Ultramar PLC

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Ultramar PLC

141 Moorgate
London EC2M 6TX
United Kingdom
(071) 256-6080
Fax: (071) 256-8556

Public Company
Incorporated: 1935 as Ultramar Exploration Company Limited
Employees: 3,792 (1989)
Sales: £1.76 billion (US$3.40 billion)
Stock Exchanges: London Montreal Toronto

Ultramar PLC is the U.K. holding company of a number of operating subsidiaries engaged in oil and gas exploration and production worldwide, and in the shipping, refining, and marketing of crude oil and petroleum products. In 1989 it was the 86th-largest industrial company in the United Kingdom in terms of sales, and it is one of the largest of the British oil independents. Ultramar has had a remarkable and colorful history as an independent oil company, beginning its corporate life in the Venezuelan oil industry, reorientating its activities toward Canada and the United States in the 1950s and 1960s, and subsequently diversifying into Europe and the Far East. It is also an unusual firm because, although British-owned and registered in the United Kingdom, the center of management decisionmaking has long been in North America.

Ultramar Exploration Company Limited was formed in London in 1935 to raise funds for the development of oil fields in Venezuela. Its principal shareholders were four large South African mining groups: Consolidated Gold Fields, Selection Trust, Central Mining, and Union Corporation, and for its first decade the company had a very limited life as an independent entity. The four mining companies were seeking to diversify their activities, and the oil industry of Venezuela, which had grown quite quickly in the 1920s, looked a promising arena. Consolidated Gold Fields had taken a shareholding in the Caracas Petroleum Company, formed in Delaware in 1929, in association with Alfred Meyer, a former banker who had close associations with the dictator who ruled Venezuela between 1908 and 1935, Juan Vicente Gömez. Meyer had become Gomez’s principal concession agent, selling oil concessions to foreign companies, and also trading in them in his own right. Caracas Petroleum purchased and sold oil concessions in Venezuela. In 1933, as part of a refinancing deal, Caracas sold one promising option to a new London company, Orinoco Oilfields, Ltd., in which the four South African companies were principal shareholders. Two years later Orinoco was able to sell its concessions to Gulf Oil at a considerable profit. However, the mining companies realized that even higher profits could be made if they financed and controlled drilling operations themselves. This seems to have been the motive behind the foundation of Ultramar, which had almost identical shareholders to Caracas Petroleum. It was designed to be more active in oil exploration and development than Orinoco, which was liquidated. The name Ultramar was taken as it was the Spanish word for “overseas.” Ultramar was to be overseas investment made by a British company in the Spanish-speaking country of Venezuela.

There were close links between Ultramar and Caracas Petroleum, whose president was Alfred Meyer. In June 1938 the two companies were formally merged under the Ultramar name, and a wholly owned company incorporated under Venezuelan law, the Caracas Petroleum Sociedad Anönima (CPSA), was launched, taking over the concessions held by the group. Caracas Petroleum had had a New York-based management. The New York office was retained after the merger, and it held an important place in the management of the company. In contrast, the Ultramar organization in London amounted to little more than the company’s board of directors. During World War u, London’s relative importance declined still further, as wartime conditions made it difficult for the board to exercise close control over activities in the Americas.

Ultramar’s close working relationship with U.S. oil companies also helped to strengthen New York’s importance in corporate decisionmaking. In 1940 a wide-ranging agreement was signed with the U.S. oil major Texaco. Standard Oil Company of New Jersey, the largest U.S. oil company, controlled around half of Venezuela’s large annual production—which amounted to about 201.6 million barrels in 1939—and Texaco was anxious to establish its own supply of crude oil in this prolific oil region. CPSA transferred most of its concessions in central Venezuela to companies owned jointly with Texaco, and in June 1940 the corporate name was changed to Ultramar Company Limited, to emphasise that it was now an investment holding company whose activities were carried out by subsidiaries. The new partnership was a very unbalanced one, as Texaco supplied the technical expertise as well as most of the capital, but needed Ultramar in order to establish a position in Venezuela.

This alliance with Texaco played a critical role in Ultramar’s survival, as it gave the U.K. firm access to technologies and markets which, as a small independent, it would have had little chance of developing alone. However, for some years Ultra-mar’s survival remained in doubt. In 1946 Sir Edwin Herbert had been appointed an independent chairman, who was not linked with the mining company shareholders, but Ultramar’s financial position deteriorated steadily when the development of the Venezuelan oil fields proved a very capital-intensive process. Two of the mining company shareholders, Central Mining and the Union Corporation, finally withdrew their support in 1949, and sold their shares on the market. Ultramar’s position appeared weak, but it was able to survive by increasing its borrowings, and organizing a refinancing package.

