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Thursday
Dec302010

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Unocal Legacy, Inc. was formed to create this web site celebrating the Legacy of Union76/Unocal.

Union Oil's 125th Anniversary Year

A Few Stories and Pictures from the Long History of the Union Oil Company of California

1890 The Founding

The first gasoline-powered automobile had not yet appeared in the West when Union Oil Company of California was founded on Oct. 17, 1890. The oil industry was barely 30 years old. Headquarters for the new company were established in Santa Paula, heart of the state's oil country. One hundred years later, when Unocal celebrated its centennial, the original two-story building was renovated and became the Unocal Oil Museum.

To form Union Oil, co-founders Lyman Stewart, Thomas Bard, and Wallace Hardison merged their holdings. Although they could not then have foreseen the tremendous impact the automobile would soon have on oil demand, they were aware of oil's potential as an industrial and transportation fuel.

Union Oil Company of California’s first headquarters in Santa Paula, California.

1915 25th Anniversary

The year 1915 marked the 25th anniversary of the Union Oil Company. The company participated in the Pan-Pacific International Exposition in San Francisco that year. This postcard shows both the company’s display at the exposition, and a view of the refinery at Oleum.

 

1940 50th Anniversary

By its 50th anniversary, Union Oil was headquartered in an office building in downtown Los Angeles.

  

Union Oil Building from the corner of Seventh Street and Hope Street 

The company noted its 50th anniversary in its advertising, putting a seal on each of its magazine advertisements:

 

A magazine ad from 1940, for “Unoba” grease: 

Conoco-Phillips, now the owner of the 76 brand, is still marketing Unoba grease products.

1941 World War II

Sinking of the SS Montebello

By late 1941, Union Oil of California was more involved with World War II than they might have wanted to be. On 23 December 1941, the Japanese submarine I-21 sighted the Union Oil Company’s oil tanker Montebello. The 440 foot vessel, built in 1921, was en route from Port San Luis, California, to Vancouver, British Columbia.

At 05:30, I-21 fired two torpedoes at a range of 2,000 meters. One was a dud, but the other struck forward in the pump room and dry storage cargo hold. The 38-man crew abandoned the tanker in four lifeboats, which were machine-gunned by I-21 with no casualties. The Montebello sank in 900 feet of water about 4 miles south of Piedras Blancas Light.

SS Montebello

In November 1996, a team of marine researchers surveyed and filmed the wreck in a two-person submarine. The Montebello, apparently still loaded with almost 100,000 barrels of crude oil, was discovered to be resting on the sea floor in 900 feet of water adjacent to the Monterey Bay National Marine Sanctuary. The wreck was reexamined in 2010 for the level of deterioration and to determine if the oil was still in the hold and if so, did it pose an environmental threat. The researchers reported in October 2011 that the cargo had dissipated into the vast ocean shortly after sinking. 

Side-scan sonar image of the wreck of the SS Montebello

1958 Union Oil Center

A big event in 1958 was the opening of a new headquarters building, the Union Oil Center, overlooking the Harbor Freeway.  Because it was built on a hill, Union Oil Center was the highest building in Los Angeles when it opened in April, 1958. 

Architect’s drawing of the Union Oil Center

 

Photo of the Union Oil Center building from the northwest side.


1965 Pure Merger

 In 1965, Union Oil became a nationwide company by merging with Pure Oil. 

Above: Clipping rom the Chicago Tribune, May 18, 1965

Union Oil Company of California purchased Pure Oil in 1965. Shortly after acquisition by Union Oil, Pure Oil's Refining & Marketing operations became the Pure Oil Division of Union Oil Company of California with the Pure Oil name continuing in full force. By 1970, the Pure Oil brand was phased out, and remaining service stations and auto/truck stops were rebranded as Union 76. The Pure Oil Division was merged with Union Oil's west coast Refining & Marketing division to become the Union 76 division.

After 1970, the Pure Oil name was retained as a registered trademark, while the Firebird brand name was retained and used primarily for motor oils and lubricants that were not extensively marketed toward consumers.

