Amoco Corporation History
Chicago, Illinois 60601
Telephone: (312) 856-6111
Fax: (312) 856-2460
Incorporated: 1889 as Standard Oil Company (Indiana)
Sales: $29.32 billion
Stock Exchanges: New York Midwest Pacific Toronto Basel Geneva Lausanne Zürich
SICs: 1311 Crude Petroleum & Natural Gas; 2911 Petroleum Refining; 2869 Industrial Organic Chemicals Not Elsewhere Classified; 6719 Holding Companies Not Elsewhere Classified
Amoco Corporation is active in three main fields within the petroleum, natural gas, and chemical industries: exploration and production, petroleum products, and chemical products. Amoco is the largest producer of natural gas in North America, sells gasoline through more than 9,600 service stations in 30 states, and produces such chemical products as polymers, fabrics, fibers, and chemical feedstocks. It currently searches for oil and natural gas in 25 countries, a much more targeted exploration operation than in previous years.
Amoco has been in business since 1889, though it was known as Standard Oil Company (Indiana) until its name was changed in 1985. The company was formed outside Whiting, Indiana, a location chosen by John Rockefeller's Standard Oil Trust as a refinery site close enough to sites in the growing midwestern market to keep freight costs low, yet far enough away to avoid disturbing residents.
From the beginning, the Whiting facility was organized as a self-supporting entity, planning for long-term expansion. Though refining was its main activity, it also constructed oil barrels for transportation and manufactured an oil-based product line consisting of axle grease, harness oil, paraffin wax for candles, and kerosene produced from the crude oil. The oil itself flowed to Chicago and other midwestern cities via two pipes originating in Lima, Ohio. Land transportation began on the refinery's grounds, at a railroad terminal belonging to the Chicago & Calumet Terminal Railroad, a company over which a Standard Oil interest had gained control. This terminal's placement gave the company exclusive use of the tracks, access to the West and the Southwest, and a direct route that eliminated the expense of switching tolls.
Standard (Indiana) had no direct marketing organization of its own. After the Standard Oil Trust was liquidated in 1892 by order of the Ohio Supreme Court, the 20 companies under its jurisdiction reverted to their former status and became subsidiaries of Standard Oil Company (New Jersey). The functions of Standard Oil (Indiana) were then expanded to include marketing.
The company's capitalization was increased from $500,000 to $1 million, which was divided into $100 shares. Standard Oil still owned about 54 percent of Standard (Indiana). Standard (Indiana) used the extra cash to buy Standard Oil Company (Minnesota) and Standard Oil Company (Illinois), formerly P.C. Hanford Oil Company, an oil-marketing organization in Chicago. The extra capital expanded Standard's sales territory, which was broadened even further when the property of Chester Oil Company of Minnesota was bought. Other acquisitions followed, and by 1901 the company was marketing through its own organization in 11 states.
At first, Standard (Indiana) had few competitors in the petroleum-product market. It enjoyed about 88 percent of the business in kerosene and heavy fuel oil. After competition began to grow, Standard (Indiana) fought back with strategically placed bulk storage stations and subsidiary companies in competitive areas that cut prices and drove competitors out. Earnings rose from $605,781 in 1896 to a high of almost $4.2 million in 1899, but the company's competitive practices and its growing market share made it the target of government agencies. In 1911, after a court battle lasting almost three years, Standard Oil Company (New Jersey)--the parent company to Standard (Indiana) and other Standard companies--was ordered to relinquish supervision of its subsidiaries.
Gasoline sales had risen from 31.6 million gallons to 1.57 billion between 1897 and 1911. Once independent, Standard (Indiana) began to cater to the burgeoning automobile market, opening a Minneapolis, Minnesota, service station in 1912. Chicago's first service station opened in 1913, and by 1918, there were 451 altogether. Together with growing sales of road oil, asphalt, and other supporting products, the automotive industry provided one-third of all Standard (Indiana) business.
To get as much gasoline out of each barrel of crude as possible, Standard formulated the cracking process, which doubled the yield by separating the oil's molecules, by means of heat and pressure, into a dense liquid plus a lighter product that would boil in gasoline's range. The possibility of cheaper gasoline and a new line of petroleum-based products made the method attractive to other refiners, who licensed it, accounting for 34 percent of the company's total profits between 1913 and 1922.
