Price Negotiation in M&A

Case: British Petroleum Ltd

 The Deal
• A year and a half earlier, Sir John Browne
entertained thoughts of combining with Amoco
Corporation’s petrochemical division, but,
uncertain of the benefits, he backed away
• Now, in the summer of 1998, Browne renewed
his interest in Amoco
• In his four years as British Petroleum’s (BP’s)
group chief executive officer (CEO), Browne had
been a relentless foe of waste and a strong
advocate of shareholder value
• Convinced that the creation of a “supermajor”
and a new platform for growth was the next
frontier for BP, he was intent on acquiring Amoco
in what would be the largest merger ever
• The irony of the situation was not lost on his
counterpart at Amoco, H. Laurance Fuller, chair
and CEO
• Agreement to the pending merger proposal from
BP would begin to reassemble the former
Rockefeller empire broken up in the landmark
“trust bust” case of 1911
• At that time, Rockefeller’s holdings were carved
up into 33 new public companies, which included
Standard Oil of New Jersey (Exxon), New York
(Mobil), California (Chevron), Indiana (Amoco),
Ohio (Sohio), Continental Oil (Conoco), and
Atlantic Refining (ARCO)
• Rockefeller received 25% of the equity in each of
the 33 public companies
• All the stocks were listed on the New York Stock
Exchange (NYSE), and simultaneously began
trading on December 1, 1911
• BP had previously acquired Sohio in 1988
• Where only recently size was viewed as an
impediment to good performance, suddenly
there seemed to be a resurgence of the idea that
“bigger was better”
• Since the late 1980s, however, there had been
few large mergers in the oil industry—certainly
nothing approaching the scale contemplated by a
combination of Amoco and BP
Trust Burst Case
 Exxon
• Exxon /ˈɛksɒn/ was the brand name of oil and natural resources company Exxon Corporation, prior to 1972 known as Standard Oil Company of New Jersey. In 1999, Exxon Corporation merged with Mobil to form ExxonMobil. The Exxon brand is still used by ExxonMobil's downstreamoperations as a brand for certain gas stations, motor fuel and related products (the highest
concentration of which are located in New Jersey, Pennsylvania, Texas and in the Mid-Atlantic and Southeastern states). Standard Oil Company of New Jersey was one of the Seven Sisters that dominated the global petroleum industry from the mid-1940s to the 1970s.[2]
• Exxon replaced the Esso, Enco, and Humblebrands in the United States in 1973.[3] The Esso name was a trademark of Standard Oil Company of New Jersey, and attracted protests from other Standard Oilspinoffs because of its phonetic similarity to the acronym of the name of the parent company, Standard Oil. As a result, Standard Oil Company of New Jersey was restricted from
using Esso in the U.S., except in those states awarded to it in the 1911 Standard Oil antitrust settlement.
• In states where it was restricted from using the Esso name, the company marketed under the Humble or Enco brands. The Humble brand was used at Texas stations for decades, as those operations were under the direction of Standard Oil Company of New Jersey affiliate Humble Oil & Refining Company. In the middle to late 1950s, use of the Humble brand spread to other
southwestern states, including Arizona, New Mexico, and Oklahoma.
• In 1959, Standard Oil Company of New Jersey secured full control of Humble Oil and restructured it into its U.S. marketing and refining division, to market nationwide under the Enco, Esso and Humble brands. Enco was created as an acronym for the phrase "Energy Company". Humble introduced the Enco brand in 1960 in Oklahoma and surrounding states, to replace Humble's
subsidiary Oklahoma and Pate brands. Humble also tried marketing under Enco in Ohio, but Standard Oil Company of Ohio (Sohio) protested that the Enco name and logo (a white oval with blue border and red lettering) too closely resembled that of Esso. Consequently, stations in Ohio were rebranded as Humble, and remained so until the Exxon brand came into use.
• After the Enco brand was discontinued in Ohio, it was moved to other non-Esso states. In 1961, Humble stations in Arizona, New Mexico, Oklahoma and Texas were rebranded to Enco. That same year, Enco appeared on former Carter stations in the Midwest and the Pacific Northwest.
• In 1963, Humble Oil and Tidewater Oil Company began negotiating a sale of Tidewater's West Coast refining and marketing operations. The sale would have given Humble Oil a large number of existing Flying A stations and distributorships, as well as a refinery in California, the nation's fastest-growing gasoline market. However, the Justice Department objected to the sale on anti-
trust grounds. (In 1966, Phillips Petroleum Company bought Tidewater's western properties and rebranded all Flying A outlets to Phillips 66.)
• Humble Oil continued to expand its West Coast operations, adding California to its marketing territory, building a large number of new Enco stations and rebranding others. In 1967, Humble Oil purchased all remaining Signal stations from Standard Oil Company of California (Chevron) and rebranded them as Enco outlets, greatly increasing Enco's presence in California. Finally, in
1969, Humble Oil opened a new refinery in Benicia, California.
• In 1966, the U.S. Justice Department ordered Humble Oil to "cease and desist" from using the Esso brand at stations in several southeastern states, following protests from Standard Oil of Kentucky (Kyso), which was a Standard Oil of California subsidiary in the process of rebranding its Standard stations to Chevron. By 1967, Humble Oil's Esso stations in the Southeast were
rebranded to Enco.
• In the 1960s and early 1970s, Humble Oil continued to have difficulties promoting itself as a nationwide marketer of petroleum products, despite a number of high-profile marketing strategies. These included the popular "Put a Tiger in Your Tank" advertising campaign and accompanying tiger mascot, introduced in 1959,[4] to promote Enco Extra and Esso Extra gasolines. Humble
Oil also used similar logotypes, use of the Humble name in all Enco and Esso advertising, and uniform designs for all stations regardless of brand. In addition, Humble Oil was a major promoter and broadcast sponsor for college football in the Pacific-8 (now Pac-12) and Southwestern conferences.
• But Humble Oil still faced stiff competition from national brands such as Shell and Texaco, which at that time was the only company to market under one brand name in all 50 states. By the late 1960s, Humble officials realized that the time had come to develop a new brand name that could be used nationwide.
• At first, consideration was given to simply rebranding all stations as Enco, but that was shelved when it was learned that the word "Enco" is similar in pronunciation to the Japanese slang term enko, meaning "stalled car" (an abbreviation of enjin no kosho, "engine breakdown").[5]
• In 1972, Exxon was unveiled as the new, unified brand name for all former Enco and Esso outlets. At the same time, the company changed its corporate name from Standard Oil of New Jersey to Exxon Corporation. The rebranding came after successful test-marketing of the Exxon name, under two experimental logos, in the fall and winter of 1971–1972. Along with the new name,
Exxon settled on a rectangular logo using red lettering and blue trim on a white background, similar to the familiar color scheme on the old Enco and Esso logos.
• The company initially planned to change its name to "Exon", in keeping with the four-letter format of Enco and Esso. However, during the planning process, it was noted that James Exon was the governor of Nebraska. Renaming the company after a sitting governor seemed ill-advised. George T. Piercy, a senior member of the board of directors suggested adding an X resulting in
the new EXXON name.
• The unrestricted international use of the popular Esso brand prompted Exxon to continue using it outside the U.S. Esso is the only widely used Standard Oil descendant brand left in existence. Others, such as Chevron, maintain a few Standard-branded stations in specific states in order to retain their trademarks and prevent others from using them.
• In 1989, Exxon announced that it was moving its headquarters, including about 300 employees, from Manhattan, New York City to the Las Colinas area of Irving, Texas. Exxon sold the Exxon Building (1251 Avenue of the Americas), its former headquarters in Rockefeller Center, to a unit of Mitsui Real Estate Development Co. Ltd. in 1986 for $610 million. John Walsh, president of
Exxon subsidiary Friendswood Development Company, stated that Exxon left New York because the costs were too high.[6] In 2009 Exxon partnered with Turner Ridge Capital Management to develop and finance their U.S. alternative energy infrastructure.
• In 2016, ExxonMobil successfully asked a U.S. federal court to lift the aforementioned trademark injunction that banned it from using the Esso brand in various states. By this time, as a result of numerous mergers and rebranding, the remaining Standard Oil companies that previously objected to the Esso name had been acquired byBP. ExxonMobil cited trademark surveys in
which there was no longer possible confusion with the Esso name as it was more than seven decades before. BP also had no objection to lifting the ban.[7] ExxonMobil did not specify whether they would now open new stations in the U.S. under the Esso name; they were primarily concerned about the additional expenses of having separate marketing, letterheads, packaging, and
other materials that omit "Esso".[8]
• Logo[edit]
•  
• Exxon's original logo, which began to be phased out in 2016.
• The rectangular Exxon logo, with the blue strip at the bottom and red lettering with the two 'X's interlinked together, was designed by noted industrial stylist Raymond Loewy.[9] The interlinked 'X's are incorporated in the modern-day ExxonMobil corporate logo; in mid-2016, as part of a corporate rebranding accompanying the launch of ExxonMobil's "Synergy" fuel products, the
mixed-case Exxon wordmark from the ExxonMobil corporate logo became the brand's main logo.[10]
• In 1985, Minolta introduced an autofocus SLR camera system named "Maxxum" in the United States. Originally, cameras (such as the Maxxum 7000) lenses and flashes used a logo with the X's crossed in 'MAXXUM'.[11] Exxon considered this a violation of their trademark, and as a result, Minolta was allowed to distribute cameras already produced, but was forced to change the
stylistic 'XX' and implement this as a change in new production.[12] ExxonMobil similarly sued 21st Century Fox over its cable channel FXX, but the parties agreed to dismiss the suit in October 2015.[13]
• Branding[edit]
•  
• Map of Exxon stores in the United States
• Exxon is ExxonMobil's primary retail gasoline brand in most of the United States, with the highest concentration of retail outlets located in New Jersey, Pennsylvania, Texas and in the Mid-Atlantic and Southeastern states. The Exxon brand also has a market presence in the following metropolitan areas:
• Atlanta
• New Orleans
• Baltimore
• New York City Metro (New Jersey)
• Birmingham
• Philadelphia
• Charlotte
• Pittsburgh
• Dallas
• Raleigh
• Houston
• Richmond
• Memphis
• Virginia Beach/Norfolk/Newport News
• Nashville
• Washington, D.C.
• Mobil is the company's primary retail gasoline brand in California, Florida, New York, New England, the Great Lakes and the Midwest. Esso is ExxonMobil's primary gasoline brand worldwide except in Australia, Mexico and New Zealand, where the Mobil brand is used exclusively. In Colombia, Japan, and formerly Malaysia, both the Esso and Mobil brands are used, and Esso and
Mobil in Japan will be rebranded as ENEOS in 2020, while Esso and Mobil in Malaysia were fully rebranded as Petron in 2013.
 Mobil
• Mobil, previously known as the Socony-Vacuum Oil Company, is a major American oil company which merged with Exxon in 1999 to form a parent company called ExxonMobil. It was previously one of the Seven Sisters which dominated the global petroleum industry from the mid-1940s until the 1970s. Today, Mobil continues as a major brand name within the combined company, as well as still being a gas station sometimes paired with its own store or On the Run. The former Mobil headquarters in Fairfax County, Virginia, were used as ExxonMobil's downstream headquarters[3] until 2015 when ExxonMobil consolidated employees into a new corporate campus in Spring, Texas.[4]
• Following the break-up of Standard Oil in 1911, the Standard Oil Company of New York, or Socony, was founded, along with 33 other successor companies. In 1920, the company registered the name "Mobiloil" as a trademark.
•  
• Socony-Vacuum petrol station in the Dutch East Indies
• Henry Clay Folger was head of the company until 1923, when he was succeeded by Herbert L. Pratt. Beginning February 29, 1928 on NBC, Socony Oil reached radio listeners with a comedy program, Soconyland Sketches, scripted by William Ford Manley and featuring Arthur Allen and Parker Fennelly as rural New Englanders. Socony continued to sponsor the show when it moved to CBS in 1934. In 1935, it became the Socony Sketchbook, with Christopher Morley and the Johnny Green orchestra.
• In 1931, Socony merged with Vacuum Oil to form Socony-Vacuum.[5]
• In 1933, Socony-Vacuum and Jersey Standard (which had oil production and refineries in Indonesia) merged their interests in the Far East into a 50–50 joint venture. Standard-Vacuum Oil Co., or "Stanvac," operated in 50 countries, including New Zealand, China, and the region of East Africa, before it was dissolved in 1962.
• In 1935, Socony Vacuum Oil opened the huge Mammoth Oil Port on Staten Island which had a capacity of handling a quarter of a billion gallons of petroleum products a year and could transship oil from ocean-going tankers and river barges[6]
•  
• Socony-Vacuum "benzine" station with Mobil Oil sign, Allenby Street, Tel Aviv, 1939
•  
• The Mobil Economy Run generated publicity and promotions such as this 1962 advertisement by Champion spark plugs with a Rambler American.
• In 1955, Socony-Vacuum was renamed Socony Mobil Oil Company. In 1963, it changed its trade name from "Mobiloil" to simply "Mobil", introducing a new logo (created by New York graphic design firmChermayeff & Geismar). To celebrate its 100th anniversary in 1966, "Socony" was dropped from the corporate name.
• From 1936 to 1968, Mobil sponsored an economy run each year (except during World War II) in which domestic automobiles of various manufacturers in several price and size classes were driven by light-footed drivers on cross-country runs. The Economy Run originated with the Gilmore Oil Company of California in 1936 (which was purchased by Socony-Vacuum in 1940) and later became the Mobilgas Economy Run, and still later the Mobil Economy Run. The cars driven in the economy run were fueled with Mobilgasoline, and Mobiloil and lubricants were also used. The vehicles in each class that achieved the highest fuel economy numbers were awarded the coveted title as the Mobilgas
Economy Run winner.
• During American involvement in World War II, April 29, 1942, Socony's unescorted tanker, named Mobiloil, was sunk by a German U-boat (German Type IX submarine U-108 captained by Klaus Schlotz), and all 52 people survived after 86 hours adrift in lifeboats. Socony-Mobil ranked 86th among United States corporations in the value of World War II military production contracts.[7]
•  
• Mobil Pegasus on the wall of the Serendipity 3 restaurant in New York
• Through the years, Mobil was among the largest sellers of gasoline and motor oils in the United States and even held the top spot during the 1940s and much of the 1950s. Various Mobil products during the Socony-Vacuum and Socony-Mobil years included Metro, Mobilgas and Mobilgas Special gasolines; Mobilfuel Diesel, MobilHeat and Mobil-flame heating oil, Mobil Kerosine,Lubrite,[8] Gargoyle, Mobiloil and Mobiloil Special motor oils; Mobilgrease, Mobillubrication, Mobil Upperlube, Mobil Freezone and Permazone antifreezes, Mobilfluid automatic transmission fluid, Mobil Premiere tires, Mobil Stop-Leak, and Mobil Lustrecloth, among many others.
• In 1954, Mobil introduced a new and improved Mobilgas Special in response to trends toward new automobiles powered by high-compression engines that demanded higher and higheroctane gasolines. The newest formulas of Mobilgas Special were advertised as offering "A Tune-Up in Every Tankful" due to a combination of chemicals known as the "Mobil Power Compound" which was designed to increase power, check pre-ignition ping, correct spark plug misfiring, control stalling and combat gumming up of carburetors. Later Mobil campaigns advertised Mobilgas as the "New Car Gasoline" following extensive testing during the annual Mobilgas Economy Run.
•  
• Vintage pumps, manufactured by Tokheim, using the pre-1962 "Mobilgas" product name
• In 1962, the gasoline product lines marketed as Mobilgas and Mobilgas Special were rebranded as Mobil Regular and Mobil Premium in a move to emphasize the shortened brand name "Mobil" in promotional efforts, although Mobiloil continued as a single-word term until the 1970s. After a few years of advertising Mobil gasolines as "Megatane"-rated and as "High Energy" gasolines, Mobil began, in 1966, to promote both its Regular and Premium fuels as "Detergent Gasolines", due to the inclusion of additives designed to cleancarburetors and various internal engine parts. During the early 1970s, Mobil ran a TV commercial featuring a character known as "Mr. Dirt" to show the ruinous
effects that dirt had on automotive engines for which a tank of Mobil Detergent Gasoline could provide a cure and preventive medicine against damage that could lead to costly repairs.
• As automakers were switching en masse from carbureted to fuel-injected engines during the early to mid-1980s, and the detergent additives that existed in most available gasolines proved not to be enough to prevent injection clogging, leading to drivability problems, Mobil received accolades fromGeneral Motors and other automakers for increasing the detergency of its Super Unleaded gasoline in 1984 to prevent formation or deposit build-ups of the injectors but also remove existing deposits as well in normal driving. At the end of the 1980s Mobil sold its fuel stations inNorway, Sweden, and Denmark to Norsk Hydro, who converted them into Hydro stations.
• William P. Tavoulareas was President of Mobil Corporation until succeeded by Allen E. Murray in 1984.
•  
• Mobil gas station in the Lower East Side section of New York City
• Mobil moved its headquarters from 150 East 42nd Street, New York City to Fairfax County, Virginia, in 1987.[9] That same year, Mobil sold nearly all of its stations in Western Pennsylvania (including Pittsburgh) to Standard Oil of Ohio (which had just been fully acquired by BP) and terminated franchise contracts with the rest of the stations in the area, withdrawing the Mobil brand from the area for 29 years until aUni-Mart location in Coraopolis, Pennsylvania started selling Mobil gasoline in 2016.[10 ]
• In 1998, Mobil and Exxon agreed on a merger to create ExxonMobil, which was completed on November 30, 1999. Lou Noto was Chairman of Mobil at the time of the merger, and Walter Arnheim was treasurer.[11]
• Mobil brands[edit]
•  
• Mobil Pegasus logo
• Mobil continues to operate as a major brandname of ExxonMobil within the ExxonMobil Fuels, Lubricants & Specialties division.[12] Many of its products feature the Mobil symbol of a winged red horse, Pegasus, which has been a company trademark since its affiliation with Magnolia Petroleum Company in the 1930s.
• The Mobil brand now mainly covers a wide range of automotive, industrial, aviation and marine lubricants.[13 ] For historic reasons, the Mobil brand is still used by Mobil service stations and for fuel (gasoline, diesel, heating oil, kerosene, aviation fuels and marine fuel) products.
• There are four main Mobil sub-brands:
• Mobil Gasoline[edit]
• Mobil is ExxonMobil's primary retail gasoline brand in California, Florida, New York, New England, the Great Lakes and the Midwest. The Mobil brand is also used to market gasoline in Australia, Canada (since 2017), Colombia, Egypt, Guam, Japan (until 2020), Malaysia (until 2012), Mexico (starting about first quarter of 2018), New Zealand and Nigeria.
• The Mobil brand has a significant market presence in the following metropolitan areas:
•  
• A typical Mobil gas station
•  
• Map of Mobil stores in the United States
•  
• Mobil gas station
• New York metropolitan area (excluding New Jersey)
• Detroit
• Chicago
• Los Angeles
• Minneapolis-St. Paul
• Boston
• Buffalo
• St. Louis
• Tampa-St. Petersburg
• Miami
• Rochester-Syracuse
• Orlando
• Milwaukee
• Dallas-Fort Worth
• Houston
• Austin
• San Antonio
• Mobil stores have made an increased presence in Arizona. Growing in size in the Phoenix area from fewer than 5 stations to over 20. Mobil stores have also made an increased presence in areas of Northwest Oregon and Southwest Washington.
• Exxon is the primary brand in the rest of the United States, with the highest concentration of Exxon retail outlets located in New Jersey, Pennsylvania, Texas (Mobil has a sizeable amount of stations in Dallas and Houston), Louisiana (Mainly New Orleans as well as Baton Rouge) and in the Mid-Atlantic and Southeastern states. Esso is ExxonMobil's primary gasoline brand worldwide. Both the Esso and Mobil brands are used in Canada (since 2017), [14 ] Colombia, Egypt, Japan (until 2020), and formerly Malaysia, in which they were rebranded as Petron in 2013.

• Mobil 1[edit]
• Main article: Mobil 1
• Mobil 1, the successor to the Mobiloil brand, is a brand name of ExxonMobil. It was introduced in 1974 as a Multi-grade 5W20 viscosity synthetic motor oil. The brand now includes multi-grade motor oils, oil filters, synthetic grease, transmission fluids, and gear lubricants.[15] The Esso and Exxon motor oil brands have largely been discontinued.
• Mobil Delvac[edit]
• Mobil Delvac is a range of heavy-duty lubricants designed for commercial vehicles. The range includes engine oils, transmission fluids, drivetrain lubricants and various greases.[16]
• Mobil Industrial[edit]
• Mobil Industrial is a sub-brand of ExxonMobil for marketing oils and greases used in industrial applications. The main product lines are Mobil SHC synthetic oils and Mobil Grease greases.[17 ]
• Former Mobil brands[edit]
• Discount gasoline stations[edit]
• Mobil rebranded numerous stations to the Hi-Val, Reelo and Sello discount gasoline brands after major price increases following the 1970s oil crisis made a significant number of consumers extremely price conscious. The stations were converted Mobil stations selling convenience store items in the station lobby, while the service bays were rented to customers for do-it-yourself auto repairs. These brands were discontinued in the 1980s, after the gasoline market had recovered. [18]

• Convenience Stores[edit]
• Mobil expanded the sale of convenience store items first pioneered at its discount gasoline stations under the Mobil Mart brand. Mobil continued to refine and enhance its convenience store offerings with theOn-the-Run C-store brand, which proved to be much more popular. On-the-Run was sold to Alimentation Couche-Tard, operator of the Circle K convenience store chain. Some On the Run locations were sold to 7-Eleven.
• Mobil Travel Guide[edit]
• The Mobil Guide was an annual book of hotel and restaurant recommendations based on a system developed by Mobil in 1958. It rated businesses from one to five stars according to their assessed quality. In October 2009, ExxonMobil licensed the brand toForbes magazine, which retitled the guide's various designations, e.g., Forbes Travel Guide, Forbes Five Stars, and so on. Forbes launched revised versions of various guides in late 2009.[19 ][20]
• Lukoil transaction[edit]
•  
• In Kyoto, Japan (2017)
• In 2000, Lukoil purchased the remaining assets of Getty Oil and began opening Lukoil stations in the US in 2003. Most of the US Lukoil locations are converted Getty stations, although some are also converted Mobil stations bought fromConocoPhillips when that company left the Northeast.
• In spring 2004, Lukoil purchased 779 Mobil gas stations throughout New Jersey and Pennsylvania, and in 2005 began converting them to the Lukoil brand. Most New Jersey Mobil locations were converted to Lukoil stations.
• Mobil UK[edit]
• Vacuum Oil Company started selling lubricating oils in Europe in the late 19th century. By the 1930s its Mobiloil had become one of the main brands. Mobil gradually expanded its operation into fuels retailing as well, and opened its firstUK service stations in the early 1950s, after the wartime POOL monopoly was disbanded. Mobil grew to become the seventh largest brand of petrol in Britain, supplying 1,990 outlets in 1965, and claimed in the mid-1960s to be the first company to operate 100 self-service stations. As well as its downstream interests, Mobil was active in theNorth Sea and operated an oil refinery in Coryton (opened in 1953), on the Thames estuary. In 1996, Mobil's fuels
operations in Europe were placed into a joint venture 70% owned by BP, and the Mobil brand disappeared from service stations. Mobil continued to sell lubricants through BP and independent service stations. Following Mobil's merger with Exxon, at the start of 2000 BP acquired all the petrol retailing assets as well as the Coryton refinery (but sold it toPetroplus in 2007). Mobil returned to being purely a lubricant brand in Europe, and became the premium quality oil on sale at Esso service stations.
• Mobil Australia[edit]
•  
• A preserved ex-South Australian Railways tank wagon in Plume livery
• The Vacuum Oil Company began operating in Australia in 1895, introducing its Plume brand of petrol in 1916. The Flying Red Horse (Pegasus) logo was introduced in 1939, and in 1954 the Plume brand was replaced by Mobilgas.
• Mobil Australia's corporate office is in Melbourne. In 1946 Mobil commenced construction of a refinery at Altona in Melbourne's western suburbs, which originally produced lubricating oils and bitumen, before producing motor vehicle fuels in 1956. It is still in use. A second refinery at Port Stanvac, south of Adelaide, came on-stream in 1963, but was closed in 2003.[21] Mobil commenced removal of the refinery in July 2009, together with site remediation works.[22]
• In 1990, Mobil acquired the service station network of Esso Australia. On 27 May 2009, Caltex Oil Australia Ltd. announced it would be acquiring 302 Mobil service stations in Melbourne, Brisbane, Sydney and Adelaide, subject to approval of the Australian Competition and Consumer Commission.[23] The ACCC subsequently announced its opposition to the takeover, citing the likelihood of increased fuel prices due to diminished competition.[24 ]
• On 27 May 2010, 7-Eleven announced that it had acquired Mobil's entire Australian network of 295 service stations. At the same time, it was announced that 7-Eleven had sold 29 South Australian service stations toPeregrine Corporation. Peregrine's acquisition will see Mobil's sites in South Australia rebranded to On the Run convenience stores, but they will continue to be supplied by Mobil. The company remains the Australian fuel and car product supplier of 7-Eleven. Store renovations and openings since 2013 have included prominent placement of the Mobil logo(as advertised fuel supplier), usually underneath the 7-Eleven logo on main signage as well as on petrol pumps.[25]
• Mobil New Zealand[edit]
• Mobil is the oldest oil company in New Zealand with commercial operations dating back to 1896. It first began operating in New Zealand under the Standard Oil brand name selling kerosene in the 1870s. Early in 1896, Vacuum Oil of New York established a marketing office on Featherston Street in Wellington selling lamp oil and harness grease. It brought with it extensive collective production, marketing and management skills that presented a major advancement in business organisation. The company's unrivaled mineral lubricant products and associated services quickly dominated the market.
• When New Zealanders began taking to the motorcar in the early twentieth century, Vacuum Oil expanded into the oil refining business. Its marketing network and transportation fleet grew as it extended its range of operation. The company continued to meet New Zealand's fuel needs throughout World War One holding roughly eighty five percent of the market. However, after the war Vacuum Oil began facing very strong competition from a number of multinational oil companies which began setting up operations in New Zealand. Among these competitors was the Atlantic Union Oil Company, another of ExxonMobil's historical companies.
• Atlantic Union was bought by the New Jersey-based Standard Oil Company, which would later become Exxon, and its eastern hemisphere interests were merged with those of Socony-Vacuum Oil Company to create the Standard-Vacuum Oil Company. The new company continued operations in New Zealand under both the Vacuum and Atlantic Union brand names.
• On November 30, 1999, Exxon Corporation and Mobil Oil Corporation merged with Mobil Oil New Zealand Limited now owned by new entity ExxonMobil. The company currently owns a 17.2 percent share in The New Zealand Refining Company Limited which operates an oil refinery at Marsden Point near the city of Whangarei. It supplies roughly twenty percent of the total fuels market in New Zealand which most of its products sourced from the Marsden Point refinery. Mobil Oil New Zealand Limited operates over one hundred and fifty locations across the country either as Mobil-owned stations or as franchises. It also operates six storage locations across the country maintaining a
reputation as a dominant petroleum company in New Zealand.[26] [27][2 8]
• Mobil Greece[edit]
• The first petrol station of Mobil in Greece opened in March 4, 1955. Up until 1970 had opened about 100 petrol stations of the company. On the March 1st 1999 Mobil closed its remaining petrol stations in Greece.
• Mobil Japan[edit]
• Established as Mobil Oil(Japan) in 1962 with Standard Vacuum division in Japan.Exxon Mobil Merger with Esso Oil will merge with Exxon Mobil Japan but will be sold to TonenGeneral Oil in 2012 EMG Marketing will be merged with the company in January 2017. It was merged with JX Nippon Oil & Energy in April and the company becameJXTG Nippon Oil & Energy. The Mobil brand will be maintained for the time being.
• Mobil in Canada[edit]
•  
• A gas station at a Loblaw-owned store, converted to Mobil branding.
• In April 2017, Loblaw Companies sold its network of 213 gas stations (all of which are attached to its various grocery store locations) to Brookfield Business Partners. Brookfield announced that it would license the Mobil brand from ExxonMobil's Canadian subsidiary Imperial Oil for use on these locations, making them a sister to the company's network of Esso-branded gas stations. As part of the sale agreement, the Mobil stations continue to offer Loblaw'sPC Optimum rewards program; the following year, Imperial Oil announced a separate agreement with Loblaw to also adopt PC Optimum within the Esso chain beginning in June 2018.[2 9][30]
• Mobil Egypt[edit]
• In Egypt, ExxonMobil's operations started in 1902, it is known for providing quality lubricants and fuels as well as convenience products. It offers more than 350 service stations, more than 40 Mobil 1 centers and a variety of industrial products, lubrication programs and services. Some stations inCairo, Alexandria and Giza feature On the Run convenience stores.[31 ][32]
 Chevron Corporation
• Standard Oil of New Jersey (Exxon), New York (Mobil), California (Chevron), Indiana (Amoco), Ohio (Sohio), Continental Oil (Conoco Chevron Corporation is an American multinational  energy corporation. One of the successor companies of Standard Oil, it is headquartered in San Ramon, California, and active in more than 180 countries. Chevron is engaged in every aspect of the  oil, natural gas, and geothermal energy  industries, including hydrocarbon exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and  power generation. Chevron is one of the world's largest oil companies; as of 2017, it ranked nineteenth in the  Fortune 500  list of the top US closely held and public corporations  and sixteenth on the Fortune Global 500  list of the top 500 corporations worldwide. [5][6] It was also one of the Seven Sisters that dominated the global petroleum industry from the mid-1940s to the 1970s.
• Chevron's downstream operations manufacture and sell products such as fuels, lubricants, additives and petrochemicals. The company's most significant areas of operations are the west coast of North America, the U.S. Gulf Coast, Southeast Asia, South Korea, Australia and South Africa. In 2010, Chevron sold an average 3.1 million barrels per day (490×103 m3/d) of refined products like gasoline, diesel and jet fuel.
• Chevron's alternative energy operations include geothermal,  solar, wind power, biofuel, fuel cells, and hydrogen. In 2011–2013, the company planned to spend at least $2  billion on research and acquisition of renewable power ventures. Chevron has claimed to be the world's largest producer of  geothermal energy. In October 2011, Chevron launched a 29-MW  thermal solar-to-steam facility  in the Coalinga Field to produce the steam for  enhanced oil recovery. The project is the largest of its kind in the world.
• Chevron is also one of the first two fuel brands to be  Top Tier certified. The other is Tulsa, Oklahoma based QuikTrip.[ci tation needed]
• Predecessors[edit]
•  
• Chart of the major energy companies dubbed "Big Oil" sorted by latest published revenue
• One of Chevron's early predecessors, Star Oil, discovered oil at the Pico Canyon Oilfield in the Santa Susana Mountains north of Los Angeles in 1876. The 25 barrels of oil per day well marked the discovery of the Newhall Field, and is considered by geophysicist Marius Vassiliou as the beginning of the modern oil industry in California. [7] Energy analyst Antonia Juhasz has said that while Star Oil's founders were influential in establishing an oil industry in California, Union Mattole Company discovered oil in the state eleven years prior. [8]
• In September 1879, Charles N. Felton, Lloyd Tevis, George Loomis and others created the Pacific Coast Oil Company, which acquired the assets of Star Oil [7] with $1 million in funding. [9] Pacific Coast Oil became the largest oil interest in California, [9] by time it was acquired by Standard Oil for $761,000 in 1900.[7] Pacific Coast operated independently and retained its name until 1906, when it was merged with a Standard Oil subsidiary and it became Standard Oil Company (California) or California Standard.[10][11]
• Another predecessor, Texas Fuel Company, was founded in 1901 in Beaumont, Texas as an oil equipment vendor by "Buckskin Joe". The founder's nickname came from being harsh and aggressive. [8] Texas Fuel worked closely with Chevron. In 1936 it formed a joint venture with California Standard named Caltex, to drill and produce oil in Saudi Arabia.[12] According to energy analyst and activist shareholder Antonia Juhasz,[13][14][15] the Texas Fuel Company and California Standard were often referred to as the "terrible twins" for their cutthroat business practices. [16] The Texas Fuel Company was renamed the Texas Company, and later renamed Texaco.[11][16]
• Formation of the Chevron name [edit]
•  
• A Chevron station branded under the Standard name in Las Vegas
• In 1911, the federal government broke Standard Oil into several pieces under the Sherman Antitrust Act. One of those pieces, Standard Oil Co. (California), went on to become Chevron. It became part of the " Seven Sisters", which dominated the world oil industry in the early 20th century. In 1926, the company changed its name to Standard Oil Co. of California (SOCAL). [17] By the terms of the breakup of Standard Oil, at first Standard of California could use the Standard name only within its original geographic area of the Pacific coast states, plus Nevada and Arizona; outside that area, it had to use another name. Today Chevron is the owner of the Standard Oil trademark in 16 states in the western and southeastern U.S. To maintain ownership of the mark, the company owns and operates one Standard-branded Chevron station in each state of the area. [cit ation needed] Although its status in Kentucky is up in the air after Chevron withdrew retail sales from Kentucky in July 2010. [18]
• The Chevron name came into use for some of its retail products in the 1930s. The name Calso was also used from 1946 to 1955 in states outside its native West Coast territory. [19][20]
• Standard Oil Company of California ranked 75th among United States corporations in the value of World War II military production contracts. [21]
• In 1933, Saudi Arabia granted California Standard a concession to find oil, which led to the discovery of oil in 1938. In 1948, California Standard discovered the world's largest oil field in Saudi Arabia, Ghawar Field.[22] California Standard's subsidiary, California-Arabian Standard Oil Company, grew over the years and became the Arabian American Oil Company (ARAMCO) in 1944. In 1973, the Saudi government began buying into ARAMCO. By 1980, the company was entirely owned by the Saudis, and in 1988, its name was changed to Saudi Arabian Oil Company— Saudi Aramco.[23]
• Standard Oil of California and Gulf Oil merged in 1984, which was the largest merger in history at that time. To comply with U.S. antitrust law, California Standard divested many of Gulf's operating subsidiaries, and sold some Gulf stations and a refinery in the eastern United States. (The refinery is currently owned by Sunoco.) Among the assets sold off were Gulf's retail outlets in Gulf's home market of Pittsburgh, where Chevron lacks a retail presence but does retain a regional headquarters there as of 2013, partially for Marcellus Shale-related drilling. [24] The same year, Standard Oil of California also took the opportunity to change its legal name to Chevron Corporation, since it had already been using the well-known "Chevron" retail brand name for decades. Chevron would sell the Gulf Oil trademarks for the entire U.S. to Cumberland Farms, the parent company of Gulf Oil LP, in 2010 after Cumberland Farms had a license to the Gulf trademark in the Northeastern United States since 1986.[25]
• In 1996 Chevron transferred its natural gas gathering, operating and marketing operation to NGC Corporation (later Dynegy) in exchange for a roughly 25% equity stake in NGC. [26] In a merger completed February 1, 2000, Illinova Corp. became a wholly owned subsidiary of Dynegy Inc. and Chevron's stake increased up to 28%. [27] However, in May 2007 Chevron sold its stake in the company for approximately $985 million, resulting in a gain of $680 million. [28][29]
• Merger with Texaco and post-merger [edit]
• On October 15, 2000, Chevron announced acquisition of Texaco in a deal valued at $45 billion, creating the second-largest oil company in the United States and the world's fourth-largest publicly traded oil company with a combined market value of approximately $95 billion. [30][31][32][33] The merged company was named ChevronTexaco. On May 9, 2005, ChevronTexaco announced it would drop the Texaco moniker and return to the Chevron name. Texaco remained as a brand under the Chevron Corporation. [34]
• On October 10, 2001, Texaco purchased General Motors' share in GM Ovonics, which in 2003, was restructured into Cobasys, a 50/50 joint venture between Chevron and Energy Conversion Devices Ovonics . In 2009, both Chevron and Energy Conservation Devices sold their stakes in Cobasys to SB LiMotive Co. [cit ation needed]
•  
• Chevron gas station design used until 2006
• In 2005, Chevron purchased Unocal Corporation for $18.4 billion, increasing the company's petroleum and natural gas reserves by about 15%. [35][36][37][38] Because of Unocal's large South East Asian geothermal operations, Chevron became a large producer of geothermal energy.[39]
• Chevron and the Los Alamos National Laboratory started a cooperation in 2006 to improve the recovery of hydrocarbons from oil shale by developing a shale oil extraction process named Chevron CRUSH.[40] In 2006, the United States Department of the Interior issued a research, development and demonstration lease for Chevron's demonstration oil shale project on public lands in Colorado's Piceance Basin.[41] In February 2012, Chevron notified the Bureau of Land Management and the Department of Reclamation, Mining and Safety that it intends to divest this lease. [42]
• In July 2010, Chevron ended retail operations in the Mid-Atlantic United States, removing the Chevron and Texaco names from 1,100  stations.[43] In 2011, Chevron acquired Pennsylvania based Atlas Energy Inc. for $3.2 billion in cash and an additional $1.1  billion in existing debt owed by Atlas. [44][45][46] Three months later, Chevron acquired drilling and development rights for another 228,000  acres in the Marcellus Shale from Chief Oil & Gas LLC and Tug Hill, Inc. [47]
• In September 2013, Total S.A. and its joint venture partner agreed to buy Chevron's retail distribution business in Pakistan for an undisclosed amount. [48] In October 2014, Chevron announced that it would sell a 30 percent holding in its Canadian oil shale holdings to Kuwait's state-owned oil company Kuwait Oil Company for a fee of $1.5 billion. [49]
• In 2016, Chevron announced to exit South Africa, where it has had a presence for over a century. [50]
• Operations[edit]
• Chevron employs approximately 62,000  people (of whom approximately 31,000 are employed in U.S. operations). In October 2015, Chevron announced that it is cutting up to 7,000 jobs, or 11 percent of its workforce. [51]
• Upstream[edit]
• Chevron's oil and gas exploration and production operations are primarily in the US, Australia, Nigeria, Angola, Kazakhstan, and the Gulf of Mexico. As of December 31, 2010, the company had 10.545 billion barrels (1.6765  billion cubic metres) of oil-equivalent net proved reserves. Daily production in 2010 was 2.763 million barrels per day (439.3  thousand cubic metres per day). [cit ation needed]
•  
• A Chevron gas station in Diamondville, Wyoming (taken on May 27, 2018).
• In the United States, the company operates approximately 11,000  oil and natural gas wells in hundreds of fields occupying 4,000,000 acres (16,000  km2) across the Permian Basin, located in West Texas and southeastern New Mexico. In 2010, Chevron was the fourth largest producer in the region. [52] In February 2011, Chevron celebrated the production of its 5  billionth barrel of Permian Basin oil. [53] The Gulf of Mexico is where the company's deepest offshore drilling takes place at Tahiti and Blind Faith. It also explores and drills the Marcellus Shale formation under several northeastern US states.
• Chevron's largest single resource project is the $43 billion Gorgon Gas Project in Australia. It also produces natural gas from Western Australia. The $43  billion project was started in 2010 and was expected to be brought online in 2014. [54] The project includes construction of a 15  million tonne per annum liquefied natural gas plant on Barrow Island, and a domestic gas plant with the capacity to provide 300  terajoules per day to supply gas to Western Australia. [55] It is also developing the Wheatstone liquefied natural gas development in Western Australia. The foundation phase of the project is estimated to cost $29  billion; it will consist of two LNG processing trains with a combined capacity of 8.9  million tons per annum, a domestic gas plant and associated offshore infrastructure. [56] In August 2014 a significant gas-condensate discovery at the Lasseter-1 exploration well in WA-274-P in Western Australia, in which Chevron has a 50% interest was announced. [57]
• In the onshore and near-offshore regions of the Niger Delta, Chevron operates under a joint venture with the Nigerian National Petroleum Corporation , operating and holding a 40% interest in 13  concessions in the region. In addition, Chevron operates the Escravos Gas Plant and the Escravos gas-to-liquids plant.[58]
• Chevron has interests in four concessions in Angola, including offshore two concessions in Cabinda province, the Tombua–Landana development and the Mafumeira Norte project, operated by the company. It is also a leading partner in Angola LNG plant.[59][60]
• In Kazakhstan, Chevron participate the Tengiz and Karachaganak projects.[61] In 2010, Chevron became the largest private shareholder in the Caspian Pipeline Consortium pipeline, which transports oil from the Caspian Sea to the Black Sea. [62]
• As of 2013, the Rosebank oil and gas field west of Shetland was being evaluated by Chevron and its partners. Chevron drilled its discovery well there in 2004. Production is expected in 2015 if a decision is made to produce from the field. The geology and weather conditions are challenging. [63]
• Downstream[edit]
• Chevron's downstream operations manufacture and sell products such as fuels, lubricants, additives and petrochemicals. The company's most significant areas of operations are the west coast of North America, the U.S. Gulf Coast, Southeast Asia, South Korea, Australia and South Africa. In 2010, Chevron sold an average 3.1 million barrels per day (490×10 3 m3/d) of refined products like gasoline, diesel and jet fuel. [64] The company operates approximately 19,550 retail sites in 84  countries. The company also has interests in 13  power generating assets in the United States and Asia and has gas stations in Western Canada.[ci tation needed] Chevron owns the trademark rights to Texaco and Caltex fuel and lubricant products. [cit ation needed]
• In 2010, Chevron processed 1.9 million barrels per day (300×10 3  m3 /d) of crude oil. [64] It owns and operates five active refineries in the United States and one in Cape Town, South Africa. Chevron is the non-operating partner in seven joint venture refineries, located in Australia, [65] Pakistan,[66] Singapore, Thailand, South Korea, and New Zealand.[67] Chevron's United States refineries are located in Gulf and Western states. Chevron also owns an asphalt refinery in Perth Amboy, New Jersey; however, since early 2008 that refinery has primarily operated as a terminal. [68]
• Chevron's chemicals business includes 50% ownership in the Chevron Phillips Chemical Company, which manufactures petrochemicals, and the Chevron Oronite Company, which develops, manufactures and sells fuel and lubricant additives. [cit ation needed]
• Chevron Chemical produced paraquat.[69]
• Chevron Shipping Company, a wholly owned subsidiary, provides the maritime transport operations, marine consulting services and marine risk management services for Chevron Corporation. [cit ation needed] Chevron ships historically had names beginning with "Chevron", such as Chevron Washington and Chevron South America, or were named after former or serving directors of the company. Samuel Ginn, William E. Crain, Kenneth Derr, Richard Matzke and most notably Condoleezza Rice were among those honored, but the ship named after Rice was subsequently renamed as Altair Voyager.[70]
• Alternative energy[edit]
•  
• Chevron's 500kW Solarmine photovoltaic solar project in Fellows, California
• The Chevron's alternative energy operations include geothermal, solar, wind, biofuel, fuel cells, and hydrogen.[71]
• Chevron has claimed to be the world's largest producer of geothermal energy.[39] The company's geothermal operations are primarily located in Southeast Asia. [72][73][74]
• Chevron operates geothermal wells in Indonesia providing power to Jakarta and the surrounding area. In the Philippines, Chevron also operates geothermal wells at Tiwi field in Albay province, the Makiling-Banahaw field in Laguna and Quezon provinces. [75]
• In 2007, Chevron and the United States Department of Energy 's National Renewable Energy Laboratory (NREL) started collaboration to develop and produce algae fuel, which could be converted into transportation fuels, such as jet fuel.[76] In 2008, Chevron and Weyerhaeuser created Catchlight Energy LLC, which researches the conversion of cellulose-based biomass into biofuels. [77] In 2013, the Catchlight plan was downsized due to competition with fossil fuel projects for funds. [78]
• Between 2006 and 2011, Chevron contributed up to $12  million to a strategic research alliance with the Georgia Institute of Technology to develop cellulosic biofuels and to create a process to convert biomass like wood or switchgrass into fuels. Additionally, Chevron holds a 22% stake in Galveston Bay Biodiesel LP, which produces up to 110  million US gallons (420,000  m3) of renewable biodiesel fuel a year. [79][80]
• In 2010, the Chevron announced a 740  kW photovoltaic demonstration project in Bakersfield, California, called Project Brightfield, for exploring possibilities to use solar power for powering Chevron's facilities. It consists of technologies from seven companies, which Chevron is evaluating for large-scale use. [81][82] In Fellows, California, Chevron has invested in the 500  kW Solarmine photovoltaic solar project, which supplies daytime power to the Midway-Sunset Oil Field .[83] In Questa, Chevron has built a 1  MW concentrated photovoltaic plant that comprises 173  solar arrays, which use Fresnel lenses.[84][85] In October 2011, Chevron launched a 29-MW thermal solar-to-steam facility in the Coalinga Field to produce the steam for enhanced oil recovery. As of 2012, the project is the largest of its kind in the world. [86]
• In 2014, Chevron began reducing its investment in renewable energy technologies, reducing headcount and selling alternative energy-related assets. [87]
• Corporate affairs[edit]
• Finance[edit]
• For the fiscal year 2011, Chevron reported earnings of US$26.9 billion, with an annual revenue of US$257.3 billion, an increase of 23.3% over the previous fiscal cycle. Chevron's shares traded at over $105 per share, and its market capitalization was valued at over US$240 billion. [88]
• Headquarters[edit]
•  
• Chevron tower in Houston
• Chevron's corporate headquarters are located in a 92-acre campus in San Ramon, California. The company moved there from its earlier headquarters at 555 Market Street in San Francisco, California, where it was located since its inception in 1879. [89] Chevron also operates from office towers in Houston, Texas, where it leased the 1500 Louisiana Street and 1400 Smith Street from former Texas energy giant Enron. Chevron is also planning a new office tower in downtown Houston next to its existing properties at 1600 Louisiana Street.[90] The building will stand 50-stories and 832 feet. Upon completion, it will be the fourth tallest building in Houston and the first 50-story building constructed there in nearly 30 years.
• Political contributions[edit]
• Since January 2011 Chevron has contributed almost $15 million on Washington lobbying. On October 7, 2012 Chevron donated $2.5 million to the Republican Congressional Leadership Fund super PAC that is closely tied to former House Speaker John Boehner.[91]
• Board of directors[edit]
• Mike Wirth (Chairman & CEO)
• George L. Kirkland (Vice Chairman)
• Linnet F. Deily
• Robert Denham
• Robert James Eaton
• Franklyn Jenifer
• Enrique Hernandez, Jr.
• Donald Rice
• Kevin W. Sharer
• Charles Shoemate
• John G. Stumpf
• Ronald Sugar
• Condoleezza Rice is a former member of the board of directors, and also headed Chevron's committee on public policy until she resigned on January 15, 2001, to become National Security Advisor to President George W. Bush.
• On September 30, 2009, John Watson, age 52, was elected Chairman of the Board and CEO, effective at the December 31, 2009 retirement of David J. O'Reilly.
• Niger Delta Partnership Initiative[ edit]
• In 2010 Chevron established the Niger Delta Partnership Initiative (NDPI), a non-profit that works with local organizations to promote economic growth, reduce HIV transmission rates, and empower women. The Initiative was initially funded with a $50 million grant. An additional $40 million was donated in 2013. [92][93]
• Controversies[edit]
• Environmental damage in Ecuador [edit]
• Main article: Lago Agrio oil field
•  
• Oil pollution in Lago Agrio, November 2007
• Texaco and Gulf Oil began operating in the Oriente region of Ecuador in 1964 as a consortium. [94] Texaco operated the Lago Agrio oil field from 1972 to 1993 and the Ecuador state oil company continued to operate the same oil fields after Texaco left. In 1993, Texaco was found responsible for dumping billions of gallons of toxic waste and they spent $40m cleaning up the area during the 1990s. In 1998, the Ecuadorean government signed an agreement with Texaco accepting the clean-up as complete and absolving Texaco of any further responsibility. That same year, an Ecuadorean scientific team took water and soil samples after Texaco left and found petroleum hydrocarbons at unsafe levels in almost half. The clean up was called "a sham" by critics. [who?][95]

• In 2003, a class action lawsuit against Chevron was filed in Ecuadorian court for $28 billion by indigenous residents, who accused Texaco of making residents ill and damaging forests and rivers by discharging 18  billion US gallons (68,000,000  m3 ) of formation water into the Amazon rainforest without any environmental remediation.[96][97][98][99][100] Chevron said that the company had completed cleanup of the pollution caused by Texaco, that current pollution was the result of activities of the Ecuadorian oil interests, and that the 1998 agreements with the Ecuadorian Government exempted the company from any liabilities. [101][102][102][103][104]
• In 2011, Ecuadorian residents were awarded $8.6 billion, based on claims of loss of crops and farm animals as well as increased local cancer rates. [95][105][106] The plaintiffs said this would not be enough to make up for the damage caused by the oil company. [107] The award was later revised to $19 billion on appeals, which was then appealed again to the Ecuadorean National Court of Justice. [108] The action has been called the first time that indigenous people have successfully sued a multinational corporation in the country where the pollution took place. [95][105][107]
• Chevron described the lawsuit as an "extortion scheme" and refused to pay the fine. [95]
• In November 2013, the international arbitration tribunal issued a partial award in favour of Chevron and its subsidiary, Texaco Petroleum Company. The tribunal has found Chevron is not liable for environmental claims in Ecuador. [109]
• In March 2014, a United States district court judge ruled that the Ecuadorian plaintiff's lead attorney, Steven Donziger, had used "corrupt means," including "coercion, bribery, money laundering and other misconduct," to obtain the 2011 court verdict in Ecuador. The judge did not rule on the underlying issue of environmental damages. While the US ruling does not affect the decision of the court in Ecuador, it has blocked efforts to collect damages from Chevron in US courts. Donziger has appealed. [101][101][110][111]
• In April 2015, AmazonWatch released videos reportedly sent from a whistleblower inside Chevron. The videos purportedly show employees and consultants finding petroleum contamination at sites in the Ecuadorean Amazon that the company claimed was cleaned up years earlier. These videos were confirmed as legitimate by Chevron legal counsel. [112] According to the company, the videos show routine testing to establish the perimeter of oil pits. The company further stated that it is not possible to determine from the videos whether the sites shown are the responsibility of Chevron or its former partner, Petroecuador. According to Amazon Watch, the videos contain a map confirming that the sites are Chevron's, and contain footage of interviews with villagers known to live in the area for which Chevron is responsible. [113]

• In September 2018, an international tribunal ruled in favor of Chevron Corp finding that Ecuador had violated its obligations under international treaties. The tribunal held that a $9.5 billion pollution judgment by Ecuador’s Supreme Court against Chevron “was procured through fraud, bribery and corruption and was based on claims that had been already settled and released by the Republic of Ecuador years earlier.” Ecuador’s attorney general plans to appeal the tribunal’s ruling saying, “It worries us that the tribunal is asking a country to lift a sentence of one of its courts that was issued as part of a dispute between private parties." [114]

• Chevron continues to take oil from the Amazon region at large. El Segundo (CA), Pascagoula (MS), and Richmond (CA) refineries all process Amazonian oil. In 2015 El Segundo was the single largest refiner in the U.S. of Amazon Crude, processing 54,463 barrels per day. [115]
• Oil spills in Angola[edit]
• In 2006, Chevron's operations in Africa were criticized as environmentally unsound by 130 Nigerian researchers, journalists, and activists. [116] In 2002 Angola demanded $2 million in compensation for oil spills allegedly caused by Chevron, the first time it had fined a multinational corporation operating in its waters. [117]
• U.S. Clean Air Act Settlements[edit]
• On October 16, 2003, Chevron U.S.A. settled a charge under the Clean Air Act, which reduced harmful air emissions by about 10,000 tons a year. [118] In San Francisco, Chevron was filed by a consent decree to spend almost $275 million to install and utilize innovative technology to reduce nitrogen and sulfur dioxide emissions at its refineries. [119] In 2000, Chevron paid a $6 million penalty as well as $1 million for environmental improvement projects to settle charges of Clean Air Act violations related to offline loading terminal operations in El Segundo, California .[120] Chevron also had implemented programs that minimized production of hazardous gases, upgraded leak detection and repair procedure, reduced emissions from sulfur recovery plants, and adopted strategies to ensure the proper handling of harmful benzene wastes at refineries. [118] Chevron also spent about $500,000 to install leakless valves and double-sealed pumps at its El Segundo refinery, which could prevent significant emissions of
air contaminants.[120]
• In 2011, Chevron was recognized by the environmental group Ceres for its efforts to reduce global warming by cutting its own emissions and investing in renewable energy technologies. Soon after, it began reducing its investments in renewables. [121]
• NiMH battery technology for automobiles [edit]
• This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources . Unsourced material may be challenged and removed. (March 2015) (Learn how and when to remove this template message )
• Cobasys LLC was a supplier of nickel metal hydride (NiMH) batteries, battery control systems, and packaged solutions for automotive applications, uninterruptable power supplies, telecommunications applications, and distributed power generation. [122] For 8 years ending in 2009, Cobasys was a 50-50 joint venture between California-based Chevron Corporation and Michigan-based Energy Conversion Devices, Inc. (also called ECD Ovonics, ECD, or Ovonics) [123][124] The intermediary hierarchy of ownership was that Cobasys LLC was owned by Chevron's subsidiary Chevron Technology Ventures LLC, and ECD Ovonics' subsidiary Ovonic Battery Company. [125] Cobasys spent $180 million in funding from Chevron Technology Ventures, and the two owners were unable to agree on further funding of the company. After arbitration between the owners had stalled, a buyer was found. On July 14, 2009, the sale of Cobasys to SB LiMotive Co. Ltd., an electric vehicle battery joint venture between
Samsung SDI Co. Ltd. and Robert Bosch GmbH, was announced.
• Sherry Boschert accused Chevron of limiting access to large NiMH batteries through its stake in Cobasys corporation and control of patent licenses in order to remove a competitor to gasoline. Cobasys filed a patent infringement lawsuit against Panasonic and Toyota over production of the EV-95 battery used in the RAV4 EV. [126][127] The case was settled with each company granting the other a license to its patents. [128] In her book, Plug-in Hybrids: The Cars that Will Recharge America , published in February 2007, Sherry Boschert argues that large-format NiMH batteries are commercially viable but that Cobasys refuses to sell the batteries or license the technology to small companies or individuals. Boschert argues that Cobasys accepts only very large orders for the batteries. Major automakers showed little interest in placing large orders for large-format NiMH batteries. However, Toyota complained about the difficulty in getting smaller orders of large format NiMH batteries to service the existing 825 RAV-
4EVs. Because no other companies were willing to place large orders, Cobasys was not manufacturing or licensing large format NiMH battery technology for automobiles. Boschert concludes that "it's possible that Cobasys (Chevron) is squelching all access to large NiMH batteries through its control of patent licenses in order to remove a competitor to gasoline. Or it's possible that Cobasys simply wants the market for itself and is waiting for a major automaker to start producing plug-in hybrids or electric vehicles." [129] In an interview with The Economist, the ECD Ovonics founder Stan Ovshinsky disagreed, stating "Cobasys isn't preventing anything. Cobasys just needs an infusion of cash. They build a great battery"." [130]

