust, creating Standard Oil Company of New Jersey as one of many regional corporations controlled by the trust.
1888:
Standard founds its first foreign affiliate, Anglo-American Oil Company, Limited.
1890:
The Sherman Antitrust Act is passed, in large part, in response to Standards oil monopoly.
1891:
The trust has secured a quarter of the total oil field production in the United States.
1892:
Lawsuit leads to dissolving of the trust; the renamed Standard Oil Company (New Jersey) becomes main vessel of the Standard holdings.
1899:
Jersey becomes the sole holding company for all of the Standard interests.
1906:
Federal government files suit against Jersey under the Sherman Antitrust Act, charging it with running a monopoly.
1911:
U.S. Supreme Court upholds lower court conviction of the company and orders that it be separated into 34 unrelated companies, one of which continues to be called Standard Oil Company (New Jersey).
1926:
The Esso brand is used for the first time on the companys refined products.
1946:
A 30 percent interest in Arabian American Oil Company, and its vast Saudi Arabian oil concessions, is acquired.
1954:
Company gains seven percent stake in Iranian oil production consortium.
1972:
Standard Oil Company (New Jersey) changes its name to Exxon Corporation.
1973:
OPEC cuts off oil supplies to the United States.
1980:
Revenues exceed $100 billion because of the rapid increase in oil prices.
1989:
The crash of the Exxon Valdez in Prince William Sound off the port of Valdez, Alaska, releases about 260,000 barrels of crude oil.
1990:
Headquarters are moved from Rockefeller Center in New York City to Irving, Texas.
1994:
A federal jury in an Exxon Valdez civil action finds the company guilty of recklessness and orders it to pay $286.8 million in compensatory damages and $5 billion in punitive damages.
1997:
Company appeals the $5 billion punitive damage award; it reports profits of $8.46 billion on revenues of $120.28 billion for the year.
1998:
Company agrees to buy Mobil in one of the largest mergers in U.S. history, which would create the largest oil company in the world, Exxon Mobil Corporation.

The 1880s were a period of exponential growth for Standard. The trust not only maintained its lock on refining and distribution but also seriously entered the field of production. By 1891 the trust had secured a quarter of the country s total output, most of it in the new regions of Indiana and Illinois. Standards overseas business was also expanding rapidly, and in 1888 it founded its first foreign affiliate, London-based Anglo-American Oil Company, Limited (later known as Esso Petroleum Company, Limited). The overseas trade in kerosene was especially important to Jersey, which derived as much as threefourths of its sales from the export trade. Jerseys Bayonne, New Jersey refinery was soon the third largest in the Standard family, putting out 10,000 to 12,000 barrels per day by 1886. In addition to producing and refining capacity, Standard also was extending gradually its distribution system from pipelines and bulk wholesalers toward the retailer and eventual end user of kerosene, the private consumer.

Jersey at Head of Standard Oil Empire: 18921911

The 1890 Sherman Antitrust Act, passed in large part in response to Standards oil monopoly, laid the groundwork for a second major legal assault against the company, an 1892 Ohio Supreme Court order forbidding the trust to operate Standard of Ohio. As a result, the trust was promptly dissolved, but taking advantage of newly liberalized state law in New Jersey, the Standard directors made Jersey the main vessel of their holdings. Standard Oil Company of New Jersey became Standard Oil Company (New Jersey) at this time. The new Standard Oil structure now consisted of only 20 much-enlarged companies, but effective control of the interests remained in the same few hands as before. Jersey added a number of important manufacturing plants to its already impressive refining capacity and was the leading Standard unit. It was not until 1899, however, that Jersey became the sole holding company for all of the Standard interests. At that time the entire organizations assets were valued at about $300 million and it employed 35,000 people. John D. Rockefeller continued as nominal president, but the most powerful active member of Jerseys board was probably John D. Archbold.

Rockefeller had retired from daily participation in Standard Oil in 1896 at the age of 56. Once Standards consolidation was complete Rockefeller spent his time reversing the process of accumulation, seeing to it that his staggering fortuneestimated at $900 million in 1913was redistributed as efficiently as it had been made.

The general public was only dimly aware of Rockefellers philanthropy, however. More obvious were the frankly monopolistic policies of the company he had built. With its immense size and complete vertical integration, Standard Oil piled up huge profits ($830 million in the 12 years from 1899 to 1911). In relative terms, however, its domination of the U.S. industry was steadily decreasing. By 1911 its percentage of total refining was down to 66 percent from the 90 percent of a generation before, but in absolute terms Standard Oil had grown to monstrous proportions. Therefore, it was not surprising that in 1905 a U.S. congressman from Kansas launched an investigation of Standard Oils role in the falling price of crude in his state. The commissioner of the Bureau of Corporations, James R. Garfield, decided to widen the investigation into a study of the national oil industryin effect, Standard Oil.

Garfields critical report prompted a barrage of state lawsuits against Standard Oil (New Jersey) and, in November 1906, a federal suit was filed charging the company, John D. Rockefeller, and others with running a monopoly. In 1911, after years of litigation, the U.S. Supreme Court upheld a lower courts conviction of Standard Oil for monopoly and restraint of trade under the Sherman Antitrust Act. The Court ordered the separation from Standard Oil Company (New Jersey) of 33 of the major Standard Oil subsidiaries, including those that subsequently kept the Standard name.

Independent Growth into a Major: 191172

Standard Oil Company (New Jersey) retained an equal number of smaller companies spread around the United States and overseas, representing $285 million of the former Jerseys net value of $600 million. Notable among the remaining holdings were a group of large refineries, four medium-sized producing companies, and extensive foreign marketing affiliates. Absent were the pipelines needed to move oil from well to refinery, much of the former tanker fleet, and access to a number of important foreign markets, including Great Britain and the Far East.

John D. Archbold, a longtime intimate of the elder Rockefeller and whose Standard service had begun in 1879, remained president of Standard Oil (New Jersey). Archbolds first problem was to secure sufficient supplies of crude oil for Jerseys extensive refining and marketing capacity. Jerseys former subsidiaries were more than happy to continue selling crude to Jersey; the dissolution decree had little immediate effect on the coordinated workings of the former Standard Oil group, but Jersey set about finding its own sources of crude. The companys first halting steps toward foreign production met with little success; ventures in Romania, Peru, Mexico, and Canada suffered political or geological setbacks and were of no help. In 1919, however, Jersey made a domestic purchase that would prove to be of great long-term value. For $17 million Jersey acquired 50 percent of the Humble Oil & Refining Company of Houston, Texas, a young but rapidly growing network of Texas producers that immediately assumed first place among Jerseys domestic suppliers. Although only the fifth leading producer in Texas at the time of its purchase, Humble would soon become the dominant drilling company in the United States and eventually was wholly purchased by Jersey. Humble, later known as Exxon Company U.S.A., remained one of the leading U.S. producers of crude oil and natural gas through the end of the century.

Despite initial disappointments in overseas production, Jersey remained a company oriented to foreign markets and supply sources. On the supply side, Jersey secured a number of valuable Latin American producing companies in the 1920s, especially several Venezuelan interests consolidated in 1943 into Creole Petroleum Corporation. By that time Creole was the largest and most profitable crude producer in the Jersey group. In 1946 Creole produced an average of 451,000 barrels per day, far more than the 309,000 by Humble and almost equal to all other Jersey drilling companies combined. Four years later, Creole generated $157 million of the Jersey groups total net income of $408 million and did so on sales of only $517 million. Also in 1950, Jerseys British affiliates showed sales of $283 million but a bottom line of about $2 million. In contrast to the industrys early days, oil profits now lay in the production of crude, and the bulk of Jerseys crude came from Latin America. The companys growing Middle Eastern affiliates did not become significant resources until the early 1950s. Jerseys Far East holdings, from 1933 to 1961 owned jointly with Socony-Vacuum Oil Companyformerly Standard Oil Company of New York and now Mobil Corporationnever provided sizable amounts of crude oil.

In marketing, Jerseys income showed a similar preponderance of foreign sales. Jerseys domestic market had been limited by the dissolution decree to a handful of mid-Atlantic states, whereas the companys overseas affiliates were well entrenched and highly profitable. Jerseys Canadian affiliate, Imperial Oil Ltd., had a monopolistic hold on that countrys market, while in Latin America and the Caribbean the West India Oil Company performed superbly during the second and third decades of the 20th century. Jersey had also incorporated eight major marketing companies in Europe by 1927, and these, too, sold a significant amount of refined productsmost of them under the Esso brand name introduced the previous year (the name was derived from the initials for Standard Oil). Esso became Jerseys best known and most widely used retail name both at home and abroad.

Jerseys mix of refined products changed considerably over the years. As the use of kerosene for illumination gave way to electricity and the automobile continued to grow in popularity, Jerseys sales reflected a shift away from kerosene and toward gasoline. Even as late as 1950, however, gasoline had not yet become the leading seller among Jersey products. That honor went to the group of residual fuel oils used as a substitute for coal to power ships and industrial plants. Distillates used for home heating and diesel engines were also strong performers. Even in 1991, when Exxon distributed its gasoline through a network of 12,000 U.S. and 26,000 international service stations, the earnings of all marketing and refining activities were barely one-third of those derived from the production of crude. In 1950 that proportion was about the same, indicating that regardless of the end products into which oil was refined, it was the production of crude that yielded the big profits.

Indeed, by mid-century the international oil business had become, in large part, a question of controlling crude oil at its source. With Standard Oil Company (New Jersey) and its multinational competitors having built fully vertically integrated organizations, the only leverage remained control of the oil as it came out of the ground. Although it was not yet widely known in the United States, production of crude was shifting rapidly from the United States and Latin America to the Middle East. As early as 1908 oil had been verified in present-day Iran, but it was not until 1928 that Jersey and Socony-Vacuum, prodded by chronic shortages of crude, joined three European companies in forming Iraq Petroleum Company. Also in 1928, Jersey, Shell, and Anglo-Persian secretly agreed to limit each companys share of world production to their present relative amounts, attempting, by means of this As Is agreement, to limit competition and keep prices at comfortably high levels. As with Rockefellers similar tactics 50 years before, it was not clear in 1928 that the agreement was illegal, because its participants were located in a number of different countries each with its own set of trade laws. Already in 1928, Jersey and the other oil giants were stretching the very concept of nationality beyond any simple application.

Following World War II, Jersey was again in need of crude to supply the resurgent economies of Europe. Already the worlds largest producer, the company became interested in the vast oil concessions in Saudi Arabia recently won by Texaco and Socal. The latter companies, in need of both capital for expansion and world markets for exploitation, sold 30 percent of the newly formed Arabian American Oil Company (Aramco) to Jersey and ten percent to Socony-Vacuum in 1946. Eight years later, after Irans nationalization of Anglo-Persians holdings was squelched by a combination of CIA assistance and an effective worldwide boycott of Iranian oil by competitors, Jersey was able to take seven percent of the consortium formed to drill in that oil-rich country. With a number of significant tax advantages attached to foreign crude production, Jersey drew an increasing percentage of its oil from its holdings in all three of the major Middle Eastern fieldsIraq, Iran, and Saudi Arabiaand helped propel the 20-year postwar economic boom in the West. With oil prices exceptionally low, the United States and Europe busily shifted their economies to complete dependence on the automobile and on oil as the primary industrial fuel.

Exxon, Oil Shocks, and Diversification: 197289

Despite the growing strength of newcomers to the international market, such as Getty and Conoco, the big companies continued to exercise decisive control over the world oil supply and thus over the destinies of the Middle East producing countries. Growing nationalism and an increased awareness of the extraordinary power of the large oil companies led to the 1960 formation of the Organization of Petroleum Exporting Countries (OPEC). Later, a series of increasingly bitter confrontations erupted between countries and companies concerned about control over the oil upon which the world had come to depend. The growing power of OPEC and the concomitant nationalization of oil assets by various producing countries prompted Jersey to seek alternative sources of crude. Exploration resulted in discoveries in Alaskas Prudhoe Bay and the North Sea in the late 1960s. The Middle Eastern sources remained paramount, however, and when OPEC cut off oil supplies to the United States in 1973in response to U.S. sponsorship of Israelthe resulting 400 percent price increase induced a prolonged recession and permanently changed the industrial worlds attitude to oil. Control of oil was, in large part, taken out of the hands of the oil companies, who began exploring new sources of energy and business opportunities in other fields.

For Standard Oil Company (New Jersey), which had changed its name to Exxon in 1972, the oil embargo had several major effects. Most obviously it increased corporate sales; the expensive oil allowed Exxon to double its 1972 revenue of $20 billion in only two years and then pushed that figure over the $100 billion mark by 1980. After a year of windfall profits made possible by the sale of inventoried oil bought at much lower prices, Exxon was able to make use of its extensive North Sea and Alaskan holdings to keep profits at a steady level. The company had suffered a strong blow to its confidence, however, and soon was investigating a number of diversification measures that eventually included office equipment, a purchase of Reliance Electric Company (the fifth largest holdings of coal in the United States), and an early 1980s venture into shale oil. With the partial exception of coal, all of these were expensive failures, costing Exxon approximately $6 billion to $7 billion.

By the early 1980s the world oil picture had eased considerably and Exxon felt less urgency about diversification. With the price of oil peaking around 1981 and then tumbling for most of the decade, Exxons sales dropped sharply. The companys confidence rose, however, as OPECs grip on the marketplace proved to be weaker than advertised. Having abandoned its forays into other areas, Exxon refocused on the oil and gas business, cutting its assets and workforce substantially to accommodate the drop in revenue without losing profitability. In 1986 the company consolidated its oil and gas operations outside North America, which had been handled by several separate subsidiaries, into a new division called Exxon Company, International, with headquarters in New Jersey. Exxon Company, U.S.A. and Imperial Oil Ltd. continued to handle the companys oil and gas operations in the United States and Canada, respectively.

