We Are Oil
By Steve Coll
The tiny city of Valdez, Alaska, sits at the head of a fjord in the Prince William Sound, near the upper crest of the Gulf of Alaska. It’s hemmed against the water by the icy Chugach Mountains, which channel the interior’s frigid air to the coast, where in winter it meets Pacific moisture brought north by the Aleutian low pressure system. This makes Valdez, population 4,000, the snowiest place in the America, with an average of twenty seven feet every year. But it is also, strangely, the northernmost port in North America that remains ice-free year-round. When the oil-producing nations of the Middle East embargoed the United States for supporting Israel during the Yom Kippur War, rising prices and declining supply made drilling in northern Alaska seem both profitable and wise, so Valdez became the southern terminus of the 800-mile Trans-Alaska Pipeline, which was completed in 1977. By 1989, when the Exxon Valdez ran aground on nearby Bligh reef, more than a quarter of America’s crude oil was flowing through Valdez harbor.
The tankers carrying that oil must navigate a relatively safe and well-marked ten mile-wide channel through the sound and out into the open sea. Joseph Hazelwood, captain of the Exxon Valdez, had made the journey at least a hundred times before he set out on March 23, 1989. Valdez is considered ice-free, but errant icebergs sometimes break off of nearby glaciers and bob into the shipping lanes, as they did that night. Hazelwood radioed the Coast Guard and stated his intention to turn onto the inbound lane to avoid the hazard and then turn back. Ships in the Prince William did this all the time, and Hazelwood, who saw no “compelling reason to stay,” as he put it afterward, left his third mate in charge and went down to his cabin.
More than twenty years later, the sequence of events that followed are still unclear, but we know that the crew made a series of technical errors, lost track of their position, and smashed into a reef off of Bligh Island, tearing the ship’s belly open and spilling more than 260,000 barrels of oil into the water. (The actual figure is still disputed. Some put it as high as 750,000 barrels, or more than all of Turkey consumes each day.) Exxon was lucky in one respect: Hazelwood had a drinking problem. He admitted to having just “two or three” vodkas before he boarded his ship, but this is probably a lie because the first Coast Guard officers on the scene arrived five hours after the Exxon Valdez disembarked and could still smell alcohol on his breath.
As Steve Coll writes in Private Empire, his broad survey of Exxon’s years of dominance after the spill, “Hazelwood’s intoxication would simplify perceptions of the accident,” providing easy fodder for late-night comedians and giving Exxon “a means to narrow its responsibility.” The perception endures today: when Exxon’s appeal against the $2.5 billion in punitive damages it was ordered to pay finally reached the Supreme Court in 2008, John Roberts, the exuberantly pro-business Chief Justice, along with like-minded justices Antonin Scalia and Anthony Kennedy, could not fathom why a corporation should be made to pay so much money for the actions of a single employee, and indeed seemed irritated that anyone suggested the idea. The damages were reduced by four-fifths.
Exxon (which would merge with Mobil a decade later) was aware of Hazelwood’s drinking, but more importantly, the truth is that a complex of events and conditions led to the accident, and they can tell us much about how Exxon became the world’s most profitable company in a country without an energy policy. They also illuminate a worrying trend, the increasing power of corporations and interest groups at the expense of democratically elected representatives and the citizens who elect them.
Low prices also meant there was also “intense pressure to reduce costs within the oil industry.” Exxon had cut close to half its workforce in the ’80s; by 1989 the Exxon Valdez’s complement was half the size of the 1977 crew, working 12-14 hour shifts plus overtime. “The corporation’s top environmental officer at headquarters was demoted; his staff was reorganized and absorbed by a research group. The experts in oil spill response that wrote Exxon’s manual for disaster management also lost their jobs.” The regulators and the regulated were quite friendly, too. Lee Raymond, the president of Exxon, claimed that his company would take clean-up orders from the Coast Guard, but when Exxon was told that they needed to hire 5,000 people to work the beaches during the summer, Exxon’s man on the scene called the White House. The Coast Guard admiral found himself summoned to Washington, his order countermanded.
