Amerada Hess Corporation
Address:
1185 Avenue of the Americas
New York, New York 10036
U.S.A.
Telephone: (212) 997-8500
Fax: (212) 536-8390
http://www.hess.com
Statistics:
Public Company
Incorporated: 1920 as Amerada Corporation
Employees: 10,838
Sales: $11.9 billion (2002)
Stock Exchanges: New York
Ticker Symbol: AHC
NAIC: 213112 Support Activities for Oil and Gas Operations; 211111 Crude Petroleum and Natural Gas Extraction; 32411 Petroleum Refineries
Company Perspectives:
Our vision is to be the leading independent, integrated oil and gas company delivering superior financial returns with long-term profitable growth. We strive to be the leading independent in each of our businesses, to maximize shareholder value through superior financial performance, and to be in the top one-third of oil companies based on returns on capital employed.
Key Dates:
1919: Lord Cowdray establishes the Amerada Corp. to explore for petroleum.
1933: Amerada and Stranolind Oil make the first discoveries in the Katy, Texas, oil and gas fields.
1941: Amerada merges with its principal subsidiary to form Amerada Petroleum Corp.
1962: Leon Hess takes his company public as Hess Oil & Chemical Corp.
1966: Leon Hess purchases nearly 10 percent of Amerada's common stock.
1969: Hess and Amerada merge to form the Amerada Hess Corporation.
1985: Monsanto Oil Company is acquired.
1998: Amerada sells a 50 percent interest in its U.S. Virgin Islands refinery.
2001: The company acquires Triton Energy Ltd.
Company History:
Amerada Hess Corporation operates as a leading integrated oil and gas concern involved in exploration, production, refining, energy marketing, and retail marketing through a chain of over 1,000 Hess gas stations in the eastern U.S. The company and partner Petroleos de Venezuela S.A. operate the Hovensa refinery in St. Croix, one of the largest refineries in the world with an operating capacity of 500,000 barrels a day. The majority of the firm's exploration and production takes place in the United States, the United Kingdom, Norway, North and West Africa, and Southeast Asia. During 2001, the company's proved reserves reached 1.4 billion barrels of oil equivalent. Nearly 90 percent of Amerada's capital spending is related to the search, development, and production of crude oil and natural gas.
Origins
The Amerada Hess story begins with the English oil entrepreneur Lord Cowdray, who early in 1919 set up the Amerada Corporation to explore for petroleum in the United States, Canada, and Central America. At this time, Everette DeGolyer, a geophysicist and engineer with a record of important technical innovations, was made Amerada's first vice-president and general manager. DeGolyer repeatedly stressed the importance of both geological competence and the then-newly evolving technologies of gravimetric and seismic reflection exploration, arguing that Amerada's ultimate success lay in making accurate and timely scientific estimates and appraisals of oil well production, as well as in the equally difficult economic estimates of oil market futures.
The company's first operations centered on wildcat and development fields in Kansas, Oklahoma, Texas, Louisiana, and Alabama. As well as having ties to the Mexican Eagle Oil Company, Amerada Corporation by 1920 controlled two subsidiaries, Goodrich Oil Company and Cameron Oil Company. Early successes were in major fields in Kansas, such as the Urschel, and in Oklahoma (the Osage, Seminole, Cromwell, and others). In 1923, DeGolyer was one of the first and most vocal advocates for systematic, as opposed to guesswork, exploration for certain kinds of oil traps around salt domes, frequently found in the Gulf of Mexico states. After state, congressional, and private rumblings about the large land and financial holdings of foreign-controlled oil companies in the United States, between 1924 and 1926 Lord Cowdray sold Amerada stock on the United States market at $26 a share, principally through the Rycade Corporation, to fund the acquisition of oil field holdings in Texas.
