2000 Westchester Avenue
Texaco is a company that has captured hearts and minds. Our employees' vision, their daring and their determination shaped the character of our company for nearly a century, and these are the same attributes we will carry into the century to come.
Texaco Inc. operates in more than 150 countries and, upon completion of its merger with Chevron Corporation, will stand as the world's fourth largest publicly traded energy firm. Texaco explores, discovers, and produces oil and natural gas; manufactures and markets fuels and lubricant products; operates trading, transportation, and distribution facilities; and manufactures alternate forms of energy for the power, manufacturing, and chemical markets. Texaco has expanded with the growth of the U.S. automobile industry in the early 20th century and quickly developed international production and marketing interests. By the 1960s, it had established the largest sales network of any U.S. oil company, with operations concentrated in refining and marketing. The oil crisis of the 1970s cut off many of its international sources of crude oil and left it with limited reserves. Texaco was poised for recovery in 1984, when it entered into a court battle with Pennzoil Company over the acquisition of Getty Oil. Since settling with Pennzoil in 1988, Texaco has pursued an almost constant restructuring effort in an attempt to recapture its former profitability and prominence in the oil industry. On October 16, 2000, Texaco announced its intention to merge with Chevron, forming ChevronTexaco. While the deal was expected to be completed by summer 2001, some issues concerning the divestment of some of Texaco's joint ventures stood to delay the merger.
Early Beginnings at the Start of the Century
Texaco was founded during the early boom years of the Texas oil industry. In 1901, a gusher at the Spindletop oil field sent hundreds of entrepreneurs into Beaumont, Texas. Among them was Joseph S. 'Buckskin Joe' Cullinan, an oilman who had begun his career working for Standard Oil Company in Pennsylvania. The Spindletop wells led to the rapid establishment of more than 200 oil companies, pumping out as much as 100,000 barrels a day. Cullinan saw an opportunity in purchasing that crude for resale to refineries. With the help of New York investment manager Arnold Schlaet, he formed The Texas Fuel Company with an initial stock of $50,000. Cullinan and Schlaet began soliciting additional investments in New York and Chicago. After raising $3 million, they reorganized their venture as The Texas Company.
Cullinan immediately began constructing a pipeline between Spindletop and the gulf coast of Texas. He built a refinery at the Texas coastal city of Port Arthur, and from there the company shipped its oil to Louisiana sugar planters, who used it to heat their boilers. In the fall of 1902, salt water leaked into the Spindletop wells and ruined many of the companies based there. The Texas Company survived with a timely discovery of oil at Sour Lake, 20 miles northwest of Spindletop. Other strikes soon followed in Oklahoma and Louisiana.
With Cullinan's oil expertise and the financing of his New York backers, The Texas Company soon became one of the nation's most prominent oil companies. Cullinan continued to drill wells in the southwest region, building more pipelines to connect them with Port Arthur. By 1908, the company was selling to all but five western states, and by 1913, its assets were worth $60 million. The nickname Texaco came from the cable address of the company's New York offices. Texaco gained popularity as a product name and, in 1906, the company registered it as a trademark. The well-known logo first appeared in 1909, as a red star with a green 'T' in the center. The company formally changed its name to Texaco Inc. in 1959.
Continued Growth and Production Expansion: 1910 to the 1920s
At the time of Texaco's founding, oil was used primarily for lighting and as fuel for factories and locomotives. Texaco met this demand with its first consumer product, Familylite Illuminating Oil, introduced in 1907. After 1910, however, the automobile revolutionized the oil industry. Demand for gasoline, formerly considered a waste by-product of kerosene, expanded rapidly. Texaco followed this trend, and by 1914, its gasoline production surpassed that of kerosene. The company went from distributing gasoline in barrels to underground tanks to curbside pumps and, in 1911, it opened its first filling station in Brooklyn, New York. By 1916, 57 such stations were in operation across the country. Powered by the growth of the automobile industry and the high demand for petroleum created by World War I, Texaco quadrupled its assets between 1914 and 1920.
