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Gulf Oil Corporation

Feb 23, 2009 | Posted in Essays, Pennsylvania Oil Companies

By Neil McElwee, 2009

The success at Spindletop near Beaumont, Texas in January 1901 set events in motion that led to the formation of the Gulf Oil Corporation. The first well drilled at the site was drilled with cable tools and was a failure. The second attempt was with a rotary drill and succeeded, succeeded spectacularly. The second attempt was made with the financial backing of James Guffey and John Galey. Guffey and Galey were very wealthy, very successful oil well wildcatters from Pittsburgh with a legendary track record in Butler County and Washington County in Pennsylvania and in Kansas. Guffey and Galey formed a partnership, the J. M. Guffey Co., with George Lucas to develop the Spindletop property. By the spring of ’01, the J. M. Guffey Co. had leased a million acres in the new Gulf Coast Field and purchased 375 acres at Port Arthur for iron tank storage and wharf facilities. The young firm quickly completed a sixteen-mile, six-inch pipeline from Spindletop to Port Arthur and made contracts with the Southern Pacific Rail Road to supply refined fuel oil for their locomotives. Guffey moved fast. All of this was done by May.

In May 1901, Guffey formed the J. M. Guffey Petroleum Co. and bought out his partners for $766,000. Guffey’s financing for this purchase came by selling shares of the J. M. Guffey Petroleum Co. to an investment syndicate headed by Andrew and Richard Mellon of Pittsburgh. A total of $1,500,000 was raised by selling 150,000 shares.

Guffey purchased a refinery site near Port Arthur and several tankers and barges. In November 1901, a separate firm was organized, the Gulf Refining Co., with new capital of $750,000 to build a refinery. In 1902, Guffey acquired leases at Sour Lake, extended his pipeline, expanded his refinery and built iron tank storage in the Northeast along the coast. Given the speed and scope of this expansion, Guffey needed additional capital, a lot of it. Mellon Bank agreed to sell a $5,000,000 bond issue for the firm in June 1902. Eighty per cent of the issue, $4,000,000, was sold. So by the summer of 1902, the J. M. Guffey Petroleum Co. had borrowed over $6,000,000, half of which had been provided by the Mellon family and the balance raised with their influence.

With the sudden depletion of Spindletop, the Mellon family was concerned about its investment and sent William Mellon in late 1902 to Texas to provide management oversight of the enterprise. William Mellon was appointed Vice President and given full authority to run the operation. Mellon invested heavily in new producing pools in the Gulf Coast Field and in pipelines to serve it. The refinery capacity was improved to 10,000 barrels a day in 1902 and 2,000 more barrels per day were added in 1905. At the time, the Gulf Refinery was the largest refinery on the Gulf Coast.

It was evident in 1906 the company would need to invest heavily to expand into the Mid-Continent Field to the north. To raise additional capital, the J. M. Guffey Petroleum Co. and the Gulf Refining Co. were merged in January 1907 into a new corporate entity, Gulf Oil Corporation, with principal offices in Pittsburgh. William Mellon continued to run the business as President of the Gulf Oil Corporation.

By 1910, Gulf Oil had sales offices in New Orleans, Philadelphia and New York. The firm built large bulk terminals at these urban centers and established tank wagon networks to distribute its illuminating oils and other refined products. Gulf Oil was quite successful marketing all along the Gulf Coast and along the Atlantic Coast clear to New England.

Gulf built the first drive-in gas station in the country in Pittsburgh in 1914. It was the first marketer to provide free roadmaps. Early on, Gulf decided to promote and retail branded gasoline rather than market unbranded gas through jobbers and independent service stations. Gulf service stations sold its lube oil products in containers marked with the bright orange circular logo with blue, shaded block letters introduced in 1920. Gasoline was dispensed from pumps topped with globes branded with the same circular trade logo, a logo that remained essentially the same through 1963. Gulf assured the quality of its branded product and was able to get a premium price.

In 1930, Gulf built two refineries, one in Cincinnati and the other in Pittsburgh, with a combined capacity of 20,000 barrels a day. That same year, Gulf Oil purchased the Paragon Refinery in Toledo with an 8,000 barrel a day capacity. Concurrently, Gulf began construction of a 35,000 barrel a day pipeline from Tulsa to Cincinnati and Spencerville, Ohio. They contracted with the Buckeye Pipe Line to pipe crude from Spencerville to Toledo and Pittsburgh. By the early 30’s, Gulf was well positioned to supply gasoline and other refined products to the interior Midwest.

