November 15, 2012

[London Review of Books]
Private Empire: ExxonMobil and American Power, by Steve Coll, Penguin, 704 pp, US $36

Titusville, Pennsylvania, 1865

In November 1902, Ida Tarbell published ‘The Birth of an Industry’, the first of 19 reports for McClure’s Magazine about the organisation that had come to control 90 per cent of the business – still new at the time – of producing oil. Collected two years later in her History of the Standard Oil Company, the series did little to celebrate the company or its founder, John D. Rockefeller. ‘It is doubtful if there has ever been a time since 1872 when he has run a race with a competitor and started fair,’ Tarbell wrote. But she didn’t call for an end to the corporate form Rockefeller had done so much to invent. Instead, she saw in his creation an ideal case study. ‘The perfection of the organisation of the Standard,’ she wrote, ‘the ability and daring with which it has carried out its projects, make it the pre-eminent trust of the world, the one whose story is best fitted to illuminate the subject of combinations of capital.’ Tarbell grew up in Pennsylvania oil country, and admired the ingenuity and ambition of the independent oilmen (her father among them) who had ‘peopled a waste place of the earth’ and ‘added millions upon millions of dollars to the wealth of the United States’. She admired Rockefeller’s genius and discipline as well, but for Tarbell, and eventually for the US government, Standard’s long record of collusion, espionage and predatory pricing was too much. ‘I was willing that they should combine and grow as big and rich as they could,’ Tarbell later wrote. ‘But they had never played fair, and that ruined their greatness for me.’ In 1911, the Supreme Court, influenced in part by Tarbell’s disappointed muckraking, split Rockefeller’s company into 34 ‘baby Standards’. In 1973, the Standard Oil Company of New Jersey, largest of the babies, changed its name to Exxon Corporation. And in 1998 Exxon recombined with the Standard Oil Company of New York, which had by then changed its name to Mobil. The new company, with eighty thousand employees in nearly two hundred countries, remains our ‘pre-eminent trust’, but – as Steve Coll argues in his fine bookend to Tarbell’s masterpiece – it has also become something more.

Coll picks up the story in 1989 with the wreck of the Exxon Valdez, which dumped 240,000 barrels of crude oil into the Gulf of Alaska. He goes on to recount, among other sensational episodes, the lethally bungled kidnapping in 1992 of an Exxon division president from the driveway of his New Jersey mansion; an abortive rebel siege of an ExxonMobil outpost in Aceh in 2001; the failed coup (funded in part by Mark Thatcher) against the ExxonMobil-backed president of Equatorial Guinea in 2004; and the unsteady rise in 2006 of Nigerian oil pirates, whose ‘picaresque criminality – their head scarves, bandoliers and speedboats; their bank robbery techniques, which included using massive charges of dynamite to blast away reinforced steel doors – seemed increasingly inspired by Hollywood’. Like Tarbell, Coll has constructed a narrative around the oilmen’s extraordinary efforts to stay a step ahead of anyone who might get between them and some new patch of crude. Where kidnappers, rebels, conspirators and (for the most part) pirates failed, ExxonMobil succeeded. But Private Empire is no boy’s own adventure for middle managers.

The pivotal event in the history of ExxonMobil, as Coll sees it, wasn’t the wreck of the Exxon Valdez, important though that was, but the fall of the Berlin Wall. ‘The Cold War’s end,’ he writes, ‘signalled a coming era when non-governmental actors – corporations, philanthropies, terrorist cells and media networks – all gained relative power.’ The title of Daniel Yergin’s history of the oil industry, The Prize (1991), came from a similar argument made by Winston Churchill in 1911, when he was First Lord of the Admiralty. The best way to prepare for war with Germany, Churchill believed, would be to upgrade the Royal Navy so that it used oil as fuel rather than coal. It would be risky, in large part because ‘the oil supplies of the world were in the hands of vast oil trusts under foreign control.’ But if ‘we overcame the difficulties and surmounted the risks, we should be able to raise the whole power and efficiency of the navy to a definitely higher level; better ships, better crews, higher economies, more intense forms of war power – in a word, mastery itself was the prize of the venture’. As Yergin noted, winning such a prize ‘inevitably meant a collision between the objectives of oil companies and the interests of nation-states.’ This clash is the real subject of Coll’s book. A single nation, the United States, once had the power to break apart the mighty Standard Oil Company. But in the post-Soviet era, ExxonMobil prevailed.

