In an era of global turmoil, volatile oil prices, and muscle-flexing state-owned petroleum companies, ExxonMobil still rules the roost. In an exclusive conversation with Foreign Policy, New America Foundation President Steve Coll, author of the new book Private Empire, explains how ExxonMobil has managed to exert such market dominance -- building operations in often sketchy "frontier regions" -- while still keeping its hands (relatively) clean.
Foreign Policy: How did this book come about?
Steve Coll: When I was looking at the big oil supermajors and thinking about how to write about the subject and finding my way towards ExxonMobil, one of the things that attracted me to them as a subject is that their global footprint is very evenly distributed compared to some of the others. They're not so lumpy in the Caspian or the former Soviet Union or elsewhere. They operate in more than 160 countries. In the upstream -- and what's interesting about the dilemma that all of the supermajors headquartered in the West face, but especially an American company like ExxonMobil with its enormous size -- is the huge reserve replacement challenges each year. They pump out 4.5 million barrels of oil 365 days a year, so that's a lot to find and replace on an annual basis. So if you're ExxonMobil, you look out on the world and you ask, "Where can we own oil and gas?" in an era of resource nationalism. It's not a question they asked in the 1970s when they were part of Aramco in Saudi Arabia; they owned more than they knew what to do with in the Middle East in Iran, Iraq, and Saudi Arabia in the early postwar period. Now they look out into the world and say, "Where can we own oil and gas?"
Really, there are two big answers. One is in the free market where property rights are sacrosanct, but the problem is until recently there hasn't been that much growth in oil and gas discovery in the West; the other answer, which is what explains the global map where they operate, is by in large weak states -- which are so weak that they can't build up a state-owned oil company to take prerogative and be the vehicle for resource nationalism. So ExxonMobil ends up disproportionately in West Africa, for example, in Equatorial Guinea, Nigeria, Chad, Angola, and other states that might wish to control their oil for nationalistic reasons but have fallen on hard times. ExxonMobil is knocking at the door, just like Iraq, where they just went into Kurdistan.
And they hold their own -- or they try to hold their own -- against state-owned companies competing globally through technological prowess and by project management. So if you're the emir of Oilstan and maybe you have a state-owned company but it's run by your cousin and it doesn't work very well, it's got a lot of your patronage machine employed in it, maybe some good engineers but not world class, and you want to realize the cash value of your oil and gas holdings quickly, ExxonMobil will turn up with a PowerPoint presentation and tell you pretty reliably that a) they have the technology to extract the most value out of the ground for you of anybody in the world, especially if your oil is in deep water or under ice or in some difficult place, and b) whether your oil is in a difficult geology or not, they'll also say pretty reliably, "We're very good at coming in on time and on budget."
Their competitive edge is project management on a huge industrial scale, and they like to operate these projects independently -- not share them with others. Their case is: "Don't make us partner with inefficient state-owned companies. Let us run the thing, and then we'll make sure everyone gets paid and gets paid on time." That's their world in a nutshell.
FP: But what happens when they come to a place like Aceh, Indonesia, which had enormous political strife at the time?
SC: This company was born of a merger closed in late 1999 between Exxon and Mobil, two "Baby Standards" -- two independent decedents of the breakup of Standard Oil in 1911 that was ordered by the United States Supreme Court. Essentially it was a merger of equals when there were a lot of combinations of big oil companies in the late 1990s when prices fell and the whole industry was confronted with structural problems. They combined to better manage their positions and also to compete with the state-owned companies that were rising in Russia and Brazil and elsewhere, but the merger was really Exxon buying Mobil.
When Exxon bought Mobil, however, it bought a company whose overseas holdings were in far more adventurous places than Exxon's were. So they basically bought a bunch of wars and they bought a lot of Africa and they ended up with a map that had geopolitical risk in it to a much greater degree than Exxon alone had been forced to confront.
Probably the most important property they bought in 2000 was this giant gas field in Aceh, Indonesia, and some liquefied natural-gas facilities next door to the field. At that time, this Aceh field accounted for about a quarter of Mobil's overseas profits; it was an enormous cash cow due to some contracts they had set up with the Japanese and South Koreans. So Exxon buys this thing, and somehow their investment bankers didn't do full due diligence to report to the board of directors, "Oh yes, you're also buying a war."
Their separatist movement really ramped up and started attacking ExxonMobil's gas fields directly, and the Indonesian military, which did not want to see Aceh go after losing East Timor, was determined that that was it -- they were going to draw the line at Aceh. At that point, they were essentially under contract with ExxonMobil to defend these gas fields and they undertook a pretty brutal campaign to put down the Acehnese rebellion. This included setting up detention centers on the perimeter of Exxon's gas fields where they detained Acehnese men and tortured them, and also conducted sweep operations in local villages that could also be violent and menacing.
This presented Exxon with a series of dilemmas that they frankly hadn't had to reckon with in the previous 10 years when they were operating on their own in places like Australia and or in Europe. They had entered Angola but it had settled down; they had a field in Chad but they hadn't developed it yet. They had a few of these dilemmas in places like Yemen, but nothing of this scale. And the records from the lawsuits that were eventually filed claiming human rights violations that ExxonMobil either had known about or should have known show that the company was pretty much over its head, at least initially and really didn't know quite what to do about this.