Imperial Oil Limited History

Company Perspectives:

Imperial Oil Limited is one of Canada's largest corporations and has been a leading member of the country's petroleum industry for more than a century. The company's mission is to create value for its shareholders through the development and sale of hydrocarbon energy and related products.

Company History:

Imperial Oil Limited is Canada's largest producer of crude oil and a leading producer of natural gas. Imperial, which is 69.6 percent owned by the U.S. corporation Exxon, is Canada's largest refiner of petroleum products, providing the wide variety of products and services that appear under the Esso brand name at more than 2,700 Esso stations across Canada. The company has vast reserves of oil sands, from which it extracts heavy oil (or bitumen), which can be converted to crude oil or used for other purposes. It also produces and markets coal and petrochemicals. Imperial has made itself known for its support of Canadian culture, health, education, and community services.

Founded after 1876 Canadian Oil Bust

In 1880, when Imperial Oil Company was founded in London, Ontario, oil actually did not look like a good business. The Canadian oil boom, triggered in 1857 with the sinking of the first oil well, had gone bust in 1876. Domestic overproduction and liberal free-trade policies had conspired to saturate the Canadian market. The industrial boom and rampant land speculation, begun in the 1850s, were coming to a halt. During the boom many Canadians had jumped to join the oil rush, which contributed to the flooding of the local market. This, coupled with worldwide depression, resulted in deflated oil prices that were one-third of their former value. Thus, in 1876, Canadian refiners who had glutted their own market began to desert their businesses at bailout prices.

It was at this crisis point that 16 well-established Canadian businessmen from London and Petrolia, Ontario, banded together and decided to buy into the petroleum business. On September 8, 1880, with C $25,000, The Imperial Oil Company, Limited was formed. Its charter was "to find, produce, refine and distribute petroleum and its products throughout Canada." With two refineries, one in London and the other in Petrolia, the total capitalization was an impressive C $500,000.

Frederick Fitzgerald, a builder of the London Water Works who also dabbled in furniture, liquor, groceries, and oil, became Imperial's first president. The mastermind of the group's success, however, was its vice president, Jacob Englehart, who by age 33 had 14 years experience in oil, having started his first refinery at age 19. William Spencer and Herman and Isaac Waterman also brought their knowledge of refineries to the association; Isaac Waterman's involvement in municipal politics and the railway, in particular, later proved to be a valuable asset to the group. John Geary, a lawyer-turned-refiner, and John Minhinnik, a plumber-turned-refiner, were more than ready to deal with the business' logistical and physical problems. Thomas Smallman and John Walker brought the experience they had gained when producing sulfuric acid with the first Canadian chemical company, while Walker was also experienced in federal politics. It was no accident that Thomas Hodgens, a former wagon maker, and his brother Edward, a barrel-maker, were brought into the deal. Edward Hodgens in 1879 had also patented a process that sweetened the odor of the rancid-smelling Canadian crude, making it more competitive with relatively odorless U.S. crude.

The group immediately began trying to set its products apart by improving their quality, as well as by trying to find new uses for the products and to increase distribution. Imperial acquired rights to Hodgens' patent and started deodorizing its oil. It began importing a new kerosene lamp that burned with a brighter, whiter light, from Germany. It sent dealers out into the previously unpenetrated west to hustle up sales. In the space of one year, Imperial was selling to Winnipeg, a frontier town of 8,000, as well as opening up an office in Montreal.

Imperial oil, carried in Imperial's hand-made barrels, rode on Imperial-built wagons across the prairies of the Northwest Territories to Hudson's Bay Company posts. Imperial became so well known for its sturdy oak barrels, that, although the company offered a generous C $1.25 refund for each, most homesteaders chose to keep them and convert them to washtubs, rain barrels, and armchairs. By 1883 Walker's position as vice president of Canadian Pacific Railway had helped Imperial to become not only the basic supplier of railroad construction crews, but also of the settlers that squatted along the line as far as British Columbia.

