Crown Central Petroleum Corporation

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Crown Central Petroleum Corporation

The Blaustein Building
One North Charles Street
P.O. Box 1168
Baltimore, Maryland 21203
U.S.A.
(410) 539-7400
Fax: (410) 659-4730

Public Company
Incorporated: 1923 as United Central Oil Corporation
Employees: 3,894
Sales: $1.76 billion
Stock Exchanges: American
SICs: 2911 Petroleum Refining; 5541 Gasoline Service Stations

Crown Central Petroleum Corporation is an independent refiner and marketer of petroleum products, including petrochemical feedstocks. It operates two refineries, one located near Houston, Texas, and another in Tyler, Texas, with rated capacities of 100,000 and 50,000 barrels per day (b/d), respectively. Crown’s principle business is the wholesale and retail sale of its products in the Mid-Atlantic, Southeastern, and Midwestern United States, with approximately 435 gasoline stations and convenience stores in operation. The company relies heavily on the high volume, multi-pump concept in gasoline retail that it pioneered in the early 1970s.

The 1990s have brought several challenges to Crown’s fiscal well-being. Stringent environmental regulations, stronger competition, and tighter profit margins, exacerbated by conflict in the Middle East that sent shock waves through every branch of the oil industry, have all combined to rock Crown’s foundations. Like other independent firms, Crown has been forced to react expeditiously to increased competition in the industry.

Crown Central’s history began in 1917 on a nondescript plot of land in Harris County, Texas. A drilling crew of the recently founded Crown Oil and Refining Company struck oil at Well Number 3, Goose Creek Field. With the revenue generated by that well, the fledgling company was first able to compensate its crew—whose paychecks had run out before their momentous find—and then, in 1918, to construct its own 65-acre refinery, one of the first on the Houston Ship Channel. In 1920 it began production of one product: 500 viscosity red oil, commonly called lube oil. At that time, the majority of Crown Oil and Refining Company’s stock was held by White Oil Corporation.

In 1923 Delaware-based United Central Oil Corporation acquired White Oil and, by extension, the business of Crown. In 1925 United Central Oil began production of gasoline at the Houston refinery and changed its name to Crown Central Petroleum Corporation, acquiring the “Crown” trademark in September of that year. In 1930 the American Trading and Production Corporation, operated by the Maryland-based Blaustein family, purchased a controlling interest in Crown—an interest that remained at 48 percent of Crown stock well into the 1990s.

The convoluted nature of Crown’s early history was attributable in part to the general disorder prevalent in the early oil industry, as well as to its history with the Blaustein family, which involved itself in a maze of oil investments from the 1920s onward. Through various privately held companies, the family has owned more than $100 million in apartment houses and office buildings; manufacturing companies; considerable bank stock; and tankers. In addition, the family reigns as the largest stockholder in Indiana Standard Oil Company since the late 1950s.

In 1910 the patriarch of the family, Louis Blaustein, founded American Oil Company, which marketed gasoline under the Amoco brand name. In the late 1920s the Blausteins started a private firm, the American Trading and Production Corporation. By the 1980s the firm had concentrated its operations on exploration and production of crude oil and natural gas in the United States and western Canada, utilizing its own fleet of tankers to transport crude and finished products. In the 1920s the Blausteins and Crown had, as yet, an impersonal relationship; Crown supplied gasoline to Amoco. But the Blausteins had founded American Trading in order “to consolidate, expand, and diversify the Blaustein family business activities,” according to Henry A. Rosenberg, Blaustein’s grandson. In 1930 American Trading acquired a controlling share of Crown as an extension of that plan. In 1937 the Blaustein imprint became an indelible one as Crown moved its state of incorporation from Delaware to Maryland, the home state of its controlling family. The plan worked, inasmuch as Crown grew rapidly until the 1980s and set national standards for gasoline retail sales facilities.

The Second World War further boosted Crown’s operations. The United States Bureau of Standards and the Department of the Navy both recognized Crown for its quality products. In addition, the company pioneered the manufacturing of high efficiency, 100-octane aviation gasoline for warplanes. An early “wing and star” logo was modeled after the Army Air Corps pilots’ wing emblem, a reference to Crown’s effective military service.

The post-war era marked Crown’s entry into the retail gas business. By this time the company had already established itself as a growing force as a wholesaler of gasoline and distillates. In 1943 the company opened its first service station in Baltimore, beginning a gas-station colonization of the Mid-Atlantic and Southeastern states. As this business grew, so did the product transport system. Initially, the company used the Plantation Pipeline to move its product—60-65 percent gasoline and 35-40 percent distillate—to the Atlantic Coast. It eventually expanded to the Colonial Pipeline as well, while also relying on some of its own trucks to distribute their product to service stations and/or its 11 terminals in Houston; Atlanta; Baltimore; Birmingham, Alabama; Norfolk, Richmond, and Newington, Virginia; Columbus, Georgia; Spartanburg, South Carolina; Elizabeth, New Jersey; and Charlotte, North Carolina.

