Ashland Oil, Inc.

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Ashland Oil, Inc.

Ashland, Kentucky 41114
U.S.A.
(606) 329-3333
Fax: (606) 329-4795

Public Company
Incorporated: 1924 as Ashland Refining Company
Employees: 33,400
Sales: $8.99 billion
Stock Exchanges: New York Midwest Philadelphia Boston Cincinnati Pacific Amsterdam

Ashland Oil, Inc. occupies a middle position in the oil industry, far smaller than the major international players but large enough to remain a powerful competitor in its own region. Middle, too, has been its traditional emphasis on the refining segment of the oil business, in which it has long enjoyed a reputation for excellence. Unlike most of the world’s great oil concerns, Ashland has never owned significant amounts of crude oil, and its marketing division did not come close to equaling the importance of refining in the company’s mix of sales for many years. In 1991, chemicals and road construction were also sizable contributors, but Ashland remains primarily a refiner and distributor of oil products.

The history of Ashland Oil begins with J. Fred Miles and the founding in 1910 of Swiss Drilling Company, an Oklahoma corporation. Miles had been raised in Oklahoma and worked in the oil business from youth, and after gathering a store of capital created Swiss Drilling with two other men to explore and operate new wells. The years immediately following the breakup of Standard Oil’s near-monopoly in 1911 were challenging in the oil business, however, and Miles found that he could not survive on the low prices offered for Oklahoma crude. In 1916 he accordingly moved his operations to the new fields then opening in eastern Kentucky, where, with the help of some powerful financiers in Chicago and in Cleveland, Ohio, he obtained control of nearly 200,000 acres of oil land. Two years later the energetic Miles incorporated Swiss Oil Company in Lexington, Kentucky, with a group of backers that included the Insulls and the Armours of Chicago, with Miles serving as general manager and J.I. Lamprecht of Cleveland as president. Swiss Oil was soon one of the leading oil concerns in the state of Kentucky.

By the early 1920s a postwar depression and the early exhaustion of key oil wells had thrust Swiss Oil into a precarious financial condition. Despite the company’s difficulties, Fred Miles was eager to expand its operations into refining, and in 1923 he hired the services of young Paul Blazer to select, buy, and operate the most advantageously located and outfitted refinery obtainable in the area. Blazer had gone into the oil-trading business after college and then picked up valuable experience as a partner in a Lexington refinery, from which he had just resigned when Miles made him the head of Swiss Oil’s new Ashland Refining Company division in 1924. Blazer selected for his refinery an existing facility at Cattletsburg, Kentucky, on the Ohio River near the West Virginia border and just upstream from Ashland, where Blazer set up his modest offices. The Cattletsburg refinery had a capacity of 1,000 barrels per day, and after a program of extensive repairs was soon operating profitably.

Blazer’s choice of Cattletsburg was excellent, due to several factors that would prove critical in the company’s long-term success. In general, a refining operation that had access to its own local crude oil supplies would do well in the eastern Kentucky region. Swiss Oil, though not a successful company, did own a substantial amount of the region’s crude and could therefore supply its new subsidiary with most of its needs. Ashland was thus able to sell regionally refined petroleum products such as gasoline and motor oil more cheaply than competitors who were forced to transport their crude or finished products from the Atlantic seaboard or the Mississippi River-Gulf of Mexico region. The Cattletsburg site promised ready access to hundreds of miles of navigable rivers, by means of which Ashland could both receive crude and deliver product to the greater Ohio River basin. Until the introduction of pipelines, river freight was unmatched as an economic carrier of oil, and Ashland remains dependent on its river barges and terminals for the delivery of much of its refined product. These factors gave Ashland an early advantage over its much larger rivals and allowed the company to achieve a firm and lasting position as regional leader.