• In October 2007, International Acquisitions Services and Innovative Transportation Systems filed suit against Cobasys and its parents for failure to fill an order for large-format NiMH batteries to be used in the electric Innovan. [131] In August 2008, Mercedes-Benz U.S. International filed suit against Cobasys, on the ground Cobasys did not tender the batteries it agreed to build for Mercedes-Benz's planned hybrid SUV. [132] The Mercedes suit was settled for $1.3 million dollars. [133]
• Niger Delta shootings[edit]
• On May 28, 1998, activists staged a demonstration and took several individuals hostage on a company oil platform in the Niger Delta, Nigeria. Nigerian police and soldiers were allegedly flown in with Chevron helicopters. [134] Soldiers shot at the activists and subsequently two activists (Jola Ogungbeje and Aroleka Irowaninu) died from their wounds. [134] In 2007 U.S. District Judge Susan Illston, allowed a lawsuit brought by victims and victims' families against Chevron to proceed, saying that there may be evidence that Chevron had hired, supervised, and/or provided transportation to Nigerian military forces known for their "general history of committing abuses." [135] In December 2008, a federal jury cleared Chevron of all charges brought against them in the case. Chevron had stated that the military intervention was necessary to protect the lives of its workers and considers the jury's decision vindication for the accusations of wrongdoing. [136]
• UN sanctions[edit]
• According to US Embassy Cable BAGHDAD 000791 the Iraqi prime minister believed that Chevron was engaged in negotiations to invest in Iran in contravention of UN sanctions. The embassy related that it had no independent confirmation of this claim. [137] This document was intended to have been kept secret until 2029. [138]
• Richmond, California refinery[edit]
• The Richmond refinery paid $540,000 in 1998 for illegally bypassing waste water treatments and failing to notify the public about toxic releases. [139] Overall, Chevron is listed as potentially liable for 95 Superfund sites, with funds set aside by the EPA for clean-up. [140][unr el iable source?]
• A 1989 explosion and fire at the refinery [141] resulted in a $877,000 OSHA fine for "willfully failing to provide protective equipment for employees." Chevron employees had "repeatedly requested" protective equipment since the early 1980s but the company had refused despite more than 70 fires in the plant since 1984. Elizabeth Dole, the US Secretary of Labor , said: "OSHA's investigation makes clear that Chevron knew of the need for protective equipment and clothing." [142]
• On March 25, 1999, an explosion and fire at the refinery spread noxious fumes and sent hundreds of Richmond residents to hospitals. [143]
• On August 6, 2012, a large fire erupted at the refinery. [144][145] Initial reports estimated that 11,000 people sought treatment at area hospitals, [146] and later reports placed the number above 15,000 people. [147] The company pleaded no contest to six charges in connection with the fire, and agreed to pay $2 million in fines and restitution. [148] Around the same time the settlement was announced, the Richmond city council voted to file suit against Chevron. The reasons for the suit included "a continuation of years of neglect, lax oversight and corporate indifference to necessary safety inspection and repairs." [147]
• Oil spill off the coast of Rio de Janeiro [edit]
• Further information: Energy in Brazil
• On November 8, 2011, Chevron came under fire by Brazilian authorities for its role in the spill of crude oil off of the southeastern coast of Brazil. [149] The Brazilian regulators said 416,400 liters of oil leaked over the course of two weeks from undersea rock near the well in the Frade oil project 370 km off the Brazilian coast. [150] Prosecutors in Brazil initially demanded $10.6bn in the subsequent lawsuit. The National Petroleum Agency (ANP) suspended Chevron's activities in Brazil until it identified the cause of an oil spill off the coast of Rio de Janeiro.[151]
• The National Petroleum Agency later concluded that the spill did not cause significant economic damage, injured no one, and never approached Brazil's coast. Criminal charges were dropped and the lawsuits were settled for a total of $130 million. [152][153]
• KS Endeavor explosion[edit]
• The KS Endeavor jackup rig exploded on January 16, 2012, while drilling an exploration well for Chevron in the Funiwa field in Nigeria. The explosion resulted in the death of two of the 154 workers on board and a fire that burned for 46 days before the well was sealed on June 18. According to a Reuters news report, workers on the KS Endeavor were ignored by Chevron when they requested evacuation due to concerns of increasing smoke billowing from the drilling borehole. A senior worker said the blowout was triggered by a massive build-up of pressure. A witness said that rig engineers advised Chevron to stop drilling and evacuate staff but Chevron told them to continue with drilling. Expecting an explosion, the rig manager, one of the two that later died, kept the lifeboats at hand and ready for use. A witness reported: "This is the reason so many of us survived because we were all aware that it was going to happen, but just didn't know when." In an email response to Reuters, Chevron said it did
not receive requests to evacuate the rig and that staff on board had the right to call a halt to work if they believed conditions were unsafe. [154][155]
• Forest Fire in Lawachara National Park, Bangladesh [edit]
• On June 26, 2008, a forest fire broke out in Lawachara National Park, Bangladesh, while Chevron was carrying out a 3D seismic survey. Chevron stated that it was not conducting activities in the area in which the fire broke out. [156][157]
• Polish gas exploration [edit]
• Chevron has experienced protests aimed at the company by local communities in Southern Poland when they started gas exploration in the region. Their complaint is that Chevron didn't provide all of the documents required for gas exploration in Poland, and that the company has not promised to share a percentage of the revenues with the local landholders. The landholders of the region view Chevron's presence in the region negatively since they may be forced to sell their properties at a low cost if gas is discovered in the region. As well, potential environmental disasters are a concern for local farmers. Another of the residents' primary concern is water pollution from the chemicals used in fracking. In response to some of the protests, Chevron has sued some of the protesters from Żurawlów for disrupting their operations. [158]
• According to gas and oil expert Andrzej Szczesniak, one of the main reasons for the protest is the difference between Polish and American law. In the USA property owners typically receive 15-20% from the income of gas exploration. In Poland, the discovery of gas on private property usually results in a forced sale of the property, with the owner receiving only the prior value of the land and no percentage of the gas revenue. This is the result of outdated, Communist Era laws that are still on the books and which are often exploited by municipal governments if they can get a 'kick back' from a larger company. [159][160]

• Argentina agreement and protests [edit]

• After the 2012 decision of the Argentine government to regain control of the biggest oil company of the country, YPF, the search for foreign investors for exploitation of unconventional oil started. Finally in 2013, YPF and Chevron signed an agreement for the Vaca Muerta oil field, the world's second-largest shale gas deposit. In August 2013, the Congress of Neuquén province approved the agreement, while between 5,000 [161][162] and 10,000 [163] workers, students and indigenous people protested outside the legislature. Police fired rubber bullets, hitting some protesters. [161] Governor Jorge Sapag defended the police actions: "The march was generally peaceful, but about 100 people separated from the rest and attacked the police. The police acted with seriousness and professionalism." [164]
• Public Eye Lifetime Award[edit]
• In 2015, Chevron received the Lifetime Award of the Public Eye on Davos for what the sponsors called Chevron's responsibility for environmental disaster in the Amazon. [165] The same group cited the company in 2006 in the category "Environment" for oil soiling in the Amazonas in Ecuador. [166] A Chevron spokesperson commented that the award was "nothing more than a stunt to distract attention from the fact that the lawsuit against Chevron in Ecuador has been proven to be meritless and the product of unprecedented fraud" and pointed to a U.S. court finding that the plaintiff's lawyers had committed "mail and wire fraud, money laundering, witness tampering and obstruction of justice." [167] That controversial RICO case is under appeal and has been criticized by environmental and human rights groups. [168]

• Global warming[edit]
• In a letter Chevron Corp. argued that under current disclosure rules companies are already required to disclose material risks including climate-change risk, during part of the U.S. Securities and Exchange Commission 's consultation process, noting that its "2015 Form 10-K included a significant discussion of the potential risks of additional greenhouse gas emissions regulation following the outcome of the Paris Accord."[169]
•  
• ), and Atlantic Refining (ARCO)
 Sohio
• Standard Oil of Ohio or Sohio was an Americanoil company, and the earliest component of the original Standard Oil company founded by John D. Rockefeller. Sohio was acquired by 
British Petroleum, now called BP.
• Sohio continued as a separate entity after the antitrust breakup of Standard Oil in 1911. It operated service stations under the "Sohio" brand name in Ohio. In other states, it used the "Boron"
brand name instead, but with an otherwise-similar logo. Wallace Trevor Hollidaywas President of the company from 1928 to 1949 and Chairman of the Board from 1949 until his death on
November 7, 1950.
• In 1968, Sohio's CEO, Charlie Spahr, arranged a merger with BP. It was announced as Sohio's acquisition of BP's North American interests. However, the contract included a stipulation that BP
would assume majority interest when Sohio's share of production from the Prudhoe Bayoilfield in Alaska reached 600,000 barrels per day (95,000 m3/d). That occurred in 1978, and BP then took
control of Sohio. By 1991, BP had rebranded all Sohio-owned stations as BP [2], except for some marine fuel outlets.
• By 1980, Sohio and Boron had 3,400 gas stations in Ohio, Michigan, Pennsylvania, Indiana, Kentucky and West Virginia. Sohio acquired 5,660 former Gulf stations as a result of FTC anti-trust
limitations in Chevron's 1985 takeover of Gulf. These stations, bought for $1 billion, were in Alabama, Georgia, Kentucky, Mississippi, Tennessee, North Carolina and South Carolina. Sohio was
allowed to use the "Gulf" name for five years after the acquisition.
• In 1987, after all other Standard Oil descendants had minimized use of the name Standard, Standard of Ohio, proud to be the original corporate component of Standard Oil, sought to
corporately rebrand itself under the Standard name, while continuing to use the Sohio brand in Ohio. However, later that year BP bought the 45% of Sohio it did not already own and assumed
control. Among the first changes was the rebranding of all Sohio and Boron stations to 'BP' in 1991. The Boron name was used outside of Ohio in neighboring states, like Michigan, Pennsylvania,
Kentucky and West Virginia. Boron was also the branding of its premium grade gasoline along with its regular grade fuel "Extron"(formerly "Ex-tane" later "Octron") and its unleaded version
"Cetron" introduced in 1970.
• Sohio's credit cards, like other oil company cards at the time, could be used at competitors' stations outside the issuing company's competitive territory, which in Sohio's case was Ohio. The
benefit died with the Sohio brand. Exxon had a similar arrangement as well. In 1916, Sohio introduced a prefabricated canopy prototype for its stations. [3]
• Although Sohio gas stations have ceased to exist, a few marina gas stations on Lake Erie and the Ohio River still bear the Sohio name.
• When BP merged with Amoco, its American headquarters moved from the former BP America Building on Public Square in Cleveland to Chicago.
•  
• Sohio subsidiaries[edit]
• Hospitality Motor Inns[edit]
• Hospitality Motor Inns, a wholly owned Sohio subsidiary, operated 11 motor inns in Ohio and surrounding states [4]
• Photo gallery[edit]
• Sohio service station in Cleveland, Ohio (ca. 1936).
• Sohio canopy circa 1989. Sohio's final prototype canopy. Also used as the canopies for Boron and Gulf Gasoline stations until the stations were rebranded as BP.
• A Gulf Oil branded gasoline station in Louisville, KY using the previous BP/Sohio/Boron prototype.
• Sohio sign circa 1989. Sohio's logo. A similar logo was also used at Boron stations outside the state of Ohio.
• Sohio Boron gasoline station (1972). Sohio marketed gasoline under various brand names in other states, including Boron, BP, Gas & Go, Gulf, Gibbs and William Penn.
• Vintage Sohio pump in storage at Cuyahoga Valley National Park near Richfield, Ohio.
• BP continues to sell marine fuel under the Sohio brand at various marinas on Ohio waterways and in Ohio state parks in order to protect its rights in the Sohio and Standard Oil names. The
Anderson Ferry Marina near Cincinnati, Ohio is pictured.
 Continental Oil (Conoco)
• Conoco Inc. was an American oil company founded by Isaac Elder Blake in 1875 as the Continental Oil and Transportation Company.[1] It is now a brand of gasoline and 
service station in the United States which belongs to Phillips 66 following the spin-off of ConocoPhillips' downstream assets in May 2012. [2][3]
• Continental Oil and Transportation Company was founded by Isaac Elder Blake in 1875. [1][4] Based in Ogden, Utah, the company distributed oil, kerosene, benzene, and other
products in the western United States. [5] Continental Oil Company was acquired by Standard Oil Company in 1884 and was spun off from Standard Oil during the Standard Oil
divestiture in 1911. The main office was later moved to Ponca City, Oklahoma, when in 1929, Marland Oil Company (founded by exploration pioneer E. W. Marland) acquired the
Continental Oil Company.[4][6] Marland Oil acquired the assets (subject to liabilities) of Continental Oil Company for a consideration of 2,317,266 shares of stock. At that time,
Marland Oil changed its name to Continental Oil Company. The acquisition gave Conoco the red triangle symbol previously used by Marland which would become Conoco's logo
from 1930 to 1970, when the now-familiar capsule logo was adopted. [citation needed]
• The company ran into early trouble when, shortly after acquisition, it was hit by the Great Crash of October 1929. Conoco became a key supplier to the United States government
during World War II.[citation needed]
•  
• Conoco offshore oil well drilling platform, Gulf of Mexico, 1955.
• Under the leadership of Leonard F. McCollum, Conoco grew from a regional company to a global corporation in the years after World War II. Another rough patch for the company
came during the 1970s oil crisis, from which it did not recover until 1981, when Conoco became a subsidiary of former rival DuPont.[citation needed]
• In 1981, cash rich and wanting to diversify, Seagram Company Ltd. engineered a takeover of Conoco. Although Seagram acquired a 32.2% stake in Conoco, DuPont was brought in
as a white knight by the oil company and entered the bidding war. In the end, Seagram lost out in the Conoco bidding war. In exchange for its stake in Conoco Inc, it became a
24.3% owner of DuPont.[citation needed] By 1995, Seagram was DuPont's largest single shareholder with four seats on the board of directors. [citation needed]
• In 1998, DuPont and Conoco parted ways.[7] When the independent Conoco went public in October 1998, under a retooled name, Continental Oil Company, it resulted in the
largest IPO in history. Conoco bought what was left of Gulf Oil's Canadian operations in 2002. Conoco merged with Phillips Petroleum Company in 2002 to form ConocoPhillips.
• Corporate headquarters[edit]
• This section needs expansion. You can help by adding to it. (February 2010)
•  
• ConocoPhillips headquarters in the Energy Corridor area of Houston, formerly the headquarters of Conoco Inc.
• Before the merger, Conoco had its headquarters in what is now the current ConocoPhillips headquarters in the Energy Corridor of Houston; the complex was formerly known as
the Conoco Center.[8][9]
• The headquarters of Conoco moved to Houston, Texas, in 1949.[4] In 1965, the headquarters moved to Manhattan, New York City. In 1972, the headquarters moved to
Stamford, Connecticut; in Stamford Conoco occupied space in the three story High Ridge Park complex. [10] In 1982, DuPont announced that Conoco's headquarters would move
from Stamford to Wilmington, Delaware.[11] The move occurred in 1982. [7] Edward G. Jefferson, the chairperson of DuPont, said that the headquarters relocation was to bring the
head workforces of DuPont and Conoco together. DuPont also announced that it was closing the Conoco offices in Stamford; the lease in the Stamford complex was originally
scheduled to expire in 1992.[10]
 Atlantic Refining (ARCO)
• Atlantic Richfield Company (ARCO, pronounced ar-kouh) is an American oil companywith operations in the United States, Indonesia, the North Sea, the South China Sea, and Mexico.[1] It has more than 1,300 gas stations in the western part of the United States, [2] and recently (as of 2017) five gas stations at northwestern
Mexico.[3][4] ARCO was formed by the merger of East Coast–based Atlantic Refiningand California-based Richfield Oil Corporation in 1966. A merger in 1969 brought in Sinclair Oil Corporation.[1] It became a subsidiary of UK-based BP plc in 2000 through its BP West Coast Products LLC (BPWCP) affiliate. [5] On August 13, 2012, it
was announced[6] that Tesoro would purchase ARCO and its refinery for $2.5 billion. However, the deal came under fire due to increasing fuel prices. Many activists urged state and federal regulators to block the sale due to concerns that it would reduce competition and could lead to higher fuel prices at ARCO stations (ARCO
stations make up more than half of all stations with the lowest fuel prices in California). [7] On June 3, 2013,[8] BP sold ARCO and the Carson Refinery to Tesoro for $2.5 billion. BP sold its Southern California terminals (Vinvale, Colton, San Diego, Hathaway, and Hynes) to Tesoro Logistics LP, including the Carson Storage Facility.
BP will continue to own the ampm brand and sell it to Tesoro for Southern California, Arizona, and Nevada. BP exclusively licensed the ARCO rights from Tesoro for Northern California, Oregon, and Washington.
• ARCO is known for its low-priced gasoline compared to other national brands, mainly due to an early 1980s decision to emphasize cost cutting (cash/debit-only policy) and alternative sources of income ( ampm). ARCO is headquartered in La Palma, California.[9][10] Tesoro was renamed Andeavor in 2017.
• History[edit]
• The Atlantic Petroleum Storage Company's heritage dates back to 1866. It became part of the Standard Oil trust in 1874, but achieved independence again when Standard Oil was broken up in 1911.
• In 1915, Atlantic opens its first gas station on Baum Boulevard in Pittsburgh, Pennsylvania.
• In 1917, First Richfield Oil Company of California gas station at Slauson and Central Avenues in Los Angeles, California. Richfield Oil Company of California logo is an Eagle trademark.
• The Atlantic Refining Company was headquartered in Philadelphia, Pennsylvania.
• In 1921, Sinclair Oil Company opens first modern service station in Chicago called "Greasing Palace No. 1". Sinclair gets into trouble with Teapot Dome scandal.
• In 1966, Atlantic merges with the Richfield Oil Company of California. The first CEO was Robert Orville Anderson. The new company boasts a new trademark, a red diamond shape called the ARCO Spark designed by Bauhaus artist, designer, and architect Herbert Bayer.
• Commercial oil exploration started in Prudhoe Bay, Alaska, in the 1960s and the Prudhoe Bay Oil Field, North America's largest oil field, was discovered on March 12, 1968, by Atlantic Richfield Company (ARCO) and Exxon with the well Prudhoe Bay State #1. Key employees with ARCO Alaska were Marvin Mangus John M.
Sweet, and William D. Leake, chief project engineer for the Alaska pipeline. The Richfield Oil Company of California had purchased the drilling rights to the land where the discovery well was located. British Petroleum had drilling rights near the discovery well.
• ARCO acquired Sinclair Oil Corporation in 1969, but later divested certain Sinclair assets during the mid-1970s, resulting in Sinclair returning as a private company.
• In 1978, ARCO opened the first of its AMPM convenience stores in Southern California.
•  
• At one time, ARCO had its headquarters in the City National Plaza complex in Downtown Los Angeles[11]
• Presence in Southwest U.S.[edit]
• ARCO once had a presence in the Southwestern U.S.—a stretch of Texas State Highway 225 east of Loop 610 in Houston, Texas, had an oil tank farm once painted with the ARCO logo. Lyondell-Citgo would rebrand the oil tanks in the 1980s. ARCO's global corporate headquarters were in the ARCO Plaza in Los Angeles at the
corner of 5th and Flower Streets, the site of Richfield's former headquarters. ARCO's Oil & Gas division headquarters were in downtown Dallas, Texas. The headquarters' building was a 46-story office building designed by architect I.M. Pei, the ARCO Tower. ARCO closed the Dallas office and sold the building in the mid-1980s.
Today, ARCO operates about 1,100 stations in five Western states: California, Nevada, Oregon, Washington, and Arizona. [12]
• Merger[edit]
• ARCO merged with Anaconda Copper Mining Company of Montana in 1977. Anaconda's holdings included the Berkeley Pit and the Anaconda, Montana Smelter. ARCO founder Robert Orville Anderson stated "he hoped Anaconda's resources and expertise would help him launch a major shale-oil venture, but that the world
oil glut and the declining price of petroleum made shale oil moot".[13] The purchase turned out to be a regrettable decision for ARCO. A lack of experience with hard-rock mining and a sudden drop in the price of copper to below seventy cents a pound, the lowest in years, caused ARCO to suspend all operations in
Butte, Montana. By 1983, only six years after acquiring rights to the "Richest Hill on Earth", the Berkeley Pit was completely idle. By 1986, some ARCO properties were sold to billionaire industrialist Dennis Washington, whose company, Montana Resources, operates a much smaller open-pit mine east of the defunct Berkeley
Pit.
• Acquisition[edit]
• In 1985, the Atlantic brand was spun off for ARCO's East Coast stations as Atlantic Petroleum. Atlantic was acquired by Dutch trader John Deuss, who later sold it in 1988 to Sunoco. The ARCO brand is now used on the West Coast. ARCO specializes in discount gas by removing many frills, among them forcing prepayment for
fuel, not accepting credit cards at most locations, and charging 35 cents [14] for the use of debit cards. In most locations, it is co-branded with ampm convenience stores, also a division of BP West Coast (ARCO introduced the AmPm concept in 1979).
• 1990s[edit]
• ARCO financed EASTLUND in the beginning of the 1990s for High Auroral Active Research Project (HAARP Project). In March 1997, ARCO also leased almost all the gas stations of the (now) Santa Fe Springs, California based independent Thrifty Oil [15] group of 250 stations found throughout California [16] after a damaging price
war which the independent Thrifty was unable to win. [17]
• 2000s[edit]
• On April 18, 2000, ARCO was purchased by BP America and completely merged into BP operations. There were two exceptions due to FTC requirements: ARCO Alaska was sold by BP to Phillips Petroleum, and ARCO Pipe Line Company was acquired by TEPPCO, a subsidiary of Duke Energy. ARCO as a subsidiary no longer
exists.
• Over the course of 2004 and 2005, ARCO signs have been replaced. New signs still have the ARCO spark, but BP's Helios (BP's new white, yellow, and green "sunburst" mark named after the Greek Sun god, replacing the old British Petroleum shield mark) [18][19] is also located on the sign. A new tagline "ARCO—part of BP" has
also appeared on some signs and advertisements. ARCO was known for sponsoring the ARCO Arena (now Sleep Train Arena) in Sacramento, California,[20] with a license fee of $750,000/year through 2007. [21]
• Superfund site[edit]
• ARCO is the responsible party (by its ownership of Anaconda Copper at the time operations were terminated) for America's largest Superfund site—a site that takes in the towns of Butte and Anaconda, and 120 miles (190 km) of the Clark Fork River including Milltown Dam. The region's water and soil were polluted by a
century of mining and smelting. Chemicals of concern include many heavy metals and arsenic. On 7 February 2008, the United States Environmental Protection Agency announced that prolonged litigation with ARCO ended when ARCO agreed to pay $187 million to finance natural resource restoration activities. [22] Anaconda
still nominally exists, but only as a massive environmental liability for ARCO.
• In the media[edit]
• George Romero's 1978 film Dawn of the Dead features a zombie wearing a red baseball jersey that read "Bach's Arco Pitcairn".
• The song "Storm", in Godspeed You Black Emperor's 2000 album Lift Your Skinny Fists Like Antennas to Heaven uses a field recording done at the Los Angeles Airport ARCO gas station.
• Sacramento band CAKE recorded the song "Arco Arena", which was about the stadium in Sacramento that Arco had purchased naming rights to.
• Legal issues[edit]
• Atlantic Richfield Co and its parent BP America agreed to settle a class-action lawsuit brought by about 700 current and former residents of Yerington, Nevada, who lived near the Anaconda mine built in 1941. Company paid in Nevada up to $19.5M for settlement. EPA tested in 2009 wells and found that 79% of the wells
north of mine had dangerous levels of uranium and/or arsenic. [23]
• In September 2010, the staff of KCST-FM in Florence, Oregon noticed that the station's Emergency Alert System (EAS) equipment would repeatedly unmute as if receiving an incoming EAS message several times a week. During each event, which was relayed from KKNU in Springfield, the same commercial advertisement for
ARCO/BP gasoline could be heard, along with the words "This test has been brought to you by ARCO". Further investigation by the primary station transmitting the commercial revealed that the spot had been produced using an audio clip of an actual EAS header which had been modified to lower the header's volume and
presumably prevent it from triggering false positive alert reactions in EAS equipment. The spot was distributed nationally, and after it had once been identified as the source of the false EAS equipment trips, various stations around the country reported having had similar experiences. After a widespread notification by the
Society of Broadcast Engineers was issued, ARCO's ad agency withdrew the commercial from airplay. [24][25]
 Rockefeller’s Holdings
• The R ockefeller family ( /ˈr ɒkəfɛlər /) is an American  in du st rial, p ol iti cal, an d  bankin gfamily that o w n s o ne of th e w or ld' s larges t fo rt un es. Th efor tu ne w as ini tially made in th e  US p etr oleu m ind u str y d u rin gt he lat e1 9 th an d ear ly 20 th cen tur ies b y J oh n D. R ockefeller and h is bro th er  Will iam R ockefeller, p r imari ly t hr ou gh  St an d ard Oil.[1 ] The family is al so kn ow n fo r i ts lon g ass ociati o n w it h, an d co nt ro l of,  C hase Man hattan B an k. [2]
• Family b ackgr ou nd [ed i t]
• One o f the fo un di ng memb ers of t he Ro ckefeller family was b us in es sman Will iam R ockefeller Sr. bo rn in Gran ger, New Yor k, t o a P ro test an t family. He had six ch ild ren w i th hi s fi rst w ife El iza Davis on , t he mos t p ro min en t o f w h ich w er eo il t ycoo n s Jo h n Daviso n Ro ckefeller and Willi am R ockefeller, co -fo un ders of St an dard Oi l. Oil baron J oh n D. Ro ckefeller w as a devou t No rt hern B ap tis t, and h es up p or ted man y ch ur ch -based i ns tit uti on s. [3][4 ][5]

• Family w ealth [ed i t]

• The R o ckefeller br o th er s
• J oh n Davis on R ockefel ler Sr.
• Will iam Avery Ro ckefeller J r.
• The co mbi ned w ealt h of th efami ly –t heir t ot al ass et s and in ves tment s p lu s th e in divid ual w ealth o f it s memb ers – h as never b een kno wn w i th an y p recis io n. The reco rd s of th efami ly ar chi ves relati n gt o b o th th efamily an d ind ivid ual members ' n et wo rt h are clos ed to resear chers . [6]
• Fro m th eo u tset t he fami ly's w eal th h as been un d er th ecompl et econ tr ol of th e malememb er s of th ed yn as ty, th ro ugh t h efamily office. Des pit es tr on g- w illed w ives w h o had infl uen ce over th eir hu s ban d s' d ecisi on s—s uch as t h ep ivo tal female figur e Abb y Al dri ch Ro ckefeller, w ifeo f J oh n Davis on R ockefell er Jr. (called Jun io r h er eafter)—i n all cas es th ey received allow ances o n ly an d w eren ever gi ven even p ar tial resp on si bi lity fo r t he fami ly fo rt un e. [ 7]
• Mu ch o f t he w ealt h h as b een locked up in th en o table famil y tr u st of 19 3 4 ( w hi ch ho ld s th e b ulk of th efor tu ne an d matu r es o n th ed eath o f t he fou r th generati on ) an d th et rus t of 19 5 2, bo th admin ist ered by Ch as eB an k, th ecor po rate su ccess or to C hase Man hattan B an k. Th ese tr us ts h ave co ns ist ed o f s hares in t he su ccess or co mpanies t o St an dard Oi l and ot her d iver sifi ed in ves tments , as w el l as t he family's co ns iderable real es tat eh ol din gs. They are ad mini stered b y a t ru st committee th at over sees th efo rt un e.
• Man agement of th is fo rtu n et od ay al so res ts wi th p ro fes sio nal mo ney man ager s w h o o versee th ep rin ci pal h ol din gcomp an y, Ro ckefeller Fina ncia l Services, w h ich con tr ols al l th e family's inves tmen ts , n ow t hat R ockefell er Center i s n o lo nger o w ned by th efamily. The pr esent ch airman is David R o ckefell er Jr.
• In 1 9 92 , it h ad fivemain arms :
• R ockefeller & Co . ( Mon ey managemen t: Uni ver siti es h ave in vested so me o f t heir en do wment s i n t his co mpan y);
• Ven ro ck Asso ci ates ( Vent ur eC ap ital: an early inves tmen t in Ap ple C omp ut er was o n eo f many it mad ein Si licon Valley ent repr en eu rial st ar t- up s);
• R ockefeller Tr us t C omp any ( Man ages hu nd reds o f fami ly t ru st s) ;
• R ockefeller In su ran ceC omp any ( Man ages l iab ilit y i ns ur an ce for family memb er s) ;
• Aca d ia Ris k Ma na g emen t ( In su ranceB ro ker : C o nt racts ou t po licies for th e famil y's vas t art co llecti on s, real est ate an d pr ivate planes.) [8]

• R eal est ate an d ins tit u tio ns [ed i t]

•  
• 3 0 Ro ckefeller P laz a, New Yo rk Cit y, NY, U.S.
•  
• One C h ase Man hattan Plaza
•  
• R ockefeller Cent er at nigh t, December 1 9 34
•  
• R ivers id eC hu rch
•  
• The C lo isters , Upp er Man hattan
• The family w as h eavily in vo lved in n u mero u s r eal es tatecon st ru cti o n p ro jects in th eU.S. d uri ng t he 20 th cent u ry. [ 9] C h ief amo ng th em:
• R ockefeller Cent er, amu lti -b ui ldin g co mplex b ui lt at t h es tar t o f t he Dep ressio n in Mid to wn Man h attan , fin an ced so lel y b y t he fami ly
• Intern atio nal Hou se o f New Yo rk , New Yor k C it y, 1 9 24 (J oh n Jr.) { Involvement : Jo hn III, Ab by Al dri ch , David &Peggy, David J r., Abb y O'Neill}
• Wren B uild in g, Co llege of Willi am an d Mary , Virgini a, f ro m 1 92 7 ( Ren ovati on fu nd ed b y Jun io r [who?] )
• C ol on ial Willi amsb ur g, Vir gin ia, fr om 1 9 27 o nw ar ds (J un io r), Ab b y Ald rich, Jo hn III an d Wi nt hr op , h is tor ical r es to rati on
• Mu seum o f Mo dern Art, New Yo rk C ity, fr om 1 9 29 (Abb y Al dr ich , Jo h n J r., Bl an chette, Nel so n, David , David Jr., Sh aro n Percy R ockefeller)
• R ivers id eC hu rch, New Yo rk Ci ty, 19 3 0 ( Jo hn Jr.)
• The C lo isters , New Yo rk C ity, fr om 1 9 34 (J oh n Jr.)
• The In terch u rch C en ter, New Yor k C it y, 1 9 48 (J oh n Jr.)
• Asia Societ y ( As iaHou se), New Yo rk Cit y, 19 5 6 ( Jo hn III)
• One C h ase Man hattan Plaza, New Yo rk Ci ty, 19 6 1 (David )
• Nels o n A. R o ckefell er Emp ire St ate P laz a, Alb an y, New Yo rk, 19 62 ( Nelso n )
• Linco ln Cent er, New Yo rk Ci ty, 19 6 2 (Jo hn III)
• Wo rld Trad e Center Tw in To w ers , New Yor k C ity, 1 97 3 –2 00 1 ( David and Nels on )
• Emb arcadero C ent er , San Fr an cis co , 1 97 4 (Davi d)
• C ou n ci l of th e Amer icas/Amer ica s Societ y, New Yo rk Cit y, 1 9 85 ( David )
• In add iti on t o t his is Seni or an d J u ni or [ who?] 's i nvo lvemen t in seven majo r ho us in gd evelo pmen t s:
– Forest Hil l Es tates, Cle ve land, Ohio
– City Hous ing Corporation's efforts, Sunny side G ardens, Q ue ens, N ew Y ork City
– Thomas G arde n Apartme nts, T he Bronx, Ne w York City
– Paul L aurenc e Dunbar Housi ng, Harlem, N ew York City
– Lav ois ier Apartments, Ma nhattan, Ne w Y ork Ci ty
– Van Tass el Apartments, S lee py Hollow, N ew York (forme rly North Ta rry town)
– Adeve lopme nt inRadburn, Ne w Jerse y [ 1 0] [ 11 ]

– Afurther proj ec t inv olv ed Da vid Rocke fel ler in a major middle -inc ome hous ing deve lopme nt when he was el ected in 1947 a s c hai rman of
Mornings ide Hei ghts, I nc ., in Ma nhatta nby fourtee n major institutions that were bas ed i n the a rea , incl udingColumbia Unive rsity. T he re sul t, in 1951, was the six -buildi ng apartment comple x k nown a sMornings ide Garde ns.
[ 12]

• Sen io r's do n ati on s l ed to th e for mati on o f t he Univers ity o f C h icago in 18 8 9; th e C en tr al P h ilip pin e Univers ity in t he Ph ilip p ines ( Th efi rs t B ap tis t un ivers ity an d secon d Amer ican un ivers ity in Asia); and n ot ab le for th e C h icago Scho ol of Eco no mi cs. [13] Thi s w as o ne in stan ce of al on gfamily an d Ro ckefeller Fo u nd ati on t rad iti on o f fi n an cially sup p or tin g Ivy Leagu eand o th er majo r co lleges an d u n ivers ities o ver t he generati o ns —seven ty-fivei n to tal. Th es ein clud e:
– Harvard U niv ersity
– Dartmouth Colle ge
– Prince ton Univ ersi ty
– Unive rsity of Californi a, Berk ele y
– Sta nford U ni ve rsity
– Yal e U niv ers ity
– Ma ssa chuse tt s Institute of Tec hnology
– Brown Unive rs ity
– Tufts U ni versity
– Col umbia Univ ersi ty
– Cornel l U niv ers ity
– Unive rsity of Pennsylv ania
– Cas e Wes tern Rese rve U niv ers ity
– Ins titutions ove rse as suc h a sL ondon Sc hool of Ec onomics and U niv ersity Colle ge L ondon, a mong ma ny others . [ 14 ]

• Sen io r[who ?] ( an d Jun io r[who?] ) als o cr eat ed

– Roc ke fell er U niversity in 1901
– Ge neral E ducation Board in 1902, which later (1923) evolve d i nto theInternational Educ ation Board
– Roc ke fell er S anitary Commis sionin 1910
– Bureau of Social Hy gie ne in 1913 (Junior ) [ who?]

– Inte rnational He alth Di vis ion in 1913

– Chi na Me dic al Boardi n 1915.
– Roc ke fell er Museum, Isra el , 1925–30
– In the 1920s , the International E ducation Board gra nted i mporta nt fell owshi ps to pathbre ak ers in modern mathematics, such as Ste fan Ba nac h, Bartel L ee ndert v an de r Wae rde n, a nd André We il, whi ch wa s a forma tive pa rt of the g radua l shift of world mathematics to the US ov er this pe riod.
– To hel p promote coopera tion be tween phys ics and mathematics Roc ke fell er funds a lso s upporte d the ere ction of the new Mathematic al Ins titute at the U ni versity of Göttin ge nbetwee n 1926 and 1929
– The ris e of probabi lity and mathematical sta tis tics owes much to the c reation of theInstitut Henri Poincaréin Pa ris, pa rtly by the Rock efe llers' fina nce s, als o a round this time.
[ 15]

– John D Jr. established Inte rna tiona l House at Be rke ley .

– Junior wa s re sponsible for the c re ation a nd endowment of theCol oni al W il lia msburg Foundation, whic h operate s the restore d historic al town a tW ill iamsburg, Virginia, one of the most extensiv e historic res torations ev er unde rta ke n.
[ who?]

• Family r esid en ces[ed i t]

•  
• The C as emen ts - th e famil y's lan dmark w int er res id en ce
• Over t h egeneratio ns t he family memb ers h ave resid ed in s omen o table h ist ori c h o mes. A t ot al of 81 R ockefell er ho mes are o n the Nati on al Regis ter o f Hist o ric Places. [16 ] No t in clu d ing al l h omes o wn ed b y t he fi ve br ot hers, so meo f the mor ep ro min en t o f t hese ar e:
• One B eekman P lace - Th er es idenceo f Lau rancei n New Yor k C it y
• 1 0 Wes t Fi fty-fo urt h St reet - A nin e-s tor y s in gle fami ly h ome, th e fo rmer res iden ce of Ju ni or [ who?] befor e he sh ifted to 7 40 Park Aven ue, and th e lar gest res idencei n New Yor k C it y at t he time, it w as th eh ome fo r t he fiveyou n gb ro th er s. It w as later gi ven b y Jun io r [who?] t o th eMu seum o f Mo dern Art
• 7 40 Par k Avenu e - Ju n ior [who ?] and Ab b y's famed 4 0 -ro o m tr iplex apart men t in th e luxu ry New Yor k C it y apartment b uil din g, wh ich was later s old for ar eco rd p ri ce;
• B as sett Hal l - Th eh ou se at C olo ni al Wil liams bu rg bo u gh t b y Jun io r [who?] i n 1 9 27 and reno vated b y 19 36 , i t w as th efavo r ite resid en ce of b ot h J un io r [wh o?] and Abb y an d is n o w a h ou se mus eu m at the family- resto red Co lo nial R evi val t ow n
• The C as emen ts - A th r ee- sto ry ho u se at Or mon d B each in Flor ida, w h er eSeni or sp en t his las t w in t ers , f rom 1 9 19 u nti l h is deat h;
• The Eyri e- A s pr aw lin g 10 0- ro om s u mmer h olid ay h ome on Mo un t Des er t Is lan d in Main e, demolis hed by fami ly memb er s i n 1 96 2
• For es t Hill - The fami ly's co un tr y est at ean d su mmer ho me in C leveland , Ohi o, fo r fo ur d ecad es. Bu ilt an d occu pi ed by Seni or, it bu rn ed d ow n in 19 17
• Gol f Ho us eat Lakewo o d, New Jer sey - Th e for mer t hr ee-s to ry clu bh o us efo r t he el ite Ocean C o un ty Hun t and C ou n try Cl ub , w h ich Seni or bo u gh t i n 1 90 2 to p lay go lf on it s gol f co u rse
• Kyku it also kn ow n as t he Jo hn D. R ockefeller Est ate - Th eland mar k s ix- sto ry, 4 0 -ro om h o me o n the vast Wes tch es ter C ou n ty family es tat e, ho met o fou r gen er ati on s o f th efamily
• The JY R an ch - The land mark ranch in Jacks on Hol e, Wyo min g, t h eh oli day r eso r t h ome bu ilt b y J un ior [who ?] and later o wn ed b y Lau rance, w h ich w as u sed b y all memb er s of th efamily an d had man y pr omin en t visi to rs , in clu di ng p res ident s, un ti l Laur an ce do n ated i t t o t he federal go vern men t in 2 00 1
• Poli tics[ed i t]
•  
• The Po p ulatio n Co u ncil, fou nd ed b y t he fami ly in 1 9 52 .
•  
• Kyku it , t he lan d mark famil y h ome o f t he Ro ckefeller fami ly, locat ed in Sleep y Hol lo w, New Yo rk.
• P ro min en t b an ker and p hil an thr o pi st David R ockefeller Sr. w as t he family p at riarch u nti l h is deat h in 2 01 7 . In 1 96 0, w hen his br ot her Nelso n Ro ckefeller w as go ver n or of New Yo rk, David Sr. s uccess fu lly p ress ed fo r a repeal o f aNew Yor k s tate law th at rest ricted C hase Man hattan B ank fr om o peratin go u tsi de th ecity. David Sr. was t w ice offered th e po st o f Tr easu ry s ecretar y b y Presid en t Ri ch ard M. Nixon , b ut decli ned on bo th o ccas ion s. In 19 7 9, he us ed hi s h igh- level con tact s t o b rin g Moh ammad R eza Sh ah o f Iran, w h o had b een overt hr ow n in th e Iran ian Revo luti on and w as in po o r h ealth , for med ical tr eatmen t i n t he Unit ed St at es. In 19 98 , he w as aw ard ed t he P res identi al Med al o f Freed o m b y Pr esi den t Bil l C lin to n for hi s w o rk on In tern ati on al Execu ti ve Ser viceC o rp s.[17 ]
• P olitical offices he ld [edit]
• Nels o n Ro ckefel ler (1 90 8 –1 97 9)
– 1st As sistant Se cre tary of Sta te for Ameri can Re public Affairs,1944–1945
– 1st Under Se cre tary Heal th, E ducation and Welfare, 1953–1954
– Governor of Ne w Y ork, 1959–1973
– U.S . Vi ce Pre sident, 1974–1977
• Win th r op Ro ckefeller ( 19 12 –1 97 3 )
– Governor of Ark ans as, 1967– 1971
• J ay Ro ckefeller ( b. 19 3 7)
– Me mber ofWes t Vi rginia House of Del ega tes, 1966–1968
– Sec retary of Sta te of Wes t Vi rginia, 1969– 1973
– Governor of We st Virg inia, 1977–1985
– U.S . Se na torfrom Wes t Vi rginia, 1985– 2015
• Win th r op Paul Ro ckefeller (1 9 48 –2 00 6 )
– Lie ute nant G ov ernor of Arka nsa s, 1996– 2006
• Legacy [ed i t]
• A tr ad emark of th ed ynas ty over its 1 40 -p lu s year s has b een th e remarkab leu n ity it has main t ain ed , d es pit emajor d ivis ion s th at develop ed i n t he lat e1 9 70 s, an d u nl ike o th er wealt hy fami lies su ch as t he Du Pon ts an d t h eMell on s. A p r imary reaso n h as been th eli fel on geffo rt s o f "Ju ni or [who? ]" t o n o t o n ly cleans et he n amef ro m th eo p pro b riu m st emming fr om th eru th less pr actices o f St an dard Oi l, b ut h is ti reless effo rt s t o fo rge famil y u ni ty even as he all ow ed h is fives on s to op er ate in d epend en tl y. Th is w as p art ly achieved b y r egul ar b ro th er s an d family meeti n gs, bu t i t w as also becaus eo f the h igh valu ep laced o n family un it y b y fi r st Nel so n and J oh n III, an d l at er esp eciall y w it h David . [18 ]

• R egar di ng ach ievement s, i n 1 9 72 , o n th e1 00 th an n iver sary of th e fou nd in g of An dr ew C ar negie's p h ilan th r op y, t he C ar negie Co rp or ati o n, wh ich has h ad al on g ass ociati on w it h t he fami ly an d it s i ns tit uti o ns, released a p ub lic statemen t o n t he in fl uence o f t he fami ly o n no t jus t p hi lan th ro p y b ut en co mpass ing amu ch w id er field. Su mming up a pr ed o min an t view amon gs t t he in tern ati on al ph ilant hr op ic w or ld, alb eit o ne p oo rly gr asp ed b y t he p ub lic, o ne sent en ce of th is statemen t read : "Th econ tr ibu ti on s of th eR ockefel ler famil y a re st ag gerin g in th ei r extr ao rd in ar y r an ge a nd in th e sco p eo f their co nt rib u tio n t o hu man kin d ." [1 9]
• J oh n D. Ro ckefeller gaveaw ay US$ 54 0 millio n over h is li feti me(i n do llar t erms of t hat ti me), an d became the greatest lay benefacto r o f medi cin ei n h is tor y. [20] His so n , J un io r, al so gave aw ay over $ 53 7 mi llio n o ver his lifetime, b rin gi ng th et ot al ph ilanth ro p y o f jus t t wo gen er ati on s o f th efamily t o over $1 b illio n fr om 1 8 60 to 1 96 0 . [21] Ad ded to th is , th e New Yo rk Times declared i n a repo rt in November 2 0 06 th at David R ockefel ler 's t ot al ch ari tab le benefactio n s amo u nt to ab ou t $9 0 0 mil lion o ver h is lifetime. [22 ]
• The co mbi ned p er so n al and so cial co nn ecti o ns of t he var io us fami ly memb ers are vas t, bo th in Americaand t hr ou gh ou t t h ew o rld , in clu d in gt he most p o werfu l p ol iti cians , ro yalty, p u blic fi gu res , and ch ief b us in es smen . Notab le figu res t hr ou gh St an d ard Oil alo ne have inclu ded Henry Flagler an d Hen ry H. R oger s. C on temp o rary figur es i nclu de Henr y K iss in ger, R ich ar d Par so ns ( Ch air man an d CEO o f TimeWarn er) , C . Fred B er gst en , Peter G. Pet ers on ( Senio r C h air man of th e B lacks to ne Gro up ), an d Pau l Vo lcker.
• In 1 9 91 th e family w as pr es en ted w it h t he Hon o r Award f ro m th e Nati o nal Bu ild in gMu seum fo r fo ur gen er ati o ns w ort h of p res er vin gand creatin gs ome o f t he U.S.'s mos t i mp or tant b uil din gs an d pl aces. David accept ed th eaward o n the fami ly' s b eh alf. [23] Th ecer emon y coi ncid ed wi th an exh ibi tio n o n th e family's con tr ib uti on s to th e bu ilt en vir on men t, i nclud in g Jo hn Sr.'s p reservatio n effor ts fo r t he Hu ds on R iver Pal isad es , t he rest orati on o f Will iams bu rg, Vi rgi ni a, co n st ru cti on of R ockefell er C en t er , an d Go vern or Nelso n 's effort s t o co ns tr uct lo w- and midd le-in co meh ou si ng in New Yo rk st at e. [24 ]

• The R ockefeller n ame is impr int ed in n umer ou s p laces t hr ou gh ou t th eUni ted States , mos t n o tably in New Yo rk Ci ty, bu t als o in C level an d, w h er et he famil y o ri gin at es:
• The R ockefeller C en ter - A lan d mark 19 -b u ild ing 22 -acr e( 89 ,0 00  m2) co mplex in t he cent er of Man hattan est ab lis hed b y J un io r [ who?] : Older s ectio n co nst ru ct ed fr om 1 9 30 –1 93 9 ; New er secti on co n str ucted d ur in gt he 1 96 0s -1 97 0 s;
• The R ockefeller Un ivers ity - R en amed i n 1 96 5 , t his is th ed isti n gu ish ed Nob el pr ize-w in nin g gr ad uat e/ po st gr ad uat emedi cal scho ol (fo rmerly th e R ockefel ler Ins tit ut e for Med ica l R es ea rch , est ab lis hed b y Sen io r i n 1 9 01 );
• The R ockefeller Fou n datio n - Fou n ded in 1 91 3 , t his is th efamou s ph ilan th ro p ic organ izatio n set u p by Seni or an d J un io r [wh o?];
• The R ockefeller B ro th ers Fun d - Fou n ded i n 1 94 0 b y t he th ird -gen er ati on 's fi ve s on s and o ne d au gh ter of Ju n io r [who ?];
• The R ockefeller Famil y Fun d - Fou n ded in 1 96 7 b y memb ers o f t he famil y's fo ur th -generatio n ;
• The R ockefeller Gro u p - A pr ivate family-r un r eal est at ed evelo pment co mpany based in New Yor k t h at or igin all y o w ned, co ns tru cted and man aged Ro ckefeller C en ter, it is no w w ho lly ow n ed b y Mit su b ish i Es tateC o . Ltd ;
• The R ockefeller P h ilan t hro p y Adviso r s - is a 5 01 (c)( 3) no np ro fi t o rgan izatio n th at ad vis es d o n ors in th eir p h ilan th ro pic end eavo rs thr o ugho ut th ew o r ld;
• The R ockefeller R es ea rch Lab o ra to ries B ui ldi ng - A major resear ch cen ter i nt o can cer t hat w as establi sh ed in 1 98 6 and n amed after Lau rance, t his is si tu ated at t he Memo rial Sl oan- Ketterin gC an cer Center ;
• The R ockefeller C en ter - Home of th eIn t ern ati on al St ud en t Ser vices officeand depart men t o f p hi lo so ph y, p o liti cs an d law at th e St ate Un iver sit y o f New Yor k at B in gh amto n;
• The R ockefeller C h ap el - C omp leted in 19 2 8, thi s is th e talles t b ui ldi ng o n t he camp u s o f the Uni ver sit y o f C h icago , establi sh ed b y Sen ior in 1 88 9;
• The R ockefeller Ha ll - Es tab lis hed by Senio r in 19 06 , thi s b ui ldi ng h ou ses th e Case West er n R es er veUn ivers ity Ph ys ics Dep art ment ;
• The R ockefeller Ha ll - Es tab lis hed by Senio r an d comp let ed in 1 90 6 , th is bu ild in gh ou ses t he C or nell Uni ver sit y P h ysi cs Dep ar tment ;[25]
• The R ockefeller Ha ll - Es tab lis hed by Senio r in 18 87 , wh o grant ed Vass ar Co llege a $1 00 ,0 00 ( $2 .34 mill io n i n 2 00 6 do ll ars ) allo wance to bu ild ad d iti on al, mu ch n eeded lect ur es p ace. The fin al co st of th efaci lit y w as $9 9 ,99 8 .7 5. It n ow h o us es mu lti -p u rp os ecl ass ro o ms an d depart ment al o ffices for po liti cal science, p hi los op h y and mat h;
• The R ockefeller Ha ll - Es tab lis hed by Senio r an d comp let ed in 1 88 6 , th is is t he o ld est bu ild in go n th ecamp us o f Sp el man C o llege;
• The R ockefeller C o lleg e - Named after J oh n D. Ro ckefeller III, t his is a r esi den tial co llege at P ri ncet on Un ivers ity ;
• The Micha el C . R o ckefeller Ar ts Cent er - C o mp leted i n 1 96 9 in memor y o f Nelso n Ro ckefeller 's so n, th is i s a cu lt ural cen ter at t he State Un iver sity o f New Yor k at Fred o nia ;
• The Micha el C . R ockefeller Co llecti on a nd t he Depa r tmen t o f P ri mitiveArt - C omp leted in 1 98 2 after being in iti at ed by Nelso n , t his is aw in g of th e Met ro p oli tan Mus eu m o f Art ;
• The David an d Peg g y R ockefell er Bu ild in g - A tr ib ut eto David 's w ife, Peggy R o ckefeller, th is is an ew (comp leted in 2 00 4) s ix- sto ry bu ild in g ho us ing th e main co llecti on and temp o rary exh ib itio n galleries o f t he fami ly's Mus eu m o f Mod er n Art ;
• The Abb y Ald rich Ro ckefeller Scul pt ur eGar den - C omp let ed in 19 4 9 by David , t hi s is a major o ut do o r featu re o f t he Mus eu m of Mod er n Ar t;
• The Abb y Ald rich Ro ckefeller Fo lk Ar t Mu seum - Opened in 1 95 7 b y Ju n ior [who ?], t h is is a leadin g fo lk art mu seum jus t o ut sid e th eh ist or ic dis tr ict of Ju n ior [who ?]'s Co lo nial Wil liams bu rg;
• The Abb y Ald rich Ro ckefeller Hall - Th efr es hman r es idenceh al l o n t he campu s o f Spelman C ol lege;
• The La u ra Sp elma n Ro ckefeller Memo ria l B ui ldi ng - Co mpleted in 19 18 , it is amo ng ot her t h ings a st ud en t res idenceh al l at Sp el man Co llege, after th ew ife o f Sen io r an d after w ho m th eC o llege was n amed ;
• The R ockefeller Sta te Pa rk Pr es erve - Part of th e3 ,4 0 0- acr e( 14  km 2) fami ly est ate in Wes tches ter C ou n ty, th is 1,2 33 - acre( 5   km2) p reserve w as officiall y h an d ed over to New Yo rk St ate in 1 98 3, alt ho u gh it had p revio u sly alw ays b een op en t o t he p ub lic;
• The Ma rsh -B illi ng s- Ro ckefeller Nati o na l Hist or ica l Par k - Es tabli sh ed as ah is to rical mu seum o f con servati on b y Laur an ce d ur ing th e 19 90 s.
• The Jo h n D. R o ckefel ler Jr. Memor ial Parkw ay - Es tabli shed in 19 7 2 t hr ou gh C on gr ess io nal aut ho riz ati on , con n ecti ng Yello w st on eand Grand Teto n Natio nal Parks;
• The R ockefeller For es t - Fu nd ed b y J un io r [who?], th is is located wit h in Hu mbo ld t R ed w oo ds St at ePark , C ali for nia's lar gest red w oo d st ate park;
• Eith er o f t wo US con gres sio nal co mmittees {i n 1 9 72 - Jo hn D. III an d 19 75 - Nels on du b bed t h e R ockefeller C o mmis sio n} .
• R ockefeller Pa rk , as ceni c p ar k featu ri ng gard en s d ed icated to sever al wo rl d n ati on s alo n gMar tin Lut her K ing Jr. B lvd . b et ween Uni ver sit y C ircle and Lake Erie in Clevelan d .
• The Win th ro p R o ckefeller In sti tu te o f th eUn iver sit y o f Ar kansas Sys tem was establ ish ed in 2 00 5 w ith a grant fr om t he Wint hr op R o ckefell er Ch ar it ab leTru st . Th eed ucati on al cen ter w it h con ferenceand lo dgin gfacil ities is lo cated o n Peti t Jean Mou nt ain n ear Mor ril to n, Ar kansas, on t he or igin al gr ou n ds of Go v. Win th rop R ockefel ler 's mo del cattlefarm.
• The David R o ckefell er C ent er fo r Lati n Amer ican Stu d ies at Harvard Univer sit y.
• The R ockefeller Quad at th eLoo mis Ch affee Scho ol
• The R ockefeller C omp lex li br ary at Niel s B oh r Ins tit ut e, Nør rebr o, Co penh agen Mun ici palit y in Den mark
• J oh n Jr., th ro u gh hi s s on Nels on , p ur ch ased an d t hen do n ated t he land u po n wh ich s it s th e Un ited Natio ns h ead q uarters , in New Yo rk, in 1 94 6 . Earli er, in the 1 92 0 s, h e had also d on at ed a su bs tan ti al amou nt to w ard s th er es to rati o n and r eh abi lit ati on o f majo r bu ild in gs in Fr an ce after Wor ld War I , s uch as t he R heims C ath edr al, t he Fo n tain eb leau Palaceand t he Palaceo f Ver sailles, for wh ich h e w as l ater ( 19 3 6) aw ar ded Fr an ce's h igh es t d ecor ati on , t he Gran d Cr oix o f t he Legio n d 'Ho nn eu r ( su b seq uent ly als o aw ard ed d ecad es lat er to hi s s on , David Ro ckefeller ).
• Heals o fun d ed th en o tab le excavati o ns at Lu xor in Egyp t, as w ell as est ab lis hin g aC las sical Stu d ies Scho ol in Ath ens . In add iti on , h e pr ovided th ef un di ng fo r t he co ns tr uctio n of th e Palesti n eArch aeol ogical Mus eu m in Eas t J er us alem - t he R ockefeller Mu seum .[26 ]
• C on s er vatio n[e dit]
• B egin ni ng wi th Jo hn D. R ockefeller Sr., th efamily has b een amajo r for ce in land co ns er vatio n. [ 27] Over th egeneratio n s, i t h as creat ed mor et han 2 0 n ati on al p ar ks an d op en sp aces , in clu d ing t he Cl ois ter s, Acadi aNati o nal Park, Fo res t Hill Park , th eNat ur e Co ns ervan cy , t he Ro ckefeller For est in C ali for nia's Hu mb o ld t R ed wo o ds St at ePark (t he lar gest stand o f o ld -gro wt h r ed w o od s), an d Gr an d Tet on Nati on al Par k, amo ng many ot h er s. J oh n Jr., an d hi s s on Laur an ce (an d h is s on Laur an ce Jr. akaLarr y) w er ep ar ticu larly p ro mi nen t in th is area.
• The family w as h on o red fo r its co ns er vati o n effo rt s in No vemb er 2 00 5, by th e Nati o nal Aud ub on Societ y, o n e of Amer ica's lar ges t and o ld es t co n ser vati o n or gan iz atio n s, at wh ich o ver 30 famil y memb er s attend ed . At t he even t, th es ociet y's pr es ident , J oh n Fli cker, n ot ab ly st ated: "C umu lati vely, no ot h er family in Ameri cah as mad et h eco n tri bu tio n to co n ser vatio n th at the R o ckefell er family h as made". [2 7]
• In 2 0 16 fi fth -generati on descend ant s o f J oh n Sr. cr iticized Exxon Mob il, on e of th es uccesso r s t o h is co mp any Stand ar d Oi l, fo r t heir reco rd on cl imat echange. The R ockefeller B ro th er s Fun d an d t h eR ockefeller Famil y Fu n d b o th b acked repo rt s s ugges tin g th at Exxon Mob il kn ew mor eab ou t t he th reat of glo b al w armin gt han i t h ad d isclos ed . David Kaiser, gran d so n o f David R ockefeller Sr. and p resid en t o f th eR ockefeller Famil y Fun d, said th at th e"...comp an y s eems to b emo rall y b ankr up t." Valeri eR ockefeller Wayn e, d au gh ter of for mer Sen ator Jay R ockefell er , said , "B ecau se th es ou rce of th efamily w ealt h is fos sil fu els , w efeel an eno rmou s mo r al r esp o ns ibi lit y fo r o u r chil dr en , fo r everyo n e- - t o mo ve fo rw ar d." [28 ] Th e Ro ckefeller B ro thers Fu n d ann ou n ced i t w as di ves ti ng fr om fo ss il f uels in Sep tember 2 01 4 wh il et he Ro ckefeller Family Fu nd ann ou n ced p lan s to di ves t in March 2 01 6. [29 ][30]

• The f amily ar ch ive s[e dit]

• The R ockefeller Archi ve Cent er , an in d epend en t fou n datio n that w as u n til 20 08 a di vis ion o f R ockefel ler Un ivers ity ,[31 ] is at hr ee- level un dergro un d ar chi ve belo w th e Ma rt ha Ba ir d R o ckefel ler Hi llcr est h ou se o n t he fami ly est ate at Po canti co (s ee Kyku it) . Alo ng fo rty-fo ot -lo n gw al ls o f sh elves on rails , mai nt ain ed by ten fu ll-ti mearchi vis ts, is t he en ti re rep o sit or y o f per so nal and o fficial papers an d co rresp o nd en ce of th e co mp let efamily an d its memb ers , al on g w it h hi sto rical papers of its n umero us fou n datio n s, as w el l as o th er no n-famil y p hil an th ro pi c in sti tu tio n s. Th ese in clu de: t he Co mmon w ealth Fu nd , C ha r les E. Cu lpeper Fo un da tio n , Lu cille P. Ma rkey Ch a rit ab leTru st , and th e J oh n a nd Mar y R . Ma rkleFou nd a tio n .
• In t ot al , it ho ld s o ver 7 0 mi llio n p ages o f d ocument s and co nt ai ns th ecol lecti o n s o f fo rt y-t w o sci en tifi c, cu ltu ral, edu cati o n al and p hilan th ro pic o rgani zatio ns .
• Onl y t h eexpu rgated reco rd s o f d eceased family members are pu b licly availab le to s cho lars and r es ear ch er s; all r ecor ds pertain in gt o l ivin gmembers are clo s ed to h ist ori an s. Ho w ever, as Nels o n R o ckefell er' s resear ch er, Cary R eich , d iscovered , in th e cas eo f Nelso n' s volu min ou s 3 ,2 47 cub ic feet ( 91 .9  m3) o f paper s, o nly ab ou t o n e- th ird o f th ese files h ad b een pro cess ed an d rel eas ed t o r es ear ch er s u p to 19 96 . He repo rts th at it w ill be man y year s b efo re all t he papers w ill b e op en to t he pu b lic, desp ite Nels on 's h avin g d ied in 1 9 79 . [32 ]

• The C en ter main tain s t hat t his repo s ito ry of reco rd s, cover ing 1 40 -p lu s year s o f th er eco rd s of th efamily, in add itio n to n on -R ockefeller ph ilant hr op ic co llectio n s, gives un iqu e ins igh t s in to Unit ed Stat es an d w o rl d is su es an d so cial d evelop ments in b oth t h e1 9t h and 2 0 th cen tu ries.
• R ecor d s in th e col lecti on ar eavail ab le up u nti l o nl y t he early 19 6 0s , generally 1 9 6 1. Major su b jects in th eco ll ectio n i nclud e:
• Agr icu lt ur e
• The Art s
• Afr ican -American hi st ory
• Edu cati on
• Intern atio nal R elati o n s
• Eco no mic Devel op men t
• Lab or
• Med icin e
• P hi lan t hro p y
• Poli tics
• Pop u lati on
• R eli gio n
• Social Scien ces
• Social Welfare
• Wo men 's h is to ry[3 3]
• Memb ers[ed i t]
• Ance st ors [edit]
• God f rey Lew is R ockefeller (1 78 3 /1 78 4–18 5 7) (m. 18 06 ) Lucy Avery (1 78 6 –1 86 7) (t en ch ild r en)
– Wi llia mAve ry "De vil Bill or Big Bi ll" Roc kefelle r S r. (1810–1906) (m.1837)E liza Davi son (1813–1889) (e ight children)
[ 34 ]