After three years of growth, Imperial Oil suffered a major setback. During a thunderstorm in July, lightning hit an Imperial refinery, sparking a fire that burned its London processing operation to the ground. In 1884, when Imperial requested of the city of London a C $20,000 grant to build a new line to pipe crude from Imperial's Lambton Wells into the city, its political connections were not enough. Londoners had had enough of the flash fires and the stench rising from streams of gasoline that ran from where it was dumped on the streets down to the river. Gasoline, a then-useless by-product of kerosene, created problems elsewhere as well. Some refiners, trying to get the most dollars per barrel, illegally cut kerosene with gasoline, causing lamps not infrequently to explode when ignited. It is believed that gasoline mixed in with lamp kerosene started the Great Chicago Fire. Rather than rebuilding in what it felt to be a now-hostile London, Imperial moved its head offices first to Petrolia and then to Sarnia, Ontario. Within a short time, almost all related industries followed Imperial from London to Sarnia, which was becoming the new oil center.

New Products and Affiliations at the Turn of the Century

By 1893 Imperial had 23 branch offices spread from Halifax to Victoria. Imperial had done such a good job developing new markets that it could no longer supply the demands of the market. Imperial lacked the money necessary to expand to meet its consumers' needs, and feared losing market share to larger U.S. companies. Unable to convince Canadian or British banks or private investors to gamble with large amounts of capital, in 1898 Imperial turned to the U.S. Standard Oil Company of New Jersey, who had offered to purchase Imperial years earlier. On Dominion Day in 1898, Standard Oil (now called Exxon) assumed a majority interest in Imperial. Imperial took over Standard Oil's Canadian assets on February 23, 1899, including its refinery in Sarnia. Standard worked to keep its ownership of Imperial secret, giving Canadian government officials Imperial Oil stock as hush money.

After laying a pipeline to bring in its crude from Petrolia, Imperial was ready to start servicing all of Canada, producing 143 cubic meters per day at its Sarnia plant alone. Imperial's business got another boost with the growing popularity of the automobile. By 1910 there were about 6,000 of these gasoline-consuming machines prowling Canadian streets. Gasoline, a by-product which previously had been thrown away, became a product in such demand that oil companies were not prepared to dispense it quickly enough. People bought gas in open buckets from grocery stores or even went to the oil companies' warehouses.

The first service station got its start when a car pulled up to Imperial's Vancouver warehouse in between the horse-drawn oil wagons, and backfired. By the time the workers had gotten their horses settled, the foreman had banished automobiles forever. C. M. Rolston, Imperial's Vancouver manager, solved the problem the next day when he opened up Canada's first service station, a one-room metal shack with a garden hose and a water tank full of gasoline.

Rapid Growth During and After World War I

Building a service station did not, however, meet all the demands that were awakened by automobiles. The use of automobiles increased so rapidly that Imperial was almost immediately forced to begin looking for ways to increase its supply of crude, simply to produce more gasoline. In 1914 Standard licensed Imperial to use its cracking technique, a process that yielded much more gasoline per barrel of crude, and installed the first units in its Sarnia refineries. Cracking involved the use of heat and pressure coils to chemically decompose the crude. That same year, Imperial formed the International Petroleum Company, Limited, to search for oil in South America; ordered an exploratory geological party to Turner Valley to confirm the discovery of crude near Calgary; laid a pipeline from Sarnia to Cygnet, Ohio, connecting Imperial refineries to some of the most productive oil fields in the United States; and built the first refinery in British Columbia, on Burrard Inlet. Before long, World War I broke out, creating a whole new market hungry for gasoline.

In 1919 the Imperial Oil Company, Limited changed its name to Imperial Oil Limited. To meet the new demands of war, Imperial grew rapidly. Within five years it quintupled the number of its refineries and doubled its refining capacity. By 1920 there were four times as many cars in Canada as five years prior, and once again Imperial began to search for more efficient ways to refine gasoline. In 1923 Imperial obtained Canadian rights to use pressure stills, which enhanced the cracking process, yielding a greater quantity and quality of gasoline.