By 1926 Ashland’s gross sales were $3 million a year and Paul Blazer had confirmed his reputation as an outstanding refinery manager. J. Fred Miles had been eased out of Swiss Oil when the company required a bailout by one of its investors, and it was not long before the Ashland subsidiary was outperforming its parent company. Blazer steadily improved the refinery’s operation and expanded sales of its products, and in 1929 he convinced Swiss Oil’s board of directors to authorize Ashland’s purchase of $400,000 worth of marketing companies in the area. This was followed up, despite the onset of the Great Depression, by the 1930 acquisition of Tri-State Refining Company over the West Virginia border. Tri-State had a sizable refinery and its own team of gas stations and trucks, giving Ashland the makings of an integrated refining and marketing organization in the eastern Kentucky region. While inexpensive, river transport was continually threatened with the imposition of federal tolls that would largely negate its economy. Thus, in 1931, Ashland took the first in a long series of steps intended to lessen its dependence on river transportation of its crude supplies. When Ashland bought the Cumberland Pipeline Company for $420,000 in 1931 it facilitated shipment of crude from the Atlantic seaboard as well as from its Kentucky fields, an opening to the sea that would become vital when Ashland grew dependent on Middle Eastern oil arriving by tanker.

So skilled an operator was Paul Blazer that Ashland continued to turn a profit in the worst Depression years. Ashland was now the staff upon which leaned the ailing Swiss Oil, and when it became apparent that the latter would not recover the two companies, in 1936, were merged and Blazer elected president and CEO of the new Ashland Oil & Refining Company. The combined companies showed a 1936 net profit of $677,583 on sales of $4.8 million, good results at any time but remarkable in the Depression era. Blazer forged ahead with new investments, joining Standard Oil Company (Ohio) in a pipeline from the southern Illinois fields and adding a costly new unit to the Cattletsburg refinery, and by the time the United States entered World War II in 1941 Ashland had nearly doubled its sales to $8 million.

During World War II the petroleum industry came under fairly tight government control. Like all of the other oil companies, big and small, Ashland benefited mightily from the rapid increase in demand for the entire spectrum of petroleum products, which were needed for everything from gasoline to rubber boots to explosives. With government assistance, Ashland built a new facility at Cattletsburg for the refining of 100-octane aviation fuel, and within four years had doubled and redoubled company revenues to $35 million in 1945. The following years saw an inevitable recession as the war machine was dismantled, but it soon became apparent that postwar America was about to indulge its love affair with the automobile as never before. From the remote mountain towns of West Virginia to the streets of Cincinatti, Ohio, the postwar economy moved on wheels powered by oil, and Ashland remained the region’s most economical supplier of that oil.

In 1948 Ashland took a major step when it merged with Cleveland-based Allied Oil Company, a fuel oil broker with sales slightly in excess of Ashland’s. Allied had been started in 1925 by Floyd R. Newman and W.W. Vandeveer, with the support of Paul Blazer. The combined companies had revenue in that year of $100 million. Ashland’s new Allied division was directed by Rex Blazer, nephew of Ashland president Paul Blazer and a former marketing executive at Allied. The merger extended Ashland’s marketing area to Cleveland and as far west as Chicago, and to make use of its new sales opportunities Ashland soon added a trio of other acquisitions—Aetna Oil Company, a Louisville, Kentucky, refiner and distributor; Frontier Oil Company, of Buffalo, New York; and Freedom-Valvoline Oil Company, Pennsylvania maker of Valvoline motor oil. The later was already a well known brand name and under Ashland’s ownership has since become one of the most widely distributed motor oils in the world. By the time these purchases were completed in 1950, Ashland was the 19th-largest oil company in the United States and for the first time was listed on the New York Stock Exchange.

Sales in 1955 topped $250 million, though net income was only $10 million. In contrast to its early years, as a mature company Ashland tended to earn rather low levels of net income, which Paul Blazer attributed to two basic factors. First, the company had far outstripped its limited sources of crude oil and never had much success as a prospector. This meant that it would never enjoy the extraordinary profits brought in by big oil strikes and that its crude oil expense would always be somewhat higher than for a fully integrated oil concern. Second, Ashland also sold more refined products than it made, supplementing its own production with purchases of refined goods for resale, with a necessarily diminished margin. Such a policy also meant that Ashland’s refineries were kept running at or near capacity, a clear gain in efficiency over plants forced to cut back or work on shorter, more costly runs. Added to its advantageous system of waterway transport and freedom from the advertising expense associated with operation of a high-profile, branded chain of gas stations, Ashland’s refining efficiency offset its lack of crude and enabled the company to earn a steady if unspectacular return on investment.