With the end of World War I, company chairman Colonel Robert Stewart's top priority was to find a secure source of crude oil, to meet the rapidly expanding demand for gasoline and kerosene. Before the war, Standard had depended on the Prairie Oil and Gas Company for its supply, but military needs diverted Prairie's crude to the refineries along the Atlantic seaboard. To obtain a reliable source of crude oil, Stewart acquired 33 percent of Midwest Refining Company of Wyoming, in 1920. A half interest in the Sinclair Pipe Company was purchased in 1921, for $16.4 million in cash, improving transportation capacity. Sinclair's 2,900 miles of pipeline ran from north Texas to Chicago, encompassed almost 6,000 wells, and ran through oil-rich Wyoming.
Standard bought an interest in the Pan American Petroleum & Transport Company in 1925. The interest, costing $37.6 million, was the largest oil consolidation in the history of the industry, giving Standard (Indiana) access to one of the world's largest tanker fleets and entry into oil fields in Mexico, Venezuela, and Iraq. In 1929 Standard (Indiana) acquired another chunk of Pan American stock through a stock swap, bringing its total ownership of Pan American to 81 percent.
Pan American also introduced Standard to the American Oil Company, of Baltimore, Maryland. Started by the Blaustein family, American Oil marketed most of Pan American's oil in the eastern United States and was 50 percent-owned by Pan American and 50 percent-owned by the Blausteins. The Blausteins were initiators of the first measuring gasoline-pump and inventors of the high-octane Amoco-Gas that reduced engine knocking.
Though expensive, these investments proved to be sound; by 1929, the Depression notwithstanding, Standard Oil (Indiana) was second only to Standard Oil (New Jersey) as a buyer of crude oil. Equally profitable as a supplier, the company's net earnings for 1929 were $78.5 million after taxes.
In 1929 Stewart was followed as CEO by Edward G. Seubert, who continued to strengthen Standard's crude oil supply. With an eye to future supply security, Seubert shifted the emphasis to buying and developing crude oil-producing properties like McMan Oil and Gas Company, a 1930 purchase that provided 10,000 barrels daily. Also in 1930, Standard acquired both the remaining 50 percent interest in the Sinclair Pipe Line Company and the Sinclair Crude Oil Purchasing Company for $72.5 million, giving it control over one of the country's largest pipeline systems and crude oil buying agencies. These subsidiaries now became the Stanolind Pipe Line Company and the Stanolind Crude Oil Purchasing Company; they were joined in 1931 by the Stanolind Oil & Gas Company, a newly organized subsidiary absorbing several smaller ones.
In 1929 a retail venture called the Atlas Supply Company, which was co-organized with five other Standard firms, had been organized to sell automobile tires and other accessories nationwide. The Great Depression, however, made competition fierce by the end of 1930. Even worse conditions threatened after the largest oil field in history was found in east Texas in late 1930. The new field caused production to rise quickly to a daily average of 300,000 barrels in 1931, glutting the market. Ruthless price-cutting followed. Standard (Indiana) did not engage in this practice, preferring instead to curtail exploration and drilling activities. As a result, only 49.9 billion barrels were produced in 1931, as against 55.1 billion the year before, and the company's 13 domestic facilities operated well below capacity. The 45,073 employees worked on construction projects, and accepted wage cuts and part-time employment to minimize layoffs. The flow of cheap crude oil continued, often in excess of limits set by state regulatory bodies; gas sales were accompanied by premiums like candy, ash trays, and cigarette lighters. Track-side stations, where gasoline was pumped from the tank car into the customer's automobile, posed another price-cutting threat. Also prevalent were cooperatives organized by farmers, who would buy tank cars of gasoline for distribution among members to save money. These conditions caused 1932 earnings to reach only $16.5 million--down from $17.5 million in 1931.
In 1932 Standard decided to sell Pan American's foreign interests to Standard Oil (New Jersey). These properties cost Standard Oil (New Jersey) just under $48 million cash plus about 1.8 million shares of Standard Oil (New Jersey) stock.
