CHEVRON, THE TENTH LARGEST Fortune 500 industrial firm in 1991, is in many ways a typical major oil company. It traces its history back to John D. Rockefeller’s Standard Oil trust; it has benefited from the Middle East’s massive petroleum reserves; it capitalized on the mergers-and-acquisitions wave that swept the oil industry in the 1980s; and it has a dismal environmental record.
Known until 1984 as Standard Oil of California, Chevron has been one of the more conservative of the oil majors but has periodically made dramatic moves. The first of these came in the 1930s, when the company began exploration in Saudi Arabia - which had been shunned by some of the larger oil players - and ended up discovering the biggest petroleum reserve in the world.
In 1984, Gulf Oil brought in Chevron as a white knight to save it from a hostile takeover threatened by raider T. Boone Pickens, Jr. The subsequent $13.2 billion Chevron buyout of Gulf stands as the second largest merger in corporate history. Recently, the company has fought the bureaucracy in the former Soviet Union to move ahead with a plan - the largest Western project in the country - to explore for oil near the Caspian Sea.
Chevron’s growth
During the 1860s, a hard band of entrepreneurs made numerous attempts in California to repeat Edwin Drakes’ 1859 discovery of oil in Pennsylvania, which gave rise to the U.S. petroleum industry. Although widespread drilling failed to yield dramatic results, these entrepreneurs kept the faith while fighting among each other over leases and deeds. Among them was San Francisco businessman Charles N. Felton, who in 1879 formed the Pacific Coast Oil Co. (PCO) and soon brought in other oil players such as Frederick B. Taylor and Demetrius G. Scofield.
PCO’s early drilling achieved some success, and within a few years the company had built pipelines from producing areas such as Moody Gulch in Santa Clara County to a refinery it constructed in Alameda, across the bay from San Francisco. The refinery was the largest facility of its kind west of Cleveland. PCO also built the first steel tanker in order to carry crude from the town of Ventura, near the Pico Canyon fields north of Los Angeles, to the Alameda refinery.
During the 1880s, PCO faced increased competition, most notably from the Standard Oil empire, which was shipping oil from the East via ships traveling around Cape Horn. Using its Iowa subsidiary, Standard moved to capture much of the market for kerosene, gasoline, naphtha and other products. Then, in the 1890s, as oil was discovered underneath Los Angeles, Standard entered the production end of the business in the West, both through buying existing operations and creating new ones. In 1900, PCO decided to give up the battle and sell out to Standard. Six years later the Rockefeller empire consolidated its West Coast holdings as Standard Oil Company (California).
In 1906, the federal government brought an antitrust suit against the Standard empire. After five years of legal proceedings, the Supreme Court ordered the breakup of the Rockefeller Trust into some 30 separate companies, including Standard Oil (California).
Once independent, California Standard stepped up its exploration activities, sending drilling parties to Argentina, Colombia, Ecuador, Mexico and the Philippines. In 1926, the company merged with Pacific Oil Co., a subsidiary of Southern Pacific, and began calling itself Standard Oil of California, or Socal for short.
During the 1930s, Socal focused its exploration efforts on the Middle East, first by obtaining a concession in Bahrain. The effort paid off, but the company already had its eye on a much larger territory: the nearby kingdom of Saudi Arabia. Socal’s more powerful competitors, Standard Oil of New Jersey and Royal Dutch/Shell, had shown little interest in the Saudi territory, which was part of the region covered by the 1928 Red Line Agreement, a pact in which the leading producers agreed to cooperate with one another on any projects within the confines of the old Ottoman Empire.
Socal was not part of the Red Line arrangement, so it was free to explore in Saudi Arabia on its own. In 1933, King Ibn Saud granted the company a concession that turned out to contain the largest oil reserves in the world. The oil was so plentiful that Socal brought in Texaco to form a joint marketing company which they dubbed Caltex. Even that was not sufficient, so in 1944 the two companies formed the Arabian American Oil Co., or Aramco, which soon took on Jersey Standard and Socony as partners.