In 1957 Paul Blazer retired as the chief executive of Ashland Oil after 22 years. His nephew Rex Blazer took over the top management spot, while Everett Wells, a longtime associate of the senior Blazer, became the new president. The year before these changes, Ashland entered a new field with the purchase of the R.J. Brown Company of St. Louis, Missouri, a diversified manufacturer of petrochemicals. A great number of useful chemicals are derived from petroleum, and the oil industry as a whole was expanding rapidly into this new and largely unexplored area. Ashland steadily increased its petrochemical holdings, in 1962 buying United Carbon Company of Houston, Texas, makers of carbon black, and in 1966 adding Archer Daniels Midland Chemicals Company for $65 million. At that point, Ashland formed a new operating subsidiary, Ashland Chemical Company, to oversee the workings of its manifold chemical interests.

The early 1960s were also notable for Ashland’s 1962 purchase of the Central Louisiana pipeline system from Humble Oil & Refining. Central Louisiana was a major pipeline, gathering most of the oil produced in greater Louisiana and the Gulf of Mexico fields, and its acquisition by Ashland largely relieved the company of its worries about a steady supply of crude oil, made worse by the intermittent threat of new user tolls on the waterways. The net effect of these acquisitions was to boost Ashland’s sales sharply, from $490 million in 1963 to $723 million three years later, elevating the company from the status of independent to what might be called a “mini-major” oil firm. The robust U.S. economy had much to do with Ashland’s prosperity, of course, as more citizens relied on the automobile.

In 1969 Ashland had entered the coal business and soon became one of the top-ten coal producers in the country. It also took advantage of its refineries’ asphalt byproducts to gain a leading place among the nation’s road-construction firms. The result of such diversification was a gradual lessening of Ashland’s dependence on oil refining for its sales dollar; by 1971, refining and marketing of oil accounted for only 57% of Ashland’s $1.4 billion in revenue, with Ashland Chemical providing another 25% and its other holdings chipping in the remainder. This apparent balance was somewhat misleading, however; Ashland continued to rely on its refining and marketing divisions for the bulk of its net income, as the growing chemical business proved to be a sluggish money maker. Refining capacity reached its 1991 level of 350,000 barrels per day in 1973, and, as always, Ashland’s crude production was less than 20% of that figure, forcing the company to join the mounting number of U.S. oil refiners dependent on Middle Eastern crude for their survival.

In 1970, shareholders approved changing the company’s name from Ashland Oil & Refining to Ashland Oil, Inc. That same year, Ashland consolidated most of its Canadian interests with those of Canadian Gridoil Limited to form Ashland Oil Canada Limited. Domestically, Ashland acquired Union Carbide Petroleum Company and Empire State Petroleum, and these were consolidated with other exploration and production activities into Ashland Exploration, Inc.

In the mid-1970s Ashland became entangled in its first of a series of legal controversies. In 1976 CEO Orin Atkins, a lawyer who had served in that position since 1965, agreed in response to a shareholder suit to repay Ashland some $175,000 in funds he was said to have spent improperly. The previous year, 1975, Ashland had been fined by the Securities and Exchange Commission for illegally contributing more than $700,000 to several political campaigns.

As noted, Ashland had never come close to meeting its own needs for crude oil, a problem which became increasingly pronounced as the company continued to expand its refining and marketing operations. The 1973 OPEC embargo and ensuing energy crisis had effectively raised the stakes in the oil-exploration game. After the early 1970s, only those companies willing and able to mount massive drilling campaigns would be likely to reap the benefits of crude oil supplies. Ashland was simply not big enough to join the majors in their exorbitant outlays. Ashland therefore got out of the production business entirely, instead of spending on efforts too limited to achieve useful results. Sale of most of its oil leases, equipment, and reserves netted Ashland about $1.5 billion by 1980; but it also left the company wholly dependent on outside sources of crude, primarily in the Middle East. In 1975 all construction activities were consolidated, and Ashland Coal, Inc. was formed in anticipation of the increasing potential of coal in the national energy market. Ashland took a comprehensive review of all segments of its operations to determine necessary changes. As an initial step in this strategy to maximize return on existing assets, the company sold its 79% interest in Ashland Oil Canada.