• Lucy Roc ke fell er (1838– 1878) (m. 1856) Pie rson D. Brig gs
• Cl orinda Roc ke fel ler (c. 1838–? , died young ) (daughter from N anc y Brown)
• John D av ison Roc kefeller S r.(1839– 1937) (m. 1864) La ura Cel estia "Cettie " S pel ma n(1839– 1915)
• Corne lia Roc ke fel ler (c. 1840–? ) (daughter from N anc y Brown)
• Willia m Avery Rockefell er Jr.(1841– 1922) (m. 1864) Almira Ge ral dine G oods ell
• Mary Ann Rock efe lle r (1843–1925) (m.1872) W illi am Culle n Rudd
• Frank lin "Frank " Roc kefelle r(1845– 1917) (m.1870) Hel en Eliz abe th Sc ofie ld
• Franc es Roc ke fel ler (1845– 1847)
• Will iam W. Ro ckefel ler ( 17 88 –1 85 1 ) ( m. early 19 th cen tu ry) Elean o r K iss elb rack (1 78 4 –1 85 9)
• Des ce n dant s o f J oh n Davis on R ockefeller Sr. [edit]
• The to t al n umb er of b loo d relati ve d escen dants as o f 2 0 06 w as ab ou t 15 0. [ citatio nneed ed]
• Elizab et h "Bessi e" R o ckefeller (1 86 6 –1 90 6 ) ( m.1 8 89 ) Ch ar les Au gust us St ro ng ( 18 62 –1 94 0 )
– Ma rga ret Roc ke fell er S trong(1897– 1985) (m.1st.1927) G eorge de Cue va s (1885–1961), (m. 2nd 1977) Ra imundo de Larrain
• AliceR o ckefel ler (1 86 9 –1 87 0)
• Alta R o ckefell er (18 7 1 –19 6 2) (m.1 9 01 ) Ezra Parmelee Pr en tice ( 18 63 –1 9 55 )
– John Rock efe lle r Prentice (1902– 1972) (m.1941) Abra Cantril l (1912–1972)
• Abra Prentic e W il kin (born 1942)
– Ma ry Ade line Prentice Gi lbe rt (1907–1981) (m.1937) Benjamin Dav is Gi lbert (1907–1992)
– Spe lman Pre ntice (1911– 2000) (m.3rd.1972) Mi mi Wa lters (four children)
• Edit h R ockefeller ( 18 7 2–1 9 32 ) ( m. 1 89 5) Har old Fow ler McC o rmick
– John Rock efe lle r McCormick (1896–1901)
– Edi tha Mc Cormick (1897– 1898)
– Harold Fowle r McCormick Jr. (1898–1973) (m.1931) Anne "F ifi" Potter (1879–1969)
– Muriel Mc Cormick (1902– 1959) (m.1931) Eli sha Dy er Hubba rd (1906)
– Ma thil de Mc Cormic k (1905– 1947) (m. 1923) Ma x O se r (1877–1942) (one child)
• J oh n Davis on R ockefel ler Jr. (1 87 4 –1 96 0) (m. 1 s t 1 90 1) Abi gai l Greene "Ab by" Aldr ich ( 18 7 4–19 48 )
– Abi gai l Al dric h "Ba bs" Rock efe lle r(1903–1976)
• Abiga il Rock efe lle r " Abby" "Mitzi " Milton O 'N eil l (1928-2017) m. G eorge Dorr O 'Ne ill Sr. (fiv e c hildren)
• Marily n E lle n Milton (1931– 1980) (two c hildren)
– John Davi son Rock efe ller III(1906– 1978) (m.1932) Bl anc hette F erry Hooker (four c hil dre n)
• John Dav ison " Jay " Rock efe lle r IV(born 1937) (m. 1967)Sharon Perc y (four children)
– Ju stin Ald rich Ro ckef eller (bo rn 197 9) m. Indr éVengri s
• Hope Aldrich Rock efe ller(born 1938) (one c hild)
• Al ida Ferry Roc ke fell er Mes singer(born 1949) (m.1s t 1978–1986) Mark Da yton(m.2nd) W illia m Me ss ing er
– Nelson Aldri ch Roc kefell er(1908– 1979) (m. 1st 1930–1962) Ma ry T odhunte r Cl ark (m. 2nd 1963)Marg are tta Large "Ha ppy" Fitl er(1926– 2015) (se ven children)
• Rodman Cla rk Roc ke felle r(1932– 2000) (m.1st 1953–1979) Barbara Ann Ol sen (m. 2nd 1980) Ale xandra von Metzle r (four c hi ldren)
– M eile Rockefell er (b or n 1 955 )
• Steve n Clark Rock efe ller(born 1936)
• Mary Cla rk Roc ke fell er(born 1936) m. 1s t (1961-1974) W illi am J. S tra wbridg e (thre e c hil dren)
• Micha el Cla rk Roc ke felle r(1938– 1961)
• Mark Fitl er Roc ke fell er(born 1967)
– Laurance Spelman Rocke fel ler(1910– 2004) (m. 1934) Ma ry Fre nch
• La ura Spelman Rock efel ler Cha sin(1936–2015)
• Marion F rench Rocke fell er(born 1938)
• Dr. Lucy Roc ke fel ler Wal etz ky (born 1941)
• La ura nce Rock efe lle r Jr. (born 1944) (m. 1982) We ndy G ordon (two c hil dre n) [ 35 ]

– Wi nthrop Rock efel ler (1912– 1973) (m. 1s t 1948, div. 1954) Jiev ute "Bobo" Paulek iute (1916–2008) (m. 2nd 1956, div. 1971) Je annette E dris (1918–1997)
• W inthrop Pa ul Rocke fell er(1948– 2006) (m. 1s t 1971, div. 1979) Debora h Clue tt S age (m. 2nd 1983) Lis enne Dudde rar (sev en children)
– Da vid Rockefeller (1915– 2017) (m. 1940) Marg are t McG rath (1915–1996)
• Da vid Rocke fel ler Jr. (born 1941) (m. 1st div orc ed) Dia na N ewe ll-Rowan (m. 2nd 2008) S us an Cohn (two children)
• Abiga il Rock efe lle r(born 1943)
• N eva Goodwin Rock efe ller(born 1944)
• Marga ret Dulany " Pe ggy " Rock efe lle r (born 1947)
[ 36 ]

• Ri cha rd G ilder Rocke fell er(1949– 2014); marrie d to N anc y King (two c hil dre n, two ste p-c hil dre n)
[ 37] [ 38] [ 36 ] [ 36 ] [ 37 ]

– Lu caM arzo Ro ckefeller (bo rn 199 2) - seco nd so n o f Ri chard

• Ei leen Rock efe lle r (born 1952) m. Paul G rowal d (two childre n)
[ 36]

• Des ce n dant s o f William Aver yR ockefeller Jr. [edit]

• An ar ticlei n t he New York Ti mes in 1 9 37 st at ed th at William Ro ckefeller h ad , at t hat ti me, 2 8 gr eat-gran d chi ld ren. [c itation neede d]
• Lew is Ed w ard R ockefel ler (1 86 5–18 6 6)
• Emma R ockefeller McAl pin (1 8 68 –1 9 34 )
• Will iam Go od sell R ockefell er (1 87 0 –1 92 2) (fi ve ch ild ren)
– Wi llia mAve ry Roc kefelle r II I (1896–1973) (thre e c hil dren)
• El sie Roc ke fell er m. Wil liam Prox mi re
– Godfre y S till ma n Rock efe lle r(1899–1983) (s ev en childre n)
• G odfrey Anders on Rocke fel ler (1924– 2010)
– James Stillman Roc ke fell er(1902– 2004) (four childre n)
• J oh n Davis on R ockefel ler II ( 18 72 –1 8 77 )
• Percy Avery R ockefeller ( 18 7 8–19 34 ) m. Isabel Goo dr ich Stil lman (fi ve ch ild ren )
– Isa bel Stillman Roc ke fell er(1902– 1980) m. Frederi c Wal ker Lincol n IV
– Ave ry Roc ke fel ler(1903– 1986) m. 1923 Anna G riffith Ma rk (three chi ldre n)
– Fai th Roc kefell er Model (1909– 1960)
• Robert Mode l (born 1942)
• Ger ald in eR o ckefell er Dod ge (1 88 2 –1 97 3) m. Mar cellus Hart ley Dod ge Sr.
– Ma rce llus Ha rtl ey Dodge Jr.(1908– 1930)
• Spo u se s[edit]
• Lau ra C eles tia "C ettie" Spelman (1 83 9 –1 91 5) –J oh n D. R ockefeller Sr.
• Abb y Greene Al dri ch ( 18 74 –1 94 8 ) – Jo hn D. R o ckefell er Jr.
• Mar th a Baird Allen ( 18 95 –1 9 71 ) – J oh n D. R ockefeller Jr.
• Mar y To dh un ter C lark "To d " ( 19 0 7–19 99 ) –Nels on R ockefell er
• Mar garetta "Hap py" Fit ler (1 92 6 –2 01 5) –Nel so n Ro ckefel ler
– Anne Marie Ras musse n – Steve n Clark Rock efe lle r
• B lan chette Ferry Ho o ker ( 19 09 –1 99 2 ) – Jo h n D. R o ckefel ler III
• Mar y Fr ench (1 91 0 –1 99 7) –Lau ranceR ockefell er
– We ndy G ordon – L auranc e " La rry " Rock efe ller Jr.
• J ievut e "Bo b o" Pau leki ute (1 9 16 –2 0 08 ) – Wint hr o p R ockefeller
• J ean n etteEdr is (19 1 8 –19 9 7) –Win t hro p Ro ckefeller
– Debora h Clue tt Sag e – W inthrop Paul Rocke fel ler
– Lis enne Dudde rar – W inthrop Paul Rocke fel ler
• Mar garet "Peggy" McGr ath (1 9 15 –1 9 96 ) – David R o ckefell er
– Dia na Ne we ll Rowan – Davi d Roc kefe lle r Jr.
– Na ncy Ki ng – Richard Gi lde r Rock efe ller.
• Sarah El izab et h "Els ie" Still man (18 7 2 –19 3 5) –Wil liam Go od sel l R o ckefell er
• Isab el Goo dr ich Sti llman ( 18 7 6–1 9 3 5) –Percy Avery Ro ckefeller
• s ho w
• Family t ree
• Select b ibli ograp hy [ed i t]
• Abels , J ules. The R ockefeller B ill ion s : Th eSto ry of t he Wo rl d's Mo st Stu pend o us Fo rt un e . New Yo rk: Th eMacmill an Co mpany, 1 96 5.
• Ald rich , Nelso n W. Jr. Old Mo n ey: Th eMyth olo gy o f Amer ica 's Up per C la ss . New Yo rk: Alfr ed A. K no pf, 1 98 8.
• Allen, Gary. Th e Ro ckefel ler Fi le. Seal B each, Califo rn ia: 1 97 6 Pr ess , 1 97 6.
• B oo r sti n, Daniel J. Th e Amer ica n s: Th eDemocra tic Experience. New Yo rk: Vi ntage B oo ks , 1 97 4.
• B ro w n , E. Richard . R ockefell er Medicin eMen: Medicin ea n d C ap it al ism in America . B erkeley: Un ivers ity of C ali for nia P res s, 19 7 9.
• C ar o, R ob ert A. Th ePow er B ro ker: R o ber t Moses a n d t he Fall of New Yo rk . New Yo rk: Vin tage, 19 75 .
• C hern o w, Ro n. Tit an : The Li feo f J oh n D. R ockefeller, Sr . Lo nd on : War ner Bo oks, 1 9 98 .
• C ol lier, Peter, and David Ho ro w itz. Th e Ro ckefeller s: An American Dyn as ty . New Yo rk: Hol t, R in eh ar t & Win sto n , 1 97 6.
• Elmer, Is abel Lincoln . Ci nd erella R ockefeller: A Life o f Wea lth B eyon d All Kn o w ing . New Yor k: Freun dl ich B oo ks , 1 98 7.
• Ern st , J oseph W., ed ito r. "Dear Fat her"/ "Dea r Son :" Co rr esp o nd en ce of Jo h n D. Ro ckefel ler a nd Jo hn D. R o ckefell er Jr. New Yo rk: Fo rd ham Univers ity Pr es s, wi th th eR o ckefel ler Ar ch ive C en ter, 1 99 4.
• Flyn n , J oh n T. God 's Gold : The St or y o f R o ckefel ler a nd Hi s Times . New Yo rk: Har co urt , B race an d Co mpany, 1 93 2.
• Fos di ck, Raymo nd B . Jo h n D. R ockefel ler Jr.: A Po rt ra it . New Yor k: Harp er & Bro th er s, 19 5 6.
• Fos di ck, Raymo nd B . Th e Sto ry of t he Ro ckefeller Fou nd a tio n . New Yo rk: Tr an sacti on P ub lish er s, Repr in t, 1 98 9 .
• Gat es , Fred er ick Taylo r. C ha p ters in My Life. New Yo rk: Th eFreeP ress, 19 77 .
• Gitelman, Ho ward M. Leg acy o f t he Lu d low Ma ssa cr e: A Ch ap ter in Amer ica n Ind u str ia l Rela tio n s . P h ilad elp h ia: Un ivers ity of Pen ns ylvani aP ress , 1 98 8.
• Gon z ales, Do nald J ., Ch ro ni cled b y. Th eR o ckefel ler s a t Wil lia ms b ur g: B a cks ta g ew ith t he Fo u nd ers , R es to rers an d Wo rld - Reno wn ed Gu est s . McLean, Vir gi nia: EPM P ub licati on s, Inc., 1 9 91 .
• Han so n , El izabeth. Th e Ro ckefeller Uni ver sit y Ach ievemen ts : A C en tu ry of Scien ce fo r t he Benefit o f Huma nkin d, 19 01 -2 0 01 . New Yor k: Th eR ockefeller Un iversi ty Pr ess , 2 0 00 .
• Har r, J o hn En so r, and Peter J . J oh ns o n. The R ockefell er C en tu r y: Thr ee Genera tio n s o f Amer ica 's Great es t Famil y . New York: C h arl es Scr ibn er's So ns , 1 98 8 .
• Har r, J o hn En so r, and Peter J . J oh ns o n. The R ockefell er C o ns cience: An American Family in P ub lic an d in Pr iva te . New Yo rk: C h arles Scr ibn er's So ns , 1 99 1 .
• Haw ke, David Fr eeman. Jo hn D.: The Fo un d ing Fat her o f t he R ockefellers . New Yo rk: Har per & R ow, 1 98 0 .
• Hid y, Ralph W. and Mu riel E. Hi dy. P io neerin g in Bi g Bu sin es s: His to ry of St an da r d Oil C o mp a ny (New Jers ey) , 1 88 2 -1 91 1 . New Yo rk: Harp er & Br ot hers, 19 5 5.
• J on as , Ger ald . The C ircuit Ri ders: R ockefeller Mo ney a nd t he Ri se of Mod er n Sci en ce . New Yo rk: W.W.No r to n and C o., 1 98 9.
• J os ep h son , Emanu el M. Th e Feder al ReserveC on sp ira cy a nd th e Ro ckefellers: Th eir Go ld C or ner . New Yo rk: Ch ed n ey Pr ess , 1 96 8 .
• J os ep h son , Matth ew. Th e Ro b ber B ar on s. Lo nd o n: Harco u rt, 1 96 2.
• K er t, Bern ice. Abb y Ald rich Ro ckefeller: The Woma n in t he Fa mily . New Yo rk: R an d om Hou se, 2 00 3.
• K lei n, Henr y H. Dyn a sti c Ameri ca an d Th os eWh o Ow n It . New Yo rk: K ess in ger P ub lis hin g, [1 9 21 ] R ep rin t, 2 00 3.
• K ut z, Myer. R ockefeller Pow er: Ameri ca 's Ch os en Fa mily . New Yo rk: Simon & Schu st er, 19 74 .
• Lun d berg, Ferd inand . Amer ica 's Sixty Fa mi lies. New Yor k: Vanguard Pr ess , 1 9 37 .
• Lun d berg, Ferd inand . The R ich a nd t he Su per- Rich: A Stu d y in t he Po wer of Mon ey To da y . New Yo rk: LyleStu ar t, 1 9 68 .
• Lun d berg, Ferd inand . The R ockefell er Syn dr o me . Secaucus , New J ers ey: Lyle Stu ar t, Inc., 1 9 75 .
• Man chester, Wil liam R . A R ockefel ler Fa mi ly Po rtr ai t: Fro m Jo hn D. t o Nels o n . B o st on : Li ttle, B ro w n, an d C o mpany, 19 5 9.
• Mo scow, Alvi n. The R ockefell er Inh er ita n ce. Gard en C ity, NY: Do ub leday & Co ., 19 7 7.
• Nevin s, Allan. Jo hn D. R ockefell er: Th eHer oi c Age of Ameri ca n Ent erp r ise . 2 vo ls. New Yo rk: Ch arles Scri bn er' s Son s, 19 4 0.
• Nevin s, Allan. St ud y In Pow er: J oh n D. Ro ckefeller, In du s tri ali st a n d P h ila nt hr op ist . 2 vols . New Yor k: C h arles Scr ib ner's So ns , 1 95 3 .
• Okr en t, Daniel. Great Fort un e: Th eEp ic o f R o ckefel ler Cent er . New Yo rk: Viki ng Pr es s, 2 0 03 .
• R eich , C ary. The Li feo f Nel so n A. Ro ckefel ler : Wo rld s t o C o nq u er 19 08 -1 95 8 . New Yo rk: Do ub led ay, 1 99 6 .
• R ob ert s, Ann R ockefel ler. Th eR ockefel ler Fa mi ly Ho me: Kyku it . New Yo rk: Abb eville P ub lis hin gGro u p, 19 9 8.
• R ockefeller, David . Memo ir s. New Yor k: R and om Hou se, 2 0 02 .
• R ockefeller, Henr y Oscar, ed . R ockefel ler Genealo g y. 4 vols . 1 91 0 - ca.19 50 .
• R ockefeller, Jo hn D. R an d om R emin iscen ces o f Men a n d Events . New Yor k: Do ub leday, 1 9 08 ; Lon do n : W. Hein emann . 1 90 9 ; Sleep y Ho llo w P res s and R ockefeller Archi ve Cent er, (R ep rin t) 19 8 4.
• R ou s sel, C hr isti ne. Th e Ar t o f Ro ckefeller C en ter . New Yor k: W.W. No rt on an d C ompany, 2 0 06 .
• Sch eiffarth , Engelb er t. Der New Yor ker Go u vern eu r Nels on A. R ockefeller u n d die R ocken feller im Neu wi ed er Ra u m Gen ealo gis ch es Jah r bu ch , Vol 9, 19 6 9, p1 6- 41 .
• Seal an d er, J ud it h. P ri va te Wea lth an d P ub lic Life: Fou n da tio n Ph ila n th ro py an d th eR es ha pi ng o f Ameri ca n So cia l Policy, fro m t he Pr og ress ive Er a t o t he New Dea l . B alti mor e: Jo hn s Hop ki ns Univer sity P ress, 19 9 7.
• Siegmun d- Schu ltz e, Reinh ar d. Ro ckefeller a nd th e Int er na ti on ali za tio n of Mat hema ti cs Betw een t h eTwo Wor ld War s: Do cu men ts an d Stu di es fo r th e So cia l His tor y o f Ma t hema tics i n t h e2 0t h C en tu r y . B os to n: Bi rkhauser Ver lag, 2 0 01 .
• Stas z, C lari ce. Th eR ockefel ler Women : Dyn a sty of P iet y, Pr iva cy, an d Service . New Yo rk: St. Mar tin 's P res s, 19 95 .
• Tarb ell, Ida M. Th e Hi sto ry of th e St an da rd Oil C o mp any. New Yo rk: Ph ill ips & C ompany, 1 9 04 .
• Win ks , R ob in W. La u ra nceS. R ockefel ler: Ca ta lys t fo r C on serva ti on , Was hi ngt o n, D.C .: Island P ress, 19 9 7.
• Yergin , Dan iel . Th eP ri ze: Th e Ep ic Quest fo r Oil, Mo n ey, an d Po w er . New Yo rk: Si mo n & Schu ster, 1 9 91 .
• You n g, Edgar B. Lin co ln Cen ter : Th e Bu ild in g of an In sti tu ti on . New Yo rk: New Yor k Uni versit y P ress , 1 98 0.
New York Stock Exchange (NYSE)
 Mergers in Oil Industry
• The energy industry is the totality of all of the industries involved in the production and sale of energy, including fuel extraction, manufacturing, refining and distribution. Modern society consumes large amounts of fuel, and the energy industry is a crucial part of the infrastructureand maintenance of society in almost all countries.
• In particular, the energy industry comprises:
• the petroleum industry, including oil companies , petroleum refiners, fuel transport and end-user sales at gas stations
• the gas industry, including natural gas  extraction, and coal gas  manufacture, as well as distribution and sales
• the electrical power industry , including electricity generation , electric power distribution and sales
• the coal industry
• the nuclear power industry
• the renewable energy industry , comprising alternative energy  and sustainable energy companies, including those involved in hydroelectric power, wind power, and solar powergeneration, and the manufacture, distribution and sale of alternative fuels
• traditional energy industry based on the collection and distribution of firewood, the use of which, for cooking and heating, is particularly common in poorer countries
• History[edit]
• This section does not cite any sources . Please help improve this section by adding citations to reliable sources . Unsourced material may be challenged and removed. (October 2016) (Learn how and when to remove this template message )
• The use of energy has been a key in the development of the human society by helping it to control and adapt to the environment . Managing the use of energy is inevitable in any functional society. In the industrialized world the development of energy resources has become essential for agriculture, transportation , waste collection , information technology , communications that have become prerequisites of a developed society. The increasing use of energy since the
Industrial Revolution has also brought with it a number of serious problems, some of which, such as global warming , present potentially grave risks to the world.
• In some industries, the word energy is used as a synonym of energy resources , which refer to substances like fuels, petroleum products and electricity in general, because a significant portion of the energy contained in these resources can easily be extracted to serve a useful purpose. After a useful process has taken place, the total energy is conserved, but the ressource itself is not conserved, since a process usually transforms the energy into unusable forms (such as unnecessary or
excess heat).
• Ever since humanity discovered various energy resources available in nature, it has been inventing devices, known as machines, that make life more comfortable by using energy resources. Thus, although the primitive man knew the utility of fire to cook food, the invention of devices like gas burners and microwave ovens has increased the usage of energy for this purpose alone manyfold. The trend is the same in any other field of social activity, be it construction of social
infrastructure, manufacturing of fabrics for covering; porting; printing; decorating, for example textiles , air conditioning; communication of information or for moving people and goods (automobiles ).
• Economics[edit]
• Main article: Energy economics
• Production and consumption of energy resources is very important to the global economy. All economic activity requires energy resources, whether to manufacture goods, provide transportation , run computers and other machines .
• Widespread demand for energy may encourage competing energy utilities and the formation of retail energy markets . Note the presence of the "Energy Marketing and Customer Service" (EMACS) sub-sector.[1]
• The energy sector accounts for 4.6% of outstanding leveraged loans, compared with 3.1% a decade ago, while energy bonds make up 15.7% of the $1.3 trillion junk bond market, up from 4.3% over the same period.[2]
• Management[edit]
• Main article: Energy demand management
• Since the cost of energy has become a significant factor in the performance of economy of societies, management of energy resources has become very crucial. Energy management involves utilizing the available energy resources more effectively that is with minimum incremental costs. Many times it is possible to save expenditure on energy without incorporating fresh technology by simple management techniques. [3] Most often energy management is the practice of using energy
more efficiently by eliminating energy wastage or to balance justifiable energy demand with appropriate energy supply. The process couples energy awareness with energy conservation .
• Classifications[edit]
• Government[edit]
• The United Nations developed the International Standard Industrial Classification , which is a list of economic and social classifications. [4] There is no distinct classification for an energy industry, because the classification system is based on activities, products, and expenditures according to purpose. [5]
• Countries in North America use the North American Industry Classification System (NAICS). The NAICS sectors #21 and #22 (mining and utilities) might roughly define the energy industry in North America. This classification is used by the U.S. Securities and Exchange Commission .
• Financial market[edit]
• The Global Industry Classification Standard used by Morgan Stanley define the energy industry as comprising companies primarily working with oil, gas, coal and consumable fuels, excluding companies working with certain industrial gases.[6] Add also to expand this section: Dow Jones Industrial Average [7]
• Environmental impact[edit]
• Main article: Environmental impact of the energy industry
• Government encouragement in the form of subsidies and tax incentives for energy-conservation efforts has increasingly fostered the view of conservation as a major function of the energy industry: saving an amount of energy provides economic benefits almost identical to generating that same amount of energy. This is compounded by the fact that the economics of delivering energy tend to be priced for capacity as opposed to average usage. One of the purposes of a smart grid
infrastructure is to smooth out demand so that capacity and demand curves align more closely. Some parts of the energy industry generate considerable pollution, including toxic and greenhouse gases from fuel combustion, nuclear waste from the generation of nuclear power, and oil spillages as a result of petroleum extraction. Government regulations to internalize these externalities form an increasing part of doing business, and the trading of carbon credits and pollution credits
on the free market may also result in energy-saving and pollution-control measures becoming even more important to energy providers.
• Consumption of energy resources, (e.g. turning on a light) requires resources and has an effect on the environment . Many electric power plants burn coal, oil or natural gas in order to generate electricity for energy needs. While burning these fossil fuels produces a readily available and instantaneous supply of electricity, it also generates air pollutants including carbon dioxide (CO 2), sulfur dioxide and trioxide (SOx) and nitrogen oxides (NOx). Carbon dioxide is an important
greenhouse gas which is thought to be responsible for some fraction of the rapid increase in climate change seen especially in the temperature records in the 20th century, as compared with tens of thousands of years worth of temperature records which can be read from ice cores taken in Arctic regions. Burning fossil fuels for electricity generation also releases trace metals such as beryllium, cadmium, chromium, copper, manganese, mercury, nickel, and silver into the environment,
which also act as pollutants.
• The large-scale use of renewable energy technologies would "greatly mitigate or eliminate a wide range of environmental and human health impacts of energy use". [8][9] Renewable energy technologies include biofuels, solar heating and cooling , hydroelectric power, solar power, and wind power. Energy conservation and the efficient use of energy would also help.
• In addition, it is argued that there is also the potential to develop a more efficient energy sector. This can be done by:[10]
• Fuel switching in the power sector from coal to natural gas ;
• Power plant optimisation and other measures to improve the efficiency of existing CCGT power plants;
• Combined heat and power (CHP), from micro-scale residential to large-scale industrial;
• Waste heat recovery
• Best available technology (BAT) offers supply-side efficiency levels far higher than global averages. The relative benefits of gas compared to coal are influenced by the development of increasingly efficient energy production methods. According to an impact assessment carried out for the European Commission , the levels of energy efficiency of coal-fired plants built have now increased to 46-49% efficiency rates, as compared to coals plants built before the 1990s (32-40%). [11]
However, at the same time gas can reach 58-59% efficiency levels with the best available technology. [11] Meanwhile, combined heat and power can offer efficiency rates of 80-90%.[11]
• Politics[edit]
• Since now energy plays an essential role in industrial societies , the ownership and control of energy resources plays an increasing role in politics. At the national level, governments seek to influence the sharing (distribution) of energy resources among various sections of the society through pricing mechanisms; or even who owns resources within their borders. They may also seek to influence the use of energy by individuals and business in an attempt to tackle environmental issues .
• The most recent international political controversy regarding energy resources is in the context of the Iraq Wars . Some political analysts maintain that the hidden reason for both 1991 and 2003 wars can be traced to strategic control of international energy resources.[12] Others counter this analysis with the numbers related to its economics. According to the latter group of analysts, U.S. has spent about $336 billion in Iraq[13] as compared with a background current value of $25 billion
per year budget for the entire U.S. oil import dependence[14]
• Policy[edit]
• Main article: Energy policy
• Energy policy is the manner in which a given entity (often governmental) has decided to address issues of energy development including energy production, distribution and consumption. The attributes of energy policy may include legislation , international treaties, incentives to investment, guidelines for energy conservation , taxation and other public policy techniques.
• Security[edit]
• Main article: Energy security
• Energy security is the intersection of national security and the availability of natural resources for energy consumption. Access to cheap energy has become essential to the functioning of modern economies. However, the uneven distribution of energy supplies among countries has led to significant vulnerabilities. Threats to energy security include the political instability of several energy producing countries, the manipulation of energy supplies, the competition over energy sources,
attacks on supply infrastructure, as well as accidents, natural disasters, the funding to foreign dictators, rising terrorism, and dominant countries reliance to the foreign oil supply. [15] The limited supplies, uneven distribution, and rising costs of fossil fuels , such as oil and gas, create a need to change to more sustainable energy sources in the foreseeable future. With as much dependence that the U.S. currently has for oil and with the peaking limits of oil production; economies and
societies will begin to feel the decline in the resource that we have become dependent upon. Energy security has become one of the leading issues in the world today as oil and other resources have become as vital to the world's people. However, with oil production rates decreasing and oil production peak nearing the world has come to protect what resources we have left in the world. With new advancements in renewable resources less pressure has been put on companies that
produce the world's oil, these resources are, geothermal, solar power, wind power and hydro-electric. Although these are not all the current and possible future options for the world to turn to as the oil depletes the most important issue is protecting these vital resources from future threats. These new resources will become more useful as the price of exporting and importing oil will increase due to increase of demand.
• Development[edit]
• Main article: Energy development
• Producing energy to sustain human needs is an essential social activity, and a great deal of effort goes into the activity. While most of such effort is limited towards increasing the production of electricity and oil, newer ways of producing usable energy resources from the available energy resources are being explored. One such effort is to explore means of producing hydrogen fuel from water. Though hydrogen use is environmentally friendly, its production requires energy and existing
technologies to make it, are not very efficient. Research is underway to explore enzymatic decomposition of biomass.[16]
• Other forms of conventional energy resources are also being used in new ways. Coal gasification and liquefaction are recent technologies that are becoming attractive after the realization that oil reserves , at present consumption rates, may be rather short lived. See alternative fuels .
• Energy is the subject of significant research activities globally. For example, the UK Energy Research Centre is the focal point for UK energy research while the European Union has many technology programmes as well as a platform for engaging social science and humanities within energy research.[17]
• Transportation[edit]
• All societies require materials and food to be transported over distances, generally against some force of friction. Since application of force over distance requires the presence of a source of usable energy, such sources are of great worth in society.
• While energy resources are an essential ingredient for all modes of transportation in society, the transportation of energy resources is becoming equally important. Energy resources are frequently located far from the place where they are consumed. Therefore, their transportation is always in question. Some energy resources like liquid or gaseous fuels are transported using tankers or pipelines, while electricity transportation invariably requires a network of grid cables. The
transportation of energy, whether by tanker, pipeline, or transmission line, poses challenges for scientists and engineers, policy makers, and economists to make it more risk-free and efficient.
• Crisis[edit]
• Main article: Energy crisis
•  
• Oil prices from 1861 to 2007
• Economic and political instability can lead to an energy crisis. Notable oil crises are the 1973 oil crisis and the 1979 oil crisis . The advent of peak oil, the point in time when the maximum rate of global petroleum extraction is reached, will likely precipitate another energy crisis.
• Mergers and Acquisitions[edit]
• Between 1985 and 2018 there have been around 69,932 deals in the energy sector. This cumulates to an overall value of 9,578 bil USD. The most active year was 2010 with about 3.761 deals. In terms of value 2007 was the strongest year (684 bil. USD), which was followed by a steep decline until 2009 (-55,8%). [18]
• Here is a list of the top 10 deals in history in the energy sector:
 The Deal
• Moreover, the industry had experienced
considerable downsizing in the 1980s and early
1990s in response to perceived problems of
overcapacity
• Now it would take a concerted effort to convince
shareholders that “bigger was better” when most
of the past decade had featured a “less is more”
and fervent cost-cutting orientation
• From Fuller’s point of view, the negotiations with
BP had also ended rather far from the original
proposal
• The companies began discussing a “dual holding
company” structure in which
• Amoco and BP would continue to exist as
separate public companies and retain their own
common stock
• The businesses would be managed by a unified
board of common directors and senior executives
• After many legal, tax, and regulatory challenges,
this idea was dropped in favor of an outright
merger of the two companies
• Under the current proposal, Amoco would lose
its separate corporate identity, global
headquarters status in the United States, and the
top- executive position, and suffer the lion’s share
of anticipated staff cuts
• The City of Chicago would lose an important
corporate citizen
• In addition to those concerns, no final decision
had been reached on the price and the exact
terms of the exchange
• Sir John Browne knew all those factors would
weigh on Fuller’s mind as they prepared for the
last round of negotiations
 Dual Holding Company
• A dual company structure consists of a holding company and an operating company. Holding the assets in the
holding company is a way of protecting your assets in the event that your operating company gets sued. This is,
however, not a fool proof method. If you are unsure of how to structure your business in a way that is most
beneficial to you, we recommend that you get in touch with an accountant and/or lawyer as soon as possible.
• A holding company is a company that owns 100% of shares in an operating company (also known as a dual
company structure). As the name suggests, the holding company holds the business’ valuable assets including
intellectual property (IP) and equipment.
• An operating company does all the trading – entering into contracts, hiring employees, and dealing with
customers. Your operating company is your public face and generally holds all the liabilities of your business. As
a result, the operating company is at risk of being held responsible if something goes awry within your
business.
• A key benefit of a dual company structure is that the holding company can protect your business’ assets from
any liabilities that the operating company incurs.
• When you set up a dual company structure, the holding company will own 100% of the shares in the operating
company. You may hold the shares in the holding company in your personal capacity, or you may 
hold shares through trusts.
• You would first register your company through ASIC – the government body that regulates companies in
Australia. If you are setting up proprietary companies, you will incorporate two separate proprietary companies
 for a dual company structure.
•  
Sir John Browne
 The Industry’s Outlook
• The major oil producers prospered during most
of the postwar period on profits driven by the
ever-expanding demand for their products
• Overall, they did well, not with standing
disruptions caused by oil embargoes, volatile oil
prices, and various attempts at industry
consolidation
• In 1985, oil prices collapsed from about (U.S.
dollars) USD28 a barrel (Brent crude) to roughly
half that in 1986, ushering in an era of low oil
prices, which continued, with the exception of
the Gulf War, to the present (Exhibit 1)
• Brent crude oil was oil that came from the North
Sea
• It was a widely used benchmark for oil prices
• Because of its high grade, it usually sold at a
small premium compared with other grades of oil
(for example, West Texas Intermediate)
• In 1998, the industry confronted a critical
imbalance in the supply and demand for oil
• Production from both Organization of Petroleum
Exporting Countries (OPEC) and non-OPEC
sources had increased largely due to the collapse
of Communism and the emergence of
privatization programs, which created
opportunities for oil exploration in the former
Soviet Union, Vietnam, Venezuela, and elsewhere
• While the supply of oil was plentiful, the more
pressing issue was the depressed state of
demand
• Primary energy demand was estimated to grow
at no more than 2% per annum in the
foreseeable future
• This was largely due to the sharp slump in
demand following the onset of the Asian
economic crisis in the summer of 1997 and warm
winter weather in North America and Europe
thereafter
• As a result, prices that had averaged around
USD20 a barrel in the latter half of 1997 started
to soften and continued falling to less than
USD12 a barrel in June 1998
• When adjusted for inflation, crude oil prices in
June 1998 were lower than they had been in
more than 25 years
Major Oil Producers in the World
 Oil Embargoes
• An oil embargo is an economic situation wherein entities engage in an embargo
 to limit the transport of petroleum to or from an area, in order to exact some
desired outcome. One commentator states, "[a]n oil embargo is not a common
commercial practice; it is a tool of political blackmail, meant to force those at
whom it is aimed, into some action they would otherwise not be willing to take".
[1]

• Notable examples of international oil embargoes include:

• Oil embargo (Sino-Japanese War), 1941–1945
• 1967 Oil Embargo
• 1973 oil crisis
• 1979 energy crisis
• Embargo against Iran, 2012–2016
•  
•  
 Oil Price Volatility
• The price of oil , or the oil price , (generally) refers to the spot price of a barrel of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate (WTI), BrentICE, Dubai Crude, OPEC Reference Basket, Tapis Crude, Bonny Light, Urals oil, Isthmusand Western Canadian Select(WCS).  There is a differential in the price of a barrel of oil based on its grade—determined by factors such as its spec ific gravity or API and its sulphur content—and its location—for example, its proximity to tidewater and/or refineries. Heavier, sour crude oils lacking in tidewater access—such as Western Canadian Select— are less expensive than lighter, sweeter oil—such as WTI.
[1] [2][3] Organization of the Petroleum Exporting Countries (OPEC)[edit]
• Main article: OPEC
• In 196 0 the Organization of the Petroleum Exporting Countries (OPEC) was founded in Baghdad, Iraq by its first five members —Iran, Iraq, Kuwait, Saudi Arabia and Venezuela—, with Qatar and Libya joining immediately, followed by United Arab Emirates, Algeria, Nigeria, Ecuador and Gabon after a decade. The goal of these countries was to increase its influence in the world oil market, then dominated by a cartel known as the "Seven Sisters", five of which were headquartered in the United States. These companies had been controlling posted prices since the so-called 1927 Red L ine Agreement and 1928 Achnacarry Agreement, and had achieved a high level of price stability until 1972. Angola joined the OPEC in 2 007 and Equatorial Guinea in 20 17.
[4][5][6] [5] [5]

• History[ edit]
• Furth er info rmatio n: 1967 Oil Embargo, 19 73 o il crisis, 1979 energy crisis, 19 80s oil glut, and Oil price increase of 19 90
• Price history from 2003 onwards[edit]
•  
• Crude oil prices to gas prices
• Main article: World oil ma rket c hronology from 20 03
• Furth er info rmatio n: 2000 s energy crisis
• From 1999 til mid 2 008, the price of oil rose significantly. It was explained by the rising oil demand in countries like China and India. In the middle of the financ ial crisis of 20 07–20 08, the price of oil underwent a significant decrease after the record peak of US$147 .27 it reached on July 11, 2008. On December 23, 20 08, WTI crude oil spot pric e fell to US$30 .28 a barrel, the lowest since the financ ial crisis of 20 07–20 10 began. The price sharply rebounded after the crisis and rose to US$ 82 a barrel in 2009 . In July 2008 oil reached a record peak of US$1 47.2 7 but by February 200 9 it sank beneath $4 0 a barrel. On 31 January 2011 , the Brent price hit $100 a barrel for the first time since October 2008, on concerns about the political unrest in Egypt. For about three and half years the price largely remained in the $90–$120 range. In the middle of 20 14, price started declining due to a significant increase in oil production in USA, and declining demand in the emerging countries. The oil glut—c aused by multiple fac tors—spurred a sharp downward spiral in the price of oil that continued through February 20 16. By February 3, 2 016 oil was below $30 — a drop of "almost
[7] [8] [9] [10] [11] [12] [13]

75 percent since mid-201 4 as competing producers pumped 1–2 million barrels of crude daily exceeding demand, just as China's economy hit lowest growth in a generation." Some analysts speculate that it may continue to drop further, perhaps as low as $18
[14] [15]

• According to a report released on February 15 , 2016 by Deloitte LLP—the audit and consulting firm—with global crude oil at near ten-year low prices, 35% of listed E&P oil and gas companies are at a high risk of bankruptcy worldwide. Indeed, bankruptcies "in the oil and gas industry could surpass levels seen in the Great Recession."
[16][17] [16][18]

• The causes of oil price fluctuations[ edit]

• There are two views dominating the oil market discourse. There are those who strongly believe that the market has undergone structural changes and that low oil prices are here to stay for a prolonged period. At the other end of the spec trum, there are those who think that this is yet another cycle and oil prices will recover sooner rather than later. [19]

• A 20 16 survey of the academic literature finds that "most major oil price fluctuations dating back to 1973 are largely explained by shifts in the demand for crude oil". As the global economy expands, so does demand for crude oil. The authors note that the price of oil has also increased at times due to greater "demand for stocks (or inventories) of crude oil... to guard against future shortages in the oil market. Historically, inventory demand has been high in times of geopolitical tension in the Middle East, low spare capacity in oil production, and strong ex pected global economic growth." In particular, political events can have a strong influence on the oil price. Historical examples include OPEC’s 1973 embargo in reaction to theYom Kippur War and the 19 79 Iranian Revolution. Financial analysts and academic s have had very few tools to study such political events compared to what is available on economic aspects of oil price formation. The PRIX index was developed in attempt to fill this gap with a metric on political developments and corresponding export trends from world’s 20 largest oil exporters.
[20] [20] [20] [21] [21][22]

• The supply of oil is dependent on geological discovery, the legal and tax framework for oil extraction, the cost of extraction, the availability and cost of tec hnology for ex traction, and the political situation in oil-producing countries. Both domestic political instability in oil producing countries and conflicts with other countries can destabilise the oil price. In 2008 theNew York Times reported, for example, in the 1940 s the price of oil was about $17 rising to just over $20 during the Korean War (1951 –1953 ). During the Vietnam War (1950 s – 19 70s) the price of oil slowly declined to under $20. During the Arab oil embargo of 1973—the first oil shock—the price of oil rapidly rose to double in price. During the 19 79 Iranian Revolution the pric e of oil rose. During the sec ond oil shock the price of oil peaked in April 19 80 at $ 103.76. During the 19 80s there was a period of "conservation and insulation efforts" and the price of oil dropped slowly to c. $ 22. It again reached a peak of c. $65 during the 19 90 Persian Gulf crisis and war. Following that, there was a period of global recessions and the price of oil hit a low of c. $1 5 before it peaked at a high of $4 5 on September 11 , 2001
only to drop again to a low of $26 on May 8, 20 03. The price rose to $80 with the U.S.-led invasion of Iraq. By March 3, 2 008 the pric e of oil reached $ 103.95 a barrel on the New York Mercantile Exchange.
[23] [14] [23]

• Although the oil price is largely determined by the balance between supply and demand—as with all comm odities—some commentators including Business Week, the Fina ncial Times and the Wa sh ing to n Post, argued that the rise in oil prices prior to the financial crisis of 2007 –2008 was due to speculation in futures markets. [24][25][26][27][28]

• For a dissenting view of oil prices being determ ined by demand, see Forbes, "Global Oil Demand is Always Rising – and Not Related to Price". [29]

• Benchmark pricing[edit]
• Main article: Bench mark (crude oil)
• In North America this generally refers to the WTI Cushing Crude Oil Spot Price West Texas Intermediate (WTI), also known as Texas Light Sweet, a type of crude oil used as a benchmark in oil pricing and the underlying commodity of New York Mercantile Exchange's oil futures contracts. WTI is a lightcrude oil, lighter than Brent Crude oil. It contains about 0.24% sulfur, rating it a sweet crude, sweeter than Brent. Its properties and production site make it ideal for being refined in the United States, mostly in the Midwest and Gulf Coast regions. WTI has an API gravity of around 39.6 (specific gravity approx. 0 .8 27) per barrel (159 liters) of eitherWTI/light c rude as traded on the New York Mercantile Exchange (NYMEX) for delivery at Cushing, Oklahoma. Cushing, Oklahoma, a major oil supply hub connecting oil suppliers to the Gulf Coast, has become the most significant trading hub for crude oil in North America.
• In Europe and some other parts of the world, the oil price benchmark is Brent as traded on the Intercontinental Exchange (ICE, into which the International Petroleum Exchange has been incorporated) for delivery at Sullom Voe.
• Other important benchmarks include Dubai, Tapis, and the OPEC basket. The Energy Information Administration (EIA) uses the imported refiner acquisition cost, the weighted average cost of all oil imported into the US, as its "world oil price".
• In Robert Mabro's 2 006 book on challenges and opportunities in oil in the 2 1st century, after the collapse of the OPEC-administered pricing system in 1 985, and a short lived experiment with netback pricing, oil-exporting countries adopted a market-linked pricing mechanism. First adopted by PEMEX in 19 86, market-linked pricing received wide acceptance and by 1 988 became and still is the main method for pricing crude oil in international trade. The current reference, or pricing markers, are Brent, WTI, and Dubai/Oman.
[30] [30] [30]

• Market listings[edit]
• Main article: Commodity market
• Oil is marketed among other products in commodity markets. By 2 008 widely traded oil futures, and related natural gas futures, included with most of these oil futures having delivery dates every month: [31][32]

• Petroleum
– Nymex Crude Future
– Dated Bren t Spot
– WTI Cushing Spot
– Nymex Heating Oil Future
– Nymex RBOB (Reformulated Blendstock for Oxygenate Blending) Gaso line Future
• Natural gas
– Nymex Hen ry H ub Future
– Henry Hub Spot
– New York C ity Gate Spot
• Speculation during the 2 008 crisis[ edit]
• In June 2008 Busin ess Week reported that the surge in oil prices prior to 2 008 had led some commentators to argue that at least some of the rise was due to speculation in the futures markets. However, although speculation can greatly raise the oil price in the short run, in the long run fundamental market conditions will determine the oil price. Storing oil is expensive, and all speculators must ultimately, and generally within a few months, sell the oil they purchase.
[24]

• According to a U.S. Commodity Futures Trading Commission (CFTC) May 2 9, 200 8 report the "Multiple Energy Market Initiatives" was launched in partnership with the United Kingdom Financial Services Authority and ICE Futures Europe in order to expand surveillance and information sharing of various futures contracts. Part 1 is "Expanded International Surveillance Information for Crude Oil Trading." This announcement has received wide coverage in the financial press, with speculation about oil futures price manipulation.
[28] [25][26][27]

• The interim report by the Interagency Task Force, released in July, found that speculation had not caused significant changes in oil prices and that fundamental supply and demand factors provide the best explanation for the crude oil price increases. The report found that the primary reason for the price increases was that the world economy had expanded at its fastest pace in decades, resulting in substantial increases in the demand for oil, while theoil production grew sluggishly, compounded by production shortfalls in oil-exporting countries.
• The report stated that as a result of the imbalance and low price elasticity, very large price increases occurred as the market attempted to balance scarce supply against growing demand, particularly in the last three years. The report forecast that this imbalance would persist in the future, leading to continued upward pressure on oil prices, and that large or rapid movements in oil prices are likely to occur even in the absence of activity by speculators. The task forc e continues to analyzecommodity markets and intends to issue further findings later in the year.
• Oil-storage trade (contango)[edit]
• Main article: Oil-storage trade
•  
• The Knock Nevis (1 979–20 10), a ULCC supertanker compared to the longest ships ever built
• The strategy works because oil prices for delivery in the future are trading at a premium to those in the spot market – a market structure known in the industry as contango – with investors expecting pric es to eventually rec over from the near 6 0 percent slide in oil in the last seven months.
• — Reuters 2 015
• The oil-storage trade, also referred to as contango, a market strategy in which large, often vertically-integrated oil companies purchase oil for immediate delivery and storage—when the price of oil is low— and hold it in storage until the price of oil increases. Investors bet on the future of oil prices through afinancial instrument, oil futures in which they agree on a contract basis, to buy or sell oil at a set date in the future. Crude oil is stored in salt mines, tanks and oil tankers.
[33]

• Investors can choose to take profits or losses prior to the oil-delivery date arrives. Or they can leave the contract in place and physical oil is "delivered on the set date" to an "officially designated delivery point", in the United States, that is usuallyCushing, Oklahoma. When delivery dates approach, they close out existing contracts and sell new ones for future delivery of the same oil. The oil never moves out of storage. If the forward market is in "contango"—the forward price is higher than the current spot price—the strategy is very successful.
• Scandinavian Tank Storage AB and its founder Lars Jacobsson introduced the concept on the market in early 199 0. But it was in 2007 through 2009 the oil storage trade expanded, with many participants—including Wall Street giants, such as Morgan Stanley, Goldman Sachs, and Citicorp—turning sizeable profits simply by sitting on tanks of oil. By May, 2007 Cushing's inventory fell by nearly 35% as the oil-storage trade heated up.
[34] [35] [36] [36]

• "The trend follows a spike in oil futures prices that has created incentives for traders to buy crude oil and oil products at current rates, sell them on futures markets and store them until delivery."
• — Financial Post 20 09
• By the end of October 2009 one in twelve of the largest oil tankers was being used more for temporary storage of oil, rather than transportation. [37]

• From June 2 014 to January 2015 , as the price of oil dropped 60 percent and the supply of oil remained high, the world's largest traders in crude oil purchased at least 25 million barrels to store in supertankers to make a profit in the future when prices rise. Trafigura, Vitol, Gunvor, Koch, Shell and other major energy companies began to book booking oil storage supertankers for up to 12 months. By 13 January 201 5 At least 11 Very Large Crude Carriers (VLCC) and Ultra Large Crude Carriers (ULCC)" have been reported as booked with storage options, rising from around five vessels at the end of last week. Each VLCC can hold 2 million barrels." [38]

• In 201 5 as global capacity for oil storage was out-paced by global oil production, and an oil glut occurred. Crude oil storage space bec ame a tradable commodity with CME Group— which owns NYMEX— offering oil-storage futures c ontrac ts in March 2015 . Traders and producers can buy and sell the right to store certain types of oil.
[33] [33]

• By 5 March 2 015, as oil production outpaces oil demand by 1.5 million barrels a day, storage capacity globally is dwindling. In the United States alone, according to data from the Energy Information Administration, U.S. crude-oil supplies are at almost 7 0% of the U. S. storage capacity, the highest to capacity ratio since 1935 .
[33] [33]

• Comparative cost of production[edit]

• Oil and gas barrel production Cost, March 201 6 [39]

• Country
• Gross
• taxe s
• Capital
• spending
• Production
• costs
• Admin
• transport
• Total
• UK
• $0
• $22.67
• $17.36
• $4.30
• $44.33
• Brazil
• $6.66
• $16.09
• $9.45
• $2.80
• $34.99
• Nigeria
• $4.11
• $13.10
• $8.81
• $2.97
• $28.99
• Venezuela
• $10.48
• $6.66
• $7.94
• $2.54
• $27.62
• Canada
• $2.48
• $9.69
• $11.56
• $2.92
• $26.64
• U.S. Shale
• $6.42
• $7.56
• $5.85
• $3.52
• $23.35
• Norway
• $0.19
• $13.76
• $4.24
• $3.12
• $21.31
• U.S. non-shale
• $5.03
• $7.70
• $5.15
• $3.11
• $20.99
• Indonesia
• $1.55
• $7.65
• $6.87
• $3.63
• $19.71
• Russia
• $8.44
• $5.10
• $2.98
• $2.69
• $19.21
• Iraq
• $0.91
• $5.03
• $2.16
• $2.47
• $10.57
• Iran
• $0
• $4.48
• $1.94
• $2.67
• $9.08
• Saudi Arabia
• $0
• $3.50
• $3.00
• $2.49
• $8.98
• Future projections[ edit]
• Main articles: Oil depletion and Peak o il
• Peak oil is the period when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. It relates to a long-term decline in the available supply of petroleum. This, combined with inc reasing demand, will significantly increase the worldwide prices of petroleum derived products. Most significant will be the availability and price of liquid fuel for transportation.
• The US Department of Energy in the Hirsch report indicates that "The problems associated with world oil production peaking will not be temporary, and past "energy crisis" experience will provide relatively little guidance." The 201 4 United Nations World Economic Situation and Prospects report notes that "Oil prices were on a downward trend in the first half of 2013 (after a spike in January and February caused by geopolitical tensions with Iran), as global demand for oil weakened along with the deceleration in world economic growth overall."
[40] [41]

• According to the United Nations, world oil demand is projected to reach over 9 9 million barrels per day in 2018 . [42]

• Impac t of declining oil price[edit]

• A major rise or decline in oil price can have both economic and political impacts. The decline on oil price during 198 5–1986 is considered to have contributed to the fall of the Soviet Union. Low oil prices could alleviate some of the negative effects associated with the resource curse, such as authoritarian rule
[ 43] and gender inequality. Lower oil prices could however also lead to domestic turmoil and diversionary war. The reduction in food prices that follows lower oil prices could have positive impacts on violence globally.
[44][45][46][47][48] [49][50] [51]

• Research shows that declining oil prices make oil-rich states less bellicose. Low oil prices could also make oil-rich states engage more in international cooperation, as they become more dependent on foreign investments. The influence of the United States reportedly increases as oil prices decline, at least judging by the fact that "both oil importers and exporters vote more often with the United States in the United Nations General Assembly" during oil slumps.
[52] [53] [51]

• The macroeconomics impact on lower oil prices is lower inflation. A lower inflation rate is good for the consumers. This means that the general price of a basket of goods would increase at a bare minimum on a year to year basis. Consumer can benefit as they would have a better purc hasing power, which may improve real gdp . However, in recent countries like Japan, the decrease in oil prices may cause deflation and it shows that consumers are not willing to spend even though the prices of goods are decreasing yearly, which indirectly increases the real debt burden. Declining oil prices may boost consumer oriented stocks but may hurt oil-based stocks. It is estimated that 1 7–18% of S&P would decline with declining oil prices.
[54] [54] [55][56]

• The oil importing economies like EU, Japan, China or India would benefit, however the oil producing countries would lose. A Bloomberg article presents results of an analysis by Oxford Economics on the GDP growth of countries as a result of a drop from $ 84 to $40 . It shows the GDP increase between 0.5% to 1 .0 % for India, USA and China, and a decline of greater than 3.5% from Saudi Arabia and Russia. A stable price of $60 would add 0.5 perc entage point to global gross domestic product.
[57][58][59]

• Katina Stefanova has argued that falling oil prices do not imply a recession and a decline in stock prices. Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, had earlier written that that positive impact on consumers and businesses outside of the energy sector, which is a larger portion of the US economy will outweigh the negatives. Taking cues from a legendary oil investor, Harold Hamm, ranked as one of the richest men in the world by Forbes, Shawn Baldwin, Chairman of alternative investment firm The AIA Group, speculates that oil prices will rise by year-end 201 6 from current levels.
[60] [61] [62]

• Oil glut[edi t]
• Economists have observed that the 20 15–20 16 oil glut also known as 2010 s oil glut started with a considerable time-lag, more than six years after the beginning of the Great Recession: "the p rice of oil [had] stabilized at a relatively h igh level (aroun d $ 100 a barrel) unlike all p reviou s recessionary cycles since 1 980 (start of First Persian Gulf War). Bu t nothing guarantee[d] such price levels in perpetuity". [63]

• During 2 014–201 5, OPEC members consistently exceeded their production ceiling, and China experienced a marked slowdown in economic growth. At the same time, U.S. oil production nearly doubled from 2008 levels, due to substantial improvements inshale "fracking" technology in response to record oil prices. A combination of factors led a plunge in U.S. oil import requirements and a record high volume of worldwide oil inventories in storage, and a collapse in oil prices that continues into 2016 . [64][65][66]

• It has also been argued that the collapse in oil prices in 2015 should be very beneficial for developed western economies, who are generally oil importers and aren't over exposed to declining demand from China. In the Asia-Pacific region, exports and economic growth were at significant risk across economies reliant on commodity exports as an engine of growth. The most vulnerable economies were those with a high dependenc e on fuel and mineral exports to China, such as: Korea DPR, Mongolia and Turkmenistan – where primary commodity exports account for 59–9 9% of total exports and more than 50% of total exports are destined to China. The decline in China’s demand for commodities also adversely affected the growth of exports and GDP of large commodity-exporting economies such as Australia (minerals) and the Russian Federation (fuel). On the other hand, lower commodity prices led to an improvement in the trade balance – through lower the cost of raw materials and fuels – across commodity importing economies, particularly Cambodia, Kyrgyzstan, Nepal and other remote island nations (Kiribati, Maldives, Micronesia (F.S), Samoa, Tonga, and Tuvalu)
[ 67]

which are highly dependent on fuel and agricultural imports [68]

• The North Sea oil and gas industry was financially stressed by the reduced oil prices, and called for government support in May 2016. [69]

• Hedging as risk management[ edit]

• The use of hedging using commodity derivatives as a risk management tool on price exposure to liquidity and earnings, has been long established in North America. Chief Financial Officers (CFOS) use derivatives to dampen, remove or mitigate price uncertainty. Bankers also use hedge funds to more "safely increase leverage to smaller oil and gas companies." However, when not properly used, "derivatives can multiply losses" particularly in North America where investors are more c omfortable with higher levels of risk than in other countries.
[70] [70] [70] [70]

• With the large number of bankruptcies as reported by Deloitte "funding [for upstream oil industry] is shrinking and hedges are unwinding." "Some oil producers are also choosing to liquidate hedges for a quick infusion of cash, a risky bet."
[18] [16] [17]

• "Access to capital markets, bankers' support and derivatives protection, which helped smooth an otherwise rocky road, are fast waning...The roughly 1 75 c ompanies at risk of bankruptcy have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash."
• — John England, Vice-Chairman Deloitte LLP, Statement, February 16, 2 016
• To finance exploration and production of the unconventional shale oil industry in the United States, "hundreds of billions of dollars of capital came from non-bank participants [non-bank buyers of bank energy credits] in leveraged loans] that were thought at the time to be low risk. However, with the oil glut that continued into 20 16, about a third of oil companies are facing bankruptcy. While investors were aware that there was a risk that the operator might declare bankruptcy, they felt protected because "they had come in at the 'bank' level, where there was a senior claim on the assets [and] they could get their capital returned."
[71] [18] [70]