In 1924 Imperial hired R.K. Stratford, its first research worker. He discovered that sulfur corrosion of the cracking coils could be prevented by adding lime to the crude. He also came up with a way to keep gasoline from gumming up engines by running the cracked product through a slurry of clay.

The 1930s, for Imperial, were full of changes. Previously geologists searching for oil depended on a hammer, a chisel, maybe a pair of field glasses, and a lot of luck. In the 1920s, the rotary drill rig came along, and it became possible to drill deeper beneath the surface. Then, in the 1930s, Imperial started investigating the possibilities of seismology. Its geologist bounced shock waves off of underground rocks, and judging from the waves' reflection, the shape and size of possible oil formations could be determined. Imperial had started implementing these procedures before the outbreak of World War II, when the Allies needed all the fuel they could get.

Contributions to War Effort

Imperial was able to produce a large amount of the 87-octane aviation fuel that the Commonwealth Air Training Plan needed for its training aircraft by selecting crude oils containing the most useful fractions and by modifying its distillation equipment. Imperial also helped to produce 100-octane aviation fuel for combat aircraft. The company aided in the development of portable runways which could be rolled up, taken to a flat field almost anywhere, and laid in place. Imperial was a key player in Operation Shuttle, which kept oil flowing to Great Britain for a full two years before the United States entered the war.

Alaska's importance grew when Japan entered the war, and airports popped up there for U.S. defense. In 1942 the U.S. Army requested that Imperial build a refinery in the Yukon at Whitehorse, to supply the Alaskan airfields. Within two years, a ten-centimeter pipeline snaked out from the Whitehorse refinery to supply the much-needed fuel for a full year before the war ended.

When the war ended, Imperial welcomed back its employees who had served. Throughout the war, the company had made up the difference between military pay and the salaries at Imperial when military pay was lower. On enlistment, Imperial had given its employees one month's salary as a bonus.

In 1946, Imperial sold 6.275 million cubic meters of crude, more than any previous year. The company's officers, realizing that there had been no meaningful field discoveries since 1920, launched a full-scale exploration to assure supplies for the future.

Leduc Strike in 1947

At the end of the 1940s, 90 percent of all crude oil refined in Canada was imported. Imperial drilled 133 consecutive dry holes. The future looked so bad that Imperial was debating the expensive conversion of natural gas to gasoline. If things did not change, the company decided it would have to close its Sarnia refinery and rely on off-shore crude shipped in to Montreal. Before Imperial shut down and began building in Montreal, however, the company's leadership decided to drill once more in the Hinge Belt, south of Edmonton. Seismograph crews picked a sight in Leduc. On February 13, 1947, the Leduc well gushed oil in huge quantities. The extent of Leduc's success is best measured by the fact that the wells that quickly sprouted up in that area provided 90 percent of all oil produced in Canada. With Leduc's success came the call for a neighboring refinery. Imperial dismantled the idled Whitehorse refinery and reassembled it in nearby Edmonton.

With the Leduc oil strike, domestic oil production was so greatly increased that Imperial began searching for ways to export it. To aid in exportation, Imperial and others joined to form Interprovincial Pipe Line Ltd. in 1949. Imperial owned 49.9 percent of Interprovincial's stock. By autumn of 1950, a pipeline had been laid from Edmonton, Ontario, to Superior, Wisconsin. In 1957 the line was extended to Toronto, then in 1976 it stretched to Montreal. Imperial sold its share of Interprovincial in 1990.

The surplus of oil in the 1950s and price wars that ensued led Imperial to analyze gasoline markets, eliminate unprofitable stations, and set up stations in the right places--some were simple gas stations, others were full-service auto "clinics." Imperial was responsible for introducing Canada's first car clinic, complete with electronic diagnosis. It was not long before highway service stations became a familiar sight, offering everything from gas to snacks. In 1970, self-service stations began popping up under the Esso name--Imperial's brand name.

