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Chevron Corporation

Chevron Corporation

575 Market Street
San Francisco, California 941052856
U.S.A.
(415) 894-7700
Fax: (415) 894-8897
Web site: http://www.chevron.com

Public Company
Incorporated:
1906 as Standard Oil Company (California)
Employees: 35,310
Sales: $42.78 billion (1996)
Stock Exchanges: New York Midwest Pacific Vancouver London Zurich
SICs: 1311 Crude Petroleum & Natural Gas; 2911 Petroleum Refining

One of the many progeny of the Standard Oil Trust, Chevron Corporation has grown from its modest California origins to become a major power in the international oil market. Its dramatic discoveries in Saudi Arabia gave Chevron a strong position in the worlds largest oil region and helped fuel 20 years of record earnings in the postwar era. The rise of the Organization of Petroleum Exporting Countries (OPEC) in the early 1970s deprived Chevron of its comfortable Middle East position, causing considerable anxiety and a determined search for new domestic oil resources at a company long dependent on foreign supplies. The firms 1984 purchase of Gulf Corporation at $13.2 billion, the largest industrial transaction to that date, more than doubled Chevrons oil and gas reserves but failed to bring its profit record back to pre-1973 levels of performance. By the mid-1990s, however, Chevron was posting strong earnings, a result of higher gasoline prices and the companys restructuring and cost-cutting efforts.

Company Origins

Chevrons oldest direct ancestor is the Pacific Coast Oil Company, founded in 1879 by Frederick Taylor and a group of investors. Several years before, Taylor, like many other Californians, had begun prospecting for oil in the rugged canyons north of Los Angeles; unlike most prospectors, Taylor found what he was looking for, and his Pico Well #4 was soon the states most productive. Following its incorporation, Pacific Coast developed a method for refining the heavy California oil into an acceptable grade of kerosene, then the most popular lighting source, and the companys fortunes prospered. By the turn of the century Pacific had assembled a team of producing wells in the area of Newhall, California, and built a refinery at Alameda Point across the San Francisco Bay from San Francisco. It also owned both railroad tank cars and the George Loomis, an ocean-going tanker, to transport its crude from the field to the refinery.

One of Pacific Coasts best customers was Standard Oil Company of Iowa, a marketing subsidiary of the New Jerseyheadquartered Standard Oil Trust. Iowa Standard had been active in northern California since 1885, selling both Eastern oil of Standards own and also large quantities of kerosene purchased from Pacific Coast and the other local oil companies. The West Coast was important to Standard Oil Company of New Jersey not only as a market in itself but also as a source of crude for sale to its Asian subsidiaries. Jersey Standard thus became increasingly attracted to the area and in the late 1890s tried to buy Union Oil Company, the state leader. The attempt failed, but in 1900 Pacific Coast agreed to sell its stock to Jersey Standard for $761,000 with the understanding that Pacific Coast would produce, refine, and distribute oil for marketing and sale by Iowa Standard representatives. W.H. Tilford and H.M. Tilford, two brothers who were longtime employees of Standard Oil, assumed the leadership of Iowa Standard and Pacific Coast, respectively.

Drawing on Jersey Standards strength, Pacific Coast immediately built the states largest refinery at Point Richmond on San Francisco Bay and a set of pipelines to bring oil from its San Joaquin Valley wells to the refinery. Its crude production rose steeply over the next decade, yielding 2.6 million barrels a year by 1911, or 20 times the total for 1900. The bulk of Pacific Coasts holdings were in the Coalinga and Midway fields in the southern half of California, with wells rich enough to supply Iowa Standard with an increasing volume of crude but never enough to satisfy its many marketing outlets. Indeed, even in 1911 Pacific Coast was producing a mere 2.3 percent of the states crude, forcing partner Iowa Standard to buy most of its crude from outside suppliers like Union Oil and Puente Oil.

By that date, however, Pacific Coast and Iowa Standard were no longer operating as separate companies. In 1906 Jersey Standard had brought together its two West Coast subsidiaries into a single entity called Standard Oil Company (California), generally known thereafter as Socal. Jersey Standard recognized the future importance of the West and quickly increased the new companys capital from $1 million to $25 million. Socal added a second refinery at El Segundo, near Los Angeles, and vigorously pursued the growing markets for kerosene and gasoline in both the western United States and Asia. Able to realize considerable transportation savings by using West Coast oil for the Pacific markets of its parent company, Socal was soon selling as much as 80 percent of its kerosene overseas. Socals head chemist, Eric A. Starke, was chiefly responsible for several breakthroughs in the refining of Californias heavy crude into usable kerosene, and by 1911, Socal was the state leader in kerosene production.

The early strengths of Socal lay in refining and marketing. Its large, efficient refineries used approximately 20 percent of Californias entire crude production, much more than Socals own wells could supply. To keep the refineries and pipelines full, Socal bought crude from Union Oil and in return handled a portion of the marketing and sale of Union kerosene and naphtha. In the sale of kerosene and gasoline, Socal maintained a near-total control of the market in 1906, supplying 95 percent of the kerosene and 85 percent of the gasoline and naphtha purchased in its marketing area of California, Arizona, Nevada, Oregon, Washington, Hawaii, and Alaska, although its share dipped somewhat in the next five years. When necessary, Socal used its dominant position to inhibit competition by deep price cutting. By the time of the dissolution of the Standard Oil Trust in 1911, Socal, like many of the Standard subsidiaries, had become the overwhelming leader in the refining and marketing of oil in its region while lagging somewhat in the production of crude.

From 1911 to World War II: Growth as an Independent Company

In 11 short years the strength of Standard Oil and a vigorous Western economy combined to increase Socals net book value from a few million dollars in 1900 to $39 million. It was in 1911, however, that Jersey Standard, the holding company for Socal and the entire Standard Oil family, was ordered dissolved by the U.S. Supreme Court in order to break its monopolistic hold on the oil industry. As one of 34 independent units carved out of the former parent company, Standard Oil Company (California) would have to do without Standards financial backing, but the new competitor hardly faced the world unarmed. Socal kept its dominant marketing and refining position, its extensive network of critical pipelines, a modest but growing fleet of oil tankers, its many oil wells, and, most helpfully, some $14 million in retained earnings. The latter proved useful in Socals subsequent rapid expansion, as did Californias growing popularity among Americans looking for a fresh start in life. The state population shot up quickly, and most of the new residents found that they depended on the automobileand, hence, on gasolineto navigate the states many highway miles.

The years leading up to World War I saw a marked increase in Socals production of crude. From a base of about 3 percent of the states production in the early part of the century, Socal rode a series of successful oil strikes to a remarkable 26 percent of nationwide crude production in 1919. As the national production leader, Socal found itself in a predicament that would be repeated throughout its historyan excess of crude and a shortage of outlets for it. For most of the other leading international oil companies, the situation was reversed, crude generally being in short supply in a world increasingly dependent on oil. Particularly in the aftermath of World War Iof which the British diplomat George Curzon said the Allies floated to victory on a wave of oilthere was much anxiety in the United States about a possible shortage of domestic crude supplies. A number of the major oil companies began exploring more vigorously around the world. Socal took its part in these efforts but with a notable lack of success37 straight dry holes in six different countries. More internationally oriented firms like Jersey Standard and Mobil soon secured footholds in what was to become the future center of world oil production, the Middle East, while Socal, with many directors skeptical about overseas drilling, remained content with its California supplies and burgeoning retail business.

In the late 1920s Socals posture changed. At that time Gulf Corporation was unable to interest its fellow partners in Iraq Petroleum Company in the oil rights to Bahrain, a small group of islands off the coast of Saudi Arabia. Iraq Petroleum was then the chief cartel of oil companies operating in the Middle East, and its members were restricted by the Red Line Agreement of 1928 from engaging in oil development independently of the entire group. Gulf was therefore unable to proceed with its Bahrain concession and sold its rights for $50,000 to Socal, which was prodded by Maurice Lombardi and William Berg, two members of its board of directors. This venture proved successful. In 1930 Socal geologists struck oil in Bahrain, and within a few years, the California company had joined the ranks of international marketers of oil.

Company Perspectives:

Chevrons goal is to exceed the performance of its strongest competitors with a total stockholder return averaging at least 15 percent a yearan aggressive target because worldwide petroleum demand is increasing only 2 percent annually. This goal demands an entrepreneurial spirit, and it signals a need for greater innovation, creativity, and flexibility.