CPSA’s production was located in Mercedes oil fields, in the state of Guárico, central Venezuela. At the time it was an undeveloped and isolated region, which meant that the oil company faced considerable transport and other logistical problems quite apart from the complexities of searching for and developing oil. By 1943 it was evident that the Mercedes oil fields were rich, but there remained the problem of transporting the oil to the coast. The solution was the construction of a 150-mile pipeline northeast to the coast near Puerto La Cruz, where an oil tanker terminal had already been built to serve oil pipelines coming from eastern Venezuela. This pipeline was completed in May 1948, and the first oil entered the pipeline in the following June. However, production from the Mercedes oil fields built up too slowly, and it was this which caused the financial crisis in 1949.

By the early 1950s the Mercedes oil fields had proved their worth, and Ultramaras production was increasing. At its peak, the CPSA operation in the Mercedes oil fields produced about 30,000 barrels of crude oil and 80 million cubic feet of gas per day. In 1951 a particularly prolific oil field was discovered under the airstrip in the Mercedes camp area. Meanwhile Ultramar entered joint ventures with other companies to explore areas beyond the Mercedes oil fields. In 1954 the Mercedes partners entered a joint venture with the Atlantic Refining Company over the Oritupana area of eastern Venezuela, and in 1957 a major oil field was discovered there.

The 1950s saw two crucial strategic decisions for the company—diversification beyond Venezuela, and expansion into the downstream—or refined—oil business. In 1952, concern about the political stability of Venezuela led Ultramar to begin oil exploration in western Canada. A Canadian exploration company, Canpet Exploration Ltd. was incorporated as a wholly owned subsidiary of CPSA. In 1955 new shareholders were taken, including a subsidiary of Consolidated Gold Fields, in order to increase the funds available for exploration. Considerable success was achieved, especially in Saskatchewan, and in 1958 a new company, Ultramar Canada Limited, was formed to serve as a wholly owned holding company for Ultramaras Canadian interests. Meanwhile, in 1957, another wholly owned Ultramar subsidiary was formed, Caracas Petroleum US Limited, with an office in Dallas. This subsidiary began exploration work jointly with the Texkan Oil Company. These North American investments were initially small, but their significance for Ultramar’s future development was fundamental.

At the beginning of the 1960s Ultramar also moved to become more of an integrated oil business rather than an exploration and marketing company. During the 1950s Ultramar had sold the oil produced from its Venezuelan operations to Texaco under a series of contracts, but the U.S. company made it clear that it would cease this arrangement in 1959. Ultramaras response was to establish its own refining and marketing operation. In 1960 it purchased the Panama Refining and Petrochemical Company, a Panamanian-registered company owned by an American oil entrepreneur, John Shaheen. This company owned the Golden Eagle Refining Company, which had marketing and refining interest in California, as well as a concession to build a refinery in Panama. Following this acquisition the Golden Eagle name was adopted in the company’s marketing operations, but in the short term the purchase proved ill-timed. In the same year the U.S. government imposed a number of restrictions and quotas on the import of refined petroleum products, which had a depressing effect on the newly acquired California business, and blocked a much-needed outlet for Venezuelan crude. Ultramar recorded a small net loss as a result. However, in the next few years the California operation was refocused, with the Los Angeles refinery concentrating on the production of aviation fuel and low-sulfur fuel oil. By 1962 Golden Eagle had become the largest independent supplier of jet fuel to the U.S. military in California. Ultramar became expert at developing niche markets in which it did not compete directly with larger and more powerful companies.

During the 1960s Ultramar invested heavily in Canada. The need to find a market for Venezuelan crude led to investment in marketing and refining operations in Newfoundland and Quebec. Golden Eagle of Canada, the subsidiary which operated this business, became one of the most important of the Ultramar companies. By 1967 Ultramar had become one of the largest importers of petroleum products in Canada. In 1971 a new refinery was opened in Quebec. A series of purchases of distribution companies expanded marketing operations elsewhere in eastern Canada, and by 1975 Ultramar companies owned 1,100 gasoline stations in eastern Canada. In January 1979 Ultramar purchased from Shell its wholly owned subsidiary, Canadian Fuel Marketers, an oil-marketing and storage company with 40 gasoline stations in eastern Canada.