After World War I, Texaco continued to concentrate on its automotive gasoline and oil production, introducing new products and expanding its national sales network. In 1920, two researchers at its Port Arthur refinery developed the oil industry's first continuous thermal cracking process for making gasoline. Named after its founders, the Holmes-Manley process greatly increased the speed of the refining process as well as the amount of gasoline that could be refined from a barrel of crude. Texaco marketed this gasoline through its retail network, pushing into the Rocky Mountain region between 1920 and 1926, and into West Coast markets with the acquisition of California Petroleum Company in 1928.
Products introduced during the 1920s included the company's first premium gasoline, as well as Texaco Aviation Gasoline and automobile motor oils. To market the lighter oils it refined from Texas crude, Texaco launched its first nationwide advertising campaign. The slogan 'Clean, Clear, Golden' appeared at Texaco's filling stations, which displayed its motor oils in glass bottles. By 1928, Texaco owned or leased more than 4,000 stations in all 48 states.
The company's growth also was reflected in its corporate structure. Finding Texas's corporation laws too restrictive for doing business on such a large scale, Texaco decided to move its legal home. In 1926, it formed The Texas Corporation in Delaware, which then bought out the stock of The Texas Company and reorganized it as a subsidiary called The Texas Company of Delaware. The company also moved its headquarters from Houston to New York. The Texas Corporation acted as a holding company for The Texas Company of Delaware and The Texas Company of California--formerly The California Petroleum Company--until 1941, when it merged with both and formed a single company known as The Texas Company.
The Texas Corporation's earnings reached an all-time high in 1929, but then dropped precipitously after the stock market crash. Overproduction, economic recession, and low prices plagued the oil industry in the early 1930s. The company embarked on a strategy of introducing new products to stimulate demand. Texaco Fire Chief Gasoline was launched in 1932, and the company advertised it by sponsoring a nationwide Ed Wynn radio program. Havoline Wax Free Motor Oil, developed after the acquisition of the Indiana Refining Company in 1931, followed two years later, halting its losses by 1934. In 1938, The Texas Corporation, still nicknamed Texaco, introduced Texaco Sky Chief premium gasoline and also began promoting its Registered Rest Rooms program, assuring motorists that their service stations were 'Clean across the Country.' In 1940, Texaco began its landmark sponsorship of the New York Metropolitan Opera's Saturday afternoon radio broadcasts. This program, which is still running, is the oldest association between a U.S. company and an arts program.
International Expansion Beginning in the 1930s
While The Texas Corporation promoted its products and services at home, it undertook vigorous expansion abroad. During the 1930s it began exploration and production in Colombia and Venezuela. In 1936, it joined with the Standard Oil Company of California to create the Caltex group of companies, a 50--50 venture in the Middle East. The Caltex group consolidated the operations of both of these companies east of the Suez Canal. Texaco also purchased a 50 percent interest from Standard Oil of California in the California Arabian Standard Oil Company, later renamed the Arabian American Oil Company (Aramco). The Caltex and Aramco ventures vastly expanded Texaco's sources of crude and also enabled it to integrate its operations in the Eastern Hemisphere.
The entry of the United States into World War II brought dramatic changes for The Texas Corporation. About 30 percent of its wartime production went to the war effort, primarily in the form of aviation fuels, gasoline, and petrochemicals. The company worked closely with Harold L. Ickes, federal petroleum administrator for the war effort, who organized the nation's oil companies into several nonprofit operations. The Texas Pipe Line Company, a subsidiary, oversaw the completion of two federally sponsored pipelines from Texas to the East Coast.
Texaco also joined War Emergency Tankers Inc., which operated a collective tanker fleet for the War Shipping Administration. Another such venture was The Neches Butane Products Company, which manufactured butadiene, an essential ingredient in synthetic rubber. This enterprise gave Texaco its start in the infant petrochemicals industry, and after the war it purchased a 25 percent interest from the Federal Government in the Neches Butane plant. Texaco acquired full ownership of this operation in 1980. The company furthered its interests in petrochemicals in 1944, when it formed the Jefferson Chemical Company with the American Cyanamid Company. Texaco later bought out American Cyanamid's interest in this venture and then merged it with its newly formed Texaco Chemical Company in 1980.
