"Private Empire" is surprising book about the history of ExxonMobil, America's largest company. Not only did Exxon come off as less evil than commonly portrayed, but the oil company seemed to be significantly less powerful than I had anticipated. Two-time Pulitzer-Prize winner Steve Coll wants to convince us that America didn't invade Iraq to steal its oil and that ExxonMobil played no role in the decision to invade. And I've gotta say, I'm pretty convinced. Coll clearly delineates the boundaries between ExxonMobil's profit-focused, engineering-driven enterprise and the messy, internally-conflicted, and constantly shifting world of official US geopolitics. Exxon's stated policy was that "ExxonMobil did not want anything from the American government, but it did not want the government to do anything to the company, either." I was struck by how often Exxon seemed to get boxed out by Russian and Chinese state-owned enterprises because they had much stronger domestic government support than Exxon. If Exxon were actually running some shadowy power cabal to use the US military to secure access to oil, how could something like this possibly be true:
The U.A.E. depended upon American military protection for its very existence, yet American oil companies had managed to secure only 13 percent of the foreign participation available to international majors; European and British firms had 60 percent.
But at the same time, Coll claims that, "There were many favors, executive orders, lobbying meetings, and laws ExxonMobil sought and obtained from the American government." I highlighted this 700 page book pretty exhaustively and I didn't really see evidence of this. The most hardball lobbying I saw was about preventing a precautionary nationwide phthalate ban pushed by alarmist environmental groups (see Deutsch's "The Beginning of Infinity" for a strong indictment of the precautionary principle)... and Exxon ultimately had to compromise pretty hard on that. And Coll documents plenty of other cases where Exxon paid out billions in government-mandated fines.
My overall impression of Exxon is that it is an enormous company that manages a hugely complex global operation and uses lots of solid, boring physical and process engineering to ensure that gargantuan profits continue to flow with relatively few major screw-ups. I was particularly intrigued by Coll's first chapter about the engineering-driven culture of Exxon and their very non-postmodern belief in the "One Right Answer":
“They’re all engineers, mostly white males, mostly from the South... They shared a belief in the One Right Answer, that you would solve the equation and that would be the answer, and it didn’t need to be debated.”
Is there a connection between lines like "ExxonMobil earned a net profit of $36.1 billion, more money than any corporation had ever made in history" and the relentless, boring, engineering perspective described above...? The scale of the operation doesn't hurt either. As Rex Tillerson said:
Everything we do, the numbers are very large. I saw someone characterize our profits the other day in terms of $1,400 in profit per second. Well, they also need to understand we paid $4,000 a second in taxes, and we spent $15,000 a second in cost. We spend $1 billion a day just running our business.
But this scale is a double-edged sword. Coll shows us how Exxon's recent history has been increasingly characterized by anxiety about replenishing its reserves. This has forced Exxon into large mergers (Mobil for overseas oil and XTO for domestic shale) and into increasingly dicey projects in developing countries. From Venezuela and Nigeria to Indonesia and Equatorial Guinea, Coll takes us on a global tour of Exxon's quest to acquire and exploit oil reserves. It's messy. Coll talks about the Foreign Corrupt Practices Act and how Exxon walks a fine line to gain access to oil while respecting international norms. The notorious French Elf Affair (also mentioned in "The Looting Machine") comes up, as does a lot of the offshore money dynamics detailed in "Treasure Islands". Overall, Exxon comes off looking pretty clean - at least relative to other major international oil companies.
The one thing that still doesn't sit quite right with me though is Exxon's domestic political influence. Coll claims it's there, and it seems like it should be. But the numbers cited just don't add up. Their Washington, DC lobbying office didn't seem particularly huge and their PAC only "distributed about $700,000 during each two-year election cycle." That's peanuts! For comparison, Exxon straight up gave $100 MILLION to Stanford for its Global Climate and Energy Project... and that's not even that much when you think about the scale of Exxon's operations (that's about 18 hours of profit). So either buying US politicians is super cheap or there's something missing here.
My highlights below:
Prologue - “I’m Going to the White House on This”
In 1987, Exxon reported more annual profit per employee than any other major American corporation.
Scientists later estimated that about 300 harbor seals, 250 bald eagles, 22 killer whales, 250,000 seabirds, and billions of salmon and herring eggs were destroyed by the initial exposure to Exxon Valdez oil.
The storm transformed the cleanup. Now the challenge became to remove the contamination from dozens of beaches during the summer months before the snow and harsh weather of late autumn returned.
Exxon reported that it spent $2.1 billion on cleanup operations in 1989, and even some critics of the company credited the vigor of its efforts once the operation became organized.
Raymond aligned Exxon with America, but he was not always in sync; he was more akin to the president of France or the chancellor of Germany. He did not manage the corporation as a subordinate instrument of American foreign policy; his was a private empire.
In some of the faraway countries where it did business, because of the scale of its investments, Exxon’s sway over local politics and security was greater than that of the United States embassy. In impoverished African countries increasingly important to Exxon’s strategy, such as Chad, the weight of the corporation’s investments and the cash flow it shared with local governments overwhelmed the economy and became the central prize in violent local contests for power.
Increasingly, the oil and gas Exxon produced was located in poor or unstable countries. Its treasure was subject to capture or political theft by coup makers or guerrilla movements, and so the corporation became involved in small wars and kidnapping rackets that many other international companies could gratefully avoid.
PART ONE - THE END OF EASY OIL
One - “One Right Answer”
In 1974, Exxon had paid $14 million to free one of its executives, Victor Samuelson, from the Marxist People’s Revolutionary Army in Argentina.
Until its retreat to Texas in 1993, Exxon had been rooted in Manhattan since 1885, when John D. Rockefeller and his founding partners at Standard Oil of Ohio had moved their headquarters from the city of Cleveland to 26 Broadway.
Compared with executives at San Francisco–based Chevron or the international behemoths of British Petroleum and Royal Dutch Shell, a British-Dutch conglomerate, senior executives at Exxon sometimes lacked what bicoastal American or European executives would call worldliness.
