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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.
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.
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.
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 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.
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&mdashø 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 plc; 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 Polymeres 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.; Petroleos 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.