It’s not just that politicians and executives need each other to advance careers and grow companies, or that they travel in the same social circles (factors I wish the author had given a little more space to). “In effect,” Coll writes,
Exxon was America’s energy policy. Certainly there was no governmental policy of comparable coherence. After fitful, failed efforts to wean itself from imported oil during the 1970s, the United States had evolved no effective government-led energy strategy. Its de facto policy was the operation of free markets amid a jumble of patchwork subsidies, contradictory rules and weak regulatory agencies.
Exxon (large corporations in general, really) fought to keep it this way. “The time horizons for Exxon’s investments stretched out longer than those of almost any government it lobbied,” Coll notes. Exxon is fairly risk averse for an oil company, and while this led to difficulties replacing the oil it pumped out with new reserves (the merger with Mobil was intended to make up for a cautious exploration policy), it made Exxon more effective than its peers in managing political swings and fighting environmental groups.
But for all its value as a case study, the ExxonMobil on display here is in some ways a very strange company. Its executives in Texas maintain tight control over information and policy; every interaction with the public is vetted; every talk or presentation is tightly scripted and invariably lit by the glow of PowerPoint slides. “American spies and diplomats who occasionally migrated to work at Exxon,” Coll writes, “discovered a corporate system of secrecy, nondisclosure agreements, and internal security that matched some of the most compartmented black boxes of the world’s intelligence agencies.” This is how they guarded company secrets, but it also allowed the company to keep a very low profile, at least when it wasn’t spilling oil. “Exxon’s executives deflected press coverage; they withheld cooperation from congressional investigators, if the letter of the law allowed,” and every aspect of communication was carefully vetted. “Their strategy worked: Exxon made a fetish of rules, but it rarely had to justify or explain publicly how it operated when the rules were gray,” as they tend to be in a country with a rudderless energy policy.
A corporate atmosphere like this does not foster original thinking. “At industry meetings,” Coll’s interviewees agreed, “Exxon participants could be easily identified: conservatively dressed, hairstyles that seemed influenced by military rules, cliquish, secretive, and businesslike.” “[T]hey didn’t like to be partners,” one said, “unless they’re the operator.” “Exxon’s attitude toward the other majors,” said another, “has always been, ‘We are Oil—the rest of you are kids.’” This distrust extended even to lobbying: in a city where people who want influence hire lobbyists, most of Exxon’s lobbyists in Washington were long-time employees, and what they lacked in savvy they made up for in consistency. The objective of such single-mindedness – the distrust of outsiders, the consistent messaging, the hyper-detailed management of political and economic risk – was ensuring the flow of money on a vast scale. Exxon has almost always been more profitable than its competitors. Today it is the most profitable company in the world: it netted $41.1 billion in 2011, from $432.9 billion in revenue.
Exxon’s approach to uncertainty is methodical, strikingly so. After the Valdez spill, it accepted that it would have to pay compensation, but it fought relentlessly to minimize punitive damages, a perennial bugbear of the business world. The result was victory in the Supreme Court. But Exxon went further. Years after the spill, government scientists moving between Prince William Sound’s beaches in a converted tug, digging holes to monitor oil residue, would turn around and see a 178-foot cruise ship full of contracted scientists looming behind them, scrutinizing their progress. Exxon then had its lawyers inundate the National Oceanographic and Atmospheric Administration with so many Freedom of Information Act Requests – often before the survey team’s conclusions were even published – that two scientists quit in disgust. Exxon takes “a very hard line on legal issues,” a member of their board of directors told Coll. “It’s very much a take-no-prisoners culture.” Their ethos is: “We will not settle just to avoid a struggle; if we believe we are in the right, we will use our superior resources to fight and appeal for as long as possible, and when the case is over your house may no longer be standing.”
Exxon’s way of dealing with climate change is similarly ruthless. The energy sector has more money and more friends in Washington than the environmentalists, especially among Republicans. But if the scientists and environmentalists could convince the public that global warming was deadly serious, that would change. Exxon and its allies decided to pay their own scientists and build their own advocacy groups, which they used well. Decades of debate have given the United States, and thus the world, no comprehensive policy on global warming. Washington policy debates, Coll writes, are
a kaleidoscope of overlapping and competing influence campaigns, some open, some conducted by front organizations, and some entirely clandestine. Strategists created layers of disguise, subtlety, and subterfuge—corporate-funded “grassroots” programs and purpose-built think tans, as fingerprint-free as possible. In such an opaque and untrustworthy atmosphere, the ultimate advantage lay with any lobbyist whose goal was to manufacture confusion and perpetual controversy. On climate, this happened to be the oil industry’s position.