Exxon maintained “kind of a 1950s southern religious culture,” said an executive who served on the corporation’s board of directors during the Raymond era. “They’re all engineers, mostly white males, mostly from the South... They shared a belief in the One Right Answer, that you would solve the equation and that would be the answer, and it didn’t need to be debated.”
Two - “Iron Ass”
They met at the University of Wisconsin and married when Raymond was twenty-three.
Saudi Arabia, which banned Christian churches,
In 1987, Rawl began to place heavy emphasis on a metric called “return on capital employed” or R.O.C.E. (often spoken of as “row-see”).
Even the most nationalistic governments might welcome Western companies as technology partners and hire them strictly as contractors to drill, produce, and refine oil and gas, as a homeowner might hire out a contractor to renovate a house. Such fee-for-service contracts could be the basis of a profitable business — Schlumberger and Halliburton were examples of companies that built lucrative franchises in this way.
Yet Chinese and Russian competitors could make offers to African or Latin American or Central Asian host governments that Exxon couldn’t touch — government-to-government loans, arms transfers, and political favors.
It was only after the nationalization waves of the 1970s that annual reserve replacement became precarious, and counting methods drew attention from regulators.
“What is the one item that concerns you most, that disturbs your sleep?” the Wall Street oil industry analyst Fadel Gheit recalled asking Raymond over a meal. “Reserve replacement,” Raymond had replied.
That summer, John Browne advanced a fallback plan to merge with Amoco, the offspring of Standard Oil of Indiana, headquartered in Chicago.
Every North American and European leader of a large oil corporation seemed to conclude simultaneously that his company needed to merge to get bigger. Chevron and Texaco would soon combine, as would Conoco and Phillips, and Total with Petrofina and Elf.
From Exxon’s perspective, the fit with Mobil was well tailored, particularly because the ends-of-the-earth map of Mobil’s oil reserves complemented Exxon’s more conservative profile, so heavily weighted in North America and Europe. Mobil’s holdings included substantial assets in West Africa, Venezuela, Kazakhstan, and Abu Dhabi. It also held important natural gas positions in Qatar and Indonesia. By purchasing Mobil, Exxon could scale up to compete with state-owned oil giants and leapfrog onto new geographical frontiers.
The shares Exxon bought back did not simply vanish; they were parked in the form of “treasury shares” belonging to the corporation. Raymond and his management team chose to use the parked shares to purchase Mobil tax free. If Exxon could not discover on its own great gobs of oil, it would buy what it could not find: This was an extraordinary payoff for two decades of cash flow discipline.
ExxonMobil Corporation — the world’s largest nongovernmental producer of oil and natural gas, and soon to become the largest corporation of any kind headquartered in the United States — formally came into existence on December 1, 1999. During its first year of combined operations, the corporation would earn $228 billion in revenue, more than the gross domestic product — the total of all economic activity — of Norway. If its revenue were counted strictly as gross domestic product, the corporation would rank as the twenty-first-largest nation-state in the world.
Three - “Is the Earth Really Warming?”
Socially, Raymond’s wife, Charlene, and Cheney’s wife, Lynne, saw each other not only in Dallas, but at retreats and meetings of the American Enterprise Institute for Public Policy Research, a free-market think tank where Raymond served on the board and Lynne served as a senior fellow.
“I’m not a U.S. company and I don’t make decisions based on what’s good for the U.S.,” Raymond said.
ExxonMobil’s strategy was not so much to dazzle or manipulate Washington as to manage and outlast it.
Lobbyists and consultants newly hired at the office were instructed that ExxonMobil sought to avoid asking for specific favors, such as earmarks, on Capitol Hill. “We don’t need the government’s help” was the prevailing instruction. “We just want to know the rules of the road.” The line used to indoctrinate new arrivals to the Washington office was that ExxonMobil did not want anything from the American government, but it did not want the government to do anything to the company, either.
In fact, Raymond was kidding himself. There were many favors, executive orders, lobbying meetings, and laws ExxonMobil sought and obtained from the American government.
When ExxonMobil lobbyists looked for serious help, they more often turned to the executive branch, discreetly.
Any business that required government subsidies to be viable was not for Exxon, he declared.
Raymond argued: The most pressing environmental problems of the developing nations are related to poverty, not global climate change. Addressing these problems will require economic growth, and that will necessitate increasing, not curtailing, the use of fossil fuels.
The individuals writing and lobbying in the network Exxon funded described themselves as honest, libertarian skeptics who had the courage to challenge conventional scientific wisdom. They did not feel polluted by the receipt of Exxon money any more than liberal-minded campaigners might feel polluted by the receipt of grant funding from, say, the George Soros–backed, left-leaning philanthropy, the Open Society Institute.
Four - “Do You Really Want Us as an Enemy?”
Only after Suharto’s regime cracked and collapsed under pressure from democracy campaigners in May 1998 did it prove possible to investigate past abuses. That summer human rights researchers interviewed villagers around the Mobil gas fields, documented the names of missing young men, and, guided by informants, dug in the ground for evidence. B. N. Marbun, a member of the National Human Rights Commission, estimated that at least two thousand Acehnese torture victims lay buried in secret graves. He and other investigators identified a dozen such locations and found remains in six of them; in one grave, in the village of Bukit Sentang, they dug up at least a dozen bodies.
Mobil still paid the salaries of T.N.I. soldiers and officers deployed to protect its fields, despite the official American sanctions over human rights abuses.
“We don’t sign on to other people’s principles,” an executive later explained.
Managing civil violence in remote, complex countries would not prove to be one of ExxonMobil’s notable competencies. Yet beyond Aceh, ExxonMobil’s portfolio of risk-producing small wars would only grow.
Five - “Unknown Injury”
Even the corporation’s most ardent opponents conceded that the individual ExxonMobil staff scientists they encountered were typically ethical and professional. The question that nagged those on the receiving end of ExxonMobil’s blended campaigns of research, lawsuits, and political lobbying was whether the corporation’s science could be judged honest.