• By 20 12, [70]

• "... in recent years the combination of the development of large resource plays in the US and the emergence of business models designed to ensure consistent dividend payouts to investors has led to the development of more aggressive hedging polic ies in c ompanies and less restrictive covenants in bank loans."
• — Oil an d Gas Fin ancial Journa l, 2012
• A classic example of taking on too much risk through hedging is the 1982 collapse of Penn Square Bank caused by plummeting of the price of oil in 1981. Penn Square Bank had lent too much to Exploration and Production E&P operators. Penn Square Bank caused the failure of Seafirst in 19 82 and then Continental Illinois. When they failed and were liquidated by the Federal Deposit Insurance Corporation (FDIC) the non-bank buyers or participants of bank energy credits of these leveraged loans participants were considered to be 'unsecured claims,' not 'true sales' and they were not able to collect any capital.
[71] [71] [71]

• At the 5th annual World Pensions Forum in 2 015, Jeffrey Sachs advised institutional investors to divest from carbon-reliant oil industry firms in their pension fund's portfolio. [72]

• 2015 –16 prices: The lows of January 20 16 [edit][73]

• Because of oversupply and lack of agreements between oil-produc ing countries members of the OPEC (Saudi Arabia in particular, which pumped at world's records) and also because of lack of coordinated efforts between OPEC and Non-OPEC countries (Russian being a big player, refusing to reduce production) the price of oil fell rapidly in 2 015 and continued to slide in 2 016 causing the cost of WTI crude to fall to a 1 0-year low of $26.55 on January 20. The average price of oil in January 2016 was well below $35. Oil did not recover until April 201 6, when oil went above the $4 5 mark.
• By 20 January 2016 , the OPEC Reference Basket was down to US$ 22.48/bbl—less than one-fourth of its high from June 201 4 ($110.48 ), less than one-sixth of its record from July 20 08 ($14 7.27 ), and back below the April 200 3 starting point ($ 23.2 7) of its historic run-up. According to the United Nations, growth prospects of the oil exporters are predicted to remain subdued past 2018 .
[66] [74]

•  
 Brent Crude
• Brent Crude is a major trading classification of sweetlight crude oil that serves as a major benchmark price for purchases of oil worldwide. This grade is described as light because of its relatively low density, and sweet because of its low sulphur
content. Brent Crude is extracted from the North Sea and comprises Brent Blend, Forties Blend, Oseberg and Ekofisk crudes (also known as the BFOE Quotation). The Brent Crude oil marker is also known as Brent Blend, London Brent and Brent
petroleum.
• The other well-known classifications (also called references or benchmarks) are the OPEC Reference Basket, Dubai Crude, Oman Crude, Urals oil and West Texas Intermediate(WTI). Brent is the leading global price benchmark for Atlantic basin
crude oils. It is used to price two thirds of the world's internationally traded crude oil supplies.
• Background[edit]
• Originally Brent Crude was produced from the Brent oilfield. The name "Brent" comes from the naming policy of Shell UK Exploration and Production, operating on behalf of ExxonMobil and Royal Dutch Shell, which originally named all of its
fields after birds (in this case the brent goose).[1][2][3][4] But it is also a backronym or mnemonic for the formation layers of the oil field: Broom, Rannoch, Etive, Ness and Tarbert.[5]
• Petroleum production from Europe, Africa, and the Middle East flowing West tends to be priced relative to this oil, i.e. it forms a benchmark.
• Characteristics[edit]
• Brent blend is a light crude oil (LCO), though not as light as West Texas Intermediate (WTI). It contains approximately 0.37% of sulphur, classifying it as sweet crude, yet not as sweet as WTI. Brent is suitable for production of petrol and
middle distillates. It is typically refined in Northwest Europe.
• Brent Crude has an API gravity of approximately 38.06 which is equivalent to a specific gravity of 0.835.
• Futures market trading[edit]
•  
• Brent crude oil prices (in dollars and euros)
• The ICE Futures Europe symbol for Brent crude futures is B.[6] It was originally traded on the open outcry International Petroleum Exchange in London, but since 2005 has been traded on the electronic Intercontinental Exchange, known as ICE.
One contract equals 1,000 barrels (159 m3). Contracts are quoted in U.S. dollars. Each tick lost or gained equals $10.
• Pricing[edit]
•  
• Spot price of West Texas Intermediate in relation to the price of Brent Crude
• Historically price differences between Brent and other index crudes have been based on physical differences in crude oil specifications and short-term variations in supply and demand. Prior to September 2010, there existed a typical price
difference per barrel of between ±3 USD/bbl compared to WTI and OPEC Basket; however, since the autumn of 2010 Brent has been priced much higher than WTI, reaching a difference of more than $11 a barrel by the end of February 2011
(WTI: 104 USD/bbl, LCO: 116 USD/bbl). In February 2011 the divergence reached $16 during a supply glut, record stockpiles, at Cushing, Oklahoma before peaking at above $23 in August 2012. It has since (September 2012) decreased
significantly to around $18 after refinery maintenance settled down and supply issues eased slightly.
• Many reasons have been given for this widening divergence ranging from a speculative change away from WTI trading (although not supported by trading volumes), dollar currency movements, regional demand variations, and even politics. The
depletion of the North Sea oil fields is one explanation for the divergence in forward prices.
• The US Energy Information Administration attributes the price spread between WTI and Brent to an oversupply of crude oil in the interior of North America (WTI price is set at Cushing, Oklahoma) caused by rapidly increasing oil production from
Canadian oil sands and tight oil formations such as the Bakken Formation, Niobrara Formation, and Eagle Ford Formation. Oil production in the interior of North America has exceeded the capacity of pipelines to carry it to markets on the Gulf
Coast and east coast of North America; as a result, the oil price on the US and Canadian east coast and parts of the US Gulf Coast since 2011 has been set by the price of Brent Crude, while markets in the interior still follow the WTI price. Much
US and Canadian crude oil from the interior is now shipped to the coast by railroad, which is much more expensive than pipeline.[7]
• Delivery dates[edit]
• In addition to the Intercontinental Exchange, Brent crude financial futures are also traded on the NYMEX, with the symbol BZ, and have expiry dates in all 12 months of the year.[8]
• Brent Index[edit]
• The Brent Index[9] is the cash settlement price for the Intercontinental Exchange (ICE) Brent Future based on ICE Futures Brent index at expiry.
• The index represents the average price of trading in the 25-day Brent Blend, Forties, Oseberg, Ekofisk (BFOE) market in the relevant delivery month as reported and confirmed by the industry media. Only published cargo size (600,000 barrels
(95,000 m3)) trades and assessments are taken into consideration.
• The index is calculated as an average of the following elements:
• A weighted average of first month cargo trades in the 25-day BFOE market.
• A weighted average of second month cargo trades in the 25-day BFOE market plus or minus a straight average of the spread trades between the first and second months.
• A straight average of designated assessments published in media reports.
Gulf War
 OPEC
• The Organization of the Petroleum Exporting Countries (OPEC, /ˈoʊpɛk/ OH-pek, or OPEP in several other languages) is an intergovernmental organization of 15 nations, founded in 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela), and headquartered since 1965 in Vienna, Austria. As of September 2018, the 15 countries accounted for an estimated 44 percent of global oil production and 81.5 percent of the world's "proven" oil reserves, giving OPEC a major influence on global oil prices that were previously determined by the American-dominated so called as "Seven Sisters” grouping of multinational oil companies.
• The stated mission of the organization is to "coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry." [4] The organization is also a significant provider of information about the international oil market. The current OPEC members are: Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, the Republic of the Congo, Saudi Arabia (the de facto leader), United Arab Emirates, and Venezuela. Indonesia is a former member. By continent, two are South American, seven African, and six are Asian (Middle East). Two-thirds of OPEC's
oil production and reserves are in its six Middle-Eastern countries that surround the oil-rich Persian Gulf.
• The formation of OPEC marked a turning point toward national sovereignty over natural resources, and OPEC decisions have come to play a prominent role in the global oil market and international relations. The effect can be particularly strong when wars or civil disorderslead to extended interruptions in supply. In the 1970s, restrictions in oil production led to a dramatic rise in oil prices and in the revenue and wealth of OPEC, with long-lasting and far-reaching consequences for the  global economy. In the 1980s, OPEC began setting production targets for its member nations; generally, when the targets are reduced, oil prices increase. This has occurred most recently from the organization's 2008 and 2016 decisions to trim oversupply.
• Economists often cite OPEC as a textbook example of a cartel that cooperates to reduce market competition, but one whose consultations are protected by the doctrine of state immunity under international law. In December 2014, "OPEC and the oil men" ranked as #3 on Lloyd's list of "the top 100 most influential people in the shipping industry". [5] However, the influence of OPEC on international trade is periodically challenged by the expansion of non-OPEC energy sources, and by the recurring temptation for individual OPEC countries to exceed production targets and pursue conflicting self-interests.
• Current member countries[edit]
• As of June 2018, OPEC has 15 member countries: six in the Middle East (Western Asia), seven in Africa, and two in South America. According to the U.S. Energy Information Administration (EIA), OPEC's combined rate of oil production (including gas condensate) represented 44 percent of the world's total in 2016,[6] and OPEC accounted for 81.5 percent of the world's "proven" oil reserves, including 48 percent from just the six Middle Eastern members: [7]
• Approval of a new member country requires agreement by three-quarters of OPEC's existing members(includes founding members also), including all five of the founders. [8]  In October 2015, Sudan formally submitted an application to join, [9]  but it is not yet a member.
• For countries that export petroleum at relatively low volume, their limited negotiating power as OPEC members would not necessarily justify the burdens imposed by OPEC production quotas and membership costs. Ecuador withdrew from OPEC in December 1992, because it was unwilling to pay the annual US$2 million membership fee and felt that it needed to produce more oil than it was allowed under its OPEC quota at the time, [14] although it rejoined in October 2007. Similar concerns prompted Gabon to suspend membership in January 1995;[15] it rejoined in July 2016. In May 2008, Indonesia announced that it would leave OPEC when its membership expired at the end of that year, having become a net importer of oil and being unable to meet its production quota. [16] It rejoined the organization in
January 2016,[2] but announced another "temporary suspension" of its membership at year-end when OPEC requested a 5 percent production cut. [17]
• Some commentators consider that the United States was a de facto member of OPEC during its formal occupation of Iraq, due to its leadership of the Coalition Provisional Authority in 2003–2004.[18][1 9] But this is not borne out by the minutes of OPEC meetings, as no US representative attended in an official capacity. [20][21]
• Observers[edit]
• Since the 1980s, representatives from Egypt, Mexico, Norway, Oman, Russia, and other oil-exporting nations have attended many OPEC meetings as observers. This arrangement serves as an informal mechanism for coordinating policies. [22]
• Leadership and decision-making[edit]
•  
• OPEC Conference delegates at Swissotel, Quito, Ecuador, December 2010
• See also: List of Secretaries General of OPEC
• The OPEC Conference is the supreme authority of the organization, and consists of delegations normally headed by the oil ministers of member countries. The chief executive of the organization is the OPEC Secretary General. The Conference ordinarily meets at the Vienna headquarters, at least twice a year and in additional extraordinary sessions when necessary. It generally operates on the principles of unanimity and "one member, one vote", with each country paying an equal membership fee into the annual budget. [8] However, since Saudi Arabia is by far the largest and most-profitable oil exporter in the world, with enough capacity to function as the traditional swing producer to balance the global market, it serves as "OPEC's de facto leader". [23]
• International cartel[edit]
• At various times, OPEC members have displayed apparent anti-competitive cartel behavior through the organization's agreements about oil production and price levels. [24] In fact, economists often cite OPEC as a textbook example of a cartel that cooperates to reduce market competition, as in this definition from OECD's Glossary of Industrial Organisation Economics and Competition Law:[1]
• International commodity agreements covering products such as coffee, sugar, tin and more recently oil (OPEC: Organization of Petroleum Exporting Countries) are examples of international cartels which have publicly entailed agreements between different national governments.
• OPEC members strongly prefer to describe their organization as a modest force for market stabilization, rather than a powerful anti-competitive cartel. In its defense, the organization was founded as a counterweight against the previous " Seven Sisters" cartel of multinational oil companies, and non-OPEC energy suppliers have maintained enough market share for a substantial degree of worldwide competition. [25] Moreover, because of an economic "prisoner's dilemma" that encourages each member nation individually to discount its price and exceed its production quota, [26] widespread cheating within OPEC often erodes its ability to influence global oil prices through collective action.[27][28]
• OPEC has not been involved in any disputes related to the competition rules of the World Trade Organization, even though the objectives, actions, and principles of the two organizations diverge considerably.[29] A key US District Court decision held that OPEC consultations are protected as "governmental" acts of state by the Foreign Sovereign Immunities Act, and are therefore beyond the legal reach of US competition law governing "commercial" acts.[30][31] Despite popular sentiment against OPEC, legislative proposals to limit the organization's sovereign immunity, such as the NOPEC Act, have so far been unsuccessful.[32]
• Conflicts[edit]
• OPEC often has difficulty agreeing on policy decisions because its member countries differ widely in their oil export capacities, production costs, reserves, geological features, population, economic development, budgetary situations, and political circumstances. [33][34] Indeed, over the course of market cycles, oil reserves can themselves become a source of serious conflict, instability and imbalances, in what economists call the "natural resource curse".[35][36] A further complication is that religion-linked conflicts in the Middle East are recurring features of the geopolitical landscape for this oil-rich region. [37][3 8] Internationally important conflicts in OPEC's history have included the Six-Day War (1967), Yom Kippur War (1973), a hostage siege directed by Palestinian militants (1975), the Iranian Revolution (1979),
Iran–Iraq War (1980–1988), Iraqi occupation of Kuwait (1990–1991), September 11 attacks by mostly Saudi hijackers (2001), American occupation of Iraq (2003–2011), Conflict in the Niger Delta (2004–present), Arab Spring (2010–2012), Libyan Crisis (2011–present), and international Embargo against Iran (2012–2016). Although events such as these can temporarily disrupt oil supplies and elevate prices, the frequent disputes and instabilities tend to limit OPEC's long-term cohesion and effectiveness. [39]
• Market information[edit]
• As one area in which OPEC members have been able to cooperate productively over the decades, the organization has significantly improved the quality and quantity of information available about the international oil market. This is especially helpful for a natural-resource industry whose smooth functioning requires months and years of careful planning.
• Publications and research[edit]
•  
• Logo for JODI, in which OPEC is a founding member
• In April 2001, OPEC collaborated with five other international organizations (APEC, Eurostat, IEA, OLADE (es), UNSD) to improve the availability and reliability of oil data. They launched the Joint Oil Data Exercise, which in 2005 was joined by IEF and renamed the Joint Organisations Data Initiative (JODI), covering more than 90 percent of the global oil market. GECF joined as an eighth partner in 2014, enabling JODI also to cover nearly 90 percent of the global market for natural gas. [40]
• Since 2007, OPEC has published the "World Oil Outlook" (WOO) annually, in which it presents a comprehensive analysis of the global oil industry including medium- and long-term projections for supply and demand. [41] OPEC also produces an "Annual Statistical Bulletin" (ASB), [42] and publishes more-frequent updates in its "Monthly Oil Market Report" (MOMR) [43] and "OPEC Bulletin".[44]
• Crude oil benchmarks[edit]
•  
• Sulfur content and API gravity of different types of crude oil
• See also: Benchmark (crude oil)
• A "crude oil benchmark" is a standardized petroleum product that serves as a convenient reference price for buyers and sellers of crude oil, including standardized contracts in major futures markets since 1983. Benchmarks are used because oil prices differ (usually by a few dollars per barrel) based on variety, grade, delivery date and location, and other legal requirements. [45][4 6]
• The OPEC Reference Basket of Crudes has been an important benchmark for oil prices since 2000. It is calculated as a weighted average of prices for petroleum blends from the OPEC member countries: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Rabi Light (Gabon), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE), and Merey (Venezuela). [47]
• North Sea Brent Crude Oil is the leading benchmark for Atlantic basin crude oils, and is used to price approximately two-thirds of the world's traded crude oil. Other well-known benchmarks are West Texas Intermediate (WTI), Dubai Crude, Oman Crude, and Urals oil.[48]
• Spare capacity[edit]
• The US Energy Information Administration, the statistical arm of the US Department of Energy, defines spare capacity for crude oil market management "as the volume of production that can be brought on within 30 days and sustained for at least 90 days... OPEC spare capacity provides an indicator of the world oil market's ability to respond to potential crises that reduce oil supplies." [49]
• In November 2014, the International Energy Agency (IEA) estimated that OPEC's "effective" spare capacity, adjusted for ongoing disruptions in countries like Libya and Nigeria, was 3.5 million barrels per day (560,000  m3/d) and that this number would increase to a peak in 2017 of 4.6 million barrels per day (730,000  m 3/d).[50] By November 2015, the IEA changed its assessment "with OPEC's spare production buffer stretched thin, as Saudi Arabia – which holds the lion's share of excess capacity – and its [Persian] Gulf neighbours pump at near-record rates." [51]
• History and impact[edit]
• Post-WWII situation[edit]
• In 1949, Venezuela and Iran took the earliest steps in the direction of OPEC, by inviting Iraq, Kuwait and Saudi Arabia to improve communication among petroleum-exporting nations as the world recovered from World War II.[52] At the time, some of the world's largest oil fields were just entering production in the Middle East. The United States had established the Interstate Oil Compact Commission to join the Texas Railroad Commission in limiting overproduction. The US was simultaneously the world's largest producer and consumer of oil; and the world market was dominated by a group of multinational companies known as the "Seven Sisters", five of which were headquartered in the US following the breakup of John D. Rockefeller's original Standard Oil monopoly. Oil-exporting countries were eventually
motivated to form OPEC as a counterweight to this concentration of political and economic power. [53]
• 1959–1960 anger from exporting countries[edit]
• In February 1959, as new supplies were becoming available, the multinational oil companies (MOCs) unilaterally reduced their posted prices for Venezuelan and Middle Eastern crude oil by 10 percent. Weeks later, the Arab League's first Arab Petroleum Congress convened in Cairo, Egypt, where the influential journalist Wanda Jablonski introduced Saudi Arabia's Abdullah Tariki to Venezuela's observer Juan Pablo Pérez Alfonzo, representing the two then-largest oil-producing nations outside the United States and the Soviet Union. Both oil ministers were angered by the price cuts, and the two led their fellow delegates to establish the Maadi Pact or Gentlemen's Agreement, calling for an "Oil Consultation Commission" of exporting countries, to which MOCs should present price-change plans. Jablonski
reported a marked hostility toward the West and a growing outcry against "absentee landlordism" of the MOCs, which at the time controlled all oil operations within the exporting countries and wielded enormous political influence. In August 1960, ignoring the warnings, and with the US favoring Canadian and Mexican oil for strategic reasons, the MOCs again unilaterally announced significant cuts in their posted prices for Middle Eastern crude oil. [52][53][54][55]
• 1960–1975 founding and expansion[edit]
•  
• OPEC headquarters in Vienna
• (2009 building)
• The following month, during 10–14 September 1960, the Baghdad Conference was held at the initiative of Tariki, Pérez Alfonzo, and Iraqi prime minister Abd al-Karim Qasim, whose country had skipped the 1959 congress.[56] Government representatives from Iran, Iraq, Kuwait, Saudi Arabia and Venezuela met in Baghdad to discuss ways to increase the price of crude oil produced by their countries, and ways to respond to unilateral actions by the MOCs. Despite strong US opposition: "Together with Arab and non-Arab producers, Saudi Arabia formed the Organization of Petroleum Export Countries (OPEC) to secure the best price available from the major oil corporations." [57] The Middle Eastern members originally called for OPEC headquarters to be in Baghdad or Beirut, but Venezuela argued for a neutral
location, and so the organization chose Geneva, Switzerland. On 1 September 1965, OPEC moved to Vienna, Austria, after Switzerland declined to extend diplomatic privileges.[58]
• During 1961–1975, the five founding nations were joined by Qatar (1961), Indonesia (1962–2008, rejoined 2014-2016), Libya (1962), United Arab Emirates (originally just the Emirate of Abu Dhabi, 1967), Algeria (1969), Nigeria (1971), Ecuador (1973–1992, rejoined 2007), and Gabon (1975–1994, rejoined 2016).[2] By the early 1970s, OPEC's membership accounted for more than half of worldwide oil production. [59] Indicating that OPEC is not averse to further expansion, Mohammed Barkindo, OPEC's Acting Secretary General in 2006, urged his African neighbors Angola and Sudan to join, [60] and Angola did in 2007, followed by Equatorial Guinea in 2017.[3] Since the 1980s, representatives from Egypt, Mexico, Norway, Oman, Russia, and other oil-exporting nations have attended many OPEC meetings as
observers, as an informal mechanism for coordinating policies. [22]
• 1973–1974 oil embargo[edit]
•  
• An undersupplied US gasoline station, closed during the oil embargo in 1973
• Main article: 1973 oil crisis
• In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC, consisting of the Arab majority of OPEC plus Egypt and Syria) declared significant production cuts and an oil embargo against the United States and other industrialized nations that supported Israel in the Yom Kippur War.[61][62] A previous embargo attempt was largely ineffective in response to the Six-Day War in 1967.[63] However, in 1973, the result was a sharp rise in oil prices and OPEC revenues, from US$3/bbl to US$12/bbl, and an emergency period of energy rationing, intensified by panic reactions, a declining trend in US oil production, currency devaluations, [62] and a lengthy UK coal-miners dispute. For a time, the UK imposed an emergency three-day workweek.[64] Seven European nations banned non-essential Sunday
driving. [65] US gas stations limited the amount of gasoline that could be dispensed, closed on Sundays, and restricted the days when gasoline could be purchased, based on license plate numbers. [66][67] Even after the embargo ended in March 1974 following intense diplomatic activity, prices continued to rise. The world experienced a global economic recession, with unemployment and inflation surging simultaneously, steep declines in stock and bond prices, major shifts in trade balances and petrodollar flows, and a dramatic end to the post-WWII economic boom.[68][69]
• The 1973–1974 oil embargo had lasting effects on the United States and other industrialized nations, which established the International Energy Agency in response, as well as national emergency stockpiles designed to withstand months of future supply disruptions. Oil conservation efforts included lower speed limits on highways, smaller and more energy-efficient cars and appliances, year-round daylight saving time, reduced usage of heating and air-conditioning, better insulation, increased support of mass transit, and greater emphasis on coal, natural gas, ethanol, nuclear and other alternative energy sources. These long-term efforts became effective enough that US oil consumption would rise only 11 percent during 1980–2014, while real GDP rose 150 percent. But in the 1970s, OPEC nations
demonstrated convincingly that their oil could be used as both a political and economic weapon against other nations, at least in the short term. [62][70][71][72][73]
• 1975–1980 Special Fund, now OFID[edit]
• Main article: OPEC Fund for International Development
• OPEC's international aid activities date from well before the 1973–1974 oil price surge. For example, the Kuwait Fund for Arab Economic Development has operated since 1961.[74]
• In the years after 1973, as an example of so-called "checkbook diplomacy", certain Arab nations have been among the world's largest providers of foreign aid, [75][76] and OPEC added to its goals the selling of oil for the socio-economic growth of poorer nations. The OPEC Special Fund was conceived in Algiers, Algeria, in March 1975, and was formally established the following January. "A Solemn Declaration 'reaffirmed the natural solidarity which unites OPEC countries with other developing countries in their struggle to overcome underdevelopment,' and called for measures to strengthen cooperation between these countries... [The OPEC Special Fund's] resources are additional to those already made available by OPEC states through a number of bilateral and multilateral channels." [77] The Fund became an
official international development agency in May 1980 and was renamed the OPEC Fund for International Development (OFID),[78] with Permanent Observer status at the United Nations. [79]
• 1975 hostage siege[edit]
• Main article: OPEC siege
• On 21 December 1975, Saudi Arabia's Ahmed Zaki Yamani, Iran's Jamshid Amuzegar, and the other OPEC oil ministers were taken hostage at their semi-annual conference in Vienna, Austria. The attack, which killed three non-ministers, was orchestrated by a six-person team led by Venezuelan militant "Carlos the Jackal", and which included Gabriele Kröcher-Tiedemann and Hans-Joachim Klein. The self-named "Arm of the Arab Revolution" group declared its goal to be the liberation of Palestine. Carlos planned to take over the conference by force and hold for ransom all eleven attending oil ministers, except for Yamani and Amuzegar who were to be executed. [80]
• Carlos arranged bus and plane travel for his team and 42 of the original 63 hostages, with stops in Algiers and Tripoli, planning to fly eventually to Baghdad, where Yamani and Amuzegar were to be killed. All 30 non-Arab hostages were released in Algiers, excluding Amuzegar. Additional hostages were released at another stop in Tripoli before returning to Algiers. With only 10 hostages remaining, Carlos held a phone conversation with Algerian President Houari Boumédienne, who informed Carlos that the oil ministers' deaths would result in an attack on the plane. Boumédienne must also have offered Carlos asylum at this time and possibly financial compensation for failing to complete his assignment. Carlos expressed his regret at not being able to murder Yamani and Amuzegar, then he and his comrades
left the plane. All the hostages and terrorists walked away from the situation, two days after it began. [80]
• Some time after the attack, Carlos's accomplices revealed that the operation was commanded by Wadie Haddad, a founder of the Popular Front for the Liberation of Palestine. They also claimed that the idea and funding came from an Arab president, widely thought to be Muammar al-Gaddafi of Libya, itself an OPEC member. Fellow militants Bassam Abu Sharif and Klein claimed that Carlos received and kept a ransom between US$20 million and US$50 million from "an Arab president". Carlos claimed that Saudi Arabia paid ransom on behalf of Iran, but that the money was "diverted en route and lost by the Revolution". [80][81] He was finally captured in 1994 and is serving life sentences for at least 16 other murders. [82]
• 1979–1980 oil crisis and 1980s oil glut[edit]
•  
• Fluctuations of OPEC net oil export revenues since 1972[83][84]
• Main articles: 1979 oil crisis and 1980s oil glut
• In response to a wave of oil nationalizations and the high prices of the 1970s, industrial nations took steps to reduce their dependence on OPEC oil, especially after prices reached new peaks approaching US$40/bbl in 1979–1980 [85][86] when the Iranian Revolution and Iran–Iraq War disrupted regional stability and oil supplies. Electric utilities worldwide switched from oil to coal, natural gas, or nuclear power; [87] national governments initiated multibillion-dollar research programs to develop alternatives to oil; [88][89] and commercial exploration developed major non-OPEC oilfields in Siberia, Alaska, the North Sea, and the Gulf of Mexico. [90] By 1986, daily worldwide demand for oil dropped by 5 million barrels, non-OPEC production rose by an even-larger amount, [91] and OPEC's market share sank from
approximately 50 percent in 1979 to less than 30 percent in 1985. [59] Illustrating the volatile multi-year timeframes of typical market cycles for natural resources, the result was a six-year decline in the price of oil, which culminated by plunging more than half in 1986 alone. [92] As one oil analyst summarized succinctly: "When the price of something as essential as oil spikes, humanity does two things: finds more of it and finds ways to use less of it." [59]
• To combat falling revenue from oil sales, in 1982 Saudi Arabia pressed OPEC for audited national production quotas in an attempt to limit output and boost prices. When other OPEC nations failed to comply, Saudi Arabia first slashed its own production from 10 million barrels daily in 1979–1981 to just one-third of that level in 1985. When even this proved ineffective, Saudi Arabia reversed course and flooded the market with cheap oil, causing prices to fall below US$10/bbl and higher-cost producers to become unprofitable. [91][93]:127-128,136-137 Faced with increasing economic hardship (which ultimately contributed to the collapse of the Soviet bloc in 1989), [94][95] the "free-riding" oil exporters that had previously failed to comply with OPEC agreements finally began to limit production to shore up prices, based on
painstakingly negotiated national quotas that sought to balance oil-related and economic criteria since 1986. [91][96] (Within their sovereign-controlled territories, the national governments of OPEC members are able to impose production limits on both government-owned and private oil companies.) [97] Generally when OPEC production targets are reduced, oil prices increase.[49]
• 1990–2003 ample supply and modest disruptions[edit]
• See also: 1990 oil price shock
•  
• One of the hundreds of Kuwaiti oil fires set by retreating Iraqi troops in 1991[98]
•  
• Fluctuations of Brent crude oil price, 1988–2015 [99]
•  
• Leading up to his August 1990 Invasion of Kuwait, Iraqi President Saddam Hussein was pushing OPEC to end overproduction and to send oil prices higher, in order to help OPEC members financially and to accelerate rebuilding from the 1980–1988 Iran–Iraq War.[100] But these two Iraqi wars against fellow OPEC founders marked a low point in the cohesion of the organization, and oil prices subsided quickly after the short-term supply disruptions. The September 2001 Al Qaeda attacks on the US and the March 2003 US invasion of Iraq had even milder short-term impacts on oil prices, as Saudi Arabia and other exporters again cooperated to keep the world adequately supplied. [99]
• In the 1990s, OPEC lost its two newest members, who had joined in the mid-1970s. Ecuador withdrew in December 1992, because it was unwilling to pay the annual US$2  million membership fee and felt that it needed to produce more oil than it was allowed under the OPEC quota, [14] although it rejoined in October 2007. Similar concerns prompted Gabon to suspend membership in January 1995; [15] it rejoined in July 2016.[2] Iraq has remained a member of OPEC since the organization's founding, but Iraqi production was not a part of OPEC quota agreements from 1998 to 2016, due to the country's daunting political difficulties. [42][101]
• Lower demand triggered by the 1997–1998 Asian financial crisis saw the price of oil fall back to 1986 levels. After oil slumped to around US$10/bbl, joint diplomacy achieved a gradual slowing of oil production by OPEC, Mexico and Norway. [102] After prices slumped again in Nov. 2001, OPEC, Norway, Mexico, Russia, Oman and Angola agreed to cut production on 1 Jan. 2002 for 6 months. OPEC contributed 1.5 million barrels a day (mbpd) to the approximately 2 mbpd of cuts announced. [93]
• In June 2003, the International Energy Agency (IEA) and OPEC held their first joint workshop on energy issues. They have continued to meet regularly since then, "to collectively better understand trends, analysis and viewpoints and advance market transparency and predictability." [103]
• 2003–2011 volatility[edit]
• See also: Oil price increases of 2003–2008
• Widespread insurgency and sabotage occurred during the 2003–2008 height of the American occupation of Iraq, coinciding with rapidly increasing oil demand from China and commodity-hungry investors, recurring violence against the Nigerian oil industry, and dwindling spare capacity as a cushion against potential shortages. This combination of forces prompted a sharp rise in oil prices to levels far higher than those previously targeted by OPEC. [104][105][106] Price volatility reached an extreme in 2008, as WTI crude oil surged to a record US$147/bbl in July and then plunged back to US$32/bbl in December, during the worst global recession since World War II.[107] OPEC's annual oil export revenue also set a new record in 2008, estimated around US$1 trillion, and reached similar annual rates in 2011–2014
(along with extensive petrodollar recycling activity) before plunging again. [84] By the time of the 2011 Libyan Civil War and Arab Spring, OPEC started issuing explicit statements to counter "excessive speculation" in oil futures markets, blaming financial speculators for increasing volatility beyond market fundamentals. [108]
• In May 2008, Indonesia announced that it would leave OPEC when its membership expired at the end of that year, having become a net importer of oil and being unable to meet its production quota. [16] A statement released by OPEC on 10 September 2008 confirmed Indonesia's withdrawal, noting that OPEC "regretfully accepted the wish of Indonesia to suspend its full membership in the organization, and recorded its hope that the country would be in a position to rejoin the organization in the not-too-distant future." [109]
• 2008 production dispute[edit]
•  
• Countries by net oil exports (2008)
• The differing economic needs of OPEC member states often affect the internal debates behind OPEC production quotas. Poorer members have pushed for production cuts from fellow members, to increase the price of oil and thus their own revenues. [110] These proposals conflict with Saudi Arabia's stated long-term strategy of being a partner with the world's economic powers to ensure a steady flow of oil that would support economic expansion. [111] Part of the basis for this policy is the Saudi concern that overly expensive oil or unreliable supply will drive industrial nations to conserve energy and develop alternative fuels, curtailing the worldwide demand for oil and eventually leaving unneeded barrels in the ground. [112] To this point, Saudi Oil Minister Yamani famously remarked in 1973: "The Stone Age
didn't end because we ran out of stones."[113]
• On 10 September 2008, with oil prices still near US$100/bbl, a production dispute occurred when the Saudis reportedly walked out of a negotiating session where rival members voted to reduce OPEC output. Although Saudi delegates officially endorsed the new quotas, they stated anonymously that they would not observe them. The New York Times quoted one such delegate as saying: "Saudi Arabia will meet the market's demand. We will see what the market requires and we will not leave a customer without oil. The policy has not changed." [34] Over the next few months, oil prices plummeted into the $30s, and did not return to $100 until the Libyan Civil War in 2011. [114]
• 2014–2017 oil glut[edit]
• See also: 2010s oil glut
•  
• Countries by oil production (2013)
•  
• Top oil-producing countries[115]
• (million barrels per day, 1973–2016)
•  
•  
• Gusher well in Saudi Arabia: conventional source of OPEC production
•  
• Shale "fracking" in the US: important new challenge to OPEC market share
• During 2014–2015, OPEC members consistently exceeded their production ceiling, and China experienced a slowdown in economic growth. At the same time, US oil production nearly doubled from 2008 levels and approached the world-leading " swing producer" volumes of Saudi Arabia and Russia, due to the substantial long-term improvement and spread of shale "fracking" technology in response to the years of record oil prices. These developments led in turn to a plunge in US oil import requirements (moving closer to energy independence), a record volume of worldwide oil inventories, and a collapse in oil prices that continued into early 2016. [114][116][117]
• In spite of global oversupply, on 27 November 2014 in Vienna, Saudi Oil Minister Ali Al-Naimi blocked appeals from poorer OPEC members for production cuts to support prices. Naimi argued that the oil market should be left to rebalance itself competitively at lower price levels, strategically rebuilding OPEC's long-term market share by ending the profitability of high-cost US shale oil production. [118] As he explained in an interview:[33]
• Is it reasonable for a highly efficient producer to reduce output, while the producer of poor efficiency continues to produce? That is crooked logic. If I reduce, what happens to my market share? The price will go up and the Russians, the Brazilians, US shale oil producers will take my share... We want to tell the world that high-efficiency producing countries are the ones that deserve market share. That is the operative principle in all capitalist countries... One thing is for sure: Current prices [roughly US$60/bbl] do not support all producers.
• A year later, when OPEC met in Vienna on 4 December 2015, the organization had exceeded its production ceiling for 18 consecutive months, US oil production had declined only slightly from its peak, world markets appeared to be oversupplied by at least 2 million barrels per day despite war-torn Libya pumping 1 million barrels below capacity, oil producers were making major adjustments to withstand prices as low as the $40s, Indonesia was rejoining the export organization, Iraqi production had surged after years of disorder, Iranian output was poised to rebound with the lifting of international sanctions, hundreds of world leaders at the Paris Climate Agreement were committing to limit carbon emissions from fossil fuels, and solar technologies were becoming steadily more competitive and prevalent. In
light of all these market pressures, OPEC decided to set aside its ineffective production ceiling until the next ministerial conference in June 2016. [23][117][119][12 0][121][122] By 20 January 2016, the OPEC Reference Basket was down to US$22.48/bbl – less than one-fourth of its high from June 2014 ($110.48), less than one-sixth of its record from July 2008 ($140.73), and back below the April 2003 starting point ($23.27) of its historic run-up. [114]
• As 2016 continued, the oil glut was partially trimmed with significant production offline in the US, Canada, Libya, Nigeria and China, and the basket price gradually rose back into the $40s. OPEC regained a modest percentage of market share, saw the cancellation of many competing drilling projects, maintained the status quo at its June conference, and endorsed "prices at levels that are suitable for both producers and consumers", although many producers were still experiencing serious economic difficulties. [123][124][125][126]
• 2017-2018 production cut[edit]
• As OPEC members grew weary of a multi-year supply contest with diminishing returns and shrinking financial reserves, the organization finally attempted its first production cut since 2008. Despite many political obstacles, a September 2016 decision to trim approximately 1 million barrels per day was codified by a new quota agreement at the November 2016 OPEC conference. The agreement (which exempted disruption-ridden members Libya and Nigeria) covered the first half of 2017 – alongside promised reductions from Russia and ten other non-members, offset by expected increases in the US shale sector, Libya, Nigeria, spare capacity, and surging late-2016 OPEC production before the cuts took effect. Indonesia announced another "temporary suspension" of its OPEC membership, rather than
accepting the organization's requested 5 percent production cut. Prices fluctuated around US$50/bbl, and OPEC in May 2017 decided to extend the new quotas through March 2018, with the world waiting to see if and how the oil inventory glut might be fully siphoned-off by then. [17][127][128][129][130][131 ][3] Longtime oil analyst Daniel Yergin "described the relationship between OPEC and shale as 'mutual coexistence', with both sides learning to live with prices that are lower than they would like." [132]
• In December 2017, Russia and OPEC agreed to extend the production cut of 1.8million barrels/day until the end of 2018. [133]
•  
• OPEC Bank[edit]
•  
Primary Energy Demand
 Asian Economic Crisis
• The Asian financial crisis was a period of financ ial crisis that gripped much of East Asia beginning in July 199 7 and raised fears of a worldwide economic meltdown due to financial contagion.
• The crisis started in Thailand(known in Thailand as the Tom Yum Goong c risis; Thai: วิกฤตต ้มยำกุ ้ง) with the financial collapse of the Thai baht after the Thai government was forc ed to float the baht due to lack of foreign currency to support its currency peg to the U.S. dollar. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupteven before the collapse of its currency.[1]  As the crisis spread, most of Southeast Asia and Japan saw slumping currencies,[2]devalued stock markets and other asset prices, and a precipitous rise in private debt.[ 3]
• Indonesia, South Korea, and Thailand were the countries most affected by the crisis. Hong Kong, Laos, Malaysia and the Philippines were also hurt by the slump. Brunei, China, Singapore, Taiwan, and Vietnam were less affected, although all suffered from a loss of demand and confidence throughout the region. Japan was also affected, though less significantly.
• Foreign debt-to-GDP ratios rose from 100% to 167% in the four large Association of Southeast Asian Nations (ASEAN) economies in 1993–96 , then shot up beyond 1 80% during the worst of the crisis. In South Korea, the ratios rose from 13% to 21% and then as high as 40 %, while the other northern newly industrialized countries fared much better. Only in Thailand and South Korea did debt service-to-exports ratios rise.[4]
• Although most of the governments of Asia had seemingly sound fiscal policies, the International Monetary Fund (IMF) stepped in to initiate a $40 billion program to stabilize the currencies of South Korea, Thailand, and Indonesia, economies particularly hard hit by the crisis. The efforts to stem a global economic crisis did little to stabilize the domestic situation in Indonesia, however. After 30 years in power, President Suharto was forced to step down on 21 May 1998 in the wake of widespread rioting that followed sharp price increases caused by a drastic devaluation of the rupiah. The effects of the crisis lingered through 1998 . In 199 8 growth in the Philippines dropped to virtually zero. Only Singapore and Taiwan proved relatively insulated from the shock, but both suffered serious hits in passing, the former due to its size and geographical location between Malaysia and Indonesia. By 199 9, however, analysts saw signs that the economies of Asia were beginning to recover.[ 5]  After the 19 97 Asian Financial Crisis, economies in the region worked toward financial stability and better financ ial supervision.[6]
• Until 1999, Asia attracted almost half of the total capital inflow into developing countries. The economies of Southeast Asia in particular maintained high interest rates attractive to foreign investors looking for a high rate of return. As a result, the region's economies received a large inflow of money and experienced a dramatic run-up in asset prices. At the same time, the regional economies of Thailand, Malaysia, Indonesia, Singapore and South Korea experienced high growth rates, of 8–12% GDP, in the late 1980 s and early 1990s. This achievement was widely acclaimed by financial institutions including IMF and World Bank, and was known as part of the "Asian economic miracle".
• Credit bubbles and fixed currency exchange rates[edit]
• The cause of the debacle are many and disputed. Thailand's economy developed into an economic bubble fueled by hot money. More and more was required as the size of the bubble grew. The same type of situation happened in Malaysia and Indonesia, which had the added complication of what was called "crony capitalism".[ 7] The short-term capital flow was expensive and often highly conditioned for quick profit. Development money went in a largely uncontrolled manner to certain people only - not necessarily the best suited or most efficient, but those closest to the centers of power.[8]
• In the mid-1 990s, Thailand, Indonesia and South Korea had large private current account deficits, and the maintenance of fixed exchange rates encouraged ex ternal borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors.
• In the mid-1 990s, a series of external shocks began to change the economic environment. The devaluation of the Chinese renminbi, and the Japanese yen due to the Plaza Accord of 1985 , the raising of U.S. interest rates which led to a strong U.S. dollar, and the sharp decline in semiconductor prices, all adversely affected their growth.[9] As the U.S. economy recovered from a recession in the early 1990 s, the U.S. Federal Reserve Bank under Alan Greenspan began to raise U.S. interest rates to head off inflation.
• This made the United States a more attractive investment destination relative to Southeast Asia, which had been attracting hot money flows through high short-term interest rates, and raised the value of the U.S. dollar. For the Southeast Asian nations which had currencies pegged to the U.S. dollar, the higher U.S. dollar caused their own exports to become more expensive and less competitive in the global markets. At the same time, Southeast Asia's export growth slowed dramatically in the spring of 1996 , deteriorating their current account position.
• Some economists have advanced the growing exports of China as a factor contributing to ASEAN nations' export growth slowdown, though these economists maintain the main cause of their crises was excessive real estate speculation.[ 10] China had begun to compete effectively with other Asian exporters particularly in the 199 0s after the implementation of a number of export-oriented reforms. Other economists dispute China's impact, noting that both ASEAN and China ex perienced simultaneous rapid export growth in the early 1990s.[11]
• Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationship. The resulting large quantities ofcredit that became available generated a highly leveraged economic climate, and pushed up asset prices to an unsustainable level.[ 12] These asset pric es eventually began to collapse, causing individuals and companies to default on debt obligations.
• Panic among lenders and withdrawal of credit[edit]
• The resulting panic among lenders led to a large withdrawal of credit from the crisis countries, causing a credit crunch and further bankruptcies. In addition, as foreign investors attempted to withdraw their money, the exc hange market was flooded with the currencies of the crisis countries, putting depreciative pressure on their exchange rates. To prevent currency values collapsing, these countries' governments raised domestic interest rates to exceedingly high levels (to help diminishflight of capital by making lending more attractive to investors) and intervened in the exchange market, buying up any excess domestic currency at thefixed exchange rate with foreign reserves. Neither of these policy responses could be sustained for long.
• Very high interest rates, which can be extremely damaging to a healthy economy, wreaked further havoc on economies in an already fragile state, while the central banks were hemorrhaging foreign reserves, of which they had finite amounts. When it became clear that the tide of capital fleeing these countries was not to be stopped, the authorities ceased defending their fixed exchange rates and allowed their currencies tofloat. The resulting depreciated value of those currencies meant that foreign currency-denominated liabilities grew substantially in domestic c urrenc y terms, causing more bankruptcies and further deepening the crisis.
• Other economists, including Joseph Stiglitz and Jeffrey Sachs, have downplayed the role of the real economy in the crisis compared to the financial markets. The rapidity with which the crisis happened has prompted Sachs and others to compare it to a classic bank run prompted by a sudden risk shock. Sachs pointed to strict monetary and contractionary fiscal policies implemented by the governments on the advice of the IMF in the wake of the crisis, while Frederic Mishkin points to the role of asymmetric information in the financial markets that led to a "herd mentality" among investors that magnified a small risk in the real economy. The crisis has thus attracted interest from behavioral economists interested in market psychology. [13]
• Another possible cause of the sudden risk shock may also be attributable to the handover of Hong Kong sovereignty on 1 July 199 7. During the 1990s, hot money flew into the Southeast Asia region through financial hubs, especially Hong Kong. The investors were often ignorant of the actual fundamentals or risk profiles of the respective economies, and once the crisis gripped the region, the political uncertainty regarding the future of Hong Kong as an Asian financial centre led some investors to withdraw from Asia altogether. This shrink in investments only worsened the financial conditions in Asia[ 14] (subsequently leading to the depreciation of the Thai baht on 2 July 1 997).[15]
• Several case studies on the topic of the application of network analysis of a financial system help to explain the interconnectivity of financ ial markets, as well as the signific ance of the robustness of hubs (or main nodes). [16] [17] [18] Any negative externalities in the hubs creates a ripple effect through the financial system and the economy (as well as any connected economies) as a whole.[ 19][ 20][ 21]
• The foreign ministers of the 10 ASEAN c ountries believed that the well co-ordinated manipulation of their currencies was a deliberate attempt to destabilize the ASEAN economies. Former Malaysian Prime MinisterMahathir Mohamad accused George Soros of ruining Malaysia's economy with "massive currency speculation". Soros claims to have been a buyer of the ringgit during its fall, having sold it short in 19 97.
• At the 30th ASEAN Ministerial Meeting held in Subang Jaya, Malaysia, the foreign ministers issued a joint declaration on 2 5 July 199 7 expressing serious concern and c alled for further intensification of ASEAN's cooperation to safeguard and promote ASEAN's interest in this regard.[ 22] Coincidentally, on that same day, the central bankers of most of the affected countries were at the EMEAP (Executive Meeting of East Asia Pacific) meeting in Shanghai, and they failed to make the "New Arrangement to Borrow" operational. A year earlier, the finance ministers of these same countries had attended the 3rdAPEC finance ministers meeting in Kyoto, Japan, on 17 March 1996 , and according to that joint declaration, they had been unable to double the amounts available under the "General Agreement to Borrow" and the "Emergency Finance Mechanism".
• The crisis could be seen as the failure to adequately build capacity in time to prevent currency manipulation. However, this hypothesis enjoyed little support among economists, who argue that no single investor could have had enough impact on the market to successfully manipulate the currencies' values. In addition, the level of organization necessary to coordinate a massive exodus of investors from Southeast Asian currencies in order to manipulate their values rendered this possibility remote.[citation needed]
• IMF role[edit]
• Such was the scope and the severity of the collapses involved that outside intervention, considered by many who redefine colonialism as a new kind of colonialism,[ 23] became urgently needed. Since the countries melting down were among not only the richest in their region, but in the world, and since hundreds of billions of dollars were at stake, any response to the crisis was likely to be cooperative and international, in this case through theInternational Monetary Fund (IMF). The IMF created a series of bailouts ("rescue packages") for the most-affected economies to enable affected nations to avoid default, tying the packages to currency, banking and financial system reforms.[ 24]
• Economic reforms[edit]
• The IMF's support was conditional on a series of economic reforms, the "structural adjustment package" (SAP). The SAPs c alled on crisis-struck nations to reduce government spending and deficits, allow insolvent banks and financial institutions to fail, and aggressively raise interest rates. The reasoning was that these steps would restore confidence in the nations' fiscal solvency, penalize insolvent companies, and protect currency values. Above all, it was stipulated that IMF-funded capital had to be administered rationally in the future, with no favored parties receiving funds by preference. In at least one of the affected countries the restrictions on foreign ownership were greatly reduced.[ 25]
• There were to be adequate government controls set up to supervise all financial activities, ones that were to be independent, in theory, of private interest. Insolvent institutions had to be closed, and insolvency itself had to be clearly defined. In addition, financial systems were to become "transparent", that is, provide the kind of reliable financial information used in the West to make sound financial dec isions.[ 26]
• As countries fell into crisis, many local businesses and governments that had taken out loans in US dollars, which suddenly became much more expensive relative to the local currency which formed their earned income, found themselves unable to pay their creditors. The dynamics of the situation were similar to that of theLatin American debt crisis. The effects of the SAPs were mixed and their impact controversial. Critic s, however, noted the contractionary nature of these policies, arguing that in a recession, the traditional Keynesian response was to increase government spending, prop up major companies, and lower interest rates.
• The reasoning was that by stimulating the economy and staving off recession, governments could restore confidence while preventing economic loss. They pointed out that the U.S. government had pursued expansionary policies, such as lowering interest rates, increasing government spending, and cutting taxes, when the United States itself entered a recession in 2001, and arguably the same in the fiscal and monetary policies during the 2 008–200 9 Global Financial Crisis.
• Many commentators in retrospect criticized the IMF for encouraging the developing economies of Asia down the path of "fast-track capitalism", meaning liberalization of the financial sector (elimination of restrictions on capital flows), maintenance of high domestic interest rates to attract portfolio investment and bank capital, and pegging of the national currency to the dollar to reassure foreign investors against currency risk.[27]
• IMF and high inte rest rate s[edit]
• The conventional high-interest-rate economic wisdom is normally employed by monetary authorities to attain the chain objectives of tightened money supply, discouraged currency speculation, stabilized exchange rate, curbed currency depreciation, and ultimately contained inflation.
• In the Asian meltdown, highest IMF officials rationalized their prescribed high interest rates as follows:
• From then IMF First Deputy managing director, Stanley Fischer (Stanley Fischer, "The IMF and the Asian Crisis," Forum Funds Lecture at UCLA, Los Angeles on 20 March 1998):
• When their governments "approached the IMF, the reserves of Thailand and South Korea were perilously low, and the Indonesian Rupiah was excessively depreciated. Thus, the first order of business was... to restore c onfidence in the currency. To achieve this, countries have to make it more attrac tive to hold domestic currency, which in turn, requires increasing interest rates temporarily, even if higher interest costs complicate the situation of weak banks and corporations... W hy not operate with lower interest rates and a greater devaluation? This is a relevant tradeoff, but there can be no question that the degree of devaluation in the Asian countries is excessive, both from the viewpoint of the individual countries, and from the viewpoint of the international system. Looking first to the individual country, companies with substantial foreign currency debts, as so m any companies in these countries have, stood to suffer far more from… currency (depreciation) than from a temporary rise in domestic interest rates…. Thus, on m acroec onomics… monetary policy has to be kept tight to restore confidence in the currency....
• From the then IMF managing director Michel Camdessus ("Doctor Knows Best?" Asiaweek, 17 July 1998 , p. 46):
• To reverse (c urrenc y depreciation), countries have to make it more attractive to hold domestic currency, and that means temporarily raising interest rates, even if this (hurts) weak banks and corporations.
• Thailand[edit]
• Furth er info rmatio n: Economy o f Thailand
• From 1985 to 1996 , Thailand's economy grew at an average of over 9% per year, the highest economic growth rate of any country at the time. Inflation was kept reasonably low within a range of 3.4–5.7 %.[28] The baht was pegged at 25 to the U.S. dollar.
• On 14 May and 15 May 1 997, the Thai baht was hit by massive speculative attacks. On 30 June 1997, Prime Minister Chavalit Yongchaiyudh said that he would not devalue the baht. However, Thailand lacked the foreign reserves to support the USD–Baht currency peg, and the Thai government was eventually forced to float the Baht, on 2 July 1997 , allowing the value of the Baht to be set by the currency market. This caused a chain reaction of events, eventually culminating into a region-wide crisis.[29]
• Thailand's booming economy came to a halt amid massive layoffs in finance, real estate, and construction that resulted in huge numbers of workers returning to their villages in the countryside and 600 ,00 0 foreign workers being sent back to their home countries.[30] The baht devalued swiftly and lost more than half of its value. The baht reached its lowest point of 5 6 units to the U.S. dollar in January 1 998. The Thai stock market dropped 7 5%. Finance One, the largest Thai finance company until then, collapsed.[31]
• On 11 August 199 7, the IMF unveiled a rescue package for Thailand with more than $1 7 billion, subject to conditions such as passing laws relating to bankruptcy (reorganizing and restructuring) procedures and establishing strong regulation frameworks for banks and other financial institutions. The IMF approved on 20 August 19 97, another bailout package of $ 2.9 billion.
• By 20 01, Thailand's economy had recovered. The inc reasing tax revenues allowed the country to balance its budget and repay its debts to the IMF in 2003 , four years ahead of schedule. The Thai baht continued to appreciate to 2 9 Baht to the U.S. dollar in October 2010.
• Indonesia[edit]
• See also: Fall of Suh arto, Ma y 1998 riots of Indonesia, and Economy of Indonesia
•  
• Fall of Suharto: President Suharto resigns, 21 May 1 998.
• In June 1997 , Indonesia seemed far from crisis. Unlike Thailand, Indonesia had low inflation, a trade surplus of more than $90 0 million, huge foreign exchange reserves of more than $20 billion, and a good banking sector. But a large number of Indonesian corporations had been borrowing in U.S. dollars. During the preceding years, as therupiah had strengthened respective to the dollar, this practice had worked well for these corporations; their effective levels of debt and financing costs had decreased as the local currency's value rose.
• In July 1997 , when Thailand floated the baht, Indonesia's monetary authorities widened the rupiah currency trading band from 8% to 12%. The rupiah suddenly came under severe attack in August. On 1 4 August 1997, the managed floating exchange regime was replaced by a free-floating exchange rate arrangement. The rupiah dropped further. The IMF came forward with a rescue package of $23 billion, but the rupiah was sinking further amid fears over corporate debts, massive selling of rupiah, and strong demand for dollars. The rupiah and theJakarta Stock Ex change touched a historic low in September. Moody's eventually downgraded Indonesia's long-term debt to "junk bond". [32]
• Although the rupiah crisis began in July and August 1997, it intensified in November when the effects of that summer devaluation showed up on corporate balance sheets. Companies that had borrowed in dollars had to fac e the higher c osts imposed upon them by the rupiah's decline, and many reacted by buying dollars through selling rupiah, undermining the value of the latter further. Before the crisis, the exchange rate between the rupiah and the dollar was roughly 2,600 rupiah to 1 U.S. dollar.[33] The rate plunged to over 11 ,00 0 rupiah to 1 U.S. dollar on 9 January 19 98, with spot rates over 14 ,00 0 during 23–26 January and trading again over 14,000 for about six weeks during June–July 1998. On 3 1 December 1998 , the rate was almost exactly 8,000 to 1 U.S. dollar.[34] Indonesia lost 13.5% of its GDP that year.
• In February 1 998, President Suharto sacked Bank Indonesia Governor J. Soedradjad Djiwandono, but this proved insufficient. Amidst widespread rioting in May 1998, Suharto resigned under public pressure and Vice President B. J. Habibie was elevated in his place. The crisis also led to the end of the Indonesian occupation of East Timor.
• South Korea[edit]
• Furth er info rmatio n: Economy o f South Korea
• The banking sector was burdened with non-performing loans as its large corporations were funding aggressive expansions. During that time, there was a haste to build great conglomerates to compete on the world stage. Many businesses ultimately failed to ensure returns and profitability. The chaebol, South Korean conglomerates, simply absorbed more and more capital investment. Eventually, excess debt led to major failures and takeovers. Hanbo sc andal of early 199 7 exposed South Korean's economy weaknesses and corruption problems to the international financial community.[ 35][ 36] Later that year, in July , South Korea's third-largest car maker, Kia Motors, asked for emergency loans. [37] The domino effect of collapsing large South Korean companies drove the interest rates up and international investors away.[38]
• In the wake of the Asian market downturn, Moody's lowered the credit rating of South Korea from A1 to A3 , on 2 8 November 19 97, and downgraded again to B2 on 11 December. That contributed to a further decline in South Korean shares since stock markets were already bearish in November. TheSeoul stock exchange fell by 4 % on 7 November 199 7. On 8 November, it plunged by 7%, its biggest one-day drop to that date. And on 24 November, stocks fell a further 7.2% on fears that the IMF would demand tough reforms. In 199 8, Hyundai Motor Company took over Kia Motors. Samsung Motors' $5 billion venture was dissolved due to the crisis, and eventually Daewoo Motors was sold to the American company General Motors (GM).
• The International Monetary Fund (IMF) provided US$58.4 billion as a bailout package. In return, Korea was required to take restructuring measures.[39] The ceiling on foreign investment in Korean companies was raised from 26 percent to 100 percent.[ 40] In addition, the Korean government started financial sector reform program. Under the program, 787 insolvent financial institutions were closed or merged by June 20 03.[41] The number of financial institutions in which foreign investors invested has increased rapidly. Examples include New Bridge Capital's takeover of Korea First Bank.
• The South Korean won, meanwhile, weakened to more than 1 ,70 0 per U.S. dollar from around 8 00, but later managed to recover. However, like the chaebol, South Korea's government did not escape unscathed. Itsnational debt-to-GDP ratio more than doubled (approximately 1 3% to 30%) as a result of the crisis.
• Philippines[edit]
• Furth er info rmatio n: Economy o f the Philippines
• This section does not cite any sources. (November 20 15) (Learn ho w and when to remove this template message)
• In May 199 7, the Bangko Sentral ng Pilipinas (literally "Central Bank of the Philippines"), the country's central bank, raised interest rates by 1.7 5 percentage points and again by 2 points on 19 June. Thailand triggered the crisis on 2 July and on 3 July, the Bangko Sentral intervened to defend thepeso, raising the overnight rate from 15% to 32% at the onset of the Asian crisis in mid-July 1997 . The peso dropped from 26 pesos per dollar at the start of the crisis to 46 .50 pesos in early 1 998 to 53 pesos as in July 2 001.
• The Philippine GDP contracted by 0.6% during the worst part of the crisis, but grew by 3% by 20 01, despite scandals of the administration of Joseph Estrada in 20 01, most notably the "jueteng" sc andal, causing the PSE Composite Index, the main index of the Philippine Stock Exchange, to fall to 1,000 points from a high of 3,448 points in 199 7. The peso's value declined to around 55.75 pesos to the U.S. dollar. Later that year, Estrada was on the verge of impeachment but his allies in the senate voted against continuing the proceedings.
• This led to popular protests culm inating in the "EDSA II Revolution", which effected his resignation and elevated Gloria Macapagal-Arroyo to the presidency. Arroyo lessened the crisis in the country. The Philippine peso rose to about 50 pesos by the year's end and traded at around 41 pesos to a dollar in late 200 7. The stock market also reached an all-time high in 2 007 and the economy was growing by more than 7 percent, its highest in nearly two decades.
• Hong Kong[edit]
• Furth er info rmatio n: Economy o f Hong Ko ng
• This section does not cite any sources. (November 20 15) (Learn ho w and when to remove this template message)
• In October 1997, the Hong Kong dollar, which had been pegged at 7.8 to the U.S. dollar since 19 83, came under speculative pressure bec ause Hong Kong's inflation rate had been significantly higher than the United States' for years. Monetary authorities spent more than $ 1 billion to defend the local currency. Since Hong Kong had more than $80 billion inforeign reserves, which is equivalent to 7 00% of its M1 money supply and 45 % of its M3 money supply, [citation needed] the Hong Kong Monetary Authority (effectively the city's central bank) managed to maintain the peg.
• Stock markets became more and more volatile; between 20 and 23 October the Hang Seng Index dropped 23%. The Hong Kong Monetary Authority then promised to protect the currency. On 15 August 1998 , it raised overnight interest rates from 8 % to 23 %, and at one point to '28 0%'.The HKMA had recognized that speculators were taking advantage of the city's uniquecurrency-board system, in which overnight rates automatic ally increase in proportion to large net sales of the local currency. The rate hike, however, increased downward pressure on the stock market, allowing speculators to profit byshort selling shares. The HKMA started buying component shares of the Hang Seng Index in mid-August.
• The HKMA and Donald Tsang, then the Financial Secretary, declared war on speculators. The Government ended up buying approximately HK$1 20 billion (US$15 billion) worth of shares in various companies,[42] and became the largest shareholder of some of those companies (e.g., the government owned 10% of HSBC) at the end of August, when hostilities ended with the closing of the August Hang Seng Index futures contract. In 199 9, the Government started selling those shares by launching theTracker Fund of Hong Kong, making a profit of about HK$30 billion (US$4 billion).
• Malaysia[edit]
• Furth er info rmatio n: Economy o f Malaysia
• In July 1997 , within days of the Thai baht devaluation, the Malaysian ringgit was heavily traded by speculators. The overnight rate jumped from under 8% to over 40%. This led to rating downgrades and a general sell off on the stock and currency markets. By end of 199 7, ratings had fallen many notches from investm ent grade to junk, the KLSE had lost more than 50 % from above 1 ,200 to under 60 0, and the ringgit had lost 50 % of its value, falling from above 2.50 to under 4.57 on (2 3 January 1998) to the dollar. The then prime minister, Mahathir Mohamad imposed strict capital controls and introduced a 3.80 peg against the U.S. dollar.
• Malaysian moves involved fixing the local currency to the U.S. dollar, stopping the overseas trade in ringgit currency and other ringgit assets therefore making offshore use of the ringgit invalid, restricting the amount of currency and investments that residents can take abroad, and imposed for foreign portfolio funds, a minimum one-year "stay period" which since has been converted to an exit tax. The decision to make ringgit held abroad invalid has also dried up sources of ringgit held abroad that speculators borrow from to manipulate the ringgit, for example by s"elling short". Those who did, had to repurchase the limited ringgit at higher prices, making it unattractive to them.[43] In addition, it also fully suspended the trading of CLOB (Central Limit Order Book) counters, indefinitely freezing approximately $ 4.4 7 billion worth of shares and affecting 1 72,000 investors, most of them Singaporeans,[44][45][46] which became a political issue between the two countries.[47]
• In 199 8, the output of the real ec onomy declined plunging the country into its first rec ession for many years. The construction sector contracted 2 3.5 %, manufacturing shrunk 9% and the agriculture sector 5 .9%. Overall, the country's gross domestic product plunged 6.2% in 1998 . During that year, the ringgit plunged below 4.7 and the KLSE fell below 27 0 points. In September that year, various defensive measures were announced to overcome the crisis.
• The principal measure taken were to move the ringgit from a free float to a fixed exchange rate regime. Bank Negara fixed the ringgit at 3.8 to the dollar. Capital controls were imposed while aid offered from the IMF was refused. Various task force agencies were formed. The Corporate Debt Restructuring Committee dealt with corporate loans.Danaharta discounted and bought bad loans from banks to facilitate orderly asset realization. Danamodal recapitalized banks.
• Growth then settled at a slower but more sustainable pace. The massive current account deficit became a fairly substantial surplus. Banks were better capitalized and NPLs were realised in an orderly way. Small banks were bought out by strong ones. A large number of PLCs were unable to regulate their financial affairs and were delisted. Compared to the 199 7 current acc ount, by 20 05, Malaysia was estimated to have a $14.06 billion surplus.[ 48] Asset values however, have not returned to their pre-crisis highs. Foreign investor c onfidence was still low, partially due to the lack of transparency shown in how the CLOB counters had been dealt with.[ 49][ 50]
• In 200 5 the last of the crisis measures were removed as taken off the fixed exchange system. But unlike the pre-crisis days, it did not appear to be a free float, but a managed float, like theSingapore dollar.
• Mongolia[edit]
• Mongolia was adversely affected by the Asian financial crisis of 19 97-98 and suffered a further loss of income as a result of the Russian crisis in 1 999. Economic growth picked up in 19 97–99 after stalling in 1996 due to a series of natural disasters and increases in world prices of copper and cashmere. Public revenues and exports collapsed in 1998 and 1999 due to the repercussions of the Asian financ ial crisis. In August and September 1999, the economy suffered from a temporary Russian ban on exports of oil and oil products. Mongolia joined the World Trade Organization (WTO) in 19 97. The international donor community pledged over $300 million per year at the last Consultative Group Meeting, held in Ulaanbaatar in June 1999 .
• Singapore[edit]
• Furth er info rmatio n: Economy o f Singapore
• As the financial crisis spread the economy of Singapore dipped into a short recession. The short duration and milder effect on its economy was credited to the ac tive management by the government. For example, the Monetary Authority of Singapore allowed for a gradual 20% depreciation of the Singapore dollar to cushion and guide the economy to a soft landing. The timing of government programs such as the Interim Upgrading Program and other construction related projects were brought forward.[51]
• Instead of allowing the labor markets to work, the National Wage Council pre-emptively agreed to Central Provident Fund c uts to lower labor costs, with limited impact on disposable income and local demand. Unlike in Hong Kong, no attempt was made to directly intervene in the capital markets and the Straits Times Index was allowed to drop 60%. In less than a year, the Singaporean economy fully recovered and c ontinued on its growth trajectory.[51]
• China[edit]
• Furth er info rmatio n: Economy o f the People's Republic of China
• This section does not cite any sources. (November 20 15) (Learn ho w and when to remove this template message)
• The Chinese currency, the renminbi (RMB), had been pegged in 1994 to the U.S. dollar at a ratio of 8.3 RMB to the dollar. Having largely kept itself above the fray throughout 19 97–199 8, there was heavy speculation in the Western press that China would soon be forced to devalue its c urrenc y to protect the competitiveness of its ex ports vis-a-vis those of theASEAN nations, whose exports became cheaper relative to China's. However, the RMB's non-convertibility protected its value from currency speculators, and the decision was made to maintain the peg of the currency, thereby improving the country's standing within Asia. The currency peg was partly scrapped in July 20 05, rising 2.3% against the dollar, reflecting pressure from the United States.
• Unlike investments of many of the Southeast Asian nations, almost all of China's foreign investment took the form of factories on the ground rather than securities, which insulated the country from rapid capital flight. While China was unaffected by the crisis compared to Southeast Asia and South Korea, GDP growth slowed sharply in 1998 and 1999 , calling attention to structural problems within its economy. In particular, the Asian financial crisis convinced theChinese government of the need to resolve the issues of its enormous financial weaknesses, such as having too many non-performing loans within its banking system, and relying heavily on trade with the United States.
• United States and Japan[edit]
• Furth er info rmatio n: Economy o f the United States and Eco nomy of Japan
• The "Asian flu" had also put pressure on the United States and Japan. Their markets did not collapse, but they were severely hit. On 27 October 1997 , the Dow Jones industrial plunged 554 points or 7 .2 %, amid ongoing worries about the Asian economies. The New York Stock Exchange briefly suspended trading. The crisis led to a drop in consumer and spending confidence (see 27 October 19 97 mini-crash). Indirect effects included the dot-com bubble, and years later the housing bubble and the subprime mortgage crisis.[52]
• Japan was affected because its economy is prominent in the region. Asian countries usually run a trade deficit with Japan because the latter's economy was more than twice the size of the rest of Asia together; about 4 0% of Japan's exports go to Asia. TheJapanese yen fell to 147 as mass selling began, but Japan was the world's largest holder of currency reserves at the time, so it was easily defended, and quickly bounced back. The real GDP growth rate slowed dramatically in 199 7, from 5% to 1.6%, and even sank into recession in 1998 due to intense competition from cheapened rivals. The Asian financial crisis also led to more bankruptcies in Japan. In addition, with South Korea's devalued currency, and China's steady gains, many companies complained outright that they could not compete.[52]
• Another longer-term result was the changing relationship between the United States and Japan, with the United States no longer openly supporting the highly artificial trade environment and exchange rates that governed economic relations between the two countries for almost five decades afterWorld War II. [53]
• Consequences[edit]
• Asia[edit]
• The crisis had significant macroeconomic-level effects, including sharp reductions in values of currencies, stock markets, and other asset prices of several Asian countries.[ 54] The nominal U.S. dollar GDP of ASEAN fell by $9.2 billion in 199 7 and $218 .2 billion (31.7%) in 199 8. In South Korea, the $ 170.9 billion fall in 1 998 was equal to 33 .1% of the 1997 GDP.[55] Many businesses collapsed, and as a consequence, millions of people fell below the poverty line in 199 7–1998 . Indonesia, South Korea and Thailand were the countries most affected by the crisis.
• Currency
• Exchange rate
• (per US$ 1)[ 56]
• Change
• June 1 997
• July 1998
• Thai baht
• 24.5
• 41
• 40.2%
• Indonesian rupiah
• 2,380
• 14,150
• 83.2%
• Philippine peso
• 26.3
• 42
• 37.4%
• Malaysian ringgit
• 2.48
• 4.88
• 45.0%
• South Korean won
• 850
• 1,290
• 34.1%
• Country
• GNP (US$1 billion)[56]
• Change
• June 1 997
• July 1998
•  Thailand
• 170
• 102
• 40.0%
•  Indonesia
• 205
• 34
• 83.4%
•  Philippines
• 75
• 47
• 37.3%
•  Malaysia
• 90
• 55
• 38.9%
•  South Korea
• 430
• 283
• 34.2%
• The above tabulation shows that despite the prompt raising of interest rates to 3 2% in the Philippines upon the onset of crisis in mid-July 19 97, and to 65 % in Indonesia upon the intensification of crisis in 1998, their local currencies depreciated just the same and did not perform better than those of South Korea, Thailand, and Malaysia, whic h countries had their high interest rates set at generally lower than 2 0% during the Asian crisis. This created grave doubts on the credibility of IMF and the validity of its high-interest-rate prescription to economic crisis.
• The ec onomic crisis also led to a politic al upheaval, most notably culminating in the resignations of President Suharto in Indonesia and Prime Minister General Chavalit Yongchaiyudh in Thailand. There was a general rise in anti-Western sentiment, with George Soros and the IMF in particular singled out as targets of criticisms. Heavy U.S. investment in Thailand ended, replaced by mostly European investment, though Japanese investment was sustained.[citation needed] Islamic and other separatist movements intensified in Southeast Asia as central authorities weakened.[57]
• New regulations weakened the influence of the bamboo network, a network of overseas Chinese family-owned businesses that dominate the private sec tor of Southeast Asia. After the crisis, business relationships were more frequently based on contracts, rather than the trust and family ties of the traditional bamboo network.[58]
• More long-term consequences included reversal of the relative gains made in the boom years just preceding the crisis. Nominal U.S. dollar GDP per capital fell 42 .3% in Indonesia in 1 997, 21.2% in Thailand, 19 % in Malaysia, 18.5 % in South Korea and 12.5% in the Philippines.[55] The CIA World Factbook reported that the per capital income (measured by purchasing power parity) in Thailand declined from $ 8,80 0 to $8,300 between 1997 and 200 5; in Indonesia it increased from $2,628 to $3 ,185 ;[59] in Malaysia it declined from $11,100 to $ 10,4 00. Over the same period, world per capita income rose from $ 6,500 to $9,300.[60] Indeed, the CIA's analysis asserted that the economy of Indonesia was still smaller in 2 005 than it had been in 199 7, suggesting an impact on that country similar to that of theGreat Depression. Within East Asia, the bulk of investment and a significant amount of economic weight shifted from Japan and ASEAN to China and India.[61]
• The crisis has been intensively analyzed by economists for its breadth, speed, and dynamism; it affec ted dozens of countries, had a direct impact on the livelihood of millions, happened within the course of a mere few months, and at eac h stage of the crisis leading economists, in particular the international institutions, seemed a step behind. Perhaps more interesting to economists was the speed with which it ended, leaving most of the developed economies unharmed. These curiosities have prom pted an explosion of literature aboutfinanc ial economics and a litany of explanations why the crisis occurred. A number of critiques have been leveled against the conduct of the IMF in the crisis, including one by former World Bank economist Joseph Stiglitz. Politically there were some benefits. In several c ountries, particularly South Korea and Indonesia, there was renewed push for improved corporate governance. Rampaging inflation weakened the authority of the Suharto regime and led to its toppling in 19 98, as well as acc elerating East Timor's independenc e.[ 62]
• It is believed that 1 0,400 people committed suicide in Hong Kong, Japan and South Korea as a result of the crisis.[63]
• Outside Asia[edit]
• See also: Impeachment o f Bill Clinton
• See also: September 11 attacks
• See also: Economic effec ts arising from the September 11 attacks
• After the Asian crisis, international investors were reluctant to lend to developing countries, leading to economic slowdowns in developing c ountries in m any parts of the world. The powerful negative shock also sharply reduced the pric e of oil, which reached a low of about $1 1 per barrel towards the end of 1 998, causing a financial pinch inOPEC nations and other oil exporters. In response to a severe fall in oil prices, the supermajors that emerged in the late-199 0s, undertook some major mergers and acquisitions between 1998 and 2002 – often in an effort to improve economies of scale, hedge against oil price volatility, and reduce large cash reserves through reinvestment.[64]
• The reduction in oil revenue also contributed to the 19 98 Russian financial crisis, which in turn caused Long-Term Capital Management in the United States to collapse after losing $4.6 billion in 4 months. A wider collapse in the financial markets was avoided when Alan Greenspan and the Federal Reserve Bank of New York organized a $3 .6 25 billion bailout. Major emerging economies Brazil and Argentina also fell into crisis in the late 199 0s (see Argentine debt crisis). The September 11 attacks contributed to major shockwave in Developed and Developing economies Stock market downturn of 20 02[65]
• The crisis in general was part of a global backlash against the Washington Consensus and institutions such as the IMF and World Bank, which simultaneously became unpopular in developed countries following the rise of the anti-globalization movement in 1999 . Four major rounds of world trade talks since the crisis, in Seattle, Doha, Cancún, and Hong Kong, have failed to produce a significant agreement as developing c ountries have become more assertive, and nations are increasingly turning toward regional or bilateral free trade agreements (FTAs) as an alternative to global institutions.
• Many nations learned from this, and quickly built up foreign exchange reserves as a hedge against attacks, including Japan, China, South Korea. Pan Asian currency swaps were introduced in the event of another crisis. However, nations such as Brazil, Russia, and India as well as most of East Asia began copying the Japanese model of weakening their currencies, and restructuring their economies so as to c reate acurrent account surplus to build large foreign currency reserves. This has led to ever-increasing funding for U.S. treasury bonds, allowing or aiding housing (in 2001–2 005) and stock asset bubbles (in 1 996–200 0) to develop in the United States.
Ex. 1
 The Industry’s Outlook
• The historically low prices put pressure on oil
companies to improve efficiency in order to
remain profitable and to generate the capital
necessary to compete
• With reserves of oil at record levels and
depressed demand in Asia and elsewhere, there
was little prospect of a substantial rise in oil
prices in the near term
• The weak prospects for oil prices also threatened
to have longer-run consequences
• Lower crude-oil prices substantially reduced the
incentive and, in many cases, the financial ability
to search for new sources of petroleum and to
maintain production in existing marginal fields
• Another challenge that would confront the
industry over the next 20 to 30 years was the lack
of sizable discoveries of new reserves in recent
years
• Exhibit 2 shows the worldwide distribution of
cumulative reserves and reserves as of 1997
• Given the early development of U.S. fields in the
late 1890s, there was currently little oil left in
North America to be produced
• The largest holder of reserves was OPEC, which
accounted for 63% of the world’s estimated
remaining reserves in 1997
• Having been barred from the Middle East, all the
majors were heavily dependent on giant fields
that were discovered decades earlier, many of
which (particularly those in North America and
Europe) had started to decline
• The great task for oil firms was to replace them”
• In recent years, a mere handful of fields,
containing more than 500 million barrels, had
been discovered, in contrast to dozens of large
new discoveries in previous decades
• Deep-water reserves, such as those in the Gulf of
Mexico and off the coast of West Africa, were
expensive to extract
• Russia, which sat on 5% of the world’s proven oil
reserves, was faced with seemingly
insurmountable political problems, which
hampered the possibility of further development
there
 The Industry’s Outlook
• Although the success of frontier • Another 3.5 billion barrels were
exploration had not been as great as currently seen as recoverable reserves
in previous years, one mitigating • This made for a recovery rate of about
factor was the unexpected resilience 55%, up considerably from the original
of production in established fields, estimate of 40%
particularly in Alaska and the North • Assuming technological progress
Sea continued, ultimately a recovery
• Most of these benefits derived from factor of 70% was expected by 2020
improved technology and better • This would add another 3.6 billion
understanding of the geology owing to barrels to booked reserves, the
advances in seismic and computer equivalent of a giant new discovery
modeling. anywhere else in the world
• These improvements were particularly
important for BP, which started
exploring in Alaska in 1960 and,
alongside ARCO and Exxon, made the
giant Prudhoe Bay, Alaska, discovery,
in 1968
• Prudhoe Bay initially contained some
25 billion barrels of oil, of which
around 10 billion barrels had been
produced by 1998
 Oil Reserves in the World
• Oil reserves denote the amount of crude oil that can be technically recovered at a cost that is financially feasible at the present price of oil.[1] Hence reserves will change with the price, unlike oil resources, which include all oil that can be technically recovered at any price. Reserves may be for a well, a reservoir, a field, a nation, or the world. Different classifications of reserves are related to their degree of certainty.
• The total estimated amount of oil in an oil reservoir, including both producible and non-producible oil, is called oil in place. However, because of reservoir characteristics and limitations in petroleum extraction technologies, only a fraction of this oil can be brought to the surface, and it is only this producible fraction that is considered to be reserves. The ratio of reserves to the total amount of oil in a particular reservoir is called the recovery factor. Determining a recovery factor for a given field depends on several features of the operation, including method of oil recovery used and technological developments.[2]
• Based on data from OPEC at the beginning of 2013 the highest proved oil reserves including non-conventional oil deposits are in Venezuela (20% of global reserves), Saudi Arabia (18% of global reserves), Canada (13% of global reserves), and Iran (9%).[3]
• Because the geology of the subsurface cannot be examined directly, indirect techniques must be used to estimate the size and recoverability of the resource. While new technologies have increased the accuracy of these techniques, significant uncertainties still remain. In general, most early estimates of the reserves of an oil field are conservative and tend to grow with time. This phenomenon is called reserves growth.[4]
• Many oil-producing nations do not reveal their reservoir engineering field data and instead provide unaudited claims for their oil reserves. The numbers disclosed by some national governments are suspected of being manipulated for political reasons.[5][6]
• Classifications[edit]
•  
• Schematic graph illustrating petroleum volumes and probabilities. Curves represent categories of oil in assessment. There is a 95% chance (i.e., probability, F95) of at least volume V1 of economically recoverable oil, and there is a 5-percent chance (F05) of at least volume V2 of economically recoverable oil.[7]
• All reserve estimates involve uncertainty, depending on the amount of reliable geologic and engineering data available and the interpretation of that data. The relative degree of uncertainty can be expressed by dividing reserves into two principal classifications—"proven" (or "proved") and "unproven" (or "unproved").[7] Unproven reserves can further be divided into two subcategories—"probable" and "possible"—to indicate the relative degree of uncertainty about their existence.[7] The most commonly accepted definitions of these are based on those approved by the Society of Petroleum Engineers (SPE) and the
World Petroleum Council (WPC) in 1997.[8]
• Proven reserves[edit]
• Main article: proven reserves
• Proven reserves are those reserves claimed to have a reasonable certainty (normally at least 90% confidence) of being recoverable under existing economic and political conditions, with existing technology. Industry specialists refer to this as "P90" (that is, having a 90% certainty of being produced). Proven reserves are also known in the industry as "1P".[9][10]
• Proven reserves are further subdivided into "proven developed" (PD) and "proven undeveloped" (PUD).[10][11] PD reserves are reserves that can be produced with existing wells and perforations, or from additional reservoirs where minimal additional investment (operating expense) is required.[11] PUD reserves require additional capital investment (e.g., drilling new wells) to bring the oil to the surface.[9][11]
• Until December 2009 "1P" proven reserves were the only type the U.S. Securities and Exchange Commission allowed oil companies to report to investors. Companies listed on U.S. stock exchanges must substantiate their claims, but many governments and national oil companies do not disclose verifying data to support their claims. Since January 2010 the SEC now allows companies to also provide additional optional information declaring 2P (both proven and probable) and 3P (proven plus probable plus possible) provided the evaluation is verified by qualified third party consultants, though many companies
choose to use 2P and 3P estimates only for internal purposes.
• Unproven reserves[edit]
•  
• An oil well in Canada, which has the world's third largest oil reserves.
• Unproven reserves are based on geological and/or engineering data similar to that used in estimates of proven reserves, but technical, contractual, or regulatory uncertainties preclude such reserves being classified as proven.[12] Unproven reserves may be used internally by oil companies and government agencies for future planning purposes but are not routinely compiled. They are sub-classified asprobable and possible.[12]
• Probable reserves are attributed to known accumulations and claim a 50% confidence level of recovery. Industry specialists refer to them as "P50" (i.e., having a 50% certainty of being produced). The sum of proven plus probable reserves is also referred to in the industry as "2P" (proven plus probable).[9]
• Possible reserves are attributed to known accumulations that have a less likely chance of being recovered than probable reserves. This term is often used for reserves which are claimed to have at least a 10% certainty of being produced ("P10"). Reasons for classifying reserves as possible include varying interpretations of geology, reserves not producible at commercial rates, uncertainty due to reserve infill (seepage from adjacent areas) and projected reserves based on future recovery methods. The cumulative amount of proven, probable and possible resources are referred to in the industry as3P" " (proven plus
probable plus possible).[9]
• Russian reserve categories[edit]
• In Russia, reserves categories A, B, and C1 correspond roughly to proved developed producing, proved developed nonproducing, and proved undeveloped, respectively; the designation ABC1 corresponds to proved reserves. The Russian category C2 includes probable and possible reserves.[13]
• Strategic petroleum reserves[edit]
• Main article: global strategic petroleum reserves
• Many countries maintain government-controlled oil reserves for both economic and national security reasons. According to the United States Energy Information Administration, approximately 4.1 billion barrels (650,000,000 m3) of oil are held in strategic reserves, of which 1.4 billion is government-controlled. These reserves are generally not counted when computing a nation's oil reserves.
• Resources[edit]
•  
• Unconventional oil resources are greater than conventional ones.[14]
•  
• Cumulative oil production plus remaining reserves and undiscovered resources. United States not included.
• A more sophisticated system of evaluating petroleum accumulations was adopted in 2007 by the Society of Petroleum Engineers (SPE), World Petroleum Council (WPC), American Association of Petroleum Geologists (AAPG), and Society of Petroleum Evaluation Engineers (SPEE). It incorporates the 1997 definitions for reserves, but adds categories for contingent resources and prospective resources.[7]
• Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies. Contingent resources may include, for example, projects for which there are no viable markets, or where commercial recovery is dependent on technology under development, or where evaluation of the accumulation is insufficient to clearly assess commerciality.
• Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development.
• The United States Geological Survey uses the terms technically and economically recoverable resources when making its petroleum resource assessments. Technically recoverable resources represent that proportion of assessed in-place petroleum that may be recoverable using current recovery technology, without regard to cost. Economically recoverable resources are technically recoverable petroleum for which the costs of discovery, development, production, and transport, including a return to capital, can be recovered at a given market price.
• "Unconventional resources" exist in petroleum accumulations that are pervasive throughout a large area. Examples include extra heavy oil, oil sand, and oil shale deposits. Unlike "conventional resources", in which the petroleum is recovered through wellbores and typically requires minimal processing prior to sale, unconventional resources require specialized extraction technology to produce. For example, steam and/or solvents are used to mobilize bitumen for in-situ recovery. Moreover, the extracted petroleum may require significant processing prior to sale (e.g., bitumen upgraders).[7] The total amount of
unconventional oil resources in the world considerably exceeds the amount of conventional oil reserves, but are much more difficult and expensive to develop.
• Estimation techniques[edit]
•  
• Example of a production decline curve for an individual well
• The amount of oil in a subsurface reservoir is called oil in place (OIP).[11] Only a fraction of this oil can be recovered from a reservoir. This fraction is called the recovery factor.[11] The portion that can be recovered is considered to be a reserve. The portion that is not recoverable is not included unless and until methods are implemented to produce it. [12]
• Volumetric method[edit]
• Further information: Extraction of petroleum and Oil in place
• Volumetric methods attempt to determine the amount of oil in place by using the size of the reservoir as well as the physical properties of its rocks and fluids. Then a recovery factor is assumed, using assumptions from fields with similar characteristics. OIP is multiplied by the recovery factor to arrive at a reserve number. Current recovery factors for oil fields around the world typically range between 10 and 60 percent; some are over 80 percent. The wide variance is due largely to the diversity of fluid and reservoir characteristics for different deposits. [15][16][17] The method is most useful early in the life of the reservoir,

