Oil Company

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The Pacific Oil Company
“Look, you asked for my advice, and I gave it to you,” Frank Kelsey said. “If I were you, I wouldn’t make any more concessions! I really don’t think you ought to agree to their last demand! But you’re the one who has to live with the contract, not me!” Static on the transatlantic telephone connection obscured Jean Fontaine’s reply. Kelsey asked him to repeat what he had said.

“OK, OK, calm down, Jean. I can see your point of view. I appreciate the pressures you’re under. But I sure don’t like the looks of it from this end. Keep in touch—I’ll talk to you early next week. In the meantime, I will see what others at the office think about this turn of events.”

Frank Kelsey hung up the phone. He sat pensively, staring out at the rain pounding on the window. “Poor Fontaine,” he muttered to himself. “He’s so anxious to please the customer, he’d feel compelled to give them the whole pie without getting his fair share of the dessert!”

Kelsey cleaned and lit his pipe as he mentally reviewed the history of the negotiations. “My word,” he thought to himself, “we are getting completely taken in with this Reliant deal! And I can’t make Fontaine see it!”

Background
Pacific Oil Company was founded in 1902 as the Sweetwater Oil Company of Oklahoma City, Oklahoma. The founder of Sweetwater Oil, E.M. Hutchinson, pioneered a major oil strike in north central Oklahoma that touched off the Oklahoma “black gold” rush Source: Case prepared by Roy J. Lewicki.

Although this case is over 20 years old, the editors of this volume believe that it presents valuable lessons about the negotiation process.
Lewicki−Barry−Saunders:
Negotiation: Readings,
Exercises, and Cases, Fifth
Edition
Cases 2. Pacific Oil Company (A) © The McGraw−Hill
Companies, 2007
of the early 1900s. Through growth and acquisition in the 1920s and 1930s, Hutchinson expanded the company rapidly and renamed it Pacific Oil in 1932. After a period of consolidation in the 1940s and 1950s, Pacific expanded again. It developed extensive oil holdings in North Africa and the Middle East, as well as significant coal beds in the western United States. Much of Pacific’s oil production is sold under its own name as gasoline through service stations in the United States and Europe, but it is also distributed through several chains of independent gasoline stations. In addition, Pacific is also one of the largest and best-known worldwide producers of industrial petrochemicals.

One of Pacific’s major industrial chemical lines is the production of vinyl chloride monomer (VCM). The basic components of VCM are ethylene and chlorine. Ethylene is a colorless, flammable, gaseous hydrocarbon with a disagreeable odor; it is generally obtained from natural or coal gas, or by “cracking” petroleum into smaller molecular components. As a further step in the petroleum cracking process, ethylene is combined with chlorine to produce VCM, also a colorless gas.

VCM is the primary component of a family of plastics known as the vinyl chlorides. VCM is subjected to the process of polymerization, in which smaller molecules of vinyl chloride are chemically bonded together to form larger molecular chains and networks. As the bonding occurs, polyvinyl chloride (PVC) is produced; coloring pigments may be added, as well as “plasticizer” compounds that determine the relative flexibility or hardness of the finished material. Through various forms of calendering (pressing between heavy rollers), extruding, and injection molding, the plasticized polyvinyl chloride is converted to an enormous array of consumer and industrial applications: flooring, wire insulation, electrical transformers, home furnishings, piping, toys, bottles and containers, rainwear, light roofing, and a variety of protective coatings. (See Exhibit 1 for a breakdown of common PVC-based products.) In 1979, Pacific Oil established the first major contract with the Reliant Corporation for the purchase of vinyl chloride...
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