With the end of World War II, Texaco faced renewed customer demand at home. U.S. consumption of oil exceeded its production for the first time in 1947, and Texaco reacted by tapping new foreign sources for its crude oil. In 1945, Texaco's jointly owned Caltex companies increased their refining capacity on Bahrain, reaching 180,000 barrels per day by 1951. Texaco also formed the Trans-Arabian Pipe Line Company with three other oil companies to build a pipeline connecting Saudi Arabia's oil fields with the eastern Mediterranean. At home, Texaco increased its refining capacity with the Eagle Point Works near Camden, New Jersey. It also introduced several new automotive products, including Texaco Anti-Freeze and Texamatic Fluid for automatic transmissions.
Aggressive Expansion During the 1950s and 1960s
During the 1950s and 1960s, Texaco concentrated on expanding its global refining and marketing operations. The acquisition of the Trinidad Oil Company in 1956 and the Seaboard Oil Company in 1958, both of which held proven reserves in South America, expanded its interests in the Western Hemisphere. To increase its production in the Amazon Basin, the company built a jointly owned trans-Andean pipeline in 1969 and a trans-Ecuadorian pipeline in 1972. To increase its production in Europe, moreover, Texaco purchased the majority interest in the West German oil company Deutsch Erdol A.G. in 1966. It also reorganized the Caltex group in 1967, taking over one-half of the group's interest in 12 European countries that it had been serving from Saudi Arabia. This move allowed the company to expand its marketing operations in Europe, while leaving the Caltex companies free to concentrate east of the Suez Canal, where they enjoyed their greatest market penetration. Texaco brought its petrochemical business to Europe in 1966 with a plant in Ghent, Belgium, and to Japan three years later.
In the United States, Texaco expanded its interests by acquiring regional companies and increasing its refining capacity. The company strengthened its position on the East Coast by buying the Paragon group of companies in 1959 and the White Fuel Corporation in 1962. In 1962, it also acquired mineral rights to two million undeveloped acres in West Texas from the TXL Oil Corporation. The company's petrochemical production grew rapidly during this period, with the addition of a new unit at the Eagle Point works in 1960, and one of the world's largest benzene plants in Port Arthur in 1961. Texaco's operating volumes doubled between 1960 and 1970, with gross production surpassing three billion barrels per day in 1970.
Problems in the 1970s
Texaco's tremendous growth came to an abrupt halt in the 1970s. The Arab-Israeli War, the OPEC embargo, and the nationalization of foreign oil assets in many overseas nations cut Texaco's profit margins and endangered its sources of crude. Furthermore, federal price controls and mandatory allocation regulations restricted Texaco's ability to raise prices or withdraw from unprofitable markets. Its net income dropped from $1.6 billion in 1974 to $830.6 million a year later and remained at that level for the rest of the decade.
Tensions in the Middle East prompted a wave of nationalizations in the oil industry. In 1972, Saudi Arabia began to nationalize the assets of Aramco, in which Texaco owned a 50 percent interest, and took over all of its operations in 1980. Between 1973 and 1974, Libya nationalized the Texas Overseas Petroleum Company, a Texaco subsidiary. The decade ended with the Iranian revolution displacing Texaco's interests there and the Caltex group selling off part of its operations to the Bahrain government.
Texaco increased its exploration efforts and reorganized its marketing operations at home. Drilling activities increased both onshore and offshore in the southwest, as well as in new areas such as the North Sea and eastern Atlantic. The company also modernized its refineries to maximize the yield from each barrel of crude. Texaco made its most dramatic alterations in its retail network, abandoning the 50-state plan that had made it the United States's largest seller of oil. It began to withdraw from unprofitable markets, cutting operations in all or parts of 19 states in the Rocky Mountain, Midwest, and Great Lakes regions. It also reduced its number of service stations and opened more modern outlets in high-volume areas.
