Corporate Profile

Chevron: The Big Oil Boys

by Philip Mattera

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.

 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.



Chevron's Rap Sheet

A SAMPLING OF CHEVRON'S RECORD of crime, violence and mendacity during the last dozen years: