Dresser Industries, Inc.

views updated

Dresser Industries, Inc.

1600 Pacific Building
Dallas, Texas 75201
U.S.A.
(214) 740-6000
Fax: (214) 740-6584

Public Company
Incorporated: 1905 as S.R. Dresser Manufacturing Company
Employees: 31,400
Sales: $5.31 billion
Stock Exchanges: New York Boston Cincinnati Midwest Pacific Philadelphia

Dresser Industries is a worldwide supplier of equipment and services for gas and petroleum exploration and development, energy processing, engineering, and mining. Five industrial segments divide the operations of the company. The oilfield products and services division provides equipment and services for oil and gas exploration, drilling, and production. Energy processing and conversion equipment, the processing division, furnishes products and services for gas reinjection and the conversion of hydrocarbon raw materials into fuels and lubricants. The engineering services division consists of the M.W. Kellogg Company, a wholly owned subsidiary. Primarily concerned with construction and engineering for the hydrocarbon process, it also focuses on the production and installation of pollution-control equipment, mainly for coal-fired power plants.

A joint venture called Komatsu Dresser is the company’s mining and construction equipment division, formed by the combination of Dresser’s Western Hemisphere construction-equipment operations and those of Komatsu Heavy Industry in Japan. Dresser’s general industry segment concentrates on industrial products like pipe couplings, gas meters, and assembly tools for use in aircraft, automobiles, and electronics.

In 1880 Solomon Dresser opened a small business called S. R. Dresser and Company in Bradford, Pennsylvania. Thirty-eight years old, he was an experienced oilman who had followed the oil boom from West Virginia to Pennsylvania without making a significant strike himself. The business was a pragmatic compromise, for Dresser reasoned that a steady living might be easier to earn if he became a supplier rather than a prospector in the oil industry.

Accordingly, he designed an expanding india-rubber packer to seal off the crude oil from water and other fluids underground. Careful to patent his product first, he then offered it for sale in a little downtown store. Dresser’s assessment of the packer’s market potential was correct. By 1884 his business had prospered, with offices in Allentown and Clarendon, Pennsylvania, and in Bolivar, New York.

He next tried to solve a problem in the natural gas field. Often found in association with petroleum, gas must be transported in leakproof piping to maintain adequate pressure. The lack of such piping during this period meant that only cities within 100 miles of a gas field could enjoy the new energy source. If the drilling site was far from a town, extra gas was simply wasted by burning it in a stack close to the well. Dresser’s answer to this puzzle was a leakproof pipe coupling, which appeared in 1885. Perfected two years later, it was destined to lay the foundation of his future fortune. Finding somewhere to test it was not easy; the location had to be close to an unexplored gas field so that he could run his own line to a town.

On a hunch Dresser moved temporarily to Malta, Ohio, close to where gas had been found many years earlier. He bought land leases and explored the area thoroughly. When his hunch proved correct, he laid a pipeline from the gas field and was able to start supplying Malta customers by October 1891. Within two years, the service was bringing in a monthly gross of $400. Satisfied with the project’s progress, Dresser returned to Bradford.

Having been tested in actual service, the coupling now needed some recognition for wide sales. The big break came in 1894 when a Standard Oil superintendent placed an experimental order for nine of Dresser’s sleeves, or elongated couplings. Orders for couplings in Ohio and Pennsylvania followed, and the product soon came into its own with orders from many other companies.

The oil industry was booming. The 1901 Spindletop discovered near Beaumont, Texas, yielding 100,000 barrels of oil per day, made Texas a new center for the oil industry, though oil had also been found in 15 other states. Cheap and plentiful, it was now used by most industrial facilities and in all forms of transportation.

Solomon Dresser’s business flourished, prompting his decision to incorporate his company. He signed the new charter in December 1905, giving the corporation’s name as the S.R. Dresser Manufacturing Company and naming four directors besides himself. Capital stock of $500,000 consisted of 5,000 shares with a par value of $100 apiece. Of these, each director got one, Dresser the other 4,996. The financial statement prepared for this incorporation showed company resources of $550,000, with 14 patents accounting for almost $180,000.

Dresser’s next innovation came in 1907 with a new Bradford plant. Producing strain-resistant steel couplings to replace the inferior iron ones previously obtained from outside foundries, the facility was one of Dresser’s last triumphs. A frequent stroke victim, he died in January 1911, leaving his son-in-law, Fred A. Miller, at the helm of the company.