Crown’s relatively steady growth was interrupted in the 1970s by increases in crude costs, initiated by the 1973 Arab oil embargo. Crown, now led by Henry A. Rosenberg, Jr., who succeeded his father as the company’s top executive in 1976, attempted a change in strategy, away from traditional refining and retail sales and toward diversification. The company attempted to expand its exploration and production operations to increase its self-sufficiency in crude oil.

Like other independent refiners, Crown dealt primarily with foreign producers, such as Nigerian National Corp. and Algeria’s Sonatrach, through short-term contracts that were subject to quarterly renegotiation and summary cancellation where negotiations fell through. After having lost on a bid for Burmah Oil Co., Ltd., Crown set its sights on Kewanee Industries. In a combined bid with the National Cooperative Refinery Association (NCRA) and Hamilton Brothers, an independent producer, Crown offered $430.5 million for the firm. NCRA pulled out of the deal, leaving Crown and Hamilton in no position to outbid Gulf, which won the deal.

In other attempts at diversification to bolster its place in the stagnant market in the 1970s, Crown ventured into coal and gold mining, launched an oil exploration partnership with the Nigerian government, and started an East Coast refinery construction project. All of these endeavors eventually lost money. It also acquired Continental American Life Insurance Company in 1980. The merger’s life span was cut short, however, when Crown sold American Life to Provident Mutual Life Insurance Co. for $44 million.

In the 1980s Crown refocused its efforts in retailing, trying to maximize efficiency in order to gain greater control over prices and increase profit margins. Fierce competition made this more difficult to execute than to plan. Although Crown had been a pioneer in developing the modern service station—a clean, well-lit, open 24-hours unit, equipped with multi-product pumps and convenience stores—by the 1980s similar models operated by its competitors were commonplace. Keeping continuous vigil along the country’s superhighways and high-traffic intersections were similar, if not identical, service stations affiliated with BP America, Coastal Marketing, Getty Petroleum, and Atlantic Refining & Marketing, as well as such convenience store giants as Cumberland Farms and Circle K. The figures were daunting: Atlantic Richfield Co., for example, expanded its 750 “am/pm mini marts” in many of the territories where Crown operated; and Southland Corp. of Dallas bought its own refinery and added gasoline service to many of the company’s 7,300 7-Eleven stores.

In order to build what CEO Rosenberg called “better mousetraps” to lure gasoline and grocery customers, Crown cut unprofitable outlets and opened more promising ones. In 1983 the company acquired two highly profitable chains, Zippy Mart and Fast Fare, comprising 642 new units, although most were furnished with obsolete pumps and needed overall refurbishing. Along similar lines, Crown acquired 68 BP service stations in Maryland in 1986, doubling the number of outlets it owned in the state. In 1987, concentrating on its core businesses of refining and marketing, the company sold its small but profitable crude oil and natural gas business for $166 million. Crown used the money to balance its books and get rid of all outstanding debt, according to Rosenberg.

In 1989 the company increased its refining capacities by 50,000 barrels a day with the purchase of La Gloria Oil and Gas Company in Tyler, Texas. Increased production was intended to more efficiently stock the company’s expanding retail chains, which grew again in 1991 as Crown acquired 48 existing retail properties in Virginia for $21 million. Marketing strategies to draw consumers to these service stations included payment plans offered with either Crown fleet credit cards or WEX cards, available through Wright Express Corporation. Crown also cosponsored Oldsmobile in 1988 on the NASCAR Winston Cup circuit, a series of racing events that drew 14 million fans and 165 million television spectators. In 1991 Crown expanded its wholesale capabilities with the completion of a pipeline directly linking the Houston refinery to the Texas Eastern pipeline system.

A combination of political and economic barriers in the 1980s and 1990s hindered further growth. A lingering recession affected all aspects of the business, from deliveries of petroleum products in the U.S. to a sizable decline in oil’s share of domestic energy consumption (it fell to 41 percent in 1991, the lowest in 40 years, according to company sources). While the repercussions of the Persian Gulf War triggered temporary industry turmoil and a tremendous price surge in early 1991, Standard & Poor’s Industry Surveys also identified a stabilizing effect on the market, as the “price hawks” in OPEC had had their wings clipped as a result of the conflict.

Crown’s independent status and relatively small size also complicated matters, as industry trends favored the larger conglomerates who were better protected against market fluctuations. In addition, major oil companies such as Exxon, Mobil, and Texaco could typically afford substantial oil reserves that immediately appreciated in value when the price of oil surged, providing instant profit when sold. Without such cushions, independent refiners such as Crown were at a significant disadvantage.

