Challenges in the 1990s

World events in the early 1990s had contradictory repercussions for Mobil and the petroleum industry as a whole. The Persian Gulf War in particular, and instability in the Middle East in general, heightened the importance of Mobil's carefully cultivated friendship with Saudi Arabia. But a recession in the United States and the worldwide economic slowdown lowered the demand for energy and chemicals, thereby weakening prices.

The corporation marked its 125th anniversary in 1991, but there was little cause for celebration. As earnings across the gas and oil industry dropped, Mobil's profits fell by only one-half percent, but the corporation braced for a deepening recession with restructuring and internal investment. Asset sales of $570 million in 1991 included a Wyoming coal mine and hundreds of wells in western Texas. Capital and exploration spending crested that year at over $5 billion, up almost 16 percent from the previous year.

The recession deepened in 1992, and Mobil Chairman and CEO Allen E. Murray continued restructuring as earnings plunged precipitously across the industry. By the end of the year, Mobil had divested itself of a polyethylene bread bag manufacturing business, a polystyrene resin business, and its interests in nine oil fields in west Texas and southeast New Mexico. Mobil also cut its domestic work force by more than 2,000 in 1992 and slashed $800 million from that year's capital and exploration budget. It may have seemed that even nature moved against the oil industry: August's Hurricane Andrew forced the evacuation of oil and gas rigs and platforms on the Gulf of Mexico, in Alabama, on Mobile Bay, and even as far inland as Beaumont, Texas. Gulf operations began the return to normal within a week of the devastating storm.

The company notes that environmental and philanthropic efforts have been a hallmark of Mobil's operations. In 1991 Mobil started the industry's first nationwide used oil collection program, and it continued to contribute to such cultural and educational projects as "Teach for America," a nonprofit teacher corps. But Mobil's environmental record was marred in 1992 when, after three years of litigation, an environmental manager at Mobil Chemical proved that his superiors attempted to force him to falsify the findings of environmental audits. A jury awarded the former employee $1.75 million in damages and interest in his wrongful discharge suit against Mobil.

Mobil's worldwide influence, with strong positions in Saudi Arabia, Nigeria, and Asia's Pacific Rim, included a commanding presence in Indonesia. ****In the early 1990s, Mobil was the largest U.S. firm extracting natural gas in Indonesia, which was one of the world's largest producers of that resource. Natural gas constituted 50 percent of Mobil's worldwide resources at that time, making the Indonesian activities doubly important.

By 1994, Mobil's position had stabilized, as rising natural gas prices pushed up the company's profits, one-third of which were from natural gas. The following year the company undertook a restructuring of worldwide staff support services, including a 28 percent reduction in staffing. Overall, the company had shaved nearly $2 billion from operating expenses since 1992. In 1995 profits jumped to an estimated $1.9 billion (largely driven by Mobil's 30 percent stake in the rich Indonesian Arun field, which contributed one-quarter of that figure); as a result, Mobil ranked number one in the industry in terms of profitability.

Analysts predicted that the company's profits would increase by another 50 percent in 1996.***** At the same time, Arun's reserves had peaked, and Mobil was pressed to find additional supplies. Chairman Lucio Noto, who had succeeded Murray in 1994, set his sights on Ras Laffan, a natural gas field in the Persian Gulf, off the coast of Qatar. With deliveries scheduled to begin in 1999, Mobil's 30 percent stake in the field was expected to add $300 million in annual operating earnings in its first decade, and as much as $700 million after Mobil's initial investment was paid down. According to a Mobil executive, when Qatar was first proposed, Noto's response was, "... this is something that could get carved on my tombstone, if we do it right."

Other projects proceeded apace: in May, Mobil announced that the company and a partner would launch a second petrochemical operation at Yanbu, Saudi Arabia, at a cost of $2 billion. The company was also investigating the construction of an ethylene plant in Singapore, and formed a joint venture with a Venezuelan firm to develop a $1.5 billion olefins complex in Jose, Venezuela. Other investments included a 25 percent stake in the Tengiz oil field in Kazakhstan and the acquisition of Ampolex, an Australian oil and gas company. Total resources rose 28 percent. Disinvestments, on the other hand, included the sale of $1.8 billion in assets in land development, chemicals, mining, and gas processing.

In June Mobil announced a new management structure, in which 11 new business groups would take the place of the existing three worldwide divisions. Noto explained, "In this new competitive climate, these changes better focus on our entrepreneurial talent of seizing new business opportunities, while maintaining our commitment to technology and functional excellence in our upstream and downstream activities."

On the retail side, Mobil operated 7,711 highly successful gas stations, concentrated in 18 states, only 600 of which were company-owned. Expanding into full-scale convenience stores, the company introduced about 150 "On the Run" outlets, which it described as "brighter, bigger, bolder convenience stores." On the Run was part of a plan to eventually offer franchises of car care, convenience stores, car washes, and gasoline.

Ending 1996 with $81.5 billion in revenues, the company announced that it had essentially met its target for two years hence, 1998, of more than $3 billion in earnings. The restructuring initiatives that were initiated were expected to reduce annual costs by $1.3 billion annually, and dividends to shareholders increased for the ninth consecutive year. Said Noto: "We began working several years ago toward becoming a great, global company. Today, as a result, Mobil is more efficient, more responsive, and better positioned for growth. In that respect, 1996 was a pivotal year for our company. We can now see the Mobil of tomorrow taking shape--more profitable, a recognized leader in all our businesses, with unprecedented opportunities for long-term growth for our shareholders, better products and services for our customers, and a challenging and inclusive environment for our employees

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