Exxon Mobil Corporation

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Exxon Mobil Corporation

5959 Las Colinas Boulevard
Irving, Texas 75039
U.S.A.
Telephone: (972) 444-1000
Fax: (972) 444-1350
Web site: http://www.exxon.mobil.com

Public Company
Incorporated: 1882 as Standard Oil Company of New Jersey
Employees: 88,300
Sales: $213.19 billion (2003)
Stock Exchanges: New York
Ticker Symbol: XOM
NAIC: 324110 Petroleum Refineries; 211111 Crude Petroleum and Natural Gas Extraction; 213112 Support Activities for Oil and Gas Field Exploration; 447110 Gasoline Stations with Convenience Stores

Exxon Mobil Corporation is the second largest integrated oil company in the world, trailing only BP p.l.c. The company is involved in oil and gas exploration, production, transportation, and marketing in more than 200 countries and territories. Exxon Mobil is a major manufacturer of basic petrochemicals, such as olefins, aromatics, and polyethylene and polypropylene plastics. The company supplies refined products to more than 40,000 service stations operating under the brand names Exxon, Mobil, and Esso. Created from the 1999 merger of Mobil Corporation and Exxon Corporation, Exxon Mobil's history is the story of two companies, each an influential constituent of modern business history.

The Development of Mobil's Predecessor Companies

The 1931 merger of Standard Oil Company of New York (Socony) and Vacuum Oil Company created Mobil. Of Mobil's two progenitors, Socony was the larger and more generalized oil company, while Vacuum's expertise lay in the production of high-quality machine lubricants. Vacuum got its start in 1866 when Matthew Ewing, a carpenter and part-time inventor in Rochester, New York, devised a new method of distilling kerosene from oil using a vacuum. The process itself proved to be no great discovery, but Ewing's partner, Hiram Bond Everest, who had invested $20 in seed capital in the project, noticed that its gummy residue was suitable for lubrication, and the two men took out a patent on behalf of the Vacuum Oil Company in 1866. Ewing sold his interest in Vacuum to Everest shortly thereafter. The heavy Vacuum oil was soon much in demand by manufacturers of steam engines and the new internal-combustion engines. In 1869 Everest patented Gargoyle 600-W Steam Cylinder Oil, which was still in use into the 1990s, and the firm continued to prosper.

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

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

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

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

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

Regrouping Following Supreme Court Ruling in 1911

By the time of the dissolution of Standard in 1911, Socony had established its position in Europe and Africa and built a thriving business in Asia as well. China became an important market for Socony. Socony eventually built a network of subsidiaries from Japan to Turkey that by 1910 was handling nearly 50 percent of the kerosene sold in Asia. In the United States, Socony's five refineries turned out kerosene, gasoline, and naphtha for sale in New York and New England, through jobbers and a growing number of the new roadside stores known as "gas stations."

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

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

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

Company Perspectives:

To be successful, Exxon Mobil must be at the leading edge of competition in every aspect of our business. This requires that the corporation's substantial resources—financial, operational, technological, and human—be employed wisely and evaluated regularly. While we maintain flexibility to adapt to changing conditions, the nature of our business requires a focused, long-term approach. We will consistently strive to improve efficiency and productivity through learning, sharing and implementing best practices. We will be disciplined and selective in evaluating the range of capital investment opportunities available to us. We will seek to develop proprietary technologies that provide a competitive edge.

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

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

Key Dates:

1870:: John D. Rockefeller and Henry Flagler incorporate the Standard Oil Company.
1878:: Standard controls $33 million of the country's $35 million annual refining capacity.
1882:: Rockefeller reorganizes Standard Oil into a trust, creating Standard Oil Company of New Jersey as one of many regional corporations controlled by the trust.
1888:: Standard founds its first foreign affiliate, Anglo-American Oil Company, Limited.
1890:: The Sherman Antitrust Act is passed, in large part, in response to Standard's oil monopoly.
1891:: The trust has secured a quarter of the total oilfield production in the United States.
1892:: A lawsuit leads to dissolution of the trust; the renamed Standard Oil Company (New Jersey) becomes the main vessel of the Standard holdings.
1899:: Jersey becomes the sole holding company for all of the Standard interests.
1906:: The federal government files a suit against Jersey under the Sherman Antitrust Act, charging it with running a monopoly.
1911:: The U.S. Supreme Court upholds a lower court conviction of the company and orders that it be separated into 34 unrelated companies, one of which continues to be called Standard Oil Company (New Jersey).
1926:: The Esso brand is used for the first time on the company's refined products.
1931:: The merger of Standard Oil Company of New York and Vacuum Oil Company creates Socony-Vacuum Corp., Mobil's immediate predecessor company.
1946:: A 30 percent interest in Arabian American Oil Company, and its vast Saudi Arabian oil concessions, is acquired.
1954:: The company gains a 7 percent stake in an Iranian oil production consortium.
1960:: Mobil Chemical Company is formed.
1966:: Mobil Oil Corporation becomes the official corporate title of Socony-Vacuum.
1972:: Standard Oil Company (New Jersey) changes its name to Exxon Corporation.
1973:: OPEC cuts off oil supplies to the United States.
1976:: Mobil Oil Corporation changes its name to Mobil Corporation.
1980:: Exxon's revenues exceed $100 billion because of the rapid increase in oil prices.
1984:: Mobil acquires Superior Oil Company for $5.7 billion, obtaining extensive reserves of oil and natural gas.
1989:: The crash of the Exxon Valdez in Prince William Sound off the port of Valdez, Alaska, releases about 260,000 barrels of crude oil.
1990:: Exxon's headquarters are moved from Rockefeller Center in New York City to Irving, Texas.
1994:: Federal jury finds company guilty of "recklessness" and orders it to pay $286.8 million in compensatory damages and $5 billion in punitive damages.
1997:: Exxon appeals the $5 billion punitive damages award; it reports profits of $8.46 billion on revenues of $120.28 billion for the year.
1998:: Exxon agrees to buy Mobil in one of the largest mergers in U.S. history.
1999:: Exxon and Mobil complete their $83 billion merger, forming Exxon Mobil Corporation.
2001:: Cost savings from the merger are tallied at $4.6 billion.
2004:: Rex Tillerson is appointed president of Exxon Mobil, leading observers to predict his appointment as chief executive officer upon Lee Raymond's retirement.

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

Postwar Rise in Demand

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

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

The Oil Crisis of the 1970s

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

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

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

The $6 billion sale of assets was used to reduce debt, and Mobil's financial performance improved accordingly as the decade drew to a close, although not enough to please Wall Street analysts. The 1980s were generally not a good period for Mobil, which continued, on paper at least, to show a worrisome decline in proven oil reserves.

Challenges in the 1990s

World events in the early 1990s had contradictory repercussions for Mobil and the petroleum industry as a whole. The Persian Gulf War in particular, and instability in the Middle East in general, heightened the importance of Mobil's carefully cultivated friendship with Saudi Arabia. But a recession in the United States and the worldwide economic slowdown lowered the demand for energy and chemicals, thereby weakening prices.

The corporation marked its 125th anniversary in 1991, but there was little cause for celebration. As earnings across the gas and oil industry dropped, Mobil's profits fell by only ½ percent, but the corporation braced for a deepening recession with restructuring and internal investment. Asset sales of $570 million in 1991 included a Wyoming coal mine and hundreds of wells in western Texas. Capital and exploration spending crested that year at more than $5 billion, up almost 16 percent from the previous year.

The recession deepened in 1992, and Mobil Chairman and CEO Allen E. Murray continued restructuring as earnings plunged precipitously across the industry. By the end of the year, Mobil had divested itself of a polyethylene bread bag manufacturing business, a polystyrene resin business, and its interests in nine oilfields in west Texas and southeast New Mexico. Mobil also cut its domestic workforce by more than 2,000 in 1992 and slashed $800 million from that year's capital and exploration budget. It may have seemed that even nature moved against the oil industry: August's Hurricane Andrew forced the evacuation of oil and gas rigs and platforms on the Gulf of Mexico, in Alabama, on Mobile Bay, and even as far inland as Beaumont, Texas. Gulf operations began the return to normal within a week of the devastating storm.

Environmental and philanthropic efforts were a hallmark of Mobil's operations. In 1991 Mobil started the industry's first nationwide used oil collection program, and it continued to contribute to such cultural and educational projects as "Teach for America," a nonprofit teacher corps. But Mobil's environmental record was marred in 1992 when, after three years of litigation, an environmental manager at Mobil Chemical proved that his superiors attempted to force him to falsify the findings of environmental audits. A jury awarded the former employee $1.75 million in damages and interest in his wrongful discharge suit against Mobil.

