| The two oldest of the major oil companies were created at the end of the 19 th century: the American, Standard Oil belonging to Rockefeller, and the Anglo-Dutch, Royal Dutch/Shell. In 1911, the power of Standard Oil was such that the American congress voted the famous antitrust law aimed at breaking it up into three “bits”: Standard Oil of New Jersey (the future Exxon), Standard Oil of New York (the future Mobil), and Standard Oil of California (Socal). All three would become part of a group later called the 7 sisters: Exxon, Socal (later to become Chevron), Mobil, Texaco, Gulf, BP (the heir of AIOC, the Anglo-Iranian Oil Company), and Shell. To these 7 sisters, is traditionally added the French CFP (Compagnie Française des Pétroles, the future Total) to designate the original 8 majors of the petroleum industry.
Very rapidly, the American majors invested abroad, attracted by the enormous profits generated by low-cost oil (Middle East), sold at the same price as Venezuelan or Texan crude that was more expensive to produce. In July 1928, BP, Shell, Exxon, Mobil and the CFP signed the “Red Line Agreements”. This was an agreement to pool their prospecting facilities and to share by mutual agreement the oil resources discovered or to be discovered in the old provinces of the defunct Ottoman empire, that is to say from Palestine to the North of Iraq, including the whole of the Arabian Peninsula. In this way, powerful consortiums were formed, which would later be nationalised: IPC (Iraq oil Company), ADPC (Abu Dhabi oil Company), QPC (Qatar oil Company), KOC (Kuwait Oil Company) and ARAMCO (Arabian American Oil Company of Saudi Arabia).
In the 1950’s, the producer countries share of petroleum revenues increased significantly, but the profits of the majors were almost unaffected, thanks to fiscal advantages granted by their governments. Between 1958 and 1972, the profits of the 7 sisters progressed steadily from US$ 1.6 to US$ 4.5 billion, whereas the price per barrel dropped gradually.
In 1973, those profits jumped to US$ 8 billion. Just after the petrol crisis, thanks to the vertiginous increase in prices, the 7 sisters made some US$ 17.5 billion in profits in 1974, from their production in the OPEC countries! The two decades following the turning point of the first petrol crisis are marked for the oil companies by income levels forced upwards by price increases and, at the same time, downwards by the continued increase in the producer states share of petroleum revenues. The progressive
abandonment
of the system of concessions resulted in large losses of money for the majors, compensated for, overall, by the increase in the barrel price and the development of trading activities (trading of crude and petroleum products).
Thus, in 1985, the five American majors accounted for 1/7 of the total profits of the Fortune 500 (a classification by Fortune, the economic magazine, of the leading 500 American companies in terms of income), that is to say about as much as before the 1974 petrol crisis. The 1980’s and 90’s saw the introduction of a significant new parameter: the major rise in exploration and production costs, compensated to some extent by the size of the fields discovered. This rise was reflected in a significant increase in cost of “new” barrels of oil. As zones potentially very rich in oil became rarer: competition for them was exacerbated and the states involved took advantage of the situation (all’s fair in love and war!) to obtain “bonuses” of several hundreds of millions of dollars at the time of the allocation of permits. Consequently, a lot of the small and
medium sized oil companies
were taken over, since they lacked sufficient available capital to finance the renewal of their reserves by exploration that had become very costly. As for the largest companies, the majors, a wave of “mega mergers” initiated in 1984 (the merger of Gulf and Chevron) and culminating at the end of the 1990’s, caused an upheaval in the petroleum sector, giving birth to 5 giants: Exxon/Mobil (Standard Oil came back!), Royal Dutch Shell (the only one that did not merge with another company), BP/Amoco (today BP), Chevron/Texaco and TotalFinaElf (today Total).
The oil companies continue to earn large profits. This money could be used in part to finance energy re-conversion in developed countries. The European companies have received the message:
BP with solar energy, the new world leader in photovoltaic production;
Shell with the biomass, solar and wind energy, whose declared objective was to hold a 10% market share in renewable energies in 2005;
Total with the design and marketing of photovoltaic systems and investments in other renewable energies (wind, wave energy …). |