David Page knew that the government scientists thought of him as a corporate shill, and he felt insulted by that accusation. “It’s not about corporate America,” he said. “To compare Exxon to a tobacco company is totally outrageous. They are two very different things. I will tell you, my livelihood was teaching students chemistry and biochemistry. I didn’t need to work for Exxon or anybody else. If I thought for a minute that I was being asked to say something that wasn’t true or to hide information or act in [an] indefensible way at all, I would have taken a hike and not had any further relationship. I don’t hold my nose when I’m talking.”
Six - “E.G. Month!”
In Malabo, Macías maintained an active torture chamber in Black Beach prison. He increasingly walled himself away on the slice of mainland Africa where his Fang ethnic group predominately resided. He descended into paranoia and lashed out at anyone who challenged him. Roughly a third of Equatorial Guinea’s small population would die or manage to escape during his reign.
Exxon had had success on its own in Angola, but Raymond would mainly be dependent on Mobil’s legacy properties if he wanted to share in Africa’s emergence after 2000 as an increasingly important oil play.
The Foreign Corrupt Practices Act, as interpreted by Justice, did not hold that some countries should be avoided altogether, only that American corporations should not act corruptly if they had a choice in the matter.
It was unusual for State to approve any license for military training for a regime with a human rights record as bad as Equatorial Guinea’s, but maritime defense work had been rationalized as necessary to protect huge American oil investments offshore.
“We are an oil company; we are not the Red Cross,” as Andre Madec, an ExxonMobil executive who oversaw global community relations, once put it. “We don’t want to be seen as the de facto administration.”
Obiang did have one piece of business he wished to mention while he was visiting his bank: He requested a $34.4 million loan to purchase a presidential jet from Boeing Corporation, a 737-700 that would be outfitted with a king-size bed and gold-plated bathroom fixtures.
Seven - “The Camel and the Jackal”
During the cold war, despite his torture rooms, Hissène Habré had maintained cordial ties with the United States, which regarded him as a regional counter to Libya’s leader, Moammar Gaddafi. The Reagan administration trained elements of Habré’s notorious security service and provided the regime with tens of millions of dollars of military aid each year. When Habré visited Washington in June 1987, Reagan assured him, “Chad now knows it can count on its friends.”
During the mid-1990s, Exxon and the bank conceived an unprecedented plan: In exchange for loans from the World Bank’s finance arm, Chad’s government would be pressured to accept covenants requiring that it spend most of the royalties and taxes it received from oil production on health services, education, economic infrastructure, and other poverty alleviation programs. To ensure that Idriss Déby or others in his government did not cheat, the plan would require that Exxon route Chad’s oil money through special bank accounts in London controlled by the World Bank. For a cautious company run mainly by engineers, the Chad project’s terms amounted to an extraordinary venture by Exxon into social engineering and nation building.
In 1993, the British economist Richard M. Auty published Sustaining Development in Mineral Economies: The Resource Curse Thesis. (His work drew on earlier economic analysis about the “Dutch disease,” which referred to the distortions that took place within the Netherlands’s economy after a major natural gas discovery.)
Treasury Secretary Lawrence Summers made the Clinton administration’s policy decisions about World Bank projects; he took advice from Timothy Geithner, who then ran Treasury’s international division.
ExxonMobil’s oil deal in Chad signaled the shifting sovereignties of a rising era in which formal governments were losing relative power.** A warlord running a teetering state surrendered prerogatives of his office in exchange for the private capital and cutting-edge technology he required to strengthen his reign.** A multilateral lending institution brokered the agreement and afterward contracted with the London office of a global bank, Citigroup, to manage and control most of the revenues due to the warlord’s government. Oxfam, Catholic Relief Services, Global Witness, and other worldwide antipoverty campaigners organized conferences at which they taught Chadian civil society activists how to secure their rights. ExxonMobil, having conceived and financed the oil project in the first instance, and having achieved its business aims after more than two decades of effort, now moved to produce oil on a schedule of its choosing and under contract terms that enshrined its rights ahead of those of the Chadian government.
ExxonMobil’s investments in the Chad-Cameroon oil project would amount to $4.2 billion. Annual aid to Chad from the United States was only about $3 million.
Shell and the French oil giant Elf Acquitaine originally joined ExxonMobil in the Chad project. Then an Elf chief executive, Loik Le Floch-Prigent, was indicted on embezzlement and international bribery charges; he was accused of skimming corporate funds and using some of them to pay off African and other overseas officials to win oil deals. (“It was like that before me,” Le Floch-Prigent claimed. “And my successors are doing it as well.”) Lee Raymond and his Dutch senior aide, Rene Dahan, once dined with Le Floch-Prigent in Paris and walked away shaking their heads. “I’m not doing that again,” Raymond barked at Dahan. ExxonMobil had its flaws, but outright crookedness was not one of them. The scandal weakened Elf, led ultimately to a merger with Total, and forced ExxonMobil to find new partners in Chad.
Even before the September 11 attacks, Al Qaeda menaced Africa. Osama Bin Laden, the group’s emir, lived in Khartoum, Sudan, between 1992 and 1996. He funded violence in Somalia and Ethiopia and built up cells in Kenya and Tanzania.
Eight - “We Target Oil Companies”
Sprow had shown that he could deliver measurable improvements in ExxonMobil’s safety and operational performance. Alongside Raymond, he proselytized the belief that zero accidents and defects was achievable, and that a fanatical devotion to safety in complex operational units such as refineries could lead to greater profits because the discipline required to achieve exceptional safety goals would also lead to greater discipline in cost controls and operations. Sprow had studied chemical engineering and physics at the Massachusetts Institute of Technology, and he earned a doctoral degree in chemical engineering at the University of California at Berkeley.
ExxonMobil, G.E., Toyota, and Schlumberger eventually agreed, late in 2002, to provide $225 million in funding to a new Global Climate and Energy Project, housed at Stanford University; ExxonMobil’s contribution would be $100 million.