The 1980s began with the U.S. economy still suffering from recession, but the deregulation of the oil industry offered Texaco new flexibility in trying to recoup its fortunes. Under the direction of its new chairman, John K. McKinley, Texaco undertook a major restructuring plan in 1980. It decentralized its operations into three major geographic oil and gas divisions representing the United States, Europe and Latin America, and West Africa, as well as one worldwide chemical organization called the Texaco Chemical Company. The company expanded its exploration program and it also committed more resources to projects for developing alternative fuels, such as coal gasification and shale oil.
Retrenchment in its refining and marketing operations continued with the closing of six inefficient refineries by 1982, and the reduction of its retail outlets from 35,500 in 1974 to 27,000 in 1980. Texaco introduced a new logo in 1981, a red 'T' inside a white star and red circle, to promote its high-volume System 2000 stations. These stations were a quick success, with more than 1,200 in the United States by 1987. The company also added a new operating division in 1982, Texaco Middle East/Far East, and made several important acquisitions to bolster its reserve base. By 1985, Texaco's net income was once again more than $1 billion.
The Getty Purchase: 1984
In the middle of this comeback, Texaco became involved in a legal battle. The 1984 purchase of the Getty Oil Company had promised to speed Texaco's recovery by adding an estimated 1.9 billion barrels of proven reserves to its assets. Pennzoil Company filed suit, however, claiming that Texaco had interfered with its plans to acquire three-sevenths of Getty's shares. In the resulting court case, a Texas State District Court in Houston ordered Texaco to pay Pennzoil $10.5 billion in damages. Arguing that important New York and Delaware state laws had been ignored in the case, Texaco obtained an injunction from a federal court in New York that temporarily halted the payment of damages while it appealed the decision.
In February 1987, the Texas Court of Appeals upheld the decision. To protect its assets while continuing its appeals, the company filed for protection under Chapter 11 of the United States Bankruptcy Code. Texaco spent most of 1987 in Chapter 11 while continuing its litigation. As a result, it incurred its first operating losses since the Great Depression, finishing the year $4.4 billion in the red. After the Texas Supreme Court refused to hear an appeal, New York financier Carl Icahn began buying Texaco's rapidly depreciating stock in an attempt to force it to settle with Pennzoil. A few weeks later Texaco agreed to pay Pennzoil $3 billion rather than appeal the decision to the Supreme Court, allowing it to begin planning for its emergence from Chapter 11.
Icahn continued to buy the company's stock, however, and in early 1988, he began a takeover bid. Texaco's board of directors had submitted a restructuring plan to the shareholders for meeting the company's debt obligations. Icahn favored, instead, the sale of the company. He launched the biggest proxy battle in business history when he tried to gain control of five seats on the board of directors, but he was ultimately defeated in a June 1988 shareholders' election. The board of directors then agreed to buy out Icahn's interest in Texaco.
With the Pennzoil case and the takeover attempt behind it, Texaco rebuilt its market position under the leadership of chairman and CEO James Kinnear by selling off assets and undertaking new joint ventures. From 1987 to 1989, it sold its operations in Germany and Canada, as well as fixed assets in the United States (including 2,500 gas stations) and the Middle East, raising $7 billion in the process. It also expanded drilling operations in the North Sea and offshore California, while continuing its exploration efforts in Asia, Africa, and South America.
In 1988, Texaco U.S.A. transferred approximately two-thirds of its refining and marketing operations to Star Enterprise, a joint venture established with Saudi Arabia's Aramco. Other moves have included the acquisition of Chevron's marketing operations in six European countries and the company's first commercial application of its coal gasification technology in an electric plant in the Los Angeles basin.
The recession of 1991--92 depressed demand for petroleum products and forced prices lower. As a result, Texaco's revenue dropped from $40.51 billion in 1990, to $37.16 billion in 1991, to $36.53 billion in 1992, while net income fell from $1.41 billion in 1990, to $1.29 billion in 1991, to $1.04 billion in 1992. By 1993, net income had improved to $1.07 billion, but revenue continued to fall, dropping to $34.07 billion. That same year Kinnear retired and was succeeded by Alfred C. DeCrane, Jr.