By 1934 the worst of the Depression was over. Activities in Texas led the Stanolind Oil & Gas Company to the Hastings field, which held 43 producing wells by the end of 1935. Also in 1935, more oil-producing acreage in east Texas came with Stanolind Oil & Gas Company's $42 million purchase of the properties of Beaumont-based Yount-Lee Oil Company, an acquisition that helped Stanolind Oil & Gas to increase its daily average production to 68,965 barrels.
During the 1930s overproduction began to threaten, and federal and state governments tried to curb oil production with heavy taxes. Standard felt the bite in Iowa's 1935 chain-store tax, which could not be justified by their service stations' profit margin. The company therefore turned back leased stations to their owners, and leased company-owned stations to independent operators, to be operated as separate outlets. By the following July, all 11,685 Standard (Indiana) service stations were independently operated and the company was once more primarily a producer distributing oil at wholesale prices. This move spurred the newly independent entrepreneurs, whose increased sales helped to achieve a net profit for Standard of $30.2 million for 1935.
When Standard reached its 50th year in 1939, during World War II, its research chemists were working to improve the high-octane fuels needed for military and transport planes. Standard's engineers cooperated with other companies to build the pipelines necessary for oil transportation. By 1942, the "Big Inch" pipeline carried a daily load of 300,000 barrels of crude from Texas to the East Coast, where most of it was used to support the war effort. Loss of manpower and government steel restrictions curbed operations, yet the company produced 47 million barrels of crude and purchased about 102 million barrels from outside sources. Other wartime products from Standard plants included paraffin wax coatings for military food rations, toluene (the main ingredient for TNT), butane, and butylene for aviation gasoline and synthetic rubber.
On January 1, 1945, Seubert retired as president and chief executive officer of the company. He left behind him 33,244 employees, sales of crude oil topping the 1944 figure by 37.1 percent, and a gross income of $618.9 million. Seubert was succeeded as chairman and CEO by Robert E. Wilson, formerly president of Pan American Petroleum & Transport Company, and Alonzo W. Peake became president. Peake had been vice-president of production.
The management style instituted by Wilson and Peake differed from the centralized, solo authority Seubert preferred. The two men split the supervisory authority, with no overlap of direct authority. Wilson was responsible for finance, research and development, law, and industrial relations, while Peake's commitments included refining, production, supply and transportation, and sales and long-range planning. Responsibility for operating subsidiaries was split between the two. The result was a decentralized organization, making for swifter, more cooperative decision-making at all levels.
In 1948 Stanolind Oil & Gas formed a foreign exploration department to head exploration attempts in Canada and other countries. The new team spent more than $98 million by 1950, with Canada and the Gulf of Mexico its prime targets.
By 1952 Standard Oil (Indiana) was acknowledged as the nation's largest domestic oil company. It possessed 12 refineries able to market its products in 41 states, plus almost 5,000 miles of crude oil gathering lines, 10,000 miles of trunk lines and 1,700 miles of refined product pipelines. By 1951, gross income had reached $1.54 billion.
In 1955 Peake retired as president, to be succeeded by former Executive Vice-president Frank Prior, who inherited the problem of a decrease in allowable production days in the state of Texas, as a result of additions to oil reserves in the state. The rising amount of imported oil was another problem that arose during Peake's tenure. The total had swelled from 490,000 barrels per day in 1951 to 660,000 barrels in 1954.
Nevertheless, cheaper international exploration costs spurred Standard (Indiana) to again become active in the growing foreign oil arena that it had all but left in 1932 when it sold Pan American's foreign interests. To handle international land leasing and joint ventures, the company organized Pan American International Oil Corporation in New York, as a subsidiary of Pan American Petroleum. Foreign operations included exploration rights for 13 million acres in Cuba, obtained in 1955; a subsidiary company formed in Venezuela in 1958, for joint exploration of 180,000 acres together with other companies; and 23 million acres obtained for exploration in Libya.
The traditional oil-industry profit arrangement for international activities had been an even split between the company and the host government, though several firms had quietly bent the guidelines. Standard (Indiana) broke openly with this custom in a 1958 deal with the National Iranian Oil Company (NIOC), in which Standard (Indiana) split the profits evenly, then gave NIOC half of its own share, to which it added a $25 million bonus.
