Conclusion
The last half of the nineteenth century witnessed transformations in the technologies of extraction, production, transportation, and communications that provided opportunities for aspiring entrepreneurs to achieve economies of scale in production and expand their market reach across entire countries and abroad. In the burgeoning kerosene industry, John D. Rockefeller fashioned an empire through the vertical integration of refining, pipelines, and marketing to achieve a dominant position for Standard Oil in the United States by the 1880s and a worldwide market position over the following decade. In Canada, a group of refiners formed Imperial Oil in 1880 to establish a similar degree of dominance in the Canadian market. Imperial never achieved that goal, and lost a crucial edge in technology when the scientist Herman Frasch moved from Imperial to Standard Oil. But by the 1890s it had developed an integrated system that in many respects paralleled for Canada the much larger operations of Standard Oil across the border.1
The period from the 1880s to the First World War has been designated the first era of globalization as British, European, and later American companies extended their reach across much of the rest of the world. The emergence of new investment markets and expansion of existing ones, as well as the development of new financial instruments to reach a wider investing public, provided sources of capital on a much larger scale. In turn this enabled the rise of companies with national or international aspirations. The mercantilist empires of Britain and France dismantled many of their investment trade barriers by the 1860s. The establishment of the “gold standard” among major industrial nations in the following decade fostered the acceleration of capital mobility across borders.2
At the same time, the exponents of globalization encountered increasing resistance, particularly from emerging industrial nations including Germany, Japan, and the United States. Protective tariffs were erected and trade restrictions were developed in order to foster domestic industries. One of the by-products of these policies—anticipated or not—was that companies seeking to enter promising new markets abroad, or to access raw materials essential for industrial growth, turned to portfolio and direct investment in these protectionist countries. By the early twentieth century, the United States was host country to over $7 billion (USD) from overseas investors, of which $1.5 billion (USD) was in direct investment.3
Canada established its own protectionist system with the National Policy in 1879—not necessarily because it expected to become an industrial powerhouse, but rather to protect jobs at home by inviting foreign direct investment. If this was the intent, it seems to have worked: by 1914 Canada was host to $800 million (USD), equivalent to 53 per cent of FDI in the US, which had a population ten times larger. Likewise Canada’s GNP more than doubled between 1880 and 1910.4
Imperial Oil was not so fortunate. Even before the amalgamation of the company in 1880, exports of Canadian kerosene had declined substantially, and Imperial lobbied for trade protection under the National Policy. Standard Oil’s products, however, remained competitive, particularly in the Maritimes, and in the 1890s the US company embarked on a strategy familiar from its expansion ventures at home. Imperial found itself surrounded by competitors that had financing and technological support from Standard. A sharp depression in the US in the mid-1890s accelerated Standard’s campaign to conquer the Canadian market. Although Imperial sought to hold its investors through generous dividend payments, by 1898–99, with prospects for a shrinking market and diminishing output from the Petrolia oil wells, the outlook was bleak. Standard offered good terms, as it had in takeovers of US competitors, and the merger was swiftly consummated.5
In the normal course of events, it is quite probable that Imperial would have become simply a vehicle for marketing Standard Oil products in Canada: all but one refinery was closed and the output of the Petrolia fields continued to decline. In addition, the government of Canada under the Liberal regime of Wilfrid Laurier seemed headed for some form of reciprocity in trade with the US in the first decade of the twentieth century. Three events in 1911, however, disrupted this “normal course” and transformed the relationship between Standard Oil and Imperial Oil.
At the national level, in 1911 a proposed US-Canada Reciprocity Treaty was defeated, and Canada remained protectionist for several more decades. On the industry front, Standard’s greatest rival, Royal Dutch Shell, launched a beachhead in Canada, establishing an oil and gas storage facility in Montreal in 1911. This was followed with threats to embark on major exploratory ventures in Alberta a few years later. But the most significant event took place in the US when the Supreme Court upheld a ruling ordering dissolution of Standard Oil in 1911.