Bahrains real importance, however, lay in its proximity to the vast fields of neighboring Saudi Arabia. The richest of all oil reserves lay beneath an inhospitable desert and until the early 1930s was left alone by the oil prospectors. But at that time, encouraged by the initial successes at Bahrain, Saudi Arabias King Ibn Saud hired a U.S. geologist to study his countrys potential oil reserves. The geologist, Karl Twitchell, liked what he saw and tried on behalf of the king to sell the concession to a number of U.S. oil companies. None was interested except the now-adventurous Socal, which in 1933 won a modest bidding war and obtained drilling rights for a £5,000 annual fee and a loan of £50,000. After initial exploration revealed the fantastic extent of Arabian oil, Socal executives realized that the company would need access to markets far larger than its own meager foreign holdings, and in 1936 Socal sold 50 percent of its drilling rights in Saudi Arabia and Bahrain to the Texas Company, later Texaco, the only other major oil company not bound by the Red Line Agreement. Once the oil started flowing in 1939, King Saud was so pleased with his partners and the profits they generated for his impoverished country that he increased the size of their concession to 440,000 square miles, an area the size of Texas, Louisiana, Oklahoma, and New Mexico combined.

Postwar Expansion

Socal and the Texas Company agreed to market their products under the brand name Caltex and developed excellent representation in both Europe and the Far East, especially in Japan. The new partners realized soon after the end of World War II, however, that the Saudi oil fields were too big even for the both of them, and to raise further capital they sold 40 percent of the recently formed Arabian American Oil Company (Aramco) for $450 million, leaving the two original partners with 30 percent each. With its crude supply secure for the foreseeable future, Socal was able to market oil around the world, as well as in North Americas fastest-growing demographic region, California and the Pacific Coast. As later Chairman R. Gwin Follis put it, Saudi Arabia was a jackpot beyond belief, supplying Caltex markets overseas with unlimited amounts of low-priced, high-grade oil. By the mid-1950s Socal was getting one-third of its crude production out of Aramco and, more significantly, calculated that Saudi Arabia accounted for two-thirds of its reserve supply. Other important fields had been discovered in Sumatra and Venezuela, but Socal was particularly dependent on its Aramco concession for crude.

On the domestic scene, Socal by 1949 had grown into one of the few American companies with $1 billion in assets. No longer the number-one domestic crude producer, Socal was still among the leaders and had recently made plentiful strikes in Louisiana and Texas, as well as in its native California. In addition to its original refineries at Point Richmond and El Segundo, Socal had added new facilities in Bakersfield, California, and in Salt Lake City, Utah. Socals marketing territory included at least some representation in 15 Western states and a recent, limited foray into the northeastern United States, mainly as an outlet for some of its cheap Middle Eastern oil. The heart of Socal territory was still west of the Rocky Mountains, where the company continued to control about 28 percent of the retail market during the postwar years, a far cry from the 90 percent it owned at the turn of the century but still easily a dominant share in the nations leading automotive region.

In the two decades following the war the U.S. economy became completely dependent upon oil. As both a cause and an effect of this trend, the world was awash in oil. The Middle East, Latin America, and Southeast Asia all contributed mightily to a prolonged glut, which steadily lowered the price of oil in real dollars. The enormous growth in world consumption assured Socal of a progressive rise in sales and a concomitant increase in profits at an annual rate of about 5.5 percent. By 1957, for example, Socal was selling $1.7 billion worth of oil products annually and ranked as the worlds seventh-largest oil concern. Its California base offered Socal a number of advantages in the prevailing buyers market. By drawing upon its own local wells for the bulk of its U.S. sales, Socal was able to keep its transportation costs lower than most of its competitors, and Californias zooming population and automobile-oriented economy afforded an ideal marketplace. As a result, Socal consistently had one of the best profit ratios among all oil companies during the 1950s and 1960s.

California crude production had begun to slow, however, and along with the rest of the world Socal grew ever more dependent on Middle Eastern oil for its overall health. The rich Bay Marchand strike off the Louisiana coast helped stem the tide temporarily. By 1961 Socal was drawing 27.9 million barrels per year from Marchand and had bought Standard Oil Company of Kentucky to market its gasoline in the southeastern United States. But the added domestic production only masked Socals increasing reliance on Saudi Arabian oil, which by 1971 provided more than three-quarters of Socals proven reserves. As long as the Middle Eastern countries remained cooperative, such an imbalance was not of great concern, and by vigorously selling its cheap Middle Eastern oil in Europe and Asia, Socal was able to rack up a perfect record of profit increases every year in the 1960s. By 1970, 20 percent of Socals $4 billion in sales was generated in the Far East, with Japan again providing the lions share of that figure. The firms European gas stations, owned jointly with Texaco until 1967, numbered 8,000.

Challenge of OPEC beginning in the 1970s

The world oil picture had changed fundamentally by 1970, however. The 20-year oil surplus had given way in the face of rampant consumption to a general and increasing shortage, a shift soon taken advantage of by OPEC members. In 1973 and 1974 OPEC effectively took control of oil at its source and engineered a fourfold increase in the base price of oil. Socal was now able to rely on its Saudi partner for only a tiny price advantage over the general rate and it was no longer in legal control of sufficient crude to supply its worldwide or domestic demand. The sudden shift in oil politics revealed a number of Socal shortcomings. Though it had 17,000 gas stations in 39 U.S. states, Socal was not a skilled marketer either in the United States or in Europe, where its former partner, Texaco, had supplied local marketing savvy. In its home state of California, for example, Socals market share was 16 percent and continuing to drop and Socal had missed out on both the North Sea and Alaskan oil discoveries of the late 1960s.

Socal responded to these problems by merging all of its domestic marketing into a single unit, Chevron USA, and began cutting employment, at first gradually and later more deeply. Also, Socal stepped up its domestic exploration efforts while moving into alternative sources of energy, such as shale, coal, and uranium. In 1981 the company made a $4 billion bid for AMAX Inc., a leader in coal and metal mining but had to settle for a 20 percent stake. In 1984 Standard Oil Company (California) changed its name to Chevron Corporation. Also in 1984, after a decade of sporadic attempts to lessen its dependence on the volatile Middle East, Chevron Corporation met its short-term oil needs in a more direct fashion: it bought Gulf Corporation.

The $13.2 billion purchase, at that time the largest in the history of U.S. business, more than doubled Chevrons proven reserves and created a new giant in the U.S. oil industry, with Chevron now the leading domestic retailer of gasoline and, briefly, the second-largest oil company by assets. Certain factors made the move appear ill-timed, however. Oil prices had peaked around 1980 and begun a long slide that continued until the Gulf War of 1990, which meant that Chevron had saddled itself with a $12 billion debt at a time of shrinking sales. As a result, it was not easy for Chevron to sell off assets as quickly as desired, both to reduce debt and to eliminate the many areas of overlap created by the merger. Chevron eventually rid itself of Gulfs Canadian operations and all of Gulfs gas stations in the northeastern and southeastern United States, paring 16,000 jobs in the meantime, but oil analysts pointed to such key figures as profit per employee and return of capital as evidence of Chevrons continued poor performance.

Developments in the 1990s

In the early 1990s Chevron began publicizing its environmental programs, a response in part to public pressure on all oil companies for more responsible environmental policies. From 1989 to 1993 Chevron Shipping Company had the best overall safety record among major oil companies. In 1993, while trans-porting nearly 625 million barrels of crude oil, Chevron Ship-ping spilled an amount equaling less than four barrels. During this same period, Chevron utilities supervisor Pete Duda recognized an opportunity to convert an abandoned wastewater treatment pond into a 90-acre wetland. Fresh water and new vegetation were added to the site, and by 1994 the area was attracting a variety of birds and other wildlife, as well as the attention of the National Audubon Society, National Geographic, and the California Department of Fish and Game. The conversion saved Chevron millions, as conventional closure of the site would have cost about $20 million.

Financially the company began the 1990s with less than glowing returns. Chevrons 1989 results were poor, and in that years annual report, Chairman Kenneth Derr announced a program to upgrade the companys efficiency and outlined as well a five-year goal: a return on stockholders investment that exceeds the performance of our strongest competitors. The company also took important new initiatives. In 1993 Chevron entered into a partnership with the Republic of Kazakhstan to develop the Tengiz oil field, one of the largest ever discovered in the area.

In 1994, five years after Derrs announcement, Chevron had met its goal for stockholders, largely through restructuring and efforts to cut costs and improve efficiency. From 1989 to 1993 Chevron cut operating costs by more than $1 per barrel and the companys stock rose to a 18.9 percent return, compared with an average of 13.2 percent return for its competitors. The company celebrated this achievement by giving 42,000 of its employees a one-time bonus of 5 percent of their base pay.

After meeting its five-year goal, Chevron continued its cost-cutting and efficiency efforts. In December 1995 the company announced a restructuring of its U.S. gasoline marketing. It combined regional offices, consolidated support functions, and refocused the marketing unit toward service and sales growth. One example of the companys new efforts toward marketing was a joint initiative with McDonalds Corp.. In April 1997, as a response to one-stop shopping marketing trends, Chevron and McDonalds together opened a new gas station and food facility in Lakewood, California. The two companies shared the space and customers could order food and pump gas at the same time. They could pay for the order with a Chevron card. More Chevron/McDonalds facilities were planned for California and elsewhere in the United States.