Vail had developed a calculation known as the Vail curve to describe some of these ocean events. In the ExxonMobil upstream division in Houston, scientists in charge of finding new deposits of oil and gas began to explore whether Vail’s scientific insights might give them a leg up in exploration by allowing them to predict how climate change — if it did materialize — might alter surface and ocean trends and lead the corporation to new oil finds. “So don’t believe for a minute that ExxonMobil doesn’t think climate change is real,” said a former manager involved with the internal scientific review. “They were using climate change as a source of insight into exploration.” This work remained unpublicized.
As Raymond battled Greenpeace, the international oil company he most admired after his own, Royal Dutch Shell, stunned stock market investors by revealing that it had overstated its true proven reserves of oil and gas; the company eventually calculated that it had puffed up its holdings by 4.35 billion barrels of oil, an amount equivalent to more than a fifth of ExxonMobil’s total proved reserves worldwide. Three top Shell executives resigned. The scandal made plain that the pressure on the very largest international oil companies to replace reserves in the era of resource nationalism had become so severe that it could induce grotesque distortions.
Nine - “Real Men—They Discover Oil”
Mobil had stumbled into its gas partnership with Qatar during the 1990s. A substantial number of the oil industry’s big success stories were the product of luck, not brains. Oil executives had flown in and out of Qatar for years, but none of them could think of how to commercialize the North field.
The sheer scale of ExxonMobil’s reserve replacement challenge — its need to find and book oil and gas in equivalent or greater amounts to that which it pumped out and sold — now meant that the corporation “had to find a Conoco every year,” as Raymond put it. (In 2001, ConocoPhillips had worldwide revenues of almost $40 billion.) The scale problem was genuine, but it also sounded more and more
Raymond had developed a friendship with Federal Reserve chairman Alan Greenspan. The men had gotten to know each other while serving together briefly on the J.P. Morgan board of directors, and then stayed in touch. Raymond impressed his analysis about natural gas on the Federal Reserve chairman: The American economy needed planning to build the facilities to import and reconvert liquefied natural gas in the future.
The state oil company, Saudi Aramco, which had been owned in part by Exxon and Mobil before nationalization during the 1970s, was so bloated that it employed about three quarters as many people to operate within the kingdom as ExxonMobil did to operate worldwide.
That year, in the autumn, while on his first state visit to America as regent, Abdullah invited the chief executives of the seven largest American and European oil companies to the McLean, Virginia, mansion of the cigar-chomping Saudi ambassador to Washington, Prince Bandar Bin Sultan. Lee Raymond and Lou Noto attended. It was awkward for them because at the time they were in the advanced stages of merger discussions known only to them and a few dozen others involved in the talks. They agreed to act as if nothing unusual was going on.
Raymond could count on one hand the countries with enough proven oil and gas reserves to lift Exxon’s equity holdings and address its reserve replacement challenges in a serious way: Russia, Iran, Iraq, and Saudi Arabia.
Abdullah’s vision was to allow foreign corporations such as Exxon to develop freestanding gas fields in exchange for their commitment to use the gas to fuel industrial projects such as water desalination plants, electricity generation, and petrochemical manufacturing. These multibillion-dollar projects would create skilled jobs for Saudis while addressing chronic infrastructure and electricity problems in the kingdom. The projects would also allow Saudi Arabia to stop wasting its oil on electricity generation. Most of the world’s economies had stopped burning fuel oil to make electricity decades earlier; it was a dirty method and economically irrational, because the oil fetched greater sums at refineries where it could be made into gasoline or jet fuel. Saudi Arabia still burned off an astounding 200,000 to 300,000 barrels of oil a day to power its heavily air-conditioned cities, a figure that would soon rise toward 800,000 barrels a day—and that production counted against the kingdom’s quota as a member of the Organization of the Petroleum Exporting Countries cartel.
In any event, after September 11, there seemed to be a widening gap between how the Saudis analyzed the region’s challenges — they placed a strong emphasis on the sectarian issue and Iran — and the way the Bush administration saw them, intently focused as it was on Al Qaeda and global terrorism. As Raymond and his colleagues negotiated for access to Saudi Arabian gas reserves, ExxonMobil found itself straddling the chasm that opened between Washington and the Saudi regime.
Nelson grew into a mysterious and somewhat feared figure in ExxonMobil’s executive ranks, by virtue of his unusual access to the chairman; he was the only lead country manager who worked directly for Raymond.
His upstream experience seemed to give Tillerson a built-in advantage, because at ExxonMobil, as a director put it, “real men—they discover oil.”
On paper, Raymond worked for the board; in practice, he controlled his directors carefully. “The board wasn’t able to impact management very effectively,” a director recalled. “They were a group unwilling to challenge the status quo... That is one of the few boards I know where the whole is less than the sum of the parts.”
Ten - “It’s Not Quite as Bad as It Sounds”
The implication, he concluded, was that ExxonMobil should seek to be credible rather than popular.
Raymond was also no Anglophile. ExxonMobil’s operations in Britain had frustrated him. The corporation ran refineries and retail gas stations in the United Kingdom under the Esso brand.
John Browne, however, did not think about industry issues as Lee Raymond did. To ExxonMobil’s executives, he seemed to be more of a financial engineer than an operations man. Browne was also in tune with the transatlantic center-left politics of the late 1990s. He enjoyed a strong relationship with the newly elected British prime minister, Tony Blair. He had easy access to Bill Clinton’s White House; he was exactly the sort of big business leader Clinton-era Democratic politicians often seemed to value — a thoughtful globalist willing to endorse the principles, at least, of the mainstream environmental, human rights, and public health movements.
Eleven - “The Haifa Pipeline”
It was possible to imagine that President Bush might wage war as a conscious or unconscious proxy for the interests of American-headquartered oil companies, notwithstanding the fact that most of these companies were global in scale, employed more foreigners than Americans, and paid more taxes to overseas governments than to the United States Treasury.
But although Iraq had large untapped reserves of 115 billion barrels or more, its daily production amounted to only 2 or 3 percent of the world’s total.