Mobil's worldwide influence, with strong positions in Saudi Arabia, Nigeria, and Asia's Pacific Rim, included a commanding presence in Indonesia. In the early 1990s, Mobil was the largest U.S. firm extracting natural gas in Indonesia, which was one of the world's largest producers of that resource. Natural gas constituted 50 percent of Mobil's worldwide resources at that time, making the Indonesian activities doubly important.

By 1994, Mobil's position had stabilized, as rising natural gas prices pushed up the company's profits, one-third of which were from natural gas. The following year the company undertook a restructuring of worldwide staff support services, including a 28 percent reduction in staffing. Overall, the company had shaved nearly $2 billion from operating expenses since 1992. In 1995 profits jumped to an estimated $1.9 billion (in large part driven by Mobil's 30 percent stake in the rich Indonesian Arun field, which contributed one-quarter of that figure); as a result, Mobil ranked number one in the industry in terms of profitability.

Analysts predicted that the company's profits would increase by another 50 percent in 1996. At the same time, Arun's reserves had peaked, and Mobil was pressed to find additional supplies. Chairman Lucio Noto, who had succeeded Murray in 1994, set his sights on Ras Laffan, a natural gas field in the Persian Gulf, off the coast of Qatar. With deliveries scheduled to begin in 1999, Mobil's 30 percent stake in the field was expected to add $300 million in annual operating earnings in its first decade, and as much as $700 million after Mobil's initial investment was paid down. According to a Mobil executive, when Qatar was first proposed, Noto's response was ". . . this is something that could get carved on my tombstone, if we do it right."

Other projects proceeded apace. In May, Mobil announced that the company and a partner would launch a second petrochemical operation at Yanbu, Saudi Arabia, at a cost of $2 billion. The company also was investigating the construction of an ethylene plant in Singapore, and formed a joint venture with a Venezuelan firm to develop a $1.5 billion olefins complex in Jose, Venezuela. Other investments included a 25 percent stake in the Tengiz oilfield in Kazakhstan and the acquisition of Ampolex, an Australian oil and gas company. Total resources rose 28 percent. Disinvestments, on the other hand, included the sale of $1.8 billion in assets in land development, chemicals, mining, and gas processing.

In June Mobil announced a new management structure, in which 11 new business groups would take the place of the existing three worldwide divisions. Noto explained, "In this new competitive climate, these changes better focus on our entrepreneurial talent of seizing new business opportunities, while maintaining our commitment to technology and functional excellence in our upstream and downstream activities."

On the retail side, Mobil operated 7,711 highly successful gas stations, concentrated in 18 states, only 600 of which were company-owned. Expanding into full-scale convenience stores, the company introduced about 150 "On the Run" outlets, which it described as "brighter, bigger, bolder convenience stores." On the Run was part of a plan to eventually offer franchises of car care, convenience stores, car washes, and gasoline.

Ending 1996 with $81.5 billion in revenues, the company announced that it had essentially met its target for two years hence, 1998, of more than $3 billion in earnings. The restructuring initiatives that were initiated were expected to reduce annual costs by $1.3 billion annually, and dividends to shareholders increased for the ninth consecutive year. Said Noto: "We began working several years ago toward becoming a great, global company. Today, as a result, Mobil is more efficient, more responsive, and better positioned for growth. In that respect, 1996 was a pivotal year for our company. We can now see the Mobil of tomorrow taking shape—more profitable, a recognized leader in all our businesses, with unprecedented opportunities for long-term growth for our shareholders, better products and services for our customers, and a challenging and inclusive environment for our employees."

Mid-19th-Century Developments Leading to Exxon's Beginnings As Standard Oil

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

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

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

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

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

The Standard Oil Monopoly: 1870–92

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

One of the great advantages of Standard Oil's size was the leverage it gave the company in railroad negotiations. Most of the oil refined at Standard made its way to New York and the Eastern Seaboard. Because of Standard's great volume—60 carloads a day by 1869—it was able to win lucrative rebates from the warring railroads. In 1871 the various railroads concocted a plan whereby the nation's oil refiners and railroads would agree to set and maintain prohibitively high freight rates while awarding large rebates and other special benefits to those refiners who were part of the scheme. The railroads would avoid disastrous price wars while the large refiners forced out of business those smaller companies who refused to join the cartel, known as the South Improvement Company.

