Exxon Corporation

5959 Las Colinas Boulevard
Irving, Texas 75039-2298
U.S.A.
Telephone: (972) 444-1000
Toll Free: (800) 252-1800
Fax: (972) 444-1348
Web site: http://www.exxon.com

Public Company
Incorporated: 1882 as Standard Oil Company of New Jersey
Employees: 79,000
Sales: $117.77 billion (1998)
Stock Exchanges: New York Boston Cincinnati Midwest Philadelphia Basel Dusseldorf Frankfurt Geneva Hamburg Paris Zurich
Ticker Symbol: XON
NAIC: 211111 Crude Petroleum & Natural Gas Extraction; 324110 Petroleum Refineries; 324191 Petroleum Lubricating Oil & Grease Manufacturing; 325110 Petrochemical Manufacturing; 447100 Gasoline Stations; 486110 Pipeline Transportation of Crude Oil; 486910 Pipeline Transportation of Refined Petroleum Products; 212110 Coal Mining; 212234 Copper Ore & Nickel Ore Mining; 212299 All Other Metal Ore Mining; 221112 Fossil Fuel Electric Power Generation

As the earliest example of the trend toward gigantic size and power, Exxon Corporation and its Standard Oil forebears have earned vast amounts of money in the petroleum business. The brainchild of John D. Rockefeller, Standard Oil enjoyed the blessings and handicaps of overwhelming power—on the one hand, an early control of the oil business so complete that even its creators could not deny its monopolistic status; on the other, an unending series of journalistic and legal attacks upon its business ethics, profits, and very existence. Exxon became the object of much resentment during the 1970s for the huge profits it made from the OPEC-induced oil shocks. The uproar over the Exxon Valdez oil tanker spill in 1989 put the corporation once more in the position of embattled giant, as the largest U.S. oil company struggled to justify its actions before the public. At the end of the 1990s Exxon stood as the second largest of the world’s integrated petroleum powerhouses—trailing only the Royal Dutch/Shell Group. In addition to its oil and gas exploration, production, manufacturing, distribution, and marketing operations, Exxon was a leading producer and seller of petrochemicals and was involved in electric power generation and the mining of coal, copper, and other minerals. Exxon was also once again making history, through a proposed merger with Mobil Corporation, to create the largest petroleum firm in the world in one of the biggest mergers ever—and to reunite two of the offspring of the Standard Oil behemoth.

Prehistory of 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 already 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 oil fields in the so-called Oil Region. Activity in the oil fields, 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 refiners. 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 strength. In 1869 the young firm allocated $60,000 for plant improvements—an enormous sum of money for that day.

Creation of 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 ten 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 single 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.

Company Perspectives:

Ours is a long-term business, with today’s accomplishments a reflection of well-executed plans set in motion years ago. Likewise, Exxon’s success at building shareholder value in the future is dependent on plans we develop and implement today.

The following strategies have and will continue to guide Exxon as we strive to meet shareholder and customer expectations: identifying and implementing quality investment opportunities at a timely and appropriate pace, while maintaining a selective and disciplined approach; being the most efficient competitor in every aspect of our business; maintaining a high-quality portfolio of productive assets; developing and employing the best technology; ensuring safe, environmentally sound operations; continually improving an already high-quality work force; maintaining a strong financial position and ensuring that financial resources are employed wisely.

The plan was denounced immediately by Oil Region producers and many independent refiners, with near-riots breaking out in the oil fields. 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 dissatisfactions. 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.

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 oil field production in the United States.

1892:

Lawsuit leads to dissolving of the trust; the renamed Standard Oil Company (New Jersey) becomes main vessel of the Standard holdings.

1899:

Jersey becomes the sole holding company for all of the Standard interests.

1906:

Federal government files suit against Jersey under the Sherman Antitrust Act, charging it with running a monopoly.

1911:

U.S. Supreme Court upholds 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.

1946:

A 30 percent interest in Arabian American Oil Company, and its vast Saudi Arabian oil concessions, is acquired.

1954:

Company gains seven percent stake in Iranian oil production consortium.

1972:

Standard Oil Company (New Jersey) changes its name to Exxon Corporation.

1973:

OPEC cuts off oil supplies to the United States.

1980:

Revenues exceed $100 billion because of the rapid increase in oil prices.

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:

Headquarters are moved from Rockefeller Center in New York City to Irving, Texas.

1994:

A federal jury in an Exxon Valdez civil action finds the company guilty of “recklessness” and orders it to pay $286.8 million in compensatory damages and $5 billion in punitive damages.

1997:

Company appeals the $5 billion punitive damage award; it reports profits of $8.46 billion on revenues of $120.28 billion for the year.

1998:

Company agrees to buy Mobil in one of the largest mergers in U.S. history, which would create the largest oil company in the world, Exxon Mobil Corporation.

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 was also 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 threefourths 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 staggering 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 Ltd., 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 had also 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 remained 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 ten 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 seven 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 Ltd. 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 one 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 seven 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.

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 having the verdict overturned—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 Turn of the Century: Exxon 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. Approval from the Federal Trade Commission proved more difficult to come by, as the agency was concerned about major overlap between the two companies’ operations in the Northeast and Mid-Atlantic region. The FTC was likely to force the companies to sell more than 1,000 gas stations in those regions as well as accede to other changes to gain U.S. antitrust approval.

Principal Subsidiaries

Ancon Insurance Company, Inc.; Esso Australia Resources Ltd.; Esso Eastern Inc.; Esso Hong Kong Limited; Esso Malaysia Berhad (65%); Esso Production Malaysia Inc.; Esso Sekiyu Kabushiki Kaisha (Japan); Esso Singapore Private Limited; Esso (Thailand) Public Company Limited (87.5%); Exxon Energy Limited (Hong Kong); Exxon Yemen Inc.; General Sekiyu K.K. (Japan; 50.1%); Esso Exploration and Production Chad Inc.; Esso Italiana S.p.A. (Italy); Esso Standard (Inter-America) Inc.; Esso Standard Oil S.A. Limited (Bahamas); Exxon Asset Management Company (75.5%); Exxon Capital Holdings Corporation; Exxon Chemical Asset Management Partnership; Exxon Chemical Eastern Inc.; Exxon Chemical HDPE Inc.; Exxon Chemical Interamerica Inc.; Exxon Credit Corporation; Exxon Holding Latin America Limited (Bahamas); Exxon International Holdings, Inc.; Esso Aktiengesellschaft (Germany); Esso Austria Aktiengesellschaft; Esso Exploration and Production Norway AS; Esso Holding Company Holland Inc.; Exxon Chemical Antwerp Ethylene N.V. (Belgium); Esso Nederland B.V. (Netherlands); Exxon Chemical Holland Inc.; Exxon Funding B.V. (Netherlands); Esso Holding Company U.K. Inc.; Esso UK pic; Esso Exploration and Production UK Limited; Esso Petroleum Company, Limited (U.K.); Exxon Chemical Limited (U.K.); Exxon Chemical Olefins Inc.; Esso Norge AS (Norway); Esso Sociedad Anonima Petrolera Argentina; Esso Societe Anonyme Francaise (France; 81.54%); Esso (Switzerland); Exxon Minerals International Inc.; Compania Minera Disputada de Las Condes Limitada (Chile); Exxon Overseas Corporation; Exxon Chemical Arabia Inc.; Exxon Equity Holding Company; Exxon Overseas Investment Corporation; Exxon Financial Services Company Limited (Bahamas); Exxon Ventures Inc.; Exxon Azerbaijan Limited (Bahamas); Mediterranean Standard Oil Co.; Esso Trading Company of Abu Dhabi; Exxon Pipeline Holdings, Inc.; Exxon Pipeline Company; Exxon Rio Holding Inc.; Esso Brasileira de Petroleo Limitada (Brazil); Exxon Sao Paulo Holding Inc.; Exxon Worldwide Trading Company; Imperial Oil Limited (Canada; 69.6%); International Colombia Resources Corporation; SeaRiver Maritime Financial Holdings, Inc.; SeaRiver Maritime, Inc.; Societe Francaise EXXON CHEMICAL (France; 99.35%); Exxon Chemical France; Exxon Chemical Poly meres SNC (France).

