I'm always looking for unique ideas for building stock portfolios, and the other day I was reading about the breakup of Standard Oil in 1911 when it occurred to me that there was a portfolio in this. Upon historical review, I was able to come up with five oil companies that exist today that are descendants of that historic 1911 Supreme Court anti-trust ruling.
For violating the Sherman Anti-Trust Act, John David Rockefeller's Standard Oil was broken into 34 pieces. Five of those pieces are still standing in one form or another today, and those five businesses would have made you a lot of money in the past 26 years. I suspect they could make you a lot more in the next 26 as well.
The Building Blocks
Piece No. 1 came when Rockefeller formed Standard Oil of Ohio in 1870. It was the original Rockefeller company, and over the next eight years it would go on to control 85% of the country's oil industry. Standard Oil of Ohio was eventually taken over by BP (NYSE:BP) in 1987 when BP acquired an additional 45% stake in the company on top of the 55% already owned. The second piece of our Standard Oil portfolio was created in 1882 when Rockefeller created the Standard Oil Company of New Jersey to own all 67 companies he'd built. One of the 34 separate entities created in the breakup was Standard Oil (New Jersey) itself, also known as ESSO. It was eventually renamed Exxon in 1972, which then became the familiar Exxon Mobil (NYSE:XOM) in 1999 after a merger with Mobil.
In 1884, Standard Oil took over the Continental Oil and Transportation Company, which was the biggest marketer of gas in the Rocky Mountains. It was held until 1913 when forced Rockefeller was to sell because of the breakup; Continental merged with Marland Oil Co. in 1929. It went public September 15, 1929, operating under the name Conoco. Conoco was then bought for $7.4 billion by Du Pont (NYSE:DD) in 1981. On October 22, 1998, Conoco was sold via IPO, becoming ConocoPhillips (NYSE:COP) in 2002, the world's sixth largest publicly traded oil company. That is the third piece.
The fourth piece is the Ohio Oil Company, bought by Rockefeller in 1889 and owned until 1911. In 1962, it changed its name to the Marathon Oil Company, which was its main brand at the time. In 1982, it was bought by U.S. Steel (NYSE:X) to fend off an unwanted Mobil buyout. In 2002, it spun off the steel business and the oil business became Marathon Oil (NYSE:MRO).
Lastly, is the Standard Oil Company of California (Socal), sold as part of the breakup in 1911. In 1984, it merged with Gulf Oil to become Chevron (NYSE:CVX). It then merged with Texaco in 2001.
Here's a quick recap:
- Standard Oil of Ohio became BP.
- Standard Oil of New Jersey became Exxon Mobil.
- Continental Oil became ConocoPhillips.
- Ohio Oil Company became Marathon Oil.
- Standard Oil Company of California became Chevron.
That wasn't too difficult.
Performance of a Standard Oil Portfolio
If you invested an equal amount in each of the five stocks back in 1982 (taking into account mergers, etc.), you'd have quite a little horde of money today. Far more than the S&P 500, that's for sure, as you can see by the total returns in the table below.
|Standard Oil Portfolio Performance|
Nov. 19, 1982
Nov. 21, 2008
The cumulative return over 26 years for the five stocks ranges from a high of 5,777% for Exxon to a low of 1,171% for BP. The S&P over the same period had a cumulative return of 484%. Put in dollar terms, $100,000 invested in the Rockefeller Portfolio back in 1982, today is worth $2.5 million, compared to $584,000 for the S&P 500. (Learn more about these types of companies in The Industry Handbook: The Oil Services Industry.)
Over the past five years, the numbers are a little closer, with the Rockefeller Portfolio outperforming the S&P 500, 89% versus a loss of 22% for the index. The interesting statistic to note is oil prices, which in the same 26-year period returned 39% on a cumulative basis, adjusting for inflation. The oil companies made a great deal of money on relatively small increases in the price of oil. I'm confident they'll do the same over the next 26 years.
If Rockefeller were alive today, his estimated wealth would be approximately $318.3 billion, three to four times that of Warren Buffet and Bill Gates, currently the two richest men in the world. All of it from oil. Need I say more?
To take advantage of the oil market without having to open a futures account, read A Guide To Investing In Oil Markets.
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