FINA, Inc.

views updated

FINA, Inc.

Fina Plaza
8350 North Central Expressway
301 Grant Street
Dallas, Texas 75206
U.S.A.
(214) 750-2400
Fax: (214) 890-1876

Public Company
Incorporated: 1956 as American Petrofina, Inc.
Employees: 3,665
Sales: $3.4 billion
Stock Exchanges: AMEX
SICs: 2911 Petroleum Refining; 1311 Crude Petroleum & Natural Gas; 5541 Gasoline Service Stations

FINA, Inc. is a medium-sized holding company whose chief operating subsidiary, FINA Oil and Chemical Co., Inc., produces, refines, markets, and transports petroleum products and natural gas, as well as engages in the manufacture and sale of petrochemicals. FINA is one of 166 companies in 34 countries affiliated with Belgium’s largest corporation, Petrofina S.A. Established by the Belgian firm in the mid-1950s as American Petrofina, Inc., FINA quickly became an American success story. By 1990 the company achieved significant (10 to 14 percent) shares of the chemical products market with its sales of styrene monomer, polystyrene, and polypropylene, and was building the second-largest polystyrene plant in the world.

When Petrofina S.A. paid $10 million to establish American Petrofina, Inc. (APF) in 1956, it entered its first American business venture. The American company became one of many affiliates of this giant Belgian petroleum refining corporation, headquartered in Brussels. Several Belgians would always serve on APF’s board of directors, and the Belgian firm would own the majority of stock. However, the president and CEO of APF would be American, and the company would operate independently. For many years Harry A. Jackson, Jr., would preside over the firm as president, and Walter C. Teagle, Jr., would serve as director of the company until his untimely death four years later. Together they would oversee the crucial early steps of APF that would transform it into a multi-billion dollar petroleum company.

When APF purchased the Panhandle Oil Company, incorporating it in April 1956, the company actually began to manufacture and market petroleum and natural gas. Panhandle had been a minor oil company based in Texas, but with diverse holdings in oil wells and natural gas reserves. Until oil was discovered in Alaska, the Southwest was the richest oil-producing region in the United States. The 1950s also were characterized by the discovery of vast natural gas deposits in Texas and Louisiana that would become an important energy source, as the gas was piped to all regions of the country. With ample cash flow, Jackson and Teagle negotiated the acquisition of the American Liberty Company of Dallas, which took place in January 1957. The American Liberty Company also was a small but diverse petroleum company which held significant natural gas reserves. After these purchases, APF’s total assets stood at $88 million.

APF thereupon expanded continuously. Favoring the new company was its affiliation with an international conglomerate of oil companies, the Petrofina Group, which gave it advantages in terms of markets and raw materials. Throughout the 1950s, the company had an annual growth rate of 4 percent, with earnings in 1960 alone up 21 percent over the previous year. APF’s profits derived not only from the manufacture and sale of petroleum from its 1,174 oil wells (by 1960, its refineries processed 36,207 barrels of crude oil daily), but increasingly from natural gas. The company’s assets had grown in four years’ time to nearly $94 million.

The 1970s would present challenges as well as enormous growth. Increasingly stringent and costly environmental-protection laws and regulations adversely affected the company—in particular those requiring the production of lead-free gasoline. The OPEC oil embargo of 1973 sent crude oil prices skyrocketing, cutting deeply into company profits. Nonetheless, APF’s international connections enabled it to overcome the oil shortage quickly from other sources, as it would do in the equally trying months following Iraq’s invasion of Kuwait seventeen years later. Meanwhile, its Cosdan Oil and Chemical Division was processing six percent of the crude oil into petrochemicals and plastics, offsetting somewhat the volatility of the oil market. With the completion of its modern new polystyrene plant at Calumet City, Illinois, in May 1970, Cosdan became the third-largest domestic manufacturer of the high-impact plastic. As to the growing environmental challenges in the 1970s, APF’s management decided to install costly equipment in its refineries for the removal of lead alkyls in gasoline, and to promote the sale of the up-and-coming lead-free gasoline.

The constant fluctuations of the petroleum market—due to international crises, fires in oil refineries, or downturns in the economy—as well as continuous expansion and modernization of the company, were the chief themes in APF’s history in the 1970s and 1980s. By 1980 APF’s assets had climbed to $1.2 billion, and the company was still growing in diverse ways, particularly in the manufacture of chemicals and plastics. Despite the downturn in the economy during the recessionary 1970s, by 1980 APF had achieved the highest earnings in its history to date, thanks in part to the new Reagan administration’s emphasis on free marketing and decentralization. Operating profits from APF’s production of crude oil alone were 25 percent higher than in the previous year. In the new atmosphere of deregulation and elimination of price controls, so many exploratory wells were dug that an oil rig shortage resulted, while lands previously off-limits to oil drilling, especially in the Outer Continental Shelf, were leased to oil companies. The result was that by the end of 1980, the United States had reduced its dependency on foreign oil to 38 percent.