Chevron also cut its refining capacity, where margins were especially low in the early 1990s. Capacity dropped by 407,000 barrels a day from 1992 to 1995. The company helped reduce its refining capacity by selling its Port Arthur, Texas, refinery in February 1995. The company controlled 10.2 percent of U.S. refining capacity in 1992 but just 7.5 percent by 1995. These measures seemed to improve the companys fortunes, as its earnings jumped in 1996 to more than $2.6 billion, an all-time high. Stockholder return for the year was 28.5 percent. High gasoline prices also contributed to Chevrons huge profits. The company was able to take advantage of high crude prices by increasing production at their Kazakhstan and West African facilities.

Principal Subsidiaries

Chevron Canada Limited; Chevron Canada Resources; Chevron Chemical Company; Chevron Information Technology Company; Chevron International Oil Company, Inc.; Chevron Land and Development Company; Chevron Overseas Petroleum Inc.; Chevron Petroleum Technology Company; Chevron Pipe Line Company; Chevron Research and Technology Company; Chevron Shipping Company; Chevron U.S.A. Production Company; Chevron U.S.A. Products Company; Gulf Oil (Great Britain) Limited; The Pittsburg & Midway Coal Mining Co.; Warren Petroleum Company.

Further Reading

Blackwood, Francy, Chevron Environment Effort: Think Locally, Act Globally, San Francisco Business Times, November 4, 1994, p. 2A.

Chevron, Which Met Its 5 Year Goal of Achieving the Highest Total Return to Stockholders Among its Competitors, The Oil and Gas Journal, January 10, 1994, p. 4.

Culbertson, Katherine, Share of U.S. Refining Capacity Controlled by Top 4 Majors Dwindles, API Study Says, The Oil Daily, July 31, 1996, p. 1.

Fan, Aliza, Analysts Praise Chevron Restructuring as Bold Move to Boost Downstream, The Oil Daily, December 19, 1995, p. 3.

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

Klaw, Spencer, Standard of California, Fortune, November 1958.

Liedtke, Michael, Gasoline Price Hikes Fatten the Profits at Chevron, Knight-RidderfTribune Business News, April 24, 1997, p. 424B0935.

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

Smallwood, Lola, McDonalds, Chevron Team Up for Food & Gas Station in Lakewood, Calif, Knight-Ridder/Tribune Business News, April 17, 1997, p. 414B1272.

Jonathan Martin

updated by Terry Bain

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Chevron Corporation

Chevron Corporation

225 Bush Street
San Francisco, California 94104
U.S.A.
(415) 894-7700
Fax: (415) 894-8897

Public Company
Incorporated:
1906 as Standard Oil Company (California)
Employees: 54,208
Sales: $41.54 billion
Stock Exchanges: New York Midwest Pacific Vancouver London Zürich

One of the many progeny of the Standard Oil Trust, Chevron Corporation has grown from its modest California origins to become a major power in the international oil market. Its dramatic discoveries in Saudi Arabia gave Chevron a strong position in the worlds largest oil region and helped fuel 20 years of record earnings in the postwar era. The rise of the Organization of Petroleum Exporting Countries (OPEC) in the early 1970s deprived Chevron of its comfortable Middle East position, causing considerable anxiety and a determined search for new domestic oil resources at a company long dependent on foreign supplies. The firms 1984 purchase of Gulf Corporation, at $13.2 billion the largest industrial transaction to that date, more than doubled Chevrons oil and gas reserves but has failed to bring its profit record back to pre-1973 levels of performance.

Chevrons oldest direct ancestor is the Pacific Coast Oil Company, founded in 1879 by Frederick Taylor and a group of investors. Several years before, Taylor, like many other Californians, had begun prospecting for oil in the rugged canyons north of Los Angeles; unlike most, Tfcylor found what he was looking for, and his Pico Well #4 was soon the states most productive. Following its incorporation, Pacific Coast developed a method for refining the heavy California oil into an acceptable grade of kerosene, then the most popular lighting source in use, and the companys fortunes prospered. By the turn of the century Pacific had assembled a team of producing wells in the area of Newhall, California, and built a refinery at Alameda Point across the San Francisco Bay from San Francisco. It also owned both railroad tank cars and the George Loomis, an ocean-going tanker, to transport its crude from field to refinery.

One of Pacific Coasts best customers was Standard Oil Company of Iowa, the far-west marketing subsidiary of the New Jersey-headquartered Standard Oil Trust. Iowa Standard had been active in northern California since 1885, selling both eastern oil of Standards own and also large quantities of kerosene purchased from Pacific Coast and the other local oil companies. The West Coast was important to Standard Oil Company of New Jersey not only as a market in itself but also as a source of crude for sale to its Asian subsidiaries. Jersey Standard thus became increasingly attracted to the area and in the late 1890s tried to buy Union Oil Company, the state leader. The attempt failed, but in 1900 Pacific Coast agreed to sell its stock to Jersey Standard for $761,000, with the understanding that Pacific Coast would produce, refine, and distribute oil for marketing and sale by Iowa Standard representatives. W.H. Tilford and H.M. Tilford, two brothers who were longtime employees of Standard Oil, assumed the leadership of Iowa Standard and Pacific Coast, respectively.

Drawing on Jersey Standards strength, Pacific Coast immediately built the states largest refinery at Point Richmond on San Francisco Bay and a set of pipelines to bring oil from its San Joaquin Wley wells to the refinery. Its crude production rose steeply over the next decade, yielding 2.6 million barrels a year by 1911, or 20 times the total for 1900. The bulk of Pacific Coasts holdings were in the Coalinga and Midway fields in the southern half of California, wells rich enough to supply Iowa Standard with an increasing volume of crude but never enough to satisfy its many marketing outlets. Indeed, even in 1911 Pacific Coast was producing a mere 2.3% of the states crude, forcing partner Iowa Standard to buy most of its crude from outside suppliers like Union Oil and Puente Oil.

By that date, however, Pacific Coast and Iowa Standard were no longer operating as separate companies. In 1906 Jersey Standard had brought together its two West Coast subsidiaries into a single entity called Standard Oil Company (California), generally known thereafter as Socal. Jersey Standard recognized the future importance of the West and quickly increased the new companys capital from $1 million to $25 million. Socal added a second refinery at El Segundo, near Los Angeles, and vigorously pursued the growing markets for kerosene and gasoline in both the western United States and in Asia. Able to realize considerable transportation savings by using West Coast oil for the Pacific markets of its parent company, Socal was soon selling as much as 80% of its kerosene overseas. Socals head chemist, Eric A. Starke, was chiefly responsible for several breakthroughs in the refining of Californias heavy crude into usable kerosene, and by 1911 Socal was the state leader in kerosene production.

The early strengths of Socal lay in refining and marketing. Its large, efficient refineries used approximately 20% of Californias entire crude production, much more than Socals own wells could supply. To keep the refineries and pipelines full, Socal bought crude from Union Oil and in return handled a portion of the marketing and sale of Union kerosene and naphtha. In the sale of kerosene and gasoline Socal maintained a near-total control of the market, in 1906 supplying 95% of the kerosene and 85% of the gasoline and naphtha purchased in its marketing area of California, Arizona, Nevada, Oregon, Washington, Hawaii, and Alaska, although its share dipped somewhat in the next five years. When necessary, Socal used its dominant position to inhibit competition by deep price-cutting. By the time of the dissolution of the Standard Oil Trust in 1911, Socal, like many of the Standard subsidiaries, had become the overwhelming leader in the refining and marketing of oil in its region, while lagging somewhat in the production of crude.

In 11 short years the strength of Standard Oil and a vigorous western economy combined to increase Socals net book value from a few million dollars in 1900 to $39 million. It was in 1911, however, that Jersey Standard, the holding company for Socal and the entire Standard Oil family, was ordered dissolved by the U.S. Supreme Court to break its monopolistic hold on the oil industry. As one of 34 independent companies carved out of the former parent, Standard Oil Company (California), would have to do without Standards financial backing, but the new competitor hardly faced the world unarmed. Socal kept its dominant marketing and refining position, its extensive network of critical pipelines, a modest but growing fleet of oil tankers, its many oil wells, and, most helpfully, some $14 million in retained earnings. The latter proved very useful in Socals subsequent rapid expansion, as did Californias growing popularity among Americans looking for a fresh start in life. The state population shot up quickly, and most of the new residents found that they depended on the automobileand hence on gasolineto navigate the states many highway miles.