Restructuring and Focusing on Exploration and Production: Early to Middle 1990s
Starting in 1993, DeCrane guided Texaco through yet another restructuring intended to improve its competitiveness. Like almost every other U.S. oil company going through restructuring at the time, Texaco reduced its workforce. A cut of 2,500 workers, or 8 percent, over a one-year period contributed to a $200 million reduction in overhead in 1994. DeCrane also wanted Texaco to focus on its core oil and gas operations, so he divested the company of its chemical business. In 1994, Texaco sold the Texaco Chemical Company to the Huntsman Corporation for $850 million. That year the company also sold more than 300 scattered, unprofitable oil- and gas-producing properties to Apache Corporation for $600 million.
With the funds generated through these moves, Texaco could increase its budget for overseas exploration and production. Seeking to increase production by 125,000 barrels a day by the end of the decade, Texaco began to pursue opportunities in Russia, China, and Colombia. To minimize its exposure in such risky areas of operation as Russia, Texaco, like other oil companies, turned to joint ventures with its competitors. For instance, Texaco formed the Timan Pechora Company L.L.C. with Exxon, Amoco, and Norsk Hydro to negotiate a production-sharing agreement with Russia for the Timan Pechora Basin, which may hold more than two billion barrels of oil.
The much leaner Texaco of the mid-1990s had yet to return to its former prominence, but was in better shape than in many years. One positive sign was Texaco's reentry into the Canadian market in 1995, with its $30 million reacquisition of Texaco Canada Petroleum Inc. With the company committed to increasing its capital spending overseas from 45 percent of total capital spending to 55 percent by 1998, Texaco seemed determined to get its share of the oil available outside the United States.
In 1996, the firm budgeted $2.1 billion for international development. The firm delineated gas finds in the deep water of the Gulf of Mexico and developed new projects in the North Sea, Nigeria, Angola, Australia, and Southeast Asia. Production also was increased in Kuwait and Saudi Arabia. In July of that year, Peter Bijur was elected Texaco CEO and began to restructure its corporate management, forming three business units, including Worldwide Upstream, International Downstream, and Global Business.
Facing Problems During the Late 1990s
Amidst the positive changes occurring at Texaco, the firm fell subject to negative publicity in late 1996, when a tape recorded by a Texaco executive surfaced that caught corporate officials making racial slurs and planning to destroy documents related to a discrimination suit brought against the firm in 1994. Eleven days after the tape became public, the company settled the suit, paying $154 million to more than 1,500 black employees, with an additional $35 million in raises over a period of five years. The firm also adopted a new diversity training program in response to the suit.
Texaco continued to forge ahead, however, and in 1997, the company purchased California-based oil producer Monterey Resources Inc. for $1.4 billion, in the largest acquisition since the 1984 Getty purchase. The firm also completed its work on the Texaco Exploration Multispectral Spectrometer (TEEMS), a device used for locating oil and gas. Net income for the year rose by 32 percent over the previous year to $2.67 billion.
In early 1998, Texaco teamed up with Shell Oil Company to create Equilon Enterprises LLC, which combined the refining and marketing units of both companies, as well as their trading, transportation, and lubricants businesses, in the West and Midwest sections of the United States. Texaco and Shell also formed Motiva Enterprises LLC along with Saudi Aramco, which combined the eastern and Gulf Coast U.S. refining and marketing businesses of the three firms. These two new companies were created to cut costs and secure profits.
Crude oil prices fell in 1998, due to decreased demand related to the Asian economic crisis, economic conditions in Russian and Latin America, and warm weather in many regions. Texaco's aggressive expansion efforts of the past were curtailed as the firm was forced to cut capital spending and implement a $650 million cost-cutting program that included laying off more than 1,000 workers. The industry felt relief, however, when OPEC responded to the collapse in oil prices by cutting production. By the second half of 1999, prices became stable and the Asian economy began its turnaround.