As many explorationists and historians acknowledge, much of the drama and success of the Amerada Corporation before and during the Depression was tied closely to its pioneering use of geophysical exploration methods. In 1922, DeGolyer conducted what was apparently the first survey of an oil deposit at the famous Spindletop Salt Dome in Texas using advanced geophysical techniques. To further develop and perfect these methods, in 1925, after oil's recovery from approximately 50 cents to $3 a barrel, DeGolyer together with J. Clarence Karcher organized a subsidiary company, Geophysical Research Corporation (GRC) of New Jersey, which established numerous patents and which eventually spawned Geophysical Service, Incorporated, now Texas Instruments. Pioneering many early joint ventures, Amerada's first major success in new field prospecting by geophysical methods came with the discovery of the Nash dome, along with ten others elsewhere, on a lease held by Louisiana Land and Exploration Company (LL&E), systematically exploring over three million acres of south Louisiana swamps in a fraction of the time of prior surveys. GRC undertook another major survey for Amerada Corporation in 1927 and 1928, finding oil deposits in the Wilcox sands, which had been missed by many other major and independent oil companies. DeGolyer's innovations and discoveries led to his becoming president in 1929, and in 1930 chairman of the board of Amerada. Notwithstanding continued exploration successes because of geophysical innovations developed during the Depression, in 1932 DeGolyer resigned from the company to continue work as an independent consultant and exploration company.
After extensive joint seismic exploration survey in 1933, Amerada and Stanolind Oil & Gas made the first discoveries in the famous Katy, Texas, oil and gas fields. Further extension surveys led to other discoveries near Houston, Texas. In 1945, Amerada was responsible for finding another major reservoir in the west Texas Permian Basin. The history of the famous North Dakota Williston Basin oil fields emerged into geological and public attention when Amerada, between 1951 and 1953, completed major reconnaissance seismic surveys leading to an important wildcat discovery, in the Nesson anticline.
Mergers and Growth: 1940s-60s
In 1941, Amerada Corporation merged with its principal operating subsidiary and became Amerada Petroleum Corporation. Throughout the World War II period, Amerada operated exclusively within the United States and Canada. In December 1948, Amerada Petroleum Corporation, Continental Oil Company (now Conoco), and Ohio Oil Company (now Marathon) formed the Conorada Petroleum Corporation. Conorada was charged with petroleum exploration outside the United States and Canada, and negotiated major concessions in Egypt around the Qatiara Depression near the Libyan border. In January 1963, Amerada acquired the stock interests of Conorada held by Conoco and Marathon, becoming full owner of Conorada. In 1964, Amerada joined with Marathon, Continental, and Shell to form the major Oasis petroleum consortium in Libya, reportedly holding half of Libyan production--estimated at one million barrels a day--and paying only 30 cents a barrel in taxes compared to Exxon's 90 cents.
In 1950, Amerada became active in petroleum pipelining and refining. By 1954, Amerada Petroleum Corporation was one of a group of small producers that sold its output at the well-head. On July 15, 1966, Fortune magazine reported that since 1957 Amerada Petroleum had ranked first in profit margin on crude oil and natural gas, holding full or partial interest in over six million acres in both the United States and Canada, and some 68 million acres overseas. During this period, Amerada Petroleum had been producing natural gas in the North Sea in partnership with Standard Oil Company of Indiana. In spring 1966, Leon Hess bought nearly 10 percent of Amerada's outstanding common stock from the Bank of England, which had acquired it during World War II.
Shortly before World War II, Leon Hess had initiated expansion of his father's original fuel oil business. His father, Mores Hess, founded the small business in 1925. In the late 1930s, Leon Hess refocused the business to post-refinery residual oil, usually treated as waste and used as fuel only for large boilers and utility operations. Hess apparently recognized that as power companies and industrial consumers progressively switched from coal to oil, residual oil had the potential to become a profitable commodity. Hess subsequently created a tank-truck fleet specifically designed to transport residual oil to power plants. The trucks were equipped with heaters that kept the oil hot and thus still useful. Adding more distribution depots and a provision terminal, Hess was able to underbid his competition for a variety of federal fuel contracts, a traditional source of significant revenue throughout the company's history. It is probable that Hess's own World War II experience in the army as a petroleum supply officer was a notable source of his later ideas about organization and discipline in business.