Principal Divisions

Exxon Company, U.S.A.; Exxon Company, International; Exxon Coal and Minerals Company; Exxon Chemical Company; Exxon Exploration Company.

Principal Competitors

7-Eleven, Inc.; Amerada Hess Corporation; Ashland Inc.; Atlantic Richfield Co.; BP Amoco p.l.c.; Caltex Corporation; Chevron Corporation; Conoco Inc.; Elf Aquitaine; ENI S.p.A.; Mobil Corporation; Norsk Hydro ASA; Occidental Petroleum Corporation; Pennzoil Company; Petroleo Brasileiro S.A.; Petroleos de Venezuela S.A.; Petróleos Mexicanos; Phillips Petroleum Company; RaceTrac Petroleum, Inc.; Repsol-YPF, S.A.; Royal Dutch/Shell Group; Saudi Arabian Oil Company; Sunoco, Inc.; Texaco Inc.; Tosco Corporation; TOTAL FINA S.A.; Ultramar Diamond Shamrock Corporation; Unocal Corporation; USX-Marathon Group; YPF Sociedad Anonima.

Further Reading

Akin, Edward N., Flagler: Rockefeller Partner and Florida Baron, Kent, Ohio: Kent State University Press, 1988.

Beatty, Sally, “Exxon-Mobil Is Marketing Dilemma,” Wall Street Journal, December 3, 1998, p. B11.

Byrne, Harlan S., “Well-Oiled: Exxon Has Shaped Itself into a Nimble—and Even More Formidable—Giant,” Barron’s, May 20, 1996, pp. 17–18.

Caragata, Warren, “Union of Giants: Exxon and Mobil Create a Colossus,” Maclean’s, December 14, 1998, pp. 44–46.

Chernow, Ron, Titan: The Life of John D. Rockefeller Sr. , New York: Random House, 1998.

Cooper, Christopher, “Fears Linger on 10th Anniversary of Exxon Valdez Spill,” Wall Street Journal, March 23, 1999, p. B4.

Cooper, Christopher, and Steve Liesman, “Exxon Agrees to Buy Mobil for $75.3 Billion,” Wall Street Journal, December 2, 1998, p. A3.

Cropper, Carol M., et al., “The Forbes 500’s Annual Directory,” Forbes, April 27, 1992.

“Exxon-Mobil, Total-Petrofina Mergers Slated,” Oil & Gas Journal, December 7, 1998, pp. 37–38, 40–41.

Finch, Peter, “The Business Week 1000,” Business Week, special issue, 1992.

Gibb, George Sweet, and Evelyn H. Knowlton, History of Standard Oil Company (New Jersey): The Resurgent Years, 1911–1927, New York: Harper & Brothers, 1956.

Grabarek, Brooke H., “Exxon: Forget the Valdez, ” Financial World, September 27, 1994, p. 14.

Hedges, Stephen J., “The Cost of Cleaning Up,” U.S. News & World Report, August 30/September 6, 1993, pp. 26–28, 30.

Hidy, Ralph W., and Murrel E. Hidy, History of Standard Oil Company (New Jersey): Pioneering in Big Business, 1882–1911, New York: Harper & Brothers, 1955.

“Inside the Empire of Exxon the Unloved,” Economist, March 5, 1994, p. 69.

Larson, Henrietta M., Evelyn H. Knowlton, and Charles S. Popple, History of Standard Oil Company (New Jersey): New Horizons, 1927–1950, New York: Harper & Row, 1971.

Liesman, Steve, “Exxon Suspends Exploration in Russia,” Wall Street Journal, August 19, 1999, p. A2.

Liesman, Steve, and John R. Wilke, “Exxon and Mobil Get Antitrust Approval in Europe for Their Planned Merger,” Wall Street Journal, September 30, 1999, p. A4.

Longman, Phillip J., and Jack Egan, “Why Big Oil Is Getting a Lot Bigger,” U.S. News & World Report, December 14, 1998, pp. 26–28.

Mack, Toni, “The Tiger Is on the Prowl,” Forbes, April 21, 1997, p. 42.

McCoy, Charles, “Exxon’s Secret Valdez Deals Anger Judge,” Wall Street Journal, June 13, 1996, p. A3.

Nevins, Allan, Study in Power: John D. Rockefeller—Industrialist and Philanthropist, 2 vols., New York: Charles Scribner’s Sons, 1953.

Norman, James R., “A Tale of Two Strategies,” Forbes, August 17, 1992, p. 48.

“Oil Majors Make Tough Decisions on Jobs, Assets,” Chemical Marketing Reporter, July 13, 1992.

Raeburn, Paul, “It’s Time to Put the Valdez Behind Us,” Business Week, March 29, 1999, p. 90.

Richards, Bill, “Exxon Is Battling a Ban on an Infamous Tanker,” Wall Street Journal, July 29, 1998, p. B1.

Rogers, Alison, “The Fortune 500: It Was the Worst of Years,” Fortune, April 20, 1992.

Sampson, Anthony, The Seven Sisters: The Great Oil Companies and the World They Made, New York: Viking, 1975; New York: Bantam, 1991.

Solomon, Caleb, “Exxon Is Told to Pay $5 Billion for Valdez Spill,” Wall Street Journal, September 19, 1994, p. A3.

——, “Exxon Verdict Comes Amid Problems of Old Oil Fields, Few New Prospects,” Wall Street Journal, September 19, 1994, p. A3.

——, “Jury Decides Exxon Must Pay $286.8 Million,” Wall Street Journal, August 12, 1994, p. A3.

——, “Jury Finds Exxon Reckless in Oil Spill,” Wall Street Journal, June 14, 1994, p. A3.

Sullivan, Allanna, “Exxon and Mobil Are Already Devising Their New Brand,” Wall Street Journal, April 6, 1999, p. B4.

Tarbell, Ida M., The History of the Standard Oil Company, New York: Harper & Row, 1966.

Teitelbaum, Richard, “Exxon: Pumping Up Profits,” Fortune, April 28, 1997, pp. 134–36, 140–42.

Wall, Bennett H., Growth in a Changing Environment: A History of Standard Oil Company (New Jersey), New York: McGraw-Hill, 1988.

Wilke, John R., and Steve Liesman, “Exxon, Mobil May Be Forced into Divestitures,” Wall Street Journal, January 20, 1999, p. A3.