Although Canada was the main focus of attention, Ultramar also developed interests in the United States and in Europe. The business in California had remained limited for much of the 1960s, but in the early 1970s a marketing campaign took the Golden Eagle name into Oregon, Washington, Arizona, and Nevada, although the core business remained government aviation-fuel contracts. In 1981, however, the purchase of Beacon Oil gave Ultramar 300 gasoline stations in central and northern California plus a diversified oil-marketing operation. The Beacon brand name was retained by the California business, and by the end of the 1980s Ultramar was established as one of the largest independent refinery and marketers in that state. Meanwhile in 1983 Ultramar purchased Pittston Petroleum, a leading independent marketer and distributor of light and heavy fuel oils in the northeastern United States and eastern Canada, an acquisition which provided a continuous market in the northeastern United States and eastern Canada for Ultramar products. In 1968 Ultramar had also entered the U.K. market with the purchase of the Herts & Beds Petroleum Company, a firm with a small network of service stations, which was renamed Ultramar Golden Eagle in 1969. During the 1970s Ultramar purchased small gasoline station companies and heating-oil distributors in the United Kingdom, and by 1979 it had around 430 outlets in that country.

From the mid-1960s Ultramar, as a foreign company, faced growing political and taxation difficulties in Venezuela. There was continual discussion of nationalization of the oil industry, and taxation on the oil companies increased steadily. The Venezuelan government was an enthusiastic supporter of the idea of an organization of oil-exporting countries, and was one of the prime movers in the creation of such an organization in 1960, OPEC. In the circumstances, Ultramar lacked the confidence to undertake much new investment in Venezuela. In 1972 the Mercedes production interests, where Ultramar’s oil-producing history had begun, were sold, although activity continued in Ultramar’s 50% joint venture in the Oritupano oil fields in eastern Venezuela. In 1976, however, the Venezuelan government nationalized the oil industry. Ultramar received almost no compensation for its assets.

The political risks in Venezuela had encouraged Ultramar’s search in the 1960s for new sources of crude oil. In 1966 a new subsidiary company, Golden Eagle Exploration, was formed in Canada, with headquarters in Calgary, to search for oil in North America and elsewhere. In western Canada Ultra-mar’s exploration efforts were never very successful, and in 1989 the bulk of Ultramar’s western Canadian production interests were sold. In the United States too Ultramar had only limited success although its role was expanded in 1984 when it acquired 50% of the Enstar Corporation, with exploration and production interests in the Gulf of Mexico, Texas, and the Rocky Mountains.

However, the two new key production areas were Indonesia and the North Sea, where the consortium in which Ultramar was involved made significant discoveries in 1971 and 1972, respectively. By 1974 the Indonesian consortium had completed 24 oil and gas wells in east Kalimantan. A liquefying plant was constructed at Bontang, which liquefied the gas from the East Kalimantan fields, which was then shipped to Japan as liquefied natural gas (LNG) under a long-term contract. The plant was owned by PERTAMINA, the Indonesian state oil company, and was operated on a break-even basis by a company owned by the members of Ultramar’s joint venture, Per-tamina, and the Japanese buyers. In August 1977 the first cargo of LNG was delivered to Japan on board a specially built LNG carrier. Further oil exploration was undertaken in Indonesia as soon as the Bontang plant was in operation. Between 1979 and 1982 more than 80 new wells were drilled. By 1982 Ultramar’s share of Indonesian oil and liquefied gas production averaged 6,300 barrels per day, while its natural gas production averaged 165 million cubic feet per day.

Ultramar’s oil exploration in the North Sea had a slower start. In 1969 Ultramar took a 6% interest in a Phillips Petroleum consortium applying for licenses in the British sector of the North Sea. This consortium was awarded a number of blocks. In 1972 drilling of the first well began on Block 16/ 29, located in the North Sea about 163 miles east of Aberdeen and close to the offshore boundary with Norway. Oil was discovered in a field named Maureen. Exploration work on Maureen proved a lengthy and costly process and it was not until 1983, by which time Ultramar had raised its share in the consortium to 8.5%, that the Maureen field went on stream, initially producing over 70,000 barrels per day of crude oil. Meanwhile in 1982 a group in which Ultramar had an interest purchased a small share in the Thistle field, which had gone on stream in 1978, and which pumped oil to the Shetlands. In 1983 a small interest, just over 1%, was bought in another established North Sea oil field, the Forties field. By 1986 Ultramar’s North Sea production averaged 10,800 barrels per day for the three oil fields in which it held an interest.