Small oil producers in the US, as well as populist and progressive politicians and state authorities from Pennsylvania to Texas, had been pursuing Standard Oil for more than two decades. The company had been regarded as a target of the federal Sherman Antitrust Act of 1890, but had avoided prosecution in part through various legal stratagems. In 1908, however, the US Justice Department brought a case against it, and a court-ordered dissolution was upheld three years later. Standard Oil was broken up into thirty-four companies, of which the largest were Standard Oil of New Jersey (Jersey Standard, later Exxon) and Standard Oil of New York (Socony, later Mobil). In 1999 Exxon and Mobil were reunited.6
Imperial Oil ended up with Jersey Standard, which proved to be providential for the Canadian company. Walter Teagle took charge of Jersey Standard’s foreign sales and also became president of Imperial Oil. Combining these roles, he fashioned a strategy for both companies that would sustain them through the next thirty years, during which time he also became the chief executive of Jersey Standard.
Teagle recognized, as did other managers of Jersey Standard, that the company had immense refining assets and a strong transportation and marketing structure but virtually no direct access to crude oil, which it had to buy from other Standard remnants or independent suppliers. Standard Oil had missed an opportunity to enter the burgeoning Texas oil fields in the early 1900s, and in any case expansion into production in the US might arouse antitrust authorities. The alternative was to look for new oilfields abroad, particularly in Latin America. In that region, the British had well established commercial connections, while thanks to President Theodore Roosevelt’s “Big Stick” diplomacy American companies faced hostility from local governments.
In this situation, Imperial Oil could prove useful. As part of the British Empire, the Canadian company could facilitate dealings with British companies, as was the case in Peru. In addition, it could provide cover for an American company in a hostile environment, as was the case in Colombia. In addition, Teagle regarded Imperial as a potential platform for a broader array of Jersey Standard overseas interests, shielded from scrutiny and possible further tax and antitrust measures by the US government. As it happened, this proved to be an unwarranted fear: as the US moved toward intervention in the First World War, the value of big businesses for military preparedness underwent a reconsideration. By the 1920s the US government was an enthusiastic proponent of overseas investment by the oil industry for “national defense.” In the Middle East Jersey Standard acquired a foothold in the Anglo-French consortium, Iraq Petroleum, with assistance from the US State Department. In the meantime, however, Imperial Oil served Jersey Standard’s purposes as a vehicle for expansion in South America through the International Petroleum Company.7
As president of Imperial Oil Teagle arranged for a substantial increase in capitalization—to $50 million (CAD)—to construct refineries across the country, provided Imperial with access to thermal cracking refining technology, and supported what proved to be extensive exploration for new oil resources in Alberta and the Northwest Territories. Retrospectively this might be deemed an overreaction to the threat of Royal Dutch Shell in Canada. But these measures also equipped Imperial with an updated and integrated system that enabled it to sustain its position as the leading company in the industry in Canada for much of the rest of the century.
But Imperial was also firmly embedded in Jersey Standard’s international structure. While oil from Peru was carried to Imperial’s market on the west coast of Canada, and Colombian oil to the Maritimes, a substantial amount of the oil from both sources went to Jersey Standard’s refinery in Bayonne, New Jersey. Most of the profits from International Petroleum in the 1930s flowed ultimately as dividends to Jersey Standard. Although Imperial had established a research lab at Sarnia in the 1920s, it remained dependent on the parent company for access to the most up-to-date technology in many areas. Marketing strategies and labour relations policies drew on Jersey Standard models. International Petroleum provided opportunities for Imperial’s managers, engineers, and geologists to develop their capabilities while at the top levels Imperial executives served on the Jersey Standard board of directors, and the parent company designated individual members of their executive committee to act as liaisons with Imperial Oil.8
As the Second World War ended, new opportunities for overseas expansion opened for Jersey Standard, particularly in the Middle East where it joined the Aramco consortium in Saudi Arabia in 1947. By that time oil production from Jersey Standard’s affiliates in Venezuela had far exceeded output from Colombia and Peru, augmenting the large producing and refining operations of Humble Oil in Texas, which it had acquired in 1919. For Imperial Oil, however, the future was far less promising. During the 1920s Imperial’s subsidiary, Royalite, had found gas and oil in Alberta’s Turner Valley near Calgary, but by the postwar years the production rate was declining. Meanwhile, the government of Colombia was proposing to take over International Petroleum’s fields by 1951. Imperial had been exploring for oil in northern Alberta and the Northwest Territories since 1921 with limited success—aside from Norman Wells, which had supplied the Canol project during the Second World War but was too distant from markets to be commercially viable.