 

1967 Torrey Canyon

Union Oil named some of its tankers after its oil fields. One of them was named Torrey Canyon. During a time when the company had more tankers than it needed, the Torrey Canyon was chartered to British Petroleum. On 18 March 1967, owing to a navigational error, she struck Pollard's Rock on the Seven Stones reef, between the Cornish mainland and the Isles of Scilly. The resulting oil spill polluted the coasts of the UK, France and Spain. It was the worst oil spill at the time. Fortunately, Union Oil’s name was never associated with the disaster.

The Torrey Canyon, broken in half

 

1969 Santa Barbara Oil Spill

(Adapted from The Santa Barbara Oil Spill: A Retrospective by Keith Clarke and Jeffery Hemphill)

The year was 1969, a momentous year for the nation and the world. At the movie theater, Easy Rider and Butch Cassidy and the Sundance Kid were playing. A new generation converged on Yasgur’s farm in New York for Woodstock. From the moon, we heard “Houston …Tranquility Base here. The Eagle has landed.” In the fall, the Amazin’ Mets won the World Series, and in Vietnam, the war raged on. Early in that same year, a new attitude toward the environment was born in Santa Barbara, California. At 10:45 am on Tuesday morning, January 28, 1969, about five miles off the coast from the aptly named small coastal community of Summerland, all hell broke loose. Like most catastrophes, there was not one point of failure but many acting in concert. The problems began on an offshore drilling rig operated by Union Oil called platform Alpha, where pipe was being extracted from a 3,500 foot deep well. The pressure difference created by the extraction of the pipe was not sufficiently compensated for by the pumping of drilling mud back down the well, which caused a disastrous pressure increase. As the pressure built up and started to strain the casing on the upper part of the well, an emergency attempt was made to cap it, but this action only succeeded in further increasing the pressure inside the well. The consequence was that under extreme pressure a burst of natural gas blew out all of the drilling mud, split the casing and caused cracks to form in the seafloor surrounding the well. A simple solution to the problem was now impossible; due to the immense pressure involved and the large volume of oil and natural gas being released a “blowout” occurred and the 1969 Santa Barbara oil spill was under way.

 

Union Oil’s Dos Cuadras Platform A during the 1969 Santa Barbara Oil Spill.

In retrospect, the simplified cause of the blowout was an industrial accident. Yet how the accident precipitated the events that followed was far from simple. Union Oil had been granted a waiver by the United States Geological Survey that allowed them to use a shorter casing on the pipe than Federal Standards prescribed. Even though the well itself was capped, fractures from the shoe of the casing reached the sea bottom and oil escaped.

Oil and natural gas broiled to the ocean surface in the vicinity of the platform for eleven days while increasingly desperate attempts were made to contain and stop the spill. The techniques, equipment and resources necessary to combat an oil spill of this magnitude did not exist at the time. On the eleventh day, drilling mud was successfully used to seal the cracks in the seafloor, but only after approximately 70,000 barrels of oil escaped. The wind, ocean currents, tides and waves dispersed the spilled oil into the biologically diverse waters of the Santa Barbara channel and coated the shoreline.

Many people have identified this as a key event in the beginning of the environmental movement.  

1970’s Going International

Union Oil’s first major international development was the Heather field, in the UK sector of the North Sea. After several years of platform design, fabrication and installation, the field went on production in 1978. 

Heather platform, Block 2/5

 

1980’s Deepwater Gulf of Mexico

In 1980 and 1981, J. Ray Mcdermott built the Cerveza and Cerveza Ligera platforms for Unocal. These were installed in over 900 feet of water in the Gulf of Mexico. At the time they were among the deepest water single-piece platforms ever constructed. The names (“Beer” and “Light Beer”) were chosen to emphasize their low cost compared to Shell’s Cognac platform, installed in over a thousand feet of water a few years earlier. 

Cerveza platform in McDermott’s fabrication yard, Morgan City, Louisiana

 

1980’s Oil Boom

In the boom years of 1982 through 1985, Union Oil had over 20,000 employees.

 

The 2 graphs above show how the relatively high price of crude oil coincided with the all-time peak in the number of Union Oil employees. Similarly, the collapse of oil prices in the spring of 1986 (very memorable to those of us who were in the business at the time) led to the sharp decline in the number of employees before the end of that same year.