The years leading up to World War I saw a marked increase in Socals production of crude. From a base of 2%-3 % of state production in the early part of the century, Socal rode a series of successful oil strikes to a remarkable 26% of nationwide crude production in 1919. As the national production leader, Socal found itself in a predicament that would be repeated throughout its history, with an excess of crude and a shortage of outlets for it. For most of the other leading international oil companies, the situation was reversed, crude generally being in short supply in a world increasingly dependent on oil. Particularly in the aftermath of World War I, of which the British diplomat George Curzon said the Allies floated to victory on a wave of oil, there was much anxiety in the United States about a possible shortage of domestic crude supplies and a number of the major oil companies began exploring more vigorously around the world. Socal took its part in these efforts but with a notable lack of success37 straight dry holes in six different countries. More internationally oriented firms like Jersey Standard and Mobil soon secured footholds in what was to become the future center of world oil production, the Middle East, while Socal, with many directors skeptical about overseas drilling, remained content with its California supplies and burgeoning retail business.

In the late 1920s Socals posture changed. At that time, Gulf Corporation was unable to interest its fellow partners in Iraq Petroleum Company in the oil rights to Bahrain, a small group of islands off the coast of Saudi Arabia. Iraq Petroleum was then the chief cartel of oil companies operating in the Middle East, and its members were restricted by the Red Line Agreement of 1928 from engaging in oil development independently of the entire group. Gulf was therefore unable to proceed with its Bahrain concession and sold its rights for $50,000 to Socal, which was prodded by Maurice Lombardi and William Berg, two members of its board of directors. This venture proved successfulin 1930 Socal geologists struck oil in Bahrain and within a few years the California company had joined the ranks of international marketers of oil.

Bahrains real importance, however, lay in its proximity to the vast fields of neighboring Saudi Arabia. The richest of all oil reserves lay beneath an inhospitable desert and until the early 1930s was left alone by the oil prospectors, but at that time, encouraged by the initial successes at Bahrain, Saudis King Ibn Saud hired a U.S. geologist to study his countrys potential oil reserves. The geologist, Karl Twitchell, liked what he saw and tried on behalf of the king to sell the concession to a number of U.S. oil companies. None was interested except the now-adventurous Socal, which in 1933 won a modest bidding war and obtained drilling rights for a £5,000 annual fee and a loan of £50,000. After initial exploration revealed the fantastic extent of Arabian oil, Socal executives realized that the company would need access to markets far larger than its own meager foreign holdings, and in 1936 Socal sold 50% of its drilling rights in Saudi Arabia and Bahrain to the Texas Company, later Texaco, the only other major oil company not bound by the Red Line Agreement. Once the oil started flowing in 1939, King Saud was so pleased with his partners and the profit they generated for his impoverished country that he increased the size of their concession to 440,000 square miles, an area the size of Texas, Louisiana, Oklahoma, and New Mexico combined.

Socal and the Texas Company agreed to market their products under the brand name of Caltex, and were soon developing excellent representation in both Europe and the Far East, especially in Japan. The new partners realized soon after the end of World War II, however, that the Saudi oil fields were too big even for the both of them, and to raise further capital they sold 40% of the recently formed Arabian American Oil Company (Aramco) for $450 million, leaving the two original partners with 30% each. With its crude supply secure for the foreseeable future, Socal was able to market oil around the world as well as in North Americas fastest-growing demographic region, California and the Pacific Coast. And as later Chairman R. Gwin Follis put it, Saudi Arabia was a jackpot beyond belief, supplying Caltex markets overseas with unlimited amounts of low-priced, high-grade oil. By the mid-1950s, Socal was getting one-third of its crude production out of Aramco, and, more significantly, calculated that Saudi Arabia accounted for two-thirds of its reserve supply. Other important fields had been discovered in Sumatra and Venezuela, but Socal was particularly dependent on its Aramco concession for crude.

On the domestic scene, Socal by 1949 had grown into one of the few American companies with $1 billion in assets. No longer the number-one domestic crude producer, Socal was still among the leaders and had recently made plentiful strikes in Louisiana and Texas as well as in its native California. In addition to its original refineries at Point Richmond and El Segundo, Socal had added new facilities in Bakersfield, California, and in Salt Lake City, Utah. Socals marketing territory included at least some representation in 15 western states and a recent, limited foray into the northeastern United States, mainly as an outlet for some of its cheap Middle Eastern oil. West of the Rocky Mountains remained the heart of Socal territory, where the company continued to control about 28% of the retail market during the postwar years, a far cry from the 90% it owned at the turn of the century, but still easily a dominant share in the nations leading automotive region.

The two decades following the war saw the complete conversion of the U.S. economy to a dependence on oil. As both a cause and an effect of this trend, the world was awash in oil. The Middle East, Latin America, and southeast Asia all contributed mightily to a prolonged glut which steadily lowered the price of oil in real dollars. The enormous growth in world consumption assured Socal of a progressive rise in sales and a concomitant increase in profit at an annual rate of about 5.5%. By 1957, for example, Socal was selling $1.7 billion worth of oil products annually, and ranked as the worlds seventh-largest oil concern. Its California base offered Socal a number of advantages in the prevailing buyers market. By drawing upon its own local wells for the bulk of its U.S. sales Socal was able to keep its transportation costs lower than most of its competitors, and Californias zooming population and automobile-oriented economy afforded an ideal marketplace. As a result, Socal consistently had one of the best profit ratios among all oil companies during the 1950s and 1960s.

California crude production had begun to slow, however, and along with the rest of the world Socal grew ever more dependent on Middle Eastern oil for its overall health. The rich Bay Marchand strike off the Louisiana coast helped stem the tide temporarily; by 1961 Socal was drawing 27.9 million barrels per year from Marchand and had bought Standard Oil Company of Kentucky to market its gasoline in the southeastern United States; but the added domestic production only masked Socals increasing reliance on Saudi Arabian oil, which by 1971 provided more than three-quarters of Socals proven reserves. As long as the Middle Eastern countries remained cooperative such an imbalance was not of great concern, and by vigorously selling its cheap Middle Eastern oil in Europe and Asia, Socal was able to rack up a perfect record of profit increases every year in the 1960s. By 1970 20% of Socals $4 billion in sales was generated in the Far East, with Japan again providing the lions share of that figure; and the firms European gas stations, owned jointly with Texaco until 1967, numbered 8,000.

The world oil picture had changed fundamentally by 1970, however. The 20-year oil surplus had given way in the face of rampant consumption to a general and increasing shortage, a shift soon taken advantage of by OPEC members. In 1973 and 1974 OPEC effectively took control of oil at its source and engineered a fourfold increase in the base price of oil. Socal was now able to rely on its Saudi partner for only a tiny price advantage over the general rate, and it was no longer in legal control of sufficient crude to supply its worldwide or domestic demand. The sudden shift in oil politics revealed a number of Socal shortcomings. Though it had 17,000 gas stations in 39 U.S. states, Socal was not a skilled marketer either in the United States or in Europe, where its former partner, Texaco, had supplied local marketing savvy. In its home state of California, for example, Socals market share was at 16% and continuing to drop, and Socal had missed out on both the North Sea and Alaskan oil discoveries of the late 1960s.

Socal responded to these problems by merging all of its domestic marketing into a single unit, Chevron USA, and began cutting employment, at first gradually and later more deeply. Also, Socal stepped up its domestic exploration efforts while moving into alternative sources of energy such as shale, coal, and uranium. In 1981 the company made a $4 billion bid for AMAX Inc., a leader in coal-and metal-mining, but had to settle for a 20% stake. In 1984 Standard Oil Company (California) changed its name to Chevron Corporation. Also in 1984, after a decade of sporadic attempts to lessen its dependence on the volatile Middle East, Chevron Corporation met its short-term oil needs in a more direct fashion: it bought Gulf Corporation.

The $13.2 billion purchase, at that time the largest in the history of U.S. business, more than doubled Chevrons proven reserves and created a new giant in the U.S. oil industry, with Chevron now the leading domestic retailer of gasoline and, briefly, the second-largest oil company by assets. Certain factors made the move appear ill-timed, however. Oil prices had peaked around 1980 and begun a long slide that continued until the Gulf War of 1990, which meant that Chevron had saddled itself with a $12 billion debt at a time of shrinking sales. As a result it was not easy for Chevron to sell off assets as quickly as desirable, both to reduce debt and to eliminate the many areas of overlap created by the merger. Chevron eventually rid itself of Gulfs Canadian operations and of all of Gulfs gas stations in the northeast and southeast United States, paring 16,000 jobs in the meantime, but oil analysts pointed to key figures such as profit per employee and return of capital as evidence of Chevrons continued poor performance. Chairman Kenneth Derr embarked on a program to upgrade Chevrons efficiency, but 1989 results were poor. In 1990, however, Chevrons results improved.

