Phillips Petroleum was named after brothers Frank and L.E. Phillips and was
organized in 1917 to acquire their original venture in the oil business, Anchor
Oil and Gas Company. Raised on an Iowa farm, the Phillips brothers left Iowa
after Frank heard rumors of vast oil deposits in Oklahoma, then part of the
Indian Territory. Along with others Frank Phillips founded Anchor Oil and Gas in
1903. After a struggle, Frank Phillips, joined by L.E., finally began to make
money from oil in 1905. They reinvested their profits, founding a bank.
Eventually, the brothers decided to leave the uncertain oil business for good
and concentrate on banking. They were forestalled, however, when World War I
broke out and the price of crude jumped from 40 cents to more than $1 a barrel.
The brothers founded Phillips Petroleum Company in 1917, headquartered in
From the very beginning, the Phillips brothers found much natural gas while
drilling for oil. Most drillers considered the gas useless and burned it off at
the wellhead, but the Phillips brothers sought to turn it into a cash crop. In
1917 Phillips opened a plant near Bartlesville for extracting liquid byproducts
from natural gas. The byproducts could be used in motor fuels. The company's
research into the uses of natural gas received further impetus in 1926, when it
won a patent infringement suit brought against it by Union Carbide over
Phillips's process for separating hydrocarbon compounds.
Phillips prospered throughout its first decade. By 1927, it was pumping
55,000 barrels of oil a day from more than 2,000 wells in Oklahoma and Texas.
Its assets stood at $266 million, compared with the $3 million it had when it
was founded. The company also decided to enter the refining and marketing
businesses in 1927, in response to automobile sales and as an outlet for its
growing production. In 1927, it began operating a refinery near the Texas
town of Borger. It also opened its first gas station, in Wichita, Kansas.
Phillips's entry into retailing presented it with the problem of finding a
brand name under which to sell its gasoline. According to company lore, the
solution presented itself as a Phillips official was returning to Bartlesville
in a car that was road-testing the company's new gasoline. He commented that the
car was going "like 60." The driver looked at the speedometer and replied,
"Sixty nothing ... we're doing 66!" The fact that the incident took place on
Highway 66 near Tulsa only strengthened the story's appeal to Phillips's
executives. The company chose Phillips 66 as its new brand name, one that
endured and achieved classic status.
In 1930 Phillips added to its refining and retailing capacities when it
acquired Independent Oil Gas Company, which was owned by Waite Phillips, another
Phillips brother. The Great Depression hit the company early and hard. In 1931
Phillips posted a $5.7 million deficit in its first ever loss-making year. As a
consequence, it cut salaries and laid off hundreds of employees. Phillips stock
plunged to $3 a share, down from $32. The company quickly regained its
profitability, however, posting a modest surplus the next year.
Before the decade was out, Phillips also would make two personnel changes to
help secure its future for the longer term. In 1932 a promising young executive
named K.S. (Boots) Adams was promoted to assistant to the president, Frank
Phillips. Six years later, he succeeded Phillips as president when the company's
founder assumed the post of chairman. Boots Adams--a boyhood nickname, inspired
by his affection for a pair of red-topped boots--was 38 years old when he became
president, and he and Phillips made rather an odd couple at the top of the chain
of command. They often disagreed as to how the company should be run, but
Phillips seems to have known that the future ultimately belonged to his protégé.
"Mr. Phillips liked me, but not my ideas," Adams later recalled. "He said to me:
'I'm going to object to everything you do, but you go ahead and do it anyway."
Phillips's strength in research and development paid off during World War II.
In the late 1930s, the company developed new processes for producing butadiene
and carbon black, two key ingredients in synthetic rubber, which became all the
more crucial to the United States after Japanese conquests in Indonesia and
Indochina cut off the supply of natural rubber in 1941. Phillips also developed
high-octane aviation fuels, an early version of which powered British fighters
in the Battle of Britain. The fuels were widely used by the Allied air forces.
In the years immediately following the war, Phillips began to reap in earnest
the harvest of its research and commitment to natural gas. It generated
substantial income by licensing its petrochemical patents to foreign companies.
At home, the company was eminently positioned to take advantage of the sudden
growth of cross-country pipelines in the 1940s and the consequent surge in
natural gas prices. By the middle of the next decade, its reserves would total
13.3 trillion cubic feet, worth an estimated $931 million. Phillips also
invested heavily in oil exploration, refining, natural gas drilling, and
petrochemical plants. In 1948 it formed a new subsidiary, Phillips Chemical
Company, and entered the fertilizer business when it began producing anhydrous
Although Phillips had the advantage over its competitors in natural gas and
chemicals, it fell behind in the postwar foreign oil rush because of Frank
Phillips's opposition to overseas ventures. Even though his company had begun
drilling in Venezuela in 1944, Phillips was determined to keep the company a
mainly domestic enterprise and turned down the exclusive rights to the lucrative
concession in the neutral zone between Saudi Arabia and Kuwait in 1947. The
company eventually acquired a one-third stake in American Independent Oil, which
took the Middle East concession, but it required all of Boots Adams's persuasive
powers to get his boss to agree to it.