Exxon also bought back a sizable number of its own shares to bolster per-share earnings, which reached excellent levels and won the approval of Wall Street. The stock buyback was partially in response to Exxons embarrassing failure to invest its excess billions profitablythe company was somewhat at a loss as to what to do with its money. It could not expand further into the oil business without running into antitrust difficulties at home, and investments outside of oil would have had to be mammoth to warrant the time and energy required.

The Exxon Valdez: 198998

In 1989 Exxon was no longer the worlds largest company, and soon it would not even be the largest oil group (Royal Dutch/Shell would take over that position in 1990), but with the help of the March 24, 1989, Exxon Valdez disaster the company heightened its notoriety. The crash of the Exxon Valdez in Prince William Sound off the port of Valdez, Alaska, released about 260,000 barrels, or 11.2 million gallons, of crude oil. The disaster cost Exxon $1.7 billion in 1989 alone, and the company and its subsidiaries were faced with more than 170 civil and criminal lawsuits brought by state and federal governments and individuals.

By late 1991 Exxon had paid $2.2 billion to clean up Prince William Sound and had reached a tentative settlement of civil and criminal charges that levied a $125 million criminal fine against the oil conglomerate. Fully $100 million of the fine was forgiven and the remaining amount was split between the North American Wetlands Conservation Fund (which received $12 million) and the U.S. Treasury (which received $13 million). Exxon and a subsidiary, Exxon Shipping Co., also were required to pay an additional $1 billion to restore the spill area.

Although the Valdez disaster was a costly public relations nightmarea nightmare made worse by the companys slow response to the disaster and by CEO Lawrence G. Rawls failure to visit the site in personExxons financial performance actually improved in the opening years of the last decade in the 20th century. The company enjoyed record profits in 1991, netting $5.6 billion and earning a special place in the Fortune 500. Of the annual lists top ten companies, Exxon was the only one to post a profit increase over 1990. Business Weeks ranking of companies according to market value also found Exxon at the top of the list.

The companys performance was especially dramatic when compared with the rest of the fuel industry: as a group the 44 fuel companies covered by Business Weeks survey lost $35 billion in value, or 11 percent, in 1991. That year, Exxon also scrambled to the top of the profits heap, according to Forbes magazine. With a profit increase of 12 percent over 1990, Exxons $5.6 billion in net income enabled the company to unseat IBM as the United States most profitable company. At 16.5 percent, Exxons return on equity was also higher than any other oil company. The company also significantly boosted the value of its stock through its long-term and massive stock buyback program, through which it spent about $15.5 billion to repurchase 518 million sharesor 30 percent of its outstanding sharesbetween 1983 and 1991.

Like many of its competitors, Exxon was forced to trim expenses to maintain such outstanding profitability. One of the favorite methods was to cut jobs. Citing the globally depressed economy and the need to streamline operations, Exxon eliminated 5,000 employees from its payrolls between 1990 and 1992. With oil prices in a decade-long slide, Exxon also cut spending on exploration from $1.7 billion in 1985 to $900 million in 1992. The companys exploration budget constituted less than one percent of revenues and played a large part in Exxons good financial performance. Meantime, Exxon in 1990 abandoned its fancy headquarters at Rockefeller Center in New York City to reestablish its base in the heart of oil territory, in the Dallas suburb of Irving, Texas. In 1991 the company established a new Houston-based division, Exxon Exploration Company, to handle the companys exploration operations everywhere in the world except for Canada.

At the end of 1993 Lee R. Raymond took over as CEO from the retiring Rawl. Raymond continued Exxons focus on cost-cutting, with the workforce falling to 79,000 employees by 1996, the lowest level since the breakup of Standard Oil in 1911. Other savings were wrung out by reengineering production, transportation, and marketing processes. Over a five-year period ending in 1996, Exxon had managed to reduce its operating costs by $1.3 billion annually. The result was increasing levels of profits. In 1996 the company reported net income of $7.51 billion, more than any other company on the Fortune 500. The following year it made $8.46 billion on revenues of $120.28 billion, a seven percent profit margin. The huge profits enabled Exxon in the middle to late 1990s to take some gambles, and it risked tens of billion of dollars on massive new oil and gas fields in Russia, Indonesia, and Africa. In addition, Exxon and Royal Dutch/Shell joined forces in a worldwide petroleum additives joint venture in 1996.

Exxon was unablesome said unwillingto shake itself free of its Exxon Valdez legacy. Having already spent some $1.1 billion to settle state and federal criminal charges related to the spill, Exxon faced a civil trial in which the plaintiffs sought compensatory and punitive damages amounting to $16.5 billion. The 14,000 plaintiffs in the civil suit included fishermen, Alaskan natives, and others claiming harm from the spill. In June 1994 a federal jury found that the huge oil spill had been caused by recklessness on the part of Exxon. Two months later the same jury ruled that the company should pay $286.8 million in compensatory damages; then in August the panel ordered Exxon to pay $5 billion in punitive damages. Although Wall Street reacted positively to what could have been much larger damage amounts and Exxons huge profits placed it in a position to reach a final settlement and perhaps put the Exxon Valdez nightmare in its past, the company chose to continue to take a hard line. It vowed to exhaust all its legal avenues to having the verdict overturnedincluding seeking a mistrial and a new trial and filing appeals. In June 1997, in fact, Exxon formally appealed the $5 billion verdict. Exxon seemed to make another PR gaffe in the late 1990s when it attempted to reverse a federal ban on the return to Alaskan waters of the Exxon Valdez, which had by then been renamed the Sea-River Mediterranean. Environmentalists continued to berate the company for its refusal to operate double-hulled tankers, a ship design that may have prevented the oil spill in the first place. In addition, in an unrelated but equally embarrassing development, Exxon in 1997 reached a settlement with the Federal Trade Commission in which it agreed to run advertisements that refuted earlier ads claiming that its high-octane gasoline reduced automobile maintenance costs.

Nearing the Turn of the Century: Exxon Mobil

In December 1998 Exxon agreed to buy Mobil for about $75 billion in what promised to be one of the largest takeovers ever. The megamerger was one of a spate of petroleum industry deals brought about by an oil glut that forced down the price of a barrel of crude by late 1998 to about $11the cheapest price in history with inflation factored in. Just one year earlier, the price had been about $23. The oil glut was caused by a number of factors, principally the Asian economic crisis and the sharp decline in oil consumption engendered by it, and the virtual collapse of OPEC, which was unable to curb production by its own members. In such an environment, pressure to cut costs was again exerted, and Exxon and Mobil cited projected savings of $2.8 billion per year as a prime factor behind the merger.

Based on 1998 results, the proposed Exxon Mobil Corporation would have combined revenues of $168.8 billion, making it the largest oil company in the world, and $8.1 billion in profits. Raymond would serve as chairman, CEO, and president of the Irving, Texas-based goliath, with the head of Mobil, Lucio A. Noto, acting as vice-chairman. Shareholders of both Exxon and Mobil approved the merger in May 1999. In September of that year the European Commission granted antitrust approval to the deal with the only major stipulation being that Mobil divest its share of a joint venture with BP Amoco p.l.c. in European refining and marketing. Approval from the Federal Trade Commission proved more difficult to come by, as the agency was concerned about major overlap between the two companies operations in the Northeast and Mid-Atlantic region. The FTC was likely to force the companies to sell more than 1,000 gas stations in those regions as well as accede to other changes to gain U.S. antitrust approval.

Principal Subsidiaries

Ancon Insurance Company, Inc.; Esso Australia Resources Ltd.; Esso Eastern Inc.; Esso Hong Kong Limited; Esso Malaysia Berhad (65%); Esso Production Malaysia Inc.; Esso Sekiyu Kabushiki Kaisha (Japan); Esso Singapore Private Limited; Esso (Thailand) Public Company Limited (87.5%); Exxon Energy Limited (Hong Kong); Exxon Yemen Inc.; General Sekiyu K.K. (Japan; 50.1%); Esso Exploration and Production Chad Inc.; Esso Italiana S.p.A. (Italy); Esso Standard (Inter-America) Inc.; Esso Standard Oil S.A. Limited (Bahamas); Exxon Asset Management Company (75.5%); Exxon Capital Holdings Corporation; Exxon Chemical Asset Management Partnership; Exxon Chemical Eastern Inc.; Exxon Chemical HDPE Inc.; Exxon Chemical Interamerica Inc.; Exxon Credit Corporation; Exxon Holding Latin America Limited (Bahamas); Exxon International Holdings, Inc.; Esso Aktiengesellschaft (Germany); Esso Austria Aktiengesellschaft; Esso Exploration and Production Norway AS; Esso Holding Company Holland Inc.; Exxon Chemical Antwerp Ethylene N.V. (Belgium); Esso Nederland B.V. (Netherlands); Exxon Chemical Holland Inc.; Exxon Funding B.V. (Netherlands); Esso Holding Company U.K. Inc.; Esso UK pic; Esso Exploration and Production UK Limited; Esso Petroleum Company, Limited (U.K.); Exxon Chemical Limited (U.K.); Exxon Chemical Olefins Inc.; Esso Norge AS (Norway); Esso Sociedad Anonima Petrolera Argentina; Esso Societe Anonyme Francaise (France; 81.54%); Esso (Switzerland); Exxon Minerals International Inc.; Compania Minera Disputada de Las Condes Limitada (Chile); Exxon Overseas Corporation; Exxon Chemical Arabia Inc.; Exxon Equity Holding Company; Exxon Overseas Investment Corporation; Exxon Financial Services Company Limited (Bahamas); Exxon Ventures Inc.; Exxon Azerbaijan Limited (Bahamas); Mediterranean Standard Oil Co.; Esso Trading Company of Abu Dhabi; Exxon Pipeline Holdings, Inc.; Exxon Pipeline Company; Exxon Rio Holding Inc.; Esso Brasileira de Petroleo Limitada (Brazil); Exxon Sao Paulo Holding Inc.; Exxon Worldwide Trading Company; Imperial Oil Limited (Canada; 69.6%); International Colombia Resources Corporation; SeaRiver Maritime Financial Holdings, Inc.; SeaRiver Maritime, Inc.; Societe Francaise EXXON CHEMICAL (France; 99.35%); Exxon Chemical France; Exxon Chemical Poly meres SNC (France).

Principal Divisions

Exxon Company, U.S.A.; Exxon Company, International; Exxon Coal and Minerals Company; Exxon Chemical Company; Exxon Exploration Company.

Principal Competitors

7-Eleven, Inc.; Amerada Hess Corporation; Ashland Inc.; Atlantic Richfield Co.; BP Amoco p.l.c.; Caltex Corporation; Chevron Corporation; Conoco Inc.; Elf Aquitaine; ENI S.p.A.; Mobil Corporation; Norsk Hydro ASA; Occidental Petroleum Corporation; Pennzoil Company; Petroleo Brasileiro S.A.; Petroleos de Venezuela S.A.; Petróleos Mexicanos; Phillips Petroleum Company; RaceTrac Petroleum, Inc.; Repsol-YPF, S.A.; Royal Dutch/Shell Group; Saudi Arabian Oil Company; Sunoco, Inc.; Texaco Inc.; Tosco Corporation; TOTAL FINA S.A.; Ultramar Diamond Shamrock Corporation; Unocal Corporation; USX-Marathon Group; YPF Sociedad Anonima.

Further Reading

Akin, Edward N., Flagler: Rockefeller Partner and Florida Baron, Kent, Ohio: Kent State University Press, 1988.

Beatty, Sally, Exxon-Mobil Is Marketing Dilemma, Wall Street Journal, December 3, 1998, p. B11.

Byrne, Harlan S., Well-Oiled: Exxon Has Shaped Itself into a Nimbleand Even More FormidableGiant, Barrons, May 20, 1996, pp. 1718.

Caragata, Warren, Union of Giants: Exxon and Mobil Create a Colossus, Macleans, December 14, 1998, pp. 4446.

Chernow, Ron, Titan: The Life of John D. Rockefeller Sr. , New York: Random House, 1998.

Cooper, Christopher, Fears Linger on 10th Anniversary of Exxon Valdez Spill, Wall Street Journal, March 23, 1999, p. B4.

Cooper, Christopher, and Steve Liesman, Exxon Agrees to Buy Mobil for $75.3 Billion, Wall Street Journal, December 2, 1998, p. A3.

Cropper, Carol M., et al., The Forbes 500s Annual Directory, Forbes, April 27, 1992.

Exxon-Mobil, Total-Petrofina Mergers Slated, Oil & Gas Journal, December 7, 1998, pp. 3738, 4041.

Finch, Peter, The Business Week 1000, Business Week, special issue, 1992.

Gibb, George Sweet, and Evelyn H. Knowlton, History of Standard Oil Company (New Jersey): The Resurgent Years, 19111927, New York: Harper & Brothers, 1956.

Grabarek, Brooke H., Exxon: Forget the Valdez, Financial World, September 27, 1994, p. 14.

Hedges, Stephen J., The Cost of Cleaning Up, U.S. News & World Report, August 30/September 6, 1993, pp. 2628, 30.

Hidy, Ralph W., and Murrel E. Hidy, History of Standard Oil Company (New Jersey): Pioneering in Big Business, 18821911, New York: Harper & Brothers, 1955.

Inside the Empire of Exxon the Unloved, Economist, March 5, 1994, p. 69.

Larson, Henrietta M., Evelyn H. Knowlton, and Charles S. Popple, History of Standard Oil Company (New Jersey): New Horizons, 19271950, New York: Harper & Row, 1971.

Liesman, Steve, Exxon Suspends Exploration in Russia, Wall Street Journal, August 19, 1999, p. A2.

Liesman, Steve, and John R. Wilke, Exxon and Mobil Get Antitrust Approval in Europe for Their Planned Merger, Wall Street Journal, September 30, 1999, p. A4.

