Standard Oil

John D. Rockefeller founded Standard Oil in 1870 in Ohio. Rockefeller was descended from German & English immigrants. He founded the company with his brother William, English chemist Samuel Andrews and Henry Flagler. Flagler’s half brother, Stephen Harkness was a silent partner, providing the cash for Flagler’s investment. The original idea for the enterprise actually came from Andrews who is credited with developing the process of fractional distillation which allowed the crude oil to be split more effectively into many saleable products.

John D. was the business brains behind the company and retired in 1897, but before this he had built a strong organisation, some say by dodgy dealings. His father was rumoured to be a charlatan as well! What Rockefeller did was to figure out how to work around the Ohio State laws to increase the size of his business and pushed many smaller companies to the wall or into a corner for acquisition. Rockefeller created the Standard Oil Trust that owned all of the companies and was controlled by the Rockefeller, Harkness, Flagler and other families.

The Trust bought competitors and closed them down if they didn’t have anything to add to the organisation and Rockefeller did deals with the railroads to reduce the cost of transportation. His deals with the railroads meant that other companies couldn’t ship their oil and the U.S. Government started to take notice. The essence of Rockefeller’s strategy was to own or control the whole supply chain – he owned the drillers, the transportation (including pipe companies), the refining and the distribution of the end products.

In 1890, the U.S. Government passed the first of many anti-trust laws to prevent anti-competitive practices. Standard Oil was in their sights! At this time, Standard Oil of Ohio controlled over 80% of the flow of refined oil in the U.S. Ohio State sued the Trust so they spun off Standard Oil of Ohio but kept control of the entity. New Jersey did the same, so the Trust created the Standard Oil of New Jersey, a holding company that controlled 41 other entities.

It took nearly 20 years but the U.S. Government finally won their overall lawsuit (based on the Sherman Anti-Trust Act) and in 1911, Standard Oil of New Jersey was split into 34 separate companies. So what the Supreme Court did was unravel the company back into it’s State based businesses, reversing decades of acquisitions. However, it also made Rockefeller – the Government’s main target, a billionaire. He was the main shareholder of the company so he (and the Harkness & Flagler families) received shares in each of the new entities, which gained in value filling his bank account!

The entities spun off included refining, transportation, chemicals and lubrication companies. The main entities were:

Standard Oil of New York (Socony) – who registered the trademark Mobiloil in 1920, merged with Vacuum Oil in 1930, then renamed Mobil in 1966 and merged with Exxon to form ExxonMobil in 1998.

Standard Oil of New Jersey – known as Jersey Standard, who merged with Humble Oil, Humble was an affiliate who developed the Esso brand. They merged completely by 1973 along with other companies creating the Exxon company, now ExxonMobil.

Standard Oil of Ohio (Sohio) – the original company, merged with BP in 1968, then BP merged with Amoco in 1998 retaining the BP name.

Standard Oil of California (Socal) – bought Standard Oil of Iowa and later merged with Gulf Oil in 1984 and renamed Chevron. In 2001 it merged with Texaco to form ChevronTexaco, but now simply calls itself Chevron. The Caltex brand came from an agreement between Socal and Texaco in the 1930s.

Standard Oil of Indiana – bought Pan American in 1925 who owned the Amoco (American Oil Company) name. It bought Standard Oil of Minnesota and Standard Oil of Illinois. The Amoco brand became dominant and it merged with BP.

Standard Oil of Kentucky – bought by Standard Oil of California in 1961, so now part of Chevron.

Standard Oil of Louisiana – bought by Standard Oil of New Jersey in 1944, so now part of ExxonMobil.

Continental Oil – renamed Conoco and merged with Phillips in 2002 to form ConocoPhillips.

Atlantic Refining – merged with Richfield in 1966 to form ARCO. They bought Sinclair in 1969 and then started to collapse and split itself by selling pieces to BP, Shell and Sunoco.

Waters-Pierce – renamed Pierce Petroleum and acquired by Sinclair in 1930 and now part of BP.

Standard Oil of Kansas was a refining organisation gobbled up by Amoco, so now part of BP.

You can see that the larger spinoffs are now owned by three entities: ExxonMobil, BP and Chevron. So we’re almost back to square one! Incidentally, Amoco used a modified version of the original Standard Oil logo and many of the current owners still have products or outlets using the name “Standard”.

The Government’s actions probably did some good, but when you look at the last 100 years, the spinoffs have followed Rockefeller’s strategy by consolidating and buying up competitors, so no real change there then – and one wonders why ExxonMobil and BP/Amoco were allowed to merge as it would have broken many of the anti-trust laws designed to stop this kind of exercise. Still, it’s all a numbers game. As AT&T & Microsoft also found out later, you can’t have over 80% of the market unless you’re Government controlled!

With the ongoing developments in the oil industry and constant merger plays, we might see a mega-merger of two of the three controlling entities which really would complete Rockefeller’s strategy albeit over a century later than planned!