Principal Subsidiaries

Chevron USA Inc.; Chevron Canada Limited; Chevron Canada Resources; Chevron Chemical Company; Chevron Industries, Inc.; Chevron Investment Management Company; Chevron International Oil Company, Inc.; Chevron Land and Development Company; Chevron Overseas Petroleum Inc.; Chevron Pipe Line Company; Chevron Transport Corporation (Liberia); Chevron U.K. Limited; Bermaco Insurance Company Limited (Bermuda); Cabinda Gulf Oil Company Limited (Bermuda); Chevron Asiatic Limited; Chevron International Limited (Liberia); Gulf Oil Company (Nigeria) Limited; Gulf Oil (Great Britain) Limited (U.K.); INSCO Limited (Bermuda), Huntington Beach Company; The Pittsburg & Midway Coal Mining Co.; Transocean Chevron Company; Chevron Oil Field Research Company; Chevron Research and Technology Company; Chevron Canada Enterprises Limited; Chevron Capital U.S.A. Inc.; Chevron Oil Finance Company; Gulf Oil Finance N.V. (Netherlands Antilles).

Further Reading

Hidy, Ralph W., and Muriel E. Hidy, History of Standard Oil Company (New Jersey): Pioneering in Big Business, 1882-1911, New York, Harper & Brothers, 1955; Klaw, Spencer, Standard of California, Fortune, November 1958; Sampson, Anthony, The Seven Sisters: The Great Oil Companies and the World They Made, New York, The Viking Press, 1975.

Jonathan Martin

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chevron

chev·ron / ˈshevrən/ • n. a line or stripe in the shape of a V or an inverted V, esp. one on the sleeve of a uniform indicating rank or length of service. ∎  Heraldry an ordinary in the form of a broad inverted V-shape. ∎ Archit. a molding of continuous V-shaped patterns, common in Norman architecture. ORIGIN: late Middle English (in heraldic use): from Old French, based on Latin caper ‘goat’; compare with Latin capreoli (diminutive of caper) used to mean ‘pair of rafters.’

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chevron.
1. V-shaped ornament used in series to form a dancette or zig-zag in Romanesque architecture, usually on archivolts and string-courses. It is mostly of partcircular section, so-called ‘broken sticks’ (bâtons rompus), but may also be composed of convex and concave elements.

2. The V-form commonly occurring in Art Deco design, either alone or in series. It is also found used in series in Roman decorative work, notably in mosaic.

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chevron (her.) charge of this shape Λ XIV; mark of rank XIX. — (O)F. :- Rom. *capriōne, f. caper goat, corr. to ON. hafr he-goat.

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chevron

chevronAran, Arran, baron, barren, Darren, Karen, Sharon, yarran •Biafran, saffron •plastron • Saharan • Sumatran •heron, perron •rhododendron • chevron •Aaron, Charon, Dáil Eireann •apron •matron, patron •Libran •decahedron, dodecahedron, octahedron, polyhedron, tetrahedron •children • citron • grandchildren •stepchildren • godchildren •schoolchildren •Byron, Chiron, environ, Myron, siren •sporran, warren •squadron • Cochran •Andorran, Doran, Lauren, loran •cauldron •Kieran, Madeiran, schlieren •Honduran, Van Buren •Aldebaran • Auberon • Acheron •Cameron, Decameron •cateran, Lateran •veteran •dipteran, hemipteran •lepidopteran • Lutheran

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Chevron Corporation

Chevron Corporation

founded: incorporated in 1926 as standard oil company of california. the company adopted the name chevron corporation in 1984.

Contact Information:

headquarters: 575 market st. san francisco, ca 94105 phone: (415)894-7700 fax: (415)894-0348 url: http://www.chevron.com

OVERVIEW

Chevron Corporation is one of the largest oil refiners in the United States. It owns and operates many operations that are central to oil production, from exploration to refining to distribution. It is the fifth-largest oil company in the world (based on revenues), the largest U.S. marketer of petroleum products, one of the largest marketers of liquefied petroleum gas worldwide, and the third-largest U.S. producer of natural gas. The company operates in the United States and approximately 100 other countries, and owns net reserves of nearly 4.2 billion barrels of oil and natural gas liquids. Overall, Chevron is the tenth-largest producer of oil and holds approximately 9 percent of the gasoline market share.

Chevron owns six U.S. refineries and markets products through 7,750 retail outlets, also in the United States. In addition, the company owns interests in 14 refineries and 8,500 outlets in primarily the Asia Pacific region through Caltex, its 50-percent-owned affiliate. Chevron has a tanker fleet of 52 vessels, either owned or chartered, and a pipeline more than 13,000 miles long. The company produces petrochemicals in 10 plants worldwide, and operates or markets in more than 80 countries. (Petrochemicals are chemical substances obtained from petroleum or natural gas, such as gasoline, kerosene, or petroleum.)


COMPANY FINANCES

Chevron's goal was to achieve $3 billion in earnings by 1998, which it reached one year ahead of schedule in 1997. In fact, that year Chevron's net income was a record $3.25 billion, up 25 percent from $2.60 billion in 1996 and 250 percent from $930 million in 1995. Net income for 1994 was $1.70 billion and $1.26 billion for 1993. Chevron has increased its cash dividend every year since 1987, and in 1997 paid $2.28 per share.

Chevron reported first quarter 1998 net income of $500 million ($.77 per share), a decrease of 40 percent from the 1997 first quarter net income of $831 million ($1.27 per share). Chairman and CEO Kenneth Derr commented, "First quarter 1998 earnings were affected adversely by lower crude oil prices, lower natural gas prices, and foreign currency losses." Total revenues for the quarter were $7.7 billion, a decrease of 31 percent from $11.1 billion in the first quarter of 1997.

Chevron's assets total approximately $35.0 billion. The company's annual capital and exploration expenditures total nearly $1.5 billion. There are 166,000 Chevron stockholders holding about 325 million shares of common stock. The company has declared a dividend for the past 10 years. This pattern continued in 1998 when the company declared a quarterly dividend of $.61 per share.

ANALYSTS' OPINIONS

Some experts are predicting oil prices to be flat over the next 15 years and that oil demand will increase to nearly 100 million barrels per day. The 1998 Value Line Investment Survey reported that petroleum industry profits are expected to fall 10 percent in 1998 because of overproduction and a mild winter. Morgan Stanley, Dean Witter reported in late 1997 that "the outlook for earnings and dividends growth is positive, with gains expected to approximate 6-7 percent during 1998-99 and profit growth is expected to remain firm in 1998-99."

According to CEO Kenneth Derr, The Oil & Gas Journal reported that the oil industry is continually being charged with "pollution, greed, discrimination and disregard for any value other than profit." Derr argues, "Our industry invests a lot of money protecting the environment." After all, Chevron did receive the 1997 National Health of the Land Award, the 1997 Governer's Award, and an Emerald Award for its educational radio program in Alberta, Canada.

HISTORY

In 1938 Standard Oil Co. of California (now Chevron) made a huge oil discovery in Saudia Arabia, which eventually led to the discovery of 52 oil fields. After World War II, the company began a major effort to market Arabian crude oil, which was probably the single most important factor in establishing Chevron as a major multinational company. The company acquired thousands of service stations and terminals on the East Coast and part ownership of many more throughout Europe, East Africa, and Asia. The Chevron discovery changed the course of history throughout the world.


STRATEGY

Since 1989 Chevron has instituted cost-cutting initiatives in the upstream (exploration and production) and downstream (refining and marketing) businesses of the company, and these have had good results. Chevron's current strategy to improve financial performance has nine components: (1) Build a committed team to accomplish the corporate mission. (2) Accelerate exploration and production growth in international areas. (3)Accelerate total growth in the Caspian region, where the countries are in a period of rapid economic growth. (4) Generate cash from North American exploration and production operations while maintaining value through sustained production levels. (5) Achieve top financial performance in U.S. refining and marketing. (6) Caltex (Chevron's 50 percent-owned affiliate, a leading competitor in the Asian/Pacific regions) should achieve superior competitive financial performance, while growing in attractive markets. (7) Continue to improve competitive financial performance in chemicals while developing and implementing attractive opportunities for growth. (8) Be selective in other businesses. (9) Focus on reducing costs across all activities.


INFLUENCES

First and foremost the oil industry is strongly influenced by government regulation and environmental issues. When an oil spill occurs or the natural habitat is threatened, there is a negative impact on the industry at large. This negative impact will prohibit growth for the industry and, as a result, affect earnings across the board. To cut down on such risks, Chevron and other oil companies are forming partnerships. These partnerships also offer the companies operational and financial advantages. As a result of this trend, oil companies do not feel threatened by competitors, because they are viewed as potential new partners. In 1998 Chevron developed a corporate mergers and acquisitions group specifically for this purpose. As a result, Chevron and Texaco are planning to establish a joint venture of their global marine and industrial fuels and marine lubricant businesses, which operate in more than 100 countries worldwide.

Although sluggish oil markets depressed prices in the early 1990s and forced Chevron to cut costs and improve efficiency, the company is pursuing an aggressive exploration and production strategy outside the United States. In 1996 the company's average sales price per barrel of refined product in the United States was $29.96 per barrel, an increase of $3.75 per barrel over 1995. However, margins were squeezed because prices did not fully recover higher crude oil feedstock and fuel costs. The added cost of producing federal- and state-mandated cleaner-burning gasolines was an additional factor.