1985 Greenmail

In 1985, Boone Pickens attempted to take over control of Union Oil. Unocal fought him off, but not without significant injury to itself.  The winning tactic was a stock buyback, which Union CEO Fred Hartley referred to it as “Replacing the warm blood of equity with the ice water of debt.” Unocal’s corporate debt increased from $1.2 Billion before Pickens to $5.3 Billion afterwards. Money that could have gone towards oil and gas exploration had to go to interest on the debt instead.

1989 The Seacrest

In November of 1989, a weather event occurred that had never been seen before: a typhoon arose in the Gulf of Thailand. Previously, typhoons had come to the Gulf of Thailand from the south, but this was the first time one got its start there. Weather forecasting was and is experience-based, typically something that has never before been observed will not be forecast.

The drillship Seacrest was working for Unocal Thailand in the Gulf, and had the derrick full of drill pipe so that it was relatively top-heavy. The un-forecast typhoon took the operation by surprise. In the emergency, the rig tried to use the emergency releases to let go of the moorings. One downwind anchor leg did not release, and when the ship reached the end of the line the combination of the wind load, the top-heavy derrick and the un-released anchor line cause the rig to roll over. 

Only six workers from the rig survived; 91 were lost. The survivors were the ones who found a piece of flotsam to cling to after the ship capsized; just a life vest didn’t seem to be enough.

The workforce had included Americans, Canadians, Indonesians, Filipinos and Thais. Unocal offered the families of each of the victims the equivalent of 10 years’ salary. Most of the Indonesians, Filipinos and Thais tearfully accepted the payment. Most of the American and Canadian families got a lawyer and tried to see if they could do better.

There was one special case: One rig worker’s Thai wife came into the Bangkok office and accepted the offer of 10 years’ salary. Then a week or two later his Filipina wife came in. After some consultation among the Unocal lawyers, it was decided that the least-cost option was to pay her as well. It seems that each of his wives thought he was working 3 weeks on and one week off.


1990 Centennial 


The company did quite a lot of celebration of the centennial in 1990, including souvenirs such as this Tiffany pewter cup, which was given to every employee.

1990 News story:

Unocal Will Spend More Overseas on Exploration

Los Angeles Times, February 27, 1990 

Unocal Corp. said Monday that this year, for the first time in company history, it will spend more for expenses of foreign exploration for energy resources than it does for exploration in the United States.

Expenses for foreign exploration of petroleum and geothermal energy will increase to $111 million in 1990 from $76 million in 1989, the company said. U.S. expenses will increase less dramatically, to $106 million from $92 million.

The reversal reflects an industrywide trend toward overseas exploration because of lower costs and less stringent environmental regulations, said M. Craig Schwerdt, an industry analyst with Seidler Amdec Securities Inc. in Los Angeles.

Unocal's foreign energy exploration and production will be concentrated in Thailand, Indonesia, the Netherlands and Ecuador, the company said.

Overall, Los Angeles-based Unocal said it would boost capital and exploration spending to $1.5 billion in 1990, a 22% increase over 1989's $1.2 billion.

"The increased investment level reflects the company's improved cash flow and strategy of investing in projects which offer improved returns," said Unocal Chairman Richard J. Stegemeier in a statement.

The capital budget in 1990 would be $1.27 billion, up from $1.05 billion in 1989. That would include domestic capital expenditures of $858 million and foreign capital expenditures of $413 million in 1990.

Under that, capital spending for domestic petroleum exploration and production will amount to $424 million in 1990. Capital spending for foreign petroleum exploration and production, including Canada, will be $370 million.

In refining, marketing and transportation, Unocal plans capital expenditures of $220 million in 1990, up from $143 million a year ago. The money will go to build new equipment at its Los Angeles refinery and to improve its service station and truck stop system.

1997 The end of the integrated oil company.

Part of a Unocal Press Release:

El Segundo, Calif., Nov. 18, 1996 -- Unocal today said it has signed a letter of intent to sell its West Coast petroleum refining, marketing and transportation assets to Stamford, Conn.-based Tosco Corporation.

The sale is valued between $1.9 and $2.1 billion, including $1.4 billion for the refining, marketing and transportation fixed assets, approximately $400 million for inventories, and up to $250 million in possible participation payments should gasoline margins increase in the next seven years. In addition, Unocal will liquidate $80 million in net receivables, which will not be part of this transaction.

