Imperial Standard

Front matter

IMPERIAL STANDARD pe mang ane % ine, s i —» — + — Imperial Oil, Exxon, and the Canadian Oil Industry fro

IMPERIAL STANDARD: Imperial Oil, Exxon,

Se and the Canadian Oil Industry from 1880 IMPERIAL STANDARD.

PART THREE: AFTER LEDUC 1947-1980 9 A More Complex World 10 Northern Visions

149 171 185 213

EPILOGUE: SINCE 1980

11 The Roller Coaster 249 12 Exxon and Imperial: Ties that Bind 267 13 A Change in the Climate 281 Conclusion 297

APPENDIX 1

Imperial Oil Company Financial Statements, 1892-98 311 APPENDIX 2A

Imperial Oil Production, Sales, and Net Earnings, 1912-20 312 APPENDIX 2B

Imperial Oil Ltd., Income Received and Dividends Paid, 313 1921-47

APPENDIX 2C

Imperial Oil Sales, Production, Earnings, and Dividends, 314 1947-80

APPENDIX 3A

Canadian Oil Companies, Comparison, 1947 316

APPENDIX 3B

Canadian Oil Companies, Comparison, 1994 316 Notes 317 Bibliography 347 Index 355 vi Contents

Illustrations

MAPS

2.1

4.1 4.2

6.1

7.1 7.2

Oil in US and Canada (1860)

Oil Fields in Peru (1922) Oil in Colombia (1937)

Alberta Oil and Gas Fields (1946)

Alberta Oil Discoveries (1947-51) Main Canadian Pipelines (1956)

10.1 Alberta Oil Sands (1960)

FIGURES

0.1

1.1 1.2 1.3

2.1 2.2

Leduc #1

Lambton County Drilling Rig Jacob Englehart Frederick A. Fitzgerald

Herman Frasch Royalite Tank Wagon

73 77

150 168

24 28

44 47

3.1 3.2 3.3

4.1 4.2

5.1 5.2 5.3

6.1

6.2

6.3

6.4

7.1

8.1

9.1 9.2

10.1 10.2 10.3

11.1 11.2

12.1 12.2

13.1 13.2 viii

Sarnia Refinery Walter Teagle Workers in Dartmouth Refinery

James Flanagan G. Harrison Smith

First Gas Station, Vancouver Imperial Oil Ad, 1934 Joint Industrial Council Meeting

Charles Taylor, Norman Wells Oil Rig Workers, Turner Valley Ted Link

Means of Transportation, Canol

William O. Twaits “Put a Tiger in Your Tank” Ad, 1965

Oil Sands Plant, Mildred Lake Roger Butler Esso Resources Rig, Beaufort Sea

Oil Prices Since 1946 Jack Armstrong

Imperial Executives, 1950 Diane Loranger

Atlantic #3 Fire SS Arrow Sinking

55 62 66

80 84

100 102 110

121 125 135

139 154

188 189

222 229

250 259

274 276

283 286

Illustrations

Acknowledgements

This is not an “official” history of Imperial Oil Ltd. I received no financial support from Imperial Oil, Exxon/Mobil or any of their affiliates, nor for that matter did I seek or receive funding from the Social Sciences and Humanities Council of Canada or any other source. In writing this history I have used material that is available to any researcher, including most particularly the Imperial Oil Ltd. and Royalite records at the Glenbow Museum and Archives in Calgary and the Exxon/Mobil records at the Dolph Briscoe Center for American Studies at the University of Texas at Austin. I would like to acknowledge my appreciation to those companies for having made their business records available to the public.

This is also not a “definitive” history. The records of Imperial Oil are among the largest business archives in Canada, surpassed only by those of the Hudson’s Bay Company and the country’s transcontinental railways. These records are indeed a vast treasure trove for researchers on a wide range of topics—ranging from the history of the company’s large tanker fleet to the technological achievements of its research scientists, and much else in between—and I hope other scholars will find them valuable in understanding Imperial’s role in the history of our country. My intent was to sketch the general history of Imperial Oil and its role in that history and to focus on some particular features of the company that are of relevance to the evolution of multinational enterprises as significant players in the world’s economic, political, and natural environment over the past two centuries.