FAST FACTS: About Chevron Corporation


Ownership: Chevron Corporation is a publicly owned company traded on the New York, Chicago, Pacific, London, and Swiss Stock Exchanges.

Ticker symbol: CHV

Officers: Kenneth T. Derr, Chmn. & CEO, 61, 1997 base salary $3,618,604; Martin R. Klitten, VP & CFO, 53, 1997 base salary $1,127,885; James N. Sullivan, Vchmn, 60, 1997 base salary $1,920,158; Peter J. Robertson, VP & Pres. of Chevron Production Co., 51, 1997 base salary $1,122,308

Employees: 40,820 (approximately 30,000 located in the United States)

Principal Subsidiary Companies: Chevron is a fully integrated petroleum giant, and as such, operates many subsidiaries that are related to oil production and refining. Chevron's principal subsidiaries are Chevron U.S.A. Products Company Inc.; Chevron Chemical Company; Chevron USA; PLEXCO (polyethylene pipe manufacturer); Chevron Overseas Petroleum, Inc. (COPI); Chevron Products Company; Chevron Canada Resources (CCR); Gulf Oil (Great Britian) Limited; and the Pittsburg & Midway Coal Mining Co. (P&M). Chevron also holds a one-quarter interest in the NGC Corporation, which is the largest natural gas and gas liquids wholesaler in North America.

Chief Competitors: The oil industry has undergone a major transition in the area of competition. In response to the industry's inherent risks, Chevron now seeks out competitors in order to form partnerships. Its primary competitors include: Amoco Corporation; Exxon Corporation; British Petroleum; Mobil Corporation; Marathon Oil Co.; Shell Oil Co.; Arco; Phillips Petroleum Co.; Texaco; Dow Chemical; Pennzoil; and Union Carbide.


CURRENT TRENDS

Perhaps the most important asset in Chevron's upstream portfolio is the Tengiz field in the Republic of Kazakstan. In 1993 Chevron entered into a joint venture with Kazakstan to develop the more than six-billion barrel field. By midyear 1997 approximately 166,000 barrels of oil were being produced per day, the major constraint being the lack of export facilities. This figure should be dramatically higher when the Caspian Pipeline connecting Tengiz with the Russian Black Sea is completed in 1999 or 2000. Other projects that could produce significant results in the early part of the next century include Papua New Guinea, Java, and the Britannia field in the North Sea. The company's Genesis project in the Gulf of Mexico is not expected to reach full production until about 2000.

Regarding oil prices, Chevron's 1997 annual report stated, "The short-term price outlook is not strong. Crude oil and natural gas prices started down in late 1997, and in the first quarter 1998 oil prices hit their lowest level in nearly four years." However, CEO Kenneth Derr reported in an April 1998 press release that "Chevron has established a strong foundation for future growth in spite of the recent downturn in oil prices." Derr feels Chevron has better long-term growth opportunities and he expects oil prices will bounce back later this year.


PRODUCTS

Chevron explores for and extracts crude oil, natural gas, and natural gas liquids. These natural resources are then sold as is or are refined into gasoline and lubricants. Through its subsidiary Chevron Chemical and its International Group, the company produces and markets petrochemicals for industrial use throughout the world. These chemicals include: benzene, cumene, cyclohexane, paraxylene, ethylene, propylene, normal alpha olefins, polyethylene, styrene, and polystyrene.

The company offers customers a variety of Chevron credit cards. These include gas cards with no annual fee; a Premium Card that offers savings on airline tickets, hotels and car rentals; and a no-fee Chevron business card that helps companies organize their records and track expenses. The Chevron Travel Club provides towing services, trip routing and other travel services. Chevron is in the process of installing approximately 6,000 ATM machines at its service stations in the United States. It plans to have 450 machines installed by the end of October 1998.


CORPORATE CITIZENSHIP

Chevron participates in the American Business Collaboration for Quality Dependent Care program, which provides day care for its 9,000 employees in the San Francisco Bay area. The program trains local child-care providers to be more accessible to working families by extending the hours that child care is available, increasing the flexibility of care schedules, and improving the availability of back-up care. "Companies are recognizing that their employees have a life outside of work and they should honor that," said Sue Osborn, work and family coordinator for San Francisco-based Chevron. "We've been able to work other companies, leverage our funds and do something more significant."

Chevron has also been active in AIDS-related philanthropy, perhaps as a result of its Bay Area connection with the devastation AIDS has wrought in that part of the United States. The company was cited by several organizations as an example of how corporations can approach this subject. Chevron sponsors the "AIDS Corporate Update," which encourages public-private partnerships to fund HIV research and community education, and to ensure that members of the working community remain healthy and productive.

In late 1997 Chevron formed an alliance with Freedom Fund Inc., an African-American nonprofit organization based in Oakland, California, to provide management, employment, and training opportunities to African Americans. Chevron provided an existing service station and funding for a technology institute to the project. If this venture proves to be successful, Chevron's contribution could surpass $10 million.

CHRONOLOGY: Key Dates for Chevron Corporation


1926:

Incorporates as Standard Oil

1938:

Makes a large oil discovery in Saudi Arabia

1940:

Discovers the Abquaic Field which has produced more than 7.5 billion barrels of oil

1951:

Safaniya, the world's largest offshore field, is discovered

1957:

California Shipping Co. is formed

1965:

Chevron Shipping Co. is formed

1969:

The first very large crude Carrier, the S.S. John A. McCone, begins service

1976:

Chevron switches their tankers from steam to diesel power

1984:

Changes name to Chevron Corporation

1991:

Institutes condensed work week program

1993:

Enters into joint venture with Kazakstan

1998:

Donates to American Red Cross Disaster Relief Fund to help flood victims


In 1998 Chevron donated $75,000 to the American Red Cross Disaster Fund to aid victims of floods and tornadoes in Florida and California. In fact, the company has a long history of helping people in disaster situations; it has given nearly $500,000 toward disaster relief in the two states. In addition, Chevron Global Lubricants, a business unit of Chevron Products Co., set up a toll-free hotline to answer flood victims' question on water-related damage to gasoline- and diesel-powered engines. It also compiled a fact sheet containing tips on how to protect or repair water-damaged equipment.

GLOBAL PRESENCE

Chevron operates in the United States and approximately 100 additional countries. Petroleum activities are widely distributed geographically; major operations are located in the United States, Canada, Australia, the United Kingdom, Congo, Angola, Nigeria, Papua New Guinea, Indonesia, China, and Zaire. Chevron markets its products in more than 60 countries, primarily through its Caltex affiliate. Through its subsidiaries and affiliates, Caltex conducts exploration, production, and geothermal operations in Indonesia, and refining and marketing activities in Asia, Africa, the Middle East, Australia, and New Zealand. Major operations are found in Korea, Japan, Australia, Thailand, the Philippines, Singapore, and South Africa. Chevron's Tengizchevroil affiliate conducts production activities in Kazakstan. Chemical operations are concentrated in the United States, but also include facilities in France, Japan, and Brazil. Chemical manufacturing facilities are under construction or planned for construction in Singapore, Saudi Arabia, and China. Chevron's coal operations are located in the United States.

EMPLOYMENT

Chevron's philosophy is that the best global companies have managed their human resources based on skill, talent, experience, and merit—without regard to race or national origin. "The Chevron Way," a document containing the company's mission and vision statements, sets up a standard of excellence for each employee. Chevron also makes good use of employee surveys to measure employees' attitudes about the company and then carries through on its findings. The company's leadership training, diversity training, upward feedback, and job selection programs have been set up in response to employee concerns.

In 1991 Chevron implemented a condensed work week program in which employees can put in longer workdays in exchange for an extra day off every week or two. The decision to offer the program was made, in part, based on employee surveys. Other benefits were instituted after surveys indicated employee needs. These include family leave for up to six months to care for the sick or elderly (before it was federally mandated), prorated benefits for part-time workers, an increased lifetime maximum for mental health benefits, and greater choice in structuring profit-sharing plans. Finally, Chevron's strategy is to make employees feel empowered as "stakeholders" in the company, as well as to build employee commitment. A program called "Chevron Success Sharing" provides eligible employees with a percentage of their annual salary as a cash bonus if the company achieves certain financial goals. In most companies such bonuses are offered only to senior management; however, as CEO Kenneth Derr noted, "Everyone is working harder and companies need to recognize that. Employees who are working as a committed team share with stockholders a sense of ownership."


SOURCES OF INFORMATION

Bibliography

bole, kirsten. "chevron inks $2b agreement." san francisco business times, 15 july 1996.

——. "chevron set to sack 200 researchers." san francisco business times, 5 august 1996.

"chevron and texaco intend to form joint venture of marine lubricant bussinesses." pr newswire, 30 march 1998.

chevron corporation annual report. san francisco, ca: chevron corporation, 1997.

