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137 5 The End of Business as Usual By the early 1970s, a broad front of social movements in the United States—civil rights, women’s rights, environmentalism, labor activism, anti–Vietnam War—challenged politics and business as usual. The OPEC embargo of 1973 and subsequent nationalizations , which restructured the international oil market, magni fied the challenge. In the United States, political fallout from the embargo and soaring gasoline prices resulted in government price controls on oil, the loss of the depletion allowance, and threatened divestiture of integrated companies. Meanwhile, the unprecedented combination of a severe recession and spiraling inflation, caused by heavy spending on the war, produced the strange new phenomenon of “stagflation.” In the midst of it all, the Watergate scandal engulfed the Nixon administration and ultimately led to the president’s resignation. One of the most serious challenges to corporate America was the rising concern about environment, health, and safety issues, touched off by the publication of Rachel Carson’s 1962 exposé of the potential damages of pesticides, Silent Spring, and the 1969 blowout at a Union Oil offshore platform in the Santa Barbara channel. As society demanded much higher standards of performance from industry, Shell and its competitors came under intense public scrutiny. A 1970 blowout and fire at a Shell platform in the Bay Marchand offshore field was a watershed event for the company in forcing the E&P organization to refocus on safeguarding the environment and workers. Shell Oil was forced to change in other ways. Social and political pressures to hire more women and integrate its segregated industrial plants led to the gradual adoption of new personnel policies to diversify the workforce. Labor strikes at Shell refineries in 1969 and 1973 encouraged management to seek a better relationship with its employees. Less newsworthy at the time but of great long-term importance was the mounting difficulty of managing the flow of information and products within a large and expanding industrial organization. This drove efforts to centralize companywide information and computer systems and eventually 138 The Offshore Imperative led to the relocation of the head office to Houston, a dynamic city that provided a better environment than New York for this kind of centralization and closer to the company’s increasingly vital operations in the Gulf of Mexico. By the early 1970s, Shell Oil was remaking its organization and establishing a new corporate culture. None too soon. After 1973, the U.S. oil industry would never be the same. The era of price stability and domestic abundance in a protected market was over. The new order would be characterized by price fluctuations in an international market largely controlled by OPEC producers . On top of the assortment of pressures and challenges faced by Shell Oil was the enduring problem of diminishing domestic oil reserves. M. King Hubbert’s warning about peak production for U.S. oil came true in 1970. Shell Oil’s domestic reserves were dwindling at an alarming rate, and access to low-cost foreign crude had become an increasingly vital concern. Shell’s expensive offshore wells, which provided more than 40 percent of its crude oil output, had nearly reached peak production, and it was too soon to tell what might be found in deeper federal waters. The company had no position on Alaska’s North Slope, and other onshore basins in the United States offered little promise for big finds. Furthermore, Shell’s joint program of exploration with Shell Canada had proved to be a disappointment. The deepening energy crisis of the early 1970s forced the company to consider all possible ways to meet the country’s exploding energy demands. It invested in alternative resources such as shale, tar sands, geothermal, and solar, and became a major U.S. coal producer. Under Pres. Harry Bridges, Shell Oil muscled its way into the international oil game, creating some awkward tension with its majority shareholder, Royal Dutch/Shell. It also negotiated a deal with Saudi Arabia for access to long-term crude supplies in exchange for Shell’s investment in a petrochemical complex. However, Shell could not stake the future of the company on any of these areas of investment. Its main business was finding and producing hydrocarbons in the United States. John Bookout, who took over as president in 1976, refrained from diversifying further afield into unrelated industries, unlike some other major oil companies. Instead, the company plowed its profits back into exploration and production, pushing even...

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