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

By 1873 Standard Oil was refining more oil—10,000 barrels per day—than any other region of the country, employing 1,600 workers, and netting around $500,000 per year. With great confidence, Rockefeller proceeded to duplicate his Cleveland success throughout the rest of the country. By the end of 1874 he had absorbed the next three largest refiners in the nation, located in New York, Philadelphia, and Pittsburgh. Rockefeller also began moving into the field of distribution with the purchase of several of the new pipelines then being laid across the country. With each new acquisition it became more difficult for Rockefeller's next target to refuse his cash. Standard interests rapidly grew so large that the threat of monopoly was clear. The years 1875 to 1879 saw Rockefeller push through his plan to its logical conclusion. In 1878, a mere six years after beginning its annexation campaign, Standard Oil controlled $33 million of the country's $35 million annual refining capacity, as well as a significant proportion of the nation's pipelines and oil tankers. At the age of 39, Rockefeller was one of the five wealthiest men in the country.

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

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

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

Jersey at Head of Standard Oil Empire: 1892–1911

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

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

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

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

Independent Growth into a "Major": 1911–72

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

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

Despite initial disappointments in overseas production, Jersey remained a company oriented to foreign markets and supply sources. On the supply side, Jersey secured a number of valuable Latin American producing companies in the 1920s, especially several Venezuelan interests consolidated in 1943 into Creole Petroleum Corporation. By that time Creole was the largest and most profitable crude producer in the Jersey group. In 1946 Creole produced an average of 451,000 barrels per day, far more than the 309,000 by Humble and almost equal to all other Jersey drilling companies combined. Four years later, Creole generated $157 million of the Jersey group's total net income of $408 million and did so on sales of only $517 million. Also in 1950, Jersey's British affiliates showed sales of $283 million but a bottom line of about $2 million. In contrast to the industry's early days, oil profits now lay in the production of crude, and the bulk of Jersey's crude came from Latin America. The company's growing Middle Eastern affiliates did not become significant resources until the early 1950s. Jersey's Far East holdings, from 1933 to 1961 owned jointly with Socony-Vacuum Oil Company—formerly Standard Oil Company of New York and now Mobil Corporation—never provided sizable amounts of crude oil.

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

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

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

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

Exxon, Oil Shocks, and Diversification: 1972–89

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

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

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

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

The Exxon Valdez : 1989–98

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

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

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

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

Like many of its competitors, Exxon was forced to trim expenses to maintain such outstanding profitability. One of the favorite methods was to cut jobs. Citing the globally depressed economy and the need to streamline operations, Exxon eliminated 5,000 employees from its payrolls between 1990 and 1992. With oil prices in a decade-long slide, Exxon also cut spending on exploration from $1.7 billion in 1985 to $900 million in 1992. The company's exploration budget constituted less than 1 percent of revenues and played a large part in Exxon's good financial performance. Meantime, Exxon in 1990 abandoned its fancy headquarters at Rockefeller Center in New York City to reestablish its base in the heart of oil territory, in the Dallas suburb of Irving, Texas. In 1991 the company established a new Houston-based division, Exxon Exploration Company, to handle the company's exploration operations everywhere in the world except for Canada.

At the end of 1993 Lee R. Raymond took over as CEO from the retiring Rawl. Raymond continued Exxon's focus on cost-cutting, with the workforce falling to 79,000 employees by 1996, the lowest level since the breakup of Standard Oil in 1911. Other savings were wrung out by reengineering production, transportation, and marketing processes. Over a five-year period ending in 1996, Exxon had managed to reduce its operating costs by $1.3 billion annually. The result was increasing levels of profits. In 1996 the company reported net income of $7.51 billion, more than any other company on the Fortune 500. The following year it made $8.46 billion on revenues of $120.28 billion, a 7 percent profit margin. The huge profits enabled Exxon in the middle to late 1990s to take some gambles, and it risked tens of billion of dollars on massive new oil and gas fields in Russia, Indonesia, and Africa. In addition, Exxon and Royal Dutch/Shell joined forces in a worldwide petroleum additives joint venture in 1996.