After World War II, the company grew along with the development of the West Coast, but it also expanded its refining and marketing operations to the Eastern Seaboard. In 1961, Socal merged with Standard Oil (Kentucky), the leading marketer in five Southern states. The company continued its foreign exploration and production in places such as Indochina, Libya, Nigeria and the North Sea, but it remained highly dependent on the output from Saudi Arabia. The Saudi government took control of the operations within the country’s borders in 1980.
The California company was slow to join the diversification trend among the oil majors. It finally made its move in 1979 with a takeover bid for the mining giant AMAX. When the board of AMAX rebuffed Socal, it backed off. The same thing happened two years later, when Socal came courting again with a higher bid.
Socal next assumed the industry spotlight in 1984, amid the challenges being posed by maverick oilman T. Boone Pickens, Jr. to the petroleum giants. When Pickens set his sights on Gulf Oil, the Pittsburgh company turned to Socal as a white knight. Socal, which changed its name to Chevron during this period, ended up acquiring Gulf for some $13.2 billion.
Gulf had its beginnings in the discovery of oil in Texas in the first years of the century. The Mellon family of Pittsburgh helped finance the pioneering J.M. Guffey Petroleum Co. and built a refining operation at Port Arthur on the Gulf of Mexico. In 1907, the two operations were combined as Gulf Oil, which became a formidable competitor to the Standard Oil trust. Gulf later was among the U.S. companies to participate in the Iraq Petroleum Company and was a party to the Red Line Agreement. It won a concession in Kuwait in partnership with Anglo-Iranian (now British Petroleum). In the 1970s, Gulf was rocked by revelations that it had made large, illegal campaign contributions in the United States and payoffs to government officials abroad. The scandal resulted in the resignations of several top executives.
Chevron’s purchase of Gulf was hailed for greatly expanding the company’s production capacity and its marketing network, but it also created a huge debt load. To help relieve the burden, Chevron sold just under half of Gulf’s Canadian operation to the Reichmann family of Toronto for $2.5 billion.
In 1988, Chevron purchased Tenneco’s oil and gas reserves in the Gulf of Mexico. The following year Chevron found itself the subject of a possible takeover after Pennzoil used much of the $3 billion it won in its legal battle with Texaco to buy a block of Chevron stock. The California company turned back Pennzoil by getting a large portion of stock into friendly hands through an employee stock ownership plan.
Meanwhile, Chevron has sought to shore up its slipping profitability by selling off marginal oil properties and eliminating several thousand jobs.
Chevron today - spanning the globe
Chevron is an integrated petroleum company. It is the largest combined oil and natural gas producer in the lower 48 U.S. states, largely due to its extensive operations in the Gulf of Mexico. The corporation also carries out exploration and production activities in Canada , Angola , Australia , Indonesia , the United Kingdom portion of the North Sea and the South China Sea. Its reserves at the end of 1990 were 2.8 billion barrels of crude oil, condensate and natural gas liquids and 9.3 trillion cubic feet of natural gas. Production in 1990 totaled some 838,000 barrels of crude oil and natural gas liquids per day.
The company is a partner with Texaco in the Caltex Group of companies, which explores for and produces oil in Indonesia and refines and markets in Asia, Africa, Australia and New Zealand .
Chevron operates 12 refineries in the United States, one in Canada and one in the United Kingdom. Its affiliates, including Caltex, operate an additional 14 foreign facilities.
Chevron’s global operations have generated strong criticisms from all over the globe.
o Anti-apartheid activists long denounced the company for maintaining operations in South Africa despite calls for disinvestment by the African National Congress and other representative Black South African organizations and leaders. Ironically, after its purchase of Gulf, Chevron came under fire from some U.S. conservatives for maintaining investments (inherited from Gulf) in Angola.
o In Papua New Guinea , Chevron is developing two oil fields which the company expects will yield 130,000 barrels a day by late 1992. Papua New Guinea is receiving a small royalty - 1.25 percent - for its oil, and the traditional landowners of the areas where Chevron is drilling will receive only one third of that, according to Colleen Murphy-Dunning, New Guinea campaign coordinator of the San Francisco-based Rainforest Action Network.