before significant production has occurred.

• Materials balance method[edit]
• The materials balance method for an oil field uses an equation that relates the volume of oil, water and gas that has been produced from a reservoir and the change in reservoir pressure to calculate the remaining oil. It assumes that, as fluids from the reservoir are produced, there will be a change in the reservoir pressure that depends on the remaining volume of oil and gas. The method requires extensive pressure-volume-temperature analysis and an accurate pressure history of the field. It requires some production to occur (typically 5% to 10% of ultimate recovery), unless reliable pressure history can be used
from a field with similar rock and fluid characteristics.[12]

• Production decline curve method[edit]

•  
• Decline curve generated by decline curve analysis software, utilized in petroleum economics to indicate the depletion of oil & gas in a petroleum reservoir. The Y axis is a semi log scale, indicating the rate of oil depletion (green line), and gas depletion (red line). The X axis is a coordinate scale, indicating time in years and displays the production decline curve. The top red line is the gas decline curve, which is a hyperbolic decline curve. Gas is measured inMCF (thousand cubic feet in this case). The lower Blue line is the oil decline curve, which is an exponential decline curve. Oil is measured in BBL (Oil barrels). Data is
from actual sales, not pumped production. The dips to zero indicate there were no sales that month, likely because the oil well did not produce a full tank, and thus was not worth a visit from a tank truck. The upper right legend (map) displays CUM, which is the cumulative gas or oil produced. ULT is the ultimate recovery projected for the well. Pv10 is the discounted present value of 10%, which is the future value of the remaining lease, valued for this oil well at $1.089 million USD.
• The decline curve method uses production data to fit a decline curve and estimate future oil production. The three most common forms of decline curves are exponential, hyperbolic, and harmonic. It is assumed that the production will decline on a reasonably smooth curve, and so allowances must be made for wells shut in and production restrictions. The curve can be expressed mathematically or plotted on a graph to estimate future production. It has the advantage of (implicitly) including all reservoir characteristics. It requires a sufficient history to establish a statistically significant trend, ideally when
production is not curtailed by regulatory or other artificial conditions.[12]
• Reserves growth[edit]
• Experience shows that initial estimates of the size of newly discovered oil fields are usually too low. As years pass, successive estimates of the ultimate recovery of fields tend to increase. The termreserve growth refers to the typical increases in estimated ultimate recovery that occur as oil fields are developed and produced.[4]
• Estimated reserves by country[edit]
• The neutrality of this section is disputed. Relevant discussion may be found on the talk page. Please do not remove this message until conditions to do so are met. (May 2015) (Learn how and when to remove this template message)
• This section may require cleanup to meet Wikipedia's quality standards. The specific problem is: The table in this section presently presents resources rather than reserves, according to SPE definition Please help improve this section if you can. (February 2017) (Learn how and when to remove this template message)
•  
• Trends in proved oil reserves in top five countries, 1980-2013 (date from US Energy Information Administration)
• See also: List of countries by proven oil reserves
• BBL = barrel of oil
•  
• Countries with largest oil reserves
•  
• Most of the world's oil reserves are in the Middle East.[18]
•  

•  

• It is estimated that between 100 and 135 billion tonnes (which equals between 133 and 180 billions m3 of oil) of the world's oil reserves have been used between 1850 and the present.[21]
• OPEC countries[edit]
• This section may require cleanup to meet Wikipedia's quality standards. The specific problem is: The table in this section presently presents resources rather than reserves, according to SPE definition Please help improve this section if you can. (February 2017) (Learn how and when to remove this template message)
• Since OPEC started to set production quotas on the basis of reserves levels in the 1980s, many of its members have reported significant increases in their official reserves.[22][23] There are doubts about the reliability of these estimates, which are not provided with any form of verification that meet external reporting standards.[22] The following table illustrates these rises.
•  
• OPEC countries
•  
• oil reserves of OPEC 1980–2005
• The sudden revisions in OPEC reserves, totaling nearly 300 bn barrels, have been much debated.[24] Some of it is defended partly by the shift in ownership of reserves away from international oil companies, some of whom were obliged to report reserves under conservative US Securities and Exchange Commission rules.[22][25] The most prominent explanation of the revisions is prompted by a change in OPEC rules which set production quotas (partly) on reserves. In any event, the revisions in official data had little to do with the actual discovery of new reserves.[22]
• Total reserves in many OPEC countries hardly changed in the 1990s.[22] Official reserves in Kuwait, for example, were unchanged at 96.5 Gbbl (15.34×109 m3) (including its share of the Neutral Zone) from 1991 to 2002, even though the country produced more than 8 Gbbl (1.3×109 m3) and did not make any important new discoveries during that period.[22] The case of Saudi Arabia is also striking, with proven reserves estimated at between 260 and 264 billion barrels (4.20×1010 m3) in the past 18 years, a variation of less than 2%,[22] while extracting approximately 60 billion barrels (9.5×109 m3) during this period.
• Sadad al-Huseini, former head of exploration and production at Saudi Aramco, estimates 300 Gbbl (48×109 m3) of the world's 1,200 Gbbl (190×109 m3) of proven reserves should be recategorized as speculative resources, though he did not specify which countries had inflated their reserves.[26] Dr. Ali Samsam Bakhtiari, a former senior expert of the National Iranian Oil Company, has estimated that Iran, Iraq, Kuwait, Saudi Arabia and the United Arab Emirates have overstated reserves by a combined 320–390bn barrels and has said, "As for Iran, the usually accepted official 132 billion barrels (2.10×1010 m3) is almost
one hundred billion over any realistic assay."[27] Petroleum Intelligence Weekly reported that official confidential Kuwaiti documents estimate reserves of Kuwait were only 48 billion barrels (7.6×109 m3), of which half were proven and half were possible. The combined value of proven and possible is half of the official public estimate of proven reserves.[23]
• In July 2011, OPEC's Annual Statistical Review showed Venezuela's reserves to be larger than Saudi Arabia's.[28][29]
• Prospective resources[edit]
• Arctic prospective resources[edit]
• See also: Petroleum exploration in the Arctic
•  
• Location of Arctic Basins assessed by the USGS
• A 2008 United States Geological Survey estimates that areas north of the Arctic Circle have 90 billion barrels (1.4×1010 m3) of undiscovered, technically recoverable oil and 44 billion barrels (7.0×109 m3) of natural gas liquids in 25 geologically defined areas thought to have potential for petroleum. This represented 13% of the expected undiscovered oil in the world. Of the estimated totals, more than half of the undiscovered oil resources were estimated to occur in just three geologic provinces—Arctic Alaska, the Amerasia Basin, and the East Greenland Rift Basins. More than 70% of the mean undiscovered oil
resources was estimated to occur in five provinces: Arctic Alaska, Amerasia Basin, East Greenland Rift Basins, East Barents Basins, and West Greenland–East Canada. It was further estimated that approximately 84% of the oil and gas would occur offshore. The USGS did not consider economic factors such as the effects of permanent sea ice or oceanic water depth in its assessment of undiscovered oil and gas resources. This assessment was lower than a 2000 survey, which had included lands south of the Arctic Circle.[30][31][32]
• Unconventional prospective resources[edit]
• In October 2009, the USGS updated the quantity of the Orinoco tar sands, in Venezuela, to 513 billion barrels (8.16×1010 m3).[33]
• In June 2013 the U.S. Energy Information Administration published a global inventory of estimated recoverable tight oil and tight gas resources in shale formations, "Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States." The inventory is incomplete due to exclusion of tight oil and gas from sources other than shale such as sandstone or carbonates, formations underlying the large oil fields located in the Middle East and the Caspian region, off shore formations, or about which there is little information. Estimated technically
recoverable shale oil resources total 335 to 345 billion barrels.[34]
Middle East
Deep-Water Reserves
Frontier Exploration
 Oil vs. Gas

One barrel of oil = 5,800 cubic feet of natural gas

(NG)
Ex. 2
 Cumulative Reserves
• Resources that had been discovered and
produced were referred to in the industry as
cumulative reserves
 Recoverable Resources
• Recoverable resources that remained to be
produced were called reserves
 Proven Resources
• Resources that could be extracted using
existing technology were called proven
reserves
 Amoco Corporation
• Amoco Oil got its start as the refining arm of John
D. Rockefeller’s empire in 1889
• By December 1997, the company had assets of
USD32.4 billion and operated in 30 countries with
43,400 employees
• Amoco’s current business had three main
segments
• Together, these segments produced USD 36.2
billion in sales in 1997, of which 78% occurred in
the United States
• In its petroleum business, Amoco concentrated on
refining, marketing, and transporting, which
accounted for approximately two- thirds of its
revenues but less than one-fifth of its operating
profits
• The company was neck and neck with Royal Dutch
Shell as the leading marketer of petroleum
products in the United States
• Exhibit 3 details Amoco and BP’s geographical
areas of operations and segment earnings
• In the universe of integrated oil companies, Amoco
was indisputably the most American
• Integrated oil companies had three distinct
businesses: upstream activities were oil and gas
exploration, field development, and production;
midstream activities were pipeline transportation,
gas processing, and gas marketing; and
downstream activities were refining and marketing
• While other majors moved overseas in the late
1980s, Amoco continued to rely on its domestic oil
holdings
• In 1988, Amoco bought Dome Petroleum, a
Canadian gas firm, for USD4.2 billion, but had
trouble with the acquisition and came close to
defaulting on the takeover debt in 1992
• In 1992, Amoco finally moved into overseas oil
exploration
• Three years and USD9 billion later, Amoco had
produced a string of dry holes, and its overall oil
production was down 16%
• Amoco’s free-spending ways resulted in a cost to
find oil that was nearly twice that of Royal
Dutch/Shell
• Amoco found itself in the unfortunate position of
selling more oil than it found in those years
• From this dubious beginning, Amoco’s
international fortunes improved
 Business Segment of Amoco
Exploration and • Explored for, developed, and produced crude oil and natural gas
worldwide
Production • Amoco had proven developed reserves of 1,766 million barrels of oil
and 13,904 million cubic feet of natural gas
(E&P) Sector

Refining and • One of the largest sellers of gasoline in the United States, with
approximately 9,300 retail outlets
Marketing • Amoco had five refineries and owned or operated about 15,000
miles of pipelines for transportation of crude oil, refined products,
Sector natural gas, and carbon dioxide

Chemical Sector • Major producer of industrial and commercial chemicals

Oil’s Well that Ends Well
John D. Rockefeller
Royal Dutch
 Amoco Corporation
• Better prices for natural gas and an expanding pipeline • ROCE increased from 10% in 1994, to 13% in 1997; but
system made Dome profitable despite that improvement, Amoco remained below
• While political problems stalled inroads into Russia, average for its peer group
Amoco had a major discovery of offshore gas in Trinidad • While ROCE was the industry’s benchmark for
and moved into the Gulf of Mexico performance, companies calculated ROCE differently
• In 1997, Amoco entered into a joint venture with Shell Oil • In general, however, it was calculated as income/capital
Company and Sonat Exploration to deliver natural gas employed
from new, deep-water Gulf of Mexico fields • Definitions of income used in this calculation could
• Amoco and Shell Oil Company also established Altura include operating income or net income, either before or
Energy Ltd., in 1997 to operate their oil and gas after tax
properties in Texas and New Mexico. • Capital employed (or net assets) was typically defined as
• Fuller, Amoco’s chair and CEO since 1991, was credited shareholders’ equity plus interest-bearing debt
with much of the turnaround in the firm’s performance • Exhibit 4 gives a financial summary of Amoco in relation
• His success stemmed mainly from ending the missteps to BP and its other industry peers
that had firmly rooted Amoco in the second tier of the • Exhibit 5 gives information on the rate of ROCE and other
industry performance criteria for Amoco and its industry peers
• In addition, he strove to revise the firm’s corporate mind-
set—to create a sense of urgency and increased focus on
shareholders’ value—a task made more difficult by the
half century of success enjoyed by the industry
• “We were coming off a long period when it looked like
the price of oil and gas was going to go up forever, and no
matter what you did you made money, more or less,
depending on how well you executed
• The industry, I think, and Amoco as well, was somewhat
slow to recognize, in the late
• 1980s, that wasn’t going to be the future”
• Fuller stressed continued improvement in the return on
capital employed (ROCE), which was the industry
benchmark for performance
Ex. 3
Ex. 4
Ex. 5
Dome Petroleum
 Integrated Oil Companies
• Integrated oil companies had three distinct businesses:
• The term integrated oil, or majors, referred to
companies with operations across all three areas
Upstream • Oil and gas exploration, field development, and production;
Activities
Midstream • Pipeline transportation, gas processing, and gas marketing
• Midstream activities were often included as part of
Activities upstream activities

Downstream • Refining and marketing oil supplies and refined products

Activities
 Independent Oil Producers
• Independent producers referred to smaller
firms specializing in only one activity
Offshore Gas
Gulf of Mexico
Shell Oil Company
Sonat Exploration
Altura Energy Ltd
 British Petroleum
• Incorporated in 1909, British Petroleum was the • Sohio’s fragmented assets, however, only
third-largest petroleum and petrochemical increased BP’s finding costs and failed to produce
producer in the world, based on market the desired increase in production
capitalization, after Royal Dutch/Shell and Exxon • Horton thought higher oil prices could sustain
• Like Amoco, BP’s main businesses were BP’s ambitious capital- spending program
exploration and production, refining and • He was wrong, and another dive in oil prices in
marketing, and chemicals 1992 resulted in a loss of USD624 million
• At the end of 1997, BP had proven developed • In an unexpected move, David Simon, then BP’s
reserves of 3.048 billion barrels of oil and 6.575 chief operating officer (COO), replaced Horton as
billion cubic feet of natural gas CEO
• Over the past five years, BP’s earnings per share • Simon invented a rescue formula for BP, called
grew from USD1.38 to USD4.26, and its stock the “1–2–5 Plan,” which called for BP to pay
price grew from USD27 in 1993, to USD80 in 1997 down debt by USD1 billion a year, boost profits to
• Most of this improved performance was credited USD2 billion a year by 1995, and cut new capital
to Sir John Browne, BP’s group chief executive spending to USD5 billion a year
• Browne brought to BP an intense work ethic, a • These were simple, yet ambitious, targets
ruthless cost cutting and performance-based
culture, and a laser-like focus on improving
shareholder valueIn the 1980s
• After oil prices collapsed in 1986, only Exxon had
the foresight to cut exploration and shed assets
at that time
• By contrast, BP’s E&P operation, then headed by
Browne, purchased Sohio to offset an expected
decline in production from the North Sea and
Alaskan fields
ROCE
 British Petroleum
• While Simon sorted out the books, Browne began
changing BP’s culture in order to make money
even when oil prices slipped
• He began by taking an ax to personnel
• By 1997, BP’s work force stood at half the
112,000 it had been in 1992
• He successfully refocused BP on a few key areas,
and sold off billions of pounds in unproductive
assets
• BP reported financial results in pounds (GBP);
1997 data for BP were converted into U.S. dollars
using an exchange rate of $1.64 to GBP1
• The June 30, 1998 dollar/GBP exchange rate of
1.67 was largely unchanged
• In the four years after 1992, profits almost tripled
and net debt was halved
• Simon won a peerage and ministerial office
• Browne’s reward was to succeed him as CEO in
1995
• After becoming CEO, Browne created small
business units within the exploration
department, gave them profit-and-loss
responsibility, and used performance contracts to
set clear expectations for performance
• “The power in our organization is the
performance contract,” said John Manzoni, a top
BP executive
• To get the benefits of working for a big
corporation, Browne also created peer groups,
which were quarterly meetings between heads of
similar business units
• At these meetings, peers shared information,
allocated capital, and generally attempted to fix
one another’s problems
• Finally, he also designed a review process that he
personally conducted with each major business
group in grueling three-and-a-half-hour sessions
every month
• Browne’s corporate persona contrasted with his
soft-spoken and somewhat shy personality, which
stood out in an industry known for its macho,
“wildcatter” types
 British Petroleum
• He felt compelled to become an expert in the
things that interested him—whether work-
related or not— from petroleum engineering and
finance to opera and woodcarving
• Intel CEO Andrew Grove noted that it was the
combination of Browne’s fierce intellect and
barely audible speaking style that made him an
uncommonly effective leader
• At Intel board meetings, “people practically stop
breathing and lean out of their chairs to listen so
they don’t miss any of those soft words,” said
Grove of Browne, an Intel board member
• A workaholic, the never-married Browne often
kept London time in the United States by starting
his day at 4:00 a.m.
• Employed by BP since graduating with a physics
degree from Cambridge in 1969, “he works like a
beaver and never stops thinking about the
company,” said Simon
• “He’s totally in love with [the company]
• It is his wife, his sister, his brother
• It’s everything to him.”
• Browne’s record of producing more earnings with
less capital made him the clear choice for the
CEO job at BP
• The chief executive’s job in the first half of the
1990s was mainly about divesting
underperforming assets
• By 1997, Browne was oil’s leading cost cutte
• The firm’s return on capital had moved from the
bottom to the top quartile in industry rankings
during his tenure
• But keeping it there and improving it were now
Browne’s challenge
• Internally, the company had wrestled with the
question of whether it should move up in the
industry through a series of small, carefully
chosen deals and partnerships or via one big
acquisition
• Browne said, “One of the things we kept
struggling with was whether we [should] put
things in place with bits,
Business Units
 British Petroleum
• but as we looked at this, it looked more and more • Amoco seemed to meet this criterion
difficult to achieve our strategic objectives • It was strong in North America and in refining and
• ”Increasingly, he turned his attention to finding marketing, whereas BP was strong in Europe and
new sources of revenue growth. in exploration and production
• Leadership in any field at any time starts with • Amoco’s reserves were weighted toward gas,
direction—and with performance —which is the while BP’s were mostly in oil
open and transparent test of whether you’re • BP’s earlier expansions into North America had
moving in the direction you want met with only mixed success, and Amoco’s
• No company ... no institution or individual ... can international forays had been problematic
claim to be a leader unless it can demonstrate a • The combined firms would have global reach, but
track record of performance relatively few overlapping assets
• In business, that means performance on a • Exhibit 6 displays the worldwide distribution of
comparative, competitive basis—measured by a production and refining assets of BP and Amoco
series of benchmarks such as return on capital ... • In this strategy, greater size would be the
unit costs ... and income per share .... outcome, but not the aim, of the acquisition
Performance is also measured by the ability to
renew your activities
• We produce 1.5 million barrels of oil and gas a
day
• That means that, every three years, we have to
find new oil and gas reserves equivalent in
volume to a new company ... equal in size to the
11th- or 12th-largest company in the sector
• The new strategy required BP to identify
potential acquisition targets with a strong fit to
its existing businesses
Ex. 6
 British Petroleum
• Some analysts were frankly skeptical of Browne’s ability
to move from cost cutting and portfolio rationalization to
a new strategy of growing assets and the revenue base
• First, historically there were few large oil mergers that
had produced substantial opportunity for revenue growth
• The only recent example occurred in 1985, when
Standard Oil of California— now Chevron—purchased
Gulf Oil for USD13.3 billion (the largest U.S. merger up to
that time)
• The deal was not an immediate success, but thanks to the
West African properties acquired with Gulf, Chevron
gained an enviable position in one of the world’s most
promising exploration areas
• Second, getting bigger was, in many ways, a reversal of
BP’s winning strategy (begun in 1992) of cutting expenses
and shedding nonperforming assets
• Critics worried that BP was sacrificing a focus on
efficiency in order to grow
• They pointed to Exxon and Shell
• Exxon had cut costs and bought back stock over the past
decade, allowing Shell to surpass it in sheer size, but
Exxon had posted better returns than its archrival
• Third, other analysts, noting that BP had outperformed
nearly all its major rivals in recent years, questioned the
need for BP’s new growth-based strategy
• “I don’t believe that companies of that size have to merge
to stay competitive or to seek opportunities,” said Steve
Ravel, who followed the oil industry for the money-
management firm Spare, Kaplan, Bischel & Associates
• “None of the big players, including Amoco, are capital
constrained”
• Another analyst, at Donaldson, Lufkin & Jenrette, added,
“I don’t subscribe to the view that bigger is inherently
better
• I believe that better is better”
• Finally, one analyst, noting that BP’s earnings had
declined in recent quarters, suggested that the merger
was an attempt to divert attention from unfavorable
underlying earnings trends with “unverifiable self-help
benefits”
• “BP’s ‘walk on water’ image is about to be tarnished—
despite management’s attempts in recent years to
portray itself as independent of oil-price movements, BP
continues to be an oil-price play”
Gulf Oil
 Background of the Merger Negotiations
• BP had been on the lookout for acquisitions and
joint ventures for several years
• In February 1997, Amoco and BP held preliminary
discussions concerning a possible joint venture of
their petrochemical businesses
• Those discussions were exploratory in nature, and
ended without an agreement owing to inadequate
synergies
• Reportedly, BP had mulled possible mergers with
Mobil and U.S. chemical giant Union Carbide
Corporation before again turning to Amoco
• In May 1998, Browne and Fuller met, at Browne’s
suggestion, to discuss the possibility of combining
their businesses
• Originally, BP proposed a “dual holding company”
structure in which Amoco and BP would continue to
exist as separate public companies with their own
publicly traded common stock
• The two businesses would be managed as a “unified
enterprise” through a common board of directors
and senior executives
• The advantages of the dual holding company
structure were that each company could maintain
its own identity and stock exchange listing and thus
retain access to its primary capital market
• The perceived disadvantages were the complexity of
the structure and the possibility that the two
companies’ stocks would not trade in their
respective markets at prices in line with the
economic terms of the merger agreement
• In the discussions, both parties agreed that the dual
holding company structure needed to achieve the
same favorable tax treatment as the pooling of
interests under the U.S.’s generally accepted
accounting principles (GAAP), or merger accounting,
as it was known under the U.K. GAAP
• Pooling accounting did not require that goodwill be
recorded as an asset on the combined entities’
balance sheet, and, therefore, did not require that
goodwill be amortized under U.S. GAAP
• To qualify for pooling, a transaction had to meet
several tests; the primary ones were (1) the
acquiring firm had to issue voting stock for at least
90% of the target’s voting common stock; (2) each
entity must have been autonomous and
independent of the other for two years prior to the
deal; and (3) the combination must be effected in a
Union Carbide Corporation
Unified Enterprise
• Unless otherwise noted, background of the
negotiations is from the merger proxy
• This tax treatment was viewed as critical to
achieving adequate benefits for shareholders and a
favorable reaction from the financial markets
• One executive involved in the discussions observed
that Browne and Fuller were an odd couple
• Browne was urbane, precise, and determined,
whereas Fuller was more informal and earthy, more
the oil roustabout—“like Lee Marvin, but more
sophisticated”
• During their meetings, Browne smoked countless
cheroots, and Fuller even more cigarettes.
Nonetheless, the two hit it off from the start,
frequently meeting alone to take a pragmatic look
at the details as well as the overall design of the
combination. Only a handful of executives and
back-room staff were involved in the early stages of
negotiations (code-named “Operation Belgium”).21
They included, for BP, Rodney Chase, the 54-year-
old deputy chief executive; Bryan Sanderson, the
most senior member of the board at age 58; and
Dick Olver, the 51-year-old head of Exploration and
Production. Fuller was joined by Amoco’s president,
William G. Lowrie, and several other senior
managers.
• In late July 1998, the Amoco and BP boards were
separately briefed on the dual holding company
structure
• Afterward, Fuller and Browne met again to address
the major sticking point of the proposed structure
• Specifically, what would happen if the two dual
holding company stocks did not trade appropriately
on a relative value basis and one company’s shares
traded systematically at a discount? The parties
were not able to reach agreement, and when the
U.S. Securities and Exchange Commission (SEC)
expressed other reservations on August 7, 1998,
Amoco and BP terminated discussions of the dual
holding company
• The following day, discussions began with respect
to a stock-for-stock merger between Amoco and BP
• The stock- for-stock merger was intended to
achieve substantially all the economic benefits of
combining both companies contemplated by the
dual holding company transaction
 Factors Affecting Valuation
• In an integrated oil company, profits depended
on a large number of factors, the most important
of which were the level of crude-oil prices, the
costs of exploring and developing a site, the costs
of producing finished product (usually gasoline),
and the price received for the finished product
• Exploration began by searching areas where
petroleum deposits were likely to exist
• Although the risk of oil-price movements could
be hedged to some extent through the use of
derivatives, few means existed to reduce the risk
associated with oil exploration (i.e., would the
firm strike oil?)
• Promising deposits had to be developed before
oil could be extracted from the site, and typically
several years elapsed from the start of
exploration to the booking of reserves in a given
field
• Hence, upstream unit revenues were a direct
function of oil prices and assets (reserves), which
turned over relatively slowly
• Drilling and extraction costs—major components
of oil recovery—varied considerably, depending
on the methods used, depth of the well, and
terrain
• Browne was also careful to avoid BP’s usual set of
London advisers—Warburg Dillon Read, BT Alex
Brown (formerly NatWest Securities), and ABN
Amro—choosing instead JPMorgan as its
• Morgan Stanley served as Amoco’s financial
adviser
• Transportation costs were incurred in getting the
crude oil to the refinery (and from there to the
retail customer)
• Drilling costs for offshore wells, for example,
averaged $526 per foot drilled in 1997, compared
with $74 per foot for onshore wells
• Most of the recent large discoveries had occurred
offshore
• Transportation costs for domestic reserves and
reserves in Alaska and the North Sea were
relatively low owing to a developed pipeline
system, but they could rise considerably for
remote locations such as those in West Africa
• Estimates of the upstream profitability of Amoco,
BP, and other major oil companies are given on a
per-barrel basis for 1997 in Table 1
Table 1. Major Oil Companies’ Upstream Profitability
Estimates (in Dollars Per Barrel)
Morgan Stanley
 Factors Affecting Valuation
• Replacement cost was a widely used measure of
investment efficiency in the industry
• It measured the cost of replacing barrels that had
been produced
• By convention, replacement cost was the average
of depreciation and exploration expenses over a
five-year period
• If the replacement cost per barrel was roughly
USD4 to USD5, then crude prices had to exceed
roughly USD13 per barrel for exploration to be
profitable and to cover the production costs and
taxes per barrel
• Of course, the threshold price had to be
substantially higher for remote locations and
difficult extraction sites.
• The downstream activity of refining provided the
link between crude oil and the finished product
• Because the uses for crude oil as it came from
the ground were limited, refining was necessary
to transform crude oil into an array of products
for transportation, home heating, and other
applications
• The industry responded to changes in demand by
adjusting the process to vary the yield of
gasoline, heating oil, kerosene, and other
products
• Nevertheless, nearly half of all U.S. refinery
output was motor gasoline
• Margins were generally lower on refining
activities than on upstream activities for several
reasons
• First, downstream activities were more labor-
intensive than were the highly capital-intensive
upstream activities
• Historically, the retail market for gasoline and
heating oil had been fragmented, making
economies of scale difficult to achieve
• Analysts, however, saw industry consolidation,
which might facilitate greater market share, as a
possible means to lower unit-distribution costs
and pricing power
• Second, capacity improvements in the early
1990s had resulted in a permanent surplus of
distillation capacity, putting downward pressure
on prices
Replacement Cost in Oil Industry
Yield of Gasoline, Heating Oil, Kerosene, and
Other Products
Gasoline
Heating Oil
Distillation in Oil Industry
 Factors Affecting Valuation
• This trend peaked in 1995, when pretax margins
on downstream assets fell to 7% on average
• Since then, margins had recovered to around 10%
or 11%. In 1997, Amoco’s refining and marketing
margin, USD1.10 per barrel (Exhibit 5), resulted
in approximately a 7.3% after-tax margin on
refining and marketing assets (Exhibit 3), or
11.2% on a pretax basis
• Typically, costs associated with the development
of proven reserves were capitalized and
amortized over the estimated period of
exploration
• All unsuccessful exploration expenditures were
charged against income
• Preliminary estimates suggested that the merged
companies could expect to save USD2 billion
annually in pretax operating costs by 2001
• The USD2 billion represented approximately
13%–14% of the combined companies’ operating
costs, which was at the high end relative to some
recent mergers
• By comparison, pharmaceutical companies had
delivered synergies between 11% and 14% of
operating costs; and the recent Daimler-Chrysler
merger, 3% to 5%
• The largest savings were expected to arise from
the elimination of some 6,000 jobs at Amoco (see
Exhibit 7 for details of the proposed synergies)
• The reduction in staff would result from the
closing of headquarters in Chicago and the
movement of those activities to London
• Fuller had already cut staff, largely through
voluntary programs, and U.S. employment
declined from 38,366 in 1993 to 32,726 in 1997
• Although he did not say so, Browne believed that
Amoco had been remiss in not cutting more jobs
sooner
• Both firms possessed highly trained work forces,
but it was generally known that Amoco’s
executives and staff were better paid than BP’s
were
• For those reasons, Browne saw the cuts in staff
savings as a significant benefit to BP’s
shareholders
Shell
BASF
 Factors Affecting Valuation
• In addition, the concentrated nature of Amoco’s
downstream refining activities was expected to
produce major cost savings from better logistics
and the elimination of duplicate facilities
• Operational rationalization of downstream
activities was expected to save USD250 million
annually
• The new company would also be one of the top
two gasoline retailers in 20 of the 35 states in
which it operated, improving pricing power, and
allowing cost reduction
• The estimated overall cost of implementing the
merger savings, however, was USD2.2 billion on a
pretax basis
• This cost would likely be incurred at the outset of
the combined firms’ operations
• Owing to Amoco’s heavy holdings of gas reserves,
the postmerger portfolio mix of the new
company would be weighted more toward gas
than oil
• Gas sold at a discount to oil
• While the lower costs to produce gas offset some
of that disadvantage, the impact could be seen in
the fact that BP generated cash flow per barrel of
USD9.40 in 1997 versus Amoco’s USD8.13 a
barrel
• But the demand for gas, which was used
primarily for heating, tended to be more stable
than the demand for oil, which tended to be
more cyclical
• The new company would also be the third-ranked
petrochemical company in the world, based on
sales, after Shell and BASF
• Although Amoco was the world leader in PTA, a
fast- growing feedstock for polyester, there was
little overlap with BP’s number-one chemical
products (acetic acid and acryonitrile)
• At the moment, the profit potential in the
chemical division depended on cyclical
improvement and the recovery of profit margins
in the sector
• While there might be some scope for operational
efficiencies when those occurred, large benefits
were not expected to arise in the near term from
the combination of the two chemical divisions
Potential Merger Cost Savings
PTA
Acetic Acid
Acryonitrile
 Factors Affecting Valuation
• Finally, the size and scale of the
combined firms and the creation
of a super major were key, in
Browne’s mind, to gaining a
competitive advantage
• Together, the two companies
would have proven reserves of
approximately 8,400 billion barrel
of oil equivalents (boe) and total
reserves of 14.9 billion barrels,
second only to Shell and slightly
ahead of Exxon
• Of the remaining competitors, the
nearest being Mobil and Chevron,
would have only half that
• Exhibits 8a and 8b depict the
reserves and other data of
industry competitors. Browne
noted:
• To prosper in an era of [US]$13
crude oil, companies need vast
financial clout as well as scale to
drive down costs
• With development costs for new
fields in the billions of dollars, only
the largest companies are likely to
get access to giant fields, where
the biggest profits are made
• In his view, the transaction offered
the potential for growth beyond
what either company could
achieve on its own
Total Reserves: Premerger and Post
Merger
Year-End Data for Industry
Competitors—1997
 Discussion Question