The assets to be sold are currently operated by Unocal's 76 Products Company business unit, which is headquartered in Costa Mesa, Calif. The letter of intent anticipates that the sale will be closed in the first quarter of 1997. 

1999 International Oil & Gas Company

The foreign investments announced in 1990 paid off. By 1999, Unocal was more of a gas company than an oil company, and more international than domestic. The following graphs from the 1990 Annual Report tell the story:

International oil production was 61% of the total. 

Gas production was 306 million BOE per day, compared to 175.5 BOE per day of oil.

 

International Oil & Gas provided the largest slice of the cash flow pie.

 

2003 The Last Big Development 

On August 1, 2001 Unocal Indonesia got government permission to proceed with development of the West Seno field, in over 3,000 feet of water just south of the Equator on the east coast of Borneo. Twenty-four and a half months later, the field started production. It was Unocal’s first floating production system, and the first deepwater development in Indonesian waters. The overall cost, including development drilling, was about $850 million. It is probably the last deepwater development which will ever be finished for less than a billion dollars. 

This photo of the West Seno field shows the tension-leg platform at the right, with a drilling tender moored alongside, towards the bottom center of the picture. The spread-moored Floating Production Unit is at the upper left, with a construction barge on the far side.

The West Seno field is still being operated by Chevron, but may not be profitable; it has never met its production targets.


2005 The end of the line

 San Francisco Chronicle, August 11, 2005:

Chevron completes Unocal deal / Purchase spells end of 115-year-old oil company

Oil giant Chevron Corp. completed its $17.9 billion purchase of Unocal Corp. Wednesday, the finale of a tortuous four-month takeover that touched off an international bidding war and strained the United States' relations with China.

The two companies, both survivors of California's 19th century oil boom, declared the sale done just hours after a Unocal shareholders meeting in a Los Angeles-area hotel voted to support it, with more than 96 percent in favor.

For San Ramon's Chevron, the deal brings a needed boost to the company's oil and natural gas reserves, helping it compete at a time of tightening supplies and soaring prices. For Unocal, Wednesday's vote spelled the end of the company's 115-year history of independence.

"This is an important milestone for Chevron, and I want to welcome Unocal employees to our company," said Chevron Chief Executive Officer David O’Reilly. "The addition of Unocal strengthens our position as a global energy leader, and together we will be able to accomplish great results."

The deal almost didn't happen. For months, Chevron battled a rival bid from China National Offshore Oil Corp., which coveted Unocal's Asian oil reserves. The foreign firm offered more money, $18.5 billion, an amount that tempted Unocal's board.

But the bid from CNOOC, partly owned by the Chinese government, provoked an outcry in Congress, where politicians view China's growing thirst for oil as a threat. Stung by the backlash, China National pulled its bid last week. Chevron's offer was the only one left on the table when Unocal shareholders met Wednesday.

Many energy economists say the takeover will have little effect on consumers. Oil prices are set by the international market, not individual companies. And Unocal hasn't owned gas stations for a while, so a merger won't give Chevron more power to raise gasoline prices.

Chevron now must focus on absorbing Unocal's operations in the United States and overseas.

Chevron has already extended job offers to more than 5,000 of Unocal's 6, 400 employees, with 95 percent accepting. Although industry analysts expect some job losses, Chevron said Wednesday that it will offer positions to many of the remaining 1,400 Unocal employees and finish the selection process by the end of September.

Unocal's CEO, Charles Williamson, will join Chevron temporarily as an executive vice president to aid the transition. He is expected to leave later this year. Unocal's El Segundo headquarters will probably close in 2006.

Wall Street will be watching the transition closely. Investors pushed up Chevron shares by 2.06 percent Wednesday to $62.48. Unocal's shares rose 0.84 percent to $66.10 on their last day of trading.

Many analysts consider the deal a gamble.

Chevron has watched its oil and natural gas reserves slip and has had trouble finding new sources to replace the 2.5 million barrels it pumps each day. Buying Unocal will increase its reserves 15 percent and swell its daily production to 2.8 million barrels.

But Chevron is paying a lot for that boost, analysts argue.

"Will it, in the end, prove to be a cost-effective way for Chevron to expand its reserves? If energy prices stay high, the answer is yes," said Jeb Armstrong, an analyst with Argus Research.