Frank Phillips died in 1950 and Adams, long his heir-apparent, succeeded him
as chairman and CEO. Under Adams, Phillips continued to focus on its interest in
natural gas and was the nation's largest producer in the 1950s. Its program of
capital expansion was ambitious, with expenditure reaching a peak of $257
million in 1956. Phillips also began to break out of the constricting mold that
its late founder had built for it. In 1952 the company started expanding its
marketing network beyond the Midwest, opening Phillips 66 stations in Texas and
Louisiana. Phillips continued to march through the deep South, then up the
Atlantic seaboard, as far as it could extend its supply lines from its
refineries. It also was becoming apparent that Frank Phillips had erred in
refusing to develop overseas sources of oil, as the cost of finding and pumping
crude in the United States increased. Finally, as the decade neared its end,
Adams went on an around-the-world fact-finding trip. When he returned, he set a
five-year timetable for expanding Phillips's international operations.
In 1951, meanwhile, chemists at Phillips discovered Marlex, a chemical
compound that would become a building block for many modern plastics. The first
commercial use of the new product was in the manufacture of hula hoops, and the
1950s hula hoop craze fueled demand for the new substance.
Phillips's practice of licensing its patents overseas without acquiring an
interest in the new ventures had yielded royalties but no growth; so in 1960 the
company took a 50 percent interest in a French carbon black plant using Phillips
technology. Petrochemical joint ventures in Asia, Africa, Europe, and Latin
America followed. Phillips also acquired drilling concessions in North Africa,
the North Sea, New Guinea, Australia, and Iran. These foreign ventures were
still not profitable when Adams retired in 1964 and handed the reins to
President Stanley Learned, but the company had begun to make up for lost time.
Under Learned, Phillips continued to diversify and expand. In 1964 it
acquired packaging manufacturer Sealright Inc. as part of its move into
plastics. Two years later, Learned himself broke ground on a petrochemical
complex in Puerto Rico that would produce chemical raw materials and motor
fuels. Phillips also expanded its domestic oil operations. In 1960, it had tried
to break into the California market by acquiring 15 percent of Union Oil Company
of California, but litigation by Union Oil and the Justice Department prevented
Phillips from pursuing a takeover; in 1963 Phillips sold its stake to shipping
magnate Daniel K. Ludwig. Instead, Phillips acquired the West Coast properties
of Tidewater Oil Company in 1966 for $309 million. The deal took four months to
complete and required great secrecy. When the purchase was announced, the
Justice Department filed an antitrust suit to dissolve it, but a U.S. District
Court allowed the acquisition to stand, pending an appeal to the Supreme Court.
By 1967 there were Phillips 66 stations in all 50 states.
Learned retired in 1967 and was succeeded as CEO by William Keeler. In
addition to his career with Phillips, Keeler, who was half Cherokee, was named
chief of the Cherokee nation by President Harry S. Truman in 1949. Also known as
Tsula Westa Nehi ("Worker Who Doesn't Sit Down"), Keeler used his position as
chief to campaign on behalf of Native American causes. Now he assumed
responsibility for the eighth largest oil company in the United States, and one
in which some serious problems were beginning to manifest themselves. Foremost
among these problems was dependence on outside sources of crude oil. For years,
Phillips had not pumped enough to supply its refineries, so it had to buy crude
from other producers. In 1969 Phillips made an unsuccessful offer to acquire
Amerada Petroleum Corporation, a major crude producer with no marketing
operations. Phillips was more successful with its new exploration strategy,
under which it considerably slowed exploration in the continental United States,
the most thoroughly prospected area in the world, and concentrated on Alaskan
and overseas locations. This paid off in 1969, when Phillips discovered the
massive Greater Ekofisk field under the Norwegian North Sea. Phillips joined
with several European partners to develop the field. The discovery of a major
field in Nigeria soon followed. In the early 1970s, Phillips joined with
Standard Oil Company of New Jersey (later Exxon Corporation), Atlantic Richfield
Company, Standard Oil Company of Ohio, Mobil Oil Corporation, Union Oil Company
of California, and Amerada Hess Corporation to form Alyeska Pipeline Service
Company. Alyeska would build the trans-Alaska pipeline, which allowed the
exploitation of the massive deposits in Prudhoe Bay, Alaska.