Longman, Phillip J., and Jack Egan, Why Big Oil Is Getting a Lot Bigger, U.S. News & World Report, December 14, 1998, pp. 2628.

Mack, Toni, The Tiger Is on the Prowl, Forbes, April 21, 1997, p. 42.

McCoy, Charles, Exxons Secret Valdez Deals Anger Judge, Wall Street Journal, June 13, 1996, p. A3.

Nevins, Allan, Study in Power: John D. RockefellerIndustrialist and Philanthropist, 2 vols., New York: Charles Scribners Sons, 1953.

Norman, James R., A Tale of Two Strategies, Forbes, August 17, 1992, p. 48.

Oil Majors Make Tough Decisions on Jobs, Assets, Chemical Marketing Reporter, July 13, 1992.

Raeburn, Paul, Its Time to Put the Valdez Behind Us, Business Week, March 29, 1999, p. 90.

Richards, Bill, Exxon Is Battling a Ban on an Infamous Tanker, Wall Street Journal, July 29, 1998, p. B1.

Rogers, Alison, The Fortune 500: It Was the Worst of Years, Fortune, April 20, 1992.

Sampson, Anthony, The Seven Sisters: The Great Oil Companies and the World They Made, New York: Viking, 1975; New York: Bantam, 1991.

Solomon, Caleb, Exxon Is Told to Pay $5 Billion for Valdez Spill, Wall Street Journal, September 19, 1994, p. A3.

, Exxon Verdict Comes Amid Problems of Old Oil Fields, Few New Prospects, Wall Street Journal, September 19, 1994, p. A3.

, Jury Decides Exxon Must Pay $286.8 Million, Wall Street Journal, August 12, 1994, p. A3.

, Jury Finds Exxon Reckless in Oil Spill, Wall Street Journal, June 14, 1994, p. A3.

Sullivan, Allanna, Exxon and Mobil Are Already Devising Their New Brand, Wall Street Journal, April 6, 1999, p. B4.

Tarbell, Ida M., The History of the Standard Oil Company, New York: Harper & Row, 1966.

Teitelbaum, Richard, Exxon: Pumping Up Profits, Fortune, April 28, 1997, pp. 13436, 14042.

Wall, Bennett H., Growth in a Changing Environment: A History of Standard Oil Company (New Jersey), New York: McGraw-Hill, 1988.

Wilke, John R., and Steve Liesman, Exxon, Mobil May Be Forced into Divestitures, Wall Street Journal, January 20, 1999, p. A3.

Jonathan Martin and April Dougal

updated by David E. Salamie

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Exxon Corporation

Exxon Corporation

225 East John Carpenter Freeway
Irving, Texas 75062
U.S.A.
(214) 444-1000
Fax: (214) 444-1348

Public Company
Incorporated: 1882 as Standard Oil Company of New Jersey
Employees: 101,000
Sales: $116.49 billion
Stock Exchanges: New York
SICs: 2911 Petroleum Refining; 1311 Crude Petroleum & Natural Gas; 1094 Uranium, Radium & Vanadium Ores

As the earliest example of the trend toward gigantic size and power, Exxon Corporation and its Standard Oil forebears have earned vast amounts of money in the petroleum business. The brainchild of John D. Rockefeller, Standard Oil enjoyed the blessings and handicaps of overwhelming poweron the one hand, an early control of the oil business so complete that even its creators could not deny its monopolistic status; on the other, an unending series of journalistic and legal attacks upon its business ethics, profits, and very existence. The uproar over the Exxon Valdez oil tanker spill in 1989 put the corporation once more in the position of embattled giant, as Americas largest oil company struggled to justify its actions before the public.

The individual most responsible for the creation of Standard Oil, John D. Rockefeller, was born in 1839 to a family of modest means living in the Finger Lakes region of New York State. His father, William A. Rockefeller, was a sporadically successful merchant and part-time hawker of medicinal remedies. William Rockefeller moved his family to Cleveland, Ohio, when John D. Rockefeller was in his early teens, and it was there that the young man finished his schooling and began work as a bookkeeper in 1855. From a very young age John D. Rockefeller developed an interest in business. Before getting his first job with the merchant firm of Hewitt & Tuttle, Rockefeller had already demonstrated an innate affinity for business, later honed by a few months at business school.

Rockefeller worked at Hewitt & Tuttle for four years, studying large-scale trading in the United States. In 1859 the 19-year-old Rockefeller set himself up in a similar ventureClark & Rockefeller, merchants handling the purchase and resale of grain, meat, farm implements, salt, and other basic commodities. Although still very young, Rockefeller had already impressed Maurice Clark and his other business associates as an unusually capable, cautious, and meticulous businessman. He was a reserved, undemonstrative individual, never allowing emotion to cloud his thinking. Bankers found that they could trust John D. Rockefeller, and his associates in the merchant business began looking to him for judgment and leadership.

Clark & Rockefellers already healthy business was given a boost by the Civil War economy, and by 1863 the firms two partners had put away a substantial amount of capital and were looking for new ventures. The most obvious and exciting candidate was oil. A few years before, the nations first oil well had been drilled at Titusville, in western Pennsylvania, and by 1863 Cleveland had become the refining and shipping center for a rail of newly opened oil fields in the so-called Oil Region. Activity in the oil fields, however, was extremely chaotic, a scene of unpredictable wildcatting, and John D. Rockefeller was a man who prized above all else the maintenance of order. He and Clark therefore decided to avoid drilling and instead go into the refining of oil, and in 1863 they formed Andrews, Clark & Company with an oil specialist named Samuel Andrews. Rockefeller, never given to publicity, was the Company.

With excellent railroad connections as well as the Great Lakes to draw upon for transportation, the city of Cleveland and the firm of Andrews, Clark & Company both did well. The discovery of oil wrought a revolution in U.S. methods of illumination. Kerosene soon replaced animal fat as the source of light across the country, and by 1865 Rockefeller was fully convinced that oil refining would be his lifes work. Unhappy with his Clark-family partners, Rockefeller bought them out for $72,000 in 1865 and created the new firm of Rockefeller & Andrews, already Clevelands largest oil refiners. It was a typically bold move by Rockefeller, who although innately conservative and methodical was never afraid to make difficult decisions. He thus found himself, at the age of 25, co-owner of one of the worlds leading oil concerns.

Talent, capital, and good timing combined to bless Rockefeller & Andrews. Cleveland handled the lions share of Pennsylvania crude and, as the demand for oil continued to explode, Rockefeller & Andrews soon dominated the Cleveland scene. By 1867, when a young man of exceptional talent named Henry Flagler became a third partner, the firm was already operating the worlds number-one oil refinery; there was as yet little oil produced outside the United States. The year before, John Rockefellers brother, William Rockefeller, had opened a New York office to encourage the rapidly growing export of kerosene and oil by-products, and it was not long before foreign sales became an important part of Rockefeller strength. In 1869 the young firm allocated $60,000 for plant improvementsan enormous sum of money for that day.

The early years of the oil business were marked by tremendous swings in the production and price of both crude and refined oil. With a flood of newcomers entering the field every day, size and efficiency had already become critically important for survival. As the biggest refiner, Rockefeller was in a better position than anyone to weather the price storms. Rockefeller and Henry Flagler, with whom he enjoyed a long and harmonious business relationship, decided to incorporate their firm to raise the capital needed to enlarge the company further. On January 10, 1870, the Standard Oil Company was formed, with the two Rockefellers, Flagler, and Andrews owning the great majority of stock, valued at $1 million. The new company was not only capable of refining approximately ten percent of the entire countrys oil, it also owned a barrel-making plant, dock facilities, a fleet of railroad tank cars, New York warehouses, and forest land for the cutting of lumber used to produce barrel staves. At a time when the term was yet unknown, Standard Oil had become a vertically integrated company.

One of the signal advantages of Standard Oils size was the leverage it gave the company in railroad negotiations. Most of the oil refined at Standard made its way to New York and the eastern seaboard. Because of Standards great volume60 carloads a day by 1869it was able to win lucrative rebates from the warring railroads. In 1871 the various railroads concocted a plan whereby the nations oil refiners and railroads would agree to set and maintain prohibitively high freight rates while awarding large rebates and other special benefits to those refiners who were part of the scheme. The railroads would avoid disastrous price wars while the large refiners forced out of business those smaller companies who refused to join the cartel, known as the South Improvement Company.

The plan was immediately denounced by Oil Region producers and many independent refiners, near-riots breaking out in the oil fields. After a bitter war of words and a flood of press coverage, the oil refiners and the railroads abandoned their plan and announced the adoption of public, inflexible transport rates. In the meantime, however, Rockefeller and Flagler were already far advanced on a plan to combat the problems of excess capacity and dropping prices in the oil industry. To Rockefeller the remedy was obvious, though unprecedented: the eventual unification of all oil refiners in the United States into a single company. Rockefeller approached the Cleveland refiners and a number of important firms in New York and elsewhere with an offer of Standard Oil stock or cash in exchange for their often-ailing plants. By the end of 1872, all 34 refiners in the area had agreed to sellsome freely and for profit, and some, competitors alleged, under coercion. Due to Standards great size and the industrys over-built capacity, Rockefeller and Flagler were in a position to make their competitors irresistible offers. All indications are that Standard regularly paid top dollar for viable companies.

By 1873 Standard Oil was refining more oil10,000 barrels per daythan any other region of the country, employing 1,600 workers, and netting around $500,000 per year. With great confidence, Rockefeller proceeded to duplicate his Cleveland success throughout the rest of the country. By the end of 1874 he had absorbed the next three largest refiners in the nation, located in New York, Philadelphia, and Pittsburgh. Rockefeller also began moving into the field of distribution with the purchase of several of the new pipelines then being laid across the country. With each new acquisition it became more difficult for Rockefellers next target to refuse his cash. Standard interests rapidly grew so large that the threat of monopoly was clear. The years 1875 to 1879 saw Rockefeller push through his plan to its logical conclusion. In 1878, a mere six years after beginning its annexation campaign, Standard Oil controlled $33 million of the countrys $35 million annual refining capacity, as well as a significant proportion of the nations pipelines and oil tankers. At the age of 39, Rockefeller was one of the five wealthiest men in the country.

Standards involvement in the aborted South Improvement Company, however, had earned it lasting criticism. The companys subsequent absorption of the refining industry did not mend its image among the few remaining independents and the mass of oil producers who found in Standard a natural target for their wrath when the price of crude dropped precipitously in the late 1870s. Although the causes of producers tailing fortunes are unclear, it is evident that given Standards extraordinary position in the oil industry it was fated to become the target of dissatisfactions. In 1879 nine Standard Oil officials were indicted by a Pennsylvania grand jury for violating state anti-monopoly laws. Though the case was not pursued, it indicated the depth of feeling against Standard Oil, and was only the first in a long line of legal battles waged to curb the companys power.

In 1882 Rockefeller and his associates reorganized their dominions, creating the first trust in U.S. business history. This move overcame state laws restricting the activity of a corporation to its home state. Henceforth the Standard Oil Trust, domiciled in New York City, held in trust all assets of the various Standard Oil companies. Of the Standard Oil Trusts nine trustees, John D. Rockefeller held the largest number of shares. Together the trusts 30 companies controlled 80 percent of the refineries and 90 percent of the oil pipelines in the United States, constituting the leading industrial organization in the world. The trusts first years combined net earnings were $11.2 million, of which some $7 million was immediately plowed back into the companies for expansion. Almost lost in the flurry of big numbers was the 1882 creation of Standard Oil Company of New Jersey, one of the many regional corporations created to handle the trusts activities in surrounding states. Barely worth mentioning at the time, Standard Oil Company of New Jersey, or Jersey as it came to be called, would soon become the dominant Standard company and, much later, rename itself Exxon.

The 1880s were a period of exponential growth for Standard. The trust not only maintained its lock on refining and distribution but also seriously entered the field of production. By 1891 the trust had secured a quarter of the countrys total output, most of it in the new regions of Indiana and Illinois. Standards overseas business was also expanding rapidly, and in 1888 it founded its first foreign affiliate, Anglo-American Oil Company Limited of London. The overseas trade in kerosene was especially important to Jersey, which derived as much as three-fourths of its sales from the export trade. Jerseys Bayonne, New Jersey, refinery was soon the third largest in the Standard family, putting out 10,000 to 12,000 barrels per day by 1886. In addition to producing and refining capacity, Standard also was extending gradually its distribution system from pipelines and bulk wholesalers toward the retailer and eventual end user of kerosene, the private consumer.

The 1890 Sherman Antitrust Act, passed largely in response to Standards oil monopoly, laid the groundwork for a second major legal assault against the company, an 1892 Ohio Supreme Court order forbidding the trust to operate Standard of Ohio. As a result, the trust was promptly dissolved, but taking advantage of newly liberalized state law in New Jersey, the Standard directors made Jersey the main vessel of their holdings. Standard Oil Company of New Jersey became Standard Oil Company (New Jersey) at this time. The new Standard Oil structure now consisted of only 20 much-enlarged companies, but effective control of the interests remained in the same few hands as before. Jersey added a number of important manufacturing plants to its already impressive refining capacity and was the leading Standard unit. It was not until 1899, however, that Jersey became the sole holding company for all of the Standard interests. At that time the entire organizations assets were valued at about $300 million and it employed 35,000 people. John D. Rockefeller continued as nominal president, but the most powerful active member of Jerseys board was probably John D. Archbold.

Rockefeller had retired from daily participation in Standard Oil in 1896 at the age of 56. Once Standards consolidation was complete Rockefeller spent his time reversing the process of accumulation, seeing to it that his staggering fortuneestimated at $900 million in 1913was redistributed as efficiently as it had been made.

The general public was only dimly aware of Rockefellers philanthropy, however. More obvious were the frankly monopolistic policies of the company he had built. With its immense size and complete vertical integration, Standard Oil piled up huge profits ($830 million in the 12 years from 1899 to 1911). In relative terms, however, its domination of the U.S. industry was steadily decreasing. By 1911 its percentage of total refining was down to 66 percent from the 90 percent of a generation before, but in absolute terms Standard Oil had grown to monstrous proportions. Therefore it was not surprising that in 1905 a U.S. congressman from Kansas launched an investigation of Standard Oils role in the falling price of crude in his state. The commissioner of the Bureau of Corporations, James R. Garfield, decided to widen the investigation into a study of the national oil industryin effect Standard Oil.

Garfields critical report prompted a barrage of state lawsuits against Standard Oil (New Jersey) and, in November of 1906, a federal suit was filed charging the company, John D. Rockefeller, and others with running a monopoly. In 1911, after years of litigation, the U.S. Supreme Court upheld a lower courts conviction of Standard Oil for monopoly and restraint of trade under the Sherman Antitrust Act. The Court ordered the separation from Standard Oil Company (New Jersey) of 33 of the major Standard Oil subsidiaries, including those which subsequently kept the Standard name.

Standard Oil Company (New Jersey) retained an equal number of smaller companies spread around the United States and overseas, representing $285 million of the former Jerseys net value of $600 million. Notable among the remaining holdings were a group of large refineries, four medium-sized producing companies, and extensive foreign marketing affiliates. Absent were the pipelines needed to move oil from well to refinery, much of the former tanker fleet, and access to a number of important foreign markets, including Great Britain and the Far East.

John D. Archbold, a long-time intimate of the elder Rockefeller and whose Standard service had begun in 1879, remained president of Standard Oil (New Jersey). Archbolds first problem was to secure sufficient supplies of crude oil for Jerseys extensive refining and marketing capacity. Jerseys former subsidiaries were more than happy to continue selling crude to Jersey; the dissolution decree had little immediate effect on the coordinated workings of the former Standard Oil group, but Jersey set about finding its own sources of crude. The companys first halting steps toward foreign production met with little success; ventures in Romania, Peru, Mexico, and Canada suffered political or geological setbacks and were of no help. In 1919, however, Jersey made a domestic purchase that would prove to be of great long-term value. For $17 million Jersey acquired 50 percent of the Humble Oil & Refining Company of Houston, Texas, a young but rapidly growing network of Texas producers which immediately assumed first place among Jerseys domestic suppliers. Although only the fifth-leading producer in Texas at the time of its purchase, Humble would soon become the dominant drilling company in the United States and was eventually wholly purchased by Jersey. Humble, now known as Exxon Company USA, remained one of the leading U.S. producers of crude oil and natural gas, with drilling rigs in 19 states including Alaskas Prudhoe Bay, in 1991.

Despite initial disappointments in overseas production, Jersey remained a company oriented to foreign markets and supply sources. On the supply side, Jersey secured a number of valuable Latin American producing companies in the 1920s, especially several Venezuelan interests consolidated in 1943 into Creole Petroleum Corporation. By that time Creole was the largest and most profitable crude producer in the Jersey group. In 1946 Creole produced an average of 451,000 barrels per day, far more than the 309,000 by Humble and almost equal to all other Jersey drilling companies combined. Four years later, Creole generated $157 million of the Jersey groups total net income of $408 million and did so on sales of only $517 million. Also in 1950, Jerseys British affiliates showed sales of $283 million but a bottom line of about $2 million. In contrast to the industrys early days, oil profits now lay in the production of crude, and the bulk of Jerseys crude came from Latin America. The companys growing Middle Eastern affiliates did not become significant resources until the early 1950s. Jerseys Far East holdings, from 1933 to 1961 owned jointly with Socony-Vacuum Oil Companyformerly Standard Oil Company of New York and now Mobil Corporationnever provided sizable amounts of crude oil.

In marketing, Jerseys income showed a similar preponderance of foreign sales. Jerseys domestic market had been limited by the dissolution decree to a handful of mid-Atlantic states, whereas the companys overseas affiliates were well entrenched and highly profitable. Jerseys Canadian affiliate, Imperial Oil Ltd., had a monopolistic hold on that countrys market, while in Latin America and the Caribbean the West India Oil Company performed superbly during the second and third decades of the 20th century. Jersey had also incorporated eight major marketing companies in Europe by 1927, and these too sold a significant amount of refined productsmost of them under the Esso brand name introduced the previous year. Esso became Jerseys best known and most widely used retail name both at home and abroad.

Jerseys mix of refined products changed considerably over the years. As the use of kerosene for illumination gave way to electricity and the automobile continued to grow in popularity, Jerseys sales reflected a shift away from kerosene and toward gasoline. Even as late as 1950, however, gasoline had not yet become the leading seller among Jersey products. That honor went to the group of residual fuel oils used as a substitute for coal to power ships and industrial plants. Distillates used for home heating and diesel engines were also strong performers. Even in 1991, when Exxon distributed its gasoline through a network of 12,000 U.S. and 26,000 international service stations, the earnings of all marketing and refining activities were barely one-third of those derived from the production of crude. In 1950 that proportion was about the same, indicating that regardless of the end products into which oil is refined, it is the production of crude that yields the big profits.

Indeed, by mid-century the international oil business had largely become a question of controlling crude oil at its source. With Standard Oil Company and its multinational competitors having built fully vertically integrated organizations, the only leverage remained control of the oil as it came out of the ground. Though it was not yet widely known in the United States, production of crude was shifting rapidly from the United States and Latin America to the Middle East. As early as 1908 oil had been verified in present-day Iran, but it was not until 1928 that Jersey and Socony-Vacuum, prodded by chronic shortages of crude, joined three European companies in forming Iraq Petroleum Company. Also in 1928, Jersey, Shell, and Anglo-Persian secretly agreed to limit each companys share of world production to their present relative amounts, attempting, by means of this As Is agreement, to limit competition and keep prices at comfortably high levels. As with Rockefellers similar tactics 50 years before, it was not clear in 1928 that the agreement was illegal, because its participants were located in a number of different countries each with its own set of trade laws. Already in 1928, Jersey and the other oil giants were stretching the very concept of nationality beyond any simple application.

Following World War II, Standard Oil was again in need of crude to supply the resurgent economies of Europe. Already the worlds largest producer, Standard Oil became interested in the vast oil concessions in Saudi Arabia recently won by Texaco and Socal. The latter companies, in need of both capital for expansion and world markets for exploitation, sold 30 percent of the newly formed Arabian American Oil Company (Aramco) to Standard Oil and ten percent to Socony-Vacuum in 1946. A few years later, after Irans nationalization of Anglo-Persians holdings was squelched by a combination of CIA assistance and an effective worldwide boycott of Iranian oil by competitors, Jersey was able to take seven percent of the consortium formed to drill in that oil-rich country. With a number of significant tax advantages attached to foreign crude production, Jersey drew an increasing percentage of its oil from its holdings in all three of the major middle-eastern fieldsIraq, Iran, and Saudi Arabiaand helped propel the 20-year postwar economic boom in the West. With oil prices exceptionally low, the United States and Europe busily shifted their economies to complete dependence on the automobile and on oil as the primary industrial fuel.

Despite the growing strength of newcomers to the international market such as Getty and Conoco, the big companies continued to exercise decisive control over the world oil supply and thus over the destinies of the Middle East producing countries. Growing nationalism and an increased awareness of the extraordinary power of the large oil companies led to the 1960 formation of the Organization of Petroleum Exporting Countries (OPEC). Later, a series of increasingly bitter confrontations erupted between countries and companies concerned about control over the oil upon which the world had come to depend. The growing power of OPEC prompted Jersey to seek alternative sources of crude. Exploration resulted in discoveries in Alaskas Prudhoe Bay and the North Sea in the late 1960s. The Middle Eastern sources remained paramount, however, and when OPEC cut off oil supplies to the United States in 1973in response to U.S. sponsorship of Israelthe resulting 400 percent price increase induced a prolonged recession and permanently changed the industrial worlds attitude to oil. Control of oil was largely taken out of the hands of the oil companies, who began exploring new sources of energy and business opportunities in other fields.

For Standard Oil Company (New Jersey), which had changed its name to Exxon in 1972, the oil embargo had several major effects. Most obviously it increased corporate sales; the expensive oil allowed Exxon to double its 1972 revenue of $20 billion in only two years and then pushed that figure over the $100 billion mark by 1980. After a year of windfall profits made possible by the sale of inventoried oil bought at much lower prices, Exxon was able to make use of its extensive North Sea and Alaskan holdings to keep profits at a steady level. The company had suffered a strong blow to its confidence, however, and was soon investigating a number of diversification measures which eventually included office equipment, a purchase of Reliance Electric Company (the fifth-largest holdings of coal in the United States), and an early-1980s venture into shale oil. With the partial exception of coal, all of these were expensive failures, costing Exxon approximately $6 billion to $7 billion.

By the early 1980s the world oil picture had eased considerably and Exxon felt less urgency about diversification. With the price of oil peaking around 1981 and then tumbling for most of the decade, Exxons sales dropped sharply. The companys confidence rose, however, as OPECs grip on the marketplace proved to be weaker than advertised. Having abandoned its forays into other areas, Exxon refocused on the oil and gas business, cutting its assets and work force substantially to accommodate the drop in revenue without losing profitability.

Exxon also bought back a sizable number of its own shares to bolster per-share earnings, which reached excellent levels and won the approval of Wall Street. The stock buy-back was partially in response to Exxons embarrassing failure to invest its excess billions profitablythe company was somewhat at a loss as to what to do with its money. It could not expand further into the oil business without running into antitrust difficulties at home, and investments outside of oil would have to be mammoth to warrant the time and energy required.

Exxon is no longer the worlds largest company, nor even the largest oil groupRoyal Dutch/Shell took over that position in the 1990but with the help of the March 24, 1989 Exxon Valdez disaster it has heightened its notoriety. The crash of the Exxon Valdez in Prince William Sound off the port of Valdez, Alaska, released about 260,000 barrels of crude oil. The disaster cost Exxon $1.7 billion in 1989 alone, and the company and its subsidiaries were faced with more than 170 civil and criminal lawsuits brought by state and federal governments and individuals.

By late 1991 Exxon had paid $2.2 billion to clean up Prince William Sound and had reached a tentative settlement of civil and criminal charges that levied a $125 million criminal fine against the oil conglomerate. One hundred million dollars of the fine was forgiven and the remaining amount was split between the North American Wetlands Conservation Fund (which received $12 million) and the United States Treasury (which received $13 million). Exxon and a subsidiary, Exxon Shipping Co., were also required to pay an additional $1 billion to restore the spill area.

Since the accident, Exxon has worked to bring environmental issues to the front of its marketing schemes through cleaner burning gasolines, oil recycling programs, and other product improvements.

Although the Valdez disaster was a costly public relations nightmare, Exxons financial performance actually improved in the opening years of the last decade in the twentieth century. The company enjoyed record profits in 1991, netting $5.6 billion and earning a special place in the Fortune 500. Of the annual lists top ten companies, Exxon was the only one to post a profit increase over 1990. Business Weeks ranking of companies according to market value also found Exxon at the top of the list, with a value of $69 million.

The companys performance was especially dramatic when compared to the rest of the fuel industry: as a group the 44 fuel companies covered by Business Weeks survey lost $35 billion in value, or 11 percent, in 1991. That year, Exxon also scrambled to the top of the profits heap, according to Forbes magazine. With a profit increase of 12 percent over 1990, Exxons $5.6 billion in net income enabled the company to unseat IBM as the United States most profitable company. At 16.5 percent, Exxons return on equity was also higher than any other oil company.

Like many of its competitors, Exxon has been forced to trim expenses in order to maintain such outstanding profitability. One of the favorite methods in recent years has been to cut jobs. Citing the globally depressed economy and the need to streamline operations, Exxon eliminated 5,000 employees from its payrolls between 1990 and 1992.

With oil prices in a decade-long slide, Exxon also cut spending on exploration from $1.7 billion in 1985 to $900 million in 1992. The companys exploration budget constituted less than one percent of revenues, and played a large part in Exxons good financial performance. But some fuel industry observers warn that such drastic cuts overlook the competitions search for new oil reserves. Royal Dutch/Shell spent almost twice as much as Exxon on exploration over the same period. In the event of an international crisis that cut off oil supplies, would Exxon be prepared to fill the gap? With ten percent of the United States petroleum reserves, Exxon is confident of its future.

Principal Subsidiaries

Esso Aktiengesellschaft (Germany); Esso Eastern Inc.; Esso Australia Resources Ltd.; Esso Exploration and Production Norway Inc.; Esso Holding Company Holland Inc.; Esso Holding Company U.K. Inc.; Esso Italiana S.P.A. (Italy); Esso Norge a.s. (Norway); Esso Sociedad Anónima Petrolera Argentina; Esso Société Anonyme Francaise (France; 81.548%) Esso Standard Oil S.A. Limited (Bahamas); Exxon Capital Holdings Corporation; Exxon Insurance Holdings, Inc.; Exxon Overseas Corporation; Exxon Rio Holding Inc.; Exxon San Joaquin Production Company; Exxon Yemen Inc.; Imperial Oil Limited (Canada, 69.56%); International Colombia Resources Corporation (100%); Societe Francaise Exxon Chemical (France, 98.64%); Exxon Engergy Ltd.; Esso Production Malaysia Inc.; Esso Sekiyu Kabushiki Kaisha; Esso Singapore Private Ltd.; Exxon Chemical Trading Inc.; Friends-wood Development Co.