What price would be paid to Amoco’s

shareholders?
 Price or Value
• At this point, a number of issues remained for the
negotiating teams to resolve.
• First and foremost, what price would be paid to
Amoco’s shareholders?
• At the end of July, Amoco stock was trading at
USD41.75 a share
• A key task was to determine what premium, if any,
would be paid above current market valuation for
Amoco’s shares
• BP’s stock in the United States was listed as an
American Depository Share (ADS) on the New York
Stock Exchange (NYSE)
• At the end of July, BP’s stock sold for USD80 per
ADS
• Each ADS represented six ordinary shares of BP
stock listed and traded on the London Stock
Exchange (LSE)
• Hence, each ordinary share of BP stock sold for
USD13.33 (USD80 ÷ 6)
• Depending on the price negotiated for Amoco, the
economic interests of the parties could then be
reflected in an exchange ratio for the deal
• For example, if no premium were paid to Amoco’s
shareholders, the exchange ratio would be 3.13
(41.75 ÷ 13.33)
• In the absence of further information about BP’s
value, this would effectively assume that BP’s
current price of $13.33 was at fair value
• The legal form of the transaction could be a merger
of equals or an acquisition of one firm by another
• Amoco was mainly interested in a merger of equals
• Shareholders might be influenced in their voting by
the appearance that one firm dominated the other,
regardless of the economic reality of the deal
• Exhibit 9 contains multiples and premiums paid in
recent mergers of oil companies
• Exhibit 10 projects cash flows for Amoco as a
stand-alone company without consideration of the
effects of the merger
• BP’s team had prepared its analysis assuming that
depreciation and exploration expenses (noncash)
would approximate capital expenditures in the long
run
• Exhibit 11 provides a comparison of recent market
information for the two companies
• Exhibit 12 contains information on recent interest
rates
 Form of Claim Exchanged
• Another issue for negotiation was the form of
equity claim that Amoco’s shareholders
would receive in the transaction
• Currently, Amoco’s shareholders held
ordinary shares of common stock that traded
on the NYSE
• Amoco shares enjoyed high liquidity because
the company was included in the Standard &
Poor’s 500 Stock Index
• At issue was whether Amoco’s shareholders
would receive ADSs or ordinary shares of BP’s
stock
• If Amoco’s shareholders received ADSs, they
would trade their claims through an
intermediary, called a depository bank, which
made a market for BP’s ADSs
• The intermediary generally promised to
execute, buy, and sell orders within 48
business hours of the trade’s placement,
although execution could be quicker for high-
volume ADSs
• Alternatively, if Amoco’s shareholders
received ordinary BP shares, the trading of
shares would require the use of brokers with
LSE affiliations and execution of the trade
within the U.K.’s normal business hours
ADS
ADR
 Currency for Dividends and Financial Reporting

• In the United Kingdom, • Exhibit 13 compares the

BP paid dividends and accounting terms used in
reported its financial financial reporting under
results in British pounds the U.S. and U.K. GAAP
sterling, whereas Amoco
paid dividends and
reported financial results
in U.S. dollars
• The depository bank
could convert dividends
paid in pounds or U.S.
dollars into a given
holder’s preferred
currency
UK GAAP
US GAAP
 Conclusion
• The final agreement • Thereafter, the terms
hammered out by the would need to be
teams would require approved by each
approval from each country’s regulatory
firm’s board of authorities
directors • Only after those
• Exhibit 14 contains a hurdles had been
description of BP and cleared would
Amoco’s premerger shareholders finally be
boards of directors able to voice their
opinions
Premerger Boards of Directors
BOD
 List of Financial Regulatory Authorities
by Country
• A-B [edit ]
• Afgh ani stan -  DaAfghanis tan B an k  (DAB )
• Alb an ia - Alb an ian Financial Su perviso ry Au th o rit y ( FSA)
• Algeri a -  Co mmissi on d 'Organi sati o n et d e Su rveillan ced es Opér ati o ns de B ou rs e(C OSOB)
• And o rr a -  In sti tut Nacion al An do rr à de Fin an ces ( INAF)
• Angu illa - An gu illa Fi nanci al Ser vices Co mmi ssi on
• Anti gua & Barb ud a -  Fi nancial Ser vices Regu lat or y C o mmis sio n
• Argen ti na  - C omi sió n Nacio nal d eVal ores( CNV)
• Armeni a -  Cent ral Ban k o f Armen ia  (C BA)
• Aus tr al ia:
– Aus tra lian Prudential Reg ula tion Authority(APRA)
– Aus tra lian Se curitie s a nd Inv es tments Commis sion (ASIC)
– Aus tra lian Ta ke ove rs Panel
– Foreig n Inve stments Rev iew Board (F IRB)
– Aus tra lian Transac tion Re ports and Analy sis Ce ntre (AUS TRAC)
• Aus tr ia:
– Financ ial Ma rk et Authority (F MA, F inanz marktaufs ichtsbehörde in G erman)
– Oe ste rrei chi sc he N ationalbank
– Aus tria n T ak eover Commiss ion (Ü bernahme kommiss ion in  Ge rma n)
• Azerb ai jan
– Financ ial Ma rk et S upe rvi sory Authority of Azerbaija n ;
• B ah amas:
– Centra l Ba nk of The Ba ha ma s
– Sec uri ties Commis sion of the Bahama s
• B ah rain  - C en tr al Bank of B ah rain
• B an gl ad esh :
– Bangla de sh Ba nk
– Sec uri ties and Exc hange Commis sion (Bang lades h)
• B ar bad os:
– Barbados Financia l Se rvi ces Commis sion
– Centra l Ba nk of Barbados
– Financ ial Intell igence Unit (Barba dos )
• B elaru s :
– Na tional Bank of the Republ ic of Bela rus
• B elgiu m:
– Financ ial Se rvi ces and Mark ets Authority (F SMA - Autorité des serv ice s e t marché s financie rs /Authoritei t voor Financië le Dienste n e n Markten)
– Na tional Bank of Belg ium (N BB - Banque Na tional e de Belg ique/N ationale Ba nk van Be lg ië)
• B eli ze -  Int ern atio nal Financial Servi ces Co mmiss io n
• B er mud a -  B ermu da Mon et ar y Aut ho ri ty
• B ol ivi a -  Au to ri dad d e Su pervi sió n del Si stemaFi nan cier o   (ASFI)
• B os n ia and Her zegovin a:
– Republika Srps ka S ec urities Commiss ion for Re publik a Srps ka
– Sec uri ties Commis sion of the F ederation of Bos nia a nd Herzegovina
 (Komis iji z a v rije dnosne papire Federa cij e Bosne i Herceg ov ina in Bosnia n)
• B ot sw ana
– Non-Bank Fi na ncia l Institutions Regulatory Authority (NBFIRA)
– Bank of Bots wa na  (BO B)
• B razil
– Banco Ce ntra l do Bras il (BACEN )
– Comis são de Valores Mobili ários (CVM)
– Superi nte ndê nc ia de S eg uros Priv ados (S US EP)
• B riti s h Vir gin Is lan ds  -  Br itis h Vir gi n Islan d s Finan cial Servi ces C ommiss io n
• B ru n ei -  B ru nei In ter n ati on al Fin an cial C en ter o f t he Min ist ry o f Fin an ce
• B ul garia - Fin an cial Sup ervisi on C ommiss io n ( B ulgar ia)   (FSC)
• C -D[edit ]
• C amb o dia - Nati o nal B an k o f C amb o dia (NBC )
• C an ad a:
– Canada Deposi t Ins ura nc e Corpora tion
– Office of the Superinte ndent of Financ ial Ins titutions (OS FI)
– Financ ial Tra ns actions a nd Reports Anal ysi s Centre of Cana da (FIN TRAC)
– Canadian Se curitie s Adminis tra tors (CSA)
• Al berta S ecurities Commiss ion
• Autori té des ma rc hés financ iers
• British Columbi a S ec urities Commiss ion (BCSC)
• O ntario S ec urities Commiss ion (O SC)
– Inv estme nt I ndustry Regulatory O rganiza tion of Ca na da (IIROC)
– Mutua l Fund De ale rs Ass oci ation (MF DA)
– Financ ial Se rvi ces Commiss ion of Ontario
– Financ ial Ins titutions Commiss ion - Prov inc e of Britis h Columbia
• C ayman Isl an ds  - C ayman Isl an ds Mo n et ary Auth o rit y
• C hi le -  Su p er int en dencia de Valor es y Segur os
• C hi na, Peo ple's Rep u b lic o f;
– Chi na Sec uri tie s Re gulatory Commiss ion (CS RC)
– Chi na Banking Reg ula tory Commis sion (CBRC)
– Chi na Ins ura nc e Re gulatory Commiss ion (CI RC)
• C hi na, R ep ub lic of  ( Taiwan) -  Fin an cial Sup er viso ry C ommis sio n
• C ol omb ia;
– Superi nte nde nc ia F ina nc iera de Colombi a
– Na tional Dire ctorate of Ta xe s a nd Cus toms  (DIAN)
• C on go, th eDemocrati c R ep ub lic of  -  Cent ral Ban k o f C on go
• C os ta R ica;
– Superi nte nde nc ia G enera l de Valores
– Superi nte nde nc ia G enera l de S eg uros (Costa Rica )
• C ôt e d' Ivo ire;
– Banque Central e de s E tats de l' Afrique de l'O ue st
• C ro ati a - C ro ati an Financial Servi ces Su perviso ry Agen cy
• C yp ru s ;
– Centra l Ba nk of Cyprus
– Cyprus Se curities a nd Ex cha ng e Commis sion (CYS EC)
– Cyprus Insurance Compa nie s Control Servic e (I CCS)
• C zech R ep ub lic  - C zech Nati on al B an k
• Den mar k -  Fin an cial Sup er vis or y Aut h or ity (Den mark) , ( Fi na ns tils yn et  in  Dani sh )
• Domi ni can R ep ub lic :
– Banco Ce ntra l de la Re public a Domini ca
– Superi nte nde nc ia de Bancos de la Re public a Domini cana
• Domi ni ca
– Financ ial Se rvi ce U ni t of the Commonwe alth of Dominic a
• E-I[ ed it]
• Ecu ad o r -  Su perin tend en cia d eB an co s
• Egyp t  -  Egypti an Financial Su perviso ry Au th o rit y ( EFSA)
• El Salvad or  - Sup er in tend en cia del Sist emaFin an ciero
• Eur op ean Un io n:
– Europe an Ce ntral Bank (E CB)
– Europe an Ba nk ing Authority (EBA)
– Europe an Se curitie s a nd Ma rke ts Authori ty (ESMA)
– Europe an Ins uranc e a nd Oc cupationa l Pens ions Authori ty (EIO PA)
– Europe an Sy ste mic Ri sk Boa rd (ESRB)
• Esto n ia :
– Financ ial Supe rvis ion Authority (F inantsi nspek tsi oon in  Estoni an)
– Estoni an Bank (E es ti Pank in Es tonian)
• Faro e Is lan ds  - Insu r an ce Au th or ity o f t he Faroe Is land s ( Tryggi ngareftirli tið in Faro es e) (Fo r Ins ur an ce, Pens ion and mo rtgages all ot her fi nancei s r egu lat ed b y  Fi nan cial Su pervi so ry Au th o rity ( Denmar k) )
• Finl an d  - Finan cial Su p erviso ry Aut ho rit y, ( FIN- FSA  Fina n ss iva lvo nt a i n Fin nis h )
• Fran ce:
– Autorité des ma rchés fina nc iers (F rance) (AMF)
– Reg istre unique de s Interme dia ire s en As surance, Ba nque e t F ina nce (F rance)(ORIAS )
– Autorité de Controle Prude ntiel (Fra nce )(ACPR)
– Fre nch Ta ke ov er Pane l
• Geo rgia - Nati o nal B an k o f Geo rgia
• Ger man y -  Federal Fin an ci al Sup er vis or y Au th ori ty  (B aFi n - B un desans talt f ür Fin an zd iens tleist un gs au fsi cht )
• Ghan a;
– Sec uri ties and Exc hange Commis sion (G ha na) (S EC)
– Bank of G ha na (BO G)
• Greece -  Hellenic Cap ital Mar ket Co mmiss io n
• Grenad a -  Gr en ad aIn t ern ati on al Fin anci al Ser vices Au th or ity  ( GIFSA)
• Guatemala - Sup er in tend en cia de B an co s ( SB )
• Guern s ey -  Guerns ey Fin ancial Ser vices Co mmissi on
• Hon d u ras  - Nati o nal B an ks an d Secur ities C o mmi ssi on  (C omis ió n Nacio nal d eB an co s y Segu ro s in  Spani sh )
• Hon g K on g:
– Hong Kong Moneta ry Authori ty (HKMA)
– Hong Kong S ec urities and Futures Commiss ion (S FC)
• Hun gar y -  Hu ngar ian Nati on al Bank  (Hun gar ian : Mag ya r Nemz eti B an k ( MNB ) )
• Icelan d -  Fi nancial Sup ervi so ry Au th or ity
• Ind ia:
– Res erv e Bank of India (RBI)
– Sec uri ties and Exc hange Board of India (SEBI)
– Forwa rd Marke ts Commis sion (India) (FMC)
– Ins ura nce Re gulatory and De ve lopme nt Authori ty of I ndia (IRDAI)
– Pension F und Regulatory and Dev elopme nt Authority (PF RDA)
– Ministry of Corpora te Affa irs (MCA)
• Ind on esia:
– Financ ial Se rvi ces Authority (Indones ia)  (Indone sia n:  Otoritas Jasa Ke uangan) (OJK)
– Bank I ndone sia
• Irelan d:
– Centra l Ba nk of Irel and
– Iris h T ake ov er Panel
• Islami c R ep ub lic of Ir an :
– Sec uri ties and Exc hange Organiz ation of Ira n
– Centra l Ba nk of Iran
• Iraq  -  Ir aq Secur iti es Co mmi ssi on  ( ISC )
• Isle of Man  -  Isle of Man Financial Servi ces Aut ho rit y
• Israel -  Is rael Securi ties Au th or ity  (ISA)
• Italy:
– Commiss ione N az ionale pe r le Socie tà e la Borsa (CON SO B)
– Ins titute for the Superv isi on of I ns urance (IS VAP)
• J -L[ ed it]
• J amai ca - Finan cial Services C ommis sio n ( Jamaica)
– Bank of Ja ma ic a
• J ap an :
– Financ ial Se rvi ces Ag enc y
– Sec uri ties and Exc hange Surve illa nce Commis sion (S ES C)
• J ers ey -  Jer sey Finan cial Servi ces C ommiss io n
• J or dan  - J or dan Secur ities C o mmi ssi on
• K az akhs tan :
– Age nc y of the Republi c of Ka za khstan on Re gulation and Supe rvis ion of Financia l Mark et and Financia l O rga niz ations  (Аге нт ст во Рес пу блики Ка зах ст ан по регу лированию и надзору финансов ого ры нк а и финансовы х орга низаций  in
Kaz ak h )
– Committe e for the Control and S upervi sion of the F ina nci al Market and F ina nci al O rg ani za tions of the N ational Bank of the Re public of Ka zak hs tan
• K en ya -  Capit al Market s Aut ho rit y (K enya)
• K uw ait :
– Centra l Ba nk of Kuwai t (CBK) ‫زي‬
( ‫ بنك ا لكو يتالمرك‬i n Arabic)
– Capita l Mark ets Authority Kuwa it (CMA)‫يت‬( ‫ دو لة الكو‬-‫ ه يئة أسو اق الما ل‬in Arabic)
• K or ea, Sou th :
– Financ ial Se rvi ces Commiss ion (F SC)
– Financ ial Supe rvis ory Se rvic e (F SS )
• Latvia -  Fin an cial and C api tal Mar ket C ommiss io n
• Leb an o n -  Banking C on tr ol Co mmi ss ion o f Leb an on  ( BC CL) and In su ranceC on t ro l C ommiss io n ( IC C)
• Liecht en st ein  -  Fin an cial Mar ket Aut ho ri ty (Li ech tens tein)  (FMA)
• Lith u an ia -  B an k o f Lith u an ia
• Luxemb ou rg:
– Commiss ion de Surve illa nce du S ecte ur Financ ier (CSSF )
– Commiss aria t a ux Ass ura nc es (CAA)
• M-R[edi t]
• Mal aysia
– Bank N eg ara Mala ysi a (BN M)
– Sec uri ties Commis sion Mala ys ia (S C)
– Labua n F ina nc ial S erv ice s Authority (Labua n F SA)
• Mal aw i
– Res erv e Bank of Mala wi  (RBM)
• Mal ta -  Malta Fi nancial Ser vices Au th o rity  ( MFSA)
• Mau r itania -  Centr al Bank o f Mau ri tan ia (B CM)
• Mau r iti us
– Bank of Mauritius (BO M)
– Financ ial Se rvi ces Commiss ion (F SC)
• Mexico
– Comis ión Na ci ona l Ba nc aria y de Val ore s
– Comis ión Na ci ona l pa ra la Protec ción y Defens a de los Us uarios de Se rvic ios Fi nancie ros
• Mo ld ova -  Natio nal C o mmis sio n for Financial Market s
• Mo nt en egro  - Insu r an ce Su pervis io n Agen cy
• Mo nt serrat -  Mo nt ser rat Fi nancial Services Co mmiss ion
• Mo ngo lia
– Financ ial Re gulatory Commi ssi on of Mongolia
– Centra l Ba nk of Mongolia
• Mo ro cco -  Aut ori té Maro cain ed u Marché des C ap itau x ( AMMC) Ex C on seil d éo nt ol ogiqu ed es valeur s mob ili ères (C DVM)
• Nep al
– Ne pal Ra stra Bank (Ce ntral Bank of N epa l - Reg ula tor and S upe rvi sor of Banks and F ina nc ial I nstitutions)
– Bee ma Sa mi ti (Reg ula tor of I nsura nce Compani es)
– Sec uri ties Board N epa l
• Net herl and s
– Ne the rlands Authority for the Fi na ncia l Mark ets (AFM - Autorite it F ina nc iële Ma rkten in Dutch)
– The Dutch Ce ntral Bank (DN B- De N ederla ndsc he Bank in Dutc h)
• Net herl and s An till es  -  Ban k of th e Netherlan ds An ti lles [2]
• New Zealan d  - Finan cial Market s Au th ori ty (New Zeal and )
• Nigeri a
– Centra l Ba nk of Nig eri a (CBN ) (N ig eria )
– Sec uri ties and Exc hange Commis sion (N ige ria )
– Na tional Ins ura nce Commis sion (NAI CO M) (Ni geria)
– Na tional Pensi on Commi ssi on (PE NCOM) (N ig eria )
• Nor w ay - Fin an cial Sup erviso ry Aut ho rit y o f No rw ay (Fin an stil synet in  Nor w egian )
• Oman  -  Capit al Market Au th or ity ( Oman )
• Paki st an  - State Bank o f Pakis tan
• Pan ama - Sup er in ten d encia del Mer cado de Valo res
• Peru :
– Superi nte nde nc ia de Banca, Se guros y AFP (SBS )
– Superi nte nde nc ia del Me rca do de Val ore s (S MV)
• P hi lip p ines:
– Phi lippine Se curitie s a nd Ex cha ng e Commis sion (S EC)
– Ins ura nce Commis sion (Komisy on ng Seg uro)
– Bangk o S entral ng Pili pinas (Centra l Bank of the Philippines )
– Phi lippine De posit Ins ura nce Corporation (PDIC)
– Departme nt of F ina nce (DOF)
– Phi lippine Stoc k Ex chang e (PSE )
– Bureau of Tre as ury
• Polan d -  Po lis h Fin an cial Sup er visi on Aut ho ri ty ( KNF)
• Por tu gal:
– Portug ues e S ec urities Ma rke t Commis sion (CMVM)
– Portug ues e I ns urance Re gul ator (ASF)
• Qat ar  -  Qat ar Fi nancial Markets Aut ho rit y ( QFMA)
• R ep u bl ic o f Maced o ni a:
– Sec uri ties and Exc hange Commis sion of the Re publi c of Ma ce donia
 (MS EC)
– Na tional Bank of the Republ ic of Mac edonia
• R oman ia -  Ro man ian Financial Su perviso ry Au th or it y
• R us si a -  Cent ral Ban k o f R u ssi a ( CB R )
• S-T[ ed it]
• Sain t Lu cia - Fin an cial Sect or Su pervisi on Un it
• Sain t Ki tts an d Nevis:
– Financ ial Se rvi ces Re gul atory Commi ssi on
– Ne vis Financia l Re gulatory Servic es Commiss ion
• Sain t Vi ncent an d th e Grenadi nes  -  Fi nan ci al Ser vices Au th or ity
• San Mar ino  -  Cent ral Ban k o f San Mari no  ( BC SM)
• Sau di Arab ia  - Sau di Ar ab ian Mon etar y Agency ( SAMA) ‫ودي‬ ( ‫ مؤس سة النقد الع ربي الس ع‬i n Arabi c)-
• C ap it al Market Aut h or ity (Sau di Ar ab ia)  (C MA) (‫ هيئة الس وق المالية‬i n Arabi c)
• Serb ia -  Secur iti es Co mmi ssi on (Ser bi a)
• Seych ell es;
– Centra l Ba nk of Sey chelle s
– Sey chelle s F inanc ial Servic es Authority  (SF SA) [1]
• Singap o re  - Mo netary Au th or ity o f Singap or e ( MAS)
• Sloven ia - Secur iti es Market Agen cy ( ATVP Agenci jaz a Trg Vred no st n ih Pap ir jev)
• Sou th Afr ica;
– South Afri can Rese rve Ba nk
– Na tional Cre dit Reg ula tor
– Financ ial Se rvi ces Board (South Africa )
• Spain :
– Inv estme nt s ec tor reg ula tor - Spanish Se curitie s Market Commiss ionComi ( sión N aci onal del Me rca do de Val ore s, CNMV) [Mi FID]
– Ins ura nce se ctor re gulator (l ife and ge ne ral)  -Di rec ci on G enera l de S eg uros (DGS )[IMD]
– Banking s ec tor reg ula tor - Ba nc o de E spa ña (BdE)
• Sri Lan ka
– Centra l Ba nk of Sri Lanka
– Sec uri ties and Exc hange Commis sion of Sri La nka
• Swazi lan d  - C ap it al Markets Develop men t Uni t  ( Cent ral Ban k o f Sw azil an d)
• Swed en  - Fin an cial Sup erviso ry Aut ho rit y ( Sw eden)  (Fi nans in sp ekti on en , FI)
• Swi tz er lan d:
– Swiss Financia l Mark et S uperv isory Authori ty
– Swiss Na tiona l Ba nk
– SIX Swiss Ex chang e
• Tan zani a -  Capit al Markets an d Secu riti es Au th o rit y
• Taiw an -  Fi nancial Sup ervi so ry Co mmi ssi on
• Thailand :
– Bank of T hai land (BOT )
– Office of the Se curitie s a nd Exc ha nge Commis sion, Tha iland
 (Tha i S EC)
• Trin id ad an d To bago  -  Cent ral Ban k o f Trin id ad an d To bago
– Trinida d a nd Tobag o S ec urities and E xchange Commiss ion
• Tun is ia -  C on seil d u marché fin an cier
• Tur key:
– Banking Reg ula tion and S uperv isi on Age ncy of Turke y (BRS A- )
– Capita l Mark ets Board of Turkey (CMB)
• U-Z[ed it ]
• Ugand a
– Capita l Mark ets Authority (U ganda  )(CMA)
– Ins ura nce Re gulatory Authority of Uga nda
• Ukr ain e - Nati o nal Secu riti es an d St ock Mar ket C ommiss io n  ( NSSMC )
• Uni ted Arab Emirates:
– Ins ura nce Authority - (IA)
– Sec uri ties and Commodities Authority - (S CA)
– United Arab Emirates  (Dubai) - Duba i F ina nc ial S erv ice s Authority - (DF SA)
• Uni ted Kin gd om:
– Bank of E ngl and (BoE)
– Prudentia l Re gulation Authority (PRA)
– Financ ial Conduct Authority (FCA)
– Panel on Tak eovers a nd Me rge rs (PAN EL )
– Financ ial Polic y Committee (FPC)
• Uni ted States :
– Sec uri ties & Ex cha ng e Commis si on (SEC)
– Commodi ty F utures Tradi ng Commiss ion (CF TC)
– Federa l Rese rv e Sy ste m  ("Fe d" )
– Federa l Deposi t Ins ura nc e Corpora tion (F DIC)
– Financ ial Cri me s E nforce me nt N e twork (FinCE N)
– Financ ial Indus try Reg ula tory Authority (F IN RA)
– Office of the Comptrol ler of the Currency  (OCC)
– Na tional Cre dit Union Administration (NCUA)
– Consume r Fi na ncia l Prote ction Bureau (CFPB)
– Na tional Ass oc iation of I nsurance Commiss ioners (N AIC)
– Na tional Future s Associa tion (N F A) [ 3]

– In a ddition, e ac h s tate ha s i ts own ba nk ing authority [ 4]

• Uru gu ay -  Banco C en t ral del Uru gu ay

• Uzb ekis tan  -  Center for C oo rd inati on an d Co nt ro l o ver Fun cti o nin g of Secur iti es Market
• Vati can Cit y -  Fi nancial Infor mati on Auth o rit y
• Ven ez u ela  - Sup er in ten dencia Nacio n al d eVal or es  (SNV)
• Viet n am -  State Secu riti es Co mmiss io n ( SSC )
• Zamb ia -  Secu riti es an d Exch an geC o mmi ssi on (Zamb ia)
• Zimbab we - R es er ve Bank of Zi mb abw e ( RB Z)
•  
SEC
PRA
History of Oil Prices
World Crude Oil Resources (in Billions of
Barrels)
List of Upstream and Downstream Assets
 The Deal
• The irony of the situation in August 1998 was not
lost on H. Laurance Fuller, chair and chief
executive officer (CEO) of Amoco Corporation
• The agreement to the pending merger proposal
from British Petroleum (BP) would begin to
reassemble the former Rockefeller empire broken
up in the landmark “trust bust” case of 1911
• Rockefeller received 25% of the equity in each of
the 33 public companies
• All stocks were listed on the NYSE and
simultaneously began trading on December 1,
1911.
• At that time, the Rockefeller holdings were
carved into 33 new public companies, which
included Standard Oil of New Jersey (Exxon), New
York (Mobil), California (Chevron), Indiana
(Amoco), Ohio (Sohio), Continental Oil (Conoco),
and Atlantic Refining (ARCO)
• BP had previously acquired Sohio in 1988
• Where only recently size was seen as an
impediment to good performance, both Amoco’s
and BP’s management had entered negotiations
in the belief that increased size would enhance
their competitive position
• A year and a half earlier, Sir John Browne, BP’s
group chief executive, entertained thoughts of
combining with Amoco’s petrochemical division,
but, uncertain of the benefits, he backed away
• Now he renewed his interest in Amoco
Corporation, convinced that the creation of a
“supermajor” and a new platform for growth was
the next frontier for BP
• Since the late 1980s, however, there had been
few large mergers in the oil industry—certainly
nothing approaching the scale contemplated by a
combination of Amoco and BP
• Moreover, the industry had experienced
considerable downsizing in the 1980s and early
1990s in response to perceived problems of
overcapacity
 The Deal
• Now it would take a concerted effort to • All those factors weighed heavily on
convince shareholders that bigger was Fuller’s mind as he prepared for the
better, when most of the past decade last round of negotiations with Sir John
had featured fervent cost-cutting Browne
orientation
• From Fuller’s point of view, the
negotiations with BP had also ended
rather far from the original proposal.
The companies began discussing a dual
holding company structure in which
Amoco and BP would continue to exist
as separate public companies and
retain their own common stock
• The businesses would be managed as a
unified enterprise by identical boards
of directors and senior executives.
After many legal, tax, and regulatory
challenges, this idea was dropped in
favor of an outright merger between
the two companies.
• Under the current proposal, Amoco Oil
would lose its separate corporate
H. Laurance Fuller
 Synopsis
Macroeconomic assumptions,
particularly forecasting future oil
British Petroleum (BP) and Amoco
prices in an uncertain environment,
are considering a merger, and are in
and assumptions about Amoco’s
the process of negotiating a merger
ability to reduce exploration and
agreement
production costs make Amoco’s
future cash flows difficult to predict

The cases provide similar

information on most dimensions,
except projected future cash flows
 Learning Objectives

Analyzing a variety of Assessing both

strategic, organizational, quantitative and
Valuing acquisition
financial, and economic qualitative factors
candidates
issues associated with affecting merger
mergers and acquisitions; agreements;

Developing negotiation
strategies based on Negotiating merger
different parties’ agreements
perceptions of value;
 Discussion Question

What are the advantages and disadvantages of a

merger between BP and Amoco?
 Discussion Question

What are your company’s goals in this

negotiation?
What do you expect the goals of the other side
are?
 Discussion Question

What do you think Amoco is worth?

 Discussion Question

Develop a negotiating strategy, including an

identification of your opening and walk- away
bid (ask) prices
 Strategy
• As a first step, each team must meet independent
of its counterparty to review and prepare the
case
• The primary purpose of this meeting is for each
side to establish its own assessment of Amoco’s
worth prior to the negotiations
• Following this first meeting, but prior to the
beginning of the negotiations, the instructor may
want to meet separately with each side to discuss
the case as it pertains to that side
• We follow this procedure in our own teaching of
the case and invite faculty who teach bargaining
and negotiation to tag-team the class
• The discussion includes strategic issues, valuation
issues, and negotiation strategies
• But this meeting is optional
• It can enhance the case analysis and negotiation
process, but it is not required for the successful
negotiation of the merger agreement
• Each team is asked to submit an initial report
indicating its opening and walk-away bid (ask)
prices
• Thereafter, each team meets with its assigned
counterparty team for a predetermined period to
negotiate the merger agreement
• After the negotiation period ends, each team
submits a final report of the results of its
negotiation
 Strategic Issues
• A discussion of the strategic issues related to
the merger could include consideration of the
goals of both BP and Amoco, the strengths
and weaknesses of both sides, and the cultural
fit between the two companies
• The objective of this discussion is to assess
whether there is a strategic fit between BP
and Amoco
• Table 1 is an outline of a typical discussion
along these dimensions
BP’s and Amoco’s Objectives
 BP’s goals appear to center on seeking certain benefits that
come with increasing scale and scope in this industry

Scale and scope offer certain advantages in many countries

where there are few competitors and where access to reserves is
limited

It is essential in this industry to maintain a pipeline of reserves

Increasing size through merger is one means to accomplish this
objective
BP’s Goals
In addition, investment requirements for exploration are
substantial

Financially, larger firms can have the resources to sustain large

investments in projects that offer high upside potential but also
have low probabilities of success

Finally, an increase in size means that BP has a larger base over

which to leverage its expertise in exploration and production
 Although Fuller has stated that his goal was to maximize
the shareholders’ value, it is not completely clear what
Amoco’s goals are for this merger

It is possible that Amoco anticipates the formation of a

dichotomy within the industry—supermajors, with large
scale and scope, formed by mergers between the large
integrated firm (such as BP and Amoco) and specialist
Amoco’s players that focus on specific products or parts of an
Goals industry’s value chain

As a stand- alone entity, Amoco may have viewed itself as

a midsize player at a time when benefits would accrue
primarily to either the supermajors or specialists

If so, it could have viewed a merger with BP as a

defensive mechanism—a means to move from midsize to
supermajor status
 Why this Deal?
• This review suggests Amoco has
something that BP needs to be able to
achieve its goals
• BP is strong in Europe; Amoco is
strong in North America
• BP is strong in E&P; Amoco is strong in
refining and marketing (R&M)
• BP is strong in oil; Amoco is strong in
natural gas
• A merger with Amoco increases both
scale and scope
• Furthermore, each side has something
to compensate for the other side’s
weaknesses
• BP’s earlier attempt at R&M in the
United States was unsuccessful, and
Amoco is particularly strong in this
area
• Amoco has been unsuccessful at
expanding internationally, while BP
has a strong European presence
• The cultural differences, however, are
notable, so the two sides will have to
focus on those differences in
integrating the two companies
 Valuation Issues

Dividing synergies
Forecasting Amoco’s cash
between
flows as a stand-alone Estimating WACC Estimating TV
shareholders of BP
business
and Amoco
 Forecasting Amoco’s Stand-Alone Cash Flows
• There are differences in the cash flows on a stand- • For simplicity, the same assumption is used for the
alone basis. Amoco’s flows were forecasted in Exhibit refining and marketing and chemical segments
10 in both cases • Case Exhibit 4 (identical in BP and Amoco cases) gives
• Those differences occur mainly in (1) forecasted information on Amoco’s net working capital
exploration and production (E&P) revenues, due • For 1997, current assets are USD7.044 million and
primarily to the two sides’ differing expectations current liabilities are USD6.044 million
regarding future oil prices, and (2) forecasted E&P • But current liabilities include a financial claim, the
costs, due to different assumptions about Amoco’s current portion of long-term debt
ability to decrease exploration and production costs
• If this is removed, operating current liabilities are
• BP’s expectations about future oil prices are less USD5.826 million
optimistic than Amoco’s
• Hence, net working capital (NWC) is USD1.218 million
• In addition, BP’s estimates of Amoco’s ability to or 3.3% of Amoco’s sales
decrease E&P costs are less optimistic than Amoco’s
estimates of its own ability • Thus, incremental investment in NWC could be
projected at 3% to 4% of the change in revenues
• This reflects BP’s assessment of Amoco’s financial
performance relative to its industry peers over recent • Given the revenue projections for Amoco’s E&P
years operations in both cases’ Exhibit 10 (revenue
projections are not provided for R&M and chemical
• Two assumptions are also made to simplify the operations), NWC charges are small and thus omitted
analysis
•  
• First, capital expenditures are assumed to equal the
sum of depreciation and amortization and
exploration expenses, or replacement costs
• Depreciation and amortization and exploration
expenses are noncash expenses that arise from
capitalizing the costs of exploration
• For major oil producers, these costs have stabilized
around USD4 to USD5 per barrel
• Thus, to maintain a beginning level of reserves,
capital expenditures are assumed to equal
replacement costs
Base-Case Key Assumptions.
 Estimating WACC
• In valuing Amoco as a stand-alone entity, the cash flows should be discounted at Amoco’s WACC, or 9.04%
 Estimating Terminal Value
• A standard estimator of terminal value is the
constant growth valuation formula
• Terminal Value t = CFt (1 + g) (WACC – g)
• Where:
• CF is the free cash flow in period t to all providers
of capital
• WACC is the weighted-average cost of capital
• And g is the expected growth rate into
perpetuity  analysis
• The cases state that primary energy demand is
expected to grow at no more than 2% per year
for the foreseeable future
• Hence, real growth in demand can range from 0%
to 2%
• Inflation estimates can be determined via the
Fisher formula from U.S. Treasury rates
• The 10- year Treasury rate is 5.5%
• If the real interest rate typically varies from 2% to
3% for developed countries, inflation estimates
range from 2.4% to 3.4%
• The combination of real growth in demand [0% to
2%] and inflation [2.4% to 3.4%] yields long-term
growth rate estimates between 2.4% and 5.4%
• Use a 3% estimate of growth in base-case
 
• Combining the first three steps yields the base-
case stand-alone values presented for each side
• Under those base-case assumptions, BP’s stand-
alone value for Amoco is USD41.20 per share, in
close accordance with Amoco’s current market
price of USD41.75
• Amoco’s view of its stand-alone value is
somewhat more optimistic at USD44.74 per share
• But neither of the stand-alone values reflects any
of the benefits of the proposed combination
 Dividing Synergies Between
Shareholders of BP and Amoco
  • For example, if Amoco negotiates for USD1 billion
• Projected synergies from the merger are of the synergies, the after-tax cash flows rise by
estimated to total USD2 billion per year, USD650,000
beginning in 2001 • Some incorporate them gradually in the years up
• Projected up-front costs to obtain the synergies to 2001 and others defer them entirely until 2001
are estimated at USD2.2 billion • Likewise, there can be different interpretations of
• Fully half of the synergies were expected to come the statement in case Exhibit 7 that more upside
from the elimination of 6,000 jobs at Amoco is possible after 200
• Differences of opinion as to whose shareholders • In the worst case, Amoco shareholders could
would reap the benefit of that USD1 billion are bear the full cost of the merger, or USD1.43
likely to emerge billion (USD2.2 billion × (1 − 0.35)) on an after-tax
• Amoco negotiators are likely to suggest that basis
Amoco shareholders are entitled to this USD1 • Because this cost is incurred at the closing of the
billion because the job cuts will come primarily at transaction, it is shown as a time 0 outlay
the expense of Amoco employees
• BP negotiators are likely to suggest that BP
shareholders should gain the benefit of the USD1
billion because Browne believed that Amoco
should have cut staff earlier and it takes a
combination with BP to force that efficiency
• The division of the USD2 billion in synergies
needs to be factored into Amoco’s stand- alone
cash flows
• 2 If the real rate is assumed to be 3%, the
expected inflation rate [E(INF)] can be found
by solving the Fisher equation: 1.055 = (1.03)
× [1 + E(INF)]. This yields an inflation forecast
of 3.4%.
 Using WACC
•  
• A second factor that affects the postmerger value of Amoco is whether Amoco’s or BP’s WACC should be used to discount the
merger cash flows
• The assumptions built into the calculation of each company’s WACC are similar, except that Amoco’s capital structure consists
of slightly more debt than BP’s (12.4% vs. 8.5%), and BP’s cost of equity is slightly higher (10.3% vs. 9.7%) due to a slightly
higher β (0.8 vs. 0.7)
• Both of those combine to yield a slightly higher WACC for BP (9.79%) than for Amoco (9.04%)
• Which WACC to use in estimating a postmerger value for Amoco. Most of the arguments regarding which WACC to use
centered on the students’ perceptions of the similarities between those two companies and how BP will integrate Amoco after
the merger. Students who supported using BP’s WACC cite the participation of both companies in the oil and gas industry as
evidence that those companies were extremely similar, and suggest that BP will extensively integrate Amoco into its operations
after the merger. Students who support using Amoco’s WACC argue that these two companies have very different profiles—
they operate in different geographic markets (BP in Europe, Amoco in the United States) and have a very different product
mix (BP in oil, Amoco in gas). Because using Amoco’s WACC yields a higher valuation than using BP’s, it is not unusual to see
the Amoco team advocate using Amoco’s WACC and the BP team advocate using BP’s WACC when they estimate the
postmerger values. Those differences provide an opportunity for the instructor to suggest that there is a role for sensitivity
analysis in understanding the other team’s likely point of view.
•  
• The differing interpretations add to the richness of the case and the bid (ask) price will vary substantially based on how the
synergies and costs of obtaining those synergies are divided between shareholders of BP and Amoco and which WACC is
viewed as appropriate. Exhibit TN7 provides a sensitivity analysis of the valuation of Amoco for different scenarios associated
with dividing those synergies and the costs of obtaining them, and for different scenarios associated with WACC.
• Debrief
•  
• Discussion of deals
•  
• The potential for the bid price to vary substantially based on the division of synergies and other factors will likely result in a wide range of values between each
team’s opening and walk- away bids. The debrief can include a discussion of the opening and walk-away prices and the students’ strategies for moving the
negotiation in a direction that will (1) result in a deal, and
• obtain the terms most favorable to the shareholders each team represents. It should also include a discussion of what made the negotiating process difficult.
There were more than numbers at stake.
•  
• Exhibit TN3 provides one MBA class’s experience with the BP–Amoco merger. Of the 11 teams, all but 3 teams (teams 3, 5, and 10) had opening and walk-away
bids that yielded a range within which an agreement could be negotiated, or a zone of agreement. Interesting issues to explore in class include the range of
opening and walk-away bids across Amoco’s or BP’s teams. For example, pursuing a discussion of the difference in both the size of the range and the difference in
opening and walk-away bids for Amoco teams 1 and 11 can lead to interesting discussion points regarding the assumptions those two teams used to estimate
the postmerger value.
•  
• An additional area to explore is a discussion of the negotiating outcomes of the three teams (teams 3, 5, and 10) that began the negotiations with no zone of
agreement. Interestingly, in the MBA class depicted in the graph, team 10 reached an agreement despite no zone of agreement entering the negotiations. But
team 9 failed to reach an agreement despite entering the negotiations with a large zone of agreement, primarily due to issues that arose related to the
negotiating process itself.
•  
• Epilogue
•  
• Exhibit TN8 provides a summary of significant events and the key terms related to the BP–Amoco merger. The merger was formally completed on January 1,
1999. Amoco shareholders received USD50.30 per share. Management’s responsibility for the merged firm was shared by BP and Amoco executives initially, but
many Amoco executives took early retirement in early 2000. Job cuts numbered 18,000, much higher than the 6,000 job cuts originally anticipated. Brent crude
oil prices increased substantially following the merger, and exceeded USD25 per barrel in January 2000. Finally, BP Amoco was renamed BP following the
planned acquisition of ARCO.
• BRITISH PETROLEUM, LTD. & AMOCO CORPORATION
• Initial Report Form for the BP/Amoco Negotiation Exercise
•  
•  
• Report of Negotiating Range before Meeting Your Counterpart (one form for each team)
•  
•  
• The number of your team is . Do you represent BP or Amoco?
• The last names of the team members are
•  
•  
•  
•  
• Fill in the total equity value of the offer:
•  
• Your team’s opening price will be(in USD millions). Your team’s walk-away price1 will be (in USD millions).
•  
•  
• You should compute the value of the offer under the assumption that BP will have to acquire 959.6 million Amoco shares. Hence, the total
equity value of the offer is the Price per share × 959.6 million.
•  
•  
•  
• 1 The walk-away price, or reservation price, is
the price below which a seller (or above which
the buyer) will abandon the negotiations.
• Report on the Results of the Negotiation The number of your team is .
• Do you represent BP or Amoco?
•  
•  
• The last names of the team members are
•  
•  
•  
•  
• If you reached an agreement:
•  
• Total consideration to be paid by BP to Amoco’s shareholders is
•  
• (in USD millions) Other significant features of your agreement:
•  
•  
•  
•  
•  
•  
• If you did not reach an agreement:
•  
• Final BP offer was (in USD millions). Final Amoco ask was (in USD millions).
• Team members’ signatures:
• Epilogue: Key Dates following the Merger
•  
•  
• September 9, 1998 BP and Amoco file with Anti-Trust Division of FTC petitioning for regulatory approval of merger
•  
• September 24, 1998 BP and Amoco file with the European Commission of the EU petitioning for regulatory
approval of merger
• Both parties prepare for referral back to U.K. authorities
•  
• December 2, 1998 Exxon buys Mobil for $73 billion to create the world’s largest company reuniting the two
largest pieces of Rockefeller’s original empire
• December 10, 1998 Amoco shareholders vote and approve transaction December 12, 1998 EC approves
merger seeing “limited affected markets”
• Amoco must divest one specialty chemical product to Dutch company
• Annual sales of divested unit $10-20 million December 31, 1998 Merger is cleared by FTC
• January 1, 1999 Formal completion date of merger
•  
• January 4, 1999 BP-Amoco ADRs begin trading in NY, Chicago, Toronto and Pacific Exchange
• As proposed
•  
• New name BP-Amoco, p.l.c. Board of directors 22 members
• 13 designated by BP (nine non-executive directors)
• 9 designated by Amoco (seven non-executive directors)
•  
• Fuller and Sutherland serve as Co-Chairmen until Fuller’s anticipated retirement in early 2000
• Amoco would be BP-Amoco’s North American Headquarters Amoco gas stations would retain their
name and brand identity 6,000 job losses anticipated
•  
• As of March 2000
•  
• Fuller and six other top Amoco executives take early retirement North American Headquarters never
materializes in Chicago
• BP-Amoco will be renamed as BP (following ARCO transaction) BP will rename 9,500 gas stations as BP
with new logo
• 18,000 jobs have been cut
Good vs. Bad Acquisitions
Types of Process for an Acquisition
Pre-Emptive Process
Pre-emptive Process: Indicative Timetable
Targeted Process
Targeted Process: Indicative Timetable
Controlled Auction
Controlled Auction: Indicative Timetable
Public Auction
Marketing Material
Vendor Due Diligences (“VDD”)
Data Room
Bidding Rounds
Valuation Metrics
Pricing Mechanism – Closing Accounts vs.
Locked Box
Limiting a Seller’s Liability
Information Gathering and Analysis
• The pre-negotiation work requires gathering of
information and its analysis
• The information to be gathered is not only about the
subject matter of negotiation itself but also the
opponent’s negotiating behaviour and his culture in case
of cross cultural negotiation
• Information collected must be evaluated as regards its
correctness and usefulness
• Sometimes the information is incomplete
• As a result one is forced to reason by inference and
assumption
• Worse still, if the assumption is incorrect leading one to
overestimate or underestimate negotiator’s leveraging
power
• Based on the information gathered, one can make a
SWOT analysis not only of one’s own party but also that
of the opposition
• This helps to decide on the strategy to be adopted for the
negotiation
• It is said, “Information is Power”
• It is also true in negotiation
• Consider the following cases:
• Case 1
• A plastic component supplier was negotiating an
extension of his contract with a customer
• The buyer was trying to bring down the price and
complained to the seller that the breakage of his product
was higher than anticipated, one shipment was two days
late and the percentage of components with flaws was
higher than envisaged
• Some days earlier, one of the sales support people had
talked to the end user at this company
• The end user had said a component breaks now and
then, there have been some flaws, but it was nothing
compared with what they got from the last supplier
• The components broke all the time, the flaws were many
and the deliveries were always late
• This information was helpful to seller in negotiation and
was a source of power to him
• The buyer was doing his job. His complaints were
legitimate
• Voicing the complaints was a good way to bring down the
prices
• But the seller knew that the problems were nothing
compared to those with the previous supplier and he
negotiated with that in mind
• An uninformed salesperson could have settled for a
lower price and thus “left the money on the table”
Information Gathering and Analysis
• Case 2
• “It is a great misfortune neither to have enough wit
to talk well nor enough judgment to be silent” – La
Bruyere
• A large aerospace company was negotiating with the
federal government for a $ 500 million contract.
• The buyer’s people were working to get the price
down
• The sales persons hammered the point that the bid
price was justified since part of the project would be
extremely difficult to carry out
• An engineer, included in the aerospace team for
technical reasons, suddenly commented: “Well it
won’t be that difficult”
• After this, as expected, the price went down
• Whilst the aerospace negotiators did not want the
buyers to know that the phase of the project might
not be that difficult, they lost control on the flow of
information and hence lost money
• The seller must keep a tight control of the flow of
information to the buyer about himself and his
organization
• The negotiation strategy must be agreed by the team
before negotiation
• Case 3
• Unique Motors had won an order from Defence
Department for supply of 10,000 electric motors over
the next 12 months
• Unique motors urgently needed wiring harnesses to
meet the order
• Their regular suppliers were backlogged
• They located a small supplier, West Manufacturing,
who happened to be operating at 40% capacity
• Both companies did not know each other and their
“neediness”
• Since the deal had to be concluded quickly, West
Manufacturing quoted a price significantly below the
market price to get the order
• Unique Motors accepted the quote and placed the
order
• Had West Manufacturing known the neediness of
Unique Motors, they could have quoted much higher
(at least the market price)
• Had Unique Motors known the low order position of
West Manufacturing, they could have still got a
lower price
• Hence the lack of information worked to each party’s
disadvantage
Information Gathering and Analysis
• Information is extremely important in negotiation. • Negotiators working on international negotiations
The more you know about your product or service need to find out items such as:
and your company, the more you know about your – The history of the country they are dealing with
competition, and especially, the more you know
about the buyer and his organization, the stronger – The form of government of the country
will be your position – The legal system
• Some of the items (among others) the seller must – The customs in the country
find out about the buyer before negotiation include: – The background of their counterparts
• What the buyer’s engineers feel about your product – This information can be partly had from
published material but mainly by contact with
or service? business people and others who have lived in
• How urgently the buyer needs your product? the target country
• How important the product is to the buyer? Is it 20%
or 80% of his requirement?
• How is the buyer’s purchase system?
• How much of a risk taker is the buyer?
• How is the competition? etc. etc.
• Such information may be had people working with
the buyer and other people having experience with
the buyer
 Implication of First Offer
• Negotiation includes trading of concessions, narrowing of
gaps and reaching agreement
• After the initial stage of introduction and stating of issues
by the parties, a party needs to make the “first offer” for
the other party to consider and offer a concession
• This starts the bargaining process
• The first offer by a party may be close to the final position
that the party is seeking or may be at extreme position
away from the final position sought
• Which opening position is more effective? Research
shows that in certain cases extreme position tends to
produce better results for the party
• Some of the reasons for this are
• It shows the other party that the bargainer will not be
exploited
• It extends the negotiation and gives the bargainer a
better opportunity to gain information on the opponent
• It allows more room for concessions
• It modifies the opponent’s beliefs about bargainer’s
preferences
• It shows the opponent that the bargainer is willing to play
the game according to the usual norms
• It lets the bargainer gain more than would probably be
possible if less extreme initial position had been taken
• The use of extreme opening position i.e. very low by
buyer or very high by seller, is used as a strategy in
certain cases which may lead to a better final outcome
for the party
• The Chinese, Arab and Russian negotiators use this tactic
in contrast to the U.S. and Swedish negotiators whose
opening position is fairly close to the one they are
seeking
• Example:
• For the 1984 Olympic Games in Los Angeles, USA, the
Olympic Committee felt that the Japanese should pay
$10 million for the rights to televise the games in the
country
• When the Japanese offered $6 million, the Olympic
Committee countered with $90 million
• Eventually, the two sides agreed on $18.5 million. By
extreme position bargaining, the Olympic Committee got
the Japanese to pay over three times their original offer
and about two times the committee’s initial expectation
• Note that in this case the seller has a monopoly
 Making the First Offer
• As far as possible, avoid making the
first offer. Making the opposition make
the first offer enables you to gain
information. Further the opposition’s
opening position may be better than
anticipated
• However, if both sides avoid making
the first offer, one of the sides must
give in to break the deadlock
• The side having the greater need will
usually start even though reluctantly
• After various attempts to persuade the
opposition to make the first offer, you
may have to open
• Going second is not as important as
disrupting a negotiation
• Start with the best position you can
support (not a ridiculous one). If you
start at the target position you expect
to achieve, you will have no room to
• Hence a negotiating margin needs to
be kept i.e. the seller can start at a
higher price and the buyer can start at
a lower price
• The parties can then work towards a
settlement
• If the opposition exaggerates his
position to a ridiculous point, laughter
is the best response
• It is not necessary to counter similarly
• You may ask the basis for support of
such extreme position
• If the opposition is serious, they will
provide their reason or amend the
offer
 Power in Negotiation
●
High Need = Low Power

Attitude ●

●
Low Need = High Power
Hence do not show a high need (even if that be the case)

Commitmen ●

●
Higher Commitment = Higher Achievement
e.g. A plane hijacker willing to die for his demands
t ●
Hence he gets what he wants

Strategy This is a “road map” before start of negotiation

●

●
Better prepared strategy = More power
 Power in Negotiation
●
Anything with validates the statement
Legitimacy e.g. price list, policy, price tag etc

Information ●
More Information = More Power
●
(but check the correctness of Information)
Power
●
High Time Pressure = Low Power
Time Power ●

●
Low Time Pressure = High Power
Avoid being placed in “eleventh-hour” situation yourself
 Power in Negotiation
●
High risk taking ability = High Power
Risk Power ●
Low risk-taking ability = Low Power

Options / ●
Many Alternatives = High Power
Alternatives
Power
●
Few Alternatives = Low Power

Walk Away
“I care, but not that much“
●

Power
 Power in Negotiation

Rapport ●
Easy to be tough on a stranger
Power ●
Hard to be tough on a friend

Competition ●
More Competition = More Power"
●
“I have others I could deal with"
Power
●
Don't be intimidated by titles
Title Power ●

●
Using impressive title, for yourself may make
You feel more confident and may intimidate others
 Power in Negotiation

Reward and People will be nice to you if you

●

Punish Power can do something for them

Charisma ●
Use this power if you have it
●
It can charm persons into doing things
Power
Expertise ●

●
If you have it, use it
It comes from having (or appearing to have)
Power some unique expertise
 Power in Negotiation

Environment ●
Negotiating in a comfortable environment
will give you an edge over your opponent
Power
Health and Well ●
Never negotiate when you are
Being Power tired or unwell

Situation ●
Circumstances give powers which when changed removed the
power
●
e.g. An umpire in a cricket match has power in the match
Power because of the situation
 Power in Negotiation

Referen Known to be consistent and

●

not wavering even in the face

t Power of opposition gives power

Unpredicta Don't be predictable during negotiating

●

otherwise you can be manipulated

bility Power (This is opposite of Referent Power)
 Negotiation Strategy and Tactics

Reluctant “I care, but not that much", not showing

●

Buyer to Seller a great need (even if there is one)

●
Seller says to buyer after making the deal: "…plus of
The Nibble ●
course Rs. 500/- for delivery"
This brings the “add-ons” after the initial agreement

●
Buyer exclaims to seller: “How much?
The Flinch ●
That's a lot of money!" This lowers the seller’s
expectations
 Negotiation Strategy and Tactics

Higher ●

●
Seller says to buyer: “I’m sorry, I can't authorise that" or
“I have to refer this to higher authority”
●
Also, if one party wants to talk to the other’s superior, the superior
Authority should be well briefed before the talk

●
Buyer says to seller: "I just don't need everything
Bottom Line your offer has … but what is the very lowest
price you will take?“

●
Even if the price is lower than expected, the
Vice Gambit buyer can go lower by exclaiming: "I'm sorry, you
will have to do better than that!"
 Negotiation Strategy and Tactics
●
Good guy says to buyer: "Tell me what you can do, I'll see what I can do sort out with him for you".

Good Guy / Bad e.g. The property owner (“Bad Guy”) exclaims, “I am not going to waste more time with this buyer”
and walks away
●
Owner’s agent (“Good Guy”) says to the buyer,” Tell me what you can pay and let me see what I can

Guy Gambit do for you to sort it out with him”. The bad guy and the good guy are on the same side though not
known to the buyer

Set Aside ●
"Just set that aside and see what
Gambit else is important to both of us“

Hot Potato ●
The buyer says to seller: “But I
Gambit have a budget of just Rs …."
 Negotiation Strategy and Tactics

Splitting the " The difference in your price and my budget is

●

only Rs 1000/-. Can we split the difference?“

Difference
●
"If I do this for you, what can
Trade Off you do for me?“

Funny Money ●
The seller says to buyer: "An extra Rs 300/-
gives you the extra luxury you would like
Gambit ●
Isn't Rs 300/- worth it?“
 Negotiation Strategy and Tactics

Walk Away " Prepare to walk away to gain power (Even if

●

you are not stopped, you can always come

Gambit back!).

Delaying and ●
Stalling
Create time pressure

Pre-condition ●
“If you make me the sole regional
Tactic distributor, I start talking with you"
 Negotiation Strategy and Tactics

Personal ●

●
Don't get emotionally involved and lose your cool
It is a tactic to put the party off balance to make
Attacks him agree to things he would normally not

Precedent ●
“Smith did not have to do this,
Tactic Why should I have to?“

The Withdrawn ●
Seller says to buyer:" We've misquoted with
too low a price
Offer Tactic ●
I am going to withdraw the offer"
 Negotiation Strategy and Tactics

Fait Accompli Already gone ahead assuming the agreement was made
●

Asking the impossible to gain smaller concessions e.g. Buyer

Decoy Tactic
●

asks seller for 30 days delivery period, which is impossible

Then the buyer says he can accept 90 days delivery

Seller flinches
●

if 5% discount is given (which was what the buyer required)

●

Take it now, try it out, and bring it back if you are unhappy
●

Puppy Dog Tactic This creates emotional involvement and commitment

●

Value of service diminishes after being rendered

●

Call Girl Principle Negotiate the fees up front, rather than afterwards
●
 Use of “Tricks” in Negotiation

Whilst one may use “tricks” in For successful business

negotiations in “one-off” transactions in Where long-term
relationship, both parties must
which there will be no ongoing
relationship in the future, the constant
relationships are feel that they have achieved a
use of tricks may result in long-term concerned, tricks can satisfactory outcome, which is
repercussions such as bad reputation, necessary for successful
lack of trust etc. have a negative impact implementation

Using tricks to achieve a one-sided

agreement may result in:
Hence tricks are to Their use is not to be
Dissatisfaction of the “tricked” party, recognize them when
Spoiling of relationship including encountered and advocated for long-
negative impact on future business,
Likelihood of poor implementation successfully counter them term relationships

Tricks are no match for

sound skills, good planning
and a professional
approach to good
negotiation
Body Language to be Observed in Negotiation

Signal Interpretation
FACE AND HANDS :
Avoiding eye contacts. Hiding something.
Gaze past. Bored.
Piercing eye contact. Angry / Superior.
Head turned slightly. Evaluating.
Tilted head. Uncertain.
Nod. Agreement.
Smile, good eye contact. Honest.

BODY :
Leaning towards the speaker. Interested / Agreement.
Throwing body away. Disagreement.
Shifting body. Insecure / Nervous.

ARMS :
Open position. Receptive.
Folded. Not Receptive.
HANDS :
Palms open. Nothing to hide.
Self-touching gestures. Nervous.
Involuntary movements. Something to hide.