The late 1940s marked the start of Hess's first large profits from residual oil sales, serving customers such as Public Service Electric & Gas. Hess competed on a tight price basis, establishing large stations at prime locations close to refineries and depots and pioneering gasoline sales without services. After a period of further expansion through debt, in early 1962 the high debt-to-equity ratio forced Hess to take his company public by means of a merger with the Cletrac Corporation. Under terms of the May 1962 merger, the new company became Hess Oil & Chemical Corporation, with Hess becoming CEO and chief stockholder.
At this point, all of Hess's operations were exclusively in refining, transportation, distribution, and retailing. Because of the opportunities, and possible vulnerability, Hess considered a merger with a larger integrated independent oil company. The Amerada-Hess merger that ultimately ensued has generally been acknowledged as an extremely well-planned and well-timed success, resulting in a sizable gain in crude supply coupled with a dramatic reduction in federal income tax liabilities at a time when oil prices were low and expected to remain so. At the time of the merger, Amerada Petroleum had no debt and had proven oil reserves exceeding 500 million barrels in the United States and 750,000 barrels in Libya through the Oasis consortium. Hess made an initial purchase of Amerada stock in 1966. Amerada's chairman tried to stop the takeover, first by an arranged merger with Ashland Oil, then later by an agreement with Phillips Petroleum. By offering a notable over-market price, Hess invested more than $250 million in what Fortune, in January 1970, called "one of Hess's most dangerous gambles." In spring 1969, Phillips withdrew from the contest for ownership, and despite a May 1969 suit filed in federal district court to nullify the merger, Amerada's stockholders approved it by an overwhelming margin.
Because of what several analysts consider some surprising similarities in strategy and outlook, the two companies integrated so smoothly that the new Amerada Hess Corporation rapidly pursued an aggressive and successful exploration program. In May 1970, Amerada Hess drilled the first successful wildcat well in Prudhoe Bay on Alaska's North Slope. In mid-1971, Amerada Hess was one of seven oil companies invited by the Canadian government to explore the building of pipelines from oil fields in Alaska's North Slope through Canada to the United States. In September 1974, the U.S. Department of the Interior reported that the company was the first to apply for permits to unload supertankers from the Trans-Alaska Pipeline.
Between 1966 and 1967, the Hess Oil & Chemical Corporation built a refinery on St. Croix in the Virgin Islands. In late 1967, plans had been approved--following negotiations involving Hess, the local government, and the U.S. Department of the Interior--on a ten-year plan to promote economic development in the Virgin Islands by U.S. industry, reciprocally permitting Hess the right to ship 15,000 barrels per day of finished oil products made from foreign crude to the U.S. mainland. The reported rationale was the need for cost-efficient heating oil in the northeastern United States, where Hess was a major refiner and fuel dealer to the government and industry. Some adverse attention and controversy arose following Secretary of the Interior Stewart L. Udall's announcement that a similar proposal by the Coastal States Gas Producing Company had been finally rejected in favor of Hess. In November 1970, Amerada Hess was charged by the U.S. Interior Department with import-rules violation from claims that it had made no significant expenditures for upgrading its Virgin Island facilities and employee quota and apparently had not paid the agreed-upon royalty of 50 cents per barrel to the local development and conservation fund. By 1979, the company's St. Croix refinery output was reported as 700,000 barrels per day, the world's largest. A longtime supplier of jet and fuel oil to the Defense Supply Agency, the Defense Logistics Agency, and the Defense Fuel Supply center, Amerada Hess had also long been a chief supplier of residual and fuel oil to numerous community power and light companies. In April 1975, Amerada Hess was one of several oil companies charged by the Federal Energy Administration with pricing violations. In August 1978, Amerada Hess was one of five firms convicted on federal charges of fixing retail gasoline prices.
