Amoco Corporation

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Amoco Corporation

founded: 1889

Contact Information:

headquarters: 200 e. randolph dr.
chicago, il 60601-7125 phone: (312)856-6111 fax: (312)856-4883 toll free: (800)333-3991 email: [email protected] url: http://www.amoco.com

OVERVIEW

Amoco Corporation is a diversified company with three main sectors—Oil Exploration and Production, Petroleum Products, and Chemicals. With revenues exceeding $36 billion and total assets exceeding $32 billion, Amoco Corporation is one of the largest publicly traded producers of crude oil and natural gas in the world. Amoco is the thirteenth largest industrial corporation in the United States, the fifth largest oil company, and is ranked twenty-second in the 1998 Fortune 500. It is the largest producer of natural gas in North America. The company's Chemicals division was the largest producer of chemical products in the United States.

COMPANY FINANCES

Amoco's total revenues in 1997 were $31.9 billion, down slightly from 1996 revenues of $32.1 billion. Net income dropped about 4 percent from $2.8 billion in 1996 to $2.7 billion in 1997. Of 1997 revenues, Amoco's Exploration and Production sector earned $7.39 billion; Petroleum Products earned $22.79 billion; Chemical Operations earned $5.94 billion; and Corporate and Other Operations earned $48 million.

Amoco's stock price was around $41.00 per share in mid-1998. Its 52-week high was $49.50, and Amoco stock's 52-week low was $39.63. Stock prices were lower due to a 2-for-1split in 1997. During fiscal year 1997, Amoco stock ranged from $79.25 to $99.00 per share. The company paid approximately $2.80 per share in dividends in 1997—up 8 percent from 1996 ($2.60).

Amoco's net income per share during 1997 was $5.55, slightly lower than 1996 earnings per share of $5.69. As of mid-1998, earnings per share for 1998 were $2.50.

ANALYSTS' OPINIONS

All major U.S. oil companies were expected to see some sort of earnings decline due to dramatic slides in world oil prices. As reported in Tulsa World, earnings during the first part of 1998 could drop as much as 40 percent compared to last year. Analysts anticipated a drop not only in production income, but in refining and chemical operations as well. The decline in oil prices was attributed to two factors: a supply increase instituted in November of 1997 by Saudi Arabia just when demand lowered due to the Asian economic crisis; and the El Nino weather phenomenon, which brought unusually warm winter temperatures to the Northern Hemisphere. Amoco, in particular, was impacted by the drop in oil and gas prices; first quarter earnings per share were $.73, compared to $1.36 in the first quarter of 1997. However, they seemed to improve by mid-1998, rising to $2.50.

Even with these difficulties, however, PaineWebber analyst Frank Knuettel upgraded ratings for six major oil companies, including Amoco. "We think oil supply and demand will come into balance before year end which almost inevitably would generate positive earnings surprises." He warned that if that failed to happen, however, earnings would be less likely to rise. He upgraded Amoco's specific rating from "neutral" to "attractive."

Also having a positive impact on Amoco's performance was it success with a new oil well. Located in the Whitney Canyon field near Evanston, Wyoming, production of natural gas began at 60 million cubic feet per day. Amoco reported that rate was higher than any other well in the field in the last 15 years. The company also said the new well meant an increase in plant processing to about 200 million cubic feet per day; the plant was designed to process up to 250 million cubic feet of gas per day. According to Amoco's Michael Poehl, "Our early results to maximize production at Whitney Canyon have been outstanding. We expect to be at plant capacity for Whitney Canyon by year-end."

HISTORY

Amoco Corp. was incorporated on June 18, 1889, as Standard Oil Company when it built its first refinery in Whiting, Indiana. The corporation was exclusively a midwest refiner and marketer of petroleum products in its early years. In 1894 it began an unbroken record of yearly dividend payments. Prior to December 1, 1911, Amoco was a subsidiary of Standard Oil Co. of New Jersey, which distributed the stock to its stockholders under the Sherman Antitrust Act. Amoco was thus separated from all the other companies in the Standard Oil Company.

The Amoco name was adopted for the corporation in 1985 to effectively eliminate name confusion and promote a common identification of the parent corporation and its subsidiaries, which market internationally under the Amoco brand. Amoco, however, still retains exclusive legal right to use the Standard Oil name for trademark purposes in certain states in the Midwest.

In 1913 Amoco pioneered an invention of the thermal cracking process, which doubled the yield of gasoline from crude oil; that same year also marked the beginning of regular quarterly dividend payments. Amoco experienced dramatic growth from post-World War I to the 1950s through the establishment of substantial crude oil production and transportation operations, additional refineries, extended marketing areas and facilities, and a start in petrochemicals. Exploration in Canada and overseas also began late in this period.

