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How Standard Oil gave birth to the supermajors of today

18/09/2018
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On 8th July 1839 a child named John D. Rockefeller was born in New York to a large, poor family whose father was a travelling merchant selling the equivalent of today’s homeopathic medicine.

Rockefeller grew up learning how to hustle and how to make a living with nothing. He had many jobs throughout his teenage years, and never really attended school. That did not stop Rockefeller from making an impact on the world.
Chevron operates several gas stations under the trademark 'Standard' in order to retain control over its former trademark.
(Chevron Corporation operates several gas stations under the trademark “Standard” in order to retain control over its former trademark, as U.S. trademark law operates under a use-it-or-lose-it rule. Image via Wikipedia).

In 1859, something happened on American soil that would change the course of the United States (U.S.). The first American oil well was discovered. In the late 1880s, oil was not as in demand as today. There were few applications for it beyond Kerosene which was predominantly used in lamps.

Rockefeller studied the oil industry and realised that the biggest profits were not be made from drilling, but from refining. Rockefeller began hiring expert chemists and engineers to optimise the refining process. In 1863, the first rail road was built connecting the oil fields to Cleveland, Ohio which Rockefeller had made his home. The rail road was the catalyst Rockefeller needed to open his first refinery. During this years of studying the industry, Rockefeller knew that most refineries operated at around 60% efficiency. He knew his refinery could perform better. Using the experts he’d hired, efficiency was improved. Rockefeller is notable for another oil industry innovation. He noted that when oil is refined a number of usable by-products are produced. Rockefeller realised that there was a market for these by-products and began marketing and selling paraffin wax, tar and naphtha.
John D. Rockefeller pictured in 1885.
(John D. Rockefeller in 1885. Image via the Rockefeller Archive Center).

Rockefeller’s plan was to become the market leader in oil refining. In 1865 there were 26 refineries operating in Cleveland, and with the next 5 years Rockefeller would own all but 4 of them. His methods were not always entirely ethical and looked upon unfavourably by the other refinery owners. Nevertheless, Rockefeller had a vision for his business and was determined to achieve it. By 1870, his business was becoming too big to run as a partnership, so he decided to incorporate all the separate businesses he owned to form the Standard Oil of Ohio company.

Business boomed, and Standard Oil went from strength-to-strength effectively controlling the oil industry in pockets of the U.S. By 1880 Standard Oil had acquired refineries across north eastern America and was responsible for refining a staggering 90% of the country’s entire oil.

Rockefeller and his company’s near monopoly position attracted considerable notoriety, and this brought the scrutiny of Ohio legislators who became determined to bring him down. However, as is was often the way with Rockefeller, he was one step ahead of them. In 1882, Rockefeller re-incorporated in New Jersey, creating the Standard Oil Trust, which held stakes in over 40 companies.

The late 1880s saw Standard Oil at the peak of its power as a single entity. It owned 20,000 oil wells, 4,000 miles of pipeline and employed 100,000 people.

However, by 1911 public outcry over the perceived monopolistic power of Standard Oil saw the US Supreme Court rule that Standard Oil be broken up into separate, smaller entities. In total, 34 stand-alone companies were created from the remnants of Standard Oil. This however, didn’t have a negative impact on Rockefeller or his family. As he owned a quarter of the shares of the resultant companies, and those share values mostly doubled, he emerged from the dissolution of Standard Oil as the richest man in the world.

If Standard Oil existed today in its single trust format, it would have been worth over $1 trillion making it the richest company in the world alongside Apple. And, John D. Rockefeller, he were around today, would have had a net worth of around $400 billion making him the richest man on planet Earth.

What’s left of Standard Oil?

Whilst Standard Oil in its original form no longer exists (the rights to the name are owned by a number of companies today, including BP and Chevron) Standard Oil laid the foundation for the oil and gas industry supermajors we know today.

The remnants of Standard Oil can be traced to four of the world’s largest oil and gas companies; Chevron, ExxonMobil, BP and Marathon. What Standard Oil did was to create the framework for the world’s leading oil companies to operate. The direct link of each company is demonstrated in the infographic below.

Courtesy of: Visual Capitalist
 
The oil industry exists in its current form thanks to Standard Oil and the efforts of John D. Rockefeller.

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How Standard Oil gave birth to the supermajors of today - Time to read 5 min
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