Further Reading

Nevins, Allan, Study in Power: John D. Rockefeller Industrialist and Philanthropist, 2 vols., New York, Charles Scribners Sons, 1953; Hidy, Ralph W., and Murrel E. Hidy, History of Standard Oil Company (New Jersey): Pioneering in Big Business, 1882-1911, New York, Harper & Brothers, 1955; Gibb, George Sweet, and Evelyn H. Knowlton, History of Standard Oil Company (New Jersey): The Resurgent Years, 1911-1927, New York, Harper & Brothers, 1956; Larson, Henrietta M., Evelyn H. Knowlton, and Charles S. Popple, History of Standard Oil Company (New Jersey): New Horizons, 1927-1950, New York, Harper & Row, 1971; Sampson, Anthony, The Seven Sisters: The Great Oil Companies and the World They Made, New York, The Viking Press, 1975; Wall, Bennett H., Growth in a Changing Environment: A History of Standard Oil Company (New Jersey), New York, McGraw-Hill, 1988; Rogers, Alison, The Fortune 500: It Was the Worst of Years, Fortune, April 20, 1992; Cropper, Carol M. et al., The Forbes 500s Annual Directory, Forbes, April 27, 1992; Finch, Peter, The Business Week 1000, Business Week, special issue, 1992; Oil Majors Make Tough Decisions on Jobs, Assets, Chemical Marketing Reporter, July 13, 1992; Norman, James R., A Tale of Two Strategies, Forbes, August 17, 1992.

Jonathan Martin

updated by April Dougal

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"Exxon Corporation." International Directory of Company Histories. . Encyclopedia.com. 23 Aug. 2017 <http://www.encyclopedia.com>.

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"Exxon Corporation." International Directory of Company Histories. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/books/politics-and-business-magazines/exxon-corporation-0

Exxon Corporation

Exxon Corporation

225 East John Carpenter Freeway
Irving, Texas 75062
U.S.A.
(214) 444-1000
Fax: (214) 444-1348

Public Company
Incorporated:
1882 as Standard Oil Company of New Jersey
Employees: 104,000
Sales: $116.94 billion
Stock Exchange: New York

As the earliest example of that trend toward gigantic size and power, Exxon Corporation and its Standard Oil forebears have earned vast amounts of money. The child of John D. Rockefeller, Standard Oil enjoyed the blessings and handicaps of overwhelming poweron the one hand, an early control of the oil business so complete that even its creators could not deny its monopolistic status; on the other, an unending series of journalistic and legal attacks upon its business ethics, profits, and very existence. The uproar over the Exxon Valdez in 1989 put the corporation once more in the position of embattled giant, as Americas third-largest company struggled to justify its actions before the public.

The individual most responsible for the creation of Standard Oil, John D. Rockefeller, was born in 1839 to a family of modest means living in the Finger Lakes region of New York State. His father, William A. Rockefeller, was a sporadically successful merchant and part-time hawker of medicinal remedies. William Rockefeller moved his family to Cleveland, Ohio, when John D. Rockefeller was in his early teens, and it was there that the young man finished his schooling and began work as a bookkeeper in 1855. From a very young age John D. Rockefeller seems to have developed an interest in business. Before getting his first job with the merchant firm of Hewitt & Tuttle, Rockefeller had already demonstrated an innate affinity for business, later honed by a few months at business school.

Rockefeller worked at Hewitt & Tuttle for four years, studying large-scale trading in the United States. In 1859 the 19-year-old Rockefeller set himself up in a venture similar to Hewitt & Tuittle, Clark & Rockefeller, merchants handling the purchase and resale of grain, meat, farm implements, salt, and other basic commodities. Although still very young, Rockefeller had already impressed Maurice Clark and his other business associates as an unusually capable, cautious, and meticulous businessman. He was a reserved, undemonstrative individual, never allowing emotion to cloud his thinking. Bankers found that they could trust John D. Rockefeller, and his associates in the merchant business began looking to him for judgment and leadership.

Clark & Rockefellers already healthy business was given a boost by the Civil War economy, and by 1863 the firms two partners had put away a substantial amount of capital and were looking for new ventures. The most obvious and exciting candidate was oil. A few years before, the nations first oil well had been drilled at Titusville, in western Pennsylvania, and by 1863 Cleveland had become the refining and shipping center for a raft of newly opened oil fields in the so-called Oil Region. Activity in the oil fields, however, was extremely chaotic, a scene of unpredictable wildcatting, and John D. Rockefeller was a man who prized above all else the maintenance of order. He and Clark therefore decided to avoid drilling and instead go into the refining of oil, and in 1863 they formed Andrews, Clark & Company with an oil specialist named Samuel Andrews. Rockefeller, never given to publicity, was the Company.

With excellent railroad connections as well as the Great Lakes to draw upon for transportation, the city of Cleveland and the firm of Andrews, Clark & Company both did well. The discovery of oil wrought a revolution in U.S.methods of illumination, kerosene soon replacing animal fat as the source of light across the country, and by 1865 Rockefeller was fully convinced that oil refining would be his lifes work. Unhappy with his Clark-family partners, in 1865 Rockefeller bought them out for $72,000 and created the new firm of Rockefeller & Andrews, already Clevelands largest oil refiners. It was a typically bold move by Rockefeller, who although innately conservative and methodical was never afraid to make difficult decisions. He thus found himself, at the age of 25, co-owner of one of the worlds leading oil concerns.

Talent, capital, and good timing combined to bless Rockefeller & Andrews. The demand for oil continued to explode, Cleveland handled the lions share of Pennsylvania crude, and Rockefeller & Andrews soon dominated the Cleveland scene. By 1867, when a young man of exceptional talent named Henry Flagler became a third partner, the firm was already operating the worlds number-one oil refinery; there was as yet little oil produced outside the United States. The year before, John Rockefellers brother, William, had opened a New York office to encourage the rapidly growing export of kerosene and oil by-products, and it was not long before foreign sales became an important part of Rockefeller strength. As an indication of the latter, in 1869 the young firm allocated $60,000 for plant improvements alonean enormous sum of money for that day.

The early years of the oil business were marked by tremendous swings in the production, and hence the price, of both crude and refined oil. With a flood of newcomers entering the field every day, size and efficiency had already become critically important for survival, and as the biggest refiner, Rockefeller was in a better position than anyone to weather the price storms. Rockefeller and Henry Flagler, with whom he enjoyed a long and harmonious business relationship, decided to incorporate their firm as a means to raise the capital needed to enlarge it still further. On January 10, 1870, the Standard Oil Company was formed, with the two Rockefellers, Flagler, and Andrews owning the great majority of stock, valued at $1 million. The new company was not only capable of refining approximately 10% of the entire countrys oil, it also owned a barrel-making plant, dock facilities, a fleet of railroad tank cars, New York warehouses, and forest land for the cutting of lumber used to produce barrel staves. At a time when the term was yet unknown, Standard Oil had become a vertically integrated company.

One of the signal advantages of Standard Oils size was the leverage it gave the company in railroad negotiations. Most of the oil refined at Standard made its way to New York and the eastern seaboard, and because of Standards great volume60 carloads a day by 1869it was able to win lucrative rebates from the warring railroads. In 1871 the various railroads concocted a plan whereby the nations oil refiners and railroads would agree to set and maintain prohibitively high freight rates while awarding large rebates and other special benefits to those refiners who were part of the scheme. The railroads would avoid disastrous price wars while the large refiners forced out of business those smaller companies who refused to join the cartel, known as the South Improvement Company.

The plan was immediately denounced by Oil Region producers and many independent refiners, near-riots breaking out in the oil fields. After a bitter war of words and a flood of press coverage, the oil refiners and the railroads abandoned their plan and announced the adoption of public, inflexible transport rates. In the meantime, however, Rockefeller and Flagler were already far advanced on a plan of their own, its aim a solution to the problems of excess capacity and dropping prices in the oil industry. To Rockefeller the remedy was obvious, though unprecedented: the eventual unification of all oil refiners in the United States into a single company. Rockefeller approached one after another of the Cleveland refiners, and a number of important firms in New York and elsewhere as well with an offer of Standard Oil stock or cash in exchange for their often-ailing plants. By the end of 1872 all 34 other refiners in the area had agreed to sell, some freely and for profit, and some, competitors alleged, under coercion. Due to Standards great size and the industrys overbuilt capacity, Rockefeller and Flagler were in a position to make their competitors offers they could not refuse. All indications are that Standard regularly paid top dollar for viable companies.

By 1873 Standard Oil was refining more oil10,000 barrels per daythan any other region of the country, employing 1,600 workers, and netting around $500,000 per year. With great confidence, Rockefeller proceeded to duplicate his Cleveland success throughout the rest of the country. By the end of 1874 he had absorbed the next three largest refiners in the nation, located in New York, Philadelphia, and Pittsburgh, and had begun moving into the field of distribution with the purchase of several of the new pipelines then being laid across the country. With each new acquisition it became that much harder for Rockefellers next target to refuse his cash, for the Standard interests rapidly grew so large that the threat of monopoly was clear. The years 1875 to 1879 saw Rockefeller push through his plan to its logical conclusion. In 1878, a mere six years after beginning its annexation campaign, Standard Oil controlled $33 million of the countrys $35 million annual refining capacity, as well as a significant proportion of the nations pipelines and oil tankers. At the age of 39, Rockefeller was one of the five wealthiest men in the country.

Standards involvement in the aborted South Improvement Company, however, had earned it lasting criticism, and its subsequent absorption of the refining industry was not calculated to mend its image among the few remaining independents and the mass of oil producers. The latter, still unable to curb excess drilling, found in Standard a natural target for their wrath when the price of crude dropped precipitously in the late 1870s. From the welter of conflicting testimony it is difficult to determine the causes of producers failing fortunes, but it is clear that given Standards extraordinary position in the oil industry it was feted to become the target of any and all dissatisfactions. In 1879 nine Standard Oil officials were indicted by a Pennsylvania grand jury for violating state antimonopoly laws. Though the case was not pursued, it indicated the depth of feeling against Standard Oil, and was only the first in a long line of legal battles waged to curb its power.

In 1882 Rockefeller and his associates reorganized their dominions, creating the first trust in U.S. business history. This move overcame state laws restricting the activity of a corporation to its home state. Henceforth the Standard Oil Trust, domiciled in New York City, held in trust all assets of the various Standard Oil companies. Of the Standard Oil Trusts nine trustees, John D. Rockefeller held easily the largest number of shares. Together the trusts 30 companies controlled 80% of the refineries and 90% of the oil pipelines in the United States and constituted the leading industrial organization in the world. The trusts first years combined net earnings were $11.2 million, of which some $7 million was immediately plowed back into the companies for expansion. Almost lost in the flurry of big numbers was the 1882 creation of Standard Oil Company of New Jersey, one of the many regional corporations created to handle the trusts activities in surrounding states. Barely worth mentioning at the time, Standard Oil Company of New Jersey, or Jersey as it came to be called, would soon become the dominant Standard company and, much later, rename itself Exxon.

The 1880s were a period of exponential growth for Standard. The trust not only maintained its lock on refining and distribution but also seriously entered the field of production, by 1891 securing a quarter of the countrys total output, most of it in the new regions of Indiana and Dlinois. Standards overseas business was also expanding rapidly, and in 1888 it founded its first foreign affiliate, Anglo-American Oil Company Limited of London. The overseas trade in kerosene was especially important to Jersey, which derived as much as three-fourths of its sales from the export trade. Jerseys Bayonne, New Jersey, refinery was soon the third largest in the Standard family, putting out 10,000 to 12,000 barrels per day by 1886. In addition to producing and refining capacity, Standard also was extending gradually its distribution system from pipelines and bulk wholesalers toward the retailer and eventual end user of kerosene, the private consumer.

The 1890 Sherman Antitrust Act, passed largely in response to Standards oil monopoly, laid the groundwork for a second major legal assault against the company, an 1892 Ohio Supreme Court order forbidding the trust to operate Standard of Ohio. As a result, the trust was promptly dissolved, but taking advantage of newly liberalized state law in New Jersey the Standard directors made Jersey the main vessel of their holdings. Standard Oil Company of New Jersey became Standard Oil Company (New Jersey) at this time. The new Standard Oil structure now consisted of only 20 much-enlarged companies, but effective control of the interests remained in the same few hands as before. Jersey added a number of important manufacturing plants to its already impressive refining capacity and was by any measure the leading Standard unit, but it was not until 1899 that it became the sole holding company for all of the Standard interests. At that time the entire organizations assets were valued at about $300 million and it employed 35,000 people. John D. Rockefeller continued as nominal president, but the most powerful active member of Jerseys board was probably John D. Archbold.

Rockefeller, in fact, had retired from daily participation in Standard Oil in 1896 at the age of 56. Once Standards consolidation was complete Rockefeller spent his time reversing the process of accumulation, seeing to it that his staggering fortuneestimated at $900 million in 1913was redistributed as efficiently as it had been made.

The general public was only dimly aware of Rockefellers philanthropy, however. More obvious were the frankly monopolistic policies of the company he had built. With its immense size and complete vertical integration from oil well to housewife, including housewives as far away as Romania, Standard Oil piled up huge profits$830 million in the 12 years from 1899 to 1911. In relative terms, its domination of the U.S. industry was steadily decreasing, by 1911 its percentage of total refining was down to 66% from the 90% of a generation before; but in absolute terms Standard Oil had grown to monstrous proportions. It was therefore not surprising that in 1905 a U.S. congressman from Kansas launched an investigation of Standard Oils role in the falling price of crude in his state. The commissioner of the Bureau of Corporations, James R. Garfield, decided to widen the investigation into a study of the national oil industryin effect Standard Oil.

Garfields critical report prompted a barrage of state lawsuits against Standard Oil (New Jersey) and, in November 1906, a federal suit was filed charging the company, John D. Rockefeller, and others with running a monopoly. In 1911, after years of litigation the U.S. Supreme Court upheld a lower courts conviction of Standard Oil for monopoly and restraint of trade under the Sherman Antitrust Act. The Court ordered the separation from Standard Oil Company (New Jersey) of 33 of the major Standard Oil subsidiaries, including those which subsequently kept the Standard name.

