Imperial Oil Limited

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Imperial Oil Limited

111 St. Clair Avenue West
Toronto, Ontario M5W 1K3
Canada
(416) 968-4111
Fax: (416) 968-4272

Public Company
Incorporated: 1880 as The Imperial Oil Company, Limited
Employees: 14,700
Sales: C$11.30 billion (US$9.74 billion)
Stock Exchanges: Montreal Toronto Vancouver American

Imperial Oil is Canada’s largest producer of crude oil and the country’s third-largest producer of natural gas. Imperial, which is 69.7%-owned by the U.S. corporation Exxon, is Canada’s largest refiner of petroleum products, providing the wide variety of products and services that appear with the Esso brand name. It also produces and markets coal, fertilizer, and petrochemicals. Imperial has made itself known for its support of Canadian culture, health, education and community services.

In 1880, when Imperial Oil Company was founded in London, Ontario, oil did not look like a good business. The Canadian oil boom, triggered in 1857 with the sinking of the first oil well, had gone bust in 1876. Domestic over-production and liberal free-trade policies had conspired to saturate the Canadian market. The industrial boom and rampant land speculation, begun in the 1850s, were coming to a halt. During the boom many Canadians had jumped to join the oil rush, and contributed to the flooding of the local market. This, coupled with worldwide depression, resulted in deflated oil prices that were one-third of their former value. Thus, in 1876, Canadian refiners who had glutted their own market began to desert their businesses at bailout prices.

It was at this crisis point that 16 well-established London and Petrolia, Ontario, businessmen banded together and decided to buy into the petroleum business. On September 8, 1880, with C$25,000, The Imperial Oil Company, Limited was formed. Its charter was “to find, produce, refine and distribute petroleum and its products throughout Canada.” With two refineries, one in London and the other in Petrolia, the total capitalization was an impressive C$500,000.

Frederick Fitzgerald, a builder of the London Water Works who dabbled in furniture, liquor, groceries, and oil, became Imperial’s first president. The mastermind of the group’s success was its vice president, Jacob Englehart, who by age 33 had 14 years experience in oil, having started his first refinery at age 19. William Spencer and Herman and Isaac Waterman brought their knowledge of refineries to the association. Isaac Waterman’s involvement in municipal politics and the railway later proved a valuable asset to the group. John Geary, a lawyer-turned-refiner, and John Minhinnik a plumber-turned-refiner, were more than ready to deal with the business’ logistical and physical problems. Thomas Smallman and John Walker brought the experience they had gained when producing sulfuric acid with the first Canadian chemical company. No less valuable was Walker’s involvement in federal politics. It was no accident that Thomas Hodgens, a former wagon maker, and his brother Edward, a barrel-maker, were brought into the deal. Edward Hodgens, in 1879 had also patented a process that sweetened the odor of the rancid-smelling Canadian crude, making it more competitive with relatively odorless U.S. crude.

The group immediately began trying to set its products apart by improving their quality, as well as trying to find new uses for the products and to increase distribution. Imperial acquired rights to Hodgens’s patent and started deodorizing its oil. It began importing a new kerosene lamp that burned with a brighter, whiter light, from Germany. It sent dealers out into the previously unpenetrated west to hustle up sales. In the space of one year, Imperial was selling to Winnipeg, a frontier town of 8,000, as well as opening up an office in Montreal.

Imperial oil, carried in Imperial’s hand-made barrels, rode on Imperial-built wagons across the prairies of the Northwest Territories to Hudson’s Bay Company posts. Imperial became so well known for its sturdy oak barrels, that, although the company offered a generous C$1.25 refund for each, most homesteaders chose to keep them and convert them to washtubs, rain barrels, and armchairs. By 1883 Walker’s position as vice president of Canadian Pacific Railway had helped Imperial to become not only the basic supplier of railroad construction crews, but also of the settlers that squatted along the line as far as British Columbia.

After three years of growth Imperial Oil suffered a major setback. During a thunderstorm in July, lightning hit an Imperial refinery, sparking a fire that burned its London processing operation to the ground. In 1884, when Imperial requested of the city of London a C$20,000 grant to build a new line to pipe crude from Imperial’s Lambton Wells into the city, its political connections were not enough. Londoners had had enough of the flash fires and the stench rising from streams of gasoline that ran from where it was dumped on the streets down to the river. Gasoline, a useless by-product of kerosene, created problems elsewhere as well. Some refiners, trying to get the most dollars per barrel, illegally cut kerosene with gasoline, causing lamps not infrequently to explode when ignited. It is believed that gasoline mixed in with lamp kerosene started the Great Chicago Fire. Rather than rebuilding in what it felt to be a now-hostile London, Imperial moved its head offices first to Petrolia then to Sarnia, Ontario. Within a short time almost all related industries followed Imperial from London to Sarnia, which was becoming the new oil center.