In 1981 Atkins was forced out as chairman and CEO by a group of executives who brought to light illegal payments Atkins had made to government officials in Middle East countries, most notably Oman. He was replaced as chairman and CEO by John R. Hall. In June 1988 two former Ashland employees won a wrongful-discharge suit against the company. The employees, a former vice president for oil supply and a former vice president for government relations, had accused Ashland of firing them in 1983 for refusing to cover up the illegal payments. The jury awarded the plaintiffs $70.85 million, $1.25 million of which was to be paid by Hall personally. The plaintiffs ultimately settled out of court for $25 million.

On July 13, 1988, Atkins was arrested by customs agents at John F. Kennedy International Airport, accused of selling company documents to the National Iranian Oil Company (NIOC). Atkins denied the charges. The papers Atkins allegedly peddled related to an ongoing, $283 million billing dispute between Ashland and NIOC. In 1989 Ashland settled the ten-year-old case with a $325 million payment to NIOC. The company’s public image was not helped by a 1988 spill of four million gallons of diesel fuel into the Ohio River, although Ashland was credited with a prompt, candid response.

In the meantime, Ashland sales skyrocketed along with the price of oil. John R. Hall watched revenue hit an all-time peak of $9.5 billion in 1981, but Ashland found itself squeezed by the high cost of crude and net income actually dropped into a net loss during the first part of 1982, when a spreading recession only made matters worse. Atkins also had saddled Ashland with an unusually high debt ratio when, in 1981, he used the receipts from the oil-drilling asset sale to buy United States Filter Corporation and Integon Corporation for $661 million. Integon, an insurance holding company, hardly matched the range of Ashland’s other interests and in due time was sold to reduce debt. Once the recession had eased by 1983, Ashland’s earnings again picked up and the company’s future brightened.

Scurlock Oil Company, a crude oil gathering, transporting, and marketing firm, was acquired in 1982, thereby aiding Ashland in a shift from foreign to domestic crude oil sources. In 1982, more than 20 corporate staff departments were brought together to form Ashland Services Company, a division which would cut overhead and also provide cost-effective services to the corporation and to its divisions and subsidiaries.

Ashland is a highly diversified energy company, with extensive coal and petrochemical holdings to complement its core of oil refining and marketing. Ashland is the nation’s leading distributor of chemicals, and a major manufacturer of specialty chemicals for industry and commodity chemicals such as methanol. Ashland has a 46% interest in Ashland Coal, Inc. and a 50% interest in Arch Mineral Corporation. These companies’ combined coal sales for 1990 were about 36 million tons. Ashland is the nation’s leading designer and builder of roadways through its APAC subsidiaries, and can boast of no fewer than 164 asphalt plants and 60 ready mix concrete plants. Oil remains the centerpiece of Ashland’s corporate structure, however. Still relying on cheap river transport for much of its outgoing freight, Ashland delivers gasoline and related petroleum products to a large network of wholesalers and some 2,000 Ashland-affiliated gas stations. Ashland itself operated 600 SuperAmerica retail gasoline-grocery outlets in 1990. SuperAmerica Group’s 1990 sales were $2 billion. Added to these is the $600 million in sales generated by the Valvoline, Inc. subsidiary, Ashland’s only nationally recognized brand name. Combined oil activities thus still provide well over half of the company’s revenue and earnings, as Ashland continues to fill a narrow niche between international oil giant and regional independent.

Principal Subsidiaries

Ashland Petroleum Company; Super-America Group, Inc.; Valvoline, Inc.; Ashland Chemical, Inc.; APAC, Inc.; Arch Mineral Corporation (50%); Ashland Coal, Inc. (46%); Ashland Services Company.