During this time Phillips suffered from overexpansion and ailing chemical
ventures. Some petrochemical projects fared badly because of falling propane and
fertilizer prices. In plastics, Phillips found that it could not compete with
smaller companies that had lower capital costs. Keeler addressed these problems
by installing tighter controls on corporate planning. Phillips executives also
found that having gas stations in all 50 states was no advantage when the
company's presence in many markets was too small to ensure a profit. In 1973
Phillips divested most of its stations in the Northeast. A price war in
California had drained the 3,000 stations acquired from Tidewater from the
start, and it never made money; in 1973 the Supreme Court finally ordered
Phillips to divest the Tidewater assets, and two years later the company sold
most of its Pacific Coast properties to Oil Shale Corporation.
Keeler retired in 1973 and was succeeded as CEO by President William Martin.
The remainder of the 1970s would be turbulent years for Phillips. In 1973
Phillips was one of the first and most prominent U.S. corporations to be accused
of making an illegal contribution to President Richard Nixon's reelection
campaign. Phillips pleaded guilty and admitted donating $100,000 illegally. Over
the course of the next two years, Phillips would admit that the company had made
illegal contributions to 65 congressional candidates in 1970 and 1972, as well
as to Lyndon B. Johnson's 1964 presidential campaign and Nixon's 1968 campaign.
The money came from a secret $1.35 million fund set up by Phillips executives
for that purpose and channeled through a Swiss bank account. The company paid
$30,000 in fines.
In 1975 the Los Angeles-based Center for Law in the Public Interest filed a
class-action suit against Phillips on behalf of several small shareholders. In
settling the lawsuit, the company agreed to give up the strong majority that its
executives had always held on its board of directors. The board was
reconstituted, with nine of the 17 directors coming from outside the company.
In turn, these legal difficulties were followed by even greater disasters. In
1977 Phillips's Bravo platform in the Ekofisk field blew out during routine
maintenance and spewed oil into the North Sea for eight days. Two years later,
123 people were killed when a floating hotel for Ekofisk workers capsized in a
storm. Also in 1979, an explosion at Phillips's Borger, Texas, refinery injured
41 people. Meanwhile, Keeler's strategy of exploring in foreign lands began to
backfire as it produced more dry holes than reserves, while other oil companies
were discovering new fields in the Rocky Mountains and in Louisiana.
Martin retired in 1980 and was succeeded by William Douce. In 1982 Phillips's
fortunes revived somewhat when a joint exploration venture with Chevron found
substantial reserves under the Santa Maria Basin, off the coast of California.
The company added even further to its crude supplies in the following year, when
it acquired General American Oil Company, for $1.1 billion, stepping in as a
white knight to thwart a takeover bid from Mesa LP. It would not be Phillips's
last encounter with Mesa and its chairman, T. Boone Pickens, Jr. In 1984
Phillips acquired Aminoil, Inc. and Geysers Geothermal Company from R.J.
Reynolds Industries for about $1.7 billion. Observers noted that the deal made
Phillips, now the subject of takeover rumors, a less attractive buyout candidate
because of the debt it would have to assume.
The takeover rumors became reality early in December 1984, when Pickens
announced that his company had acquired 5.7 percent of Phillips's stock and
intended to try for a majority stake. Douce, though scheduled to retire shortly,
had prepared for such an event and was determined to fight. "Boone Busters"
T-shirts appeared in Bartlesville, which feared for its life should Phillips
ever be taken from it, and the company launched a barrage of lawsuits. One suit
charged that Mesa was violating a pact it had signed before withdrawing its bid
for General American Oil, in which it promised never again to attempt to take
that company over. When the dust cleared a month later, Phillips had driven
Pickens away and preserved its independence, but Phillips agreed to buy out
Mesa's holdings as part of a restructuring that would ultimately cost $4.5
billion, loading itself with debt and requiring the disposal of $2 billion in
assets. For his part, Pickens conducted an orderly retreat laden with
spoils--$75 million in pretax profits plus an additional $25 million to cover
No sooner had Pickens left the field, however, than other attacks began. In
January and February 1985, financiers Irwin Jacobs, Ivan Boesky, and Carl Icahn
all bought up large blocks of Phillips stock. Then, on February 12, Icahn
struck, launching a $4.2 billion offer to buy 45 percent of the company.