Standard Oil first invested in what became the Iraq Petroleum Company in 1928. By the 1960s, international oil companies, including Esso, the ExxonMobil precursor, still owned a share of Iraq Petroleum. Iraq later nationalized its oil industry and organized state-owned firms, akin to Saudi Arabia’s Aramco. In its heyday, the flagship Iraq National Oil Company and its affiliates were highly professional, led by Iraqi engineers trained in the United Kingdom and the United States. Under Saddam Hussein, however, the state-run oil complex atrophied.
Around 1999, China’s Communist leadership coined a “Go Out” policy to encourage state-owned companies and diplomats to prowl the world for oil supplies that China could secure by long-term contract. Go out they did. Trade between China and Africa doubled between 2002 and 2003 to $18.5 billion; most of that increase described Chinese oil imports. Within a few years, China would invest $44 billion worldwide in oil projects, half in Africa.
China did not break its oil ties with Sudan. To the contrary, it was clear that China’s leadership did believe that its dependence on foreign oil created strategic vulnerability, because oil might be a weapon in prospective competition with the United States during the twenty-first century.
Cheney read and admired The Tragedy of Great Power Politics, the 2001 book by the University of Chicago’s John Mearsheimer.
“The central reality is this: The global free market for energy provides the most effective means of achieving U.S. energy security,” Tillerson said. “In the global market, the nationality of the resource is of little relevance... Energy made in America is not as important as energy simply made wherever it is most economic.” Punishing sanctions and uneconomic supply lockups such as those sometimes pursued by China did undermine American security, but only because the United States should be “enlarging this global energy pool, not dividing it.”
The transformational, Wilsonian streak in Bush’s democracy promotion in the Middle East after September 11 increasingly discomfited Raymond.
Twelve - “How High Can We Fly?”
When he met Putin, Commerce Secretary Don Evans continually tried to impart what he considered to be basic concepts of free global oil markets, that the markets were interdependent, not something that should be conceived of as susceptible to the manipulation of physical supply. Evans was trying to make a subtle argument: U.S.-Russian cooperation would deepen because of oil partnership, but the supplier-customer relationship would be indirect, subordinate to the integrated global market. Putin, on the other hand, seemed focused on ties that would bind Russia and the United States together in a mercantile arrangement. He wanted to explore deals that would connect Russian supplies directly to the United States through long-term contracts and investments.
Less than eight weeks after their meeting at the New York Stock Exchange, Vladimir Putin had given Lee Raymond his answer. Why did Putin authorize Khodorkovsky’s arrest? The latter’s maneuvering to buy allies in the Duma in advance of parliamentary elections scheduled for December 2003 was probably the biggest factor.
Gerhard Schroeder, the former chancellor of Germany, had embarrassed himself and his country by accepting a position on the board of Gazprom, the Russian gas giant, days after he left political office; he created the appearance that he and Germany were being paid off by Putin.
Thirteen - “Assisted Regime Change”
During that autumn of 2003, Wales was involved, as it happened, in a conspiracy organized by British and South African military veterans to overthrow the government of Equatorial Guinea.
During the 1970s, Frederick Forsyth had written his novel The Dogs of War, about a mercenary-led coup in a small African country, while staying at a hotel above Malabo’s harbor; Forsyth himself later became entangled in a stillborn coup attempt against Equatorial Guinea’s dictator.
Later he founded Executive Outcomes and Sandline International, part of a network of corporations that provided mercenary military services to African governments in exchange for diamond mining and other business concessions.
On a gray Monday afternoon, five executives arrived from Riggs, Obiang’s principal bank, whose branch across from the White House had first attracted the president’s attention as a place where he might store his oil wealth while deepening ties to American corridors of power. Equatorial Guinea’s deposits now totaled about $750 million, by far the largest of any of the bank’s clients.
Separately, and even more quietly, the Bush administration encouraged Obiang to develop a commercial and security partnership with Israel, whose military and internal security specialists had developed a global business out of selling advisory, training, intelligence collection, electronic surveillance, and arms supplies to small, weak regimes in difficult places.
Fourteen - “Informed Influentials”
In 2000, as he oversaw the first forecasts generated by the combined planning departments of Exxon and Mobil, Lee Raymond had asked the analysts, “What did you say about 2000 in 1980?”
Analyzing this failure, Raymond and his colleagues reached two conclusions. One was that they had badly underestimated the pace at which technological improvements within their industry would make it easier over time to find new deposits of oil, increasing global supply and tamping down prices. The second was that geopolitical disruptions played such an important role in the price of oil that normal forecasting based on supply and demand equilibrium was not realistic to pursue.
In the last year of Lee Raymond’s leadership, ExxonMobil earned a net profit of $36.1 billion, more money than any corporation had ever made in history. That broke the previous record of $25.3 billion, set by ExxonMobil the year before. Even if the profits made during the late 1950s and 1960s by such postwar corporate giants as General Motors, Ford, International Business Machines, and General Electric were adjusted for inflation, none could match the size of ExxonMobil’s 2005 profit.
It was in some respects an accident of American political history — as well as an expression of the enduring power of the largest oil corporations — that electric energy was treated as a public entitlement subject to close regulatory scrutiny, while gasoline was not.
The U.A.E. depended upon American military protection for its very existence, yet American oil companies had managed to secure only 13 percent of the foreign participation available to international majors; European and British firms had 60 percent.
Following formulas for executive retirements the corporation had previously established, and taking into account the compensation he had deferred over the course of his forty-year career, ExxonMobil’s board of directors awarded Lee Raymond pension benefits as a lump sum of $98 million, restricted shares worth $183 million, stock options with a potential value of $70 million, the $1 million consultancy, and reimbursement of his country club fees. Altogether, his retirement package was worth just under $400 million.
PART TWO - THE RISK CYCLE
Fifteen “On My Honor”
Apart from a divorce and remarriage during his early career, there was little evidence of complexity in Tillerson’s life. He was fifty-three when he succeeded Raymond: Exxon was the only company for which he had worked after college.
