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Pennzoil Company - Lehman Brothers Collection

Pennzoil Company

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The companies that originally came together to form Pennzoil were all involved in the oil industry's early history in Pennsylvania and its neighboring states. One of them, the South Penn Oil Company, was established in 1889 by a unit of Standard Oil Company. Standard had bought a large number of ground leases in the Pennsylvania oil region during the late 1880s and created South Penn to work them. South Penn made rapid progress with its initial wells and was soon pushing across the border into the rich West Virginia fields. When Standard reorganized itself in 1892, South Penn was capitalized at $2.5 million.

In the 1890s South Penn increased tenfold its annual production of crude, and by 1898 it was the leader among the Standard interests, with 7.6 million barrels per year, most of it pumped from the West Virginia fields. The previous year, it had bought the drilling rights to some 20,000 acres of land in the Pennsylvania oil region, paying $1.4 million in what was described as the largest deal in the history of U.S. oil production. In 1899 Standard Oil was again reshuffled, all of the affiliated companies becoming subsidiaries of the newly enlarged Standard Oil Company (New Jersey). By 1900 the Appalachian oil region had reached its all-time peak of production and its many thousands of wells began to run dry. South Penn production dropped by about 50 percent during the following decade and would never again provide more than small amounts of high-grade crude, in addition to useful quantities of the recently harnessed natural gas.

In 1911 the Supreme Court ordered the dissolution of Standard Oil Company (New Jersey). South Penn began life on its own as one of the leading drillers of crude oil in a region that was largely played out. Around the time South Penn had been formed, two independent refineries were built in nearby Rouseville, Pennsylvania. The Pennsylvania Refining Company and Nonpareil Refining Company were both founded in 1886 to process the great stream of oil then produced by the region and bound for the eastern seaboard. Nonpareil bought out Pennsylvania Refining Company in 1893. Nonpareil's name was changed to Germania Refining Company, and its offices were consolidated with those of Pennsylvania Refining.

The increasing popularity of the automobile and other internal-combustion engines gradually changed the relative value of oil's refined products. Use of kerosene began a slow decline, while gasoline was increasingly required by the new machines. Pennsylvania Refining Company expanded its lubricant facilities in 1904; five years after that it formed a new company to market its lubricants: Oil City Oil and Grease Company. Pennsylvania Refining shifted more of its production to lubricants and quickly developed a reputation for manufacturing high-quality products. The company devised the brand name Pennzoil for its products. To capitalize on Pennzoil's growing popularity, Pennsylvania Refining renamed two of its marketing companies in 1921 the Pennzoil Company (California) and the Pennzoil Company (Pennsylvania).

In the meantime, the company's refining outfits were merged in 1914 into a single company called Germania Refining Company, which was soon changed for patriotic reasons to Penn-American Refining Company. In 1924 Penn-American and its marketing companies, now three in number with the addition a few years before of Pennzoil Company (New York), were merged into an umbrella corporation called Pennzoil Company. Pennzoil was not only refining and marketing about 3,000 barrels per day of crude oil, it also had bought gas stations in Detroit, Cleveland, and Pittsburgh. Having organized the refining and marketing aspects of the oil business, Pennzoil was still lacking crude-production capacity, and in the mid-1920s it began talks with South Penn Oil about a possible merger. In 1925 the two companies came together when South Penn bought 51 percent of Pennzoil's stock. Though not a merger, South Penn's purchase effectively united two medium-sized Pennsylvania oil concerns. South Penn completed its purchase of Pennzoil in 1955. South Penn continued consolidating its holdings in the Appalachian oil and gas region, which though limited in scope, remained a source of high-grade petroleum.

In the early 1930s the focus of U.S. oil production had shifted to Texas. The immediate effect of this surge in production was to depress the price of Pennsylvania crude to an all-time low in 1933, but its long-term effect on Pennzoil's future history was to be much more profound.

After World War II, as America developed its love of the automobile, investors continued to pour into the Texas oil regions in search of more spectacular finds. One such firm, Zapata Petroleum Corporation, was founded in 1953 by two brothers, J. Hugh and William Liedtke, John Overbey, and George Bush. In the late 1950s, Zapata became interested in the fortunes of Pennzoil, whose corporate name had become South Penn Oil Company after the final merger of its partner companies in 1955. South Penn was well known as a producer of premium motor oil but its profits had never reached their potential. The Liedtkes soon gained control of South Penn in the early 1960s, and in 1963 South Penn was merged with the Zapata companies in a new entity called Pennzoil Company. Pennzoil was still a relatively small player among the oil giants, with sales in 1963 of only $77 million and a net profit of about $7 million. The Liedtkes than set their sights on a much richer prize, United Gas Corporation. United had become one of the largest distributors of natural gas in the country by the mid-1960s; its United Gas Pipe Line Company carrying approximately 8 percent of the nation's supply. Pennzoil offered to buy one million shares of United at $41 per share; five million shares were immediately tendered, and Pennzoil bought all of them. Pennzoil proceeded to sell off most of United's assets, first spinning off its retail business and then, in 1974, the huge United Gas Pipe Line Company. According to Pennzoil, the latter divestment was made necessary by government regulations, which inhibited Pennzoil's operation of both producing and distributing concerns, but the Liedtkes' handling of the affair resulted in a barrage of lawsuits and an investigation by the Federal Power Commission.

The absorption of the United companies turned Pennzoil into a large and diversified natural-resources company. Its 1970 sales hit $700 million, up tenfold from 1963, and its Duval Corporation mining subsidiary went on to make a series of quick strikes in sulfur, potash, copper, gold, and silver. To keep its natural gas production up, Pennzoil created two new companies in the early 1970s, Pennzoil Offshore Gas Operators and Pennzoil Louisiana and Texas Offshore, Inc., selling shares to the public in order to raise the capital needed for further offshore drilling while also enjoying a sizable appreciation in the value of the stock it retained.

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