Previous investment in equipment to produce lead-free gasoline paid off handsomely, and APF in 1980 discontinued altogether its manufacture of high-octane leaded gas. Environmental regulations continued to increase in the 1980s, with the result that ever newer and costlier equipment was installed in APF’s refineries to produce less-polluted air and water discharges. By 1990 APF was one of 23 oil companies whose assets totalled over $1 billion. The company’s historic trends—expansion, modernization, and volatility with changes in the economic and political spheres—were never more apparent.

The first year of the new decade was the company’s most prosperous to date. Benefiting from deregulation and other market incentives, the company proceeded with its modernization and streamlining of operations. At one of its two refineries (Port Arthur, Texas), a 770,000 pound catalytic cracking unit was assembled, controlled by state-of-the-art computers. With the capacity to refine up to 140,000 barrels of oil daily, the new facility was one of the most modern in the world. Exploration for oil in the new deregulated atmosphere proceeded at a rapid pace, especially in the Terrebonne Parish of Louisiana, which added nearly 21 million barrels of oil to company reserves. A new gasoline product called Genesis, which contained a chemical that would clean dirty engines, had been successfully introduced on the market. Meanwhile, company researchers were developing a method of making clean-burning compressed natural gas available for transportation. APF’s new polystyrene plant was the largest in the United States, and the second-largest in the world; its polypropylene manufacturing facility was the third-largest in the world. Despite increasing environmental regulations, company profits that year were at a new peak: APF’s petrochemical products, including styrene monomer, commanded 10 to 14 percent shares of the U.S. market, while revenues from oil exploration and production and natural gas marketing had increased 39 percent over the previous year.

However, expansion and modernization plans were abruptly upset by the other perennial theme in APF’s history: volatility to major external crises. In August 1990 Iraq invaded Kuwait and the supply of crude oil from the region suddenly was interrupted, sending crude oil prices skyrocketing and nearly wiping out the gains made by APF’s refining and gas-marketing segment the preceding seven months. On August 2 the U.S. government put an embargo on all crude oil supplies emanating from Iraq and Kuwait. APF already had bought 9.5 million barrels of crude oil from both, only half of which became obtainable. Costs of obtaining crude oil from other sources rose precipitously. Sharp public criticism of a steep increase in gasoline prices forced APF and other oil producers to keep the price of gas artificially low. During such crises, APF’s constant streamlining and product diversity paid off: chemical sales remained strong, and crude oil supplies were rapidly secured from other sources, especially Saudi Arabia, in part through APF’s international connections as a member of the Petrofina Group.

While the challenge of the invasion and resulting Persian Gulf War was met successfully, profits and sales from oil and gas had barely recovered when a severe economic recession began. Net earnings fell from a peak of $126 million in 1990 to $42 million in 1991. Natural gas prices continued their plunge, mainly because of warmer winter temperatures. Oil exploration/production and natural gas earnings fell 56 percent, due to the downturn in crude oil and natural gas prices. The normally resilient chemicals sector of the company declined dramatically because of the recession, with earnings falling 35 percent from the previous year. Oil refining/production earnings in turn fell 83 percent from the previous year. On the positive side were the prospects for oil exploration, which promised good future results provided no new oil crisis erupted. Exploratory drilling, on the other hand, declined steeply. Intense competition among oil producers resulting from the public’s pressure to lower gasoline prices led to a downturn in revenues for purveyors of FINA gasoline.

Grim as the financial scenario looked during the recession, CEO Rod Haddock and Chairman of the Board Paul D. Meek initiated some important steps that would bode well for the future. In the spring of 1991, the company changed its name to FINA, Inc. In July 1992 FINA purchased the high-density polyethylene (HDPE) business of the German chemical firm Hoechst-Celanese, located in Bayport, Texas. In part because the international Petrofina Group already was Europe’s second-largest manufacturer of HDPE, the acquisition left FINA poised to become a leader in the HDPE market in America. FINA also planned to license its polypropylene technology internationally. In another lucrative deal, a popular chain of gasoline stations, operating the Good Time stores in the greater El Paso area, contracted to market approximately 26 million gallons of FINA fuel per year.

Nonetheless, the future of the oil production and refinery business of FINA was still volatile and uncertain. Perhaps because of this fact, negotiations proceeded in 1992 for the sale of FINA’s downstream business and hundreds of its service stations to a Saudi Arabian oil firm. The arrangement would form a joint venture between FINA and Arabian Petroleum Company in which the business would be owned by the Saudi Arabian firm but operated by FINA. The more solid and lucrative chemical business would not be included in the Saudi deal. Management predicted the transfer of ownership would radically alter the identity and possibly reduce the size of FINA, but also make it more profitable and competitive in the long run.