Oil Embargos and Other Crises: 1970s-80s
In 1973, Amerada Hess received permission from U.S. President Richard Nixon's Office of Emergency Preparedness to import an extra six million barrels per day of heating oil to ease the nation's shortages but received some unfavorable notice by selling primarily to the East instead of the more energy-needy Midwest regions. With the prices of crude oil increasing threefold in less than six months, Amerada Hess received notable profits. Net reported earnings of $133 million in 1971 increased to $246 million in 1973, and to $577 million by 1980. On July 16, 1979, Business Week magazine reported Amerada Hess as being among the biggest gainers of the United States's oil entitlements program, established in 1974 to equalize costs between domestic refineries supplied by lower-priced domestic sources and those depending on higher-priced foreign imports.
Including its role as major partner--with Hunt, Getty, and Louisiana Land and Exploration Company--on the Alaska North Slope, between 1973 and 1979 Amerada Hess invested more than $1.2 billion in exploration and production. In the early 1970s, Amerada Hess was one of many companies negotiating with Portugal for oil and gas exploration concessions in and off the shore of Angola, and later Gabon. In 1975, Amerada Hess and Mississippi Chemical Corporation initiated a five-year joint venture of exploration and evaluation in southern Mississippi and Alabama. In 1981, Petro-Canada initiated the operation of drill ships off Labrador on behalf of a consortium including Amerada Minerals Corporation of Canada Ltd., with considerable exploration success continuing through 1984, when it also made major natural discoveries offshore of Grand Isle, Louisiana, and further Alaskan strikes off Seal Island in 1986. In 1985, Amerada Hess acquired Monsanto Oil Company in the United Kingdom and it became a wholly owned subsidiary.
In response to U.S. President Ronald Reagan's June 1986 deadlines, Amerada Hess officially ended its Libyan operations. Although after January 1989 U.S. oil companies had U.S. government approval to resume activities there, because of the instability in the Middle East the future of such activities remained uncertain. In 1987, Amerada Hess and Chevron were reported as the top U.S. crude and product importers of the year. In August 1989, Amerada Hess acquired for $911 million a 37 percent interest in major offshore oil and gas properties in the northern Gulf of Mexico from the TXP Operating Company, a Texas limited partnership affiliated with the Transco Energy Company, increasing Amerada Hess's total natural gas reserves by 25 percent. Included were major efforts at development and production in the North Sea Scott and Rob Roy fields. Natural gas was reported in 1990 to make up approximately half the company's total hydrocarbon reserves. In September 1990, Amerada Minerals Corporation of Canada acquired assets from Placer Cego Petroleum Ltd. in Alberta and British Columbia. Amerada Hess Norge A/S maintained 25 percent interests in several major offshore fields.
In December 1989, the company settled its part in a 13-year suit brought by the state of Alaska concerning the North Slope oil pipeline. More notably, Amerada Hess survived apparent takeover plans in the mid-1980s. In late 1988, despite much published speculation about the flaws in corporate management, the company's overall picture remained strong. Its trend was considered uncertain, however, because its five-year record was reported to be among the lowest for the entire petroleum industry. The clear trend of reserve acquisitions in the United States, Canada, and overseas reportedly pushed company debt to approximately 45 percent of total capital.
Staying Financially Fit: Early to Mid-1990s
A major goal for Amerada Hess in the 1990s included substantial reduction in overall debt levels. Because the company was no longer the leading innovator in developing geophysical exploration technologies or wildcatting as it was from the 1920s to the 1940s, at least some of its successes depended on continued joint efforts with major partners, notably in improved subsurface development of established fields. Amerada Hess has long been an advocate of domestic oil decontrol and comprehensive national energy policy. Amerada Hess is, in several published opinions, cited as a successful example of the trend toward increased economies via vertical integration.