* * *

The oil age began with two mid-19th-century inventions. In 1849, a Canadian physician developed a method for refining petroleum into a clear liquid, ‘kerosene’, that cost less than whale oil and burned more brightly in lamps. And in 1859, Edwin Drake, realising that subterranean pools of oil could be tapped like water in a well, drilled a pipe seventy feet down through the granite beneath a creek near Titusville, Pennsylvania, and was soon counting profits at 25 barrels a day. Within months, an army of entrepreneurial chemists, coopers, drillers, engineers, geologists, pipefitters, surveyors and teamsters had transformed the rugged forestland of Western Pennsylvania into a pipe-infested oil works, the horizon crowded with derricks and rivers clogged with barrel-packed barges. In 1859, they produced two thousand barrels of oil. By 1879, it was twenty million.

Producing oil is far more difficult today than it was when Rockefeller made his fortune. For every barrel of oil it sells, ExxonMobil has to discover another, otherwise its total reserve would diminish and with it the overall share price. By the time Lee Raymond became CEO in 1993, the company had to replace more than a billion barrels a year just to stand still. (When an oil industry analyst asked him what disturbed his sleep, Raymond answered: ‘Reserve replacement.’) The era of ‘easy oil’, when domestic deposits of light sweet crude all but leapt to the surface, was long past. The material problem – of discovering and extracting a resource that is hidden under miles of rock or ocean or both, often in a form that is not amenable to easy pumping or shipping – was challenging enough. But that challenge had in recent years been exacerbated by ‘resource nationalism’: oil-rich nations were creating their own oil companies. And as Exxon struggled to sign and maintain lease agreements that could last for up to forty years with the variously dictatorial or failing governments of nations that happened to find themselves in control of newly discovered oil deposits, it was also called on to have opinions about local politics. The oil it needed, Coll writes, ‘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’. It also inserted clauses into its contracts with national oil companies and foreign governments guaranteeing its rights to arbitration at, say, the World Bank if the host country tried to alter the terms of their agreement.

As the scope of the business grew, so did the scope for disaster: bigger ships to sink, longer pipelines to leak, more complex refineries to explode. Spills meant losing oil. They cost a lot to clean up. They drew notice from regulators. Lawsuits could be extremely expensive. And there was also the price of bad publicity. The wreck of the Exxon Valdez made Exxon ‘the most hated oil company in America’. Being hated might not make it harder to sell oil, but it did make it harder to recruit the very best engineers, which amounted to the same thing. ExxonMobil met the challenge with rigid purposefulness. The engineer charged with overseeing worldwide safety argued, in Coll’s paraphrase, ‘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’. He may have been right. ExxonMobil still causes serious disasters – in 2006, for instance, an underground storage tank at one of its service stations in Jacksonville, Maryland leaked 24,000 gallons of gasoline into the local groundwater supply – but it keeps track of every mishap, all the way down to (literally) bee stings and paper cuts. The corporation requires employees to back into parking spots, so that in an emergency they can speed away more quickly, and rewards those who have low incident rates with customised safety vests or Walmart gift cards. The corporate motto, posted everywhere, is: ‘Nobody gets hurt.’ By 2006, ExxonMobil had an incident rate well below the industry norm, and was consistently turning record-breaking profits.

ExxonMobil has thrived because it has never lost sight of its purposes. Find oil, sell oil, make money. Meanwhile, as Coll notes near the conclusion of Private Empire, the United States has been heading in the opposite direction. In 2011, Standard & Poor’s downgraded US bonds to AA-plus. The downgrade, Coll notes, ‘meant that ExxonMobil, one of only four American corporations to maintain the AAA mark, now possessed a credit rating superior to that of the US’. ExxonMobil also had better cash flow – a positive $493 billion between 1998 and 2010, versus a negative $5.7 trillion for the US. Bond ratings and cash flow are far from the best or only indicators of wise governance, but nonetheless, as Coll observes, ‘in an era of terrorism, expeditionary wars and upheaval abroad, coupled with tax cutting and reckless financial speculation at home,’ ExxonMobil ‘navigated confidently’, while the US ‘foundered’.