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

Nearing the Dawn of the 21st Century: The Merger of Exxon and Mobil

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

Based on 1998 results, the proposed Exxon Mobil Corporation would have combined revenues of $168.8 billion, making it the largest oil company in the world, and $8.1 billion in profits. Raymond would serve as chairman, CEO, and president of the Irving, Texas-based goliath, with the head of Mobil, Lucio A. Noto, acting as vice-chairman. Shareholders of both Exxon and Mobil approved the merger in May 1999. In September of that year the European Commission granted antitrust approval to the deal with the only major stipulation being that Mobil divest its share of a joint venture with BP Amoco p.l.c. in European refining and marketing. In November 1999, the historic and massive merger was completed in an $83 billion stock transaction. Mobil Corporation became a wholly owned subsidiary of Exxon Corporation concurrent with Exxon changing its name to Exxon Mobil Corporation.

Exxon Mobil in the 21st Century

The integration of Mobil into Exxon promised to deliver cost savings and to interweave two contrasting corporate cultures. Historically, Exxon's strengths had been in finance and engineering, while Mobil's strengths had been in marketing and deal-making. Exxon was as rigid as its leader, Lee Raymond, while Noto, "renowned from Riyadh to Jakarta for his high-octane energy and charm," as Business Week noted in its April 9, 2001 issue, personified the more relaxed culture of Mobil. As these two dissimilar, but potentially complementary, heritages combined, the corporate personality of Exxon dominated Exxon Mobil. Throughout the merged company's senior management ranks, Mobil executives generally served under Exxon executives. Noto, whose responsibilities and influence were diminished as vice-chairman, announced his retirement in January 2001, the same year the Exxon Mobil board of directors made an exception to the company's mandatory retirement age and asked Raymond to continue leading the company.

Under Raymond's tight control, Exxon Mobil demonstrated its skill as an efficient, financially prudent behemoth. By 2001, cost savings from the merger reached $4.6 billion. These savings were used to fund the company's growth by internal means, as the company prepared to expand its output of oil and gas—something it had not done since the 1970s. The company planned to invest $10 billion in exploration and production in 2001, an amount Exxon Mobil planned to spend annually through the end of the decade.

Five years after the merger, its success was confirmed. Between 1999 and 2004, Exxon Mobil earned $75 billion in net profits and generated $123 billion in cash. By 2004, the company was enjoying what Raymond, in a March 11, 2004 interview with the Oil Daily, referred to as "unprecedented developments" in Angola, Equatorial Guinea, Chad, and the Caspian Sea. The profile of the company's production portfolio was expected to be altered substantially by these developments. Africa, the Mideast, and Russia accounted for less than 20 percent of Exxon Mobil's oil and gas production in 2004. By 2010, the regions were expected to account for 40 percent of the company's oil and gas production.

As Exxon Mobil prepared for the future, perhaps the most significant event on the horizon was a change in leadership. Industry observers were expecting Raymond to retire at some point midway through the decade, and the consensus on his replacement was Rex Tillerson, who joined Exxon in 1975. Following the 1999 merger, Tillerson was appointed executive vice-president of Exxon Mobil Development Co., the entity responsible for guiding oil and gas development and drilling activities for Exxon Mobil. In February 2004, in a move that appeared to confirm his imminent promotion to chief executive officer, Tillerson was elected president of Exxon Mobil. "Tillerson has a reputation as a good 'hands on' guy, and a solid exploration and production manager," an analyst said in a March 1, 2004 interview with the Oil Daily. "He's a Texas engineer type in a company with a history of being run by engineers." If Tillerson did in fact succeed Raymond, his challenge was to keep Exxon Mobil moving forward, as the largest oil company in the United States endeavored to maintain its reputation on the global scene.