Canadian gas and oil reserves once again had begun to dwindle as demand continued to grow. Imperial began exploring the far northern waters off Canada's eastern coast, which was a costly operation. In January 1970, that extremely expensive search actually paid off when Imperial hit medium-gravity, low-sulfur crude at Atkinson Point, on the Beaufort Sea in the western Arctic, 1,700 meters deep. As a result of this and other offshore searches, Imperial pioneered the artificial island. The first artificial island, Immerl, was built by Imperial at the cost of $5 million, not including the cost of the well, which turned out to be dry. The offshore oil search continued both in the farther north Queen Elizabeth Islands as well as in the Atlantic seabed.

In the 1960s and 1970s, Imperial Oil began developing the vast reserves of oil sands of northern Alberta, considered the world's largest single reserve of crude oil--a trillion and a half barrels worth. Unfortunately, it was extremely difficult and expensive to extract this heavy oil, or bitumen, from the sand to which it was embedded. The oil was extremely viscous and did not flow on its own. Imperial began pilot programs at Cold Lake in the early 1960s. In 1973 the company joined a consortium known as Syncrude Canada Limited, which began production of the Athabasca oil sands in 1978. By 1991 Syncrude had produced 500 million barrels of heavy oil, which could be converted to conventional crude oil or used to produce asphalt for roads, shingles, and roofing tar.

Acquisitions in the 1980s and 1990s

One of Imperial's most important steps toward growth happened in the late 1980s. In 1988, Imperial began talking to Texaco Canada Inc. about a possible merger, and in February 1989 Imperial bought the company for C $4.96 billion, making it the largest acquisition in Imperial's history and the second-largest in Canada's. The actual merger did not take place until February 1990; it was held up awaiting approval from the Canadian competition authorities, who forced Imperial to sell 638 retail stations, 14 oil terminals, and one refinery. (Following the merger Texaco Canada became known as McColl-Frontenac Petroleum Inc.; this name harkened back to the early history of Texaco Canada, which adopted the name McColl-Frontenac in 1927 upon the merger of McColl Brothers and Frontenac Oil Refineries Limited.)

Two consequences of this merger were immediately noteworthy. The sum of productivity and profits of both companies operating independently was surpassed by those of the two operating together as a whole, creating a synergy. Employees of both companies were looked to for answers to problems of operations and for suggestions about changes. One of the most remarkable features of the merger was the speed with which Imperial was able to reduce the initial debt incurred by the merger, taking it from C $4.96 billion to C $3.1 in 1989.

By this time, Imperial was much more than simply an oil producer, developer, and marketer, although it was now Canada's largest petroleum company. From its beginning, Imperial's interests had branched through all aspects of the business, including the manufacture of wagons, barrels and lamps, as well as chemicals for the treatment plants. Most of Imperial's sales were to industrial customers; it had developed into the leading manufacturer of aviation fuel, marine fuel, railway lubricants, and domestic heating fuels in Canada. In the late 1980s, Imperial stepped up its presence in the natural gas field, through the 1987 purchase of Calgary-based Sulpetro Limited and the 1988 acquisition of the Alberta oil and gas production assets of Ocelet Industries Ltd., and finally with the production capacity and reserves of natural gas gained through the addition of Texaco Canada. By 1989 the company was Canada's third largest producer of natural gas.

Imperial had also developed petrochemical interests, starting as early as 1955, and by the 1970s had developed into one of the largest chemical operations in Canada under the Esso Chemical Canada banner. Fertilizers were added to the manufacturing base in the 1960s, and were bolstered in 1989 with the purchase of Cascade Fertilizers Ltd., a western Canada-based maker of liquid fertilizers. Imperial also developed a natural resources business eventually known as Esso Resources, which at one time mined coal, zinc, and uranium. In the late 1980s all but the coal mining operations were sold off (the company began production of coal in 1981 when Byron Creek Collieries Ltd. of British Columbia was acquired). Also divested in the late 1980s was Building Products of Canada Limited, a manufacturer of a wide variety of building materials that had been acquired in 1964.

Imperial's relationship with the environment had also changed since the early days, when it had dumped gasoline and suffered the flash fires in London. In 1989, its crisis-management team allocated C $8 million to be invested over three years to improve its response to oil spills at its offshore sites. That same year it simulated a large tanker spill to test its response capabilities. Imperial's relationship with the Canadian community was no less impressive. Imperial made news not for oil spills and environmental disasters, but for its support of education and innovative employee assistance programs.