LEGS :
Crossed. Less chance of making a deal.
Uncrossed, feet flat, body tilted Open position.
toward speaker.
 Strategies to Drive-up Prices in M&A
Tata Corus Deal
• In the Tata Corus deal, the original agreed price on October 20,
2006 which Tata was to pay was 455p per Corus share
• This was agreed by the boards both companies but was
subject to approval of Corus shareholders
• But the Corus shareholders wanted a better deal
• The strategy was to introduce a competition
• Corus asked CSN of Brazil to bid against Tata
• CSN upped the bid to 475p per Corus share to which Tata
responded by 500 p per Corus share
• This was trumped by CSN by a price of 515p per share
• This resulted in a deadlock in further bidding
• On December 19, 2006, UK Watchdog , the Panel on Takeovers
and
• Mergers, announced that the last date for deal finalization was
January 30, 2007 otherwise they would begin an auction
• Finally, an auction was arranged on January 30, 2007
• The auction was controlled by the Panel and each party was
asked to bid There were to be nine rounds with each bid to be
at least 5 pence per share higher than the previous
• For the ninth round each bidder was asked its maximum price
not to be revealed to the other party
• CSN said 603p while Tata gave its price as 5p above the last
price of CSN subject to a maximum (not publicly declared)
• On this basis Tata Steel won the bidding with 603+5 = 608p
• To introduce competition, Corus had made a contract with CSN
to remain in the bidding for a consideration that Corus would
pay CSN 1% of the losing bid
• Whilst having more competition is a good strategy, the ethical
(and legal) aspects of paying a bidder to continue bidding to
drive-up the bidding price could be debatable

CSN claims payment from Corus

New Delhi, Jan. 31, 2007 
 
CSN said it is entitled to a payment from Corus equal to 1 per cent of its losing offer.
 
The payment is an “incentive” included in a December 10 agreement with Corus for CSN bidding to continue, the Brazilian steelmaker said in
a statement sent to the securities regulators. The payment may be worth as much as 61.5 million pounds ($119.9 million), based on
Bloomberg calculations and figures provided by CSN. The company also said in the statement that it has the right to sell 34.1 million shares
of Corus that it owns to Tata at 608 pence per share. – Bloomberg.
 Strategies to Drive-up Prices in M&A
Arcelor-Mittal Deal
• After a five-month hostile takeover battle
between Arcelor and Mittal Steel, the Arcelor-
Mittal deal was finalized on June 25, 2006 at a
cost of $ 32.2 billion (some 40% higher than the
first bid )
• Here also the competitor helping to enhance
prices was Severstal of Russia (acting as a “White
Knight”
• The strategy that is usually employed by the
hostile firm is making an offer more lucrative
than the White Knight's, so that the shareholders
consider rejecting the White Knight's bid
• This, however, can lead to bidding wars and
finally to overpaying, by one or the other, for the
target firm
• Arcelor fought hard against Mittal’s hostile bid,
complaining about the company’s corporate
governance
• Arcelor also said that Mittal’s original offer of
$23.75 billion undervalued the company
• Mittal had subsequently offered to raise its bid to
$33 billion
• Meeting in Luxembourg on June 30, 2006,
shareholders Arcelor SA voted to endorse the
merger of Arcelor with Mittal Steel to form the
world's largest steel company, rather than to go
ahead with a previously agreed merger between
Arcelor and the Russian Severstal, the "Financial
Times" reported on July 1, 2006
• Arcelor would pay Severstal 140 million euros
($179 million) in compensation for backing out of
the previous deal, under which Severstal would
have invested 14 billion euros in assets in the
merged company in exchange for 32 percent of
the total shares
• Severstal said it is exploring legal options
• Arcelor and Mittal Steel merged to form a new
company Arcelor-Mittal. Of the 49.4% shares in
Arcelor Mittal, the Mittal family holds 43%. Mittal
• family had agreed to a ceiling of 45 per cent of
the then issued company shares
Different Styles of Negotiation
Different Styles of Negotiation
 Accommo Collabora Avoiding Compromi
Competiti
ve Style Different Styles of Negotiation
dating
Style
tive Style
(Win-win)
Style
(Lose-lose)
sing Style
(Splitting
(Win-lose) (Yield- – “Make the
lose) two pies difference)

●
Aggressive style –
“win-lose”
●
Values
●
Working ●
Uses
●
Intimidation, relationshi together ●
Creates cooperatio
threats, hostility
●
May be used if p over to expand frustration n
quick decision is objective the pie ●
May be ●
Concedes
required
●
The objectives are
●
Sacrifice ●
Time used on minor
mutually now and consumin minor objectives
exclusive
●
Mutually gain later g issues ●
Divides
exclusive means
things related in
●
Not used ●
Problem ●
Can be the pie to
such a way that for key solving / used if you satisfy
each thing makes
the other thing
issues brain would lose both
impossible: not ●
Not used if storming
●
Not used parties
able to be true at
the same time or the other ●
Not used in complex ●
Mutually
to exist together party is for minor situations exclusive
e.g. war and
peace lying issues  objectives
No negotiation is purely of one style
Rather negotiators may move back and forth between the styles based on the situation
 Fixed Exchange Ratio
One way to analyze a Fixed Exchange Ratio is as
An Exchange Ratio that an allocation of the risk of changes in market
value of the Buyer’s Stock between signing of an
does not vary depending Acquisition Agreement and Closing by assigning
to the Buyer’s the “risk” of a price increase
on changes in market between signing and consummati on, and
assigning to the Target Company shareholders
value of the Buyer’s Stock the reciprocal “risk” of a price decline between
signing and Closing

An alternati ve analysis views a Fixed Exchange

Ratio as an expression of the relative value of
the two companies at the ti me of signing the
Acquisition Agreement, a valuati on which
presumpti vely does not change merely because
the market price of the Buyer’s Stock (which may
take into account the value of the Acquisition of
the Target Company) changes during the
interval between signing and Closing
M&A Insurance
Tax Due Diligence in M&A
Binding Bid
Documents used in M&A
Documents Prepared in an M&A
• Getting the purchase price right: Earn-outs, escrows, and post-closing
adjustments in M&A transactions 
• November 22, 2016
•  I. Overview
• The three concepts discussed in this article – earn-outs, indemnity holdbacks, and
post-closing adjustments – are each mechanisms in a sale of the stock or assets of
a company that provide a means for adjusting the purchase price to more
accurately reflect the company’s value.  Earn-outs provide for upward adjustment
based on positive performance by the company post-closing.  Indemnity holdbacks
are a temporary reduction in the amount of purchase price paid to the seller at
closing, held in escrow to be drawn upon to cover seller’s indemnity obligations to
the buyer, thereby reducing the purchase price.  Finally, post-closing adjustments
to the purchase price are increases or reductions to the purchase price to account
for changes in the company’s financial condition between signing and closing.
•  II. Earn-out
•  A. What is an Earn-out?
•  An earn-out is a mechanism to provide for contingent additional purchase price
based on the company’s post-closing performance. Typically, an earn-out is
 Google
• Started by Larry Page and Sergie Brin – Ph.D. • Google’s Previous Acquisitions
students from Stanford University • All relatively small buyouts
• The search engine gathered a large following due • Radio Advertising company, dMarc
to it’s simple, uncluttered and “clean” design –
which turned out to be its competitive advantage • Pyra Labs  created Blogger
• Google was incorporated on September 7, 1998 • Upstartle  created Google Documents and
and went public March 30, 2006 Spreadsheets
• Total initial investment raised for Google was • Jotspot  wiki technology
$1.1 million – it now has a market cap of $130 • All of these acquisitions were relatively small, but
billion with Google gaining huge revenues through its
• Leading search engine with a 54% market share, advertising, it got access to greater buying power
followed by Yahoo which has only 23% - leading to the MySpace acquisition and now
• Google monitors the highest internet traffic of YouTube
any website – it gets the most clicks and searches
in a day than any other website
• Google.com is considered the most valuable
online “real estate”
• Google’s only source of revenue comes from
advertising – about $7.14 billion in 2006!
• The company began selling advertising associated
with search keywords – which is based on the
number of hits users make upon the ads.
• Keywords were sold based on a combination of
price, bid and clickthroughs, with bidding starting
at $0.05 per click
• Google announced Google Video on January
5,2006
• Google planned on a pay-per-view service for its
Google’s Dual Class Share Structure

Class A ● Similar to common

stock but with less
Stock: voting power

Class B ●

●
More “ownership” than anything else
Has far greater voting rights than Class A
“By their ownership of 86,753,907 shares of Class B common stock,
three of the company's executives (Eric E. Schmidt, Larry Page and

Stock: Sergey Brin) controlled 66.2% of the total voting power of all the
company's shares...even though they owned only 31.3% of the
total shares outstanding” -ZDNet
 YouTube
• Founded by Chad Hurley, • It has an average of 20
Steven Chen and Jawed million visitors clicking onto
Karim – all former the website each month
cofounders of Paypal Inc. • The site has captured
• Website was started in Nov 47% of the online video
2005 market, compared to
• It allowed users to upload Google's 11%
their own videos for other
to see – the same concept
that Google Video was
aiming for
• By the summer of 2006,
YouTube was one of the
fastest growing websites,
outpacing even behemoths
like MySpace
Synergies Google YouTube Acquisition
Michael Cahill, managing director of
Manhattan-based Chilton Investment Co.
said ”…we're moving from e-mail dominated
traffic to the MP3 player, and we are going
ultimately to video, and that is going to
consume massive amounts of bandwidth.
With Google's (GOOG) YouTube acquisition...
we've witnessed companies positioning
themselves for video over Internet”
With YouTube in the Top 5 most
viewed websites, an acquisition
like this would significantly
boost Google’s advertising
revenues - the “social
networking” aspect of YouTube
drives this acquisition
Josh Bernoff, an analyst with
Forrester Research. "I think the
combination of the greater potential
to make deals and also the greater
technical ability to solve copyright
problems puts (Google) in a much
better position than YouTube is (in)
by itself.”
Sergey Brin, Google's co-
founder and president of
technology. "Video is a
great medium for
advertising,"
 The Google YouTube Deal
217,560 shares, and restricted
Google paid $1.65 stock units, options and a
warrant exercisable for or
billion to the convertible into an aggregate of
442,210 shares, of Google's Class
YouTube owners A common stock

The total amount issued excludes

The stock price $15 million provided to YouTube
between the announcement and
was averaged the close. 12.5% of the transaction
will be held in escrow for a year to
over 30 days cover "indemnification obligations"
The Aftermath
 Indemnification Obligations in Google YouTube
Deal
Some analysts/critics say “Viacom, the parent company
$1.65bn was too much to pay of MTV and Comedy Central,
for YouTube especially with the is demanding Google-owned
legal issues of copyrighted YouTube to remove all of
videos being posted on YouTube Viacom's videos

"100,000 video clips from " Viacom reportedly claims "1.2

Viacom-owned properties billion video streams" have been
including MTV Networks generated by YouTube without
and BET has been asked to permission or compensation to
be removed the company” - BusinessWeek
 Negotiation
A process by which two Parties are
or more people come to interdependent;
agreement on how to neither has complete
allocate scarce resources power to choose
The process is a
decision, not a
contest of wills

A process of formal communication, Involves the management of

either face-to-face or via electronic time, information, and Relationships
means, where two or more people power between individuals between people, not
come together to seek mutual and organizations who are
agreement about an issue or issues
interdependent
just organizations

Negotiation skills
Persuasion can be honed
and practiced
Common Problems in Negotiation

Leaving money on Settling for too

the table (Lose- little (Winner’s
Lose Negotiation) Curse)

Walking away Settling for terms that

are worse than your
from the table current situation
(Hubris) (Agreement Bias)
Why Are People Ineffective Negotiators?

Absence of relevant ●
Search for confirming information
and diagnostic
feedback
●
Egocentrism

Satisficing Versus Optimizing

●

Self- Fear of change and

●

reinforcement experimentation
 Myth in Negotiation
Good
Experience is a
negotiators are
born, not made great teacher

Good Good
negotiators are negotiators rely
risk-takers on intuitio
 Key Negotiation Principles

Best Alternative To
a Negotiated
Reservatio
Agreement (BATNA) n price

Bargaining Aspiration
zone level
 Key Negotiation Principles

Best Alternative ●
Know your BATNA
●
Do not think of your BATNA in aggregate terms
To a Negotiated ●
Improve your BATNA before you negotiate
●
“Fall in love with three” rule
Agreement ●
You want your counterpart to think you have a good
(BATNA) BATNA

●
Reservation Price is your bottom line

Reservati
●
The point at which you are indifferent to whether you achieve a negotiated
agreement or walk away
●
Beyond the reservation price, you prefer no agreement
●
Reservation Price is equal to your BATNA +/- other issues that make you want to
do the deal

on price ●

●
E.g., opportunity costs, switching costs, ego, miscellaneous preferences
Define your reservation price before negotiating
Learn your opponents’ reservation price, if possible
 Should You Reveal your BATNA and
Reservation Price?
If it becomes known to one
Do not reveal One of the critical pieces
party, the negotiator can
of information in a
your reservation negotiation is the other
push for a resolution that is
only marginally acceptable
price!!! party’s reservation point to the other party

Reveal your
Do not BATNA only
You are nearing
state ranges an impasse
when

You want to make an

You have a agreement in the
strong BATNA current negotiation
Negotiation Bargaining Zone
Negative Bargaining Zone
Distributive Bargaining Tactics

●
Who made the first offer?
●
How did the first offer affect the negotiation?
●
There is a high correlation between the first offer and the final
price

First ●

●
Counteroffers and later concession behavior less predictive of
final price
How high should the first offer be?
“As high as you can go without embarrassing yourself in front of a

offers
respected 3rd party” (Fisher & Ury, 1991)
●
What’s embarrassing? What’s optimistic? Learn the market!
●
Only let the other party make the first offer when
●
You have no information
●
It is inappropriate to do so (e.g., job negotiations)
●
Immediately re-anchor if your counterpart makes the first offer
 Distributive Bargaining Tactics

Conces ●
Allow yourself room to make concessions
●
Don’t go in with a “first and final offer”

sions & ●

●
Make bi-lateral, not uni-lateral concessions
Make your concessions smaller as you
approach your goal
Persua ●
Use objective rationale to support your
argument
●
Again, learn the market
sion
Distributive Negotiation Strategies
Know your BATNA - Research the other
Know your reservation
Strengthen your party’s
price - Do not reveal
BATNA whenever BATNA/reservation
your reservation price
possible price

Define your Make first offers Watch how you

whenever possible - If
aspiration level they make the first offer, are making
and focus on that immediately re-anchor concessions

Prepare objective
rationale for your
argument
 Terms Used in Negotiation

Positions Interests

Needs Wants
 Positions
Represents the
A negotiator’s optimistic or target
opening offer value of the issues
being negotiated

Stated demand
at the
negotiation table
 Interests
Unspoken motivation Unlikely to be
or reason that expressly stated or
underlies any given acknowledged during
position the negotiation

May not be
May be personal
directly germane
in nature
to the position
 Needs

Those negotiated
outcomes that the
negotiator must have in
order to reach a successful
conclusion
 Wants

Negotiated outcomes May often be

that a negotiator exchanged as
would like to have concessions
 BATNA
Negotiating A party should Bottom line or
generally not accept a
Without Giving worse resolution than reservation
In its BATNA point

Walk away if Need to ensure that a All settlements must

negotiator’s BATNA is be judged in light of all
outcome is better never revealed to the other viable
than BATNA other party alternatives

Accounts considered:
relationship value, time value
of money and the likelihood
that the other party will live
up to their side of the bargain
Triangle Talk
Determine and write down specific goals and
Know
●

objectives
Exactly What ●
Can be referred during the negotiation
●
The more clearly defined, the more likely that
You Want can be achieved

Know Attempt to discern the other party’s likely needs and wants
●

Estimate underlying interests to the other party’s stated

●

positions
Exactly What Beware of expecting the other party to think in the same way
●

Ask open-ended questions to confirm or counter preconceived

●

They Want notions

Propose ●
Frame your own needs in terms of the other
party’s needs
Action They ●
Make it easy for the other party to say, “Yes”
●
Remain fair, flexible, and reasonable
Can Accept
 Negotiation Framework
Determine
Identify orfor if
Plan
Conduct
Determine
Plan
Conduct
aIdentify
negotiation
purchase
ifthe
anticipate
orfor the
anticipate
is
anegotiation
negotiation is
purchase
negotiation
requirement
required
negotiation
negotiation
requirement
required

Ex
ec
ut
e
th
e
ag
re
e
m
e
nt
 Plan for the Negotiation
Analyze
Identify Develop strengths and
participants objectives weaknesses

Gather Recognize other Identify facts

information party’s needs and issues

Develop
Establish strategies and
Brief
positions tactics personnel
239
Establish Positions
 Conduct the Negotiation
Recess or
Perform caucus as
Work to narrow
fact finding differences
necessary

Maintain Summarize
Manage time
informal progress
pressures atmosphere periodically

Keep
Employ relationships
tactics positive
 Points to Focus On in Negotiation
Defining
Defining Defining objectives and
the issues interests openings

Assessing Planning issue

Analyzing the
constituents and presentation
social context other party and defense

Defining Where to
protocols negotiate
 Face-to-Face Negotiation Phases
Fact finding and Recess to:
Reassess relative strengths and
weaknesses
information Review and revise objectives and
positions
sharing Reorganize the negotiation agenda

Narrow Seek agreement

and conclusion
differences
 Being an Effective Negotiator
Willing to Establish upper and
View issues
compromise or lower ranges for
revise goals independently each major issue

Explore Build on Avoid making

additional common ground irritating
options between parties comments

Avoid argumentation Make fewer

by presenting too counterproposal
many reasons s
 Execute the Agreement
Provide Build on the
performance success of the
feedback negotiation

Monitor
contract
provisions
 Power in Negotiation
• Power is the ability to influence another
person or organization
• Power by itself is neither good or bad; it is the
application or use of power that makes it good
or bad
• Sources of negotiating power

246
 Sources of Negotiating Power
• Informational power
• Reward power
• Coercive power
• Legitimate power
• Expert power
• Referent power

247
 Informational Power
• Ready access to relevant and useful
information
• Presentation of facts, data, and persuasive
arguments
• Can be manipulated by withholding
information or by providing false information

248
 Reward Power
• One party is able to offer something of
perceived value to the other
• Direct attempt to exert control
• Individuals respond and behave accordingly
when valued rewards are available

249
 Coercive Power
• Taking away or withholding something of
value to the other party
• Ability to punish – financially, physically, or
mentally
• Can have damaging effects on long-term
relationships
• Promotes escalation of conflict or retaliation

250
 Legitimate Power
• Special form of informational power
• Often represented by verifiable credentials
• Reduces the likelihood of refuting a position
• Other party must value the expertise in order
to be effective

251
 Referent Power
• Comes from attraction based on socially
acceptable personal qualities and attributes
– Physical
– Honesty
– Charisma
– Friendliness
– Sensitivity

252
 Use of Power
• Used to support one’s advantage
• Need to be careful not to abuse power
– Damaged relationships
– Invited retaliation
– Diminished value of that power
• Some types of power interact synergistically
with others
– Example - expert and referent power

253
 Concessions
• Movement away from a negotiating position
that has value to the other party
• Give-and-take process is normal in most
negotiations
• Need to avoid giving away concessions
without receiving something of equal or
greater value in return

254
Guidelines for Making Concessions
• Give yourself enough room to make concessions
• Try to get the other party to start revealing its needs and
objectives first
• Be the first to concede on a minor issue but not the first on a
major one
• Make unimportant concessions and portray them as valuable
• Make the other party work hard for every concession you
make
• Use tradeoffs to obtain something for every concession you
make

255
Guidelines for Making Concessions
• Generally, concede slowly and give a little with each
concession
• Do not reveal your deadline to the other party – ever
• Occasionally, say “No” to the other party
• Be careful trying to take back concessions, even
tentative ones
• Keep a record of concessions made to try and identify
a pattern
• Do not concede too often, too soon, or too much

256
 Negotiation Tactics
• Low ball • High ball
• Honesty and • Best and final offer
openness • Silence
• Questions • Planned concessions
• Caucus • Venue
• Trial balloon
• Price increase

257
 Power of Influence
• Reciprocation
• Consistency
• Social proof
• Liking
• Authority
• Scarcity

258
 Reciprocation
• An obligation to give something back of equal
or greater value to someone after having
received something from them
• Creates a powerful obligation response
• Can be used effectively when giving
concessions
• Patterns of concession (quid pro quo)

259
 Consistency
• People tend to want to be perceived as being
consistent in their beliefs and actions
• It is difficult to back away from something
already agreed to
• Beware the consistency trap
• Small commitments often lead to larger ones

260
 Social Proof
• Looking to the behavior of others to
determine what is desirable, appropriate, or
correct
• Power of the endorsement
• Everyone is doing it

261
 Liking
• People work well and are more agreeable with
others that we like or who are like us
• Get to know the other party better to build on
the relationship when concessions are being
offered

262
 Authority
• People are more likely to accept the positions,
arguments, and directions from recognized
authority figures
• Power of titles and perceived importance

263
 Scarcity
• Can also be the perception of scarcity
• Act now
• For a limited time only
• Offer expires tomorrow
• Suppliers often use potential price increases
as a scarcity technique

264
 Overcoming Tactics
• Modify tactics when they don’t work
• Prepare for likely tactics to be used against
you
• Tactics are more effective on you if you are
unprepared, stressed, under severe deadlines,
inexperienced, fatigued, or disinterested
• Try not to react without thinking

265
 Win-Win Negotiation
• Win-lose – competitive or distributive
bargaining
• Win-win – collaboration or integrative
bargaining
• Expand the value or resources available to all
participants
• Equitable sharing of a larger and expanded pie

266
Win-Win Negotiation
 Win-Win Methods

Expand
the pie
Logroll

Use nonspecific Cut the costs

compensation for compliance
 International Negotiation
• Added complexity and challenge
• Substantial extra time and effort required
• Culture shock
• Barriers and obstacles
• Need for translators

269
 Barriers and Obstacles
• Miscommunication due to language
• Time limitations
• Cultural differences
• Limited authority of international negotiators
Characteristics to Overcome Barriers
• Patience
• Knowledge of the contract agreement
• Honest and polite attitude
• Familiarity with foreign cultures and customs
270
 Caveats when Negotiating Overseas

• Don’t think that everyone else negotiates like

the Americans
• There is a danger in stereotyping or
oversimplifying characteristics of other
cultures
– There is always substantial interpersonal
variation within any culture
– However, there are often common tendencies

271
 Impact of the Internet on Negotiations
• Electronically-based negotiations tend to
equalize the differences between the parties
– Normal visual and auditory clues are diminished
or not readily apparent
– Status differences and social differences are less
discernible
– Problem of being anonymous
• Negotiators tend to be more risk taking

272
 Impact of the Internet on Negotiations
• Real time vs. asynchronous
• Loss of information richness
• More difficult to provide feedback and
conduct active listening
• E-negotiators ask fewer questions and tend to
make more assumptions

273
 Intuitive – Counter-Intuitive
Automatic Gear
Focus on Positions
Dive into the negotiation
When our proposals are
rejected, justify and defend
them
When a proposal is made to us
that is unacceptable, rejection
Shift into Manual
Focus on interests
Defer the negotiation to a time of our
own choosing, gather information first
Ask why our proposal doesn’t work,
and gather information
Instead of rejecting, ask why their
proposal is important, and gather
information
Fisher & Ury’s “Getting to Yes”
• Main theme:
• Focus on interests instead of
positions
• Position is a proposal
– Likely to be rejected
• Interest is the why of the
proposal – what is sought to
be achieved
– There may be multiple ways of
achieving that interest
• This perspective in a
negotiation is counter-intuitive
 Focus on interests instead of positions

• Bargaining over positions

• Negotiators lock themselves in
– The more we clarify and defend our position, the more committed we
become, and the more we lock ourselves in
– The more we convince the other party of the impossibility of changing
our position, the harder it becomes to do so
• As more attention is paid to positions, the less attention is given to the
underlying needs of the parties
• We start with a higher position to increase our chances of a favourable
outcome, which stresses the negotiation
• Makes the negotiation inefficient
• Stresses relationships which also makes the negotiation more difficult
 Focus on interests instead of positions
• Bargaining over positions
• Becomes a contest of will
• Positions results in negotiators yielding, leaving one with a “win” and
the other with a “loss”
• Negotiations become a series of “wins” and “losses”
• One side or both sides have a “giving in” feeling
• The negotiation becomes a series of “giving in” points
• May result in anger and resentment
• Bargaining over positions is bad enough where there are 2 parties in
a negotiation
• Significantly worse when there are multiple parties 3, 4, 5…10 parties
in a negotiation, each competing to put their own position
 Focus on interests instead of positions
• What’s the alternative ?
• The parties may perceive that their relationship is a conflict of positions

• Natural therefore for the parties in their negotiation to state and restate
positions

• Positions lead to conflict and impasse

• We want to avoid conflict and impasse

• Interests are the motivator

• Positions is how they are expressed

• Challenge is to look beyond the position, recognise the interest, and explore
how it can be addressed
Focus on interests instead of positions

Position Position is the pathway

Pathway 1

Pathway 2

Interest Pathway 3

Pathway 4

Pathway n
 Focus on interests instead of positions
• A position Solution
identifies
only one
pathway
forward

• An interest Acceptable to one party Pathway 1

usually
identifies Pathway 2
several
pathways
forward Pathway 3

• Pathway in Pathway 4
common is
the
solution Acceptable to other Pathway n
party
 Focus on interests instead of positions
• Be hard on interests, and soft on positions
• Be committed to our interests being met
• But be soft on our position on how to meet that interest

• Our interest is the motivator

– Not necessarily the pathway to achieve it,
– may be unwise to be committed to a specific pathway

• Be hard in negotiating our interest

• But be flexible on how that interest can be achieved
• Chances are that during the negotiation,
– We may identify more pathways
– The other party may identify more pathways
any of which may be acceptable, or even better
 Focus on interests instead of positions

• How do we identify interests ?

• Use the language of ascertaining “Can
their interests
you explain how
that achieves what
you need”

“Can you help me

understand why that’s “Let me see if I
understand. You “I don’t understand
important to you” how that will work,
want that
because (you can you explain it to
state in your me”
words)”
 Focus on interests instead of positions

• How do we identify interests ?

• Use the language of communicating our
“What we need to
interests achieve is… (your
interest – not your
position)”

“We’re open to
“What’s doing this in any “Can you think of any
important to number of ways ways, without downside
us is…(your that achieves… for you, in which we can
interest – …(your interest – … (your interest – not
not your not your your position)”
position)” position)”
 Focus on interests instead of positions

  Licensor / Seller of Product Licensee / Distributor

Proposal Licensee / Distributor must No.

achieve minimum worldwide
sales targets of 300K per year  -
or termination
 Focus on interests instead of positions

  Licensor / Seller of Product Licensee / Distributor

Proposal Licensee / Distributor must No.

achieve minimum worldwide
sales targets of 300K per year  -
or termination
Interests and Needs to ensure achieve a Needs sales targets to be realistic
Needs minimum financial return   and achievable so as not risk loss
of rights.
Needs to be able to appoint
alternative licensee / distributor
if not achieved
 Focus on interests instead of positions

  Licensor / Seller of Product Licensee / Distributor

Proposal Licensee / Distributor must No.
achieve minimum worldwide
sales targets of 300K per year  -
or termination
Interests and Needs to ensure achieve a Needs sales targets to be realistic
Needs minimum financial return   and achievable so as not risk loss
of rights.
Needs to be able to appoint
alternative licensee / distributor
if not achieved
Ways to  Same as position – minimum sales targets of 300K / year
Achieve them  Sales targets holiday Year 1, followed by 300K / year each year
 Sales target holiday first 6 months, followed by ramped up
minimum sales each year
 Enter into a sub-distributorship agreement in a critical segment
of the market
 Focus on interests instead of positions
• Intuitive step in a negotiation:
– To make proposal of what we want

• Counter-intuitive step in a negotiation:

– To explain what we need to achieve from the relationship – the why of
the proposal

– Starts a dialogue about

• the interests of the parties
• what they respectively need to achieve
– That dialogue likely to identify or suggest proposals that can be made that
• are responsive to the respective needs of the parties
• are therefore more likely to be accepted
 Diving into a negotiation
• Intuitive approach to a negotiation is to make proposals

• Our proposals
– To us are self evidently fair and reasonable
– We make the proposal, and sit back and expect the “I agree” response

• We are then taken aback when the “I agree” response doesn’t

come

“How can they

• We expect proposals to be made in a negotiation possibly disagree
• Making proposals is what a negotiation is all aboutwith this ?”
 Diving into a negotiation
• First step
– start haggling
• royalty terms, milestone payments, upfront payments
• or a price of products
• But may that be premature ?
• Do both parties share a common understanding / expectation

• Can expectations be influenced

– By establishing rapport?
– By talking about the pathway forward ?
– By talking comparable deals ?
– Similarities in other deals
– Other deals that may influence the financial terms ?
 Diving into a negotiation
• By diving into a negotiation prematurely we may be denying ourselves the
opportunity to
– Prepare thoroughly
– Establish rapport
– Inform the other party about things that may influence their
expectations in our favor
– Gather information about the other party that may
• Influence the proposals we make to the other party
• Influence our expectations
– So that they are higher than otherwise
– So that they may be more realistic
• Consider deferring the negotiation until after
– information gathering (what we can learn from the other party)
– Information sharing (what we can inform the other party)
 Diving into a negotiation
• Instead of diving in – establish rapport
• What is rapport?
• A feeling of being “in sync” or “on the same wave length”

• Rapport, or the absence of rapport is a main determinant of whether

people develop a trusting relationship
– Trust one another to share or not share information
– Trust one another to be frank and open or less frank and open in a
discussion
– Trust one another in what the other says, or whether they feel that it
may be bluff
• People who have done deals together before, who have
– established rapport
– established some trust and confidence in each other
do a better and faster deal than otherwise
 Diving into a negotiation
• Establish rapport
• Rapport facilitates communication
• When people know each other they can more quickly
– Communicate information
– Identify options for solutions
– Converge on a solution or an outcome

• Establishing rapport involves getting to know the other party’s individuals

– Not from a dishonest perspective, nor to take advantage of the other party
– From the perspective that getting to know the other individuals in a
negotiation will be beneficial to both sides in a negotiation
– There is mutual benefit in getting to know each other
 Diving into a negotiation
• Establish rapport
– Liking
• People like those who like them
• If we are liked by someone, they will
– listen to us
– register what we say
– want to explore ways to help us achieve our needs and interests
– be receptive to accommodating our needs and interests
– Antipathy – the opposite of liking
• Results in the opposite behaviour
• Other person will not
– listen to us
– register what we say
– want to explore ways to help us achieve our needs and interests
– be receptive to accommodating our needs and interests
 Diving into a negotiation
• Establish rapport: Northwestern & Duke Universities experiment
• 146 students involved in negotiation experiment
• Negotiation for the purchase of a car

• Students were paired

• Half the students had an initial “getting to know you” phone call
• Remaining half the students did not have that phone call
• All other communications, in both groups, were by email

• In the phone call, students developed a rapport with each other

– Talked about themselves, their universities, their interests and
hobbies, sport etc
– They got to know one another
• In their emails they kept up that same dialogue – remarking about a
recent football or basketball match – as well as doing their deal
• Ie, they continued their rapport
 Diving into a negotiation

• Results:
• In rapport group:
• Majority felt that they could
trust the other person
• Majority felt satisfied with their
deal
• Majority felt that they had done
a good deal
• Majority would do another deal
with that person
• A small number felt “ripped off”
 Results:
 In non-rapport group:
 Majority felt that they could not
trust the other person
 Majority felt dissatisfied with their
deal
 Majority felt that they had done a
bad deal
 Majority would not do another
deal with that person
 A large number felt “ripped off”

 The group which did not have that rapport opportunity were 4 times more
likely to have their negotiation fail
 Diving into a negotiation
• Use the first meetings of a negotiation to ask lots of
questions

• Use the first few meetings as information gathering opportunities

• Find out
– more about the other party
– their interests and needs
– the extent to which they know or appreciate our interests and needs

• The more questions we ask

– the more information we gather about the other party
– the more we understand their position and their objectives
– equips us to make proposals of our choosing that are more likely to be accepted
 Diving into a negotiation
• Use the first meetings of a negotiation to ask lots of
questions
• With each question we ask we will be better informed

• How does that help us?

– We now have a better means of navigating how to achieve our own needs and
interests, having regard to our better understanding of the other party’s needs and
interests
– We can now formulate proposals
• that are more likely to blend in with the other party’s objectives
• that are therefore more likely to be accepted

• The more we know about how to help the other party, the better equipped we are to
make proposals that achieve our own needs and interests as well as theirs
 Diving into a negotiation
• Use the first meetings of a negotiation to ask
lots of questions
• Open ended questions are questions that require more than a Yes or No
• They are questions that oblige the respondent to volunteer
“Can you
information
help me
understand why
“What do you want that is important to
to achieve out of “What do you hope
you?’
our relationship ?” to achieve out of
today’s meeting”

“What would be
“How would you
your thinking on
feel about us “How would it work this…?’
looking at it from if we were to
this perspective…” consider…?”
 Diving into a negotiation
• Use the first meetings of a negotiation to ask lots of questions

• Open ended questions

– are not proposals, nor positions
– are hypothetical “what ifs”
– facilitate exploring interests and needs
• Help to set a climate or mood of cooperation and collaboration in the
negotiation
• Help to elicit responses that make us better informed
– To evaluate the other party
– To appreciate its interests
– To formulae proposals that work for us, and which are responsive to the
other party’s needs and interests and therefore more likely to be accepted by
them
 Diving into a negotiation
• Case study
• Proposed license of a novel more efficient delivery system for a drug already
on the market, and off patent
– Second phone call with the interested licensee
– First point made by the interested licensee
– “What are the royalties and other terms you expect?”

• Licensee’s perspective:
– that we were a desperate licensor
– Commitment on financial terms at such an early stage likely to be when
licensor’s resistance was lowest, and when it was most likely that
licensor would proposed modest package of financial terms, which the
licensor could then negotiate down

• Licensor’s perspective
– Value of the IP dependent on exactly what the clinical pathway would be
 Diving into a negotiation
The management team requires that I assemble a briefing document
before it can sign off on financial terms that I can afterwards suggest for
consideration.
Can you help me with that briefing document by helping me understand:
1.Scope of further R&D work to be undertaken
2.Work Plan of for that R&D (toxicology, animal studies etc)
3.Timeframes for the above
4.Anticipated clinical pathway (are phase I, II, and III trials all required,
or might regulators be relaxed and allow phase I or II to be short trials, or
even jump straight to phase III)
5.Your proposed marketing strategy and market roll out
6.Will you be partnering outside Europe ?
7.Your assessment of the market.
 Diving into a negotiation
• Educate instead of negotiate
• Sometimes the negotiation is not a negotiation at all
• Instead its an education
• The other party may not be aware of
– The landscape within which we operate
– Forces that impact upon our expectations
• The other party may be
– inexperienced
– unfamiliar with normal models for the deal that we are about to do
• Need to educate more than negotiate
– Results in understanding, rather than a negotiation
– Not doing that means that we and them are each working from
different reference points
– That impedes the negotiation
 Diving into a negotiation
• Educate instead of negotiate
• Who needs to be educated ?
– Not just the individuals at the negotiating table
– Consider other stakeholders who need to be educated as well
– Who are the decision makers who need to be educated

• What do we educate them about ?

– The technology?
– The landscape of the technology ?
– The landscape of the deal ?
– The environment for doing the specific type of deal being negotiated
– Benchmarked transactions ?
 Diving into a negotiation
• Educate instead of negotiate
• Ozgene – makes transgenic mice for drug target validation
• Customers are large pharmaceutical companies, research institutes in US, Europe
and Japan
• Customer provides gene sequence for human gene of interest
• We knockout the gene (that is, delete it from the mouse genome) (as well as
knockin in specific locations, or randomly)
• Standard T&Cs contained clause that customer indemnifies Ozgene against any
claims arising from the generation of the mouse strain and the delivery of
transgenic services to customer infringing third party IP rights
• Some customers request deletion, or that the clause be reversed, that Ozgene
provide that indemnity to the customer
• We needed to educate our customers
• Board adopted a policy that explained why Ozgene couldn’t provide indemnity,
and why we needed the indemnity from the customer
• In a nutshell – only customer could know whether the requested gene of interest
(there are 40,000+ human genes) infringed third party IP rights
• Board Policy would be provided to customer
• Customer would invariably not press the request
 Diving into a negotiation
• Intuitive step in a negotiation:
– To dive into the negotiation
• Counter-intuitive step in a negotiation:
– To defer the negotiation to a time of our choosing

• Why would we want to do that ?

• What do we do in the meantime ?
– Establish rapport
– Inform the other party about things that may influence their
expectations in our favor
– Increase the likelihood that their proposals will be acceptable to us
– Gather information about the other party that may
• Influence the proposals we make to the other party
• Increase the likelihood that our proposals will be acceptable to the
other party
– Educate the other party about our interests and needs
 Defending our rejected proposals
• We believe our proposals are fair
• We are taken aback when our fair and reasonable proposal is rejected

“How can they

possibly disagree
• Our automatic gear reaction with this ?”

• We
– Justify “They must not have
– Present supporting data and arguments understood – I’ll have to
– We entrench our position repeat it”
• The more we entrench our position
– The more difficult it is for us to step back from it – we don’t want to appear
weak
 Defending our rejected proposals
• Intuitive step in a negotiation:
– To defend and justify our rejected proposals

• Counter-intuitive step in a negotiation:

– To ask for criticism of our proposals “Can you help me
understand why
that doesn’t work
for you?”
• What do we achieve?
– We get the other party to tell us what their needs and interests are
– We provide information about us to the other party that we choose to give
– Increase the likelihood that their proposals will be acceptable to us
– Gather information about the other party that may
• Influence the proposals we make to the other party
• Increase the likelihood that our proposals will be acceptable to the
other party
 Avoid rejecting their proposals
• When a proposal is made to us that doesn’t work for us, we
reject it, and make a counter proposal.
“That won’t work. I
suggest that…”

• That starts a haggle

– Proposal
– Rejection and counter proposal
– Rejection and counter proposal
– Rejection and counter proposal
– Rejection and counter proposal
• There’s more to a negotiation than a carpet bazaar haggle
 Avoid rejecting their proposals
• Intuitive step in a negotiation:
– To reject a proposal and doesn’t work for us, and make a counter proposal

• Counter-intuitive step in a negotiation:

– To share information on why it doesn’t work
“Let me share with
you my thinking on
that”
• What do we achieve?
– We provide information about us to the other party that we choose to give
– Increase the likelihood that their proposals will be acceptable to us
– We start a dialogue
– In so doing we gather information about the other party that may
• Influence the proposals we make to the other party
• Increase the likelihood that our proposals will be acceptable to the
other party
 Intuition – Counter-intuition
• We’ve covered 4 things with this intuition / counter-intuition theme
1. Focusing on needs instead of position
2. Deferring a meeting to a time of our choosing
• Establish rapport
• Ask questions and gather information
• Educate instead of negotiate
3. Not defending our rejected proposals (with the risk of entrenching
ourselves)
4. Not rejecting the other party’s proposals to us (with the risk of a carpet
bazaar haggle)

• The objective of doing that is:

– Information
• Information that we gather about the other party
• Information about us that we choose to share with the other party
 Information sharing and gathering
• Information is said to be the currency of a
negotiation
• Without information
– That we might gather about the other party
– That we might choose to share with the other
party about ourselves
we risk our proposals being aimless, possibly
landing anywhere

• With information
– That we might gather about the other party
– That we might choose to share with the other
party about ourselves
we have an increased likelihood our proposals will
hit the bulls eye
NEGOTIATING SKILLS AND
TECHNIQES
Barry Fawcett
EI Specialist Consultant
 Introduction
• Negotiating and negotiations are a constant feature of everyday life.

• We do it all the time with family, friends and a range of people and
organisations
 Formal Bargaining
• Collective bargaining is a formal and highly developed form of
negotiating.

• It is very similar to diplomacy.

• Doing it successfully requires analytical skills, forethought,

preparation, presentational skills, realism and detachment.

• The purpose of negotiations is to secure an outcome as close as

possible to your objectives.

• The aim of the people you are negotiating with is to secure an

outcome as close as possible to their objectives
• Forethought means determining and evaluating the objectives
carefully and objectively.

• Key tests include the credibility of the objectives and the strength of
the supporting evidence.

• Preparation means being well briefed and knowledgeable about

what you are seeking to achieve and how that can be justified.

• Presentation is about how you can present your case in an

accessible and persuasive way to the employer or government.

• Try to show how your objectives will benefit employer/government

as well as your own members.
• Present your claims in a pleasant, logical, friendly and firm way.

• Realism means being aware from the start that it is very unusual to
achieve 100 per cent of your objectives.

• A Negotiated Agreement is normally a compromise between

opposing objectives which both parties are prepared to accept.

• Detachment means not believing all your own propaganda.

 Skills and Techniques
• Try to imagine yourself as the other side to the negotiations and
consider how they might view or react to your proposals and
arguments.

• There is no one perfect style of negotiating.

• Different people do it equally successfully in different styles and

manners .

• To be successful your individual style has to be the one you are

most comfortable with and which matches your individual
personality

• Successful negotiators range from colourful charismatic performers

to quiet, calm and methodical people.
 The Collective Bargaining Process
• Collective bargaining negotiations are a ritual process, a stately
minuet, a symphony or a novel.

• There are different stages the sequence of which is essential to the

whole process.

• The opening presentation of the claim should set the scene and
seek to define the parameters for the subsequent stages of the
negotiations.

• It is a strategic exercise setting out the case and the supporting

evidence.

• It should not be too long or too detailed as that can obscure and
weaken the case.

• Dealing with detail comes later.

 Initial Response
• The next stage is the employer/government response – again it
should be strategic and address the union’s arguments.

• It may make counter proposals, make an offer for an agreement,

and/or give a broad indication of what they might offer.

• You need to listen carefully and closely to that response.

• Take a written note of the key parts of the response.

• Evaluate and analyse the language, the precise words used and
their body language

• Assess the extent to which any of their counter arguments do or do

not weaken your case.
 Countering to Response
• Do not feel obliged to respond immediately other than in a
preliminary way ,or to seek clarification-but not necessarily too much
at that stage.

• Have a break/adjournment of the plenary joint negotiations to

consider their response in more detail and depth with your
colleagues.

• The employer/government first response is unlikely to be their final

response.

• Usually they will be prepared to offer more particularly if they believe

an agreement between the two sides is possible.
• Consider how you can respond and show how your arguments and
supporting evidence have not been properly addressed or,
hopefully, seriously weakened.

• Look for weaknesses and inconsistencies in their response which

you can objectively demonstrate and exploit.

• Look for any clues or indications of how or where they might move
closer to your objectives.

• On return to plenary negotiating meeting answer their response –

normally in a logical, firm and not insulting way.

• Try to show a willingness to consider more favourably an improved

offer – if possible with some indications of what might be acceptable
in general terms.
• Do not make explicit threats unless you are confident they can be
delivered and that they would be effective.

• Consider using more general expressions of potential adverse

consequences of the initial offer if not improved upon.

• Present the response in the resumed plenary in a calculated and

persuasive way emphasising the strong parts of your case.

• Try to avoid immediate subsequent exchanges becoming too

confrontational. Encourage them to have an adjournment to
consider your response carefully and in depth.

• At such an adjournment review your position, identify possible

employers responses and how you might respond but avoid getting
into an interminable hypothetical maze of speculation.
 Final Stages
• Third plenary session likely to be key session.

• Final or near final response from employer/government very likely if

negotiating seriously and constructively.

• Do not summarily reject it unless it really is a deliberately poor and

provocative offer.

• Withdraw to consider it with your side. If it is a deliberately poor and

provocative offer respond quickly by asking them to go away and
reconsider their position and come back to a future meeting with an
improved offer.

• If it is a sensible offer consider what modest further improvements

might be possible and decide which are the priority issues.
• Consider without prejudice/informal/behind the chair meetings
between a small number of key representatives from both sides -
generally the smaller the better but start with a minimum of two

• Consider possible improvements through staging a settlement-

some now- more later - end loading a pay award – continued
negotiations on unresolved issues while reaching agreement on
those that can be agreed by both sides.

• Employer/government may be prepared informally to improve the

offer through a without prejudice offer if your side can confirm that
they would accept such an offer if made formally. These offers are in
effect confidential -they have not been made unless they are
accepted. Respect that negotiating protocol or forget about that
facility for future negotiations.
 Sealing The Deal
• If there is an agreement acceptable to both sides go through it in
detail jointly before resuming plenary session in order to be sure
that both sides have the same understanding

• Resume in plenary. If an informal agreement has been reached the

employer/government representatives make the offer formally and
the trade union side accept it

• Try to have a written agreement at this stage to prevent future

arguments about what has been agreed

• Conclude on good terms. Remember collective bargaining and

employer/employee negotiations are a long term business –
circumstances will vary and at different times in the future will
favour one side or the other
 Welcome to class of
Negotiations
Dr. Satyendra Singh
Professor, Marketing and International Business
University of Winnipeg
Canada
s.singh@uwinnipeg.ca
http://abem.uwinnipeg.ca
www.abem.ca/conference
 Each party has different
viewpoint

Each party has different

Negotiation =
objectives
Bargaining
process between
two or more Each party seeks mutually
parties satisfactory agreement

Each party has a matter of

concern
 Kinds of Negotiations

Simult ●

●
Holistic whole package
More information needed
aneous ●
Japanese style

Seque ●

●
Problem solving
Short-term view
ntial ●
American style
 Why Negotiate?
• Improve current offer (issue)
– Price
– Delivery
– Currency
– Warranty
–…
• Bring clarity
• Improve relations
• Conflict resolution and build peace
Conflict Life Cycle
When to Negotiate?
How to Negotiate?
 Making a Deal (One Issue)

ZOPA = Zone Of Possible Agreement

RL= Reservation Level (Min for seller; Max for buyer)
Aspiration Level = Opposite of RL
 Making a Deal

ZOPA = Bargaining Range

If outside range  Walk away from the deal
 Anchoring

First offer  to begin negotiation

Anchor can influence negotiation
Your objective is to adjust RL to land in ZOPA
You may ask:
basis for the offer, parameters used, assumptions made
 Concession

Avoid  zero sum negotiation

Maximize  probability of obtaining maximum advantage
Be reasonable  otherwise you lose trust
Making a Deal (2 Issues)

2 issues: Price and delivery date

 Making a Deal (Complex)

Complex issue  1 day delay costs $10

Liner programming = Maximize objective function
 Before and While Making a Deal

Best Alternative to Negotiated Agreement

If the deal fails, what next best alternative you have
Select your BATNA
Anticipate other party’s BATNA, though difficult
BATNA can be non-quantifiable
 Other points
• Your goal
– Negotiate win-win situation
– Create value
– Reach an agreement
• Be creative to create value for both parties
– Generate BATNA for both parties
• Suppose if it were perishable products
• Understand logic of the argument/ other party
• Figure out their psychology
• Observe negotiation style: aggressive/calm
• Break away for private conversation
• Do not agree to a bad deal
The Role Play (US-Japanese)
• Sat & Co, NY, USA (Estd. 1931)
Specialist in Industrial Boilers
– Price = US$ 2m
– Delivery = 6 months
– Penalty = US$10,000/month
– Cancellation = 10% of contract price
– Warranty = Parts and labor for a year
– Terms of payment = COD (Cash on delivery)
– Other
 Negotiation
Negotiation is a skill
”You don't get what
acquired through
you deserve, you get
practice AND by
learning techniques what you negotiate“
 Discussion Question

Can a pattern be established for a good

negotiation?
 Basic principles
• Strategy follows the structure
Structure shapes way in which negotiations are going to be
conducted
► In your case, careful analysis is needed on:
- Issues at stake
- How are the rules established, and who establishes them? Is
there some margin of manœuvre to play within the rules?
- Pre-existing attitudes
- Assessment of partners’ respective power

22/03/2006 344
 Basic principles
• Good strategies shape the structure
« you can shape the game as well as play it »
► Rules are influenced by actions of the participants on:
- Setting the agenda
- The way you present your views
- Creating coalitions
- Leveraging linkages (linking or de-linking issues to create
momentum)
► Sequence of moves « at the table » and « away from the table
»
22/03/2006 345
 The rules of the game
What are the rules of the game and how can you shape them

Winner of negotiation is the one who can best

shape negotiations: common mistake is to take
the structure of negotiation as a given
“Think strategically but act opportunistically" :
expect to be surprised and to have to modify
your initial approach
 Organize to influence

Moves “out of the table” (preparation phase) as

important as moves “at the table”
 Building coalition
Secure a support as wide as possible

First step:
1) identification of influential parties, their interests and
sources of power,
2) analysis of possible allies and potential blockers

Coalitions can also be defensive not to be cut off the deal

(agriculture negotiations)

• Avoid too broad and vague goals

 Play the frame game
Conflicts come often from substantive
disagreements but sometimes also from
misunderstandings on language

• Reframing to define the problematic issue, present

it with a different angle, facilitating the « creation
of value » and consensus-building

• Reframing to claim value and win the battle of the

public opinion
 Sequencing to create momentum
What is sequencing? It is the order to approach the several
stages of a negotiation
Staging the process:
1) diagnostic phase (exploring relative merits of negotiation
and alternative courses of action, gather information)
2) formula phase (parties seek the basic formula for
agreement: it is the core set of principles that will serve as
an overarching framework for agreement)
3) detailed bargaining phase (attention shifts to bargaining
over specific terms)
Always an advantage for the first mover
 Multi-channel influence

 Public relations, contact with the press

Be careful not to harm your coalition

 « The negotiator’s dilemma »

getting big slice of a small pie or reasonable slice of a much larger pie ?

Create value Claim value

Learn Truthfully share Gather accurate

information about interests information about walk-
in order to identify aways; then use anchoring
opportunities to create and commitment tactics to
value claim value

Shape perceptions Reframe the negotiations to Mislead counterparts about

emphasize integrative priorities in order to claim
possibilities value when making trades

22/03/2006 352
 Conclusion

The negotiator is a chess player

"You have to have the ability to look at the big picture

and set concrete goals. Then from those goals devise
not only the strategy, but also the tactics for achieving
the goals. It's the rare ability to combine the big things
with the small, to see the forest and the trees"
Avi Gil, Oslo Process negotiator

22/03/2006 353
Defense Contractor Negotiation
& Pricing
Accounting 6310
Fall 2002
Richard E. McDermott, Ph.D.
 Source

Data summarized from Pricing Manual

of the Federal Acquisition Regulations
(FAR).
 Determining Contract Type
• By contract type we mean compensation
arrangement
• There is no best contract type for every
occasion
• Select contract type that will result in
reasonable contractor risk with the greatest
incentive for efficient economic performance
 Three Contract Types
• Firm fixed price
• Cost reimbursement
• Labor hour and time and materials

FEDERAL RESERVE NOTE

THE
THEUNITED
UNITEDSTATES
STATESOFOFAMERICA
AMERICA
THIS NOTE IS LEGAL TENDER

FOR ALL DEBTS, PUBLIC AND PRIVATE

L70744629F

12 WASHINGTON, D.C. 12
A
H 293

L70744629F
12 SERIES 12
1985

ONE DOLLAR
 Firm fixed price
• Firm fixed price
• Fixed price with economic price adjustment
• Fixed price incentive fee
• Fixed price with successive targets
• etc.
 Cost reimbursement
• Cost reimbursement
• Cost sharing
• Cost plus fixed fee
• Cost plus award fee
• Cost plus incentive fee
Labor hour and time and materials

• Both of these include fixed labor rates but

only estimates of hours to complete the
contract
• Neither require the contractor to complete
the required work within an agreed upon
price
 Consider Contractor Risk
• Having contractors accept unknown or
uncontrollable risk can result in
– Poor contract performance
– Reduced competition
– Substantial increase in contract price
 Two Areas of Risk
• Performance Risk
• Market risk
 Performance Risk
• Most contract risk is related to contract
requirements and the uncertainty surrounding
contract performance
 Performance Risk
• Consider
– Stability and clarity of contract specification or
statement of work
– Type and complexity of the item being purchased
– Availability of historical pricing data
– Prior experience in providing required supplies or
services
 Cost Risk and Contract Type
• Exploration and development--cost plus fixed
fee
• Test/demonstration--cost plus incentive fee or
fixed price incentive fee
• Full scale development--cost plus incentive
fee, fixed price incentive fee, or firm fixed
price
• Full production--firm fixed price
 Market risk
• Changes in the marketplace will affect
contract costs
– Changes in prices of labor
– Changes in prices of materials
– Changes in availability of labor or materials
 Market Risk
• Address through contracts with economic
price adjustment clause
 Pricing
• Definition of price
• Seller pricing objectives and approaches
• Government pricing objective
• Government approaches to contract pricing
 Definition of price
• Price is the amount the buyer pays for a
product or service
• When contract price is less than cost,
performance risk increases
• If contractor effort to control costs result in
unsatisfactory performance, contractor
default is a real possibility
 Seller pricing objectives
• Pricing objectives
– Cover costs and earn profit
• Operational objectives
– Short-term/long-term profitability
– Market share
– Survival
– Product quality
– Productivity
 Seller Pricing Approaches
• Cost based pricing
• Market based pricing
 Cost based pricing
• Mark-up Pricing--price is based on cost plus
markup
• Margin on Direct Cost--base price on amount
necessary to achieve profit margin as a
percent of price
• Rate of Return Pricing--profit is calculated
based on return on investment
 Market Based Pricing
• Profit maximization pricing
• Marker share pricing
• Market skimming
• Current revenue pricing
• Promotional pricing
• Demand differential pricing
• Market competition pricing
 Market Skimming Pricing
• Charge early buyers a premium
 Promotional Pricing
• Products are priced to enhance the sales of
the overall product line rather than the
profitability of each product
 Demand Differential Pricing
• Products sold in different markets are sold at
different prices
– Get what the customer will pay
 Market Competition Pricing
• Price is based on what action the competitors
have taken or are expected to take
• Firms follow this pricing strategy in relatively
homogeneous markets
 Government pricing objective
• Pay a fair and reasonable price
– What is fair?
• Price each contract separately
– Don’t try and balance the financial results of one
contract against another
• Exclude contingencies
– Items that cannot reasonably be estimated at the
time of award
 Examples of Contingencies
• Results of pending litigation
• Cost of volatile market price changes
 Evaluating the Bid
• Evaluate price
• Analyze cost
 Evaluate price
• Compare prices in competitive bidding
situations
• Look at competitive published price lists,
rebate agreements etc.
• Get independent price estimates
 Analyze cost
• When do you look at bidder’s costs?
– When you require offeror to submit cost or pricing
data
– Why have offeror submit cost data?
• To provide support that proposed price is reasonable
 Contract Costs Include
• Direct costs
• Indirect costs
• Fee
 Government approaches to
contract pricing
• Quantitative Techniques for Contract
Pricing
• Cost Analysis
• Negotiation Techniques
 Quantitative Techniques for
Contract Pricing
• Round table estimating
• Comparison
• Detailed analysis
 Round table estimating
• Get various experts around a table, have them
come up with their best estimate of what the
price will be
• Use only where historical costs, detailed
drawings, bills of materials, and specifications
are not available
 Comparison
• Index numbers can be used to adjust
historical costs for inflation
• CVP is used
– Regression analysis used to determine
relationship between independent and
dependent cost variables
• Improvement curve analysis
• Moving averages
 Detailed analysis
• Break costs into tasks, estimate resources
required for each task
 Detailed Analysis Questions
• Can the material requirements stated in the
bill of materials be tracked directly to the
drawings and specifications?
• Are scrap rates reasonable?
• Are price estimates based on the quantities
required by the contract?
 Detailed Analysis Questions
• Are labor requirements based on detailed
analysis of the processes and materials
required to complete the contract?
• Do labor rate estimates consider the time
period of the labor requirement?
• Do labor rate estimates consider the skill level
of the labor required to complete the
contract?
 Detailed Analysis Questions
• Do labor rate estimates consider changes in
the work force?
• Do labor rate estimates consider geographical
differences?
 Cost Analysis
• Contract costs are monetary measures of
capital and labor required to complete a
contract
– Cash expenditures
– Expense accrual
– Inventory draw-down
 Defective cost or pricing data
• Cost or pricing data that is inaccurate,
incomplete, or non-current
• If the government suspects after the award
that there was defective pricing, they can
request an audit
Defective cost or pricing data

• If the audit shows there was defective

pricing, the government is entitled to a
price adjustment, including fee or profit.
– Government can also get interest on over-
payment
 Forward pricing rates
• Prepared by contractor
• Audited by government
• When accepted, used in bidding contracts for
that fiscal year
 Fee or Profit
• The fee objective does not necessarily
represent net income to the contractors
– Some costs are disallowed
• Entertainment
 Profit Analysis Factors
• Contractor effort
– Material acquisition
– Conversion direct labor
– General management
 Profit Analysis Factors
• Contractor risk
– Cost responsibility and risk the contractor will
assume
– Fixed price contracts have more risk, will probably
have more profit potential
 Profit Analysis Factors
• Federal socioeconomic programs
• Capital investment
• Cost control and other past accomplishments
• Independent development--did contractor do
R&D on own?
 Negotiation
• A process of communication in which two
parties, each with its own viewpoint and
objectives, attempts to reach a mutually
satisfactory result on a matter of common
concern.
 Negotiation vs. Sealed Bidding
• FAR states that any contract awarded using
other than sealed bidding is considered a
negotiated contract
 The best negotiators . . .
• Plan carefully
• Gain management support
• Effectively apply bargaining techniques
• Tolerate conflict while searching for agreement
• Project honestly
• Foster team cooperation
• Apply good business judgement
 Win/win negotiators
• Attack the problem, not each other
• Focus on long-term satisfaction and common
interests
• Consider available alternatives
• Base results on objective standards whenever
possible
• Focus on positive tactics to resolve differences
 Win/lose negotiators . . .
• Are deceptive
• Focus on negotiating positions rather than
long term satisfaction
• Are argumentative
• Show reluctance to make any meaningful
concessions
• Are highly competitive and mistrustful of
others
 Negotiating Strategies
• Plan the order for addressing issues
– One approach: Start with least important issues
first, concessions on several less important issues
may limit or eliminate the need for concession on
more important issues
– Another approach: Address issues according to
ease of reaching agreement.
 Negotiating Strategies
• Building block approach
– Basic requirements are addressed before price is
addressed
– Tradeoffs between contract requirements and
contract price are addressed after resolution of
other issues
– Contract price is not finally resolved until all other
issues are settled
 Draft a negotiating plan
• Background (contract, contractor, negotiation
situation)
• Major and minor negotiation issues and
objectives
• Negotiation priorities and positions on key
issues
• Negotiation approach
 Noncompetitive Negotiations
• Occur in sole-source situations
– Example: Only one contractor has the technical
expertise to perform a contract
 Ten Rules for Bargaining Success
• Useprepared
Be concessions wisely
• Aimithigh
Say right
• Give yourself
Satisfy non-price
roomissues
to compromise
• Put pressure
Use the poweronofthe
patience
contractor
• Do willing
Be not volunteer
to walk weaknesses
away from negotiations
 Put pressure on the contractor
• Refer to potential alternatives such as:
– Canceling and resoliciting
– Changing product requirements to encourage
competition
– Investing in new source development
– Performing the contract with in-house
Government resources
 Use concessions wisely
• Don’t rush to make concessions, concede
slowly and in small amounts. Concessions too
large or given too quickly:
– Raise the expectations of the other negotiator
– Give the impression the concessions were not
important to you
– Leave little room for further maneuvering
– Be more than necessary to get a mutually
satisfactory result
 Use the power of patience
• Use patience to:
– Increase the stress on the contractor’s negotiator
– Display resolve or firmness by showing you are not
overly anxious for a settlement
– Dissipate emotional feelings surrounding certain
issues by showing a willingness to proceed
through negotiations
 Be willing to walk away from
negotiations
• There is some risk to this tactic--it is difficult
to get the negotiations started again if this
is your eventual intent
The End
 CHAPTER TWO

Strategy and Tactics of

Distributive Bargaining
(Slicing the Pie)

415
 The Distributive
Bargaining Situation

• Goals of one party are in

fundamental, direct
conflict to another
party
• Resources are fixed and limited
• Maximizing one’s own share of
resources is the goal
416
 The Distributive Bargaining Situation

Preparation—set a
• Target point, aspiration point
• Walkaway, resistance point
• Asking price, initial offer

417
 The Distributive Bargaining
Situation

Party A - Seller

Walkaway Point Target Point Asking Price

Initial Offer Target Point Walkaway Point

Party B - Buyer

418
The Role of Alternatives to a Negotiated Agreement

• Alternatives give the negotiator power to walk

away from the negotiation
– If alternatives are attractive, negotiators can:
• Set their goals higher
• Make fewer concessions
– If there are no attractive alternatives:
• Negotiators have much less bargaining power

419
 The Distributive Bargaining
Situation

Party A - Seller

Walkaway Point Target Point Asking Price

Alternative

Alternative
Initial Offer Target Point Walkaway Point

Party B - Buyer

420
 Negative Bargaining Zone
Seller’s Bargaining Range

Negative Bargaining Zone

Buyer’s Bargaining Range

$5 $10 $15 $20

ST, Seller’s Target Point

SR, Seller’s Walkaway

BR, Buyer’s Walkaway

BT, Buyer’s Target Point

421
 The Most Commonly Asked Questions
• Should I reveal my reservation point?
• Should I lie about my reservation point?
• Should I try to manipulate the other party’s
reservation point?
• Should I make a “final offer” or commit to a
position?