Indonesia and the North Sea enabled Ultramar to survive as an oil-producing company despite the loss of the Venezuelan operations. Other diversification strategies were less successful. During the 1960s Ultramar had developed a ship-bunkering business, and toward the end of that decade the company started to develop its oil tanker fleet. In retrospect, it could be argued that the company entered the shipbuilding business too late, for the rapid growth in the industry was already subsiding, and certainly the consequences in the 1980s were to be very unfortunate. By 1972 Ultramar wholly owned three tankers, and had 50% ownership of five other tankers. Ultramar also began the construction of three oil-bulk-ore (OBO) carriers, a new kind of tanker which could be used for several purposes. In 1973 the first of the OBOs, named the Ultramar, was launched at San Diego, California, the largest ship yet built on the west coast of the United States.

The problem with Ultramar’s investment in shipping was that from the mid-1970s market conditions deteriorated rapidly. There was a worldwide tanker tonnage surplus, and a particular excess of large oil tankers. An additional problem for Ultramar was that large oil tankers could not access its Quebec refinery, for the St. Lawrence River had depth problems which dredging foiled to overcome. Ultramar decided to move away from large tankers and placed an order in 1980 with a Spanish shipyard for six medium-sized OBO carriers. These tankers were to be ice-strengthened and therefore particularly well-suited for carrying crude oil to Ultramar’s Quebec refinery during the winter months. Construction was delayed, and it was not until early 1985 that the first ship, named Maureen after the North Sea field, was delivered. The tanker market, however, remained extremely volatile and the problem of excess capacity continued. The Spanish-built OBOs and other Ultramar vessels were chartered for part of the year, but remained a loss-making operation. By 1987 Ultramar had resolved to sell its three large California-built OBOs, but was unable to find a purchaser. Only in the following year did the six Spanish-built OBOs make their first contribution to Ultramar’s profits. In 1989 four of these vessels were sold.

In 1982 Ultramar Company Limited changed its name to Ultramar PLC. The mid-1980s saw Ultramar in severe difficulties. Crude oil prices weakened, and then dropped almost 50% in 1986. Net profits and tax dropped from £127.6 million to £71.6 million in 1985, and in the following year Ultramar recorded a loss of £62.1 million. It was evident that although the condition of the oil market was a major factor in this downturn, Ultramar was also suffering from excessive diversification, and that some of its varied interests—such as shipping—were very unprofitable. The result of the crisis was a determination to focus on core business activities, and to dispose of peripheral or unprofitable activies. In 1987 the U.K. marketing subsidiary Ultramar Golden Eagle was sold to the Kuwait Petroleum Corporation. Later in that year Ultramar closed its loss-making Hanford refinery in California. Over the next year it supplied its western U.S. marketing operations entirely through product purchases on the market. However, in December 1988, it acquired the modern Wilmington refinery, located in Los Angeles County, California for £260 million.

By the early 1990s Ultramar’s business had a clear shape, with four core businesses. It had exploration and production operations in Indonesia and the North Sea, and refining and marketing operations in eastern Canada and on the West Coast of the United States, especially in California. Ultramar was a major refiner and marketer in eastern Canada, with a retail network of around 1,400 service stations, while the 350 service stations marketing under the Beacon brand made Ultramar one of the largest independent refiners and marketers in California. U.S. management continued to be based in New York State. The “group co-ordinating company,” American Ultramar Limited, was based in New York City until 1972, when it moved to Mount Kisco, New York. It moved again to Tarrytown, New York in 1985.

Ultramar has survived a series of financial crises, and undergone a complete transformation of its geographical area of operation. Its growth has been based on the skillful use of alliances and partnerships with other companies, often bigger than itself. Ultramaras future remains dependent in part on the vagaries of the international oil industry. The Iraqi invasion of Kuwait in August 1990 and the ensuing Persian Gulf War created new uncertainties in this respect. Yet Ultramar was well placed to survive the crisis. By this date the company refined about double the amount of oil that it retailed, selling the balance wholesale at world market prices. A major effect of the Iraqi invasion was to remove a considerable amount of refined products from the market. The result was a steep increase in profit margins on refinery operations, which has worked much to Ultramar’s ad- vantage. As a soundly based integrated oil company, Ultramar has reason to be optimistic about its future.

Principal Subsidiaries

American Ultramar Limited (U.S.A.); Ultramar America Limited (U.S.A.); Ultramar Shipping Company, Inc. (U.S.A.); Ultramar Energy Limited (U.S.A.); Ultramar Inc. (U.S.A.); Ultramar Oil and Gas Limited (U.S.A.); Canadian Ultramar Limited (Canada); Ultramar Canada Inc.; Ultramar Exploration Limited; Ultramar Indonesia Limited; Ultramar Australia, Inc.