Murphy-Dunning, who recently returned from a stay in Papua New Guinea, reports that the local people are "really upset and totally disillusioned with Chevron." She says the landowners express anger that Chevron is not delivering infrastructure services, such as health clinics and water, that it promised them. They are also concerned about environmental issues associated with Chevron’s operations and how the operations threaten their culture. Papua New Guinea landowners have a history of violent closures of corporate resource-extracting operations, and Murphy-Dunning says many of them are now preparing for such actions against Chevron.
Chevron did not respond to requests for answers to Murphy-Dunning’s allegations.
o Soviet officials awarded Chevron drilling rights to the oil-rich Tengiz field in Kazakhstan in 1991. Analysts believe Tengiz may hold 25 billion barrels of oil, more than two times as much as Alaska’s Prudhoe Bay. The tentative terms of the Soviet-Chevron deal came under heated attack in the Soviet Union, where critics blamed government officials for entering into a sweetheart arrangement with Chevron. A story in the Moscow News called the agreement "a dirty deal designed to turn a huge Soviet oil reserve into a black hole without yielding a profit" to the Soviet Union.
The deal fell apart, however, with the breakup of the Soviet Union, as the power to negotiate over Tengiz devolved to the Republic of Kazakhstan. Now Chevron is dickering with the Kazakhstan government over terms for drilling, with Kazakh officials reportedly driving a harder bargain than Chevron expected.
A Chevron spokesperson declined to comment on the state of the ongoing negotiations.
Environmental rhetoric and reality
"Chevron’s approach to environmental issues is aggressive and far-sighted," says Lloyd Elkins, Chevron vice president for environmental affairs, trading and logistics. "In our view, just complying with the law is not sufficient. We are committed to looking ahead, anticipating change and developing innovative solutions to environmental concerns."
Chevron has a long way to go before its record matches that rhetoric, however.
Despite a much-ballyhooed company program devoted to the reduction of toxics, Chevron facilities in California have a poor record of compliance with environmental regulations. According to a study of EPA data by the Citizens Fund, Chevron was responsible for the forty-fourth largest volume (8.5 million pounds) of toxic releases into the air among the country’s manufacturing companies in 1989 (the latest figures available).
The company has one of the industry’s worst oil spill records. "Big Spillers," a 1989 study produced by Essential Information, found that Chevron reported the largest spill volume - 2.8 million gallons - in the years 1984 to 1988 of all the major U.S. oil companies. The report’s authors omitted an 11 million gallon leak by Chevron’s El Segundo, California refinery because they could not obtain precise data for the period examined. The leak occurred over a 10-year period.
Some of Chevron’s worst problems have been in Richmond, California, where it has a refinery, a pesticide plant and other facilities. A local group called Citizens for a Better Environment published a report in 1989 that acknowledged that Chevron had reduced waste-water discharges at the facility but said that toxic air emissions were still at unacceptably high levels. In 1988, the company paid $550,000 to settle a state lawsuit brought in connection with toxic emissions at the plant.
An explosion and fire in 1989 at the Richmond refinery severely burned three workers. A U.S. Occupational Safety and Health Administration inspection following the accident found that workers who were responsible for assisting firefighters had not been provided with even basic safety equipment. OSHA later fined the company $275,000 for more than 100 willful and serious violations.
Chevron’s chemical-producing subsidiary has also drawn the ire of environmentalists. For example, Chevron Chemical produces paraquat, one of the Pesticide Action Network’s "Dirty Dozen" pesticides.
