Emergence of the Oil Giants

The U.S. oil industry grew out of John D. Rockefeller's Standard Oil Company.35 Rockefeller formed the company in 1870. He was remarkably successful in linking the entire stream of oil activities, from upstream oil fields to downstream refineries and fuel stations. He focused on reducing costs to a bare minimum and building profit through volume. Standard Oil, organized as an opaque "trust," eventually garnered 90 percent of the U.S. market and much of the international market as well.

But Rockefeller proved too successful, a ruthless businessman who cut too many corners. He undercut prices of smaller competitors and bought them out on terms favorable to himself. He did anything he could to crush competition and create a monopoly. Having done so, he was so audacious he exacted transportation rebates from railroads for not only his oil but also his competitors' oil! No trust was bigger than Standard Oil. In 1913, Rockefeller's net worth was said to be equal to 2 percent of the U.S. economy—nearly $190 billion in today's dollars.36

It wasn't to last. Opposition to U.S. trusts mounted, fueled by Americans' distrust of monopolies. In 1911, Standard Oil was broken up under U.S. antitrust laws into eight smaller integrated oil companies, which remained divided throughout most of the twentieth century (see figure 5.3).

Meanwhile, European companies were beginning to explore for oil as well. In contrast to American companies who had access to abundant oil in their home country, European oil companies planted roots outside their continent—mostly in the Middle East. British Petroleum, now known as BP, started in 1908 in the Middle East as the Anglo-Persian Oil Company and

SOHIO (Standard Oil of Ohio) Amoco (Standard Oil of Indiana)

ConocoPhillips

ExxonMobil (1998)

Standard Oil

Chevron ^

(Standard Oil

SOHIO (Standard Oil of Ohio) Amoco (Standard Oil of Indiana)

British Petroleum (BP)

(merger dates: 1969, SOHIO; 1998, Amoco; 2000, ARCO)

Ohio Oil Company

Chevron ^

(Standard Oil

V^_of California)

y Chevron-Gulf Gulf (1984)

Texaco (1901)

ChevronTexaco >■ (2001; name reverted to Chevron in 2005)

FIGURE 5.3 Breakup and reconsolidation of U.S. oil companies. Note: Bolded companies were part of Rockefeller's original Standard Oil.

didn't begin producing oil in Europe until the 1950s. In 1969, BP made its first foray into the United States, acquiring Standard Oil of Ohio (SOHIO). In 1998, it acquired the U.S. company Standard Oil of Indiana (Amoco) and in 2000 added ARCO of southern California. Royal Dutch Shell has similar international roots. Starting in London in 1892 with Russian petroleum stocks, the British-Dutch company then moved to Romania, Egypt, Venezuela, and Trinidad for production. Shell consolidated its interests in the United States in 1922 by acquiring the Union Oil Company of Delaware. Not until the 1970s did it begin pumping oil close to home in the North Sea of Europe. The third European oil goliath, Total, was founded in 1924 when the French assumed shares of the Turkish Petroleum Company. It first developed oil fields in Iraq and then Algeria, and now relies on oil fields in Africa and Russia.

After the breakup of Standard Oil, the oil industry became quite diffuse, only to begin reconsolidating in the latter part of the twentieth century. This reconsolidation accelerated in the 1990s, with the pieces of the old Standard Oil merging into three U.S. companies, plus parts of BP. The same happened in Europe.

The large Western oil companies are now among the largest companies in the world, dwarfing the budgets of many countries (see table 5.2). ExxonMobil is the largest, with $390 billion in revenue in 2007—four times the budget of the State of California.

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