1990s Restructuring

In the early 1990s Imperial Oil was hurt both by continued high debt levels stemming from the acquisition of Texaco Canada and from a worldwide glut on the petroleum market. It consequently suffered the first operating loss in company history in 1991 (C $36 million). Long considered one of the least efficient petroleum companies in North America, Imperial was forced to make drastic changes. In 1992 it cut its workforce by 1,700, closed 1,000 service stations, and restructured its operations, absorbing its Esso Petroleum, Esso Chemical, and Esso Resources divisions into Imperial Oil proper. The following year it shut down its refinery at Port Moody, British Columbia. Imperial sold most of its fertilizer business in 1994 to Canadian mining, chemicals, and materials company Sherritt for $282 million. As a result of these and other moves, Imperial was a much more profitable firm, logging a US $252 million profit in 1995, its largest since 1988. Profits in 1996 were aided by a C $843 million (US $618 million) refund for tax overpayment between 1974 and 1990.

Meanwhile, Imperial was experiencing a steady decline in convention crude oil production as convention sources in Canada were quickly drying up. Rather than invest in the additional equipment required to extract more oil from old fields, Imperial decided to sell off a number of these properties, including the historic Leduc oil field. It was sold in 1997 to Calgary-based Probe Exploration Inc. for more than C $45 million. Also in 1997, the company sold three other Alberta oil fields to Calgary-based Pengrowth Gas Corp. for C $595 million (US $463 million). To replace the loss of this conventional crude, Imperial stepped up production at the Cold Lake heavy oil project. By 1997 almost half of Imperial's net crude oil production came from Cold Lake, with an additional 21 percent deriving from the company's 25-percent interest in Syncrude. Imperial announced in 1997 that it would operate and hold a 58-percent interest in two parallel pipelines to be built for an estimated C $250 million between the Cold Lake area and Hardisty, Alberta, the site of a major pipeline terminal.

For the company's future, an emphasis on expensive-to-extract heavy oil ran the risk of the impact of low oil prices, such as the depressed level of early 1998, which led Imperial to at least temporarily suspend development work at Cold Lake. The company's natural gas operations were concurrently broadened through the May 1998 agreement between Imperial, Shell Canada, and Mobil Oil Canada Properties to explore for natural gas off the coast of Nova Scotia, where about 18 trillion cubic feet of natural gas was estimated to lie. Imperial took a 20-percent stake in the new venture.

Principal Subsidiaries: Imperial Oil Resources Limited; Imperial Oil Resources N.W.T. Limited; Imperial Oil Resources Ventures Limited; McColl-Frontenac Petroleum Inc.; Syncrude Canada Limited (25%).

Further Reading:

• Boras, Alan, "Imperial Gets Enormous Tax Refund Check," Oil Daily, April 1, 1996, p. 3.
• ------, "Imperial Gets Hot and Heavy over Plans to Double Spending at Canada's Cold Lake," Oil Daily, June 11, 1996, p. 2.
• Broyles, Karen, "Imperial Plans $463 Million Property Sale," Oil Daily, August 21, 1997, p. 1.
• MacIsaac, Merle, "Born-Again Basket Case," Canadian Business, May 1993, pp. 38-44.
• Malone, Mary, "Imperial Beginnings," London Magazine, December 1986.
• McMurdy, Deirdre, "Running Out of Gas," Maclean's, January 13, 1992, p. 26.
• Morton, Peter, "Imperial Oil Ltd. to Lay Off 20% of Employees in Resource Division in Effort to Boost Profit," Oil Daily, June 29, 1994, p. 3.
• ------, "Imperial Switches Focus from Conventional to Heavy Oil," Oil Daily, April 5, 1995, p. 7.
• "The Story of Imperial Oil," Toronto: Imperial Oil Limited, 1991, 48 pp.

Source: International Directory of Company Histories, Vol. 25. St. James Press, 1999.