This project originated over forty years ago. When I first came to Canada in the 1970s one major controversy (in addition to the status of Quebec) focused on the role of foreign-owned corporations in the Canadian economy. Critics charged that these foreign multinationals undermined Canada’s industries, stifled innovation and entrepreneurship, and depleted the country’s natural resources. Defenders countered that these companies brought much-needed capital, technology, and management skills, which all contributed to the dramatic growth of the Canadian economy after the Second World War. The debate featured much rhetoric, reams of statistics, and media stories that celebrated their achievements or condemned their depredations.

It seemed to me that as a historian what I could contribute to this ongoing debate was analysis of how multinationals in Canada actually operated in practice: to what extent did parent firms determine not just the strategies but day-to-day functioning of the Canadian companies they owned or controlled? In the longer run did the relationship between the parent firm and subsidiaries evolve over time, as theorists such as Raymond Vernon maintained, from close control to a more diverse, autonomous model? Or was foreign domination so complete that it could only be constrained by government measures to limit and regulate these companies? Or indeed was there some other, more suitable model?

In these years the study of business enterprise was undergoing a transformation as historians such as Alfred D. Chandler Jr. and others explored the internal workings and evolution of large-scale enterprises and highlighted the relationship between corporate strategies and organization. I had the good fortune to discuss my interest and research in Canadian business with Dr. Chandler; I benefited from his advice, and perhaps benefited even more from my conversations with Mira Wilkins, the most accomplished historian of multinational business in our time.

In order to achieve my aim of observing business relationships “from the inside,” I sought to find companies whose internal records were available to research, which limited the range of my work to some extent, but allowed for more in-depth analysis. Over the years I developed “case studies” of Canadian affiliates of multinationals, mostly American or British, including Canadian Industries Ltd., Bell Canada, Vickers of Canada, and Great Canadian Oil Sands (now Suncor).

One of the objects of my quest was the “great white whale” of foreign-owned businesses in Canada: Imperial Oil, affiliated since 1899 with Standard Oil of New Jersey (Exxon, now Exxon/Mobil), which was not only one of the largest companies in the country, but one of the most enduring, x Acknowledgements and one whose significance was felt throughout Canadian history, comparable in many respects to the Hudson’s Bay Company and the Canadian Pacific Railway. In the late 1980s I was able to get access to the records of Imperial Oil in the early twentieth century, relating to the presidency of Walter Teagle, who went on to become the chief executive of Standard Oil for many years. When I learned that the Imperial Oil records were available at Glenbow Museum and Archives, I set out to fulfill that quest.

There were several people whose advice and assistance were particularly valuable to me in this endeavour. Robert Taylor-Vaisey had been the corporate archivist at Imperial for many years and in that capacity had systematically organized the company records. When Imperial Oil decided to move its headquarters from Toronto to Calgary, Taylor-Vaisey played a major role in arranging for the disposition of the company records at Glenbow. When I began my work on Imperial, I met with him several times and benefited from not only from his knowledge of the archives but also his insights into the history of the company.

My thanks also go to Douglas Cass, the director of the Glenbow Archives, who is himself an expert on the history of the Canadian oil industry, and who took a great interest in my project, introducing me to various other researchers whose input has also been valuable. I received inestimable help in locating and retrieving relevant material from two archivists at Glenbow responsible for the organization and maintenance of the Imperial Oil records: Tonia Fanella and particularly Lynette Walton who was always prepared to spend extra time chasing down documents I requested. All of the staff at the Glenbow Archives were helpful and courteous, even when working under apparently perpetual financial constraints.