In the late 1950s Amoco consolidated and reorganized its subsidiaries into four groups for easier and more efficient management. This became the basis for the company's structure during the 1990s. In 1978 Amoco had a major disaster when the super-tanker, the Amoco Cadiz, ran on to the bottom of the shore, dumping 120,000 tons of oil off of the French coast. This spill was six times more than the well-publicized Exxon Valdez oil spill that occurred in 1989 and resulted in a $128-million judgment against Amoco in 1990. In 1988, Amoco acquired Dome Petroleum of Canada, a company heavily in debt but rich in resources, making Amoco the largest private owner of natural gas reserves in North America. In the 1990s, the Amoco Corporation formed a large integrated petroleum and chemical enterprise with three main subsidiaries—Amoco Exploration and Production, Amoco Petroleum Products, and Amoco Chemicals.

STRATEGY

Amoco's primary strategy for continued corporate development was "discovery," not just in terms of finding new oil and gas deposits, but of "discovering" new opportunities, new products, new areas for growth, and new ways of working and exploiting technological challenges. Amoco also sought new business relationships in order to add value to its business, both internally (through its Shared Services organization) and externally through partnerships and alliances with companies worldwide. In 1998, Amoco planned to invest $4.2 billion in corporate capital and exploration, areas it hoped would bring better opportunity for company growth. In order to make sure those efforts would not cost the company too much financially, Amoco sold certain U.S. oil and gas holdings, amounting to approximately 10 percent of domestic production. For example, in June 1998 Amoco announced that Chevron Products Co. was acquiring Amoco's Lubricants business unit. Using these growth strategies, the company hoped to realize a 25-percent increase in exploration and production by 2001 and targeted 4-percent growth in refining and marketing.

INFLUENCES

When compared to its competitors, Amoco's performance was lagging behind. However, the company felt its continued renewal of early 1990s restructuring efforts was helping to bring about significant turnaround. The company did realize some turnaround, specifically in its exploration program, which for five years in a row (1993-1997) added more reserves than it produced. Also, the company averaged 145-percent "reserve replacement" over those same five years. Amoco attributed these favorable results to more focused exploration efforts and better use of new technology.

FAST FACTS: About Amoco Corporation

Ownership: Amoco Corp. is a publicly held company traded on the New York Stock Exchange.

Ticker symbol: AN

Officers: H. Laurence Fuller, Chmn. & CEO, 59, $1,940,150; William G. Lowrie, Pres., 54, $1,223,047; John L. Carl, Exec. VP & CFO, 50; James E. Fligg, Sr. Exec. VP, Strategic Planning & Int'l Bus. Dev., 61, $1,010,301

Employees: 43,451 (1997)

Principal Subsidiary Companies: Amoco Chemical Co., Amocams/Modular Inc., Amoco Credit Co., Amoco Venture Capital Co., Amoco Technology Co., Amoco Fabrics and Fibers Co., and Amoco Pipeline Co. are some of the subsidiaries of Amoco Corporation.

Chief Competitors: As a producer and marketer of petroleum products and services, Amoco's main competitors include: Arco; Dow Chemical; Exxon; E.I. DuPont Nemours; British Petroleum; Pennzoil; Shell Oil; and Texaco.

CURRENT TRENDS

According to the Hoovers Handbook of American Business, Amoco shed its weak product lines, including its oil well chemicals business, and invested $1.7 billion in the company's faster-growing and more profitable businesses. One of the profit centers that developed as part of this move was Amoco's polyester business. In 1992, Amoco led the consortium that successfully laid a 255-mile natural gas line in the North Sea. In 1992 Amoco became the first foreign oil company to explore the Chinese mainland.

A significant year for Amoco was 1994. Amoco and Norsk Hydro, in a joint effort, evaluated the oil and natural gas exploration opportunities off the Russian Coast. The other big events were two natural gas discoveries off Trinidad and major oil discoveries in Colombia, the North Sea, and the Gulf of Mexico. In 1995, Shell Oil and Amoco announced a limited partnership to handle most U.S. operations. Amoco was the key player in this association, owning about 65 percent of the venture.