—Jonathan Martin and April Dougal

—updated by David E. Salamie

Exxon Corporation

225 East John Carpenter Freeway
Irving, Texas 75062
U.S.A.
(214) 444-1000
Fax: (214) 444-1348

Public Company
Incorporated: 1882 as Standard Oil Company of New Jersey
Employees: 101,000
Sales: $116.49 billion
Stock Exchanges: New York
SICs: 2911 Petroleum Refining; 1311 Crude Petroleum & Natural Gas; 1094 Uranium, Radium & Vanadium Ores

As the earliest example of the trend toward gigantic size and power, Exxon Corporation and its Standard Oil forebears have earned vast amounts of money in the petroleum business. The brainchild of John D. Rockefeller, Standard Oil enjoyed the blessings and handicaps of overwhelming power—on the one hand, an early control of the oil business so complete that even its creators could not deny its monopolistic status; on the other, an unending series of journalistic and legal attacks upon its business ethics, profits, and very existence. The uproar over the Exxon Valdez oil tanker spill in 1989 put the corporation once more in the position of embattled giant, as America’s largest oil company struggled to justify its actions before the public.

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 already 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 rail of newly opened oil fields in the so-called Oil Region. Activity in the oil fields, 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 refiners. 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 by-products, and it was not long before foreign sales became an important part of Rockefeller strength. In 1869 the young firm allocated $60,000 for plant improvements—an enormous sum of money for that day.

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 had already 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 he 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 ten 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 signal 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 immediately denounced by Oil Region producers and many independent refiners, near-riots breaking out in the oil fields. 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. Due to Standard’s great size and the industry’s over-built 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 dissatisfactions. In 1879 nine Standard Oil officials were indicted by a Pennsylvania grand jury for violating state anti-monopoly laws. Though 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 was also expanding rapidly, and in 1888 it founded its first foreign affiliate, Anglo-American Oil Company Limited of London. 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.

The 1890 Sherman Antitrust Act, passed largely 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 staggering 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 of 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 which subsequently kept the Standard name.

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 long-time 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 which 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 was eventually wholly purchased by Jersey. Humble, now known as Exxon Company USA, remained one of the leading U.S. producers of crude oil and natural gas, with drilling rigs in 19 states including Alaska’s Prudhoe Bay, in 1991.

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 Ltd., 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 had also 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. 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 is refined, it is the production of crude that yields the big profits.

Indeed, by mid-century the international oil business had largely become a question of controlling crude oil at its source. With Standard Oil Company and its multinational competitors having built fully vertically integrated organizations, the only leverage remained control of the oil as it came out of the ground. Though 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, Standard Oil was again in need of crude to supply the resurgent economies of Europe. Already the world’s largest producer, Standard Oil 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 Standard Oil and ten percent to Socony-Vacuum in 1946. A few 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 seven 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.

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 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 largely 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 was soon investigating a number of diversification measures which 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 work force substantially to accommodate the drop in revenue without losing profitability.

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 buy-back 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 to be mammoth to warrant the time and energy required.

Exxon is no longer the world’s largest company, nor even the largest oil group—Royal Dutch/Shell took over that position in the 1990—but with the help of the March 24, 1989 Exxon Valdez disaster it has heightened its notoriety. The crash of the Exxon Valdez in Prince William Sound off the port of Valdez, Alaska, released about 260,000 barrels 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. One hundred million dollars of the fine was forgiven and the remaining amount was split between the North American Wetlands Conservation Fund (which received $12 million) and the United States Treasury (which received $13 million). Exxon and a subsidiary, Exxon Shipping Co., were also required to pay an additional $1 billion to restore the spill area.

Since the accident, Exxon has worked to bring environmental issues to the front of its marketing schemes through cleaner burning gasolines, oil recycling programs, and other product improvements.

Although the Valdez disaster was a costly public relations nightmare, Exxon’s financial performance actually improved in the opening years of the last decade in the twentieth 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, with a value of $69 million.

The company’s performance was especially dramatic when compared to 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.

Like many of its competitors, Exxon has been forced to trim expenses in order to maintain such outstanding profitability. One of the favorite methods in recent years has been 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 one percent of revenues, and played a large part in Exxon’s good financial performance. But some fuel industry observers warn that such drastic cuts overlook the competition’s search for new oil reserves. Royal Dutch/Shell spent almost twice as much as Exxon on exploration over the same period. In the event of an international crisis that cut off oil supplies, would Exxon be prepared to fill the gap? With ten percent of the United States’ petroleum reserves, Exxon is confident of its future.

Principal Subsidiaries

Esso Aktiengesellschaft (Germany); Esso Eastern Inc.; Esso Australia Resources Ltd.; Esso Exploration and Production Norway Inc.; Esso Holding Company Holland Inc.; Esso Holding Company U.K. Inc.; Esso Italiana S.P.A. (Italy); Esso Norge a.s. (Norway); Esso Sociedad Anónima Petrolera Argentina; Esso Société Anonyme Francaise (France; 81.548%) Esso Standard Oil S.A. Limited (Bahamas); Exxon Capital Holdings Corporation; Exxon Insurance Holdings, Inc.; Exxon Overseas Corporation; Exxon Rio Holding Inc.; Exxon San Joaquin Production Company; Exxon Yemen Inc.; Imperial Oil Limited (Canada, 69.56%); International Colombia Resources Corporation (100%); Societe Francaise Exxon Chemical (France, 98.64%); Exxon Engergy Ltd.; Esso Production Malaysia Inc.; Esso Sekiyu Kabushiki Kaisha; Esso Singapore Private Ltd.; Exxon Chemical Trading Inc.; Friends-wood Development Co.

Further Reading

Nevins, Allan, Study in Power: John D. Rockefeller —Industrialist and Philanthropist, 2 vols., New York, Charles Scribner’s Sons, 1953; Hidy, Ralph W., and Murrel E. Hidy, History of Standard Oil Company (New Jersey): Pioneering in Big Business, 1882-1911, New York, Harper & Brothers, 1955; Gibb, George Sweet, and Evelyn H. Knowlton, History of Standard Oil Company (New Jersey): The Resurgent Years, 1911-1927, New York, Harper & Brothers, 1956; Larson, Henrietta M., Evelyn H. Knowlton, and Charles S. Popple, History of Standard Oil Company (New Jersey): New Horizons, 1927-1950, New York, Harper & Row, 1971; Sampson, Anthony, The Seven Sisters: The Great Oil Companies and the World They Made, New York, The Viking Press, 1975; Wall, Bennett H., Growth in a Changing Environment: A History of Standard Oil Company (New Jersey), New York, McGraw-Hill, 1988; Rogers, Alison, “The Fortune 500: It Was the Worst of Years,” Fortune, April 20, 1992; Cropper, Carol M. et al., “The Forbes 500’s Annual Directory,” Forbes, April 27, 1992; Finch, Peter, “The Business Week 1000,” Business Week, special issue, 1992; “Oil Majors Make Tough Decisions on Jobs, Assets,” Chemical Marketing Reporter, July 13, 1992; Norman, James R., “A Tale of Two Strategies,” Forbes, August 17, 1992.

—Jonathan Martin

updated by April Dougal

Exxon Corporation

225 East John Carpenter Freeway
Irving, Texas 75062
U.S.A.
(214) 444-1000
Fax: (214) 444-1348

Public Company
Incorporated: 1882 as Standard Oil Company of New Jersey
Employees: 104,000
Sales: $116.94 billion
Stock Exchange: New York

As the earliest example of that trend toward gigantic size and power, Exxon Corporation and its Standard Oil forebears have earned vast amounts of money. The child of John D. Rockefeller, Standard Oil enjoyed the blessings and handicaps of overwhelming power—on the one hand, an early control of the oil business so complete that even its creators could not deny its monopolistic status; on the other, an unending series of journalistic and legal attacks upon its business ethics, profits, and very existence. The uproar over the Exxon Valdez in 1989 put the corporation once more in the position of embattled giant, as America’s third-largest company struggled to justify its actions before the public.