Now president of S.R. Dresser Manufacturing Company as well as its general manager, Fred Miller proved an able administrator. Profits climbed steadily, and a surplus of almost $500,000 marked the end of the 1914 financial year.

The upward trend during the years of World War I continued. The 100,000 gallons of oil that the United States shipped to Europe daily constituted 90% of the supply needed to fuel the Allies’s military vehicles and aircraft. Since there were shortages at home, the pipelines grew faster and farther; by 1918, upward of two million Dresser couplings had been used on more than 9,000 miles of pipeline all over the United States and Canada.

At the beginning of the 1920s the thirst for oil continued to grow as the number of new automobiles rolling from assembly lines swelled to 2.25 million, from 187,000 just ten years earlier. Dresser’s annual sales figures reflected this increase: $1.5 million in 1923, they reached an all-time high of $3.7 million by 1927.

Nevertheless, in 1928 the family decided to sell the business, since there was no one to succeed the aging Fred Miller. The buyer was W.A. Harriman & Company, an investment-banking firm intending to make the Dresser business into a public company with separate ownership and management. Under the terms of the agreement, the number of shares increased from 5,000 to 300,000, of which 100,000 were designated Class A and offered at $48 each. The remainder, designated Class B, were held back until 1931. Miller remained as chairman of the board in a consultative capacity.

The new company president was Henry Neil Mallon. Thirty-three years old, Yale-educated, Mallon had seen the war’s end as a major and then had worked as a factory worker at the Continental Can Company in Chicago, where he had advanced rapidly to the position of general manager. Initially ignorant about Dresser’s business, he investigated every facet of operations thoroughly. Mallon’s attention to detail resulted in a gross profit of $1.29 million for 1929, despite the October stock market crash.

However, profitability did not nullify an immediate need for reorganization and updating. Advances in production brought ever-longer pipes needing fewer joints, and a new practice called “welding,” cheaper and faster than couplings, was threatening the company with competitive obsolescence. It was time to expand both the product line and the marketing field.

An unexpected new opportunity came in the form of a Canadian government decision to protect local manufacturers by limiting imports. Mallon gladly complied, importing only certain parts of the couplings from Bradford and buying others from Canadian manufacturers. Couplings were then assembled at Dresser’s new Toronto plant, which opened in 1931 as a subsidiary, the Dresser Manufacturing Company, Ltd., enabling Canadian customers to continue to buy the company’s products.

The expansion staved off a drop in profits for a year. Then, the Depression’s domino effect took its toll. Earnings for 1931 sank to $691,787, a stunning $300,000 less than the year before. The economic clouds darkened in 1932, when the annual profit was only $11,621—the lowest since the company’s incorporation in 1905. Still, there was enough money to start a company store offering grocery staples to employees and laid-off workers at wholesale prices.

In 1933 Dresser acquired the common stock of Bryant Heater Company. A victim of the Depression because of the decline in the home-construction business, Bryant cost a mere $65,000. Updating started at once, and by the end of the 1930s there was a completely new line of heating products as well as a broader distribution program for sales.

In 1937 Dresser acquired the Clark Brothers Company of Olean, New York, an engineering firm manufacturing gas engines, compressors, and pumping equipment for the oil and gas industries. Internationally recognized, it brought $2.3 million in assets, plus John O’Connor, Clark Brothers’s sales manager, who would achieve a great deal for Dresser in the future. In return, Dresser gave Clark greater financial resources and an expanded product line. Dresser merged with Clark in 1938 to become Dresser Manufacturing Company.

By the end of the 1930s, Dresser Manufacturing boasted a product line of 128 new items. Its employee roll stood at 700, and net sales for 1939 were close to $6 million. Between 1939 and 1942 the company undertook several other ventures. Bovaird Seyfang Manufacturing Company, based in Bradford, cost Dresser $592,135 but gave it a new line of engines, engine parts, and tanks for oilfield use. A discovery that fertilizers, synthetic fibers, and refrigerants could be made from distilled natural gas led to an investment of $125,000 in the new Gulf Plains Corporation. Gulf Plains, with its own distillate recovery plant in Texas, gave Dresser entry to these lucrative products, including manufacture of compressors by Clark Brothers.

In 1940 Dresser acquired a half-interest in the Van der Horst Corporation of America, holders of several patents on processes for lining engine cylinders with a chromium-like substance. Unlike true chromium, Porus-Krome could be lubricated, thus helping to prolong the lives of marine and aircraft engines during the years of World War II.