PRODUCTS

Amoco has three main subsidiaries that deal with three distinct markets and industries. Amoco Exploration and Production is one of the world's leading producers of energy resources for a growing world economy. Holdings include more than 42 million acres of oil and gas leases on every continent except Antarctica. Worldwide net production in 1996 averaged 662,000 barrels of crude oil and natural gas liquids per day and more than 4 billion cubic feet of natural gas per day. About 40 percent of oil and natural gas production revenues were from sources outside the United States. The Amoco Exploration and Production sector is made up of eight separate and independent business groups; each focuses on a few select areas in the world where the company expects to grow profitably through exploration, development, new ventures, and acquisitions.

The second sector is the Amoco Petroleum Products, which include refining, marketing, and transportation of fuel and other products throughout North America. In 1996, five refineries processed a total of 1 million barrels of crude oil daily. Amoco Petroleum Products market gasoline in 30 states in the United States through more than 9,000 service stations.

CHRONOLOGY: Key Dates for Amoco Corporation

1889:: Incorporates as Standard Oil Company (Indiana), a subsidiary of Standard Oil Company (New Jersey)
1894:: Begins unbroken record of yearly dividend payments
1911:: Standard Oil Company (Indiana) is separated from its parent and all other subsidiaries after Standard (New Jersey) was found to be in violation of the Sherman Antitrust Act
1913:: Pioneers a method that doubles the yield of gasoline from crude oil
1921:: Purchases a half interest in the Sinclair Pipe Company to improve transportation capacity
1925:: Purchases for $37.6 million an interest in the Pan American Petroleum & Transport Co., achieving the largest oil consolidation in the history of the industry
1929:: Acquires through a stock swap additional stock of Pan American bringing ownership to 81 percent
1932:: Sells Pan American's foreign interests to Standard (New Jersey) for $48 million plus 1.8 million shares of Standard (New Jersey) stock
1935:: Standard (Indiana) leased company-owned stations to individual owners to get around a government tax
1942:: The Big Inch pipeline, built by several oil companies including Standard (Indiana), carried 300,000 barrels of crude from Texas to the East Coast where it was used for the war effort
1952:: Standard (Indiana) is acknowledged as the nation's largest domestic oil company
1955:: Re-enters foreign market by organizing Pan American International Oil Corporation
1961:: Standard (Indian) began replacing the brand name with Amoco, a derivative of American Oil Company, owned by Pan American
1967:: Amoco begins exploration in the Persian Gulf
1970:: Lead-free 91-octane gasoline is introduced by Amoco
1978:: The Amoco Cadiz runs aground off the French coast spilling 730,000 gallons of oil; the French government brings a $300 million lawsuit against Amoco
1985:: Standard (Indiana) officially changes its name to Amoco Corporation
1990:: Amoco appeals a $128 million judgement brought down in the French lawsuit
1998:: Sells the lubricants business unit to Chevron Products Co.

Amoco Chemicals is the third and fastest growing sector of Amoco Corp. Comprised of six business groups, Amoco Chemicals accounted for nearly 45 percent of Amoco's total revenues. Much of Amoco Chemical's growth is due to its status as the world's largest producer of purified terephthalic acid (PTA), the preferred raw material for the manufacture of polyester. Other chemical products include polybutene (used in cable insulation, fuel additives, and adhesives) and polypropylene (used in synthetic fibers for carpet backing, food and agricultural packaging, and appliances). Amoco Chemicals is well positioned to capitalize on the increasing global demand for polyester products.

CORPORATE CITIZENSHIP

Amoco documents its corporate commitment to health and environmental safety. This policy's primary purpose is "to promote respect and care for people and the environment." Each year, along with its annual report, Amoco publishes an Environmental Health & Safety Report that describes accomplishments that help Amoco meet this corporate goal and changes in environmental policy. In 1997 the Environment, Health and Safety (EH&S) department completed a strategic planning process. As a result, the company reorganized the EH&S department to ensure that all areas of Amoco had access to the resources needed to apply environmental, health, and safety considerations to the corporate planning process and to business decisions.

One of Amoco's major community involvement programs is the Private Sector Initiative's Home Repair Program in Houston, Texas. As part of this initiative, Amoco volunteers join others from the Houston area to repair and paint homes of elderly and disabled homeowners. Family members join employees to replace siding, trim, broken windows, screens, exterior doors, and locks. They also powerwash the homes and repaint. As a result, more than 325 homes were updated in Houston in 1997.

THE WHITING FACTORY A CANDLE IN THE WIND

Few people know about Amoco's candlemaking history, yet from 1893 to 1956 the company operated one of the largest candle factories in the United States. Candles basically consist of paraffin wax, a by-product of the oil refining process. Thus, Amoco's involvement in this business came naturally, and the Whiting Candle Factory was established right next to the company's Whiting, Indiana, refinery.