Meanwhile, Texaco's downstream operations were faltering. Its Equilon and Motiva ventures were securing unremarkable profit margins. As a result, Texaco began focusing on its upstream operations in 1999 and also began selling off segments that did not fit with its business strategy. The firm made a wildcat discovery in Nigeria as well as offshore in Western Australia. The firm also acquired a 45 percent stake in the Philippine Malampaya gas project and increased its stake in the Venezuelan Hamaca project.
By the end of the decade, the company was once again facing lawsuits. In early 1999, the company settled a $3.1 million suit concerning a sex discrimination lawsuit filed by 186 female employees who claimed Texaco did not pay them fairly. A group of Ecuador Indians also brought suit against the firm claiming the company had ruined their rainforest and increased the risk of cancer in the area because of oil contamination.
Changes for the New Millennium
Texaco entered the new millennium focused on remaining a strong leader in the industry. As part of its growth strategy, the firm partnered with Tyumen Oil Company to market lubricants in open stores in Russia and Ukraine. The firm also purchased an interest in Prista Oil A.D., a Bulgarian-based lubricant company, and secured a lubricant supply agreement with AB Volvo.
The company once again resumed merger talks with Chevron Corporation in 2000--original merger negotiations had fallen through in 1999. Bijur wrote in the 2000 Texaco Annual Report, '2000 was a year in which the fundamental changes in our industry became more apparent then ever before. It was the year Texaco chose to take a dramatic step forward to ensure that, in this new world of energy, we can continue to deliver superior value to shareholders, not just for one year but for many years to come.' The dramatic step referred to in the report was the October 2000 announcement of the planned merger that would create ChevronTexaco Corporation. The proposed combination would form the third largest producer of oil and gas in the United States, with assets of $77 billion. The terms of the deal included Texaco shareholders receiving .77 shares of Chevron common stock for each share of Texaco common stock they owned, with Chevron shareholders keeping existing shares. Upon completion of the deal, company headquarters would be moved to San Francisco, California.
Bijur announced his departure from Texaco in February 2001. The Oil Daily reported, 'In his five years at the helm of Texaco, Bijur had a rough ride that ended with the sale of the company. Bijur abandoned Texaco's course of aggressive expansion by cutting capital expenditures. In 1998, he led Texaco in disappointing downstream deals by merging US assets with Royal Dutch/Shell and Saudi Aramco to create Equilon and Motiva, two companies Texaco now will have to sell in order to get antitrust approval for the Chevron merger.' The February 2001 article also reported that Texaco had not performed well under Bijur's leadership in comparison to other oil companies, ultimately leading to its sale to Chevron. Dave O'Reilly was slated to be chairman and CEO of the combined firm.
The European Union approved the Chevron purchase in March 2001, and the Federal Trade Commission was expected to give its go-ahead in spring 2001. Both companies planned to begin operation as ChevronTexaco in the summer of that year, although some details concerning the divestment of joint ventures threatened to stall the completion. Upon final completion of the deal, ChevronTexaco's position as the fourth largest integrated oil company in the world--behind Exxon Mobil Corporation, Royal Dutch/Shell Group, and BP plc--would be secured.
Principal Subsidiaries: Caltex Petroleum Corp. (50%); Equilon Enterprises LLC (44%); Four Star Oil & Gas Co.; Hydro-Texaco Holdings; Motiva Enterprises LLC (31%); Saudi Arabian Texaco Inc.; Star Enterprise (50%); TEPI Holdings Inc.; Texaco Cogeneration Co.; Texaco Exploration & Production Inc.; Texaco International Trader Inc.; Texaco Overseas Holdings Inc.; Texaco Pipeline Co.; Texaco Refining & Marketing Inc.; Texaco Trading & Transportation Inc.; TRMI Holdings Inc.; Texaco Brasil S.A. Produtos de Petroleo; Texaco Canada Petroleum Inc.; Texaco Denmark Inc.; Texaco Investments (Netherlands), Inc.; Texaco Overseas (Nigeria) Petroleum Co.; Texaco Panama Inc.; Texaco Britain Limited (U.K.); Texaco Limited (U.K.); Texaco North Sea U.K. Co.
Principal Competitors: BP plc; Exxon Mobil Corporation; Royal Dutch/Shell Group.