Mobil Corporation

views updated

Mobil Corporation

3225 Gallows Road
Fairfax, Virginia 22037
U.S.A.
(703) 846-3000
Fax: (703) 846-4666

Public Company
Incorporated: 1931 as Socony-Vacuum Corporation
Employees: 67,300
Sales: $64.47 billion
Stock Exchange: New York

Mobil Corporation, America’s second-largest oil company, has developed as a vocal representative of the oil industry, spending huge amounts on advocacy advertisements and a host of cultural sponsorships. Its sophisticated public relations is in keeping with Mobil’s background in the financial, marketing, and administrative aspects of the oil business, in contrast to the hands-on, engineering orientation of many of its leading competitors. Neither of the two companies whose 1931 merger created Mobil—Standard Oil Company of New York (Socony) and Vacuum Oil Company—had significant experience in the production of crude oil. Both were refiners and marketers, and it was in those two areas that Mobil has achieved its considerable success, meanwhile scouring the world in a never-ending quest for sufficient, secure supplies of crude oil. Throughout its history Mobil has always had plenty of markets; it has never had a comfortable reserve of domestic crude.

Of Mobil’s two progenitors, Socony was by far the larger and more generalized oil company, while Vacuum’s expertise lay in the production of high-quality machine lubricants. Vacuum got its start in 1866, when a carpenter and part-time inventor in Rochester, New York, named Matthew Ewing devised a new method of distilling kerosene from oil using a vacuum. The process itself proved to be no great discovery, but Ewing’s partner Hiram Bond Everest, investor of $20 seed capital, noticed that its gummy residue was suitable for lubrication, and the two men took out a patent on behalf of the Vacuum Oil Company in 1866. Ewing sold his interest in Vacuum to Everest shortly thereafter, but the heavy Vacuum oil was soon much in demand by manufacturers of steam engines and the new internal-combustion engines. In 1869 Everest patented Gargoyle 600-W Steam Cylinder Oil, which was still in use in 1990, and the firm continued to prosper.

Within a decade Vacuum had expanded sufficiently to catch the eye of John D. Rockefeller’s Standard Oil Company. Beginning in 1872, Standard had bought up scores of refineries and marketing companies around the country, and in 1879 it added Vacuum Oil to its list of conquests, paying $200,000 for 75% of Vacuum’s stock. By that date Standard Oil had achieved an effective monopoly of the oil business in the United States. Despite its small size, Vacuum was given latitude by the Standard management, who respected its excellent products and the acumen of Hiram Everest and his son, C.M. Everest.

The Everests pursued an independent course in foreign sales. As early as 1885 Vacuum had opened affiliates in Montreal, Canada, and in Liverpool, England, where its staff included 19 salespeople, and within the next decade added branches in Toronto, Milan, and Bombay. Vacuum became the leader among Standard’s companies in the use of efficient marketing and sales techniques, packaging its lubricants in attractive tins, pursuing customers with a well-organized, efficient sales team, and, when necessary, bringing in a lubricants specialist to help customers choose the oil best suited to their needs. Company oils were made according to a secret formula and by 1911 the Vacuum marketers had made the name Mobil-oil known on five continents. At home, Vacuum products were sold nationwide by the Standard chain of distributors and in the Northeast by Vacuum’s own agents.

In 1906 Vacuum added a second refinery to its original Rochester plant, and in 1910 Standard Oil Company of New Jersey, (Jersey Standard), the holding company for the Standard interests, invested $500,000 to enable its big Bayonne, New Jersey, refinery to manufacture some of Vacuum’s lubricants for export. In 1911 the Standard companies were ordered to break up by the United States Supreme Court, and among the 34 splinters from the great parent were Vacuum Oil and Standard Oil Company of New York (Socony). Socony was the second-largest of the newly independent companies and had played an important role for the Rockefellers and Standard Oil for nearly 30 years. Socony was created along with Jersey Standard in 1882, both as a legal domicile for Standard’s New York assets and to serve as the administrative and banking center for the entire Standard Oil Trust. William Rockefeller, John D. Rockefeller’s younger brother and long-time business partner, remained the president of Socony from its inception until 1911.