By 1893 Imperial had 23 branch offices spread from Halifax to Victoria. Imperial had done such a good job developing new markets that it could no longer supply the demands of the market. Imperial lacked the money necessary to expand to meet its consumers’ needs, and feared losing market share to larger U.S. companies. Unable to convince Canadian or British banks or private investors to gamble with large amounts of capital, in 1898 Imperial turned to the U.S. Standard Oil Company of New Jersey, who had offered to purchase Imperial years earlier. On Dominion Day in 1898, Standard Oil (now called Exxon) assumed a majority interest in Imperial. Imperial took over Standard Oil’s Canadian assets on February 23, 1899, including its refinery in Sarnia. Standard worked to keep its ownership of Imperial secret, giving Canadian government officials Imperial Oil stock as hush money.

After laying a pipeline to bring in its crude from Petrolia, Imperial was ready to start servicing all of Canada, producing 143 cubic meters per day at its Sarnia plant alone. Imperial’s business got another boost with the growing popularity of the automobile. By 1910 there were about 6,000 of these gasoline-consuming machines prowling Canadian streets. Gasoline, a by-product of kerosene that previously had been thrown away, became a product in such demand that oil companies were not prepared to dispense it at a rate sufficient to satisfy demand. People bought gas in open buckets from grocery stores or even went to the oil companies’ warehouses. The first service station got its start when a car pulled up to Imperial’s Vancouver warehouse in between the horse-drawn oil wagons, and backfired. By the time the workers had gotten their horses settled, the foreman had banished automobiles forever. C.M. Rolston, Imperial’s Vancouver manager, solved the problem the next day when he opened up Canada’s first service station, a one-room metal shack with a garden hose and a water tank full of gasoline.

Building a service station did not, however, meet all the demands awakened by automobiles. The use of automobiles increased so rapidly, that Imperial almost immediately was forced to begin looking for ways to increase its supply of crude, to produce more gasoline. In 1914 Standard licensed Imperial to use its cracking technique, a process that yielded much more gasoline per barrel of crude, and installed the first units in its Sarnia refineries. Cracking involved the use of heat and pressure coils to chemically decompose the crude. In that same year, it formed the International Petroleum Company, Limited, to search for oil in South America; ordered an exploratory geological party to Turner Valley to confirm the discovery of crude near Calgary; laid a pipeline from Sarnia to Cygnet, Ohio, connecting Imperial refineries to some of the most productive oil fields in the United States; and built the first refinery in British Columbia, on Burrard Inlet. Before long World War I broke out, creating a whole new market hungry for gasoline.

In 1919 the Imperial Oil Company, Limited changed its name to Imperial Oil Limited. To meet the new demands of war, Imperial grew rapidly. Within five years it quintupled the number of its refineries and doubled its refining capacity. By 1920 there were four times as many cars in Canada as five years prior, and once again Imperial began to search for more efficient ways to refine gasoline. In 1923 Imperial obtained Canadian rights to use pressure stills, which enhanced the cracking process, yielding a greater quantity and quality of gasoline.

In 1924 Imperial hired R.K. Stratford, its first research worker. He discovered that sulfur corrosion of the cracking coils could be prevented by adding lime to the crude. He also came up with a way to keep gasoline from gumming up engines by running the cracked product through a slurry of clay.

The 1930s, for Imperial, were full of changes. Previously geologists searching for oil depended on a hammer, a chisel, maybe a pair of field glasses, and a lot of luck. In the 1920s, the rotary drill rig came along, and it became possible to drill deeper beneath the surface. The biggest change did not come until the 1930s, when Imperial started investigating the possibilities of seismology. Its geologist bounced shock waves off of underground rocks, and judging from the waves’ reflection, the shape and size of possible oil formations could be determined. Imperial had started implementing these procedures, before the outbreak of World War II, when the Allies needed all the fuel they could get.

Imperial was able to produce a large amount of the 87-octane aviation fuel that the Commonwealth Air Training Plan needed for its training aircraft by selecting crude oils containing the most useful fractions and by modifying its distillation equipment. Imperial also helped to produce 100-octane aviation fuel for combat aircraft. The company aided in the development of portable runways, which could be rolled up, taken to a flat field almost anywhere, and laid in place. Imperial was a key player in Operation Shuttle, which kept oil flowing to Great Britain for a full two years before the United States entered the war.

Alaska’s importance grew when Japan entered the war, and airports popped up there for U.S. defense. In 1942 the U.S. Army requested that Imperial build a refinery in the Yukon at Whitehorse, to supply the Alaskan airfields. By 1944 a ten-centimeter pipeline snaked out from the Whitehorse refinery to supply the much-needed fuel for a full year before the war ended.