I appreciate the help I received from a wide range of fellow researchers I encountered in writing this book. David Finch provided valuable information about the history of Turner Valley and the Alberta oil industry, through both his books and conversations with me. I had numerous discussions with Debbie McLeod Knall about the career of her grandfather, John McLeod, with Imperial Oil and Royalite. Joyce Hunt shared information about her research on the early history of the oil sands. David Breen provided insights on company-government relations in the Alberta oil industry based on his extensive research and publications on the subject. Timothy Cobban shared research materials on the early history

Acknowledgements xi of Imperial Oil in Ontario, drawing on his valuable work, Cities of Oil. Professors Stephen Bocking of Trent University and Sean Kheraj of York University provided guidance into the history of environmental law and policies in Canada. I received encouragement from Professor Geoffrey Jones of the Harvard Business School and Dr. Matthias Kipping, Richard E. Waugh Chair in Business History at York University, to seek ways of integrating my work on Canadian business into the growing literature on the history of multinational enterprises. In addition, I appreciate the careful review of my manuscript by the two anonymous peer reviewers for the University of Calgary Press whose comments stimulated me to provide more clarity in explaining the structure and value of my work to the wider audience of historians of Canada and the oil industry.

Perhaps my greatest debt is to Earle Gray, without question the “dean” of historians of Canadian oil, who in addition to providing many insights based on more than half a century of covering the industry, also read every chapter in this book in draft form and made many suggestions as well as providing useful advice on the geology and technology of oil and gas in an effort to correct my misconceptions. Gray is still very active in the field, and we traded drafts of my book for commentary on chapters on his current project, Fossil Fire, which will be a valuable contribution to the history of the fossil fuel industries and their impact on the environment.

Finally, my thanks to my wife, Deborah, who not only put up with frequent and extended visits to Calgary, but also provided much help with my research, going through sixty-odd years worth of the tedium of minutes of the board of directors of Imperial Oil, and locating pertinent articles in the Imperial Oil Review covering an almost equally long time period. As partial compensation, we spent weekends taking in the remarkable diversity of Alberta, from (melting) glaciers north of Lake Louise to dinosaurs in Drumheller.

Of course I accept responsibility for any errors of omission or commission in this work.

Professor Emeritus, Trent University Peterborough, Ontario

August 1, 2018 xii Acknowledgements

Introduction

For one hundred and thirty years, from its establishment in 1880 to 2010, Imperial Oil Company Ltd. was the largest petroleum company in Canada; in 2009, Suncor merged with Petro Canada and Imperial fell to second place. Even so, in 2018 Imperial remained among the top ten non-financial companies in Canada, ranked by revenues and assets. The third ranked company, Enbridge, had been a subsidiary of Imperial when it was the Interprovincial Pipeline Company.’

During those years Imperial Oil was the largest company in terms of assets, revenues, and net earnings, towering over others in the Canadian oil and gas sector. In 1948, for example, even before the impact of the Leduc discovery took effect, Imperial’s sales revenue and net profits were twice the size of its two largest competitors, British-American Oil (later taken over by Gulf) and Texaco Canada (which Imperial acquired in 1991). Even in the 1990s, Imperial’s sales and assets were equal to those its two major rivals, Shell Canada and Petro Canada. Its share of the gasoline market in Canada fell from the 60 per cent position it held in the early 1950s, but it still accounted for one-third of that market.’

Not only was it Canada’s largest petroleum company, it was also in the proximity of—if not always “present at the creation” of—virtually every major event in the industry after 1900. When demand shifted from kerosene to gasoline in the early 1900s, Imperial acquired patents to the most efficient thermal cracking processes. In 1920 the Northwest Company, an Imperial subsidiary, drilled the first oil well in northern Canada. When gas (and some oil) was discovered in the Turner Valley in Alberta, Imperial arrived shortly thereafter, bought up the largest gas company, and its subsidiary, Royalite, made the largest oil find there in 1924. During the Second World War, Imperial developed oil fields and a refinery in the

Northwest Territories of Canada as part of the war effort. And all this was before Leduc in 1947.

Imperial built the first oil pipeline linking the Alberta oil fields to central Canada in the early 1950s. At one point the company held between one-third and one-half of the assets of every oil pipeline in the country. When the oil sands began to be exploited in the 1960s-70s, Imperial was a founding member of the Syncrude consortium; a decade later Imperial developed its own project at Cold Lake.