From the first it was planned that in addition to serving as Standard’s headquarters, Socony would handle the great bulk of the trust’s growing foreign sales. It took over from Standard Oil Company of Ohio ownership of the merchant firm of Meissner, Ackermann & Company with offices in New York and Hamburg, Germany, and agents around Europe. At first Standard relied exclusively on such brokers for is foreign business, but as the years went on the company set up its own foreign subsidiaries around the world. By 1910 the Standard subsidiaries had usurped almost all of the foreign sales, with Socony’s affiliates handling about 30%, while Vacuum Oil, which had also built a small but widespread sales group, contributed 6% to the total. In addition to the sales it made itself, Socony also bought and then resold all Standard products leaving New York, and even for a time those shipped out of California to Asia. Bolstered by its double role, Socony’s sales were among the largest of any Standard company, and as Standard’s official overseas representative it became a familiar name in many countries.

Another of Socony’s important functions, especially prior to 1899, when Jersey Standard began assuming such duties, was to administer most of the Standard group’s internal affairs. In the New York City office building at 26 Broadway were housed not only Socony’s own corporate leaders but the small group of men who ran Standard Oil. Some individuals, such as William Rockefeller, served on both boards, and the interplay between Socony and the Standard group as a whole was intimate and complex. Socony also assumed banking functions for the group. After 1899 Jersey Standard became the sole holding company for all of the Standard interests, but Socony continued much as before in its various key roles.

By the time of the dissolution of Standard in 1911, Socony had established its position in the European and African markets and built a thriving business in Asia as well. China became an important market for Socony. Socony eventually built a network of subsidiaries from Japan to Turkey which by 1910 was handling nearly 50% of the kerosene sold in Asia. At home, Socony’s five refineries turned out kerosene, gasoline, and naptha for sale in New York and New England, through jobbers and a growing number of the new roadside stores known as “gas stations.”

In 1911 the Supreme Court upheld a lower court’s conviction of Jersey Standard for violation of the Sherman Antitrust Act and ordered the organization dissolved. Each of the 34 new companies created by the order was allotted varying proportions of the three basic oil assets—crude production, refining, and marketing—but neither Socony nor Vacuum Oil ended up with any sources of crude. Both companies were strong marketers and refiners, and both would be occupied by the search for enough crude oil to keep their plants and salesmen busy. Socony’s need for its own crude supplies was greater since it produced a large volume of oil-based fuels and lubricants, while Vacuum’s business was more limited in both volume and variety. Socony set out to secure ownership of its own wells.

At that point in the history of U.S. oil production the natural area in which to explore was in Texas, Louisiana, and Oklahoma, and in 1918 Socony bought 45% of Magnolia Petroleum Company. Magnolia owned wells, pipelines, and a refinery at Beaumont, Texas, and did most of its marketing in Texas and the Southwest. After buying the rest of Magnolia in 1925, Socony purchased General Petroleum Corporation of California to help supply its large Far East markets. Then it entered the Midwest for the first time with a 1930 purchase of White Eagle Oil & Refining Company with gas stations in 11 states. Socony now needed even more crude oil to supply these additional market outlets, and like most of the other big international oil concerns Socony looked to the Middle East.

World War I had demonstrated the crucial role of oil in modern warfare and prompted the U.S. government to encourage U.S. participation in the newly formed Turkish Petroleum Company, operating in present-day Iraq. A consortium of U.S. oil companies was sold 25% of Turkish Petroleum. By the early 1930s only Jersey Standard and Socony were left in the partnership, each eventually holding 12%. Oil was first struck by the company, renamed Iraq Petroleum Company, in 1928 and by 1934 the partners had built a pipeline across the Levant to Haifa, Palestine. From Haifa Socony could ship oil to its many European subsidiaries.