Faith in free enterprise also influenced Tillerson; he later listed his favorite book as Atlas Shrugged, Ayn Rand’s 1957 philosophical novel that became a touchstone for diverse conservatives, libertarians, and advocates for unfettered capitalism.
She shepherded the large, continuing ExxonMobil donations to M.I.T. and also to Stanford University, to support research into breakthrough alternative energy technologies — programs ExxonMobil thereafter cited as evidence that it was not anti-science.
Ken Cohen chaired the ExxonMobil Corporation Political Action Committee, reporting to the chairman’s office. Cohen made decisions about the P.A.C.’s political donations only after holding internal hearings with senior executives from Washington and the major business divisions in Houston and Fairfax. The P.A.C. distributed about $700,000 during each two-year election cycle; during the 2000 and 2004 cycles, only 5 percent of those contributions went to Democrats. That was the lowest percentage of any of the largest oil corporations active in American politics.
Sixteen - “Chad Can Live Without Oil”
Its principal architect was the World Bank’s new leader: Paul Wolfowitz. In his previous position as deputy secretary of defense, Wolfowitz had been an intellectual leader and a passionate defender of the Bush administration’s decision to invade Iraq and overthrow Saddam Hussein.
Nobody was held accountable for the experiment’s failures; the project’s successes belonged to Déby, ExxonMobil, and its consortium partners.
Seventeen - “I Pray for Exxon”
Altogether, ExxonMobil sold about 14 billion gallons of gasoline to American drivers each year.
So far as federal scientists could determine, there were two elements in gasoline that might be damaging, if a person suffered sufficient exposure: benzene and methyl tertiary butyl ether, or MTBE.
“Don’t mess with Texas” remained the ExxonMobil law department’s ethos, and the corporation’s strategists believed that if they made exceptions for one set of accident or tort victims, they would only be challenged and exploited by others — whether in Baltimore County or Aceh, Indonesia.
Nineteen - “The Cash Waterfall”
As his assaults on the contract terms enjoyed by the international oil majors intensified, ExxonMobil’s executives and lawyers decided that this time, they would not give in. They also decided to maximize Chavez’s pain. They concocted a legal ambush — carried out, in its final act, on a wintry Friday afternoon in the Manhattan offices of a prestigious law firm — to seize by stealth more than $300 million in cash from the fiscally strapped, debt-laden Venezuelan regime. It would be one of the largest asset seizures ever attempted by an American oil corporation. The Bush administration struggled to punish Chavez for his anti-American policies in a way that measurably pinched him. ExxonMobil, when it finally aligned with the administration’s perspective, developed a practical scheme. The corporation’s motivations were pecuniary — the interests of its private empire, not the policies of President Bush, provided the cause. The plan involved a mechanism of modern global finance known to its participants as “the cash waterfall.”
He looted P.D.V.S.A. for revenue—the company handed over about 70 percent of its gross revenue to the Chavez regime in 2006, including about $10 billion for social spending projects. In a year when most global oil companies posted record profits, P.D.V.S.A. lost an estimated $3.7 billion. To stay afloat, Chavez authorized mass borrowing — $4 billion from China, in exchange for special access to Venezuelan oil, and another $6 billion from international bond and financial markets.
BP’s economists estimated that oil-exporting countries enjoyed a $3 trillion windfall between 2004 and 2007. That wealth provided radical and authoritarian governments such as those in Iran and Venezuela with extra muscle and room to maneuver — whether to purchase arms for proxy militias or to forge new compacts with thirsty importers such as China and India, alliances that might constrain American power.
Twenty - “Moonshine”
Sally Benson, the scientist who ran the ExxonMobil-funded research partnership at Stanford University, believed that “three or four near-miracles” were required before hydrogen could threaten gasoline, although she pledged her program to pursue them.
Twenty-one - “Can’t the C.I.A. and the Navy Solve This Problem?”
The Delta suffered from what the writer Chinua Achebe called a culture of “political godfatherism.” The kidnappers demanded $10 million for the safe return of each of the four British ExxonMobil contract workers among the seven men abducted, or $40 million in total. The largest kidnapping in the corporation’s history was under way.
The centrality of Nigerian booked reserves and production to ExxonMobil’s corporate performance reflected the broader rise of West Africa as a critical oil supplier to the United States after 2000. Nigeria was on track to soon pass Venezuela as America’s fourth largest supplier of oil, after Canada, Mexico, and Saudi Arabia. The corporation produced about the same amount of oil in 2006 from Nigeria, Chad, Equatorial Guinea, and Angola as from the United States and Canada combined.
ExxonMobil retained Controlled Risk Group, one of the major kidnapping management and security firms operating in the Delta.
Corruption, mismanagement, theft, and criminal violence were hallmarks of the government’s performance. During the 1990s, the military dictator General Sani Abacha stole an estimated $4 billion of government funds, in addition to that taken by cabinet officials, state governors, and their affiliated youth gangs. International oil and construction companies conspired in these crimes or tolerated them with see-no-evil policies. Halliburton and its subsidiary, Kellogg Brown & Root, agreed early in 2009 to pay $579 million in fines to settle charges related to their participation in a joint venture that systematically bribed Nigerian officials across a decade to secure more than $6 billion in construction contracts; Albert “Jack” Stanley, the chairman of K.B.R., named to his position by Halliburton chief executive Dick Cheney about two years before Cheney departed for the White House, pleaded guilty to criminal charges after personally authorizing a $23 million payment to a Gibraltar consultant to win Nigerian contracts.
M.E.N.D. activists or those using their brand name fought at times with Nigerian security services, but they also collaborated with the Nigerian navy in massive thefts of Delta oil from barges and pipelines — “bunkering,” as it was known, a racket that independent analysts estimated generated between $4.5 billion and $6 billion in total thefts during 2008 alone.
The Pentagon’s Africa policy office viewed the Niger Delta as “the perfect storm of political bosses mixing in with disgruntled populations, and Mafioso kind of enterprise that reached quite high in the Nigerian government,” as a U.S. Defense Department official put it.