"chevron corporation." the corporate directory of u.s. public companies. san mateo, ca: walker's, 1998.

chevron home page,1 may 1998. available at http://www.chevron.com.

"chevron launches m&a unit." the oil daily, 3 february 1998.

mcauliffe, don. "chevron's nationwide atm network will be satellite-linked." knight-rider/tribune business news, 24 october 1997.

mellow, craig. "big oil's pipe dream." fortune, 2 march 1998.

morgan stanley, dean witter. company report, 3 december 1997.

"petroleum (integrated) industry." the value line investment survey, 27 march 1998.

symanovich, steve. "taking baby steps to improve child care." san francisco business times, 17 february 1997.


For an annual report:

on the internet at: http://www.chevron.comor write: comptroller's dept., 575 market st., rm. 3519, san francisco, ca 94105-2856


For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. chevron's primary sics are:

1311 crude petroleum and natural gas

2911 petroleum refining

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Chevron Corporation

Chevron Corporation

6001 Bollinger Canyon Road
San Ramon, California 94583
USA
Telephone: (925) 842-1000
Fax: (925) 842-1000
Web site: www.chevron.com

A WORLD OF ENERGY CAMPAIGN

OVERVIEW

NOTE: Since the initial appearance of this essay in the 1999 edition of Major Marketing Campaigns Annual, Texaco Inc. and Chevron Corporation merged. The essay continues to refer to the company's name as Texaco, as that was the official name of the organization when the campaign was launched.

In 1997 Texaco was the fifth-largest marketer of crude oil, natural gas, and other related products. On the list of rival companies that were outperforming Texaco were the Exxon Corporation, the Royal Dutch/Shell Group, BP p.l.c., and Mobil Corporation. To boost its market share Texaco needed to increase sales, but the brand's image had been tarnished during the early 1990s. Texaco had been accused of polluting rainforests, overpricing its products, and institutionalizing racism in the workplace. Texaco executives calculated that improving their brand's image would help sales; it was with this goal in mind that Texaco introduced its "A World of Energy" campaign.

"A World of Energy" was the most expensive campaign in Texaco's 95-year history. The New York office of the BBDO Worldwide ad agency released the print and television campaign with $30 million, which was half of Texaco's annual marketing budget. Commercials debuted on Labor Day weekend in 1997. The actor Paul Newman provided the voice-over: "See Texaco run and develop, invent, visualize, hypothesize, explore, discover, and relentlessly search. Seek … and find the energy the world needs to run. Run world, run." As Newman said, "See the world run," the spot showed a baby gazing at a revolving toy complete with moving cars, planes, and trains. The scene shifted to quick shots of a helicopter taking flight, a nun operating a lawn mower, a line of Texaco's tanker trucks carrying fuel, and Texaco workers searching for oil under the sea and in rugged mountains. Honoring the Screen Actors Guild strike in 2000, Newman did not provide a voice-over for the campaign's last spots, which aired during the 2000 Summer Olympics. The campaign ended a few months later.

Texaco reported an annual revenue drop from $45.5 billion in 1996 down to $35.7 billion in 1999. According to ad critics, however, the campaign did help Texaco's image. Texaco improved its relationships with companies that were operated by minorities, and the government-appointed committee monitoring Texaco stated that the company had improved its ethics by diversifying its workforce.

HISTORICAL CONTEXT

Initially known as Texas Company, Texaco was founded in 1902 by Joseph "Buckskin" Cullinan and Arnold Schlaet, who struck oil near Beaumont, Texas, in 1903. Texaco's first geophysical laboratory was established in 1919 to create durable seismic recorders for use in the fields where underground reservoirs of oil and natural gas were found. By the 1930s the firm was established throughout most of the United States, in addition to having ventures in numerous other countries, and it had begun marketing oil from the Middle East. In the 1950s and 1960s Texaco sold more gasoline than any other U.S. oil company, but its profits declined during the 1970s as the price of oil from the Middle East began to rise. American consumers responded by purchasing less gasoline, and Texaco closed many of its filling stations. After losing $10.3 billion in a lawsuit involving a merger dispute in 1985, Texaco filed for bankruptcy, from which it emerged in 1988. At the time, it was the largest firm in U.S. history to declare bankruptcy, and the legal judgment against it was the largest that had ever been awarded in a U.S. court, according to Time magazine. By 1998 Texaco ranked third among the nation's oil companies and was operating about two dozen refineries and 23,000 gas stations.

One of Texaco's most successful early marketing efforts was its sponsorship from 1948 to 1956 of the Texaco Star Theater, a television program with entertainer Milton Berle as the master of ceremonies. The show featured singing "men from Texaco … who work from Maine to Mexico." Another popular marketing campaign, "You Can Trust Your Car to the Man Who Wears the Star," was launched in 1962 and continued for more than two decades. It featured a memorable theme song and emphasized the bright red star-shaped logo that appeared on Texaco service stations throughout the country. In 1974 singer and comedian Bob Hope became "the man who wears the star," personifying the Texaco brand in a long series of commercials. In 1988 the "Star of the American Road" campaign was launched to depict Texaco as a modern business with an all-American heritage. Television commercials in the campaign featured a stirring jingle that said, "Wherever you are, trust the Texaco star. Up ahead it's there, shining bright." One spot showed a family driving through a storm, running low on gasoline, and finding a Texaco station thanks to the star shining in the gloom.

The "Star of the American Road" campaign was discontinued in 1995 when corporate advertisements to build the Texaco brand were introduced. The new "Add More Life to Your Car, Take It to the Star" campaign used humor, rock music, and special effects to create a more modern image for Texaco. In 1997 Texaco launched "A World of Energy," its largest corporate advertising and public-relations effort to date. Over the years the company had been accused of damaging the environment, conducting business in a racially biased manner, overpricing its products, and other unpopular practices. The new advertisements were intended to redefine the company's image, portraying Texaco as a widely diversified firm that provided energy that improved the lives of people around the world.

TARGET MARKET

Because gasoline, motor oil, and related products were not commodities that consumers saw or touched when they purchased them, the difference between various brands was not readily apparent. Therefore, packaging and brand image were paramount for an oil company trying to persuade people to buy its products instead of a competitor's. Texaco had been working to establish a strong global brand identity since the 1980s, when it had begun cultivating a new image with the Texaco star as a focal point. In 1996 the company decided to launch a bold campaign that would distinguish the Texaco brand from its competitors and emphasize the firm's worldwide operations and diverse, dedicated personnel. Most of Texaco's previous advertising had been geared toward selling gasoline and other products, but "A World of Energy" aimed to alter the general public's perception of Texaco as a corporation. The campaign specifically targeted opinion leaders, Texaco's shareholders, other companies that might someday form joint ventures with Texaco, and governments of foreign countries such as Indonesia and Angola where Texaco operated. It was thought that Texaco's stock price would rise and the company's reputation would improve as the brand image became stronger. The advertisements were also intended to boost morale among Texaco employees following a period in the early 1990s when the company had laid off large numbers of mid-level managers.

WORLDWIDE OPERATIONS

Texaco and its affiliates found, produced, and distributed oil and natural gas through a vast network of operations in more than 150 countries. The company conducted deepwater exploration primarily in the Gulf of Mexico, Latin America, and West Africa. Its major production facilities were located in the United States, the United Kingdom, the North Sea, the Middle East, and the Pacific Rim.

COMPETITION

The $850 billion petroleum industry included about 20 major oil producers and refiners with operations in the United States, about 40 global companies, and hundreds of smaller firms. According to CNNfn Online, Exxon led the overall U.S. petroleum industry at the end of 1998, Mobil was second, and the recently formed BP Amoco was third. Shell was the largest oil company in the world, followed by Exxon, BP Amoco, and Mobil. In 1998 Exxon had worldwide sales of $100.7 billion, Shell had $93.7 billion, BP Amoco had $68.3 billion, Mobil had $46.3 billion, Texaco had $31.7 billion, and Chevron Corporation had $26.2 billion.

The industry changed rapidly during the 1990s as rival companies entered into cooperative marketing arrangements or merged their businesses. Royal Dutch/Shell Group (a joint venture between Royal Dutch Petroleum and "Shell" Transport and Trading) operated 47,000 service stations around the world and owned or had interests in 1,700 companies, including its subsidiary Shell Oil Company. In 1998 Texaco formed joint ventures with Shell Oil and Saudi Refining, Inc., to combine certain refining, marketing, transportation, and lubricants operations in the United States. The two new companies, known as Equilon Enterprises LLC and Motiva Enterprises LLC, were estimated to be the nation's largest retailers of gasoline, controlling about 15 percent of the U.S. market. The joint ventures marketed products under both the Shell and Texaco brand names.