When the war ended Imperial welcomed back its employees who had served. Throughout the war, Imperial had made up the difference between military pay and salaries at Imperial when military pay was lower. On enlistment, Imperial had given its employees one month’s salary as a bonus.

In 1946 Imperial sold 6.275 million cubic meters of crude, more than any previous year. The company’s officers realizing that there had been no meaningful field discoveries since 1920, launched a full-scale exploration to assure supplies for the future.

At the end of the 1940s, 90% of all crude oil refined in Canada was imported. Imperial drilled 133 consecutive dry holes. The future looked so bad that Imperial was debating the expensive conversion of natural gas to gasoline. If things did not change, it decided, it would have to close its Sarnia refinery and rely on off-shore crude shipped in to Montreal. Before Imperial shut down Sarnia and began building in Montreal, however, the company’s leadership decided to drill once more in the Hinge Belt, south of Edmonton. Seismograph crews picked a sight in Leduc. On February 13, 1947, the Leduc well gushed oil in huge quantities. The extent of Leduc’s success is best measured by the fact that the wells that quickly sprouted up in that area provided 90% of all oil produced in Canada. With Leduc’s success came the call for a neighboring refinery. Imperial dismantled the idled Whitehorse refinery and reassembled it in nearby Edmonton.

With the Leduc strike, domestic oil production was so greatly increased that Imperial began searching for ways to export it. To aid in exportation, Imperial and others joined to form Interprovincial Pipe Line Limited in 1949. Imperial owned 49.9% of Interprovincial’s stock. By autumn of 1950, a pipeline had been laid from Edmonton, Ontario, to Superior, Wisconsin. Imperial still holds the most shares of any owner. In 1957 the line was extended to Toronto, then in 1976 it stretched to Montreal.

The surplus of oil in the 1950s and price wars that ensued lead Imperial to analyze gasoline markets, eliminate unprofitable stations, and set up stations in the right places—some were simple gas stations, others were full-service auto “clinics.” Imperial was responsible for introducing Canada’s first car clinic complete with electronic diagnosis. It was not long before highway service stations became a familiar sight, offering everything from gas to snacks. In 1970 self-service stations began popping up under the Esso name, Imperial’s brand name.

Canadian gas and oil reserves once again had begun to dwindle as demand continued to grow. Imperial went so far as to explore the far northern waters off Canada’s eastern coast. In January 1970 that extremely expensive search paid off when Imperial hit medium-gravity, low-sulfur crude at Atkinson Point, on the Beaufort Sea in the western Arctic, 1,700 meters deep. As a result of this and other offshore searches Imperial pioneered the artificial island. The first artificial island, Immerl, was built by Imperial at the cost of $5 million, not including the cost of the well, which turned out to be dry. The off-shore oil search continues both in the farther north Queen Elizabeth Islands as well as in the Atlantic seabed.

One of Imperial’s most important steps toward growth happened in the late 1980s. In 1988 Imperial began talking to Texaco Canada about a possible merger. In February 1989 Imperial bought Texaco Canada, now McColl-Frontenac Inc., for C$4.96 billion, making it the largest acquisition in Imperial’s history and the second-largest in Canada’s. The actual merger did not take place until February 1990; it was held up awaiting approval from the Canadian competition authorities.

Two consequences of this merger are noteworthy. The sum of productivity and profits of both companies operating independently is surpassed by those of the two operating together as a whole, creating a synergy. Employees of both companies have been looked to for answers to problems of operations and for suggestions for changes. One of the most remarkable features of the merger was the speed with which Imperial was able to reduce the initial debt incured by the merger, taking it from C$4.96 billion to C$3.1 in 1989.

Imperial is much more than simply its Esso stations. From its beginning Imperial’s interests have branched through all aspects of the business, including the manufacture of wagons, barrels and lamps, as well as chemicals for their treatment plants. Most of Imperial’s sales are to industrial customers. It is the leading manufacturer of aviation fuel, marine fuel, railway lubricants, and domestic heating fuels in Canada. It also has petrochemical interests, and its subsidiaries market such things as vinyl siding, plastics, and ropes. Esso Chemical has more than a dozen operations in Canada. Imperial has not ignored the natural resources segment of its business, mining as it does coal, zinc, and uranium.

Imperials’ relationship with the environment also has changed since the early days when it dumped gasoline and suffered flash fires in London. In 1989 its crisis-management team allocated C$8 million to be invested over three years to improve its response to oil spills at its offshore sites. That same year it simulated a large tanker spill to test its response capabilities. Imperial’s relationship with the Canadian community is no less impressive. Imperial makes news not for oil spills and environmental disasters, but for its support of education and innovative employee assistance programs.