The late 1950s also saw domestic reorganization. In 1957 the company consolidated nine subsidiaries into four larger companies. Stanolind Oil & Gas Company became Pan American Petroleum Corporation, consolidating all Standard Oil (Indiana) crude oil and natural gas exploration and production. American Oil Pipe Line Company, a former subsidiary of American Oil, was merged into Service Pipe Line Company--which had been known as Stanolind Pipe Line Company until 1950--focused on oil transport. Crude oil and natural gas purchasing operations were combined to form the Indiana Oil Purchasing Company; and Amoco Chemicals Corporation consolidated all chemical activities into a single organization. Total income for 1957 was about $2 billion.
In 1960 company President John Swearingen succeeded Prior as chief executive officer, the chairmanship being left vacant. Swearingen turned both domestic and foreign operations over to subsidiaries, making Standard Oil (Indiana) entirely a holding company. Operating assets were transferred to the American Oil Company, into which the Utah Oil Refining Company was also merged. American Oil's responsibilities now included the manufacture, transport, and sale of all company petroleum products in 45 states, though limited marketing operations in three other states were also maintained. This consolidation allowed the company to develop a national image and provided more efficiency in staff use and storage and transport flexibility. Coverage being national, the company was able to advertise nationally and demand better rates from ground and air transporters.
Standard (Indiana) also became concerned with product trade names. The 1911 breakup had left several former Standard (New Jersey) subsidiaries in different areas of the country with the Standard Oil name and rights to the associated trademarks. American Oil thus had the right to use the Standard name only in the 15 midwestern states that had been the company's original territory. Thus, in 1957, the word "American," together with the Standard Oil (Indiana) logo, was used in all other states. Since a five-letter name was easier for motorists to note, in 1961 the company began to replace the brand name American with Amoco, the name first coined by American Oil's original owners for the high-octane, anti-knock gasoline that had powered the Charles Lindbergh trans-Atlantic flight. Familiar within the company since the 1945 organization of the Amoco Chemicals Corporation, "Amoco" was used increasingly on products and by subsidiaries, until, by 1971, major subsidiaries everywhere had "Amoco" in their names.
In 1961 Standard's total income reached almost $2.1 billion, yielding net earnings of $153.9 million. Continuing with methodical reorganization, Swearingen oversaw the expansion and modernization of the company's domestic refining capacity as well as 11 of its 14 catalytic cracking units. An aggressive marketing program featured large, strategically placed retail outlets, plus the addition of Avis car-rental privileges to the credit-card services that had been in operation since the early 1930s. By the end of 1966 there were 5.5 million card holders, encouraging American Oil to go national with its motor club.
Because only 8 percent of its assets were located overseas, Standard (Indiana) still lacked a large foreign market for crude oil. Swearingen moved swiftly to close the gap. By 1964 foreign explorations were taking place in Mozambique, Indonesia, Venezuela, Argentina, Colombia, and Iran. Refining and marketing were also flourishing, through the acquisition of a 25,000-barrel-per-day refinery near Cremona, Italy, and about 700 Italian service stations. About 250 service stations were also opened in Australia in 1961, along with a 25,000-barrel-per-day refinery. Other foreign refineries were to be found in West Germany, England, Pakistan, and the West Indies. In 1967 Standard began production in the Persian Gulf Cyrus field, by which time the huge El Morgan field in the Gulf of Suez was producing 45,000 barrels daily.
The market for Standard's chemical products also increased during the mid-1960s. To keep pace with demand for the raw materials used in polyester fiber and film, the company built a new facility at Decatur, Alabama, in 1965, adding another in Texas City, Texas, a year later. There were also 641 retail chemical-fertilizer outlets in the Midwest and the South. The popularity of polystyrene for packaging also grew. All these advances ensured profitability; overall chemical sales rose to $158 million by the end of 1967, on total revenues of almost $3.6 billion.
Fuel shortages and the wave of OPEC price rises, nationalizations, and takeovers of the early 1970s underlined the importance of oil exploration. Swearingen's strategy was to accumulate as much domestic exploration acreage as possible before other companies acted, while organizing production in developing foreign markets that were not too competitive.
To capitalize on concern about air pollution, the company introduced a 91-octane lead-free gasoline in 1970 at a cost in excess of $100 million. Though motorists were initially reluctant to accept the 2¢-per-gallon price rise, the 1973 appearance of catalytic converters on new cars assured the success of the fuel.