To Standard Oil Company (New Jersey) remained an equal number of smaller companies spread around the United States and overseas which, taken together, represented $285 million of the former Jerseys net value of $600 million. Notable among the remaining holdings were a group of large refineries, four medium-sized producing companies, and extensive foreign marketing affiliates. Notably absent were the pipelines needed to move oil from well to refinery, much of the former tanker fleet, and access to a number of important foreign markets, including Great Britain and the Far East.

President of Standard Oil (New Jersey) remained John D. Archbold, a long-time intimate of the elder Rockefeller, whose Standard service had begun in 1879. Archbolds first problem was to secure sufficient supplies of crude oil for Jerseys extensive refining and marketing capacity. Jerseys former subsidiaries were more than happy to continue selling crude to Jersey, and in reality the dissolution decree had little immediate effect on the coordinated workings of the former Standard Oil group, but Jersey set about finding its own sources of crude. The companys first halting steps toward foreign production met with little successventures in Romania, Peru, Mexico, and Canada suffered political or geological setbacks and were of no help. In 1919, however, Jersey made a domestic purchase that would prove to be of great long-term value. For $17 million Jersey acquired 50% of the Humble Oil & Refining Company of Houston, Texas, a young but rapidly growing network of Texas producers which immediately assumed first place among Jerseys domestic suppliers. Although only the fifth-leading producer in Texas at the time of its purchase, Humble would soon become the dominant drilling company in all of the United States, and was eventually wholly purchased by Jersey. Humble, now known as Exxon Company USA, remained one of the leading U.S. producers of crude oil and natural gas, with drilling rigs in 19 states including Alaskas PrudhoeBay, in 1991.

Despite initial disappointments in overseas production, Jersey remained a company oriented to foreign markets and supply sources. On the supply side, Jersey secured a number of valuable Latin American producing companies in the 1920s, especially several Venezuelan interests consolidated in 1943 into Creole Petroleum Corporation. By that time Creole was easily the largest crude producer in the Jersey group, and also the most profitable Jersey company of any kind. In 1946, for example, Creole produced an average of 451,000 barrels per day, far more than the 309,000 by Humble and almost equal to all other Jersey drilling companies combined. Four years later, Creole alone generated $157 million of the Jersey groups total net income of $408 million, and did so on sales of only $517 million. Also in 1950, Jerseys British affiliates, mainly marketers, showed substantial sales of $283 million but seta bottom line of about $2 million. In contrast to the industrys early days, oil profits now lay in the production of crude, and the bulk of Jerseys crude came from Latin America. The companys growing Middle Eastern affiliates did not become significant resources until the early 1950s; and Jerseys Far East holdings, from 1933 to 1961 owned jointly with Socony-Vacuum Oil Companyformerly Standard Oil Company of New York and now Mobil Corporationnever provided sizable amounts of crude oil.

In marketing, Jerseys income showed a similar preponderance of foreign sales. Jerseys domestic market had been limited by the dissolution decree, largely to a handful of mid-Atlantic states and such others as Jersey could later gain access to, whereas the companys overseas affiliates were well entrenched and highly profitable. Jerseys Canadian affiliate, Imperial Oil Ltd. had a monopolistic hold on that countrys market, while in Latin America and the Caribbean the West India Oil Company performed superbly during the second and third decades of the 20th century. Jersey had also incorporated eight major marketing companies in Europe by 1927 and these too sold a significant amount of refined products, most of them under the Esso brand name introduced the previous year. Esso became Jerseys best known and most widely used retail name both at home and abroad.

Jerseys mix of refined products changed considerably over the years. As the use of kerosene for illumination gave way to electricity and the automobile continued to grow in popularity, Jerseys sales reflected a shift away from kerosene and toward gasoline. Even as late as 1950, however, gasoline had not yet become the leading seller among Jersey products. That honor went to the group of residual fuel oils used to power ships and industrial plants and as a substitute for coal. Distillates used for home heating and diesel engines were also strong performers. Even in 1991, when Exxon distributed its gasoline through a network of 12,000 U.S. and 26,000 international service stations, the earnings of all marketing and refining activities were barely one-third of those derived from the production of crude. In 1950 that proportion was about the same, indicating once again that, regardless of the end products into which oil is refined, it is the production of crude that yields the big profits.

Indeed, by mid-century the international oil business had largely become a question of controlling crude oil at its source. With Standard Oil Company and its multinational competitors having built fully vertically integrated organizations, the only leverage remained control of the oil as it came out of the ground. Though it was not yet widely known in the United States, production of crude was shifting rapidly from the United States and Latin America to the Middle East. As early as 1908 oil had been verified in present-day Iran, but it was not until 1928 that Jersey and Socony-Vacuum, prodded by chronic shortages of crude, joined three European companies in forming Iraq Petroleum Company. Also in 1928, Jersey, Shell, and Anglo-Persian secretly agreed to limit each companys share of world production to their present relative amounts, attempting, by means of this As Is agreement, to limit competition and keep prices at comfortably high levels. As with Rockefellers similar tactics 50 years before, it was not clear in 1928 that the agreement was illegal, because its participants were located in a number of different countries each with its own set of trade laws. Already in 1928, Jersey and the other oil giants were stretching the very concept of nationality beyond any simple application.

Following World War II, Standard Oil was again in need of crude to supply the resurgent economies of Europe. Already the worlds largest producer, Standard Oil became interested in the vast oil concessions in Saudi Arabia recently won by Texaco and Socal. The latter companies were in need of both capital for expansion and world markets for exploitation, and in 1946 they sold 30% of the newly formed Arabian American Oil Company (Aramco) to Standard Oil and 10% to Socony-Vacuum. A few years later, after Irans nationalization of Anglo-Persians holdings was squelched by a combination of CIA assistance and an effective worldwide boycott of Iranian oil by competitors, Jersey was able to take 7% of the consortium formed to drill in that oil-rich country. With a number of significant tax advantages attached to foreign crude production, Jersey drew an increasing percentage of its oil from its holdings in all three of the major middle eastern fields: Iraq, Iran, and Saudi Arabia, and helped propel the 20-year postwar economic boom in the West. With oil prices exceptionally low, the United States and Europe busily shifted their economies to complete dependence on the automobile and on oil as the primary industrial fuel.

Despite the growing strength of newcomers to the international market such as Getty and Conoco, the big companies continued to exercise decisive control over the world oil supply and thus over the destinies of the Middle East producing countries. Growing nationalism and an increased awareness of the extraordinary power of the large oil companies led to the 1960 formation of the Organization of Petroleum Exporting Countries (OPEC) and a series of increasingly bitter confrontations between countries and companies over who should control the oil upon which the world had come to depend. The growing power of OPEC prompted Jersey to seek alternative sources of crude, resulting in discoveries in Alaskas Prudhoe Bay and the North Sea in the late 1960s. The Middle Eastern sources remained paramount, however, and when OPEC cut off oil supplies to the United States in 1973 in response to U.S. sponsorship of Israel, the resulting 400% price increase permanently changed the industrial worlds attitude to oil, as well as inducing a prolonged recession. Control of the oil was largely taken out of the hands of the oil companies, which began exploring new sources of energy and business opportunities in other fields.

For Standard Oil Company (New Jersey), which had changed it name to Exxon in 1972, the oil embargo had several major effects. Most obviously it increased corporate sales, the expensive oil allowing Exxon to double its 1972 revenue of $20 billion in only two years and then pushing that figure over the $100 billion mark by 1980. After a year of windfall profits made possible by the sale of inventoried oil bought at much lower prices, Exxon was able to make use of its extensive North Sea and Alaskan holdings to keep profits at a steady level. The company had suffered a strong blow to its confidence, however, and was soon investigating a number of diversification measures which eventually included office equipment, a purchase of Reliance Electric Company, the fifth-largest holdings of coal in the United States, and an early-1980s venture into shale oil. With the partial exception of coal, all of these were expensive failures, costing Exxon an estimated $6 billion to $7 billion and no end of frustration.

By the early 1980s the world oil picture had eased considerably and Exxon felt less urgency about diversification. With the price of oil peaking around 1981 and then tumbling for most of the decade, Exxons sales dropped sharply but its confidence rose as OPECs grip on the marketplace proved to be weaker than advertised. Having abandoned its forays into other areas Exxon refocused on the oil and gas business, cutting its assets and work force substantially to accommodate the drop in revenue without losing profitability.

It also bought back a sizable number of its own shares to bolster per-share earnings, which reached excellent levels and won the approval of Wall Street. The stock buy-back was partially in response to Exxons embarrassing failure to invest its excess billions profitably, at which point the company was somewhat at a loss as to what to do with its money. It could not expand further into the oil business without running into antitrust difficulties at home, and investments outside oil would have to truly be mammoth to warrant the time and energy required.

Exxon is no longer the worlds largest company, nor even the largest oil groupRoyal Dutch/Shell took over that position in the 1980sbut with the help of the 1989 Exxon Valdez disaster it has heightened its notoriety. The crash of the Exxon Valdez on March 24, 1989, in Prince William Sound off the port of Valdez, Alaska, released about 260,000 barrels of crude oil into the sound. The disaster cost Exxon $1.7 billion in 1989 alone, and the company and its subsidiaries were faced with more than 170 civil and criminal lawsuits brought by state and federal governments and individuals. In the long run, however, it is likely that Exxon will view the Valdez disaster as a small blemish on its muscular balance sheet.

Principal Subsidiaries

Esso Aktiengesellschaft (Germany); Esso Eastern Inc.; Esso Australia Resources Ltd.; Esso Exploration and Production Norway Inc.; Esso Holding Company Holland Inc.; Esso Holding Company U.K. Inc.; Esso Italiana S.P.A. (Italy); Esso Norge a.s. (Norway); Esso Sociedad Anonima Petrolera Argentina; Esso Societe Anonyme Francaise (France; 81.548%) Esso Standard Oil S.A. Limited (Bahamas); Exxon Capital Holdings Corporation; Exxon Gas System, Inc.; Exxon Insurance Holdings, Inc.; Exxon Overseas Corporation; Exxon Rio Holding Inc.; Exxon San Joaquin Production Company; Exxon Trading Company International; Exxon Yemen Inc.; Imperial Oil Limited (Canada, 69.56%); International Colombia Resources Corporation (100%); Societe Francaise Exxon Chemical (France, 98.64%).

Further Reading

Nevins, Allan, Study in Power: John D. RockefellerIndustrialist and Philanthropist, 2 vols., New York, Charles Scribners Sons, 1953; Hidy, Ralph W., and Murrel E. Hidy, History of Standard Oil Company (New Jersey): Pioneering in Big Business, 1882-1911, New York, Harper & Brothers, 1955; Gibb, George Sweet, and Evelyn H. Knowlton, History of Standard Oil Company (New Jersey): The Resurgent Years, 1911-1927, New York, Harper & Brothers, 1956; Larson, Henrietta M., Evelyn H. Knowlton, and Charles S. Popple, History of Standard Oil Company (New Jersey): New Horizons, 1927-1950, New York, Harper & Row, 1971; Sampson, Anthony, The Seven Sisters: The Great Oil Companies and the World They Made, New York, The Viking Press, 1975; Wall, Bennett H., Growth in a Changing Environment: A History of Standard Oil Company (New Jersey), New York, McGraw-Hill, 1988.

Jonathan Martin

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Oil Spills: Impact on the Ocean

Oil Spills: Impact on the Ocean

Oil wastes that enter the ocean come from many sources, some being accidental spills or leaks, and some being the results of chronic and careless habits in the use of oil and oil products. Most waste oil in the ocean consists of oily stormwater drainage from cities and farms, untreated waste disposal from factories and industrial facilities, and unregulated recreational boating.

It is estimated that approximately 706 million gallons of waste oil enter the ocean every year, with over half coming from land drainage and waste disposal; for example, from the improper disposal of used motor oil. Offshore drilling and production operations and spills or leaks from ships or tankers typically contribute less than 8 percent of the total. The remainder comes from routine maintenance of ships (nearly 20 percent), hydrocarbon particles from onshore air pollution (about 13 percent), and natural seepage from the seafloor (over 8 percent).

Prevalence during Drilling versus Transportation

Offshore oil spills or leaks may occur during various stages of well drilling or workover and repair operations. These stages can occur while oil is being produced from offshore wells, handled, and temporarily stored; or when oil is being transported offshore, either by flowline, underwater pipeline, or tanker. Of the approximately 706 million gallons of waste oil in the ocean each year, offshore drilling operations contribute about 2.1 percent, and transportation accidents (both ships and tankers) account for another 5.2 percent. The amount of oil spilled or leaked during offshore production operations is relatively insignificant.

Oil waste from offshore drilling operations may come from disposal of oil-based drilling fluid wastes, deck runoff water, flowline and pipeline leaks, or well failures or blowouts. Disposal of offshore production waste can also pollute the ocean, as can deck runoff water, leaking storage tanks, flowline and pipeline leaks, and the wells themselves. Oil spilled from ships and tankers includes the transportation fuel used by the vessels themselves or their cargos, such as crude oil, fuel oil, or heating oil.

Oil Spill Behavior

When oil is spilled in the ocean, it initially spreads in the water (primarily on the surface), depending on its relative density and composition. The oil slick formed may remain cohesive, or may break up in the case of rough seas. Waves, water currents, and wind force the oil slick to drift over large areas, impacting the open ocean, coastal areas, and marine and terrestrial habitats in the path of the drift.

Oil that contains volatile organic compounds partially evaporates, losing between 20 and 40 percent of its mass and becoming denser and more viscous (i.e., more resistant to flow). A small percentage of oil may dissolve in the water. The oil residue also can disperse almost invisibly in the water or form a thick mousse with the water. Part of the oil waste may sink with suspended particulate matter, and the remainder eventually congeals into sticky tar balls. Over time, oil waste weathers (deteriorates) and disintegrates by means of photolysis (decomposition by sunlight) and biodegradation (decomposition due to microorganisms). The rate of biodegradation depends on the availability of nutrients, oxygen, and microorganisms, as well as temperature.