* * *

What is the source of ExxonMobil’s confidence? Part of it is simply the expertise of the professional engineer. ‘From the beginning the Standard Oil Company has studied thoroughly everything connected with the oil business,’ Tarbell wrote. ‘It has known, not guessed at, conditions. It has had a keen authoritative sight. It has applied itself to its tasks with indefatigable zeal.’ A century later, little has changed. ‘They’re all engineers, mostly white males, mostly from the South,’ one former ExxonMobil board member told Coll. ‘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.’ The attitude gained them respect but little love. Executives from other oil companies, Coll writes, ‘tended to regard their Exxon cousins as ruthless, self-isolating and inscrutable, but also as priggish Presbyterian deacons who proselytised the Sunday school creed Rockefeller had lived by: “We don’t smoke; we don’t chew; we don’t hang with those who do.”’ One executive, Coll writes, was startled to learn that ‘the corporation’s top five leaders, all white males, were the fathers, combined, of 14 sons and zero daughters.’ He had no explanation for this statistical fluke.

When Raymond took over as CEO, he had already overseen the company’s move from Manhattan to Irving, Texas, a blank suburb of Dallas that was more in keeping with his sensibility. He had a PhD in chemical engineering from the University of Minnesota and quizzed his engineers in great detail about their work. If he didn’t like their answers, he dismissed them as ‘stupid shits’. Raymond was born with a cleft palate, and on bad days employees sometimes referred to him as ‘the Lip’. His only hobby was golf. His protégé, Rex Tillerson, who took over in 2006, was literally a boy scout. His father was an assistant district executive for the Boy Scouts of America, and Tillerson made the top rank, eagle scout. Scout language soon ‘found its way into ExxonMobil promotional materials’. Tillerson’s favourite book was Atlas Shrugged.

Raymond, whose private jet crew was instructed to make sure that his favourite drink, milk with popcorn in it, was always in reach, did not lack confidence. ‘I’m never going to say that we are always doing everything exactly right,’ Raymond testified at an Exxon Valdez deposition. ‘I would be naive to do that: but if you are asking me, are there any major decision points that we faced in how to respond to that spill, that in hindsight we go back and say we were wrong … I don’t think there are any.’ That phrase – ‘decision points’ – was the title of George W. Bush’s memoir. Bush and Dick Cheney both worked in the oil industry, and took on some of the tics of their colleagues’ behaviour. Both are ostentatiously blunt and ‘candid’. Both present themselves as ‘results-oriented’. But this was mostly for show. (Bush’s 11-year run as a Texas oilman, in which he lost his investors millions of dollars, ended when he was bought out by friends of his father.) Actual oilmen do seem more appealing by comparison. Certainly Tarbell would have approved. Unlike Standard before it, ExxonMobil achieved a reputation for operating, just barely, within the letter of the law. ‘Exxon made a fetish of rules,’ Coll reports, because they thought they were smart and disciplined enough to win without rigging the game. They were hardnosed, rigid, but, as one former Republican staffer told him, ‘honest as the day is long’.

Tarbell, recalling her youth in the New Yorker in 1937, remembered one of her neighbours struggling with the changes wrought by the invention of the modern oil well. The ‘countryside was turned topsy-turvy’, she wrote.
Less than twenty miles away a man drilled a hole some seventy feet into the earth and began pumping up large quantities of petroleum. The news spread, and overnight men from all directions came hurrying into the country to try their luck. They even hauled their engines and tools over his hilltop, cutting up the roads, tearing down his fences. Many of his neighbours turned teamsters or drillers. He thought the whole business impious and applauded when the preacher declared that taking oil out of the Earth was interfering with the plans of the Almighty, because He had put it there to use in burning up the world on the last day.

* * *

In 1997, Raymond travelled to China to address the 15th World Petroleum Congress on the subject of climate change. The bulk of his speech was devoted to three points: the climate was not changing; even if the climate was changing, our demand for fossil fuels was not the cause; and even if our demand for fossil fuels was the cause, we should continue to demand them. ‘The most pressing environmental problems of the developing nations are related to poverty, not global climate change,’ he said. ‘Addressing these problems will require economic growth, and that will necessitate increasing, not curtailing, the use of fossil fuels.’

