Standard Oil

Standard Oil’s origins go back to Andrews, Clark & Co., a refinery founded in Cleveland in 1863 by John D. Rockefeller, Maurice B. Clark and Samuel Andrews. In 1865 Rockefeller bought the refinery at auction and formed Rockefeller & Andrews with Andrews; in 1867 the firm merged with a refinery established by John D. Rockefeller’s brother William Rockefeller and took in William Rockefeller and Henry M. Flagler as partners.⁠[1][1][2]

Cleveland refiners could use three railroads as well as the Great Lakes–Erie Canal waterway, which gave them leverage in negotiating with the railroads. In 1868, in exchange for a guaranteed 60 carloads a day, Flagler got the rate for shipments to New York cut from the published $2.40 a barrel to $1.65. Such secret rebates were not expressly prohibited before the Interstate Commerce Act of 1887, but critics considered them improper.⁠[3][3][3][3][3]

On January 10, 1870, the partnership of Rockefeller, Andrews & Flagler was reorganized as the Standard Oil Company, a joint-stock company incorporated under Ohio law with capital of $1 million. Its founders included John D. Rockefeller, William Rockefeller, Samuel Andrews, Henry M. Flagler and Stephen V. Harkness; John D. Rockefeller was president, William Rockefeller vice president, and Flagler secretary and treasurer. Rather than selling stock to the public, the company planned to use its stock to acquire other refineries while keeping control in the hands of the Rockefeller brothers and Flagler.⁠[3][3][1][3][3]

At its founding, the company owned two large refineries in Cleveland with about one-tenth of the nation’s refining capacity, along with a barrel-making plant, Great Lakes shipping facilities, and tank cars and warehouses in the Pennsylvania oil region. The company emphasized economies of scale and cost accounting, turning the residues that small refiners treated as waste into by-products such as lubricating oil, wax and candles. Because Ohio law did not allow companies chartered in the state to own property outside it, the company controlled its branches in Pennsylvania and New York covertly, and secrecy became a hallmark of its operations.⁠[3][3][3][3]

In November 1871, Thomas A. Scott of the Pennsylvania Railroad proposed that the South Improvement Company allocate oil traffic among the three oil-carrying railroads in fixed proportions and raise the published rates; Standard Oil and the refiners of Pittsburgh and Philadelphia that joined would receive rebates as well as drawbacks on the freight paid by nonmembers. Standard Oil’s management held 900 of the company’s 2,000 shares. When word spread in mid-February 1872, the Oil Region held mass meetings, petitioned for the revocation of the company’s charter and boycotted the member refiners, forcing Standard Oil to cut production sharply; the railroads canceled the rate increases on March 28, and Rockefeller confirmed in early April that the plan had been abandoned.⁠[3][3][3][3][3][3][3]

On January 1, 1872, Standard Oil’s board raised the company’s capital to $2.5 million. Between February 17 and March 28, the company bought 22 of the 26 independent refineries in Cleveland, an episode later known as the “Cleveland Massacre”; most of the acquired plants were valued as scrap, and by the end of the year only four were still operating. Rockefeller always denied that the plan was the reason for the company’s growth.⁠[3][3][3][3][3]

By 1872, Standard Oil had bought nearly all of Cleveland’s refining businesses and two refineries in the New York area, refined 29,000 barrels of crude oil a day, and owned storage facilities with a capacity of several hundred thousand barrels as well as paint and glue factories. Refiners in Pittsburgh, Philadelphia, New York, New Jersey and elsewhere subsequently joined as well.⁠[1][1][2]

In 1873 the company raised its capital to $3.5 million to absorb more refining businesses, and designated trustees to hold property that the company could not hold under its Ohio charter. During the economic depression of 1873–1878, Standard Oil expanded its market share to 90%; managers of newly acquired plants were required to keep operating them as if they were independent businesses. In 1879, the scattered legal ownership of its various assets was consolidated under a single trust arrangement.⁠[2][3][3][4]

On January 2, 1882, the Standard Oil Trust was formed, an idea devised by the company’s lawyer Samuel Dodd. The stock of the member companies was placed with nine trustees, and shareholders received 20 trust certificates for each share of Standard Oil stock they held. The companies’ profits went to the trustees, who decided on dividends and selected the directors and officers of each company, allowing Standard Oil to operate as a monopoly. The trust had initial capital of $70 million, later increased to $95 million, and 42 original certificate holders, and comprised about 40 companies.⁠[5][5][5][2][1][6]

In the 1880s, Standard Oil moved its headquarters to New York and controlled about 90% of the nation’s refining capacity.⁠[7][6]

On July 2, 1890, President Benjamin Harrison signed the Sherman Anti-Trust Act. The first federal law in the United States to prohibit monopolistic business practices, it declared illegal any combination in the form of a trust or otherwise in restraint of interstate or foreign trade, and authorized the federal government to bring suits to dissolve trusts.⁠[5][5][5]