Same as the rest
Chevron’s mission statement declares, "We will continuously strive to become better than the best." But there is no evidence of that commitment in its record - Chevron is just another big oil company, scanning the world for petroleum and profits, with little regard for the social consequences of its operations.
o The state of Alaska is preparing to go trial in mid-April 1992 against Chevron, Exxon , Mobil and Texaco over disputed oil royalty payments. The state alleged in 1977 that the companies undervalued their oil and overvalued transportation costs. In the last year, the state has settled the same charges against BP for $185 million and against Arco for $287 million.
o The U.S. Internal Revenue Service charges that, from 1979 to 1981, Chevron, Mobil, Exxon and Texaco, partners in Aramco, routed oil from Saudi Arabia - which they acquired at as much as $6 a barrel below the market rate - through foreign subsidiaries and marked up the price there to avoid paying U.S. taxes on profits from selling the oil. Chevron and the other companies deny the allegations, but may face bills for as much as $8 billion in back taxes. Mobil received a back-tax bill of $300 million in January 1992, and potentially will owe an additional $1 billion in interest charges.
o In December 1991, the U.S. Environmental Protection Agency (EPA) reached the biggest settlement in the history of the Superfund program with 178 companies, including Chevron. The companies agreed to pay at least $130 million for the cleanup costs at a California landfill polluted with as much as 300 million gallons of hazardous waste.
o In September 1991, a Texas federal court approved a $111.4 million partial settlement of a class action suit by former Gulf Oil employees against Chevron (which purchased Gulf in 1984). The employees claimed that they, not Chevron, were entitled to surplus monies in Gulf’s pension fund.
o In August 1991, Chevron and three other companies agreed to pay the state of California and the city of Long Beach $180 million to resolve charges that they conspired to pay government entities artificially low prices for crude oil. Chevron continues to deny the charges. "This is yet another example of lawsuits being filed for such exorbitant amounts that innocent companies have no prudent alternative to pay what is in effect legal ransom," Chevron chair Ken Derr said.
o In 1991, Chevron agreed to a $214,000 fine imposed by Orange County, California for violations of underground oil storage tank monitoring requirements.
o In May 1991, Chevron settled a class action discrimination suit filed by black and Latino oil workers for $1.5 million. Chevron did not admit to having discriminated against the workers, leading more than half of the class to object to the settlement.
o In May 1988, the California Regional Water Quality Control Board ordered Chevron to conduct an $86 million cleanup of the water below its El Segundo refinery. Officials estimate up to 252 million gallons of fuel had leaked from the refinery into the underground water table.
o In April 1988, Chevron agreed to put $100,000 into land conservation to settle a Sierra Club lawsuit over the company’s dumping of pollutants into Santa Monica Bay from its El Segundo refinery. The settlement followed a January 1988 settlement of a related EPA suit. In that instance, Chevron agreed to pay $1.5 million for waste-water discharges into the Santa Monica Bay. EPA had charged Chevron with 880 violations of the federal Clean Water Act since 1981.
o In March 1987, the EPA warned Mineral Wells, Texas townspeople not to drink tap water after a corroded Chevron pipeline leaked 16,800 gallons of fuel which was washed by rain into the creek from which the town gets its drinking water.
o In September 1985, an El Paso, Texas federal court assessed a $6 million fine against Chevron for the company’s violation of federal and state standards for the emission of sulfur dioxide.
o In November 1984, the Supreme Court let stand a $60,000 jury award to an agricultural worker who died in 1982 after exposure to the Chevron-manufactured herbicide, paraquat. The man’s children argued the paraquat label did not properly warn that the chemical could be absorbed through the skin.
o In October 1984, Chevron paid the state of California $250,000 for marketing more than 9 million gallons of high-sulfur gasoline in violation of state air quality standards.
o In May 1984, Chevron agreed to pay $15 million to settle a lawsuit filed by the survivors of two workers killed in an August 1980 fire at the company’s Honolulu gasoline storage tank facility. A jury had earlier awarded $27.7 million to the survivors.
o In July 1981, Chevron agreed to pay $82.5 million to settle U.S. Justice Department allegations that it overcharged consumers while oil price controls were in effect between 1973 and January 1981. Chevron did not admit to any wrongdoing.
o In a 1981 trial, Chevron admitted that its station leaked thousands
of gallons of gasoline into the sewer lines serving residents of Northglenn,
Colorado. The gasoline triggered explosions and forced three evacuations
in 1980. In a July 1981 partial settlement to a lawsuit filed by Northglenn
residents, Chevron agreed to purchase the homes of 42 families for $6 million,
approximately twice their value.