Raymond could have been quoting Rockefeller, who would often say to his board members: ‘Give the poor man his cheap light, gentlemen.’ It’s a legitimate point. Even Coll, who does not shy away from cataloguing ExxonMobil’s sins, and has been careful to chronicle the company’s long and shameful history of funding climate-change denialism through its various PACs and research groups, is philosophical about the need to keep the oil flowing: ‘85 per cent of the world’s energy – to fuel cars and trucks, to run air conditioners, to keep iPhone-tapping legions fully charged – still came from taking fossil fuels out of the ground and burning them.’ He could as well have added a note on world hunger: people need fossil fuels not just to fuel the combines that harvest food and the trucks that deliver it, but also to create the fertiliser that grows it. Fritz Haber’s invention – right around the time of the break-up of Standard – of a technique for manufacturing ammonia using hydrogen derived from methane, effectively transforming fossil fuels into rich fertiliser, is the reason food production has kept pace with population growth; the best argument for cheap fuel is that it means cheap food.

But as Coll acknowledges, these are all short-term arguments. Much of Private Empire focuses on war and specific incidents of manmade disaster: the Exxon Valdez, various pipeline spills, Deepwater Horizon, dirty wars in Africa and Indonesia, the wars in Iraq. The largest oil-company related disaster, though, is climate change, which will destroy not just life in the Gulf of Mexico, but life in all of the oceans and on much of the land as well. The smaller disasters happened when the oilmen failed, but climate change is happening because they are successful.

Forecasters in ExxonMobil’s strategic planning department predicted in 2005 that the only thing that would prevent growing demand for oil (and, not incidentally, growing profits for ExxonMobil) would be an unprecedented global carbon tax, and for that to happen, in Coll’s summary of their findings, ‘the world’s governments would have to reach a unified conclusion that climate change presented an emergency on the scale of the Second World War – a threat so profound and disruptive as to require massive national investments and taxes designed to change the global energy mix.’ The forecasters assumed this would not happen. But a decade after Raymond made his speech against taking any kind of action on climate change, his successor was making headlines by calling for just such a tax. Some environmentalists suggested that Tillerson made his move in order to sabotage a more ‘realistic’ plan to pass a cap-and-trade bill (which did in fact end up going nowhere). But Tony Kreindler, the national media director of the Environmental Defense Fund, suggested a theory that seemed more in keeping with the ExxonMobil mindset: ‘They took a very hard look at their business model and decided they could simply out-compete everyone else if the policy were a carbon tax.’

Last June, Tillerson spoke before the Council on Foreign Relations in New York. Alan Murray, an editor at the Wall Street Journal, introduced the forum by citing Coll’s book, which, Murray noted, describes ExxonMobil as a corporate state with its own foreign policy. After making some comments about the opportunities that hydraulic fracturing (fracking) afforded, in terms of exploiting North America’s vast reserves of natural gas, Tillerson began to answer questions from the audience. Eventually, a white-haired man in a blazer asked him about the potentially devastating effects of climate change. ‘The seas will rise, the coastlines will be unstable for generations, the price of food will go crazy. This is what we face, and we all know it,’ the man said, calmly but obviously with great concern. And yet ‘if we burn all these reserves you’ve talked about, you can kiss future generations goodbye. And maybe we’ll find a solution to take it’ – carbon dioxide – ‘out of the air. But, as you know, we don’t have one. So what are you going to do about this? We need your help to do something about this.’

Tillerson, after a long preamble about the uncertainty of climate models in general, and the imprecision of sea-level rise estimates in particular, got to the point. ‘We believe those consequences are manageable,’ he said. ‘As a species, that’s why we’re all still here. We have spent our entire existence adapting, OK? So we will adapt to this.’ ExxonMobil, the greatest corporation in human history, would do nothing to address the greatest crisis in human history. Certainly nothing remotely on the scale of the endeavours that it regularly undertook in its century and a half of inventing and dominating history’s most powerful and consequential industry. ExxonMobil remains ‘the pre-eminent trust of the world – the one whose story is best fitted to illuminate the subject of combinations of capital’. Coll does illuminate it, and what we see is tragic: smart people doing their best to deliver what the world most wants, and in so doing destroying it. ■

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