One tactical recourse was in the realm of pricing: adjusting retail prices to reflect wholesale prices and thereby maximize margins. In March 1979 the Department of Energy (DOE) had implemented its “tilt” regulation permitting refiners to pass along increased costs in higher gasoline prices. This legislation gave independents additional leverage against major corporations. Nevertheless, Crown found itself embroiled in numerous suits for alleged pricing violations. In June 1982 the DOE proposed that Crown pay more than $33 million to gasoline and heating oil customers in compensation for overcharges and other violations of federal oil price and allocation regulations. Over the years, Crown had sustained a long chain of similar allegations. In 1964 the Federal Trade Commission ordered the company to halt price-fixing practices. In 1977 Crown and five other firms were convicted of conspiring to fix prices from 1967 to 1974. In 1980 Crown faced charges from the Federal Council on Wage and Price Stability. Finally, the DOE charged Crown with overcharging gasoline and heating oil customers by more than $709,000 in 1978. The DOE pricing mechanisms, then, while helpful to Crown in certain respects, had historically also proven somewhat troublesome.

The late 1980s and 1990s were marked by heightened environmental considerations that reverberated throughout the oil industry. Whether enforced by government legislation or mandated by environmentally conscious consumers, oil companies took costly measures to produce cleaner-burning fuels and to minimize ecological damage in oil prospecting and transportation. Crown thus placed environmental issues at the top of its priority list for the 1990s. According to the Clean Air Act (CAA) of 1990, the EPA mandated new gasoline specifications to be developed in two main phases. Phase I required the substitution of oxygenates for a percentage of the aromatics by 1995. Oxygenates are octane enhancers that burn more completely, while Aromatics are octane enhancers that are less efficient. The most commonly produced oxygenate is methyl tertiary butyl ether (MTBE). For refiners, Phase I costs had been estimated at $3 billion to $5 billion to retrofit facilities by 1996, according to Standard and Poor’s. Crown estimated that from 1991 to 1995, 80 percent of total capital allocation at its refineries would be for environmentally directed projects.

Other regulations were being designed to determine liability in oil spill incidents. In June 1990 an explosion aboard the supertanker Mega Borg caused fire damage and spillage of approximately 2,000 gallons of oil into the Gulf of Mexico. The tanker was owned primarily by a Norwegian firm, carrying Angolan crude owned by the French company Société Nationale Elf Aquitaine, and bound for delivery to Crown Central Corp. Legal arguments in the incident’s aftermath hinged on determining legal culpability for the accident. Subsequent legislation resulted in foreign reluctance to ship crude and other raw materials to the United States. Crown adapted by purchasing a portion of its waterborne crude at the point of origin, requiring the company to assume greater responsibility for the material’s safe transport.

Crown expended considerable effort and funds to comply with the varied environmental concerns being raised. In November 1982 it became the first licensee of a process to recover liquids from refinery fuel gas, an application that would help contain refinery flares. In 1989 Crown began producing MTBE at a rate of 1,500 barrels a day at its Houston refinery. Both Crown refineries began work on facilities for the production of low-sulfur diesel fuel and the efficient processing of higher sulfur, and therefore much cheaper, feedstocks. The company complied with new training and documentation guidelines published by the Occupational Safety and Health Administration. New regulations monitored gasoline evaporation at gas pumps and gas leakage from underground storage tanks (USTs). Crown projects the cost of modifications to refinery and other operations in order to meet environmental guidelines to reach $200 million through 1997.

Crown’s fiscal outlook in the early 1990s was a bleak one. In 1991 the company had a net loss of $6 million ($.61 per share), compared to net income of $26 million ($2.65 per share) for 1990. Sales and operating revenues were $1.8 billion in 1991, compared to $2.1 billion in 1990. In 1992 William D. Hyler of Oppenheimer & Co. noted that the refining business was a “mess,” with the “spread”—the difference between what it costs for a barrel of oil and what a refiner can get for the refined gasoline—at its lowest in 10 years. Yet Standard & Poor’s forecasted that refining would be the first sector of the battered petroleum industry to rebound from the 1991 fall. Crown Central Petroleum Corporation hopes to take a leading role in that recovery.

Principal Subsidiaries

Continental American Corp. (Delaware); Coronet Security Systems, Inc. (Delaware); Coronet Software, Inc. (Delaware); Crown Central Pipe Line Co. (Texas); Crown Gold, Inc. (Maryland); Crown Central International, Ltd. (U.K); Crown Nigeria, Inc. (Maryland); Crown Oil & Gas Co. (Maryland); Crown-Rancho Pipe Line Corp. (Texas); Crown Stations, Inc. (Maryland); La Gloria Oil & Gas Co. (Delaware); Crowncen International N.V. (Netherlands Antilles); FZ Corp. (Maryland); Fast Fare, Inc. (Delaware); Crown Central Holdings Corp. (Maryland); Locot, Inc. (Maryland); McMurrey Pipe Line Co. (Texas); Tiara Insurance Co. (Vermont); Tongue Brooks (Bermuda, Ltd.) (Bermuda); Tongue, Brooks & Company, Inc. (Maryland); Health Plan Administrators, Inc. (Maryland)