Environmental matters came to the fore again in 1978, when an Amoco International Oil Company tanker, the Amoco Cadiz suffered steering failure during a storm and ran aground off the French coast, leaking about 730,000 gallons of oil into the sea. The huge oil spill cost $75 million to clean up, and left its mark on the area's tourist trade as well as its ecosystem. The French government brought a $300 million lawsuit against Amoco that eventually led to an $128 million judgment against Amoco. Amoco appealed the ruling, but the U.S. Circuit Court of Appeals in Chicago not only upheld the judgment but also increased it to $281 million. Amoco chose not appeal this ruling and paid the French government $243 million and the affected Brittany communities $38 million.
In late December 1978 the Shah of Iran was overthrown, and Standard (Indiana) hurriedly closed its Iranian facility and evacuated American staff members after all American employees of Amoco Iran Oil Company received death threats. The year 1978 had seen record-breaking production in Iran, and its loss resulted in a 35 percent production decrease in the company's overseas operations. Despite these turbulent events, net income was $1.5 billion in 1971, on total revenues of $20.197 billion.
By the end of the 1970s, chemical production accounted for about 7 percent of company earnings. To gain more visibility with consumers, Standard (Indiana) began to stress end-product manufacture as well as the production of ingredients used in manufacturing processes. The trend had begun in 1968, when polypropylene manufacturer Avisun Corporation was purchased by Amoco Chemicals Corporation from Sun Oil Company. The $80 million price tag included Patchoque-Plymouth Company, maker of polypropylene carpet backing. By 1986 a 100-color line plus improved stain resistance made Amoco Fabrics & Fibers Company's petrochemical-based Genesis carpeting a serious competitor of the stain-resistant carpeting offered by du Pont. Other strategies focused on market stimulation for basic industrial products. Since this required specialized marketing skills, the company divided its chemical operations among four subsidiaries.
In 1983 John Swearingen retired as chairman of the board. In his stead came Richard W. Morrow, who had been president of the Amoco Chemicals Corporation from 1974 until 1978, before assuming the Standard (Indiana) presidency in 1978. In 1985 Standard Oil Company (Indiana) changed its name to Amoco Corporation. Morrow also presided over the 1988 acquisition of Dome Petroleum, Ltd. of Canada, which was later merged into Amoco Canada. Dome, owning 28.7 million acres of undeveloped, arctic-region land, improved Amoco's oil and gas reserves. The Dome purchase was hard-won, costing Amoco $4.2 billion. Other chances to expand oil and gas exploration in 1988 came with the acquisition of Tenneco Oil Company's Rocky Mountain properties, for approximately $900 million.
Amoco Corporation began the 1990s with record revenues of $31.58 billion and net income of $1.91 billion. By 1990, the need for raw materials had expanded internationally, moving strongly towards Europe and the Far East. Joint ventures in Brazil, Mexico, South Korea, and Taiwan met the growing demand for polyester fibers, helping to generate about 35 percent of business overseas.
H. Laurence Fuller took over as chairman in 1991 amidst a downturn in Amoco profits owing to weakening demand for petroleum products and reduced prices caused by the recession. Revenues fell to $28.3 billion in 1991 and to $26.22 billion in 1992, while net income declined to $1.17 billion and $850 million, respectively. Fuller aimed not only to turn around the company's fortunes but also to overtake Exxon, the top U.S. oil company, in profitability. Fuller began this effort with a 1992 restructuring intended to reduce costs and improve efficiency. 8,500 employees were axed--16 percent of Amoco's work force--contributing to $600 million in savings. Exploration operations were cut back from a wildcatting strategy spread out over more than 100 countries to a targeted search for oil and gas in 20 countries with proven reserves. China became a prime target area; after establishing an offshore drilling operation in 1987, Amoco signed a deal in 1992 to become the first foreign company to explore the mainland, thought to hold more than 20 billion barrels of oil.
This restructuring served as prelude to an even larger reorganization effort initiated in 1994. 4,500 more jobs would be cut over the next two years, with projected savings of $1.2 billion each year. Amoco's organizational structure was completely overhauled. The three major subsidiaries--Amoco Production Company, Amoco Oil Company, and Amoco Chemical Company--that had been responsible for the three major areas of operation were replaced by a decentralized structure with 17 business groups divided into three sectors: exploration and production, petroleum products, and chemicals. A Shared Services organization was created to share the resources of Amoco's support operations.