Like other companies in the vital oil-supply business, Dresser stored parts in case of enemy attack. Its pipeline components were now used to carry oil, gas, and water at military posts around the world. The Clark division also began to manufacture 2,600-horsepower engines for freighters, while aircraft parts such as landing gear, wing flaps, and bomb doors came from the other Dresser divisions. One of the company’s most urgent assignments was at the secret Manhattan Project, which was engaged in research to develop the atomic bomb. These defense contracts were lucrative. Sales for 1944 sales totaled just under $55 million.

By the end of the war, expansion had made restructuring necessary. The first matter to receive attention was the company’s name, which became Dresser Industries in October 1944. Five months later, the need for larger headquarters with good rail and air connections took operations to Cleveland, Ohio.

International markets were burgeoning, largely through the efforts of executive vice president John O’Connor, known throughout the company as “the world’s most travelled executive.” Accounting for almost 10% of company business, foreign markets now included Britain, China, and Mexico. One of O’Connor’s major achievements was persuading the Soviet Union to build a $6 million natural gas-liquification plant outside Moscow. Slated for completion in 1949, the project fell victim to a Commerce Department trade ban early in 1948 and was unfinished until 1954.

In 1950 the company decided to move its headquarters again, this time to Dallas, Texas, the epicenter of the U.S. oil business. In tandem with the move, company operations were streamlined. Previously, new units had kept their corporate structure and their separate charters. Now, Dresser adopted an arrangement by divisions, although each separate company would retained its own identity. In this way, each subsidiary had the advantages of Dresser’s size and capital, since strong management ties were maintained with the parent organization. At the same time, Dresser had the equal advantage of decreased size, thus enjoying the efficiency of a small company’s close contact between management and work force.

One business that underwent this transformation was the Roots-Connersville Blower Corporation, a manufacturer of boosters, compressors, and exhausters. Liquidated in 1952, the company became the Roots-Connersville Blower Division. Later, all members of the Dresser lineup acquired divisional status, while still enjoying autonomy.

In the 1940s and 1950s, the company continued expansion, with a shift in product line emphasis from capital goods items to expendable ones needing frequent replacement. This idea had been tested in 1945, when the company had acquired Security Engineering, a maker of drilling bits. Still, the product mix at the beginning of the 1950s showed only a 12% ratio of expendable items.

In November 1949, the Magnet Cove Barium Corporation of Houston, Texas, joined the ever-expanding list of subsidiaries, costing Dresser $2.8 million. A well-run, technologically advanced company, Magnet Cove—later known as Magcobar—was a supplier of drilling mud, a little known although essential ingredient in completing an oil well. The mud, composed of barite and other ingredients, was mixed to suit each well. Drilling mud was needed for several important functions such as lubricating the drill bit, partially supporting the weight of the casing, and preventing fluids under high pressure from entering the well.

Scope for expansion also lay in simplifying the complex international currency regulations that complicated business between foreign oil producers and U.S. companies. Dresser solved the problem in 1952, by setting up a Liechtenstein subsidiary, Dresser Vaduz. Charged with the responsibility of executing and monitoring all foreign license agreements, Dresser Vaduz also funneled profits between the different countries, thus saving the parent company huge U.S. taxes by keeping profits overseas. By 1959, besides the foreign licensees, there were subsidiaries in Canada, Britain, and Mexico, as well as in Peru, Brazil, and Venezuela.

Though company objectives had been achieved by 1957, the bonanza was coming to an end. Net sales, reaching $274.43 million in 1957, were down by $50 million by the end of 1958. One cause was the decline in drilling; while almost 60,000 wells were drilled in 1956, the number in 1958 declined to only 49,000. Some sources attributed this slump to the declining number of independent oilmen, caused by the 1956 natural gas price controls.

In 1962, Mallon retired, leaving a 1961 net sales figure of $235.73 million for his successor, John Lawrence. Dissatisfied with this total, Lawrence began to exercise his firm belief in broad product lines by aiming acquisition offers at companies ancillary to the oil and gas supply business, with two notable mergers resulting.

Harbison-Walker, a maker of heat-resistant bricks and other materials for industrial furnaces, was a $125 million company that cost Dresser approximately $150 million. Though its recent sales had been unspectacular, the imminent development of a durable new fire-resistant brick would help it to play its part in Dresser’s 1969 sales figure of $700 million— the highest in company history.