The State of Ohio brought a quo warranto action against the Standard Oil Company of Ohio. On March 2, 1892, the Ohio Supreme Court held that the company had unlawfully taken part in the trust. The trust was then dissolved in Ohio, and the trustees’ transfer of certain companies’ stock gave rise to contempt proceedings.⁠[4][4][6]

Because New Jersey law allowed a parent company to hold stock in other companies, the former trust’s member companies were reorganized in 1899 under Standard Oil Company (New Jersey), a holding company that took over the stock previously held by the trustees, with capital of $110 million. On appeal, the company argued that this acquisition of stock was not a combination of independent businesses, since the companies had all along been owned by the same group of shareholders. By one estimate, Standard Oil controlled 75% of the U.S. oil business in the 1890s.⁠[1][6][2][4][1]

In 1900, Standard Oil acquired Pacific Coast Oil Co., founded in San Francisco in 1879, gaining a crude oil supply on the U.S. West Coast along with production, transportation and refining capacity. The business later became Standard Oil Company (California).⁠[8][8]

In 1904, the journalist Ida M. Tarbell published The History of the Standard Oil Company, criticizing Standard Oil’s business methods and financial dealings. Spurred by the muckraking magazines, an antitrust movement arose, and Standard Oil was dubbed “the Octopus”; it was accused of stifling competition, obtaining rebates from railroads, paying people to spy on rivals, making secret agreements and coercing rivals into joining. John D. Rockefeller denied the charges, insisting that Standard Oil was a “good trust.”⁠[3][2][2][2][2][2]

On November 15, 1906, the U.S. government filed suit in the U.S. Circuit Court for the Eastern District of Missouri against defendants including the Standard Oil companies of New Jersey, California, Indiana, New York, Ohio and elsewhere, 62 other corporations and partnerships, and seven individuals. The petition charged the defendants with conspiring to restrain trade in crude oil, refined oil and other petroleum products, citing methods including spying on competitors’ business, operating companies posing as independents, receiving rebates on oil shipments, and dividing the country into districts so that the subsidiaries would not compete with one another.⁠[4][4][4][4][4]

On June 24, 1907, the court appointed a special examiner to take evidence, and the examiner’s report was filed on March 22, 1909. From April 5 to 10, 1909, the case was heard under the Expediting Act of 1903 by a circuit court of four judges, which then ruled in favor of the U.S. government; Standard Oil Company of New Jersey and 33 other companies, along with seven individuals including John D. Rockefeller and William Rockefeller, appealed.⁠[4][4][4]

On May 15, 1911, in a majority opinion written by Chief Justice White, the U.S. Supreme Court held that the Sherman Anti-trust Act should be interpreted under the “rule of reason,” prohibiting only contracts and combinations that unreasonably or unduly restrain interstate trade; the defendants’ combination constituted an unreasonable restraint of interstate trade in oil and its products and fell within the act’s prohibition. The court affirmed the lower court’s decree dissolving the Standard Oil combination, modifying only certain minor matters, and, finding the 30-day period for compliance too short, extended it to at least six months. Justice Harlan concurred in the dissolution but dissented from the majority’s interpretation of the law.⁠[4][4][4][4][4][4][4][4][4]

After the ruling, the companies controlled by Standard Oil Company of New Jersey were split off as independent businesses; accounts variously put the number of companies involved at 33, 34 or 38. John D. Rockefeller then held 244,500 of the company’s 983,383 outstanding shares. In the 29 years from the formation of the trust in 1882 to its dissolution in 1911, the Standard Oil combination paid out about $751 million in dividends.⁠[1][9][7][1][2]

After the breakup, Standard Oil Co. (Ohio) became an independent company with only its marketing business in Ohio and an outdated refinery in Cleveland, and no crude oil reserves or pipelines; it later evolved into BP America.⁠[6][6]

After the breakup, Standard Oil of New Jersey (Jersey Standard) used the “Esso” brand, taken from the pronunciation of the initials S and O of Standard Oil, in a number of states, while in states where other Standard Oil companies objected it used the Enco and Humble brands. In 1972, Jersey Standard changed its name to Exxon Corporation.⁠[9][9][9]

In 1984, Standard Oil Company of California (Socal) merged with Gulf Oil Corporation and changed its name to Chevron Corporation.⁠[8][8]

In 1999, Exxon merged with Mobil Oil Corporation, formerly Socony-Vacuum Oil, to form ExxonMobil Corporation.⁠[9]

Standard Oil built its own pipelines to move oil, bought whole trainloads of tank cars, set up its own oil depots, warehouses and docks, made barrels in its own plants, bought entire forests for timber, made its own glue and paint, and employed scientists to find uses for petroleum by-products that had previously gone to waste. It was also one of the first companies to sell directly to consumers on a large scale.⁠[2][2][2][2]