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Here's What You Don't Know About Chevron, Today's Best Dow Stock

By Alex Planes - Mar 12, 2014 at 12:16PM

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One of the world's largest oil companies is also one of its most historically significant.

The Dow Jones Industrial Average ( ^DJI -0.17% ) has not reacted well to the fifth anniversary of its post-crisis bull market. The index is lower for the third straight day since passing the March 9 anniversary date, and today that decline is being blamed on international concerns -- specifically, the ongoing tensions between Russia and Ukraine (not to mention the rest of Europe and the U.S.) over Crimea and weak economic news out of China. However, a few Dow components remain in the green today, helping prevent an uglier bloodbath. Chevron ( CVX -0.63% ) is the clear leader in early trading, as it's the only Dow component to post a gain of more than 1% as of 12:15 p.m. EDT.

You probably know a fair bit about Chevron, which is the second-largest oil and gas company in the United States, and the fourth-largest public oil and gas company in the world, according to Forbes. But you might be surprised to know that this supermajor has had a hand in many of the oil industry's most notable milestones. It is, after all, one of the oldest oil companies in the world.

Chevron's earliest corporate ancestor, Pacific Coast Oil, was founded in 1879 in California, and it quickly became the leading oil producer and refiner in the West in the days when petroleum was still primarily used as lamp fuel.

Pacific Coast Oil became part of the Standard Oil Trust in 1900 after losing a fierce competition with John D. Rockefeller's behemoth enterprise. It was folded into Standard Oil of California, a name it would retain until 1984. 

Chevron, as Standard Oil of California, became an independent oil company after the landmark May 15, 1911, legal decision to break up the Standard Oil Trust. It was one of 34 "Baby Standards" created after the breakup, but one of only four that retain any public trace of their original lineage.

Two years after the Standard Oil breakup, Gulf Oil -- which merged with Standard Oil of California in 1984 -- opened the world's first drive-in gas station, a model that helped spread car culture across the country. Within two decades there were more than 100,000 gas stations of this type operating in the United States.

Chevron has paid dividends from its earliest days as an independent company, and some of these were whoppers by our standards. The New York Times compiled a report at the end of 1921 that showed the payment of one 50% special stock-distribution dividend in 1916 and one 33.3% special stock-distribution dividend in 1917, which resulted in an aggregate market value of $178.9 million in 1921. The company's total oil production was 36.7 million barrels for that year, a company record at the time, and profit reached $22.7 million.

If your grandparents had bought 100 shares of Standard Oil of California in 1915 and passed them down to you, you would be sitting on a hoard of at least 20,532 shares today worth roughly $2.4 million, not counting any reinvested dividends. The annual dividends alone on those 20,532 shares would place you in the top 25% of all earners in the United States.

Chevron helped to create Saudi Aramco by becoming the first oil producer to enter Saudi Arabia in 1933. Five years later, Chevron struck oil for the first time in the Middle Eastern state, and a decade later the company discovered the massive Ghawar oil field, which remains by far the largest oil field in the world. The Saudi government began buying into Chevron's Saudi subsidiary (Aramco) in 1973, and took full control of it in 1980. Today, Saudi Aramco is by far the largest company in the world based on the value of its assets, although it remains entirely in Saudi hands.

Chevron has completed two huge mergers in its recent history to become the Big Oil company we know today. The first was a $13.2 billion buyout of Gulf Oil in 1984, which was at the time the largest merger in corporate history. The second was a $45 billion merger with Texaco in 2001.

Chevron has also been involved in two of the most notable gushers in oil-industry history. Texaco (as Texas Co.) was originally formed in 1902 to capitalize on the state's legendary Spindletop oil field, which sprayed nearly 1 million barrels of oil onto the landscape before it was brought under control, and which in 1915 helped propel Texaco to a spot on the Dow before any other oil company. Nine years later, a geyser blew out the Lakeview oil derrick near Los Angeles, spilling roughly 9 million barrels of oil before it could be tamed. Chevron still pumps oil from these oil fields more than a century later.

Chevron first joined the Dow in 1924, and was removed in 1930 only to rejoin in 1932. A second removal in 1999 proved to be a bad decision for the Dow, as Chevron stock more than doubled between that removal and its reinstatement in 2008.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$34,580.08 (-0.17%) $-59.71
Chevron Corporation Stock Quote
Chevron Corporation
$114.41 (-0.63%) $0.73

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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