Symington-Wayne, a maker of gas station and railroad equipment, carried a price tag of about $94 million, and added a new dimension to the product line. Its principal product, a gasoline-dispensing pump, fitted Dresser’s line of supplies for the oil and gas industries. By early 1970, a hefty backlog of orders had added about $103 million to Dresser’s volume, with gasoline pumps and other service station equipment accounting for 45%.

The year 1969 brought disaster. California’s Santa Barbara Channel was fouled by an offshore well blowout that spilled 10,000 barrels of oil before it could be controlled. The resulting pollution, regarded as an environmental disaster, affected 200 miles of ocean as well as beaches. Concern for the environment brought strict new pollution-control laws in the following year.

Dresser’s response was swift. In 1970 the newly appointed president and chief executive officer, John V. James, ordered pollution-control plans to be submitted by each Dresser division. Agreements for joint action were also negotiated with all offshore drilling partners. In 1972, the company acquired Lodge-Cottrell, a British manufacturer of electrostatic precipitators for pollution removal from the stacks of coal-fired electric utility plants.

President James grappled with this issue as well as with the energy crisis sparked by a 1970 Libyan cutback in oil production. A man whose talents lay in planning, James had gained experience in an army intelligence unit during World War II. Various positions dealing with long- and short-range planning had honed his skills, which he now applied to guarding Dresser’s progress during the events following the Libyan incident. The OPEC countries’ nationalization of operations, increase in taxes, and 12% price increase between 1970 and 1973 did not affect Dresser’s sales figures, topping $1 billion by the end of 1973.

Turning his attention to his capital goods markets, James introduced the concept of “multiproduct” plants—facilities which could change products according to need. One such factory was in the Federal Republic of Germany. Formerly making gasoline pumps, it now met decreased demand with a shift to pneumatic tools.

In 1974 Dresser acquired Jeffrey Galion, bringing to the company worldwide plants that manufactured mining and construction equipment. The price of $120 million and more than 400,000 shares of Dresser common stock brought valuable additions to the product line.

Acquisition of the Waukesha Motor Company brought Dresser a selection of internal combustion engines using natural gas, diesel fuel, and gasoline. The large amounts of power needed for hospital, petroleum-exploration, marine, and construction equipment came from these engines. The broadening of the market potential they gave Dresser were well worth the $20.1 million the merger cost. The 1970s ended on a note of peaceful growth, reflected in the 1979 net sales figure of $3.5 billion. In contrast, the next decade began on a note of change.

When price controls were eliminated in 1981, oil companies expanded their exploration programs, drilling 77,500 wells in that year alone. This increase reduced the need for imported oil, while raising the price of domestic crude oil. Yet, despite this lucrative year, it was not long before an economic recession caused a slump in both energy and construction industries.

Nevertheless, the acquisitions strategy continued. During 1982, James’s last year as chairman, selected lines of heavy equipment from International Harvester joined the Dresser fold. The following year, James’s successor, John J. Murphy, began to dispose of unprofitable companies, acquiring others to give the company a wider profit selection. A life insurance company, a finance company, and a car leasing operation joined the Dresser lineup before the end of 1983. Other measures included the permanent closing of five of the company’s eighteen fire-brick plants, the temporary closing of others, and production cuts in still others. Nevertheless, 1983 sales figures of $3.47 billion were down from $4.16 billion in 1982.

Reasoning that cooperation with former rivals would cut competition, Murphy decided to target possible opportunities for joint ventures. In 1986, Dresser and the Halliburton Company, a market leader in the drilling fluids field, joined forces to form the M-I Drilling Fluids Company. The following year there was a 50-50 collaboration with Ingersoll-Rand, suppliers of compressors, turbines, and electric machinery. The new company, Dresser-Rand, was joined by a third joint venture the same year, when Western Atlas International, came into being. Formed by a collaboration between Dresser and Litton Industries, the new company was a combination of Dresser’s Atlas wire line operations and the Litton Resources Group of Litton Industries.

Yet another joint venture saw the light of day in September 1988, when Komatsu of Japan and Dresser formed the Komatsu Dresser Company. A maker of heavy construction equipment, Komatsu had lost profits owing to relentless competition by U.S. companies unaffected by the strong yen. Dresser, itself a victim of competition on the home front, gladly accepted a chance to learn about efficient new Japanese manufacturing methods. An unusual feature distinguished this alliance—an agreement to keep both product lines separate to offer consumers wider choices.

Though the restructuring led to a $50 million loss in 1987, this trend was soon reversed. The oil-drilling industry was once more on the rise, owing to new horizontal drilling technology that significantly increased the reachable amount of oil. Once more supplies of all types were in demand.