Over this same period—from 1899 to the present—between two-thirds and three-quarters of the equity in Imperial Oil has been held by Standard Oil of New Jersey (later Exxon, now Exxon-Mobil). In 2018 Exxon-Mobil was ranked the second largest company in the United States by Fortune magazine. In terms of revenues it was surpassed only by the discount retail giant, Walmart. In the same year it was ranked the third largest petroleum company in the world, trailing the surging China National Petroleum Company and its erstwhile rival, Royal Dutch Shell. Exxon-Mobil remained a global power in the industry, serving markets on virtually every continent, and even in a world crowded with government-owned oil producers it maintained reserves in North and South America, Africa, East Asia, and Australia.’

Imperial Oil was both one of the largest companies in Canada, which had played a major role in shaping the country’s petroleum industry, and a not inconsequential part of one of the world’s largest multinational companies: in 2018, it accounted for close to 10 per cent of the $205 million (USD) revenues of Exxon-Mobil. The relationship between Imperial and Exxon was also one of the most enduring examples of a parent company and a foreign affiliate. In 1929 Imperial Oil was the third largest non-financial corporation in Canada. Eighty-nine years later, only five of the twenty largest firms had survived at all, and Imperial was the only company whose status as a foreign-owned entity remained virtually unchanged.

In 1949, Exxon had partially or wholly owned affiliates in virtually every part of the world outside the Soviet Union—many of them larger and more significant to the company than the operations of Imperial Oil in Canada. By the early twenty-first century, although Exxon was ambitiously seeking access to the republics of the former Soviet Union, many of its largest affiliates—particularly in the Middle East and Latin America—had been swept away by nationalizations, and its ventures into new territories in Africa and Asia were fraught with risk, not only in a financial sense but also in terms of the safety of its employees. The survival of Imperial Oil through the (relatively restrained) controversies in Canada over “foreign multinationals” in the 1970s and 1980s contrasted sharply with upheavals in other parts of Exxon’s empire. More recently, however, the emerging scientific consensus linking carbon emissions from fossil fuel production to climate change posed challenges to both companies—and particularly to Imperial Oil, whose future had been tied to the development of Alberta’s oil sands.°

This history of Imperial Oil is intended to address its role as one of the major shapers of Canada’s petroleum industry—arguably as important for the nation’s economic development in the twentieth century as was the Canadian Pacific Railway in the nineteenth century and the Hudson’s Bay Company in the years before Confederation. At the same time I wish to present its dual status as an integrated oil company in Canada and an integral part of the system of continental and then global expansion and dominion that Exxon pursued from its emergence in 1880.

The literature on multinational enterprises is enormous. Even the literature on the history of multinational enterprises is formidable: one recent overview of the field listed over three hundred publications, of varying scope and scale. Many of the works on particular companies focus on the development of the parent firm, its reasons for expansion (or contraction), and its perspective on strategies and organizational evolution. There are of course exceptions, including the multivolume history of Standard Oil of New Jersey, which reviews the development of affiliates and subsidiaries in some depth and has been of inestimable value to this study of Imperial Oil.’

Of somewhat more recent vintage are studies that focus on the role and evolution of subsidiaries per se, rather than adjuncts to a larger organization. From this perspective the subsidiary has been analyzed in terms of its relationship to the host country’s political and economic environment, cooperative as well as competitive linkages with local businesses, its role in organizations that feature a networked as well as a hierarchical structure, and the development of subsidiary-specific strategies that extend beyond following the lead or direction of the parent company.’ This approach provides useful insights into the workings of multinational

Introduction 3 enterprises, but many of these studies reflect analyses of the operations of companies during the 1980s—90s, with features that may be time-bound. In contrast, my approach seeks to view the evolution of a subsidiary over a longer period with changing conditions.