In the meantime, Vacuum Oil had made a number of important domestic acquisitions and strengthened its already far-flung network of foreign subsidiaries, but continued to share Socony’s chronic shortage of crude. The two companies, similar in profile and complementary in product mix, joined forces in 1931 when Socony purchased the assets of Vacuum and changed its name to Socony-Vacuum Corporation. The union was the first alliance between members of the former Jersey Standard conglomerate and created a company with formidable refining and marketing strengths both at home and abroad. To supply its joint Far East markets more efficiently, in 1933 Socony-Vacuum (SV) and Jersey Standard created another venture called Standard-Vacuum Oil Company (Stan-Vac). Stan-Vac would ship oil from Jersey Standard’s large Indonesian holdings to SV’s extensive marketing outlets from Japan to East Africa. By 1941 it was contributing 35% of SV’s corporate earnings.

In 1934 Socony-Vacuum Corporation changed its name to Socony-Vacuum Oil Company, Inc. (SVO). The company’s growth made SVO the second-largest U.S. oil concern by the mid-1930s, with nearly $500 million in sales, exclusive of Stan-Vac. From warehouses and gas stations in 43 states and virtually every country in the world, SVO sold a full line of petroleum products, many of them sporting some variant of Vacuum’s famous Mobil brand name or its equally familiar flying red horse logo. With 14 refineries in Europe alone and a fleet of 54 ocean-going tankers, by 1941 SVO’s holdings were truly international in scope and balance—a situation that caused growing anxiety as World War II approached. When the Nazis stormed across Western Europe they found a good number of working SVO refineries and promptly put them in the service of the Third Reich. The largest prize, a huge refinery at Gravenchon, France, was destroyed by the retreating French in a blaze that lasted seven days. Similarly, the $30 million Stan-Vac refinery at Palembang, Indonesia, was kept out of Japanese hands by burning it to the ground. The war also cost SVO some 32 ships and the lives of 432 crew members, lost to German submarines. On the other hand, vastly increased military sales generally made up for SVO’s wartime capital losses and declining civilian revenue.

Socony-Vacuum Oil Company’s search for crude oil continued. In the immediate postwar years SVO completed a transaction that would provide the company with oil for many years to come. In the 1930s, Standard Oil Company (California) and the Texas Company—later known as Chevron and Texaco, respectively—had bought drilling rights to a huge chunk of Saudi Arabia, and when they realized the extent of the fields there the two companies sought partners with investment capital and overseas markets. SVO and Jersey Standard had ample amounts of both, and they agreed to split the offered 40% interest in the newly formed Arabian American Oil Company (Aramco). SVO had second thoughts about so large an investment and settled for 10% instead. This miscalculation was rendered less painful by the truly enormous scale of the Arabian oil reserves. In the coming decade of economic growth and skyrocketing consumption of oil, SVO would develop and depend upon its Arabian connection even more strongly than the other major oil concerns.

In the United States a new culture based on the automobile and abundant supplies of cheap gasoline spread the boundaries of cities and built a nationwide system of interstate highways. SV’s long use of its Mobil trade names and flying red horse logo had made these symbols known around the country, and in 1955 the company capitalized on this by changing its name to Socony Mobil Oil Company, Inc. (SM). In 1958 sales reached $2.8 billion and continued upward with the steadily growing U.S. economy, hitting $4.3 billion five years later and $6.5 billion in 1967. In 1960 a subsidiary, Mobil Chemical Company, was formed to take advantage of the many discoveries in the field of petrochemicals. Mobil Chemical manufactures a wide range of plastic packaging, petrochemicals, and chemical additives. In 1989 it contributed 32% of Mobil’s net operating income—generated on sales representing less than 7% of the corporate total.

Egypt’s nationalization of the Suez Canal in 1956 was one of many indications that SM’s Middle Eastern dependence would one day prove to be a liability, but there was little the company could do to reduce this dependence. Even significant new finds in Texas and the Gulf of Mexico were not able to keep pace with America’s oil consumption, and by 1966 the Middle East, principally Saudi Arabia, supplied 43% of SM’s crude production. Also in 1966 Socony Mobil Oil Company changed its name to Mobil Oil Corporation, using “Mobil” as its sole corporate and trade name, retiring the flying horse in favor of a streamlined “Mobil” with a bright-red “o.” Still constantly searching for alternative sources of crude, Mobil got a piece of both the North Sea fields and the Prudhoe Bay region of Alaska in the late 1960s, although neither would be of much help for a number of years. In the meantime, world consumption had slowly overtaken production and shifted the market balance in favor of the Organization of Petroleum Exporting Countries (OPEC), which would soon take advantage of the relative scarcity to enforce its world cartel.