Combined with the 5 percent he already owned, this would give Icahn a
controlling stake. In early March, faced with shareholders willing to sell to
Icahn owing to dissatisfaction with the Pickens deal, Phillips executives came
up with a plan to exchange debt securities for half of its outstanding stock,
including Icahn's 5 percent, at $62 per share, compared with the $53 per share
it had paid Pickens. Icahn accepted and he, too, left with his spoils.
The task of rebuilding the battered company--now saddled with $8.9 billion in
debt--was left to C.J. (Pete) Silas, who succeeded Douce as chairman in May
1985. Under Silas, Phillips sold off the necessary $2 billion in assets within
18 months of Icahn's repulse. Among those to go were Aminoil and Geyser
Geothermal. The company also cut 9,000 jobs by 1989. As a result of its forced
restructuring, Phillips gave up becoming an integrated, worldwide energy
company, and refocused on its core oil and gas businesses. In the late 1980s,
unexpectedly strong earnings from its petrochemical businesses more than offset
the effect of lower oil prices and raised hopes for Phillips's long-term
These hopes received a setback in October 1989, however, when an explosion
occurred at Phillips's plastics plant in Pasadena, Texas, killing 23 people and
causing $500 million in damage. The disaster temporarily eliminated Phillips's
U.S. capacity to manufacture polyethylene, which is used to make blow-molded
containers and other products.
Phillips entered the 1990s still saddled with nearly $4 billion in debt from
its battles with corporate raiders. Its debt-to-equity ratio stood at nearly 60
percent. The early 1990s were difficult years for the company as the economic
downturn hit the oil and gas industry particularly hard. The company completed
additional workforce reductions and asset sales. In 1992 Phillips reorganized
its operations into strategic business units, which were given greater autonomy
and more profit and loss responsibility. That year also saw Phillips create GPM
Gas Corporation, a subsidiary that assumed control of the natural gas gathering,
processing, and marketing activities. Phillips planned to sell 51 percent of GPM
through an IPO to raise funds to further reduce the debt load, but the poor
energy market of early 1992 forced Phillips to cancel the IPO.
Wayne Allen was promoted from president and COO to chairman and CEO in 1994.
Under Allen's leadership, Phillips increased its exploration and production
operations. The company had already, in 1993, proven the viability of drilling
for oil and gas beneath the immense sheets of salt that cover more than half of
the Gulf of Mexico. The salt layers had stymied previous attempts to seismically
map the deeper layers, but Phillips developed a 3-D seismic technology that
enabled it to see clearly beneath the salt. So-called subsalt production in the
Gulf began in late 1996. Meantime, international exploration efforts led to the
company's first production of oil in China in 1994 and a major gas discovery in
the Timor Sea located between East Timor and Australia. Also in 1994 Norway's
parliament approved Ekofisk II, a $2.5 billion improvement project involving the
replacement of five aging platforms with two new ones, along with the extension
of the production license to 2028. Phillips expected that by that year, Ekofisk
II will have produced one billion barrels of oil. The construction of Ekofisk II
was completed in 1998.
On the marketing side of its operations, Phillips's profits were weaker than
those in exploration and production. The company worked to expand its network of
gas stations and convenience stores in the mid-1990s. As part of an industry
trend toward consolidation and the sharing of costs through joint operations,
Phillips and Conoco Inc. in 1996 discussed merging their refining and marketing
businesses but failed to reach an agreement. That year Phillips posted net
income of $1.3 billion on sales of $15.73 billion, enabling it to reduce its
debt load to $3.1 billion and its debt-to-equity ratio to 39 percent.
Pressure to consolidate continued to build in the late 1990s as two
megamergers rocked the industry: British Petroleum plc's merger with Amoco
Corporation to create BP Amoco p.l.c. and Exxon Corporation's merger with Mobil
Corporation to form Exxon Mobil Corporation. The new giants dwarfed Phillips
with their revenues in excess of $100 billion. In late 1998 Phillips and
Ultramar Diamond Shamrock Corporation reached a preliminary agreement to combine
their refineries and gas stations in a joint venture, but the deal fell apart
early the following year. Meantime, Phillips in 1998 made its largest discovery
since Ekofisk in a field in Bohai Bay, off the northeastern coast of China. At
the time, this was the largest find off the shore of China.