The factory operated in the nineteenth century, when kerosene, not gasoline, was Amoco's sales leader. The Whiting Factory started producing plain white candles and so-called "pound cakes" of pure, refined wax. These were used for canning and preserving foods. Twenty years later, America's involvement in World War I led to the company's becoming one of the largest candle manufacturers in the country. In 1918 the Whiting Factory's entire production of six- and eight-inch candles was purchased by the Army for use in the trenches. Thirty-eight candle machines produced half a million candles every day. By the end of the war, Amoco had shipped a total of 285 million candles to France.

The postwar years witnessed an even stronger surge in candle demand. This was primarily due to the fact that during the war Americans noticed how candles were used for decorative purposes in Europe, particularly for the holidays. Thus, by the late 1920s, candles for religious observances accounted for fifteen percent of the factory's production. However, the greatest demand was still for the original plain white candles. They were used by plumbers, miners, and dairy distributors as well as for emergency lighting by the general public. The Whiting Candle Factory more than doubled its production capacity between 1923 and 1928 to a million pounds of wax per month. By this time Amoco was the only major oil company in the United States that manufactured candles.

During World War II, approximately 75 percent of the factory's candles were, once again, made for various military purposes. Melted wax, for example, was used to plug tent leaks. After the war, the Whiting Candle Factory accounted for about 10 percent of all candles bought in the United States. More than 150 varieties were produced, while sales were handled by only four representatives. These were the factory's peak years.

The Whiting Candle Factory was closed in 1956, after more than sixty years of operation. The reasons were twofold. First, Amoco had to seek more profitable opportunities through its primary line of products, and secondly, candle production had declined in the later years as more wax was being sold to other producers and manufacturers of wax products. The fact remains that many people, especially former G.I.s, have fond memories of Amoco's candles.

Other company community relations efforts are coordinated and/or funded by the Amoco Foundation, Inc. The Foundation contributed about $21 million to community and educational organizations in 33 countries in 1997. It specifically targets programs and organizations that help Amoco conduct business responsibly. Additionally, on behalf of company employees who volunteered for at least 50 hours in 1997, the Foundation awarded $726,000 in grants to more than 680 organizations across the globe. It also donated $2.2 million in matching grants to educational institutions. Another program, AmoCARES (Concerned Amoco Retirees Engaged in Service), contributed about $600,000 in volunteer services.

GLOBAL PRESENCE

Amoco has operations worldwide in both its petroleum and chemical product sectors. Petroleum exploration took place in about 20 different countries as of 1998. Still, more of Amoco's revenues were derived from sales in the United States, $28.2 billion of total 1997 revenues ($36.3 billion). Canadian revenues were $3.4 billion, and sales in Europe accounted for $2.2 billion. The remaining $2.5 billion came from Amoco's remaining foreign operations.

EMPLOYMENT

As one of its primary goals, Amoco tries to attract, develop, and retain people who match its corporate environment. According to the company, these people are "diverse, global, and must act consistently with our values. In this environment, each employee can use his or her full talent, energy and commitment to meet customer expectations and achieve business objectives." In 1997, 400 employees from around the world attended Amoco's third Diversity Conference. Attendance was almost double that of 1996.

To protect employees, Amoco approved a new operating policy focused on increased corporate commitment to safety. In 1997 the company also spent more than $45 million training employees at every level, including technical training, supervisory training, and a Renewal Series program for top management. In more rural areas around the world, Amoco sponsors medical visits to communities near the company's operations. These doctors provide general medical checkups, vitamins, and general information to area families.

SOURCES OF INFORMATION

Bibliography

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"amoco corporation." hoover's online. 28 june 1998. available at http://www.hoovers.com.

amoco corporation 1997 annual report. chicago: amoco corporation, 1998. available at http://www.amoco.com/about/ar97/home.html.

"amoco and shell oil form partnership." the new york times, 26 february 1997.

"amoco wyoming well begins natural gas production." reuters, 11 june 1998.

"big-oil earnings expected to plummet." tulsa world, 16 april 1998.

"chevron acquires amoco's lubricants business." chevron corporation, 11 june 1998.

manufacturing usa. detroit, mi: gale research, 1996.

moody's company data report. moody's investor service, 1996.

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wolf, gillian, updated by david e. salamie. "amoco corporation." international directory of company histories, vol. 14. detroit, mi: st. james press, 1996.

For an annual report:

on the internet at: http://www.amoco.com/about/ar97/home.htmlor write: annual report, attn: n. r. stevenson, amoco corp., 200 e. randolph dr., mail code 2304, chicago, il 60601-7125