Low oil prices and the costs of compliance with federal pollution control regulations hampered Amerada Hess's profitability throughout the 1990s. Net income dropped from $483 million in 1990 to only $7.5 million in 1992, and in 1993 and 1995 Amerada Hess suffered staggering net losses of $268 and $394 million, respectively. Its decision to pump $1.1 billion into the upgrade of its St. Croix refinery--damaged by Hurricane Hugo in 1989--was partly to blame, but Amerada Hess's vast network of East Coast storage facilities also imposed burdensome inventory costs when oil supplies were abundant, as they were throughout the decade. Between 1989 and 1993 alone, Amerada Hess's $7.3 billion in capital expenditures was three times higher than the total for 1984-88, and by the end of 1993 the tab for developing its North Sea oilfields and the St. Croix refinery upgrade totaled more than $42 billion. In 1993, the company finished construction on its Central Area Transmission System pipeline between the North Sea and the United Kingdom. However, by the end of 1995, Amerada Hess's stock had been unable to regain its high of four years earlier, and a decade and a half separated it from its earnings peak of 1980. In the words of Forbes magazine, Amerada Hess was "visibly bleeding."
In May 1994, Leon Hess retired after six decades at the company's helm--he died in 1999--and a year later his son John was named chairman and CEO. As production began at Amerada Hess's new South Scott oil field in the North Sea, John Hess announced his intention to sell off marginal properties, consolidate the company's U.S. exploration and production operations in Houston, downsize its workforce, and reduce the company's debt. In 1995, he initiated a top-down review of the company's operations to reassess its strategy and prospects. With the goal of producing 500,000 barrels of crude oil a day by the end of the century, John Hess began building the company's hydrocarbon reserves and production through acquisitions, continued its debt reduction efforts, laid off some 20 percent of his workforce, and disposed of non-core properties, including the company's Canadian subsidiary, which alone had accounted for 10 percent of its assets.
Now reduced to its core operations--primarily in the North Sea and the Gulf of Mexico--Amerada Hess moved into the Brazilian market in 1996 in a joint venture with Petrobas, and in 1997 pursued the Venezuelan market through negotiations with Petroleos de Venezuela S.A. It also gained stakes in oil fields in Thailand and the Falkland Islands and explored oil development prospects in Namibia. On the marketing side, it expanded its 548-store East Coast HESS gas station chain by acquiring 66 Pick Kwik retail stores in Florida and four Sears outlets in New York, and in 1997 initiated a gas retail marketing venture in the United Kingdom.
Repositioning in the Late 1990s and Beyond
By 1997, the "first phase" of Amerada Hess's "repositioning" program was announced as complete. Net income for 1996 had rebounded more than $1 billion from 1995's loss, to $660 million, and Amerada Hess's debt-to-capitalization ratio had been cut by almost $800 million to 36.4 percent. With $1 billion worth of exploration and production properties jettisoned, five new high-return oil and gas fields fully developed, and a commitment to streamline its administrative operations by adopting SAP's enterprise planning software, Amerada viewed its goal of moving into the top one-third of U.S. oil companies by the year 2000 with some optimism.
As Amerada Hess pressed on to achieve that goal, it faced some distinct challenged. Profits at its St. Croix refinery began to dwindle during the mid-1990s, prompting the firm to seek out a partner. As such, Amerada Hess sold a 50 percent interest in the Virgin Island refinery to Petroleos de Venezuela in 1998, creating the Hovensa LLC joint venture. That same year, oil prices began dropping off. In an attempt to bolster profits, Amerada Hess launched yet another aggressive cost cutting campaign, slashing capital spending by 38 percent and cutting 20 percent of its U.S. and UK exploration workforce. During 1998, revenues fell and the firm reported a net loss of $459 million, due in part to the sale of several assets. During 1999, however, both profits and revenues rebounded. The company sold off pipeline and terminal holdings in the Southeast and also various Gulf Coast terminals. By this time, over $2 billion of non-core assets had been sold and operating costs had been reduced by $100 million. Overall, Amerada Hess reported a rise in net income to $438 million while revenue climbed to $7.4 billion.
Under the leadership of John Hess, Amerada Hess entered the new century intent on securing its position as a leading independent, integrated energy company. The company's main focus centered on exploration and production, while marketing and refining remained secondary concerns. During 2000, Amerada Hess attempted to strengthen its international holdings when it made a play for Lasmo, a British exploration and production firm. The company offered Lasmo $3.5 billion in cash and stock. However, its plans were thwarted when Italy-based ENI S.p.A. came in with a higher offer.