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 seems to have 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 venture similar to Hewitt & Tuittle, Clark & Rockefeller, merchants handling the purchase and resale of grain, meat, farm implements, salt, and other basic commodities. Although still very young, Rockefeller had already 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 raft of newly opened oil fields in the so-called Oil Region. Activity in the oil fields, 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 replacing 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, in 1865 Rockefeller bought them out for $72,000 and created the new firm of Rockefeller & Andrews, already Cleveland’s largest oil refiners. 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. The demand for oil continued to explode, Cleveland handled the lion’s share of Pennsylvania crude, and 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, had opened a New York office to encourage the rapidly growing export of kerosene and oil by-products, and it was not long before foreign sales became an important part of Rockefeller strength. As an indication of the latter, in 1869 the young firm allocated $60,000 for plant improvements alone—an enormous sum of money for that day.

The early years of the oil business were marked by tremendous swings in the production, and hence the price, of both crude and refined oil. With a flood of newcomers entering the field every day, size and efficiency had already become critically important for survival, and as the biggest refiner, Rockefeller was in a better position than anyone to weather the price storms. Rockefeller and Henry Flagler, with whom he enjoyed a long and harmonious business relationship, decided to incorporate their firm as a means to raise the capital needed to enlarge it still 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% 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 signal 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, and 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 immediately denounced by Oil Region producers and many independent refiners, near-riots breaking out in the oil fields. 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 of their own, its aim a solution to 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 one after another of the Cleveland refiners, and a number of important firms in New York and elsewhere as well with an offer of Standard Oil stock or cash in exchange for their often-ailing plants. By the end of 1872 all 34 other refiners in the area had agreed to sell, some freely and for profit, and some, competitors alleged, under coercion. Due to Standard’s great size and the industry’s overbuilt capacity, Rockefeller and Flagler were in a position to make their competitors offers they could not refuse. 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, and had begun 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 that much harder for Rockefeller’s next target to refuse his cash, for the 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, and its subsequent absorption of the refining industry was not calculated to mend its image among the few remaining independents and the mass of oil producers. The latter, still unable to curb excess drilling, found in Standard a natural target for their wrath when the price of crude dropped precipitously in the late 1870s. From the welter of conflicting testimony it is difficult to determine the causes of producers’ failing fortunes, but it is clear that given Standard’s extraordinary position in the oil industry it was feted to become the target of any and all dissatisfactions. In 1879 nine Standard Oil officials were indicted by a Pennsylvania grand jury for violating state antimonopoly laws. Though 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 its 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 easily the largest number of shares. Together the trust’s 30 companies controlled 80% of the refineries and 90% of the oil pipelines in the United States and constituted 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 securing a quarter of the country’s total output, most of it in the new regions of Indiana and Dlinois. Standard’s overseas business was also expanding rapidly, and in 1888 it founded its first foreign affiliate, Anglo-American Oil Company Limited of London. 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.

The 1890 Sherman Antitrust Act, passed largely 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 by any measure the leading Standard unit, but it was not until 1899 that it 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, in fact, 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 staggering 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 from oil well to housewife, including housewives as far away as Romania, Standard Oil piled up huge profits—$830 million in the 12 years from 1899 to 1911. In relative terms, its domination of the U.S. industry was steadily decreasing, by 1911 its percentage of total refining was down to 66% from the 90% of a generation before; but in absolute terms Standard Oil had grown to monstrous proportions. It was therefore 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 which subsequently kept the Standard name.

To Standard Oil Company (New Jersey) remained an equal number of smaller companies spread around the United States and overseas which, taken together, represented $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. Notably 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.

President of Standard Oil (New Jersey) remained John D. Archbold, a long-time intimate of the elder Rockefeller, whose Standard service had begun in 1879. 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, and in reality 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% of the Humble Oil & Refining Company of Houston, Texas, a young but rapidly growing network of Texas producers which 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 all of the United States, and was eventually wholly purchased by Jersey. Humble, now known as Exxon Company USA, remained one of the leading U.S. producers of crude oil and natural gas, with drilling rigs in 19 states including Alaska’s PrudhoeBay, in 1991.

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 easily the largest crude producer in the Jersey group, and also the most profitable Jersey company of any kind. In 1946, for example, 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 alone 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, mainly marketers, showed substantial sales of $283 million but seta 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; and 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, largely to a handful of mid-Atlantic states and such others as Jersey could later gain access to, whereas the company’s overseas affiliates were well entrenched and highly profitable. Jersey’s Canadian affiliate, Imperial Oil Ltd. 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 had also 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. 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 to power ships and industrial plants and as a substitute for coal. 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 once again that, regardless of the end products into which oil is refined, it is the production of crude that yields the big profits.

Indeed, by mid-century the international oil business had largely become a question of controlling crude oil at its source. With Standard Oil Company and its multinational competitors having built fully vertically integrated organizations, the only leverage remained control of the oil as it came out of the ground. Though 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, Standard Oil was again in need of crude to supply the resurgent economies of Europe. Already the world’s largest producer, Standard Oil became interested in the vast oil concessions in Saudi Arabia recently won by Texaco and Socal. The latter companies were in need of both capital for expansion and world markets for exploitation, and in 1946 they sold 30% of the newly formed Arabian American Oil Company (Aramco) to Standard Oil and 10% to Socony-Vacuum. A few 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% 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.

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) and a series of increasingly bitter confrontations between countries and companies over who should control the oil upon which the world had come to depend. The growing power of OPEC prompted Jersey to seek alternative sources of crude, resulting 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% price increase permanently changed the industrial world’s attitude to oil, as well as inducing a prolonged recession. Control of the oil was largely taken out of the hands of the oil companies, which began exploring new sources of energy and business opportunities in other fields.

For Standard Oil Company (New Jersey), which had changed it name to Exxon in 1972, the oil embargo had several major effects. Most obviously it increased corporate sales, the expensive oil allowing Exxon to double its 1972 revenue of $20 billion in only two years and then pushing 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 was soon investigating a number of diversification measures which 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 an estimated $6 billion to $7 billion and no end of frustration.

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 but its confidence rose 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 work force substantially to accommodate the drop in revenue without losing profitability.

It 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 buy-back was partially in response to Exxon’s embarrassing failure to invest its excess billions profitably, at which point 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 oil would have to truly be mammoth to warrant the time and energy required.

Exxon is no longer the world’s largest company, nor even the largest oil group—Royal Dutch/Shell took over that position in the 1980s—but with the help of the 1989 Exxon Valdez disaster it has heightened its notoriety. The crash of the Exxon Valdez on March 24, 1989, in Prince William Sound off the port of Valdez, Alaska, released about 260,000 barrels of crude oil into the sound. 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. In the long run, however, it is likely that Exxon will view the Valdez disaster as a small blemish on its muscular balance sheet.

Principal Subsidiaries

Esso Aktiengesellschaft (Germany); Esso Eastern Inc.; Esso Australia Resources Ltd.; Esso Exploration and Production Norway Inc.; Esso Holding Company Holland Inc.; Esso Holding Company U.K. Inc.; Esso Italiana S.P.A. (Italy); Esso Norge a.s. (Norway); Esso Sociedad Anonima Petrolera Argentina; Esso Societe Anonyme Francaise (France; 81.548%) Esso Standard Oil S.A. Limited (Bahamas); Exxon Capital Holdings Corporation; Exxon Gas System, Inc.; Exxon Insurance Holdings, Inc.; Exxon Overseas Corporation; Exxon Rio Holding Inc.; Exxon San Joaquin Production Company; Exxon Trading Company International; Exxon Yemen Inc.; Imperial Oil Limited (Canada, 69.56%); International Colombia Resources Corporation (100%); Societe Francaise Exxon Chemical (France, 98.64%).