“It’s hard to get used to the fact that Nigerian officials will lie to you straight up,” the American official continued. “The chief of navy staff told us, ‘There has been no incidence of piracy. You have been misinformed.’” In fact, American diplomatic and intelligence analysts documented nearly four hundred incidents of piracy in Nigerian waters between 2006 and 2009.
Twenty-two - “A Person Would Have to Eat More Than 3,400 Rubber Ducks”
After 2000, a new idea arrived from Europe to challenge the assumptions of the risk analysis school: the precautionary principle. The idea can be traced to West German environmental regulations enacted during the 1970s on the basis of Vorsorge, or “precaution.”
The lobbyists the corporation flew in to Washington to work on ExxonMobil Chemical’s regulatory issues — Laura Keller, a senior issues adviser on chemical regulation, and Leslie Hushka, another registered lobbyist — were scientists who published in peer-reviewed journals; behind them stood dozens of other ExxonMobil scientists as well. The ExxonMobil scientist-lobbyists engaged not only in debates about specific research and regulation, but also attended academic and regulatory conferences that reviewed the competing, overarching philosophies of risk management. ExxonMobil joined other corporations in funding the Harvard Center for Risk Analysis at Harvard’s School of Public Health; the center “focused broadly on developing risk, economic, and decision analysis methods that are well-grounded in the natural and social sciences.”
The Centers for Disease Control and Prevention had discovered one striking fact by randomly examining humans — about three out of four people tested had some phthalates in their systems.
American environmental and public interest health groups had discovered that it was easiest to import European regulations inspired by the precautionary principle into the United States by starting first in the legislatures of more liberal states — California and Vermont, for example. The City of San Francisco formally adopted the precautionary principle as a framework for local regulations in 2003. The city’s environmental regulators “discovered Europe has banned chemicals that the U.S. had not,” a city environmental regulator recalled. “We said, ‘If other governments have taken precautionary actions, then we can take that action as well.’” San Francisco adopted a phthalate ban that “precisely mirrored” the European ban.
In the world of political campaign contributions, there is a technique referred to as “bundling,” by which employees of the same company, law firm, or other organized group simultaneously make contributions to the same political candidate, to create a booster effect with their money injection. The tactic is legal if the employees act voluntarily, without coercion. Within two weeks after Bush signed the final toy bill, nineteen high-ranking ExxonMobil executives began to make campaign contributions to the Congressman Joe Barton Committee, according to the dates recorded for public filing by Barton’s committee.
Twenty-three - “We Must End the Age of Oil”
The ExxonMobil Corporation Political Action Committee invested $722,000 in candidates for federal political office during the 2008 election cycle.
Joe Barton received more contributions from ExxonMobil than any member of Congress after 2000. Anne Northup, a Republican member of the House of Representatives from Kentucky, received the second most.
Obama and his speechwriters exploited ExxonMobil’s unpopularity. They called out its profits and contrasted its wealth with the struggles of American working and middle-class families coping with long commutes and soaring gas prices.
When people, I don’t know, complain about that to you, or say, ‘How dare you? Those profits are obscene.’ What’s your best — in brief form — what’s your best justification?” “Well, I think it has to do with the ability to understand just the size of our business. Everything we do, the numbers are very large. I saw someone characterize our profits the other day in terms of $1,400 in profit per second. Well, they also need to understand we paid $4,000 a second in taxes, and we spent $15,000 a second in cost. We spend $1 billion a day just running our business. So this is a business where large numbers are just characteristic of it.
Twenty-four - “Are We Out? Or In?”
Fortunately for Obiang, coup-prone African governments rolling in oil but lacking in arms and intelligence to defend their bounty had a discreet alternative to the Pentagon and the C.I.A. for defense support: Israel. Quietly, the Bush administration encouraged Obiang to enter into security and commercial ties with Tel Aviv.
Retired Mossad and Israel Defense Forces officers formed consultancies to sell electronic surveillance equipment, drones, gunboats, helicopters, and training packages to wealthy, insecure African regimes facing insurgencies or the threat of coup makers.
The movement gained visibility as an initiative of George Soros’s Open Society programs under the rubric of “Publish What You Pay.” Later, with support from British Prime Minister Tony Blair and the government of Norway, it had evolved into a formal voluntary compact among governments, corporations, and nonprofit campaigners: the Extractive Industries Transparency Initiative.
Before oil, Equatorial Guinea’s most lucrative resource was the lumber in its jungle forests. Teodorin’s mother secured an appointment for her son as minister of agriculture and forestry; in that capacity, he told American officials, he was “granted” a concession to sell timber. During the 1990s, a Malaysian contractor retained by Teodorin brought in forty teams of lumberjacks who clear-cut and shipped out whole logs to Asian markets, leaving the minister with a multimillion-dollar grubstake while he was still in his twenties.
Twenty-five - “It’s Not My Money to Tithe”
A Democratic Party–led coalition focused instead on the development of a big cap-and-trade bill that would be introduced in Congress early in the Obama presidency. The corporate center of this lobbying push was the United States Climate Action Partnership, an advocacy group in Washington that had attracted Shell, Dow Chemical, Ford Motor Company, and major coal-dependent utility companies, as well as powerful environmental groups such as the Natural Resources Defense Council.
Twenty-six - “We’re Confident You Can Book the Reserves”
“Your job is to promote U.S. companies” was the essence of ExxonMobil’s message, recalled a State Department official who heard it regularly. “Do your best to create a level playing field. If you put us up against any state-run company” from Russia or China, “on a level playing field, we’ll win.” Beyond that, the corporation wanted the Bush administration to “stay as far away from the oil sector as possible,” the official recalled, because otherwise, the United States would be “perceived as meddling, and [would] be a P.R. problem.”
Peter Galbraith, a son of the economist John Kenneth Galbraith, was a longtime Democratic foreign policy aide who served as ambassador to Croatia under President Bill Clinton. Galbraith had long campaigned for Kurdish rights and autonomy. After the 2003 invasion, he quietly became a shareholder and partner in D.N.O.’s Kurdish oil deals; his stake grew to tens of millions of dollars.
Just more than seven years after American soldiers and marines poured over the Kuwaiti border into Iraq, ExxonMobil shareholders owned, on paper at least, a small slice of the country’s oil reserves. Seven years was almost precisely the length of time Lee Raymond had predicted, when the war began, that it would take for Iraq to be calm enough for big oil companies to enter.
Twenty-seven - “One Plus One Has Got to Equal Three”
As it turned out, Lee Raymond had been wrong. Within a few years of his declaration, because of the emergence of unconventional gas drilling techniques that proved cost effective, the Energy Department revised its forecasts and now predicted that the United States had about a century’s worth of natural gas reserves. ExxonMobil and its international competitors had missed this mother lode lying beneath American soil.
Unconventional gas drilling damaged the environment. The techniques could contaminate groundwater, if carried out improperly, by causing chemical-laced drilling fluids and natural gas to leak into aquifers. Drilling companies did not typically disclose the chemical makeup of fluids used to fracture rocks, for competitive reasons, so the public could not easily judge whether the fluids were dangerous to human health.
ExxonMobil brimmed with cash. The corporation carried more than $30 billion in cash on its balance sheet. Plus, by 2009, it held in its “treasury” more than 3.2 billion shares of its own stock, with a market value of more than $220 billion, which it had repurchased over the years from the open market and set aside for possible use in acquisitions.
Tillerson insisted that ExxonMobil’s shift toward natural gas through the XTO purchase was not a “deliberate strategy” to favor natural gas over oil. In fact, however, ExxonMobil was nearing the point where it would own, on its books, more natural gas than oil. During the decade leading to 2010, ExxonMobil had replaced, on average, only 95 percent of the oil it pumped out and sold each year, but it had replaced, on average, 158 percent of the gas it extracted and sold. After incorporating XTO’s reserves, 45 percent of ExxonMobil’s reported reserves would be gas.
In a sign of the times, ExxonMobil jockeyed occasionally with PetroChina, the state-owned oil company, for the status of the world’s largest corporation by stock market value, but ExxonMobil was valued highest more often than not.
Twenty-eight - “It Just Happened”
BP’s catastrophe soon surpassed the Exxon Valdez wreck as the worst oil spill in American history. The Valdez had released 257,000 barrels of oil into Prince William Sound. The amount of oil released by the Deepwater Horizon’s blown well proved harder to measure, but eventually, the best scientific estimates held that almost 5 million barrels spilled before the well could be plugged.
In 1962, Royal Dutch Shell announced that it had invented a floating drilling contraption that would allow oil exploration in waters too deep to support a traditional platform. The deep-water oil era began — and it, too, boomed. Floating platforms spread from the Gulf to the Pacific Ocean and Alaska. Production from the Gulf of Mexico alone soared from 348,000 barrels per day in the year of Shell’s announcement to 915,000 barrels by 1968, almost 10 percent of America’s domestic total.
Also, as drilling boomed, Interior became the conduit for annual royalties that reached $23 billion in 2008, $17.3 billion of which was funneled to the deficit-burdened United States Treasury.
To write and file spill response plans, ExxonMobil turned to The Response Group. So did BP, Shell, Chevron, Conoco, and other Gulf drillers. The Response Group, a business dedicated to providing “effective emergency preparedness and response solutions,” was a small planning and regulatory paperwork consultancy located in a tree-shaded two-building office park in Cypress, Texas, to the northwest of Houston.
Browne was no longer around to face criticism. He had resigned as BP’s chief executive on May 1, 2007, after admitting that he had made false statements in a British court document about the origins of his relationship with a Canadian man, Jeff Chevalier, with whom he had been romantically involved.
The medley of errors that led to the April 20 blowout “can be traced back to a single overarching failure — a failure of management,” the national commission concluded. That management failure encompassed BP and its two largest contractors on the project, Halliburton and Transocean. Supervisors at each company made errors that if avoided might have prevented the blowout. During the final critical hours, Transocean’s team failed to monitor the well properly. Halliburton provided cement to seal the well that tests later showed was probably unstable — a problem that Halliburton knew about from its own internal testing, but failed to report. BP’s project managers, who had ultimate responsibility, made a series of decisions apparently aimed at reducing costs that made failure more likely.
Just ten days after the Deepwater Horizon exploded, a ruptured ExxonMobil pipeline dumped about a million gallons of oil in coastal areas of eastern Nigeria, soiling shorelines dotted by impoverished seaside villages. The affected area lay far from American television news bureaus, and its kidnapping gangs made it a risky place to travel in any event. The spill barely registered.
Mongolia alone reports probable coal reserves of 152 billion tons, enough to fire every smoke-spewing power plant in China for half a century.
The United States Geological Survey estimated that the Arctic held about 90 billion barrels of recoverable but undiscovered oil and about as much natural gas as Russia’s onshore supplies, which were the world’s largest. Most of the Arctic’s oil and gas is believed to lie in areas controlled by Russia.
Corporate profits in 2011 made up a larger share of American national income, when compared to workers’ wages and small business income, than at any time since 1929, when such statistics were first recorded.
In the years after the Mobil merger, Raymond and Tillerson oversaw more spending on direct lobbying in Washington than all but two other American companies, General Electric and Pacific Gas & Electric. ExxonMobil had evolved into the most profitable corporation headquartered in the United States — and one of the most politically active — in an era of corporate ascendancy.
During the life of this project, I served as president of the New America Foundation, a nonprofit, nonpartisan public policy research institution headquartered in Washington, D.C., with an annual budget of about $16 million.
[Interesting people thanked:] David Bradley, Atul Gawande, Laurene Powell Jobs
Haley Cohen, a 2011 graduate of Yale University who is now on a university fellowship in Latin America, recontacted many interview subjects, checked facts and interpretations, and added fresh reporting throughout.