TACH - AUTOMOTIVE STOCK INDEX
January 03, 1997
By Gerald Levinson CMA
Pennzoil Company
The heads-up management of CEO James Pate has kept Houston-based Pennzoil ahead of the pack as the top motor oil seller and oil change provider. Like CEOs of other bloated oil and gas companies, Pate is decentralizing operations, selling assets, and cutting jobs to keep his company competitive.
Pennzoil owns Jiffy Lube International, the world's largest franchiser of lube and oil change centers, with about 1,200 Jiffy Lubes in the US. About 700 of these are franchisee-owned and roughly 500 are owned by the company. The company is also involved in oil and gas exploration, both in the US and internationally, and has reserves of about 200 million barrels of oil equivalent. Its exploration and production activities in the US are primarily in Louisiana, Pennsylvania, Texas, and Utah. The company operates 2 refineries, one in Pennsylvania and one in Louisiana. Pennzoil also has interests in international sulfur operations.
The company is looking for growth in oil and gas from major international projects and has exploration activity underway in the Caspian Sea, Egypt, and Venezuela.
Pennzoil is taking advantage of brand strength to increase its hold on the market. It is expanding its Jiffy Lube quick oil change operation by opening units in Sears Auto Centers across the US. Nearly 300 Jiffy Lube/Sears centers are planned by the end of 1997. The company has cut back its investment from 800 oil and gas fields to about 108 to bring down debt. Its reduction of assets and its restructuring activities have caused the company to absorb some big losses, but Pate is confident that the leaner company is better prepared for future expansion.
HISTORY
The post-WWII oil boom in West Texas attracted brothers J. Hugh and Bill Liedtke and a Connecticut scion named George Bush. Eager to make their fortunes, they formed Zapata Petroleum and hit big with more than 120 producing wells in Jameson Field.
Zapata expanded with a subsidiary that drilled in the Gulf of Mexico. Bush bought out the subsidiary in 1959 and the Liedtkes set their sights on South Penn Oil of Oil City, Pennsylvania. Enlisting the support of J. Paul Getty, they took control of South Penn in 1963, merged it with Zapata, renamed it Pennzoil in honor of the lubricant it sold, and moved the headquarters to Houston.
In 1965 J. Hugh Liedtke engineered the historic takeover of Shreveport-based United Gas Pipeline, 5 times the size of Pennzoil. Using a takeover tactic that would break ground for a generation of corporate raiding, Liedtke launched a hostile cash tender offer. Pennzoil invited United Gas shareholders to sell their shares at a price higher than the market price. Shareholders tendered 5 times the number of shares that Pennzoil wanted to buy. Undaunted, the Liedtkes raised the additional funds to buy 42% of United Gas stock. (They spun off a scaled-down United in 1974.)
In the late 1960s Pennzoil financed speculative drilling by selling stock in subsidiaries to the public.
J. Hugh Liedtke hoped to purchase Getty Oil, the company begun by his old benefactor, and in 1983 he thought he had a deal. Texaco bought Getty instead, Pennzoil sued, and in 1985 a Texas jury awarded a record $10.5 billion in damages. Texaco sought refuge in bankruptcy court, emerging after settling with Pennzoil for $3 billion.
Liedtke stepped down as CEO in 1988 but remained chairman of Pennzoil. In 1989 Pennzoil spent $2.1 billion for 8.8% of Chevron, but Liedtke denied that his company had a takeover in mind. Chevron wasn't convinced and filed suit in 1989 to keep him at bay. Much of the suit was dismissed in 1990, and by year's end Pennzoil had increased its stake to 9.4%. Two years later Pennzoil swapped $1.2 billion of its Chevron stock for 266 of Chevron's oil and gas properties, primarily in the Gulf of Mexico and along the Gulf Coast. The swap ended litigation between the 2 companies. Also in 1992 Pennzoil spun off filter maker Purolator.
The company signed a joint venture agreement with Conoco in 1994 to build a lube oil hydrocracker at Conoco's refinery in Louisiana.
Pennzoil teamed up with Citicorp in 1995 to set up loans for lube center operators. The company sold its Canadian oil and gas assets to Gulf Canada Resources in 1996 for $184 million.