A 2011 study by The Carbon Brief claimed that nine out of the top ten most cited climate skeptics have ties to ExxonMobil.
Abroad, risk management is often more complicated. Perhaps the chief difficulty oil companies face is reserve replacement. A company that pumps more oil than it acquires every year will quickly find itself insolvent. Bookkeeping trickery can help, but the best way to fix the problem is to find new fields or to buy them so you can book reserves and please your shareholders. Exxon merged with Mobil at the end of the 1990s in large part to obtain the Mobil’s vast overseas holdings. But most of the world’s un- or under-exploited oil caches are in Third World countries, whose governments are often brutal, corrupt, or almost non-existent. They are as desperate for investment as their would-be investors are for reserves. Human rights and the environment are a priority for neither.
One of the projects Exxon acquired from the merger was the Arun gas field, which is located in the embattled Indonesian province of Aceh, site of a war between the military and the Gerakan Aceh Merdeka (G.A.M.), or “Free Aceh Movement.” By 2000 the conflict (only the latest in a long series) had been going on for 25 years. Mobil had obtained the protection of the Indonesian military, courtesy of Suharto, the US-backed dictator. That protection was sullied by disappearances, torture, and murder. After Suharto was pressured out of office in 1998, the situation carried on unchanged, because the precarious new government, though nominally democratic, needed revenue from the fields and could not afford to criticize the army, which was too influential to alienate. ExxonMobil inherited Mobil’s deal with the Indonesian government, which included pay for many of the Indonesian soldiers and the occasional use of construction equipment for barracks and defensive positions. G.A.M., meanwhile, had not targeted oil workers. “Rather than throw Mobil out,” Coll writes, “G.A.M sought to access the corporation’s revenues, directly and indirectly. Racketeering had become commonplace on both sides of the conflict.”
the Arun gas field
Exxon used other avenues as well. In addition to lobbying its friends in government, it pursued a kitchen-sink legal strategy that the scientists who had studied the Valdez spill would find familiar. They used every legal option available: motions to delay, motions to dismiss, arguing that the Indonesian military and its generals were solely responsible, arguing that the lawsuit should not proceed on grounds of national security because the Bush Administration was trying to recruit Indonesian help for the “war on terror” (the State Department supported this argument in a letter to the judge). The case, now over ten years old, has been combined with another one, but has still not gone to trial. Two of the original plaintiffs have been murdered in the interim, possibly by the military.
There is a genuine dilemma here: if American companies refuse to work with authoritarian or corrupt regimes, they are likely to be replaced by private or state-owned companies with no scruples to speak of – the Chinese, Russian, or French oil giants, for example. Still, American oil companies tend to make little effort to moderate their hosts, and in any case, their motive is profit, not world peace; humanitarian dividends are incidental. The impetus for change only comes from outside pressure.
In contrast to the Aceh gas field, the oil fields in southern Chad were acquired on Exxon’s own initiative in the 1980s. Chad’s torture rooms were infamous, but the Reagan administration provided aid and helped train its security forces anyway, propping it up as a counterweight to Muammar Gaddafi’s Libya. Chad was also one of the poorest countries in the world – desperate, of course for investment. “Bolstered by the Reagan administration’s alliance, Exxon outflanked French oil companies, negotiated with the dictator’s aides,” producing an agreement with very favorable terms “in comparison with typical contracts elsewhere: Chad would receive a 12.5 percent royalty on all oil produced, plus taxes equal to 50 percent of the consortium’s net profits, which would rise to 60 percent if world oil prices soared. Chad’s take of less than two thirds of revenue after expenses compared to rates closer to 90 percent in Nigeria.” Experienced oil-producers, like Abu Dhabi, from which Exxon received a contract after the intercession of Dick Cheney, can command rates approaching 99 percent. Poorer countries must take what they can get.