In 1945, Henry Hewetson took over as president of Imperial. Although he was an American Hewetson had connections to Canada, having served with the Royal Flying Corps in the First World War, and he worked at the Sarnia refinery before going back to the US. Eventually Hewetson headed Standard Oil of Louisiana, then returned to Imperial Oil in 1935, where he overhauled the company’s sales and marketing operations. In many respects he resembled Teagle, both physically and in his stature with the parent company, where he was appointed director in 1950.9
Since Alberta had plentiful reserves of natural gas, Jersey Standard contemplated providing Imperial with access to a modified version of a German patent it had acquired in the 1930s that would produce synthetic crude oil from gas. But Hewetson backed Link and other geologists seeking a “last chance effort” to strike oil, and arranged for Jersey Standard to bring in specialists and undertake research using seismic surveys to identify “anomalies” in an area of central Alberta known as the western Canadian sedimentary basin. According to one account of the events leading to the Leduc discovery, the area chosen was “geologically all wrong but [Imperial] found oil anyway.”10
Leduc had a larger impact on the Imperial-Jersey Standard relationship than either party may have anticipated. In order to finance developing the infrastructure around Leduc, including building a pipeline to central Canada, Imperial sold International Petroleum to Jersey Standard. In effect Imperial Oil became primarily a vertically integrated Canadian operation, still linked to its US parent but increasingly oriented to the domestic Canadian market. Over the next seventy years Imperial’s commitment to developing Canadian oil resources deepened as it advanced into the oil sands of Alberta and the oil and gas frontiers of northern Canada.
In 1947–48 by a curious—and unrelated—coincidence, the government of Canada contemplated, and then recoiled from, a proposed customs union and comprehensive trade agreement with the United States. During the Second World War there had been a good deal of economic cooperation between the two countries, but by 1947 Canada faced a serious imbalance in its trade and currency accounts as the British market failed to rebound and imports from the United States soared. Eventually the Marshall Plan, in which Canada was allowed to participate as a supplier of goods, mitigated these problems. But in the interim proposals for greater integration between the two countries had support, at least within the government agencies and ministries. Nevertheless their views were not endorsed by Canada’s prime minister Mackenzie King, who had been a member of the Laurier cabinet during the Reciprocity Treaty debacle of 1911 and did not wish to repeat the experience.11
This rejection did not, then, reflect a nascent Canadian nationalism. But over the next two decades issues involving American economic (and political) influence in Canada would begin to take effect, culminating in the early 1970s when the first energy crisis focused public attention on the role of foreign-owned companies in the oil and gas industry, with Imperial Oil as exhibit number one. Even in the 1950s there was some incipient discontent: the role of Americans in financing the Trans Canada Pipe Line engendered criticism, and John Diefenbaker indulged in nationalist rhetoric during election campaigns. Generally, however, government policies reflect what later was characterized as a “continentalist” approach: the National Oil Policy, for example, supported the existing arrangements under which eastern Canada imported oil, relying on multinational suppliers—and the proposal for a pipeline to Montreal was shelved.12
Within the Jersey Standard system, relations with Imperial also exhibited a “continentalist” (or “corporatist”) character during this period. The “Esso” oval sign towered over service stations, while the name “Imperial” diminished into the background. Generous dividends continued to flow from Imperial, although it was able to retain a somewhat greater amount of earnings for reinvestment.13 More Canadians rose to the senior management level at Imperial, and they were also encouraged to pursue lateral promotions across other Jersey Standard divisions and affiliates: Ken Jamieson, who became president of Jersey Standard in 1965 and chairman of the board in 1969, was a prominent example of this career path.14
At the same time, however, Imperial was moving toward a strategy of expansion and diversification within Canada. As the company focused on new initiatives into northern Canada and the oil sands, it strengthened its research operations to support these areas. The achievements of Roger Butler and others in developing technologies to enhance in situ oil sands extraction and drilling for oil in Arctic conditions were the result of these measures.
Multinational oil companies, including Jersey Standard, had faced nationalism in producer states since early in the twentieth century. In 1918 Russian revolutionaries seized the Baku oil fields. During the 1930s, Bolivia and Mexico nationalized their oil, joined by Colombia in the 1950s, and Argentina, Peru, Indonesia, and Iraq in the 1960s. The floodgates opened after the first energy crisis in 1973–74 as most of the major OPEC members either nationalized their industry or set up government-owned corporations to run them.