Principal Subsidiaries

Exxon Luxembourg Holdings L.L.C.; Exxon Mobile Bay Limited Partnership; Exxon Neftegas Limited; Exxon Overseas Corporation; Exxon Yemen Inc.; ExxonMobil Alaska Production Inc.; ExxonMobil Asia Pacific Pte. Ltd. (Singapore); ExxonMobil Aviation International Limited (U.K.); ExxonMobil Canada Ltd.; ExxonMobil Capital N.V. (Netherlands); ExxonMobil Central Europe Holding GmbH (Germany); ExxonMobil Chemical Central Europe GmbH (Germany); ExxonMobil Chemical Films Europe, Inc.; ExxonMobil Chemical France S.A.R.L. (France; 99.77%); ExxonMobil Chemical Holland B.V.; ExxonMobil Chemical Holland L.L.C.; ExxonMobil Chemical Limited (U.K.); ExxonMobil Chemical Operations Private Limited (Singapore); ExxonMobil Chemical Polymeres SNC (France; 99.77%); ExxonMobil de Colombia S.A.; ExxonMobil Egypt (S.A.E.); ExxonMobil Energy Limited (Hong Kong); ExxonMobil Exploration and Production Malaysia Inc.; ExxonMobil Far East Holdings Ltd. (Bahamas); ExxonMobil Gas Marketing Europe Limited (U.K.); ExxonMobil Global Services Company; ExxonMobil Holding Company Holland L.L.C.; ExxonMobil Hong Kong Limited; ExxonMobil International Holdings Inc.; ExxonMobil International Services, S.A.R.L. (Luxembourg); ExxonMobil Kazakhstan Inc. (Malaysia); ExxonMobil Kazakhstan Ventures Inc.; ExxonMobil Luxembourg UK, S.A.R.L.; ExxonMobil Malaysia Sdn. Bhd.; ExxonMobil Marine Limited (U.K.); ExxonMobil Mediterranea S.R.L. (Italy); ExxonMobil Middle East Gas Marketing Limited (Bahamas); ExxonMobil Oil Corporation; ExxonMobil Oil Indonesia Inc.; ExxonMobil Oil Singapore Pte. Ltd.; ExxonMobil Petroleum & Chemical (Belgium); ExxonMobil Pipeline Company; ExxonMobil Production Deutschland GmbH (Germany); ExxonMobil Qatargas Inc.; ExxonMobil Rasgas Inc.; ExxonMobil Sales and Supply Corporation; ExxonMobil Yugen Kaisha (Japan); Fina Antwerp Olefins N.V. (Belgium; 35%); Imperial Oil Limited (Canada; 69.6%); Infineum Holdings B.V. (Belgium; 49.6%); Kyokuto Sekiyu Kogyo Kabushiki Kaisha (Japan; 50%); Miner-aloelraffinerie Oberrhein GmbH & Co. KG (Germany; 25%); Mobil Argentina S.A.; Mobil Australia Resources Company Pty. Limited; Mobil California Exploration & Producing Asset Company; Mobil Caspian Pipeline Company; Mobil Cerro Negro, Ltd. (Bahamas); Mobil Corporation; Mobil Equatorial Guinea Inc.; Mobil Erdgas-Erdoel GmbH (Germany; 99.99%); Mobil Exploration and Development Argentina Inc.; Mobil Exploration Indonesia Inc.; Mobil Exploration Norway Inc.; Mobil Fairfax Inc.; Mobil North Sea Limited; Mobil Oil Australia Pty. Ltd.; Mobil Oil Exploration & Producing Southeast Inc.; Mobil Oil New Zealand Limited; Mobil Oil Nigeria Public Limited Company (59.99%); Mobil Producing Nigeria Unlimited; Mobil Producing Texas & New Mexico Inc.; Mobil Refining Australia Pty. Ltd.; Mobil Yanbu Petrochemical Company Inc.; Mobil Yanbu Refining Company Inc.; Nansei Sekiyu Kabushiki Kaisha (Japan; 43.77%); Nederlandse Aardolie Maatschappij B.V. (Netherlands; 50%); Paxon Polymer Company, L.P. II (92.84%); QM Tanker Co., L.L.C. (Cayman Islands; 50%); Ras Laffan Liquefied Natural Gas Company Limited (Qatar; 26.5%); Ras Laffan Liquefied Natural Gas Company Limited (Qatar; 29.99%); Samoco L.L.C. (Cayman Islands; 50%); Saudi Aramco Mobil Refinery Company Ltd. (Saudi Arabia; 50%); Saudi Yanbu Petrochemical Co. (Saudi Arabia; 50%); Schubert Beteiligungs-GmbH (Germany; 72.99%); SeaRiver Maritime Financial Holdings, Inc.; SeaRiver Maritime, Inc.; Societa per Azioni Raffineria Padana Olii Minerali-SARPOM (Italy; 74.14%); Superior Oil (U.K.) Limited; Tengizchevroil, LLP (Kazakhstan; 25%); TonenGeneral Sekiyu K.K. (Japan; 50.02%); Tonen Kagaku K.K. (Japan; 50.02%).