From that standpoint, the takeover got off to an auspicious start. Crude oil for future delivery closed at $64.90 per barrel Wednesday, a new high.

But if oil falls back to the $20-$30 level, where it stayed for years, "at that range, it would prove to be a boondoggle," Armstrong said.

O'Reilly, however, said the deal doesn't rely on high oil prices, nor was it planned with $60 per barrel in mind.

About 60 percent of Unocal's production is natural gas, he noted, and much of the gas is already committed in long-term contracts at lower prices.

"This deal is not as highly leveraged to oil prices as you might think," O'Reilly said in an interview. "We're not counting on higher prices. We put the same economic criteria to this that we do to all our transactions."

Although he drew widespread attention earlier this year by declaring an end to the era of cheap oil, O'Reilly said crude prices can't climb indefinitely. They eventually will force consumers to use less as well as boost the amount of capital flowing into oil production. Supplies will grow, pushing prices down, he said.

"I'm as surprised as you are at $60 oil," O'Reilly said. "I would anticipate that oil prices will moderate, but I've been wrong for months on this."

Oil's stunning price climb formed the backdrop for Chevron's tug-of-war with CNOOC, which raised the threat of international competition over a limited supply of crude.

Chevron and Unocal first announced plans for the buyout on April 4, with Chevron offering roughly $16.5 billion. Chevron needed to boost production, and oil field projects now under development wouldn't make a noticeable difference until sometime next year.

"We're waiting for these projects to kick in," said analyst Tina Vital with Standard & Poor's. "So the Unocal deal fills the hole and adds to the future."

In late June, CNOOC announced its unsolicited $18.5 billion offer for Unocal.

Members of Congress, including some who had received campaign contributions from Chevron over the years, immediately objected. Many faced constituents grumbling about the cost of filling up their cars. Both Democrats and Republicans worried that the Chinese government was trying to buy up oil supplies that the United States would need, and they complained that CNOOC's government financing gave it an unfair advantage in a bidding war. Working with rare speed, the lawmakers passed legislation to slow down any deal between China National and Unocal.

Chevron argued that its stock-and-cash offer, although lower than CNOOC's, posed fewer risks for Unocal shareholders. Chevron also increased its bid to $17 billion, a figure that in recent days has risen to roughly $17.9 billion as the company's stock price has risen. Rather than continue in the face of congressional opposition, China National bowed out.

At the time of the sale, Unocal had about 6,400 employees compared to Chevron’s 47,000. Unocal’s market capitalization was $16.67 billion, less than 14% of Chevron’s 120.3 billion. Chevron paid $17.9 billion in cash and stock, a premium of about 7% over the stock market price.

 

The graph above shows the decline in the number of Union Oil employees from the peak year of 1984 until the last Annual Report in 2004. The biggest drop is related to the sale of the refining, marketing and transportation assets to Tosco Corporation in 1997, but the overall decline was pretty continuous.

What led to the end of the Union Oil Company of California? One informed opinion is “lack of exploration success.” An exploration and production company needs to keep finding more reserves to stay in business. Union Oil’s reserves peaked at 2,834.4 million barrels of oil equivalent in 1968. As shown by the graph below, reserves declined by an average of about 1.3 percent per year from the peak in 1968 until the end in 2004, with the last annual report showing 1,753.7 million barrels of oil equivalent.

Well, nothing lasts forever, and 115 years is a pretty good long run for an oil company. Most of those of us who worked for Union Oil have fond memories of it. All we can do now is enjoy those memories and wish Chevron well as they manage their business, including the prospects they acquired from Unocal. We can watch as they, too try to find more reserves to stay in business. Shown below is Chevron’s goal for 2017.

With the price of oil dropping by more than 50% in the past few months (a situation very reminiscent of the spring of 1986) Chevron’s goal is bound to be a challenging one.

  

SEE the old "Murph" commercials  - links on our "Links" page - click here!

See our article on the 1984 struggle between CEO Fred Hartley and T. Boone Pickens for the future of Unocal.

As we go forward we hope others who were part of or interested in the Unocal Era will visit and contribute to preserving the history, accomplishments and effort that made Unocal a historic California and international petroleum producing and refining corporation.

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