Oil Spill Interaction with Shoreline.

If oil waste reaches the shoreline or coast, it interacts with sediments such as beach sand and gravel, rocks and boulders, vegetation, and terrestrial habitats of both wildlife and humans, causing erosion as well as contamination . Waves, water currents, and wind move the oil onto shore with the surf and tide.

Beach sand and gravel saturated with oil may be unable to protect and nurture normal vegetation and populations of the substrate biomass . Rocks and boulders coated with sticky residue interfere with recreational uses of the shoreline and can be toxic to coastal wildlife.

Examples of Large Spills.

The largest accidental oil spill on record (Persian Gulf, 1991) put 240 million gallons of oil into the ocean near Kuwait and Saudi Arabia when several tankers, port facilities, and storage tanks were destroyed during war operations. The blowout of the Ixtoc I exploratory well offshore Mexico in 1979, the second largest accidental oil spill, gushed 140 million gallons of oil into the Gulf of Mexico. By comparison, the wreck of the Exxon Valdez tanker in 1989 spilled 11 million gallons of oil into Prince William Sound offshore Alaska, and ranks fifty-third on the list of oil spills involving more than 10 million gallons.

The number of large spills (over 206,500 gallons) averaged 24.1 per year from 1970 to 1979, but decreased to 6.9 per year from 1990 through 2000.

Damage to Fisheries, Wildlife, and Recreation

Oil spills present the potential for enormous harm to deep ocean and coastal fishing and fisheries. The immediate effects of toxic and smothering oil waste may be mass mortality and contamination of fish and other food species, but long-term ecological effects may be worse. Oil waste poisons the sensitive marine and coastal organic substrate, interrupting the food chain on which fish and sea creatures depend, and on which their reproductive success is based. Commercial fishing enterprises may be affected permanently.

Wildlife other than fish and sea creatures, including mammals, reptiles, amphibians, and birds that live in or near the ocean, are also poisoned by oil waste. The hazards for wildlife include toxic effects of exposure or ingestion, injuries such as smothering and deterioration of thermal insulation, and damage to their reproductive systems and behaviors. Long-term ecological effects that contaminate or destroy the marine organic substrate and thereby interrupt the food chain are also harmful to the wildlife, so species populations may change or disappear.

Coastal areas are usually thickly populated and attract many recreational activities and related facilities that have been developed for fishing, boating, snorkeling and scuba diving, swimming, nature parks and preserves, beaches, and other resident and tourist attractions. Oil waste that invades and pollutes these areas and negatively affects human activities can have devastating and long-term effects on the local economy and society. Property values for housing tend to decrease, regional business activity declines, and future investment is risky.

Long-term Fate of Oil on Shore

The fate of oil residues on shore depends on the spilled oil's composition and properties, the volume of oil that reaches the shore, the types of beach and coastal sediments and rocks contacted by the oil, the impact of the oil on sensitive habitats and wildlife, weather events, and seasonal and climatic conditions. Some oils evaporate, disperse, emulsify, weather, and decompose more easily than others. The weather and seasonal and climatic conditions may accelerate or delay these processes.

Oil waste that coalesces into a tar-like substance or that saturates sediments above the surf and tide level is especially persistent. Efforts to remove the oil and clean, decontaminate, and remediate an oil-impacted shoreline may make the area more visibly attractive, but may be more harmful than helpful in terms of actual recovery.

Cleanup and Recovery

The techniques used to clean up an oil spill depend on oil characteristics and the type of environment involved; for example, open ocean, coastal, or wetland . Pollution-control measures include containment and removal of the oil (either by skimming, filtering, or in situ combustion), dispersing it into smaller droplets to limit immediate surficial and wildlife damage, biodegradation (either natural or assisted), and normal weathering processes. Individuals of large-sized wildlife species are sometimes rescued and cleaned, but micro-sized species are usually ignored.

Oil spill countermeasures to clean up and remove the oil are selected and applied on the basis of many interrelated factors, including ecological protection, socioeconomic effects, and health risk. It is important to have contingency plans in place in order to deploy pollution control personnel and equipment efficiently.

Environmental Recovery Rates.

The rate of recovery of the environment when an oil spill occurs depends on factors such as oil composition and properties and the characteristics of the area impacted, as well as the results of intervention and remediation. Physical removal of oil waste and the cleaning and decontaminating of the area assist large-scale recovery of the environment, but may be harmful to the substrate biomass. Bioremediation effortsadding microorganisms, nutrients, and oxygen to the environmentcan usually boost the rate of biodegradation.

Because of the type of oil spilled and the Arctic environment in which it spilled, it is estimated that the residue of the Exxon Valdez oil spill will be visible on the Alaskan coast for 30 years.

Costs and Prevention

The costs of an oil spill are both quantitative and qualitative. Quantitative costs include loss of the oil, repair of physical facilities, payment for cleaning up the spill and remediating the environment, penalties assessed by regulatory agencies, and money paid in insurance and legal claims. Qualitative costs of an oil spill include the loss of pristine habitat and communities, as well as unknown wildlife and human health effects from exposure to water and soil pollution.

Prevention of oil spills has become a major priority; and of equal importance, efforts to contain and remove oil that has spilled are considered to be prevention of secondary spills. The costs associated with oil spills and regulations governing offshore facilities and operations have encouraged the development of improved technology for spill prevention. The Oil Pollution Act of 1990 was enacted by the U.S. Congress to strengthen oil spill prevention, planning, response, and restoration efforts. Under its provisions, the Oil Spill Liability Trust Fund provides cleanup funds for oil pollution incidents.

Responsibility for the prevention of oil spills falls upon individuals as well as on governments and industries. Because the sources of oil waste in the ocean are generally careless, rather than accidental, truly effective prevention of oil spills involves everyone.

see also Beaches; Coastal Waters Management; Corals and Coral Reefs; Energy from the Ocean; Fisheries, Marine; Marine Mammals; Ocean Health, Assessing; Petroleum from the Ocean.

Carolyn Embach

Bibliography

American Petroleum Institute. Fate of Spilled Oil in Marine Waters. Publication Number 4691. Washington, D.C.: American Petroleum Institute, 1999.

Carls, Mark G. et al. "Persistence of Oiling in Mussel Beds after the Exxon Valdez Oil Spill." Marine Environmental Research 51, no. 2 (2001):167190.

Raloff, Janet. "Valdez Spill Leaves Lasting Impacts." Science News no. 143 (February 13, 1993):102.

U.S. Environmental Protection Agency. Understanding Oil Spills and Oil Spill Response. Publication Number 9200.5105. Washington, D.C.: U.S. Environmental Protection Agency, 1993.

RECOVERING FROM THE EXXON VALDEZ OIL SPILL

A large quantity of crude oil was deposited on beaches in Prince William Sound and along the shoreline of the Gulf of Alaska after the Exxon Valdez tanker wrecked in 1989. The oil waste has been closely monitored to determine its status and its effects in the ocean and along the coast.

Initial efforts to remove the oil from intertidal areas included flushing them with hot water applied with high pressure, which proved fatal for much of the marine life involved. Natural rates of biodegradation and recovery have been slower than anticipated, and visible residue may persist for up to 30 years.

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Exxon Corporation

EXXON CORPORATION


The Exxon Corporation grew out of another oil company giant, Standard Oil Company, founded by John D. Rockefeller (18391937) in 1870. Standard Oil's monopoly over the oil business in the early twentieth century led to a series of attacks on that company from journalists and politicians. Likewise, Exxon's reputation in the late twentieth century has been damaged by the environmental havoc created by a massive oil spill in Alaska from the tanker Exxon Valdez in 1989. Still, Exxon remains the third largest company in the United States and the seventh largest in the world.

In the 1860s Rockefeller foresaw the potential of refining Pennsylvania crude oil. Though internal combustion engines were not yet developed, kerosene oil could be used, among other things, to fuel lanterns. When Standard Oil was formed, it integrated all of the docks, railroad cars, warehouses, lumber resources, and other facilities it needed into its operations. Because of its size it was able to make lucrative deals with railroads. The result was to drive smaller refiners out of business.

Standard Oil became the foremost monopoly in the country. It was so big that it more or less dictated to the railroads what it would pay in freight rates. Although this practice was abandoned because of public pressure, by 1878 Rockefeller and partner Henry Flagler (18301913) were in control of most of the nation's oil refining business. Rockefeller's business successes had made him one of the five wealthiest men in the country. Those same monopolistic business practices that gave him such monetary success were also a source of criticism from many quarters in industry and government.

In 1882 Rockefeller and his associates established the first trust in the United States, which consolidated all of Standard Oil Company's assets in the states under the New York Company, in which Rockefeller was the major shareholder.

In the 1880s Standard Oil began producing as well as refining and distributing oil. It also began an overseas trade, particularly in kerosene to Great Britain. The trust encountered difficulties with the Sherman Antitrust Act of 1890, followed by an 1892 Ohio Supreme Court decision which forbade the trust to operate Standard of Ohio. The company then moved its base of its operations to New Jersey, which in 1899 became home to Standard Oil of New Jersey, or Jersey Standard, the sole holding company for all of Standard's interests. Jersey Standard later became Exxon Corporation. In the first decades of the twentieth century Jersey Standard was banned from holdings in several states. Instead, it acquired companies in Latin America in the 1920s, particularly in Venezuela, and also expanded its marketing companies abroad.

As the supply of crude oil began shifting from the United States and Latin America to the Middle East in the 1920s, Jersey Standard and other companies effectively used the same monopolistic practices that John D. Rockefeller had used 50 years before to establish a foothold in the region. Middle East production was stepped up following World War II (19391945) and Standard Oil exploited its rich resources in Iraq, Iran, and Saudi Arabia. Oil prices stayed low and the United States and Europe became extremely dependent on oil fuels for industry and automobiles.

During the 1960s growing nationalism in the Middle East brought much resentment against the western companies dominating Middle Eastern oil. The Organization of Petroleum Exporting Countries (OPEC) was formed to protect the interests of the producing countries. As OPEC became more assertive, Jersey Standard sought other sources of crude oil. The company discovered oil fields in Alaska's Prudhoe Bay and in the North Sea. Around the same time, in 1972, Standard Oil of New Jersey officially changed its name to Exxon Corporation.

Financial difficulties beset the company in the 1970s, as the OPEC-induced oil shortage depleted much of Exxon's reserves. Long lines formed at gas stations in 1973 and again in 1979, lights were turned out across the nation (even at the White House), and low and moderate income families struggled to heat their homes in the winter. The oil crisis even helped to derail President Jimmy Carter's (19771981) bid for a second term in office in 1980.

In 1989 the company was shaken by the Exxon Valdez disaster. A drunk Captain of the oil tanker Exxon Valdez ran aground in Alaska's Prince William Sound, doing immeasurable damage to the wildlife and to the company's public image. Eleven million gallons of oil spilled in the Alaskan harbor. The state of Alaska conducted public hearings and Exxon was deemed to have been "reckless" by an Alaskan Grand Jury. Exxon lost a share of the world oil market to its competitor, Royal Dutch/Shell in 1990. Still, teamed up with Pertamina, the Indonesian state oil company, Exxon in the 1990s developed the Natuna gas field. Exxon also agreed to a $15 billion development of three oil wells in Russia. A large oil discovery in 1996 in the Gulf of Mexico also allowed Exxon to court expansion plans far into the future.

Thus, neither the oil crisis nor the oil spill destroyed the company's profitability. While ordinary people worried, Exxon continued to reap major profits, reaching the $800 billion mark by 1980. Two hundred sixty thousand barrels of crude oil were spilled in Alaskan waters by the Exxon-Valdez ship, costing Exxon billions of dollars to clean up Prince William Sound and spawning hundreds of lawsuits from individuals and state and local governments. But, although the spill caused a public relations debacle, Exxon actually improved its financial status in the early 1990s, when other oil companies were losing money. To enhance profitability, the company engaged in cost-cutting, eliminating thousands of jobs and cutting spending for exploration. In 1997 the company's gross profit was $43 billion. By 1998, when oil prices had again sunk to record low levels, Exxon reported a resource base of 1.2 billion barrels of newly discovered resources.

Since the Exxon Valdez incident, Exxon has attempted to improve its image by emphasizing its efforts to produce environmentally sound products and contribute to environmental causes. Still, the outcries from the residents of Prince William Sound continued to be heard through the end of the 1990s. The 1994 federal jury verdict held Exxon liable for $5.2 billion in punitive damagesa verdict Exxon is still working to overturn.

Though Exxon began as an American company, it participates in a worldwide market. As a result, the company also has a successful European affiliate, Esso. Operating from its base in Germany, where it is the third largest oil and gas company, Esso manages over 1,500 gas stations in Germany. It also has interests in the Czech Republic, Hungary, Poland, and Slovakia. Esso, like Exxon, explores, produces, and manufactures gasoline, other fuels, chemicals, and lubricants.

See also: Kerosene, Monopoly, OPEC Oil Embargo, Petroleum Industry, John D. Rockefeller, Sherman Anti-Trust Act, Standard Oil Company

FURTHER READING

Clarke, Jim. "Exxon to Appeal $5 Billion Oil Spill Judgment." San Diego Daily, February 13, 1997.

Nevins, Allan. Study in Power: John D. Rockefeller Industrialist and Philanthropist. 2 vols. New York: Charles Scribner's Sons, 1953.

Sampson, Anthony. The Seven Sisters: The Great Oil Companies and the World They Made. New York: Viking, 1975.

Strauss, Gary. "10 Years Later, Case Is Hardly Closed: Exxon's PR Mess Still Isn't Cleaned Up." USA Today, March 4, 1999.


"Pumping Up Profits for Years." Fortune, April 28, 1997.