During the 1960s Mobil Oil’s 9% annual increase in net income was the best of all major oil companies, and it continued as a major supplier of natural gas and oil to the world’s two fastest-growing economies, West Germany and Japan. In 1973, however, OPEC placed an embargo on oil shipments to the United States for six months and began gradual annexation of U.S.-owned oil properties. The price of oil quadrupled overnight and a new era of energy awareness began, as the international oil companies lost the comfortable positions they had held in the Middle East since the 1920s. On the other hand, the immediate result of OPEC’s move was to boost sales and profits at all the oil majors. Mobil Oil’s sales nearly tripled between 1973 and 1977 to $32 billion, and 1974 profits hit record highs, prompting a barrage of congressional and media criticism that was answered by Mobil Oil’s own public relations department. Mobil Oil quickly became famous as the most outspoken defender of the oil industry’s right to conduct its business as it saw fit.

Despite its apparent ability to make money in any oil environment, Mobil Oil was concerned about the imminent loss of its legal control over the middle eastern oil on which it depended. Under the special guidance of President and Chief Operating Officer William Tavoulareas, Mobil Oil chose to strengthen its ties with Saudi Arabia, spending large amounts of time and money courting the Saudi leaders, investing in industrial projects, and in 1974 acquiring an additional 5% of the stock in Aramco from its partners. In 1976 Mobil Oil Corporation again changed its name, to Mobil Corporation. In the 1990s it enjoys one of the closest relationships with the Saudis of any oil firm, a bond whose value increases sharply when oil is scarce but is a liability when plentiful supplies make Mobil’s purchases of the expensive Saudi crude less than a bargain. In addition, Mobil has considerably increased its budget for oil exploration, concentrating mainly on the North Sea, Gulf of Mexico, and Prudhoe Bay regions. Although these efforts have by and large succeeded in replacing Mobil’s reserves as fast as they are used up, the company bought Superior Oil Company in 1984. Mobil paid $5.7 billion for Superior, mainly for its extensive reserves of natural gas and oil.

By that time the oil market had once again changed course. Conservation measures and a generally sluggish world economy reversed the price of oil in 1981, and it continued to drop throughout the decade. Mobil thus found itself locked into contracts for expensive Saudi crude and burdened with the debts incurred in the Superior purchase at a time of falling revenues. To make ends meet, Chairman Rawleigh Warner Jr. and his 1986 successor Allen E. Murray made substantial cuts in refineries and service stations, upgrading Mobil’s holdings of both to a smaller number of more modern, efficient units. By 1988 Mobil had pulled out of the retail gasoline business in 20 states and derived 88% of its retail revenue from just 14 states, mostly in the Northeast. It had also cut its oil-related employment by 20% as well as getting rid of its Montgomery Ward and Container Corporation of America subsidiaries, holdovers from a mid-1970s diversification move.

The $6 billion sale of assets was used to reduce debt, and Mobil’s financial performance improved accordingly as the decade drew to a close, although not enough to please Wall Street analysts. The 1980s were generally not a good period for Mobil, which continued, on paper at least, to show a worrisome decline in proven oil reserves. On the other hand, if the instability the Middle East displayed in the early 1990s continues, Mobil’s carefully cultivated friendship with Saudi Arabia may prove to be of critical importance.

Principal Subsidiaries

Mobil Exploration & Producing U.S. Inc.; Mobil Exploration & Producing North America, Inc.; Mobil Land Development Corporation; Mobil Natural Gas Inc.; Mobil Oil Corporation; Mobil Oil Exploration & Producing Southeast Inc.; Mobil Producing Texas & New Mexico Inc.; Tucker Housewares Inc.