Canada of course never experienced such upheavals, but the oil multinationals did face intense criticism in the early 1970s and again in 1979–81 in the wake of the two energy crises. The government of Canada also established a crown corporation whose initial mandate was supposed to be to promote “frontier exploration” for new oil sources. In practice it evolved into an integrated company that challenged the oil majors before being privatized in the 1990s.
The National Energy Program was an ambitious set of policies intended to encourage both new resource development and “Canadian” (not necessarily publicly owned) oil companies while enhancing federal tax revenues. It foundered in the midst of volatile oil price gyrations and feuding between the federal and provincial governments. By the end of the century, with continental free trade agreements in place, nationalist controversies over oil and other resources seemed to be vestiges of a rapidly disappearing past—except, perhaps, for Albertans with long memories.
Throughout these events, Imperial Oil was a target for criticism by Canadian nationalists. In 1981, Jack Armstrong as board chairman vigorously defended the importance of foreign investment, multinationals, and foreign technology in developing Canada’s oil resources.15 It was a forceful statement on behalf of multinationals in an era when Jersey Standard’s executives and the heads of other big oil companies were being haled before committees of the US Congress, and accused of profiteering from the energy crises.
At the same time, it was a defense of the benefits the foreign-owned oil companies offered to Canada, and Armstrong presented himself as the head of a Canadian company rather than as a spokesman for Jersey Standard. This did not of course necessarily convince Canadian critics of multinationals, nor did the underlying nationalism necessarily resonate at Jersey Standard’s headquarters. In 1981 Imperial was reporting record earnings levels and had promising new projects in the oil sands and northern Canada. As the historians of Exxon noted, Imperial’s “independence” was respected “as long as the company remained successful.”16 Over the next two decades that perspective shifted along with the fortunes of both companies.
The events of the 1970s–80s left Jersey Standard (rechristened Exxon in 1972) in a situation reminiscent of the years following the breakup of Standard Oil. Although it retained producing fields in North America, including those of Imperial in Canada, it had lost direct access to many of its overseas production holdings. As with the other oil multinationals, it had to adapt to a world in which it processed, transported, and sold oil owned by the producer states. Beyond that role, it faced several strategic options. It could diversify into other “energy-related” fields or indeed transform itself into a kind of conglomerate. It could expand into new producing fields. Or it could accommodate to changing conditions by merging with other companies that had greater access to production or a strong market position or innovative technology.
Exxon pursued all of these options, although not simultaneously. During the 1970s–early 1980s under Clifford Garvin the company presented itself as being in “the energy business . . . rather than just the oil business.”17 To that end Exxon explored initiatives in nuclear fuel, solar power, even coal as well as supporting Imperial’s oil sands ventures. Perhaps the most ambitious operation involved shale oil in Colorado; but it proved to be premature and was shut down in 1982. It was during this period that Exxon scientists were conducting research into the role of fossil fuels in climate change. As oil prices spiked up in the early 1980s, however, diversification efforts diminished; Lawrence Rawl and Lee Raymond, who by mid-decade emerged as the new leaders at Exxon, vowed to return the company to its “core business”—oil and gas.18
In the following decade Exxon embarked on a search for new producing fields, sometimes alone but often within a consortium or in partnership. Africa in particular looked promising, leading to ventures in Chad, Cameroon, and Angola. These undertakings sometimes presented physical risks for company employees as well as financial risks, reminiscent of exploratory operations in the early twentieth century in Latin America and Russia. The collapse of the Soviet Union seemed to present great opportunities not only in central Asian states such as Kazahstan and Azerbaijan but also in Russia, although the complex politics and bureaucratic hurdles presented endless obstacles. Ultimately Exxon was able to mount a profitable venture on Sakhalin Island, after eleven years of manoeuvring.19