Amoco's chemical operations were overhauled during these restructurings by shedding such weak areas as oil well chemicals and by increasing expenditures in fast-growing areas such as polyester. One result was that profits from Amoco's chemical sector increased from $68 million in 1991 to $574 million in 1994 thanks in large part to its 40 percent share of the world market in paraxylene and purified terephthalic acid, both used to make polyester, the demand for which grew dramatically, especially in Asia.
New product expenditures were also bolstered during this period. With demand for alternative and cleaner-burning fuels on the rise, Amoco introduced Crystal Clear Ultimate, a cleaner-burning premium gasoline, and test-marketed compressed natural gas for use by fleet operators. Also tested were shared service stations which offered Amoco gas and fast food from (McDonald's and Burger King), or such services as dry cleaning (DryClean U.S.A.). These tests were so successful that Amoco planned to roll out 100 such units in 1995 at a cost of $100 million. Amoco also embarked in 1994 on a drive to become a leader in natural gas-powered electricity generation. That year it created Amoco Power Resources Corporation to pursue this venture and purchased a 10 percent interest in electricity facilities in Trinidad and Tobago.
With the cost of oil and gas exploration soaring and lean operations not able to withstand the failure of a risky venture, more and more oil companies turned to joint ventures in the early and mid-1990s to spread the risk. Amoco was a member of a ten-company consortium that signed an agreement in 1994 with the Republic of Azerbaijan to develop oil fields in the Caspian Sea. Also in 1994 Amoco joined with rivals Shell Oil and Exxon to finance a $1 billion offshore oil platform in the Gulf of Mexico, to be the world's deepest. And in 1995 Shell and Amoco created a limited partnership to develop oil fields in the Permian Basin area of west Texas and southeast New Mexico.
Under Fuller's guidance, Amoco seemed well-positioned to challenge Exxon for the top spot in U.S. petroleum. Revenues had once again surpassed $30 billion by 1994 and net income had rebounded to $1.79 billion. Amoco's lean and targeted operation and its reinvigorated chemical sector provided it with a strong position from which to grow in the increasingly competitive 1990s.
Principal Subsidiaries:Amoco Company; Amoco Leasing Corp.; Amoco Pipeline Co.; Amoco Power Resources Corporation; Amoco Properties Inc.; Amoco Realty Co.; Amoco Research Corp.; Amoco Technology Co.; AmProp Finance Corp.; Solarex Corp.; Amoco Canada Energy Ltd.; Amoco Canada Petroleum Co. Ltd.; Amoco Canada Resources Ltd.; Amoco Holding G.m.b.H. (Germany); Amoco Chemical (Europe) S.A. (Switzerland); Amoco Chemical (UK) Ltd.
- Chelminski, Rudolph, Superwreck: Amoco, The Shipwreck That Had to Happen, New York, Morrow, 1987, 254 p.
- Cook, James, "First-Rate Company," Forbes, May 1, 1989, pp. 84--85.
- "Corporate Restructuring '90s Style: Merge and Purge, Lean and Mean," National Petroleum News, September 1994, pp. 16--18.
- Dedmon, Emmett, Challenge and Response: A Modern History of Standard Oil Company (Indiana), Chicago: Mobium Press, 1984, 324 p.
- Fairhall, David, The Wreck of the Amoco Cadiz, New York: Stein and Day, 1980, 248 p.
- Giddens, Paul Henry, Standard Oil Company (Indiana): Oil Pioneer of the Middle West, New York: Arno Press, 1976, c1955, 741 p.
- Mack, Toni, "Catching up to Exxon," Forbes, March 13, 1995, pp. 64, 66.
- Melcher, Richard A., Peter Burrows, and Tim Smart, "Remaking Big Oil: The Desperate Rush to Slash Costs," Business Week, August 8, 1994, pp. 20--21.
- Therrien, Lois, "Amoco: Running Smoother on Less Gas," Business Week, February 15, 1993, pp. 110--112.
- "Whittle-Down Economics," Oil and Gas Investor, November 1992, pp. 43--46.
Source: International Directory of Company Histories, Vol. 14. St. James Press, 1996.