The environment in Chad was very different from Aceh, where Mobil had a longstanding contract and the military maintained security, or from Equatorial Guinea, where Exxon’s drilling took place offshore, isolated from events on shore. “In Chad,” Coll writes, “the corporation’s oil was stranded inland. Constructing a pipeline to the Atlantic Ocean inevitably meant the political visibility and risks of the project would be elevated. Land acquisition, population resettlement, cutting down trees, and environmental protection plans were sure to attract local and international scrutiny from the start.” Idriss Déby, the country’s authoritarian ruler, also had to be kept under control, or Exxon could be held liable for his behavior.
Exxon found an ingenious way to secure profitability. It partnered with the World Bank, and together they conceived a 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.
Chad had no choice but to accept the deal, which was approved in 2000. Coll explains its significance:
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 ban, 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.
If Private Empire has a major flaw, it’s that this wider context is too often left unexplored. The book is constructed like a series of interrelated magazine articles. Each story line (the oil spill, global warming, drilling in Equatorial Guinea, etc.) receives two or three chapters dispersed over the length of the book, and by the end they are all wrapped up. This is a dramatically satisfying, if disjointed, way to read. It’s not that each chapter is unrelated to those surrounding it – Coll keeps pace with certain themes throughout, like the long search for Lee Raymond’s replacement – only that the format prevents Coll from keeping larger issues like sovereignty consistently in mind.
A minor but nonetheless annoying flaw is Coll’s prose style. It’s not really the prose itself, which is competent and mercifully free of cliché throughout, a significant achievement for any reporter. But Coll is still a reporter, used to the mores of his profession, so the tone if not the content of his writing is steadfastly neutral. A certain amount of subject capture is inevitable, and if the subject is business, the results can be very unfortunate, as in: “Raymond integrated the new corporate safety rules into an intensified top-down culture of command management emanating from Exxon’s headquarters… He described his safety drive as a proxy for more far-reaching changes that would ultimately manifest themselves on the bottom line.” Troubles aside, Coll is an excellent, very well-sourced journalist, and if Private Empire lacks sufficient context or sometimes lapses into management lingo, it is still by far the best book on Exxon and its philosophy of business and politics.
The argument underlying the gospel of free markets, free trade and deregulation is that the unfettered forces of the market are the best way to ensure prosperity and promote freedom. But the astonishing wealth created in the last hundred years has often obscured an important reality: the interests of producers, those entities favored by the supply-side economics Reagan brought with him to office, are not the same as those of the countries and people amongst which they do business.
Following the disaster at Valdez, Exxon implemented a fanatically comprehensive safety policy that won praise even from foes in the environmental movement. They calculated that it was the best way to minimize risk. Yet after the explosion at BP’s Deepwater Horizon site in the Gulf of Mexico, investigators found that Exxon and BP had contracted their deep water safety plans out to the same firm; the two plans were virtually identical and equally inadequate. Abroad, there is less pressure for safety. Just ten days after the Gulf disaster, an ExxonMobil pipeline split open and spilled a million gallons of oil into southwestern Nigeria. ExxonMobil is hardly alone over there: the New York Times reported that the Niger Delta has endured the equivalent of an Exxon Valdez spill every year for nearly fifty years. But the country is so poor that there is no ‘market’ for change.
Oil companies claim they would be happier to work in democracies that respected human rights, with adequate environmental protections, but what they value most are solid contracts and the profits those guarantee. In the developing world, contract terms are very favorable, because those countries have no choice, just as counties and states in America often have to grease their appeals for business and investment with massive tax credits.
As the world becomes further integrated, and trade becomes freer, and the costs of production level out, the danger is that large corporations – larger, even, than they are today – will auction off the economic benefits of their presence to the highest bidder. Their price will be as little risk as possible, and the risks to their suitors will be so great that they will get what they want. If these trends accelerate – if elected governments continue to weaken – the role of opposition will increasingly fall to humanitarian and environmental groups, who have jobs to offer or piles of cash to dispense. In a world like that, businesses untouched by local interests will find it even easier to pluck inducements from biddable politicians, wrench concessions from their employees, and shape the course of economic and environmental policy. When they do so, they will use the Exxon Mobil playbook.
Greg Waldmann, a Senior Editor at Open Letters Monthly, is a native New Yorker living in Boston with a degree in International Affairs.