Further Reading

Nevins, Allan, Study in Power: John D. Rockefeller—Industrialist and Philanthropist, 2 vols., New York, Charles Scribner’s Sons, 1953; Hidy, Ralph W., and Murrel E. Hidy, History of Standard Oil Company (New Jersey): Pioneering in Big Business, 1882-1911, New York, Harper & Brothers, 1955; Gibb, George Sweet, and Evelyn H. Knowlton, History of Standard Oil Company (New Jersey): The Resurgent Years, 1911-1927, New York, Harper & Brothers, 1956; Larson, Henrietta M., Evelyn H. Knowlton, and Charles S. Popple, History of Standard Oil Company (New Jersey): New Horizons, 1927-1950, New York, Harper & Row, 1971; Sampson, Anthony, The Seven Sisters: The Great Oil Companies and the World They Made, New York, The Viking Press, 1975; Wall, Bennett H., Growth in a Changing Environment: A History of Standard Oil Company (New Jersey), New York, McGraw-Hill, 1988.

—Jonathan Martin

Oil Spills

Characteristics of petroleum

Oil pollution

Ecological damages of oil spills

Resources

Petroleum is an important natural resource that is often produced in places far away from the regions where most of its consumption occurs. Accordingly, petroleum must be transported in large quantities, mostly by oceanic tankers, barges on inland waters, and both subsea and overland pipelines. Any of these transportation systems can release pollution through spills of oil, by operational discharges associated with cleaning of the storage tanks of tankers, or during unloading at refineries. Some accidental oil spills have been spectacular in their magnitude and their near-term ecological impact, involving losses of huge quantities of petroleum from wrecked supertankers or offshore platform facilities.

Oil pollution can also be caused by discharges of improperly handled hydrocarbon-laden waste water from petroleum refineries and in urban runoff. Although individual spills typically involve relatively small amounts of oil, frequent small spills can release a large amount of oil into the environment.

Characteristics of petroleum

Petroleum is a naturally occurring mixture of organic chemicals, the most abundant of which are hydrocarbons (molecules containing only hydrogen and carbon atoms). Petroleum is synthesized from biomass by complex, anaerobic reactions occurring at high pressure and temperature over long periods of time deep in sedimentary geological formations. Petroleum can occur as a liquid known as crude oil, which may also contain natural gas, and also as a semi-solid tar or asphalt in oil sands and shales. There are hundreds of molecular species in petroleum, ranging from gaseous methane with only 16 g/mole, to very complex substances weighing more than 20,000 g/mole.

Petroleum differs in its physical and chemical characteristics from deposit to deposit. Some crude oils are thick and viscous, while others are light and volatile. The lighter fractions of petroleum evaporate relatively quickly when spilled into the environment. This leaves behind residues of relatively heavy molecules that are more persistent in terrestrial or aquatic habitats, and cause longer-lasting effects.

Oil pollution

The total spillage of petroleum into the oceans through human activities is estimated to range from about 0.7-1.7 million tons (0.6-1.5 million tons) per year, equivalent to less than 0.1% of the quantity of petroleum transported by tankers. In comparison, the production of hydrocarbons by marine plankton is about 28.7 million tons (26 million tons)/year. These natural hydrocarbons contribute to background concentrations in the oceans, but they are well dispersed and not associated with ecological damage or pollution. In addition, natural oil seeps contribute about 6-13% of the total petroleum input to the oceans, sometimes causing local damage.

The largest and most consequential oil spills of petroleum or heavy bunker fuel come from disabled oceanic tankers or drilling platforms, from barges or ships on inland waters, or from blowouts of wells or damaged pipelines. Damage is also caused by the relatively frequent spills and operational discharges associated with coastal refineries and urban runoff. Large quantities of oil are also spilled when tankers clean out the petroleum residues from their huge storage compartments, often discharging the oily bilge washings directly into the ocean.

Some examples of disastrous oil spills include the following accidents involving oceanic supertankers: (1) the Prestige, which split in half off Galicia, Spain in November 2002, spilling about 67,000 tons (61,000 metric tons) of crude oil; (2) the Torrey Canyon, which ran aground in 1967 off southern England, spilling about 129,000 tons (117,000 metric tons) of crude oil; (3) the Metula, which wrecked in 1973 in the Strait of Magellan and spilled 58,000 tons (53,000 metric tons) of petroleum; (4) the Amoco Cadiz, which went aground in the English Channel in 1978, spilling 253,000 tons (230,000 metric tons) of crude oil; (5) the Exxon Valdez, which ran onto a reef in Prince William Sound in southern Alaska in 1989 and discharged 39,000 tons (35,000 metric tons) of petroleum; and (6) the Braer, which spilled 93,000 tons (84,000 metric tons) of crude oil off the Shetland Islands of Scotland in 1993. All of the tankers involved were of the older single hull design. Such occurrences should decrease with the advent of double-hulled tankers.

Significant oil spills have also occurred from offshore drilling or production platforms as the result of mechanical or operational failure. In 1979 the IXTOC-I exploration well had an uncontrolled blowout that spilled more than 551,000 tons (500,000 metric tons) of petroleum into the Gulf of Mexico. Smaller spills include one that occurred in 1969 off Santa Barbara in southern California, when about 11,000 tons (10,000 metric tons) were discharged, and the Ekofisk blowout in 1977 in the North Sea off Norway, which totaled 33,000 tons (30,000 metric tons) of crude oil.

A leak from a hole in an oil pipeline at Prudhoe Bay, Alaska, is estimated to have released between 200,000 and 300,000 gallons of crude oil in early 2006. Discovery and cleanup of the spill were complicated by the fact that the pipeline is heavily insulated, and oil may have been leaking into the insulation surrounding the pipe for some time. Sub-zero temperatures made repairs, in which a steel sleeve was place around the pipeline and welded into place, and cleanup difficult. Later that year, the discovery of extensive corrosion in the 30-year old Prudhoe Bay pipeline system, which sends oil to the Trans Alaskan Pipeline, led to a complete shutdown of that oilfield while 16 miles of the 22 mile long pipeline were replaced. Corrosion in oilfield pipelines can be monitored using tools known as smart pigs, which are computerized tools run through the pipeline to assess its condition. At the time of the shutdown, the Prudhoe Bay oil field produced about 400,000 gallons of oil per day, or about 8% of the United States daily consumption. One of the immediate results of the reduction in oil production, which was compounded by other events such as the U.S. occupation of Iraq and political instability in such oil producing countries as Nigeria, was an increase in oil prices to record levels.

Enormous quantities of petroleum have also been released during warfare. Because petroleum and its refined products are important economic and industrial commodities, enemies have commonly targeted tankers and other petroleum-related facilities during wars. For example, during World War II German submarines sank 42 tankers off the east coast of the United States, causing a total spillage of about 460,000 tons (417,000 metric tons) of petroleum and refined products. There were 314 attacks on oil tankers during the Iran-Iraq War of 1981–1987, 70% of them by Iraqi forces. The largest individual spill during that war occurred when Iraq damaged five tankers and three production wells at the offshore Nowruz complex, resulting in the spillage of more than 287,000 tons (260,000 metric tons) of petroleum into the Gulf of Arabia. Sabotage of pipelines and petroleum facilities was also common in the post-2001 U.S. led invasion of Iraq, during which insurgents frequently attacked oil pipelines. The amount of oil that leaked into the environment as a result of the attacks is unknown. An Israeli air attack on an oil-fired power plant in Lebanon released about 15,000 tons of oil into the Mediterranean Sea during the 2006 Hezbollah-Israel conflict, causing extensive environmental damage.

The largest-ever spill of petroleum into the marine environment occurred during the 1991 Gulf War. In that incident, Iraqi forces deliberately released an estimated 0.6-2.2 million tons (0.5-2 million tons) of petroleum into the Persian Gulf from several tankers and an offshore tanker-loading facility known as the Sea Island Terminal. An additional, extraordinarily large spill of petroleum to the land and atmosphere also occurred as a result of the Gulf War, when more than 700 production wells in Kuwait were sabotaged and ignited by Iraqi forces in January 1991. The total spillage of crude oil was 46–138 million tons (42–126 million tons). Much of the spilled petroleum burned in atmospheric conflagrations, while additional amounts accumulated locally as lakes of oil, which eventually contained 5.5–23 million tons (5–21 million tons) of crude oil. Enormous quantities of petroleum vapors were dispersed to the atmosphere. About one-half of the free-flowing wells were capped by May, and the last one in November 1991.

After oil is spilled into the environment, it dissipates in a number of ways. Spreading refers to the process by which spilled petroleum moves and disperses itself over the surface of water. The resulting slick can then be transported by currents and winds. The rate and degree of spreading are affected by the viscosity of the oil, wind speed, and turbulence of the water surface. Evaporation is important in the initial reduction of the volume of an oil spillage, especially of relatively light and volatile hydrocarbon fractions. Evaporation typically accounts for almost 100% of spilled gasoline at sea, 30-50% of spilled petroleum, but only 10% of bunker fuel. Solubilization occurs when some fractions of the spilled oil dissolve into the water column, causing a contamination of subsurface waters in the vicinity of the oil spill. For example, beneath a petroleum slick in the North Sea the concentration of hydrocarbons in water was 4 g/m³(ppm), compared with about 1 mg/m³ (ppb) in uncontaminated seawater. Lighter hydrocarbon fractions of petroleum are much more soluble in water than heavier ones, and aromatics are much more soluble than alkanes. (Aromatic hydrocarbons such as benzene and naphthalene have an unsaturated ring structure, while alkanes such as octane have a linear structure.) In addition, some of the spilled hydrocarbons are slowly oxidized by ultraviolet radiation and microorganisms into simpler compounds, ultimately to carbon dioxide and water.

The combined influences of solubilization, evaporation, and oxidation are known as weathering. Weathering preferentially removes the lighter hydrocarbon fractions, leaving a residual material made up of relatively heavy hydrocarbons. Over the shorter term in aquatic environments, this residuum forms a stable water-in-oil emulsion known as mousse, which is the material that usually impacts shorelines after an offshore spill. The mousse combines with sediment particles on the shore to form sticky patties of oil and sand, which eventually form asphaltic lumps.

At sea, weathering of the mousse eventually results in the formation of a dense, semi-solid, asphaltic residuum known as tar balls. In the vicinity of frequently traveled tanker routes worldwide, tar balls can be commonly found floating offshore and on beaches. Tar balls are especially common in places where the oceanic circulation resembles a surface vortex. A well known example of this phenomenon is the oceanic gyre known as the Sargasso Sea, famed for its accumulations of natural debris such as floating seaweed, as well as such human debris as tar balls.

Ecological damages of oil spills

Even small oil spills can cause important changes in ecologically sensitive environments. For example, a small discharge of oily bilge washings from the tanker Stylis during a routine cleaning of its petroleum-storage compartments caused the deaths of about 30,000 seabirds, because the oil was spilled in a place where the birds were abundant. Even relatively small operational spillages of petroleum can have significant though, perhaps temporary, ecological impact, especially to seabirds and marine mammals. An ecosystem is dynamic—ever changing—and continues its natural cycles and fluctuations at the same time that it struggles with the impact of spilled oil. As time passes, separating natural change from oil-spill impacts becomes more and more difficult.

Studies made after large oceanic spills have shown that the ecological damage can be intense. After the Torrey Canyon spill in 1967, hundreds of kilometers of the coasts of southern England and the Brittany region of France were polluted by oily mousse. The oil pollution caused severe ecological damage, due to the physical and toxic effects of fouling of organisms with petroleum residues. Those direct ecological damages were made much worse by some of the cleanup methods, because of the highly toxic detergents and dispersants that were used. As is the case with many oil spills, seabirds were victims of the Torrey Canyon incident. This accident caused the deaths of at least 30,000 birds, causing a substantial decrease in their breeding populations in subsequent years.

The damage caused by detergents and dispersants during the cleanup of shorelines polluted by the Torrey Canyon spill were an important lesson. Subsequent cleanups used less toxic chemicals. In addition, their use became largely restricted to offshore locations and places of high value for industrial or recreational purposes, rather than natural habitats.

In 1978, the Amoco Cadiz was wrecked in the same general area as the Torrey Canyon. Considerable ecological damage was also caused by this accident. However, the damage was less intense than that caused by the Torrey Canyon because less-toxic detergents and dispersants were used during the cleanup, in much smaller quantities, and only in high-value places such as harbors.

The most damaging oil spill ever to occur in North American waters was the Exxon Valdez accident of 1989. It was caused when an intoxicated captain gave temporary command of the supertanker to a subordinate, who erred in his navigation and ran the ship aground on a reef. The spilled oil affected about 1,200 mi (1,900 km) of shoreline of Prince William Sound and its vicinity, causing ecological damages in tidal and subtidal habitats. Large numbers of sea mammals and birds were also affected in offshore waters. An estimated 5,000-10,000 sea otters (Enhydra lutris ) were present in Prince William Sound, and at least 1,000 of these charismatic mammals were killed by oiling. About 36,000 dead seabirds of various species were collected from beaches and other places, but the actual number of killed birds was probably in the range of 100,000-300,000 birds. At least 153 bald eagles (Haliaeetus leucocephalus ) died from poisoning when they scavenged the carcasses of oiled seabirds.

Great efforts were expended in cleaning up the oiled shoreline, almost entirely using manual and physical methods, rather than dispersants and detergents. In total, about 11,000 people participated in the cleanup, and about $2.5 billion was spent by the ship owners and $154 million by the U.S. federal government. This was by far the most expensive cleanup that has ever been undertaken after an oil spill. Within a year of the spill, the combined effects of the cleanup and winter storms had removed most of the residues of the Exxon Valdez spill from the environment. However, in August 2002 the Exxon Valdez Trustee Council released a report stating that while it is clear that many fish and wildlife species injured by the spill have not fully recovered, it is less clear what role oil plays in the inability of some populations to recover. Bald eagles, black oystercatchers, common murre, pink salmon, river otters and sockeye salmon have recovered. Wilderness area intertidal communities, killer whale, marbled murrelet, sea otters, clams and sediments are recovering but the common loon, three species of cormorants, harbor seals, harlequin duck,

KEY TERMS

Bilge washings —Hydrocarbon-contaminated water that results from cleaning of the petroleum-holding compartments of a tanker, and that may be discharged to the environment.