Amerada Hess's failed merger attempt did little to dampen its acquisition strategy, and in 2001 the company set its sights on Triton Energy Ltd., an international exploration and production company focused on the West African, Latin American, and Southeast Asian regions. The $3.2 billion merger was completed in August 2001 and was expected to increase company production from 425,000 barrels of oil equivalent (BOE) per day to 535,000 BOE per day. The deal also gave Amerada Hess access to Triton's lucrative assets in Equatorial Guinea and Gabon. The firm added additional international holdings to its arsenal during 2002, including three deepwater tracts in the offshore regions of Senegal, Gambia, and Guinea-Bissau.
During 2002, energy prices fell and global economies weakened. Amerada Hess's financial situation faltered as a result, with revenues falling by 11 percent over the previous year. The firm also reported a net loss of $218 million just one year after securing a net income of $914 million--the second-highest in its history. While economic conditions did indeed play a role in Amerada Hess's fluctuating financial results, the majority of the company's loss stemmed from a $530 million charge related to the write-down of its Ceiba oil field, which proved to be less fertile than expected. This field was part of the Triton purchase and left analysts speculating as whether the merger would be as lucrative as Amerada had hoped in the years to come.
Economies across the globe remained in a state of instability during early 2003 due to the looming threat of a possible U.S. war against Iraq. Rumors began to surface that Amerada Hess could be a possible takeover target during the next round of oil consolidation. Nevertheless, the company maintained that its goal was to be the leading independent, integrated oil and gas company.
Principal Subsidiaries: Triton Energy Ltd.; Amerada Hess Ltd. (United Kingdom); Hess Oil Virgin Islands Corporation; Hess Energy Trading Company LLC; Amerada Hess Denmark ApS; Amerada Hess Gas Limited (United Kingdom); Amerada Hess Norge A/S (Norway); Amerada Hess GEEA Ltd. (Cayman Islands); Amerada Hess Production Gabon; Amerada Hess Ltd. (Thailand); Tioga Gas Plant Inc.; Jamestown Insurance Co. Ltd. (Bermuda); Hygrade Operators Inc.
Principal Competitors: BP plc; ConocoPhillips; Exxon Mobil Corporation.
Further Reading:
- "Amerada Hess Pursues Specific Opportunities Upstream, Downstream," Petroleum Finance Week, February 21, 2000.
- "Amerada Hess Spreads Wings in Hunt for African Oil," Oil Daily, May 24, 2002.
- "Charge Swallows Hess Results; Exxon Shines," Oil Daily, January 31, 2003.
- Easton, Thomas, "Boot the Coach?," Forbes, December 4, 1995, p. 64.
- "ENI Snatches Lasmo From Amerada Hess," Oil Daily, December 22, 2000.
- Ingham, John, and Lynne Feldman, Contemporary American Business Leaders, Westport, Conn.: Greenwood Press, 1990.
- Jaffe, Thomas, "Amerada, Mon Amour," Forbes, July 19, 1993, p. 254.
- Kovski, Alan, "PDVSA to Buy 50 Percent Stake in Hess' St. Croix Plant," Oil Daily, February 4, 1998, p. 1.
- Marcial, Gene G., "Whispers About Hess," Business Week, March 11, 2002.
- Norman, James, "Hess Makeover Pays Off Despite Wall Street Doubts," Platt's Oilgram News, July 27, 1999.
- "Refiner Seeks Oil for Troubled Waters," Crain's New York Business, January 21, 2002, p. 4.
- Tinkle, Lon, Mr. De: A Biography of Everette Lee DeGolyer, Boston: Little, Brown, 1972.
- Wetuski, Jodi, "Triton Will Do," Oil and Gas Investor, August 2001, p. 65.
Source: International Directory of Company Histories, Vol. 55. St. James Press, 2003.