This study is structured as a narrative, tracing the history of the Imperial Oil company and its role in the evolution of the Canadian petroleum industry. At the same time, it seeks to provide an analysis of the relationship between Imperial Oil and the American company that controlled it from 1899 by addressing a series of questions:

e What circumstances led Standard Oil to enter the Canadian market? Since this expansion involved a merger (in effect a takeover) of Imperial Oil, what factors led Imperial to join the American company?

e What was the relationship between Imperial and Standard after the merger? Did it extend beyond financial control through majority ownership? Did Standard exercise control over the management of operations?

e What events marked turning points in the relationship between the companies? Were these the result of strategic decisions made by the parent company (Standard Oil) or developments within the subsidiary (Imperial) or external factors, or a combination of these elements? Did these changes reflect a longer-term alteration of the conditions of the industry as a whole?

e Was there a transfer of technological and managerial capabilities between the parent company and the subsidiary? Were there transfers in the opposite direction? To what extent did Imperial develop its own initiatives and organizational capabilities?

e What was the role and status of Imperial Oil within the larger system of divisions and affiliates controlled by Standard Oil/Jersey Standard/Exxon over time? To what extent was

Imperial able to develop and execute strategies for its own objectives separate from those of the parent company?

e To what extent were the operations of Imperial Oil affected by competitive (and other) conditions in the Canadian market? To what extent did developments in the international economy affect the operations and objectives of Standard Oil, Imperial, or the relationship between them?

e In what ways did measures by either the US or the Canadian government (or provincial governments) in such areas as trade, taxation, labour relations, financial rules, and environmental regulation affect the operations of either or both companies and the relationship between them? In what areas did differences in the legal, policy, and political environment between the US and Canada affect the operations of either or both companies?

In tracing the history of Imperial Oil and its relationship with Jersey Standard/Exxon, I have drawn substantially on the records of Imperial Oil at the Glenbow Museum and Archives in Calgary, Alberta. The minutes of the board of directors from 1899 and the executive committee of the board from 1951 were very valuable in providing insights into the perspectives of Imperial’s executives as they dealt with events affecting the Canadian oil and gas industry and the expectations of the majority owner in New York (and more recently, in Texas).

Because of the forty-year rule applied to these particular records, I was unable to access them beyond 1978. My original intention was to end the detailed history in 1980 and provide a brief epilogue with an overview covering events after that time. As I proceeded, however, the need for an expanded epilogue seemed clear, as a number of significant developments affected the company over that forty-year period, including the second energy crisis of 1980-81 and the rise and fall of the Canadian government’s National Energy Policy (NEP); Imperial’s acquisition of one of its main competitors, Texaco Canada, in 1989-90; and the emergence of environmental issues and particularly the controversy over the relationship

Introduction 5 between carbon emissions and climate change that roiled the industry from the late 1990s on. In this part, I have drawn on the company’s annual reports and related materials, on coverage of developments in the business and petroleum industry media, and works on Exxon, including in particular the history of that company by Joseph Pratt and William Hale that covers the period from 1973 to 2005.°

I have organized the book into four major sections:

The first part (chapters 1 to 3), covering the period from 1880 to 1918, traces the parallel development of Imperial Oil in Canada and Standard Oil in the United States that formed the backdrop to Standard’s takeover in 1899, through the reorganization of Imperial under Walter Teagle in 1914-18.

The second part (chapters 4 to 6), which could be designated the “pre-Leduc era” from 1918 to 1947, covers a period in which Imperial was closely tied in with Jersey Standard’s expansion into Latin America after the First World War, and the Canadian company embarked on a thirty-year quest to find oil in Alberta to replace its now-diminished capacity in Ontario.

The third part (chapters 7 to 10), the “post-Leduc era” from 1948 to 1980, focuses on the expansion of Imperial’s role

as a major Canadian oil producer as well as its continuing role as the country’s largest vertically integrated company

in the industry, and traces its efforts at diversification into petrochemicals and related areas, and its involvement in the opening of the oil sands from the 1960s and northern oil and gas exploration in the following decade.

The epilogue (chapters 11 to 13) carries the history forward beyond 1980, selectively focusing on government-company relations during the energy crises of the 1970s—80s, the consolidations of the 1980s—90s including Imperial’s acquisition of Texaco Canada and the Exxon-Mobil merger, and the emergence of environmental issues as a major concern for both Imperial and Exxon.

e The conclusion undertakes a review of Imperial’s evolving linkages with Exxon in the context of the broader history of multinational enterprises in the nineteenth through twenty-first centuries, which hopefully will provide a useful contribution to the literature on parent-subsidiary relations.

Introduction