Bunker fuel —A relatively viscous, liquid hydrocarbon mixture, also known as bunker-C fuel oil, that remains after lighter hydrocarbons are distilled from petroleum during refining. Bunker C is used as a fuel by oil-fired generating stations, heating plants, and ships.

Detergent —A chemical used as a cleaning agent because it encourages the formation of an oil-in-water emulsion.

Dispersant —A chemical agent that reduces the surface tension of liquid hydrocarbons, encouraging the formation of an oil-in-water emulsion. This reduces the volume of residual oil on shorelines or the water surface after a spill.

Mousse —A water-in-oil emulsion that is formed by turbulence of the surface water after a petroleum spill to the aquatic environment.

Petroleum —A naturally occurring, liquid mixture of hydrocarbons that is mined and refined for energy and the manufacturing of chemicals, especially plastics. Also known as crude oil.

Pacific and pigeon guillemot have shown little or no recovery.

See also Fossil fuels.

Resources

BOOKS

Wang, Z. and S. Stout. Oil Spill Environmental Forensics: Fingerprinting and Source Identification. Burlington, Mass.: Elsevier, 2006.

Bill Freedman

William J. Engle

Exxon Corporation

founded: 1882

Contact Information:

headquarters: 5959 las colinas blvd. irving, tx 75039-2298 phone: (972)444-1000 fax: (972)444-1882 url: http://www.exxon.com

OVERVIEW

Exxon stands as the number three company in the United States after General Motors and Ford, according to Fortune 500, and the number two oil and gas producer in the world. It owns 4 U.S. refineries and 8,500 gas stations. It also runs 31 refineries in 17 countries and is involved in selling and producing petrochemicals, and mining coal and other minerals.

The 1989 "Exxon Valdez" oil tanker spill in Prince William Sound, Alaska, caused the company financial headaches after being levied a punitive damages fine of $5 billion. Recovering from that disaster, the company has been looking to expand its power generation business in China. It also has been sinking massive funds into its refining and retail businesses in the Asia/Pacific region, while expanding operations in Japan, Malaysia, Singapore, and Thailand.

COMPANY FINANCES

Exxon had over $135 billion in sales as of fiscal year end 1997 (December). Gross profit was $43 billion for 1997, up from just under $41 billion in 1996 and $40 billion in 1995. The gross profit margin was 35.8 percent in 1997, 35.1 percent in 1996, and 37.2 percent in 1995. Total net income was $8.46 billion for 1997, up from $7.51 billion in 1996, and $6.47 billion in 1995. Sales of $135.0 billion in 1997 compare with $131.5 billion in 1996, $121.8 billion in 1995, $112.0 billion in 1994, and $109.5 billion in 1993. High price per share averaged $67.25 for fiscal year 1997, while the average low price for the same period was $48.25. This compares with an average high price of $48.25 per share for 1996 and an average low of $38.81. As of June 8, 1998, the stock closed at $71.19. There were 642,466 holders of record of Exxon common stock as of January 31, 1998.

ANALYSTS' OPINIONS

In 1997 analysts predicted that Exxon would increase dividends at a faster rate than the annual 2 percent forecast for S&P (Standard & Poors) companies over the next three years. In fact, Exxon exceeded the return on the S&P 500 with a total return of 26 percent in 1996 and 74 percent over two years. Analyst Paul Ting of Salomon Brothers noted, "These are the kinds of returns other companies have been targeting for years." Analyst John Hervey of Donaldson, Lufkin, & Jenrette said, "The company offers one of the best and most consistent return records in the oil industry." Exxon's U.S. refining operation earned $57 million in 1997, gaining 43 percent and exceeding the S&P 500, which was 29 percent. Analyst Paul Ting said he believed the company's stock would reach an all-time high, perhaps reaching into the high $60 range. That prediction has already come true, as Exxon stock reached over $70 per share in June 1998. According to Zack's, brokers recommended buying or holding Exxon stock.

Much of the controversy surrounding the Exxon Corporation has not been its financial condition, but rather its handling of the Exxon Valdez oil spill. The 1989 mishap resulted in a $5-billion fine. The National Transportation Safety Board found that the cause of the spill was neglect of the third mate to appropriately manipulate the ship due to extreme exhaustion and his heavy workload. The cause was also due to the intoxication of the master on board. The controversy surrounding the case has largely been due to the company's attempts to compensate seafood processors in Alaska with $70 million. Publicly announcing its good faith gesture, Exxon was later rebuked by U.S. District Judge H. Russel Holland when it was discovered the company required the Alaskan businesspeople to give back any compensation they might win in court. He ruled that Exxon would not be allowed to receive any of the punitive damages funds, which meant Exxon would lose a total of $700 million. Due to an appeal announced in February 1997 by Exxon, no damage funds have been paid as of mid-1998.

HISTORY

After forming the Standard Oil company in 1870, John D. Rockefeller created the Standard Oil Trust, which enabled the firm to establish new, independent companies in various states by dissolving existing Standard Oil associates. The Supreme Court, however, ordered these companies to be split into 34 entities since the Trust owned 90 percent of the petroleum industry. One of the split companies was New Jersey's Standard Oil (Jersey Standard). When Walter Teagle was president of Jersey Standard in 1917, he quietly bought half of Humble Oil of Texas and moved operations into South America. The company also participated in the Red Line Agreement in 1928, which designated most Middle East oil to selected companies. Other overseas ventures included the 1948 purchase of a 30-percent ownership in Arabian American Oil Company along with a 7-percent interest of Iranian production purchased in 1954. These two moves deemed Jersey Standard the biggest oil company in the world. When oil companies still using the Standard Oil name protested Jersey Standard's use of the name Esso, the company became Exxon in 1972. This change cost the company $100 million.

Other financial difficulties hit Exxon after the oil crisis of the 1970s, which quickly reduced its oil reserves. Exxon was hit hard again in 1989 when the Valdez oil tanker spilled 11 million gallons of oil into Alaskan waters. Shoveling out billions in cleanup costs, the company was called "reckless" by a federal jury in Alaska. The 1990s were characterized mostly by expansion for the Exxon Corporation. The Natuna gas field was developed after Exxon and Pertamina, the Indonesia state oil company, agreed to terms. The company also agreed to a $15-billion development of three oil and natural gas fields near Sakhalin Island in Russia, and was able to entertain further expansion plans after it announced a large oil discovery in the Gulf of Mexico in 1996.

STRATEGY

In 1997 Exxon's chairman, Lee Raymond, referred to the company's strategy in Forbes as "the relentless pursuit of efficiency." Reducing operating costs and focusing on return on capital have been core strategies for the company. Exxon's exploration and production businesses have revolved around the following strategies as well: to make existing oil and gas production sites as profitable as possible, to invest only in projects that produce returns, and to profit from strengthening natural gas markets.

Exxon's refining and marketing businesses have had strategies of their own. One ingredient has been the expansion in profitable, growing markets, like Asia-Pacific, eastern Europe, and Latin America. A second strategy involved the company's restrictions on refining investments in markets that do not produce high growth. A third element has been the company's constant efforts to lower operating expenses and to refine production. Lastly, Exxon has aimed to remain focused on research investment activities.

INFLUENCES

Although Exxon has filed an appeal to $5 billion in damages assessed against it for the Valdez oil spill, the company has stored away that amount in case the appeal is lost. Additionally, falling oil prices may cause Exxon to cut its prices, which should eventually result in lower profits. Energy demand is decreasing, partially because of the unusually mild winters, while at the same time, oil supplies are increasing. Exxon estimates that crude oil use in Asia is going to increase dramatically, perhaps to exceed the combined use of crude oil in the United States and Europe; as a result, the company is pursuing expansion efforts in the Asian market, including developing a $2-billion petrochemical facility in Singapore. The facility is expected to be operable by 2000.