Wall, Bennett H. Growth in a Changing Environment: A History of Standard Oil Company (New Jersey). New York: McGraw-Hill, 1988.

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Oil Spills

Oil spills

Crude oil or petroleum is an important fossil fuel. Fossil fuels were formed millions of years ago, when much of Earth was covered by water containing billions of tiny plants and animals. After these organisms died they accumulated on ocean floors, where, over the ages, sand and mud also drifted down to cover them. As these layers piled up over millions of years, their weight created pressure and heat that changed the decaying organic material into oil and gas.

Since petroleum is often extracted in places that are far away from areas where it is refined and eventually used, it must be transported in

large quantities by ocean tankers, inland-water barges, or overland pipelines. Accidental oil spills can occur at any time during the loading, transportation, and unloading of oil. Some oil spills have been spectacular in magnitude and have caused untold environmental damage.

Bioremediation

Bioremediation is the use of bacteria and other living microorganisms to help clean up hazardous waste in soil and water. These microorganisms work by decomposing or breaking down toxic chemicals into simpler, less-poisonous compounds. Petroleum can be consumed by microorganisms, transforming it into compounds such as carbon dioxide and water.

Unfortunately, the technique of adding bacteria to a hazardous waste spill in order to increase the rate of decomposition has yielded limited success. If a community of bacteria present in an area where a spill occurs can consume that hazardous waste, the bacteria grow rapidly. Adding further microorganisms does not seem to increase the overall rate of decomposition. More important, areas where spills take place often do not have optimum conditions under which the bacteria can function. Oxygen and certain nutrients such as nitrate and phosphate that the bacteria need are often limited.

However, in the case of the Exxon Valdez oil spill in Alaska in 1989, nitrogen- and phosphorus-containing fertilizer was applied to about 75 miles (120 kilometers) of oiled beach. The fertilizer adhered to the petroleum residues. With these added nutrients, the naturally occurring community of bacteria broke down the oil at a 50 percent faster rate.

Characteristics of petroleum

Petroleum is a thick, flammable, yellow-to-black colored liquid containing a mixture of organic chemicals, most of which are hydrocarbons (organic compounds containing only hydrogen and carbon atoms). Since petroleum is a natural material, it can be diluted or decomposed by bacteria and other natural agents. The most toxic or poisonous components of petroleum are the volatile components (those compounds that evaporate at low temperatures) and the components that are water-soluble (able to be dissolved in water).

The products refined from petroleum (gasoline, kerosene, asphalt, fuel oil, and petroleum-based chemical), however, are not natural. Because of this, few natural agents like bacteria exist to decompose or break them down.

Oil pollution

Since crude oil floats, oil spilled on the open ocean most severely affects seabirds. The oil coats their bodies, preventing them from fluffing their feathers to keep warm. Animals and plants below the surface of the water are largely unaffected by the oil spill. Naturally present bacteria in the water begin to break down the petroleum, using it as a nutrient. Eventually, the oil slick is broken down into a hard, tarlike substance, which is almost completely harmless to seagoing life of all kind. Wave action then breaks the pieces of tar into progressively smaller and smaller pieces. These small pieces, often invisible to the naked eye, remain floating in the water indefinitely.

When an oil spill occurs near a coastline, however, the damaging effect is much greater. Waves wash the oil on shore where it covers everythingrocks, plants, animals, and sand. If the wave action is high, bacteria present in the water are able to break down the oil fairly rapidly. In areas where wave action is low, such as in a bay or estuary, plants and animals quickly suffocate or are killed by toxic reactions to the oil, which remains for a considerable time. Since many small bays serve as nesting sites for aquatic birds and animals, spills in these areas are especially deadly.

Incidents of oil spills

Accidental oil spills from tankers and offshore rigs are estimated to total about 250 million gallons (950 million liters) per year. In 1967, off the coast of southern England, the Torrey Canyon ran aground, spilling about 32 million gallons (120 million liters) of crude oil. In 1978, the Amoco Cadiz went aground in the English Channel, spilling over 63 million gallons (240 million liters) of crude oil. In 1979, the offshore exploration rig IXTOC-I had an uncontrollable blowout that spilled more than 137 million gallons (520 million liters) of crude oil into the Gulf of Mexico.

The most damaging oil spill ever to occur in North American waters was the Exxon Valdez accident of 1989. The 11 million gallons (42 million liters) of spilled oil affected about 1,180 miles (1,900 kilometers) of shoreline of Prince William Sound and its surroundings in Alaska. The coastal habitats of many animals and birds were destroyed. Large numbers of sea mammals and birds were also affected in offshore waters. Of the estimated 5,000 to 10,000 sea otters that lived in Prince William Sound, at least 1,000 were killed by oiling. About 36,000 dead seabirds of various species were collected from beaches and other places. The actual number of killed birds, however, was probably in the range of 100,000 to 300,000. At least 153 bald eagles died from poisoning when they ate the remains of oiled seabirds.

Large quantities of crude oil have also been spilled during warfare. The largest-ever spill of petroleum into a body of water occurred during the Persian Gulf War in 199192. Iraqi forces deliberately released an estimated 500 million gallons (1,900 million liters) of petroleum into the Persian Gulf from several tankers and an offshore taker-loading facility. Iraqi forces also sabotaged and set fire to over 500 oil wells in Kuwait. Before the fires were extinguished and the wells capped, an estimated 10 to 30 billion gallons (35 to 115 billion liters) of crude oil had been spilled. Much of the oil burned, releasing toxic petroleum vapors into the atmosphere.

A potential ecological disaster arose in January 2001 when a tanker carrying 234,000 gallons (885,690 liters) of diesel and bunker (a heavy mixed fuel used by tourist boats) spilled the bulk of its load after it ran aground near the Galápagos Islands. The islands are located in the Pacific Ocean about 600 miles (1,000 kilometers) west of the country of Ecuador, of which they are a province. In fact, the islands are Ecuador's main tourist attraction. The islands are an ecosystem populated by species found nowhere else in the world. With their rare species of birds, reptiles, and marine life, the islands were an inspiration for English naturalist Charles Darwin's (18091882) theory of evolution.

The tanker hit bottom 550 yards (503 meters) off San Cristóbol, the easternmost island in the Galápagos. Luckily for the islands and their species, strong ocean currents washed almost all of the fuel out to sea, where most of it evaporated. Only two pelicans were found dead on the islands, while dozens were soiled, along with several sea lions and pups and exotic blue-footed booby birds. According to experts, the contamination was minimal. They also felt there would be no long-term damage to the islands from the spill.

[See also Petroleum; Pollution ]

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Oil Spills

OIL SPILLS

Oil is one of the world's main sources of energy, but because it is unevenly distributed it must be transported by ship across oceans and by pipelines across land. This results in accidents when transferring oil to vessels, when transporting oil, and when pipelines break, as well as when drilling for oil. While massive and catastrophic oil spills receive most of the attention, smaller and chronic oil spills and seeps occur regularly. These spills contaminate coasts and estuaries, and they can cause human health problems.

Oil is a mixture of hydrocarbon compounds, which are the decayed remains of marine animals and plants that lived in shallow inland seas, died, and drifted to the bottom. For the past 600 million years, under intense pressure and temperatures, these remains changed into the complicated hydrocarbons called petroleum. Crude oil is a mixture of gas, naphtha, kerosene, light gas, and residuals, which have different health effects.

Overall production of petroleum products rose from about 500 million tons in 1950 to over 2,500 million tons by the mid-1990s, resulting in massive transport and associated oil spills. By far the greatest oil reserves are in the Middle East, and major transportation routes emanate from there. The number of oil spills, both major and minor, has been increasing with the increasing rate of oil transport and the aging of oil tankers, as well as an increase in the size of oil tankers. Oil accounts for over half the tonnage of all sea cargo.

Since the 1960s there have been about twenty oil spills of more than 20 million gallons. Major oil spills have occurred off the coast of Mexico, the Middle East, off South Africa, in the North Pacific, and in Alaska, as well as in the pipeline in Usink, Russia. The largest oil spill to date resulted from the Gulf War in 1991, when over 240 million gallons of oil poured into the Persian Gulf, most of it deliberately. The next largest oil spill, from the Ixtox-1 well off Mexico, involved a blowout of 140 million gallons.

The largest spills do not necessarily receive the most media coverage, either because of their location, the lack of human health or ecological effects, the lack of documentation of these effects, or a lack of media interest. For example the 1980 Nowruz field spill in Arabia (80 million gallons) and the 1992 Fergana Valley spill in Uzbekistan (80 million gallons) barely received any attention. In contrast, two smaller spills received enormous media attention: the oil tanker Amoco Cadiz released 68.7 million gallons off the coast of France in 1978, and the tanker Exxon Valdez spilled 11 million gallons into Prince William Sound in Alaska in 1989.

Short-term public health impacts from oil spills include accidents suffered by those on damaged tankers or those involved in the cleanup, and illnesses caused by toxic fumes or by eating contaminated fish or shellfish. However, there are other less obvious public health impacts, including losses and disruptions of commercial and recreational fisheries, seaweed harvesting, boating, and a variety of other uses of affected water. There are also emotional, aesthetic, and economic losses, such as when Native Americans and others are denied subsistence or recreational uses. In both the case of the Exxon Valdez and the Amoco Cadiz there were permanent changes to the social and cultural communities residing in the region, which had permanent public health consequences, including chronic psychological stress.

Joanna Burger

(see also: Ambient Water Quality; Ocean Dumping; Pollution )

Bibliography

Burger, J. (1997). Oil Spills. New Brunswick, NJ: Rutgers University Press.

Cahill, R. A. (1990). Disasters at Sea: Titanic to Exxon Valdez. San Antonio, TX: Nautical Books.

Cutter Information Corporation (1995). International Oil Spill Statistics. Arlington, MA: Cutter Information.

Picot, J. C., and Gill, D. A. (1996). "The Exxon Valdez Oil Spill and Chronic Psychological Stress." In Proceedings of the Exxon Valdez Oil Spill Symposium, eds. F. Rice, R. Spies, D. Wolfe, and B. Wright. Bethesda, MD: American Fisheries Society.

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Oil Pollution Acts

Oil Pollution Acts

Arthur Holst

The Oil Pollution Act of 1990 (OPA) (P.L. 101-380 104 Stat. 484) established liabilities for polluters and recovery methods for areas affected by oil spills. It was preceded by the Oil Pollution Act of 1924 (43 Stat. 604) and the Oil Pollution Act of 1961 (P.L. 87-167). The 1924 act prohibited the discharge of oil into U.S. coastal waters and was regulated by the U.S. Coast Guard. The 1961 act forbade the discharge of oil in any waters within fifty miles of the U.S. coast, extending the area regulated by the previous legislation.

In 1980 the Oil Pollution Act of 1961 was superceded by the Act to Prevent Pollution from Ships of 1980 (P.L. 96-478), which forced ships in U.S. waters, or U.S. ships anywhere, to follow the pollution prevention guidelines established by the International Convention for the Prevention of Pollution from Ships of 1973. This convention, a reaction to the environmental damage caused by the oil spill off the ship Torrey Canyon in the English Channel in 1967, set guidelines that regulated oil, chemical, sewage, and garbage discharges into the sea.

Oil pollution prevention legislation was further strengthened by OPA, signed into law on August 18, 1990. The new legislation was enacted soon after the Exxon Valdez ran aground on Bligh Reef in the Prince William Sound of Alaska in March of 1989, spilling over eleven million gallons of oil. Although Congress was in favor of the legislation, opposition came from the oil industry executives who were concerned about the costs of implementing the OPA's stricter requirements. The act enabled the Environmental Protection Agency (EPA) to better regulate, prevent, and respond to devastating oil spills. The purpose of the OPA was to "amend [section] 311 of the Clean Water Act to clarify federal response authority for oil spills, increase penalties for spills, require tank vessel and facility response plans, and provide for contingency planning in designated areas."

Under the OPA, liability for oil spills is placed on the owner or operator of the ship. The responsible party must pay the costs of environment recovery, repair of damage to natural resources, and compensation to people affected by the spill. In addition, parties that use oil tankers or have certain facilities that could pose a threat to the local environment must create acceptable contingency plans (plans to cover possible spills). These plans must be approved by the EPA. The OPA establishes the Oil Spill Liability Trust Fund, which can provide up to $1 billion for oil spill recovery efforts and is financed primarily by a per barrel tax on oil.

Other important provisions of the OPA include revoking a mariner's registries and licenses on the grounds of alcohol and drug abuse, the maintenance of U.S. Coast Guard units specialized in oil spill cleanup, the establishment of a study on tanker navigation and tanker safety, and the requirement of double-hulled tank vessels. Assessments of the legislation have shown that many oil companies have yet to convert to double-hulled oil tankers. The Department of Justice has used the OPA to prosecute oil spills, including the New Carissa spill in Coos Bay, Oregon, in 1999, the Scandia and North Cape spill at Moonstone Beach, Rhode Island, in 1999, and the cruise ship line Royal Caribbean for illegal oil dumping from 1990 to 1994.

BIBLIOGRAPHY

National Research Council. Double-Hull Tanker Legislation: An Assessment of the Oil Pollution Act of 1990. Washington, DC: National Academy Press, 1998.

"Oil Pollution Act of 1990: Summary Overview." Cook Inlet RCAC. <http://www.circac.org>.

"Prevention of Pollution by Oil." International Maritime Organization. <http://www.imo.org/environment>.

INTERNET RESOURCES

Environmental Protection Agency. <http://www.epa.gov>.

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"Oil Pollution Acts." Major Acts of Congress. . Encyclopedia.com. 23 Aug. 2017 <http://www.encyclopedia.com>.

"Oil Pollution Acts." Major Acts of Congress. . Encyclopedia.com. (August 23, 2017). http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/oil-pollution-acts

"Oil Pollution Acts." Major Acts of Congress. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/oil-pollution-acts