During the second half of 1999 James J. Mulva took over as chairman and CEO
from the retiring Allen. Mulva would oversee some of the most dramatic events in
the company's history soon after taking over, as Phillips decided to focus even
further on exploration and production by either selling or placing into joint
ventures its other three units. The company at first planned to sell its GPM Gas
unit, but instead in March 2000 Phillips combined GPM with the gas gathering,
processing, and marketing operations of Duke Energy Corporation to form a joint
venture called Duke Energy Field Services, LLC, with Duke initially holding 69.7
percent of the new entity and Phillips holding the remaining 30.3 percent. In
April 2000 Phillips substantially bolstered its exploration and production
operations through the acquisition of the Alaskan assets of Atlantic Richfield
Company for about $7 billion, the largest acquisition in company history. This
deal enabled BP Amoco to complete its $28 billion acquisition of Atlantic
Richfield. For Phillips, the addition of the Alaskan assets increased its daily
production by 70 percent and doubled its oil and gas reserves. Phillips
completed a third major deal in July 2000 when it combined its worldwide
chemicals businesses with those of Chevron to form a 50-50 joint venture called
Chevron Phillips Chemical Company LLC. Through the new entity, whose annual
revenues would be nearly $6 billion, the two companies hoped to reap annual cost
savings of $150 million.
Plans to shift the company's refining and marketing operations into another
joint venture were abandoned with the announcement in February 2001 that
Phillips would acquire Tosco Corporation, a major U.S. petroleum refiner and
marketer whose main retail brands included 76 and Circle K. Completed in
September 2001 at a price tag of $7.36 billion in stock and about $2 billion in
assumed debt, the deal made Phillips the number two refiner in the United
States, trailing only Exxon Mobil, and the number three gasoline retailer, with
about 12,400 outlets in 46 states. Phillips now had strong positions in both the
upstream and downstream sides of the oil industry. Although Mulva called this
acquisition the "final step" in the company's plan to become one of the major
integrated oil companies, just two months after its completion Phillips agreed
to merge with Conoco in a truly blockbuster deal.
In November 2001 Phillips Petroleum and Conoco agreed to merge. The $15.12
billion deal, completed in August 2002, combined two midtier U.S. players into
the sixth largest publicly traded oil company in the world and the third largest
in the United States. The new corporation, named simply ConocoPhillips (an
entity incorporated in 2001), started with 8.7 billion barrels of proven
reserves, 1.7 million barrels of daily production, and 2.6 million barrels per
day of refining capacity--the latter making the firm the largest U.S. refiner
and the number five refiner in the world. The refining capacity would soon be
trimmed slightly because the U.S. Federal Trade Commission (FTC), in approving
the merger, forced the sale of a Conoco refinery near Denver and a Phillips
refinery near Salt Lake City. The FTC also ordered the new company to sell more
than 200 gasoline stations in Colorado, Utah, and Wyoming to address antitrust
concerns in the Rocky Mountain region. ConocoPhillips nevertheless retained a
worldwide network of fuel outlets totaling more than 17,000. Conoco's
headquarters in Houston was retained as the base for ConocoPhillips. James Mulva,
the head of Phillips, became the CEO and president of the new firm, while Archie
Dunham, head of Conoco, served as ConocoPhillips's first chairman.
Upon announcing the merger, the executives cited the potential for annual
cost savings of $750 million. By late 2002 they raised their savings goal to
$1.25 billion, concentrating primarily on the downstream side of the business.
High oil prices were hurting refining and marketing margins at this time, and
ConocoPhillips had a higher proportion of downstream assets than most of its
major integrated oil company competitors. The company announced that it planned
to sell $3 billion to $4 billion of assets by the end of 2004 to rein in costs
and to cut the heavy long-term debt load of nearly $19 billion. Late in 2003
ConocoPhillips said it would cut another $1 billion in assets, or approximately
$4.5 billion in total, and raised its cost savings goal to $1.75 billion. The
biggest divestment came in December 2003 when the company sold Circle K Corp.,
an operator of more than 1,650 convenience stores/gasoline stations that had
come to Phillips through its acquisition of Tosco. Circle K was sold to
Montreal-based Alimentation Couche-Tard Inc. for $821 million. In January 2004
ConocoPhillips announced that it would sell 1,180 Mobil-branded gasoline
stations in two separate deals. The stations also had come to Phillips through
Tosco. These divestments not only fit with the program of asset sales, they also
were consistent with two other company aims: reducing the number of stations it
owned and operated and focusing the U.S. retail operations on three main
brands--Phillips 66, Conoco, and 76. The sales also significantly reduced
ConocoPhillips's workforce, which dropped from 55,800 employees to around
After reporting a net loss of $295 million during the transitional
restructuring year of 2002, ConocoPhillips posted 2003 profits of $4.74 billion
on revenues of $105.1 billion. Debt was reduced to $17.8 billion by the end of
2003. For 2004 the company set a capital spending budget of $6.9 billion, more
than three-quarters of which was earmarked for the exploration and production
operations. This was in line with ConocoPhillips's shift in emphasis away from
the downstream and toward the upstream.
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