422
 Fundamental Strategies

• Push for settlement near opponent’s resistance

point
• Get the other party to change their resistance
point
• If settlement range is negative, either:
– Get the other side to change their resistance point
– Modify your own resistance point
• Convince the other party that the settlement is
the best possible

423
 Keys to the Strategies

The keys to implementing any of the four

strategies are:
• Discovering the other party’s resistance
point
• Influencing the other party’s resistance
point

424
 Tactical Tasks of Negotiators

• Assess outcome values and the costs of

termination for the other party
• Manage the other party’s impressions
• Modify the other party’s perceptions
• Manipulate the actual costs of delay or
termination

425
Assess Outcome Values and the Costs of Termination for the Other
Party

• Indirectly
– Determine information opponent used to
set:
• Target
• Resistance points
• Directly
– Opponent reveals the information

426
 Manage the Other Party’s Impressions

• Screen your behavior:

– Say and do as little as possible

• Direct action to alter impressions

– Present facts that enhance one’s position

427
 Modify the Other Party’s Perceptions

• Make outcomes appear less attractive

• Make the cost of obtaining goals appear
higher
• Make demands and positions appear more or
less attractive to the other party –whichever
suits your needs

428
 Manipulate the Actual Costs of
Delay or Termination

• Plan disruptive action

– Raise the costs of delay to the other party
• Form an alliance with outsiders
– Involve (or threaten to involve) other parties
who can influence the outcome in your favor
• Schedule manipulations
– One party is usually more vulnerable to
delaying than the other
429
 Positions Taken
During Negotiations

• Opening offer
– Where will you start?
• Opening stance
– What is your attitude?
• Competitive? Moderate?
• Initial concessions
– Should any be made? If so, how large?
430
 Positions Taken
During Negotiations

• The role of concessions

– Without them, there is either capitulation or
deadlock
• Patterns of concession making
– The pattern contains valuable information
• Final offer (making a commitment)
– “This is all I can do”
431
 Thompson’s Pie-Slicing Strategies (I)
• Strategy 1: Assess your BATNA and improve it
• Strategy 2: Determine your reservation point, but do
not reveal it
• Strategy 3: Research the other party’s BATNA and
estimate their reservation point
• Strategy 4: Set high aspirations (be realistic, but
optimistic)
• Strategy 5: Make the first offer (if you are prepared)
• Strategy 6: Immediately reanchor if the other party
opens first

432
 Thompson’s Pie-Slicing Strategies (II)
• Strategy 7: Plan your concessions
• Pattern of concessions
• Magnitude of concessions (GRIT model)
• Timing of concessions
• Strategy 8: Use an objective-appearing rationale to
support your offers
• Strategy 9: Appeal to norms of fairness
• Strategy 10: Do not fall for the “even split” ploy

433
 Closing the Deal

• Provide alternatives (2 or 3 packages)

• Assume the close
• Split the difference
• Exploding offers
• Deal sweeteners

434
 Dealing with Typical
Hardball Tactics

• Four main options:

– Ignore them
– Discuss them
– Respond in kind
– Co-opt the other party (befriend them)

435
 Typical Hardball Tactics

• Good Cop/Bad Cop

• Lowball/Highball
• Bogey (playing up an issue of little
importance)
• The Nibble (asking for a number of
small concessions to)

436
 Typical Hardball Tactics

• Chicken
• Intimidation
• Aggressive Behavior
• Snow Job (overwhelm the other party
with information)

437
 Summary

Negotiators need to:

• Set a clear target and resistance points
• Understand and work to improve their
BATNA
• Start with good opening offer
• Make appropriate concessions
• Manage the commitment process

438
International Negotiation

Alpaslan Korkmaz
KOÇ UNIVERSITY - ISTANBUL
MIM
Autumn 2013

439
 Module II

Deal-making Negotiation
(Negotiating deals)

440
441
 A. The World is globalized!
• Western industry seeks subcontractors in Eastern
Europe or in the Far East.
E.g: watch / automobile / textile industry

• The Latin America, Europe, Africa and Asia watch

Hollywood movies. All Asia and the Middle East
watch Bollywood movies.
442
• By media (TV, Internet, etc) a child from
Santiago, Yaounde, Cairo or Manila sees the
shoes, shirts and other accessories carried by
his International (Usain Bolt, Messi, Ronaldo,
Kaka) heroes

• The high-tech companies compete to build the

infrastructures of emerging countries

IT IS EVEN AN ERA OF POST-

GLOBALIZATION
443
 The result:

• The companies that are active on several

markets, countries, continents tend to
carry out total optimizations on several
levels (commercial, legal, structural,
strategic, etc)

> competences needed in international

negotiators
444
 B. 3 reasons to get involved in
international negotiation

1. Often, the high speed of a business

execution prevents the international
negotiator from studying all the
alternatives in detail.

Good training and good bases!

445
 3 reasons to get involved in
international negotiation

2. Often, opportunities are missed because

the negotiator thinks in “his culture”, which
prevents him from identifying the interests
and specific priorities of his interlocutor.

Awareness of the “other”!

446
 3 reasons to get involved in
international negotiation

3. Often, opportunities are missed also because

the negotiator is not a good “integrator”, in a
multi-cultural environment!

Competences in negotiations!

447
 B. Example of “bad deal”

• BP repurchases 10% of SIDANKO

(Russia’s 5th oil company) for 484 million
USD

• This company had just been privatized

completely for 470 million USD!

What are the possible reasons?

448
• No new wells are opened till now
• The Russian government regularized strictly the oil
industry
• BP wants to be on this potentially promising market
… BUT:
Impossible for the negotiators of BP to calculate the
cost of an entry in the Russian market.

=> In any negotiation: set a limitation price

(reservation price), calculated on the basis of a
BATNA

449
 C. BATNA and Reservation price

• BATNA = Best Alternative To a Negotiated

Agreement

Which is my best alternative in case my

negotiation fails? => Know where we are!
=> Thus, know till where we can go!

450
 C. BATNA and Reservation price –
Cont’d

• Reservation price (limitation price) is the “stopping point” of

a negotiation

=> need of a definite BATNA

Ex: To buy or directly enter?

Which global expansion strategy?
Which Return On Investment (ROI)?
Then: Determine the reservation price (multiple of Turnover,
the benefit, etc…)

451
 C1. BATNA and reservation price

• There isn’t a mathematical formula to determine a BATNA or a reservation

price
• There are no mathematical formulas to determine a BATNA and a limiting
price.

Because cost is not only financial…

- Loss of reputation
- Ethical implications of a business
- Negative effects on the community (ex: reorganizations + dismissals)
- Ecological implications, etc…

452
 C.2 Evaluating the business

• The best means of evaluating a global business in short

term:

(V1) Value of the business - (V2) Value of the BATNA

The more V1 becomes an integrated agreement, bigger

this positive difference will be!

=> The importance of a good negotiator!

453
 C.3 Critical points for BATNA and the
limiting price (reservation price)

1. Understand well how the negotiated

business is integrated in the general strategy.

Ex. BP -> Sidanko

Citybank -> Akbank (10% pour 3.5 billion
USD)

454
C.3 Critical points for BATNA and the
limiting price (reservation price)

2. Determine your BATNA. There is always

one or more BATNA(s)!

Ex. AMGEN Switzerland vs Ireland

455
C.3 Critical points for BATNA and the
limiting price (reservation price)

3.If his BATNA is “weak”, it should be improved, or else

should be switched with other alternatives!

E.g. US Airways in negotiations with United Airlines,

improves its BATNA with the alternative American Airlines.
=> The offer from United Airlines increases from 30$ to
60$ per share!

456
 D. Transaction costs

The international negotiations (vs local) imply larger

costs of transactions!

A new negotiation requires almost always an initial

face to face (direct contact)

And, a negotiation between partners from various parts

of the world imply more investments in money and
time!

457
 D.1 Transaction costs
Which justifications?

• The more “advantageous” a business is, the

more the high T.C. will be justified.
… But, where to place the limit?

The “cold” cultures will cut the business earlier

than the relation-oriented cultures!

458
 D.2 Transaction costs

• Never forget the factor of the T.C. in the establishment

of your BATNA and the reservation price!

E.g. Christo “the packer”: New York (Central Park)

11 islands in Bay of Biscayne Reichstag (refused
2 times!) Paris, Japan, etc…

459
 E. The influence of culture in
negotiation strategies
Culture affects the strategies.
3 criteria to analyze:

1. The goals and motivations of the negotiators

2. Their vision of power and of influence
3. Their approach towards information sharing

460
E.1 Objectives and motivations
• The objectives and the goals must be fixed before
a negotiation.
But… they can vary according to the culture.
E.g. In general, in a “collectivist” culture, an
extreme request is a mean of broaching the
subject, of building a relation and finally, of
concluding a business at a more “reasonable”
level.

461
E.1 Objectives and motivations

Attention to:

• What is normative in the

other culture? And in mine?
• Collect the maximum of
information on other similar
transactions with ours
• Be realistic and optimistic

462
E.1.2 Objectives and motivations

The social motivations affect.

3 dominant types of social motivations:

The individualist
The pro-social
The competitor
463
 E.1.2 Objectives and motivations
• Individualist
is not concerned with the interest of his
interlocutor if that does not touch him directly.
Inclined to an integrated agreement, because he
absolutely wishes to achieve his personal goal, and that
passes by the interest of his interlocutor, if there is a
bond of interdependence.

464
 E.1.2 Objectives and motivations
• Pro-social
seeks in general a co-operation with his
interlocutor

Inclined to an integrated agreement,

because he is ready to work hard in order to
achieve the goals of the 2 parts involved

465
E.1.2 Objectives and motivations

• Competitor
thinks at first of his own interest despite the one of his
interlocutor

Not inclined to an integrated agreement, because he is

not ready to take into account the objectives of his
interlocutor. He desires the most (distributive) soonest.

466
 E.1.2 Objectives and motivations
• According to a study of the “Kellogg International Executive Master
Program” - Chicago - Prof Jeanne Mr. Brett

• 4 nationalities of managers: US/ German / Chinese/ Israeli

• General tendencies:
Israelis - > individualists
Germans - > pro-social
Americans and Chinese - > 60% pro-social & 30% individualists. Few
true “competitors”

• Attention: Never generalize!

Adapt to each negotiation!

467
 E.1.3 Practical tips

• Listen to your interlocutor, whatever his source-culture is, in

order to determine his type of motivation
• If individualistic: push “hard” so that he notes his interest
to satisfy yours (“we have interdependent goals - you win/I
win!”)
• If pro-social: go in his sense of co-operation. Take the
initiative: propose yourself the co-operation (“Let’s cooperate
– let’s win together”)
• If competitor: treat like an individualist. Yield a concession
only if an important point is obtained. Do not enter in his
strategy. “Take the hand - propose”

468
 E.2 Power and influence

Examples: For US negotiators (egalitarian culture)

Power = Information + perception of BATNA
of the 2 parties

For Japanese negotiators (hierarchical culture)

Power = Status + Information + BATNA

469
 E.2 Power and Influence
• Direct Influence Strategies
Persuasion – arguments – threats, etc

• Indirect Influence Strategies

Create a bond of sympathy – references to
famous people – references to his social status,
etc

470
 E.2 Power and influence
• Direct Influence Strategies
“If that’s all you offer to me, I have a better
client for a better price”

Direct
Threat
Reference to his BATNA

471
 E.2 Power and influence
• Indirect Influence Strategies

“I would so much like to conclude this business

with you, but at this price, I am almost forced to
consider other customers”

Indirect
Threat
Reference to his BATNA

472
 E.2 Practical tips

• Attention: the power is

an issue of perception.
Do the 2 parts have
same perception of it?

473
 E.2 Practical tips II

• Speaking about his alternative, making him show his status or

creating a bond of sympathy are means of affecting a
negotiation.

• To answer an attempt of influence is almost “universal”. Not

doing it can be interpreted as a weakness.

• Attention: engaging in a spiral of influence fight can, in certain

cultures, prevent an integrated result.

474
 E.3. Information

• Information is the brick of each negotiation-

construction!
• More we track, seek, find and flush it out, better
will be our result
=>integrated agreement

Does one give his information, his “reservation price”,

his BATNA?

475
 E.3.1 Obtaining information

3 different strategies to obtain information:

1. Direct share of information

2. Indirect share of information
3. Share in the second agreement

476
E.3.1.1 Direct share of information

• Series of questions and answers on goals

and preferences
• Frank and direct approach
• Thus determine the mutual interests,
priorities and preferences

Kellog example: quite German approach

477
 E.3.1.1 Direct Share of Information
II

This approach allows to identify

• what is most and least important to you
• What you are ready to leave behind and what
you’d never give up
• Have a relationship of trust
• Seek co-operative/ pro-social

478
 E.3.1.1 Direct Share of Information
– Tips

• Ask questions about the interests and priorities, on

which you are also ready to answer!
• Give small information first and then ask the
question. That shows your good faith.
• If you cannot give information, say it honestly and
give another thing “in exchange”
• Confidence is built by respecting your engagements.

479
 Building confidence
If mode of information share is direct:

• If the exchange is mutual/reciprocal

• If respective information is used to build an
integrated agreement (each part sees the
good faith of the other)
Confidence is established + you will
generate an even more frank and sincere
dialogue
480
 Building confidence II

If the mode of information share is another

type:

• Bases on relational!
• Develops more in medium-long term

481
 E.3.1.2. Indirect Share of
Information

• States itself by proposals and counter-

proposals
Ex: “It is clear that such an approach from
your part, would enable me to act in such
manner for my part…”
• We don’t ask many questions, but we ask,
wait, counter-propose

Kellog example: Japanese, a little Israelis

482
 E.3.1.2 Indirect Share of
Information - Tips

• Even in order to “flush out” the other (if you think

that he lies on his interests or priorities), never
make an intolerable proposal from your part.
• Make your proposals as clear and comprehensible
as possible (contents and visual!)
• Give time to the counter party to understand, help
if necessary.

483
 E.3.3. Share in the Second
Agreement
• In order to reach the best possible integrated
agreement, the 2 parts agree to share all
information, once an initial basis is established
• The rule in this case in general: the first agreement
remains valid as long as the second is not
established
• Attention: during information exchange in the 2nd
turn, one part can feel injured/frustrated by
learning a new element (confidence crisis)

484
Classical example of “share in the second
agreement”

Operation of M& A: 1st agreement obtained between

purchaser and seller. The seller, in order to obtain the
best price, presents his company under the best
auspices.
Then, in the second turn, all accountancy and the financial
results are presented.
Figures worse than envisaged, important debts, etc…
=> confidence crisis, feeling of being fooled, etc

485
 F. Contingency contract
• It is including an integrated aspect in the contract,
deriving from the assumption that the parts do not have
the same vision of future.
• Allows to find a solution when the negotiation is blocked.
• Risky, because the object must be measured by a third
party (objectivity? => risk of later conflicts)
• Ex: % of the benefit of the derived product sales
transferred by the purchaser chain from a series, if the
income exceeds X and reduction authorized on the price
by the promotioner if the sale of these products does not
reach X.
486
 G. To conclude

3 principal categories of international

negotiators appear:

1. Pragmatic individualist
2. Pragmatic cooperative
3. Indirect strategist

487
 G.1 Pragmatic individualist
• Ambitious, motivated, sets a high level, seeks
information and is not distracted by “who is
strongest”.
• Easily makes use of contingency contracts
• His goal being succeed in his negotiation, he will
seek to satisfy the expectations of the other part
• Attention: the other part can feel drowned,
choked by a too much “energetic” approach

488
 G.2. Pragmatic cooperative
• Concerned by his objective as well as that of his counter-
part, he will seek information by a direct approach
(questions-answers), but will use power only in an indirect
way.
• His objective is to create a base of confidence.
• Attention: confidence takes long to establish, but easy to
lose
• Attention: in indirect mode, this kind of negotiator can feel
“bad at ease”, not succeeds in obtaining the key information
and not leads to an integrated agreement.

489
 G.3 Indirect strategist

• Gives information only in an indirect way, uses the

power and the influence in a direct way
• Attention: can be effective in the same culture.
But he is too “subtle” for those that don’t know
him
• Attention: the direct use of power can lead to a
spiral conflict

490
 G. Briefly

• There is no magic formula of the best method!

• A good negotiator knows his goal and the
various negotiation strategies, he is conscious
of the fact that the counter-part has also goals
to reach, he knows how to adapt to the
situation, and constantly seeks to create value
during the negotiation process.

491
Negotiating
 Negotiating

• Basic rule of negotiating: “You never get

anything you don’t ask for.”
• Don’t negotiate until you’ve created value
– a differential competitive advantage.
• Don’t discuss price/cost until you’re ready
to negotiate and close.
• Negotiate to close the deal.
The Negotiating and Closing Process

• Your Negotiating Approach

1. Information-based
• Information about your customers and their
competitors
• Information about your competitors
• Information about the other side’s cultural
background, approach, style, and tactics
2. Relationship-based
3. Ethical
4. Collaborative
5. Flexible
 Preparation

1. Assess the situation.

– There are four basic bargaining situations
depending on:
– The perceived importance of the ongoing
relationship
– The perceived conflict over the the stakes
involved (to what degree do both sides want the
same limited resource such as money, power,
terms, etc.)
 The Situational Matrix
Perceived Conflict Over Stakes

High Low

High
I. Balanced Concerns: Business II. Relationships: Marriage, friendship,
partnership, joint venture, merger or work team

Importance
of Relation-
ship

III. Transactions: Divorce, house IV. Tacit Coordination: Highway inter-

sale, or stock market transaction section or airplane seating

Low
 Negotiating
1.Tacit Coordination - Calls for tactful
avoidance of conflict, not negotiation.
2.Transactions – Stakes, such as price, are
substantially more important than relationships.
Leverage counts.
3.Relationships - Treat the other party well,
generously, the stakes are secondary.
Accommodate.
4.Balanced Concerns - Problem solving and
compromise are vital. Stakes and relationships
equally important.
 Preparation
2. Assess negotiating styles.
– Competitors
– Accommodators
– Conflict Avoiders
– Problem Solvers
– Cooperators
• Match the other side’s style if Competitor
Problem Solver or Cooperator.
– You’re a cooperator, a competitor will eat your lunch.
– If you’re a competitor, you will tend to gouge a
cooperator.
 Preparation

3. Identify other side’s interests, needs, and

objectives.
– Fill out Negotiating and Closing Planner
4. Determine your targets.
– Specific opportunity/product/event/job
– Price
– Terms and conditions
 Preparation

5. Determine your BATNA (Best Alternative

to a Negotiated Agreement).
– If you have one, if you don’t you’re hosed.
6. Determine your HLE (Highest Legitimate
Expectation).
7. Determine your walk-aways.
– Price
– Terms and conditions
8. Estimate Ball Park
 The Ball Park

$100 $150

$0 $250

Seller’s bottom line: Buyer’s upper limit :

Seller must get at Most buyer will pay
least $100. is $150.
During negotiations, people tend to gravitate toward their bottom line--the dominant
reference point--and measure success with reference to the bottom line.
 Negotiating – Initial Discussion

• Deliver bad news (deal breakers, threats)

early in a negotiation.
– Sell all the deal terms early.
– Indicate where you can and cannot be flexible
(increase credibility).
– When selling a perishable product, always set
a deadline on your offers.
• Signal your expectations (HLE)
9. Assess and signal leverage
 Signaling Leverage
Your Leverage as You See It

Strong Weak

Firm
Make confident demands and Emphasize the uncertain future.
credible threats.
How Display your alternatives and Bluff (act strong when you are not).
You leave the decision to the other
Want Side – “take it or leave it.”
to
Act
Show (and tell) the other side Acknowledge the other side’s power
you’re investing in the and stress the potential gains from
Flexible relationship. future cooperation.

Be generous. Appeal to the other side’s sympathy.

What would they say in your position?
• Negotiate at the highest level possible.
• Negotiate on your own turf if possible.
• Negotiate face-to-face whenever possible.
Opening and Making Concessions

• Bargaining formally begins when one side

opens with a concrete, plausible (in their
mind) offer.
– Don’t respond emotionally to any offer or any
tactic.
– Getting emotionally involved leads to awful
outcomes.
– Don’t include most of the other side’s requests
in your initial offer.
 Opening Tactics: Open First?

• If you are not informed about the other

side’s business, interests, or demands,
don’t open first.
• If you are well informed, open first:
– It lets you fix the range, the zone of realistic
expectations.
– Sometimes forces the other side to rethink its goals.
– Most important, allows you to set the anchor.
• We tend to be heavily influenced by first impressions.
 Anchoring
• When the other side hears a high or low
number, they adjust their expectations
(unconsciously) accordingly.
– The first offer anchors the other side’s
perception of your walk-away price.
• First offer must be somewhat reasonable (no more than
50% higher than you will settle for).
• As high as possible within the Ball Park--as close to the
other side’s walk-away as possible (that’s the home run).
– Outlandish numbers at the beginning can kill
the deal or destroy your credibility if you
drastically reduce the offer later.
 Framing
• Frame all of your offers.
– Framing emphasizes the value of your offer.
– Framing provides justification for the other side to
make concessions.
• To those who like to win (promotion focus),
frame as a gain, a win – emphasize benefits.
• For those who are afraid to lose (prevention
focus for whom losses loom larger than
gains), frame as a possible loss – emphasize
the pain and shame of losing.
 Framing Example
• Group I
1 If Program A is adopted, 200 people will be saved.
2 If Program B is adopted, 1/3 probability that all will
be saved, 2/3 probability that none will be saved.
• Group II
1 If Program A is adopted, 400 people will die.
2 If Program B is adopted, 1/3 probability that all will
be saved, 2/3 probability that none will be saved.
• 76% in Group I chose Program A, only 12% in Group II
chose Program A.
• Same deal.
 Opening: Optimistic
or Reasonable
• Depends on the situation:
– Relationship – Open optimistically, then be
generous with concessions.
– Transaction - Open optimistically (high, but not
too high). The highest for which there is a
supporting standard or argument enabling you
to make a presentable case.
• Make the highest opening you can “with a straight
face.”
• Don’t open high if you have no leverage and the
other side knows it.
 Optimistic Openings

• Take advantage of two psychological tendencies:

The Contrast Principle and the Norm of Reciprocity.
– The Contrast Principle: If I want you to pay me $500,000
for my house, and I open with $750,000 (supported by a
presentable, “straight-face” argument), my settlement of
$500,000 seems very reasonable and gives the
perception of giving a very good deal.
– If I had opened for $550,000 and only come down to
$500,000, the contrast would have been small and the
deal not as satisfying.
 Optimistic Openings
– The Norm of Reciprocity:
• I make an optimistic opening ($750,000),
and you reject it.
• I moderate my offer by making a significant
concession ($650,000), and you feel
obligated to accept it (reciprocity).
– Big then smaller offer = “door in the face.”
Second offer seems reasonable. Other side
feels compelled to reciprocate.
– Small then bigger offer – “foot in the door.”
Second offer seems reasonable because
they’ve already said yes.
– For first-time deals, “door-in-the-face” works
best.
 Concession Tactics

• Open optimistically and have room to

make concessions.
• Concessions are the language of
cooperation. They tell the other side in
concrete, believable terms that you accept
the legitimacy of their demands and
recognize the necessity to cooperate and
sacrifice to get a fair deal.
 Concession Tactics
• To get movement, offer a small
concession/trade – show that agreement is
possible.
– Give a concession/trade in your least
important area (i.e. Lower price to get a desired
deal term or payment term.)
• The other side’s first concession is in its least
important area of concerns.
• Try not to give the first major concession (it
raises expectations and confuses people).
– Put the major issues aside, agree on small, easy
issues first.
 Concession Tactics
• Give small concessions and give them
slowly.
– The slower you give them, the more value they
have.
– A fast concession makes the buyer feel awful
(“could’ve gotten more”) and devalues your
product.
• Make the other side work hard for every concession;
they will appreciate it more.
• Make concessions progressively smaller.
 Building Agreement

• Summarize agreements and restate the

other side’s and your position on a regular
basis.
• Be patient—with patience and hard work
in exploring alternatives, you can make
the deal better for both sides.
 Closing

• Expect to close the deal.

• If you break off negotiations, always leave
the door open.
 Closing Tactics

• Split the difference?

– The most likely settlement point in a negotiation is
the midpoint between two opening offers.
– People who prefer a cooperative style like to cut
through the bargaining process and often offer to
split the difference at the beginning.
– When the relationship is important, split the
difference; it’s a smooth way to close.
– In a transaction situation, the midpoint may be too
much in the other side’s favor; don’t split.
– In a balanced concerns situation; problem solve –
widen the options – before splitting.
Closing and Gaining Commitment
• Closing tactic – the scarcity effect:
• The scarcity tactic works even better at the
end rather than at the beginning of a
negotiation:
– Competition (someone else wants it)
– Deadlines (agree now or elements or terms of the
deal “explode”)
 Closing Tactics
• Use a variety of trial closes throughout
the negotiating process:
– The Clincher Close
• Don’t use with regular customers
– The Assumption Close
– The SRO Close
– The Minor-Point Close
– The T-Account Close
– The Pin-Down Close
 Closing

• Ask for a decision.

– Non-binding Letter of Intent (LOI)
– Commitment to send a contract.
• 48-hour hold
– “What else is left?”
– “If I can resolve these issues, do we have an
agreement?”
 Closing

• Be careful about trying to close too

aggressively.
• You can create a sense of urgency, but the
timetable has to be the other side’s.
– Too much pressure can kill a prospective sale.
• High pressure raises suspicion.
• People want to buy, they don’t like being “sold”or
“closed.”
 Recognize Buyers’ Tactics
• The Big Bait (search for rock bottom)
• Deliver Garbage (lowers expectations and
confidence)
• Good Guy/Bad Guy (forces the wrong
comparison)
• The Flinch (brings out guilt feelings)
• The Price Tag (sets a limit)
 Recognize Buyers’ Tactics
• Red Herring (manufactures an issue, tries
to transfer concessions)
• The Crunch (implies they’re hot, but won’t
give a number)
• Silence (tries to get the other side to
respond with concessions)
• Cherry Pick
• Auction
 Recognize Buyers’ Tactics
• Blackmail (never give in to threats, makes
you vulnerable in the future)
• Change of Pace (brings you close, then
backs off to get you frustrated and to
concede)
• Escalation (takes back a concession)
• Split the Difference (after a low offer)
 Recognize Buyers’ Tactics
• Nibble (offers a settlement, then takes
little bites back)
• Declare the Other Side the Winner (don’t
believe it)
• Take It or Leave It (an ultimatum; always
look to the future)
Confidence Gives You Power
• The buyer will never be forgiven for
not asking for a better deal), but will
always be forgiven for not getting it.
• Recognize their negotiating tactics.
• Accuse the other side of not being fair
when they are not.
• Take reasonable risks – equate risk
with a positive outcome.
– If you’re comfortable with risk.
 Confidence
• A “good deal” is an individual perception
that is unique to every person.
– Low price
– Someone else wanted it
– High quality, reasonable price
– Got the last one
– Low risk of dissatisfaction
– Got a discount (“wholesale”)
– Feel that they won
– Something else thrown in
– Price/results ratio is high
– Compared to alternatives
 Get Commitment

• Social Ritual
• Public Announcement
• Accountability
• Simultaneous Exchange
• Once you get commitment, say “thank
you,” shut up and scram.
– Nothing good can happen after a “yes.”
 Get Commitment

• Agreements alone are not enough unless

the relationships and trust between both
sides are deep and stable.
• Set the situation up so that the other side
has something to lose if it fails to perform,
and be willing to take a similar step
yourself.
 On Becoming an
Effective Negotiator
• Seven tools for highly cooperative
people:
1. Avoid concentrating too much on your bottom
line. Spend extra time preparing your goals
and developing high expectations.
2. Develop a specific alternative such as a
fallback if the negotiation fails. If you can’t
walk away, you can’t say a simple “no,” you
need a fallback position.
3. Get an agent and delegate the negotiating
task.
4. Create an audience (you’re more assertive
when people are watching).
5. Say, “Can you do better than that
because…” (push back a little with a
truthful reason).
6. Insist on commitments, not just
agreements (don’t be too trusting).
 Summary
• Plan. Know your and the other side’s
negotiating style, interests, and objectives
and plan tactics.
• Identify the negotiating situation
(Balanced Concerns, Relationship,
Transaction, Tacit Coordination)
• Negotiate to close and get a
commitment.
• Make the other side feel like it got a good
deal.
Advanced Insurance Issues in
Corporate M & A

April 18, 2012

PLEASE NOTE THAT THIS DOCUMENT IS FOR DISCUSSION PURPOSES ONLY, DOES NOT CONTAIN
OR CONVEY LEGAL, BROKERAGE OR OTHER PROFESSIONAL ADVICE, AND MAY OR MAY NOT
REFLECT THE VIEWS OF THE SPEAKERS’ FIRMS OR OF ANY PARTICULAR CLIENT OR AFFILIATE OF
THOSE FIRMS.
THE INFORMATION HEREIN SHOULD NOT BE USED OR RELIED UPON WITH RESPECT TO ANY
PARTICULAR FACTS OR CIRCUMSTANCES.
 Presenters
Peter N. Flocos, Esq.
Partner
K&L Gates LLP

David B. Mattingly
Director, Risk Management
Ashland Inc.

Randy L. Nornes
Executive Vice President
Aon Risk Solutions
 Agenda
• Merger & Acquisition Landscape

• Building a Model M & A process

• Understanding the Deal

• Risk Manager’s Perspective

• Role for M & A Insurance products

• Questions
 M & A Landscape
• Volume of M&A activity is again increasing
– All types of deals – whether large or middle market, public or private, strategic or
financial buyers
– More cross border activity
– Greater deal complexity
• Traditional M & A processes focuses on issues between deal and close, leaving
significant risks and opportunities unmanaged
• Need for a new view of M & A risk management that includes:
– Target evaluation
– Negotiation and “due diligence”
– Transaction structure and documents
– M&A-related insurance products
– Post-close opportunities
 M&A Transactions –Top 10 Issues List
10 - No post-closing access to pre-closing loss and exposure information
9 - Historic M & A activity and treatment of insurance assets and liabilities not
investigated
8 - Target currently pays corporate allocations which always understate the true
cost of risk
7 - Assignment of the right to assert claims against pre-closing insurance not
negotiated
6 - Bifurcation of insurance obligations (e.g., LC’s supporting pre-closing programs
or priority of
rights to insurance limits) when buying divisions
5 - Captives – purchase agreement, tax, collateral, re-insurer quality or integrations
considerations – may also provide an opportunity
4 - Accruals for retained losses understated
3 - Lack of understanding as to replacement of guarantees, surety or collateral
2 - Missing critical information, information, information
1 - Risk management brought in too late to impact the deal
Defining Success for a Typical
M&A Transaction

Deal Integration
Valuation

Process
Management

Deal Bid
Structure Differentiation
 Developing a Transaction Lifecycle Checklist
Target Evaluation Negotiation Close Post-Close

Offer submitted Purchase Sale Agreement Ownership Vests

Risk Management Activities

545
 Integrated Approach to M & A
Simplified Timeline of Events
Identify Implementation Program Design
Strategic Price and Terms Leaders and Team Detailed Implementation of
Planning Negotiations Strategy Decisions
Integration Plans

Initial Confirmatory Preliminary

Due Diligence Announcement Program Design Closing
Due Diligence

Transaction Process
Strategy
Strategy // Due
Due Diligence
Diligence Set-Up/Transition
Set-Up/Transition Implement/Operate
Implement/Operate
Liability
Liability Program
Program Create
Create Create
Create Execute
Execute Monitor
Monitor
Strategy
Strategy Deal
Deal Execute
Execute
&&Synergy
Synergy Office
Office “90-Day”
“90-Day” Optimization
Optimization Optimization
Optimization Synergy
Synergy
Assessment
Assessment Input
Input 90-Day
90-DayPlan
Plan
Gap
GapAssess.
Assess. Setup
Setup Plans
Plans Plans
Plans Plans
Plans Realization
Realization

Work streams
A

G
 Five Keys to M & A Risk Management

• Establish governance structure to manage deal planning and

execution

• Define key workstreams based on the specific characteristics of

the deal

M & A Risk • Commit early to desired results and define work plans to drive
management execution
key success
elements • Set targets for each risk management workstream, assign
responsibility and track results

• Communicate: plans, progress and decisions needed with project

management office; what should be expected with risk
management colleagues

5
4
7
 Managing Complexity
Mobilize Assess Recommend Execute

Communications

Team Governance
Core
workstreams Technology

Accrual Review

Claims

Vendor Contracts

Property

Automobile Liability
Functional
workstreams
Foreign Property Liability

Director and Officers Liability

Marine Cargo

Workers Compensation
 Insurance Related M&A Issues:

Understanding the Deal

Peter N. Flocos, Esq.

Partner
K&L Gates LLP

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 549
 Legal Form and Structure of M&A Transactions

• There are only three legal forms or types of

M&A transactions
– merger/consolidation
– stock purchase
– asset purchase

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 550
 Mergers
• Statutory procedure between two companies; all 50
states have some form of merger statute
• Under the typical state merger statute, two companies
merge and there is a “survivor” corporation
– The non-survivor legally ceases to exist
• Under the typical merger statute, the “surviving”
corporation in a merger by law:
– Assumes all of the rights, privileges, powers and immunities of
the non-surviving corporation; and
– Is subject to and assumes the prior duties and liabilities of the
non-surviving corporation

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 551
 Mergers
• For example, Section 259(a) of Delaware General
Corporation Law states:
– “The rights, privileges, powers and franchises of each said
[merging] corporations, and all property, real, personal and
mixed…as well...as all other things in action or belonging to
each of such corporations shall be vested in the corporation
surviving or resulting from such merger…”
– “...all property, rights, privileges, powers and franchises, and
all and every other interest shall be thereafter as effectually
the property of the surviving corporation...as they were of
the...constituent corporations...” [emphasis added]

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 552
 Mergers – Before & After
M ER G E R S A N D A C Q U IS IT IO N S O V ER V IE W

B A S IC M E R G E R

H I S T O R IC
A C Q U IR O R
TAR G E T SH A R EH O L D E R S
SH A R EH O L D E R S

A C Q U IR O R FO R M ER
C o ns ide r atio n TAR G E T
SH A R E H O L D E R S
SH A R E H O L D E R S

A C Q U IR O R TA R G E T S U R V I V O R (H E R E
M E RG ER A C Q U IR O R )

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 553
 Stock Purchase
• In a stock purchase, T the target company
remains intact as the same legal entity it was
before
– Nothing is changing other than the identity of the
stockholders
– No asset or liability is being transferred to a legally
“new” party

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 554
 Stock Purchase – Before
MERGERS AND ACQUISITIONS OVERVIEW

STOCK PURCHASE

Target
Stock
Parent/
Target Buyer
Shareholders Cash/Other Consideration

100%

Target

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 555
 Stock Purchase – After
MERGERS AND ACQUISITIONS OVERVIEW

STOCK PURCHASE

Parent/
Target Buyer
Shareholders

100%

Cash/Other Consideration
Target

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 556
 Asset Purchase
• In an asset purchase, the parties will typically specify in their
purchase agreement which assets and liabilities A is buying
from T
• Agreement will also typically spell out which assets and
liabilities are not being taken by A (often referred to as
“excluded” assets or liabilities)
• Courts generally respect the parties’ agreed allocation of
assets and liabilities in the asset purchase agreement
– e.g., a claimant cannot go after A on a liability that was “excluded”
from the deal
– e.g., a claimant cannot go after T on a liability that was transferred in
the deal

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 557
 Asset Purchase – Before
MERGERS AND ACQUISITIONS OVERVIEW

ASSET PURCHASE

Parent and
shareholders

Assets/liabilities
Target Buyer
Cash/Other Consideration

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 558
 Asset Purchase – After
MERGERS AND ACQUISITIONS OVERVIEW

ASSET PURCHASE

Parent and
shareholders

Target Buyer

Cash/Other Consideration Assets/liabilities

Copyright © 2010
2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 559
 Asset Purchase
• Certain exceptions to the parties’ agreed allocation of assets and liabilities in the
asset purchase agreement (sometimes referred to as “successor liability” being
imposed in A “by operation of law”)
– “de facto” merger – transaction really had all the attributes of a merger, so A stuck with
all the liabilities as if a merger
– purchasing corporation (A) is “mere continuation” if T (similar to “de facto” merger)
– some courts recognize a “product line” exception – when A buys a “product line” from T,
and if plaintiffs have no effective remedy against T or its successor, A is stuck with the
liabilities associated with that product
– certain statutes may prohibit disclaiming liabilities, e.g., CERCLA environmental statute
– T’s transfer of assets/liabilities was to effectuate a fraud against T’s creditors

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 560
 Potential Impact of M&A Transactions
on Legal Rights Under Insurance Policies
• An M&A type transaction may potentially impact the
existing insurance coverage rights of the transaction
parties in a number of ways
– policy language
– statutes
– judicial case law interpretations and doctrines
• Insurers may claim that the M&A transaction has
eliminated or narrowed coverage
• Issues can be raised with any type of policy – D&O,
E&O, fidelity, CGL, property-business interruption
Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 561
 Potential Impact of M&A Transactions
on Legal Rights Under Insurance Policies
• The language of D&O, E&O and fidelity policies seems to address in more detail
what happens in the event of an M&A transaction
– versus CGL and property-business interruption policies, which are often much less detailed or even
silent
• Where should one look in the policy? Pertinent language can be anywhere but
look particularly for:
– “Change of Control” or “Change of Control”
– “Termination”
– “Consolidation, Merger and Purchase of Assets”
– “Organizational Changes”
– “Subsidiary” definition
– “Assignment”
• CGL and property-business interruption policies may be silent or have a general
“Assignment” provision regarding assignment of the policy (discussed below)

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 562
 Potential Impact of M&A Transactions
on Legal Rights Under Insurance Policies
• Various ways that a policy may treat an M&A transaction when such a transaction
is specifically addressed
• D&O and fidelity policies often state that if the insured merges into or sells
substantially all assets to another company (or undergoes some other “change of
control” or “take over”), then:
– policy simply terminates
– policy continues but only as to pre-transaction acts or losses
• D&O and fidelity policies often state that a newly formed or acquired subsidiary is
covered (CGL policies can address this as well)
– policy may state that only post-acquisition acts or losses are covered
– there may be certain restrictions as to the size of the subsidiary based on asset tests, or
as to the amount of time that coverage exists

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 563
 Potential Impact of M&A Transactions
on Legal Rights Under Insurance Policies
• Most of the litigation occurs when the policy is silent
or simply has a general anti-assignment provision
– Example: “This policy is not assignable without the
written consent of the insurer.”
• Most of the litigation occurs with CGL policies due to
absence of language or specific language coupled
with “occurrence” trigger and potential to cover
“long tail” claims
• Hypothetical example and case studies

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 564
 Insurer Consent to the M&A Deal:
Should You Seek It?
• Consult with counsel
– Each transaction should be approached on a “case by case”
basis because the analysis is fact specific and depends on a
number of factors which state’s law applies
– E.g., the pertinent state may have a statute that arguably
makes an anti-assignment clause enforceable,
notwithstanding the traditional common law approach
• See Del Monte Fresh Produce (Hawaii), Inc. v. Fireman’s Fund Ins.
Co., 117 Haw. 357, 183 P.3d 734 (2007) (state insurance statute
interpreted to make anti-assignment clauses enforceable; court did
not need to decide whether to accept or reject the Henkel approach)
– Little or no case law directly addressing the “strategy” of
seeking or not seeking consent

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 565
 Insurer Consent to the M&A Deal:
Should You Seek It?
• General framework: balance risk of not obtaining consent
versus the risk of seeking it, arguably creating a record that
the policyholder believes consent is necessary, then the
insurer says “no”
– assess which state’s law applies
– analyze policy language
• issues generally should not exist if the policy is silent on M&A issues and
contains no anti-assignment language, due to the bias of contract law in
favor of transferability
– understand the form of the transaction
• mergers and stock sales may well not present issues, asset sales may
present issues
– assess the number and importance of the policies that contain an
anti-assignment clause

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 566
 Insurer Consent to the M&A Deal:
Should You Seek It?
– assess historical relationship and course of dealing and future
prospects with insurer
– there is case law in some states indicating that in other insurer
consent contexts, e.g., insurer consent to settlement, insurer
cannot arbitrarily or unreasonably withhold consent
• such case law may factor into the M&A consent analysis
– Proposal by past audience member: send insurer request for
consent shortly before closing, then close and claim “waiver” of
consent rights by insurer for failure to respond?
• may be unduly risky as a general proposition
• courts generally require waivers to be knowing and intentional
• would silence really be enough, especially on a short time frame?
• creates record suggesting policyholder thought consent was necessary
• what if insurer responds quickly with a “no” prior to the closing?

Copyright © 2010
2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 567
Insurer Consent to the M&A Deal:
Should You Seek It?
– some policyholders may decide that insurer will
take forever to address a consent request and
then say “no” anyway
• conclusion may be that there is nothing to be gained by
seeking consent
• one option may be to send the insurer a
communication giving notice of the transaction and
opportunity to say something but stating the insured
believes consent not necessary
– complete the assessment before the purchase
agreement is signed so that desired language can
be included in the agreement (e.g., if consent will
be sought, is insurer’s consent a closing condition
Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 568
Risk Manager’s Perspective

David B. Mattingly
Director, Risk Management
Ashland Inc.
 Phase I: Identification of Target
Prior to any particular acquisition or disposition:
• Know your company’s business model and growth plan
• Insert yourself into strategic planning discussion
• Be a consumer of the company’s media
• Press releases
• Financial filings
• Management presentations
• Internal publications

Understand likely targets for dispositions and what types of businesses

would be strategic additions

All part of a robust Enterprise Risk Management approach

 Phase I: Identification of Target
Be certain M&A evaluators and decision makers understand the
value of early input from Risk Management
• More precisely modeling and deal valuation
• Fewer surprises - identifying issues that could compromise deal
certainty or value
• Enhanced negotiating strength

Don’t “wag the dog”

• Concerns raised should be significant in relation to the deal
• Requests should be demonstrably reasonable, so that if challenged
your credibility is intact
 Phase I: Identification of Target
Evaluate target’s risk and exposures in relation to those already facing your
company
• Industry
• Key markets
• Supply chain exposures
• Operations
• Location and size of facilities
• Financing of deal
• Financials of target business

Maintain accurate understanding of how these factors are likely to impact

insurance markets
• Capacity
• Rate
• Alternatives
 Phase II: Negotiation and Bid
Review proposed agreement
• Type of transaction – stock, asset, etc.
• How are pre-closing liabilities assigned
• Any insurance representations or covenants
• Indemnification (duration, credit issues, scope)
• Any run-off issues
• Access to all necessary information before closing
• Anything else applicable
 Phase II: Negotiation and Bid
Purchase Agreement Type of Deal Focus of Insurance Due Diligence

Stock Stand-alone • Evaluate current policies and costs.

– Change in control provisions?
Assuming Buying 100% of the company – Estimate costs for run-off
preclose liabilities – Savings opportunities by adding to existing corporate
program ?
• Quantify accrual for historic liabilities, if necessary.

Stock Spin-off • Evaluate current policies and costs/allocation

– Is entity or parent the Named Insured?
Assuming Buying a division of a – Estimate cost of rolling into corporate program and ensure
preclose liabilities company that access to the seller’s policies is granted to cover historic
liabilities
– Entity: Change in control provisions?
• Quantify accrual for historic liabilities, if necessary.

Stock Roll-up • Evaluate current policies for both entities

– Identify/estimate stand-alone costs
Assuming Merging two companies – Estimate merged program costs
preclose liabilities • Quantify accrual for historic liabilities, if necessary.

Asset Assuming preclose • Ensure current and historic policies included in asset schedule or
access is granted to these policies
liabilities • Estimate costs for post-close roll-in
• Quantify accrual for historic liabilities, if necessary.

Asset NOT assuming preclose • Identify pre-close costs for insurance policies
• Estimate costs for post-close roll-in
liabilities
 Phase II: Negotiation and Bid
Try to get as much information from outside target as possible
within negotiating constraints

Make recommendations are certain to significantly decrease risk

or add value

Identify any “holes” in the agreement and prepare to fill in next

phase
• Later negotiated agreements like TSAs, leases, etc.
 Phase III: Closing the Deal
Information exchange is vital:
• Identify counterpart(s) and establish terms of relationship
• Use other sources of information if available:
 Data room
 Target’s broker*
 Target’s TPA*
 Target’s website and SEC filings
 Target’s intranet*
 Target’s other employees*
* Normally would require a release obtained through counterpart or deal
team
• Develop and use a diligence checklist
 Phase III: Closing the Deal
AB(TA)C – Always Be (Thinking About) Closing
• Prioritize every task and request by whether or not it is required to
close or not
• Do not allow a risk management or insurance item delay closing

Items to consider and prioritize:

• Contract covenants
• Day 1 insurance coverage and documentation (binders, certificates,
auto ID, WC postings)
• Budgetary impact
• Claims reporting information
• Access to archived data
 Phase III: Closing the Deal
Day 2 and beyond priorities:
• Evaluate risk management strategies of acquired company and
incorporate best practices across the organization
• Deliver promised synergies as soon as practical
• Obtain applicable returned premium and release of collateral and
other forms of financial insurance
• Understand the changes to your company
 Business and operations
 New financial constraints (or lack thereof)
 Strategic direction
 Important exposures
 Changes in risk philosophy and tolerance

Fold into your ERM program and prepare for the next change
M & A Insurance Solutions

Randy L. Nornes
Executive Vice President
Aon Risk Solutions
 Purchase Agreement Review
• Purchase Agreement
– Representations & Warranties
– Covenants
– Closing conditions
– Indemnity provisions
– Termination provisions
• Reps and Warranties Insurance

Copyright © 2011 by the Risk and Insurance Management Society, Inc. All rights reserved. 580
 Insurance Solutions to Facilitate
M & A Transactions
• Reps & Warranties Insurance

– transfer indemnity obligations to third party

insurer
– replace / reduce / enhance escrow requirements
• Tax Indemnity Insurance

– transfer risk arising from IRS / other taxing

authority challenge
• Litigation Buyout Insurance

– existing claim / related claims capped at a

maximum liability
– removes uncertainty of liability
Using Reps & Warranties Insurance
Tension Points in a Transaction

Sellers makes statements regarding the business being sold Reps & Warranties

Buyers wants financial recourse against the Sellers if

Indemnification
statements aren’t accurate & Buyer sustains a loss

Seller seeks to:

• Limit length of time of responsibility for breaches of R&W Survival Period

• Define the maximum amount of the indemnification The Cap

• Ensure the Buyer pays a minimum amount before

The Basket
requesting indemnification

Buyer seeks to:

• Ensure security that there will be financial resources
Escrow
to back up Seller’s indemnification obligations
• Create a competitive advantage in auction situations or
R&W Policy
a solution where Buyer & Seller disagree on the contract
 Value of Reps & Warranties
• Buyers
–
Insurance
• Sellers
–
Increase maximum indemnity / Reduce contingent liabilities
extend survival period for – Distribute sale proceeds
breaches of reps & warranties – Protect passive sellers
– Distinguish bid in auction – Expedite sale process
– Protect key relationships – Attract best offers by maximizing
– Ease collection concerns indemnification
– Provide recourse when no seller
indemnity possible (public
company sales, bankruptcy)
 Examples of Reps & Warranty
Insurance
• Examples of Transactions
– Seller Coverage (Dissolution) Fully Indemnity -
Broad Based
• As part of a planned dissolution and liquidation, a
leading telecommunication equipment and services
company sold its two largest subsidiaries in separate
stock sales totaling $160 million. A single R&W
Insurance policy was issued, providing the Seller with
$10 million coverage in respect of the bulk of its
indemnification obligations for Breaches under the
respective Stock Purchase Agreements.
– Buyer Coverage – Full Indemnity – Broad Based
 Examples of Reps & Warranty
Insurance
• Examples of Transactions
– Buyer Coverage (Negotiated Deal) – No Indemnity
– Broad Based.
• R&W Insurance has been used to insure a Buyer of a
company against a Breach of the full complement of
Seller’s representations. In one case involving the sale
of a $145 million manufacturing company to a foreign
buyer, a $25 million policy ran to the buyer for a non-
cancellable 3-year term. The parties agreed that the
Buyer’s sole remedy for a Breach was the R&W
Insurance.
– Buyer Coverage (Auction) – Limited Indemnity –
 Addressing Potential Tax Problems
• Situation:
– In a portfolio company’s recent tuck-in acquisition, there was a potentially large tax
liability that jeopardized the closing of the deal
• Discussion:
– During diligence, we discovered a potential tax liability that could exceed $100M in total
exposure
– Not surprisingly, the buyer and seller had very different views on both the size and risk
associated with the tax issue
– As buyer, we were unwilling to jeopardize our existing investment by taking on this
additional risk and a full cash indemnification did not make sense for the seller for a
variety of reasons
• Outcome:
– To bridge the gap, we investigated a variety of options and found a cost effective tax
insurance policy that addressed our concerns, relieved seller of having to set aside a
significant cash as indemnification for a (hopefully) very unlikely event, and allowed the
transaction to close in a timely manner.
 Keys to Success
• Get involved early
• Maintain a team of experts that can quickly
integrate into the deal team
• Use a standard project management approach
to coordinate all work streams
• Don’t overlook key issues in the target and
negotiation phases
• Don’t rely on generic language to address risk
and people issues
Questions
• SEVEN ELEMENTS OF EFFECTIVE NEGOTIATIONS
• December 2008 – Jerome Slavik
• Adapted from Getting To Yes – Negotiating Agreements Without Giving In, R. Fisher and W. Ury
• RELATIONSHIP: AM I PREPARED TO DEAL WITH THE RELATIONSHIP?
– a)  A good negotiating relationship is needed to address differences and conflicts.
– b)  Separate people issues from substantive issues.
– c)  Plan and prepare to build and maintain a good working relationship.
– d)  Be respectful, trustworthy and unconditional constructive.
• COMMUNICATION: AM I READY TO LISTEN AND TALK EFFECTIVELY? CREATING A LEARNING CONVERSATION
– a)  Core Skills – Basic Communication Skills in Negotiation
• Active listening – To do active listening, we must overcome some of our tendencies and habits that interfere with good listening.
• Acknowledging what has been said and felt – Have you effectively demonstrated to the other negotiators that you have heard and UNDERSTOOD what they have said? Use paraphrasing and summarizing.
• Listen to understand, speak to be understood – Have you thought about ways to communicate with the other party by using words (and at the right time) in a way that they will understand?
• Speak about yourself, not them – Have you let them know what are the crucial issues for you and your community and how you feel about the problem at hand? Use “I” statements.
• Speak for a purpose – Have you thought through the timing and impact of what you wish to say? Be clear and concise.
– b)  Core Skills – Communications to Gather Knowledge and Learn About Their Interests
• i. Clarifying and Probing Skills
•   Have you thought about basic questions for clarification (including empathetic questions) you might ask to draw out the interests from the other negotiators? E.g. can you explain...?
•   Could you use consequential questions to draw out the other side? E.g. what would you need to...?
• HMS/HSDM/HSPH OMBUDS OFFICE
Melissa Brodrick, Ombudsperson, melissa_brodrick@hms.harvard.edu 164 Longwood Avenue, Boston, Massachusetts 02115
617-432-4040 (Ombuds line) 617-432-4041 (office line)
• ii. Integrative Framing Skills
•   Paraphrasing – Have you given feedback in your own words or what you understand the key concerns and interests on the other side to be?
•   Summarizing – Can you accurately draw together the main points of the discussion up to that point in time?
• INTERESTS: WHAT DO PEOPLE REALLY WANT?
– a)  Collectively identify and articulate the interests, concerns, and needs of all relevant parties (mine, yours, theirs). Remember: most parties do not know all their interests or necessarily agree on their interests.
– b)  Identify and prioritize community interests together. Get on the same page.
– c)  Probe for your and their unarticulated or underlying interests.
– d)  Share and clarify the respective interests of the parties. Move beyond speculation about to acknowledgement of their interests.
– e)  Identify and share common interests as a basis to develop options.
– f)  Interests from the agenda.
• OPTIONS: WHAT ARE THE POSSIBLE AGREEMENTS OR BITS OF AN AGREEMENT?
– a)  Design options, not positions.
– b)  Create options to meet interests of both parties.
– c)  Remember when designing options they also must transparently meet their interests. Find ways to maximize joint gains for both.
• ALTERNATIVES: WHAT WILL I DO IF WE DO NOT AGREE?
– a)  Do we need to negotiate or can we satisfactorily meet our interests in other ways?
– b)  Identify and articulate our best/doable alternatives to a negotiated agreement.
– c)  Fully understand the implication, consequences, risks and costs of your and their BATNA.
– d)  Select and improve our BATNA
– e)  Identify the best and worst alternatives open to the other side.
– f)  How can we make their BATNA worse for them? (i.e. keep them at the table)
• LEGITIMACY: WHAT CRITERIA WILL I USE TO PERSUADE EACH OF US THAT WE ARE NOT BEING RIPPED OFF?
– a)  Fairness is a governing consideration.
– b)  Use external criteria and objective standards as a basis to legitimize your preferred options and as a shield against unreasonable proposals from the other side.
• c) Use demonstrable “fairness” of the process and outcome to persuade them of the merits of a proposal.
• d) Offer their negotiator an attractive way to explain his decision to his principals (see number 8).
• COMMITMENT: WHAT COMMITMENTS SHOULD I SEEK OR MAKE?
– a)  Get commitments at the end not the beginning.
– b)  Identify all of the implementation issues to be included in the agreement. No post- argument surprises?
– c)  Plan the timeframe and steps to implement the agreement.
• CONCLUSION: WHAT IS A GOOD OUTCOME?
– a)  Meets interests.
– b)  Demonstrably fair.
– c)  Better than BATNA.
– d)  Doable.