Given its quest for new sources of oil, a merger with another oil major with producing fields seemed logical. But there were other factors involved. After the boom and collapse of oil prices in 1981–85, the industry entered a long period of depressed prices—except for sudden episodes of volatility, as happened during the first Gulf War in 1991. The growth of the “Asian Tigers” of Southeast Asia at the end of that decade promised a larger and more enduring market for oil, but the abrupt collapse of that boom in 1998 generated a sudden rush toward consolidation among the large multinationals. This rush was initiated by BP, which sought to merge with Mobil. When that fell through, BP turned to Amoco. Soon all the other big companies were alert for further action. Exxon in particular feared losing ground to BP and Shell, two traditional rivals. This led to the quick merger of Exxon and Mobil in 1999, reuniting the two largest survivors of the breakup of Standard Oil in 1911, ironically with the blessing of the US Federal Trade Commission on the grounds that this was “a very different world.”20
These developments at Exxon would affect the manner in which the parent company related to Imperial Oil. The oil price collapse in 1985–86 hit Exxon hard and led to a full-scale review of the company’s structure by Rawls and Raymond. They concluded that Exxon had become overly bureaucratic, burdened with multiple committee reviews and reports. At the same time there was too much decentralization, so that top management lacked the capability to react in a “nimble” way to changing conditions. Imperial in particular was perceived as having too much autonomy, as did Humble (now designated Exxon USA). For the time being, both affiliates escaped the full impact of reorganization—although the reformers reoriented the company toward a renewed effort at overseas expansion of production. In 1991 Rawl orchestrated the unification of all overseas oil exploration into a new entity, undercutting Exxon USA. He and Raymond also contemplated buying out the minority shareholders in Imperial but they were reluctant to shoulder the costs and to challenge Canadian regulations of foreign takeovers.21
The Exxon-Mobil merger provided a new opportunity to bring Imperial Oil to heel. Raymond supported the continuation of Mobil’s Canadian operations to counter those of Imperial, even though he acknowledged that this was an “inefficient arrangement.”22 Over the following years Mobil veterans were placed in managerial positions at Imperial, including the presidency of the company. This was not out of line with the policies of Exxon—or indeed of any multinational company—but still it was definitely a signal that things were changing.
Meanwhile the issue of fossil fuels and climate change loomed ever larger, both over companies and over the industry as a whole. In the 1990s Lee Raymond of Exxon adopted a position of denial and resistance to international pressures as exemplified in the Kyoto Accord. Rex Tillerson, Raymond’s successor, retreated from this defiant view and Exxon Mobil announced a new initiative in biofuels, aiming at generating gasoline from algae, which received a good deal of publicity. At the same time the company continued to lobby against US measures to limit imports of oil sands products. More broadly, it took the view that world energy needs would have to rely on fossil fuels for at least another generation.23
Imperial Oil was, if anything, in a more difficult situation. Since the 1980s it had committed large resources to the development of the oil sands and northern Canadian oil and gas. While hopes for the latter dwindled, the company continued to place its bets on the oil sands through investments in the Kearl mine and the reopening of Cold Lake and other in situ ventures. But delays and resistance to pipeline development linking the oil sands to world markets and continuing volatility in oil prices made for a perpetual cycle of uncertainty about the future.
In July 2018 a Wall Street Journal article focusing on the new chief executive officer of Exxon, Darren Woods, noted the company’s acknowledgement that a $20 billion (USD) oil sands project in Canada “was no longer profitable.” The same article went on to observe: “Exxon is weighing reducing its exposure to Canada where it has operated for 130 years.”24 Imperial Oil—and for that matter Exxon—has been written off before, and risen from the dead, or at least from the sickbed. Nevertheless, this particular statement implied that a significant change in the Exxon Mobil-Imperial relationship was in the offing, although whether Exxon Mobil contemplated selling all or part of the Canadian company or just planned to scale back new investments in the oil sands was unclear.
In some respects, however, the two companies had been following different trajectories since the Leduc discovery in 1947. Exxon had lost many of its overseas production fields, then rebuilt its position. The amalgamation with Mobil had if anything made Exxon even more of a global player. Meanwhile, Imperial, while remaining part of the Exxon system, increasingly focused on serving the Canadian market and developing resources in Canada. For Exxon, Imperial’s most important asset was its position in the oil sands, which was nevertheless a frustratingly expensive and controversial feature. But these conditions had been evident for more than twenty years, and while oil prices fell dramatically in 2014, they subsequently partially rebounded, rising above $74 (USD)/bbl. (West Texas Intermediate) in July 2018.25 So it is hard to know at this time whether Darren Woods’s remarks reflect a response to continuing uncertainty in the oil market or a long-term change in strategy for Exxon Mobil.