Texaco had formed other alliances with its competitors over the years. Its Caltex company—a joint refining and marketing venture with Chevron—had operated in Asia and other regions around the Pacific Rim since 1936. As other rivals consolidated their operations, Chevron and Texaco considered merging, but in June 1999 Texaco declined the proposal. In 1998 the U.S. leader, Exxon, acquired Mobil for $80.1 billion to form a huge conglomerate named Exxon Mobil Corporation. The merger gave the new company about 13 percent of U.S. gasoline sales. Another oil giant, BP Amoco, was formed near the end of 1998 when British Petroleum acquired Amoco Corporation for $48.2 million. BP Amoco had 10.5 percent of U.S. gasoline sales in 1998.

For many years Shell Oil had been known for its corporate advertising, including the "Come to Shell for Answers" and the subsequent "Answer Man" campaigns, which involved the insertion of informational booklets in magazines such as U.S. News & World Report and National Geographic. Exxon had applied most of its advertising budget in 1989 and 1990 toward revamping its tarnished reputation after its Valdez tanker ran aground and spilled millions of gallons of crude oil along the pristine shoreline of Alaska. Like Texaco, other oil companies sometimes ran ad campaigns to point out the petroleum industry's good deeds. In 1999 a magazine advertisement for Phillips Petroleum Company featured a large, beautiful photograph of migratory waterfowl in silhouette against a gold and purple sunset. The headline read, "Thanks to Phillips, weary travelers will always have a place to stop and refuel." The text said that the company had donated land to the Cactus Playa Lake Project in Texas, providing habitat for hundreds of thousands of birds that needed a place to rest during seasonal flights across the central United States. "It's yet another example of what it means to be The Performance Company," the ad concluded.

MARKETING STRATEGY

Texaco's corporate advertising campaign, "A World of Energy," was created by the New York office of the BBDO Worldwide advertising agency to strengthen the familiar Texaco brand and to set a unifying tone for the company's communications. The campaign emphasized that Texaco's diverse operations improved the lives of people all over the world by providing energy and other benefits. In a press release Peter I. Bijur, chairman and chief executive officer of Texaco, said, "Texaco plays an integral role in the global energy market, and our objective with this long-term campaign is to focus on the commitment of Texaco employees and their dedication to pursuing energy sources and delivering energy products to people around the globe. Our campaign embodies this idea, and illustrates the value we bring to the quality of life for people whose lives we touch through the exploration, production, refining, distribution and marketing of energy products, and as caretakers of our valuable resources."

SPONSORSHIPS

In conjunction with "A World of Energy" advertising, Texaco improved its brand image by sponsoring the U.S. Olympic Team through the year 2004, the XIX Winter Olympic Games in Salt Lake City, the US Open Tennis Championship tournament, auto racing, and the Metropolitan Opera.

Ted Sann of BBDO added, "This new campaign builds on, and burnishes, Texaco's strong brand heritage for a new era. We traveled the globe to capture the vision and dedication of Texaco workers and the innovative technologies they are using to keep the world running. We want to convey that the lives we enjoy are fueled, in great part, with Texaco energy, represented by both the people of the company and its products."

"A World of Energy" received $30 million of Texaco's annual advertising budget of more than $60 million. Television commercials in the campaign were launched on Labor Day weekend 1997 during Sunday morning programs and coverage of the US Open tennis tournament, National Football League games, and golf competitions. The commercials also ran during shows such as National Geographic Explorer on TBS, Fangs on the Discovery Channel, and Extreme Machines on the Learning Channel. A spot called "Anthem" showed a world in fast motion—British commuters hurrying to catch trains, a Michigan child stepping out of a school bus, airplanes flying above the port of Rio de Janeiro—juxtaposed with shots of Texaco's geologists, oil rig crews, and other workers of various races providing energy to keep the world's machines operating. "We're always going, to keep you coming. To keep your whole world running," said the lyrics to the commercial's powerful theme song, "Do You See the Star?" Another spot showed Texaco workers on an oil platform, in high-tech operations centers, in a laboratory, under the ocean, and on mountaintops. A narrator (Newman) said, "They go to the strangest places, work in the tightest quarters, and gladly keep the oddest hours. Who are they? Forever probing and prodding, digging and exploring. Who are these people? They are Texaco. And they do what they do to find the energy the world needs to keep on running."

In addition to television commercials the campaign included magazine advertisements and full-page ads in newspapers throughout the United States. An advertisement in Smithsonian magazine featured a large photograph of three barefoot children happily eating watermelon in the golden glow of sunbeams. The headline read, "One day while finding energy, we found a way to get water to watermelons." The text explained that, while drilling for oil, Texaco often found underground water reserves. The company channeled some of that water to farms in the arid Central Valley of California, where not only watermelons but apples, oranges, and many other crops were irrigated to feed people throughout the United States. The text concluded, "It's one more way our relentless pursuit of energy keeps the world running. Looks like that water made quite a splash." The red Texaco logo and the slogan "A World of Energy" were centered prominently at the bottom of the ad.

The campaign concluded after the 2000 Olympics, during which Texaco released three commercials that tied the Texaco brand to athletics. Because of a strike enforced by the Screen Actors Guild, Paul Newman did not provide a voice-over for the final spots, and ad critics believed that his absence hindered the campaign's effectiveness. One spot featured children improving their athleticism via trial and error. "Life on the playing field is not much different than life in the oil field," explained a voice-over. "Sometimes, when you wonder how you'll ever find the energy to go on, you just dig down a little deeper. And there it is." Another Texaco spot venerated the company's employees. The voice-over explained that many Texaco employees found time to volunteer as youth coaches, because "finding energy is their full-time job." Ironically, on October 16, 2000, Texaco and Chevron merged to create the world's fourth-largest oil company, and as a result 4,000 employees lost their jobs. The merged companies changed their name to Chevron Corporation in May 2005.

OUTCOME

The campaign's tagline, "A world of energy," became a general corporate signature and was used in other advertising campaigns during 1999, unifying the company's marketing efforts. To demonstrate Texaco's sensitivity to racial issues and its appreciation for its diverse customers and employees, two campaigns that targeted African-American and Hispanic consumers were developed by minority-owned ad agencies. The tagline was translated into Spanish as "Un mundo de energía" for use in markets such as Texas, California, Arizona, and Colorado and for publication in magazines such as Latina and Hispanic Business. In May 1999 Texaco launched a television campaign to publicize Havoline motor oil with the slogan "Add more life to your car." The commercials revolved around youth and aging. One spot starred Dick Clark, a celebrity who had been famous for decades but never seemed to age. In June 1999 the joint venture between Shell Oil and Texaco released a $40 million advertising effort consisting of separate campaigns for two types of consumers: the drivers who patronized Shell's full-service stations and the drivers who patronized Texaco for its "car friendly" gasoline. The Shell campaign featured the tagline "Count on Shell to keep you going." The Texaco campaign's tagline was "Get that 5th tank feeling," which referred to a claim by Texaco that its gasoline improved an engine's performance by the fifth tank. While a worldwide economic slowdown and an oversupply of oil and gasoline caused prices to plummet and created a significant slump in the industry, U.S. demand for gasoline actually increased by 2.4 percent in 1998. (The United States was home to 5 percent of the world's population but used 30 percent of all energy produced.) Texaco reported revenues of $45.5 billion in 1996, $46.7 billion in 1997, $31.7 billion in 1998, and $35.7 in 1999. From an ad-industry perspective the campaign received little praise. According to some critics the campaign did, however, improve Texaco's brand image, which had been marred during the early 1990s.

FURTHER READING

Beatty, Sally Goll. "Happy Faces Abound in Texaco's First Corporate Advertising Drive." Wall Street Journal (Marketing & Media-Advertising), August 29, 1997.

Castro, Janice. "Texaco's Star Has Fallen: Facing a $10 Billion Penalty, the Oil Company Chooses Bankruptcy." Time, April 20, 1987, p. 50.

Dill, Mallorre. "Olympic Energy." Adweek (eastern ed.), August 7, 2000, p. 44.

Elliott, Stuart. "Olympic TV Commercials Win Few Gold Medals." New York Times, October 3, 2000, p. 1.

Fest, Glen. "KJS Marketing Accents Texaco's Hispanic Message." Adweek (southeast ed.), October 27, 1997.

Garfield, Bob. "Texaco Gushes about Being 'Energy Giant,'" Advertising Age, September 8, 1997.

Green, Jeff. "All Pumped Up." Brandweek, May 24, 1999, p. 1.

Hill, Dee J. "Texaco Pumps Up Its Emotions." Adweek (southwest ed.), June 19, 2000, p. 6.

Lawrence, Jennifer. "Bankrupt Texaco to Polish Its Star." Advertising Age, April 20, 1987, p. 3.

Mack, Toni. "Can Texaco Catch Up?" Forbes, March 25, 1996, p. 60.

Solomon, Jolie. "Luke Lends His Cool Hand to Texaco." Newsweek, October 6, 1997, p. 52.

"Texaco Partners with Communications Group." National Petroleum News, January 1, 1999.

                                            Susan Risland

                                              Kevin Teague

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