In 1934, Gulf Oil entered into a joint venture with British Petroleum to form the Kuwait Oil Company. Gulf Oil and British Petroleum were equal partners. In 1938, the partnership discovered oil but none was shipped out of Kuwait until after the Second World War. Kuwait oil was abundant and cheap and enabled Gulf Oil to establish an extensive marketing network in Europe. The circular Gulf corporate symbol became as famous in Europe as it was in the United States.

Back in the U. S., Gulf contracted after the War to build an exclusive service station network at the service plazas along the newly completed Pennsylvania Turnpike. Drivers pulled into the plazas to eat at Howard Johnson’s and fill ‘er up with Good Gulf Gasoline at the Gulf Service Station right next to Howard Johnson’s. Both firms became colorful postwar icons of American and Pennsylvania life. Where room on the PA Turnpike wasn’t available, Gulf and Howard Johnson’s built the same pair of buildings on roads just off the Turnpike toll exits.

A similar postwar relationship to serve and market to the growing American driving public was created with Holiday Inn. In coordinated real estate ventures, Gulf built modern service stations immediately adjacent to new Holiday Inns. The two entities would deliberately share an extended parking lot arrangement similar to the Gulf-Howard Johnson’s arrangement along the Turnpike. Reflecting on this just momentarily, a student of Gulf Oil appreciates what a massive real estate company Gulf Oil became.

Gulf by 1970 was one of the largest producers, transporters, refiners and marketers of oil and refined products in the world. In 1971, it was the ninth largest manufacturing company in the United States with world wide assets of $6.5 billion, processing 1.3 million barrels of crude a day, and 58,000 employees around the globe.

Gulf Oil’s headquarters were located in the landmark Art Deco Gulf Building in Pittsburgh. Until 1970, the Gulf Building was the tallest building in Pittsburgh and could be seen for miles around. The steeply sloped roof of the building was flooded with various colors of light that forecast the expected weather. The residents in the hills outside of Pittsburgh just looked out their window to see what to expect. The Pittsburgh community was deeply shaken in 1975 to learn the five top executives of Gulf Oil were accused of making illegal political contributions. Gulf’s top executives were forced to step down in a very public way. This event was the beginning of the end. By 1980, the stock share value of Gulf Oil was below the break-up value of its worldwide assets. This did not go unnoticed in financial arenas looking for corporate bargains in the deep recession of the early 1980’s.

Gulf management made a major strategic error in 1982 when it made a buyout offer to Cities Service. Cities Service accepted. Claiming Cities Service did not accurately state its crude reserves, however, Gulf Oil then reneged on its offer. T. Boone Pickens, owner of Mesa Petroleum of Amarillo, Texas, had previously made an offer to Cities Service that was rejected when the Gulf Oil offer was made. Pickens had no interest in Gulf prior to Gulf’s offer for Cities Service and subsequent backing out of the offer. While Cities Service shareholders were organizing to sue Gulf Oil, Pickens and some associates went after Gulf’s management. Acquiring 11% of Gulf’s stock, the Pickens group attempted to gain control of Gulf’s Board of Directors. Highly critical of Gulf management, Pickens argued the company should be broken up and the assets sold off.

Gulf management took the view that the Pickens group undervalued the existing structure and business model of Gulf Oil and that it was not in the best long term interests of the majority of its shareholders to sell off assets and restructure as Pickens wanted. Gulf management looked for a friendly alternative and found it in Chevron in 1984. The $13 billion dollar merger with Chevron in 1984 was the largest corporate merger in history to that date.

Afterward, the Gulf corporate offices in Pittsburgh were closed, the end of an era. Chevron licensed various firms in the east and in Europe to market under the Gulf brand. After acquiring Texaco in 2001, Chevron rebranded many Texaco stations in 2006 around Pittsburgh as Gulf stations. In 2008, the American Refining Group in Bradford began to manufacture and package motor oil under the Gulf brand for Chevron. The great Pennsylvania oil icon endures.