FAST FACTS: About Exxon Corporation

Ownership: Exxon Corporation is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: XON

Officers: Lee R. Raymond, Chmn., Pres. & CEO, 59, $3,250,000; Robert E. Wilhelm, Sr. VP, 57, $1,307,001; Harry J. Longwell, Sr. VP, 56, $1,280,001

Employees: 80,000 (1997)

Principal Subsidiary Companies: Exxon's chief subsidiaries include: Natuna gas field (50–percent ownership); Exxon China, Inc.; Exxon Coal and Minerals Company; Exxon Company, International; Exxon Company, U.S.A.; Exxon Computing Services Company; Exxon Exploration Company; Exxon Production Research Company; Exxon Research and Engineering Company; Exxon Upstream Technical Computing Company; Exxon Upstream Development Company; Exxon Ventures Inc. (CIS); Exxon Chemical Company; Imperial Oil Limited; SeaRiver Maritime Financial Holdings

Chief Competitors: Some of Exxon's primary competitors are: Amerada Hess; Amoco; Ashland; ARCO; British Petroleum; Broken Hill; Caltex Petroleum; Chevron; Dow Chemical; Eastman Chemical; Elf Aquitaine; FINA; Huntsman; Imperial Oil; Koch; Mobil; Norsk Hydro; Occidental; PDVSA; PEMEX; Pennzoil; Petrobras; Phillips Petroleum; Royal Dutch/Shell; Sun; Texaco; Tosco; Total; and Union Carbide.

CURRENT TRENDS

Formerly, Exxon stayed away from large investments in liquefied natural gas (LNG). As of 1997, however, the company began pursuing LNG projects in Yemen and Indonesia. It also developed natural gas fields in Russia. Still recovering from a marred reputation after the Valdez disaster, the company launched a request to be allowed back into the same Alaskan waters it polluted in 1989, Prince William Sound. The ship, now renamed the SeaRiver Mediterranean, was prohibited from entering the waters after the spill by the Oil Pollution Act. The company's motivation for such a request stemmed from the fact that it was losing money operating the ship in Europe and Egypt, where less expensive ships are readily available.

Another strategic move by Exxon has been the introduction of its Tiger Express retail stores. The first store was opened in Houston, where Tiger Express offers customers a one-stop gas station shopping experience. Employees wear khaki pants and specially designed polo shirts. Other conveniences include a Taco Bell Express drive-thru, a Check Express check-cashing service, a service that allows customers to pay at the pumps, indoor bathroom facilities, diaper changing tables in men's and women's restrooms, and recorded music playing at the pumps and inside the store.

PRODUCTS

Exxon's primary products are oil and gas, however, its chemical division also manufactures and sells plastics, synthetic rubbers, performance fluids, plasticizers, basic chemical building blocks, and lubricant and fuel additives.

CORPORATE CITIZENSHIP

Exxon Corporation has launched several efforts in aiding the community and its environment. One such effort has been the financial contributions aimed at preventing the tiger, the company's symbol, from becoming extinct. It planned to donate approximately $5 million to support breeding efforts and zoo information displays and tiger projects in Siberia and Sumatra. Controversy surrounding Exxon's efforts has stemmed from accusations that the company has not addressed the real threats facing the extinction of tigers: poaching, illegal trade in tiger parts, and annihilation of the animals' prey by hunters. Some have said the company has no plans to enter anti-poaching efforts since such activities have been touchy in Asia, a large market for Exxon. Critics have said that without attention to the real dangers, the company's contributions will be of little value.

Other efforts to incorporate community involvement have included Exxon's efforts in education. Through the Exxon Education Foundation, it has offered $13.5 million in grants to 885 colleges and universities. Under the Foundation's Educational Matching Gift Program, all employees' donations would be matched by Exxon 3-to-1, the largest matching gift program in the nation.

Exxon has also provided assistance in the Ambassador Franklin Williams Scholarship Program from the Stevens Institute of Technology. Exxon gave $1.5 million in grants within an eight-year period to award scholarships for minority students.

CHRONOLOGY: Key Dates for Exxon Corporation

1882:

Incorporates as the Standard Oil Company of New Jersey

1899:

Standard Oil (New Jersey) becomes the sole holding company for all Standard Oil interests

1911:

The Supreme Court orders Standard Oil (New Jersey) to separate from its subsidiaries

1919:

Standard (Jersey) purchases 50 percent of Humble Oil & Refining, the biggest of Standard's suppliers

1926:

Standard (Jersey) introduces the Esso brand name

1943:

Several Venezuelan interests are consolidated into the Creole Petroleum Corporation

1948:

Purchases 30 percent ownership of Arabian American Oil Company

1954:

Purchases a 7 percent interest of Iranian production, making Standard (New Jersey) the largest oil company in the world

1972:

Exxon Corporation becomes the official name of the company

1989:

The Exxon Valdez crashes off the coast of Alaska spilling 260,000 barrels of crude oil

1996:

Exxon announces a huge oil discovery in the Gulf of Mexico

GLOBAL PRESENCE

Exxon operates in more than 100 countries. Exxon China Inc. is headquartered in Beijing. Activities there include exploration, refining, and marketing. Chemical and electric power businesses have been established there as well. Exxon's Coal and Minerals Company is located in Colombia, the United States, and Australia. Also accountable for electrical generation capabilities in Hong Kong, the company conducts business in power generation and coal and mineral exploration. Europe, offshore Malaysia, and Australia serve as oil and gas production cites for Exxon. Exxon Company International and its associates produce gas and oil in 12 countries. This makes up over half of the company's petroleum liquids production and two-thirds of its gas production. One subsidiary, Exxon Ventures Inc., manages exploration and production activities in the former Soviet Union. The company runs offices in Baku, Azerbaijan; Almaty, Kazakstan; and Moscow, Yuzhno-Sakhalinsk, and Arkhangelsk, Russia. Another subsidiary, Imperial Oil Limited, stands as a leading member of the Canadian petroleum business. It has been Canada's largest crude oil producer and the biggest refiner and marketer of petroleum products.

EMPLOYMENT

Statistics show that Exxon makes efforts to hire, retain, and promote minorities and women. In 1997 Exxon hired a total of 1,073 employees in the United States. Women comprised 36 percent of that total, and minorities another 26 percent. Forty-five percent of co-op assignments and internships were given to women out of a total of 289 participating students; another 38 percent were minorities. Exxon allies itself with the National Action Council for Minorities in Engineering (NACME), the Texas Alliance for Minorities in Engineering (TAME), and the National Society of Black Engineers. Exxon also participates in university programs, scholarship programs, and internship programs.

SOURCES OF INFORMATION

Bibliography

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galvin, kevin. "exxon wants exxon valdez allowed back in prince william sound." san diego daily, 16 january 1997.

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"stevens institute of technology honors exxon for its support of the ambassador franklin williams scholarship program." 13 may 1997. available at http://biz.yahoo.com.

teitelbaum, richard. "giants of the fortune 5 hundred: exxon: pumping up profits for years." fortune, 28 april 1997.

For an annual report:

on the internet at: http://www.exxon.com

For additional industry research:

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

1311 crude petroleum and natural gas

1382 oil and gas exploration services

2911 petroleum refining