FP: So how does a massive company like ExxonMobil set itself up to absorb a significantly higher degree of risk? These are the same sorts of problems that got Chevron in trouble in South America, Shell in Nigeria. How do they reconfigure corporate culture to absorb an entirely different type of business?
SC: They have basically a political risk department that is central to their corporate planning and to their annual strategy discussions at headquarters. It's run by a woman named Rosemarie Forsythe who used to be on the National Security Council, and she basically goes into the management committee -- which is the top group of executives that's looking out over the world from quarter to quarter and year to year -- and she presents political risk analysis, both regional and global. I spoke to her a little bit about what her PowerPoint show sounds like, and basically she describes a world in which more and more of the oil that ExxonMobil is going to be interested in or already owns is in unstable places; that's what the basic map looks like. They color code it and they divide the world into different groups and so forth, but fundamentally the oil they can access is in unstable places. Now an academic might also point out that the oil is in unstable places because oil can be destabilizing in weak countries, but I'm not sure ExxonMobil does that analysis.
FP: That might be a chicken and egg problem. What are some of these other places?
SC: About a quarter of ExxonMobil's liquids production, as they say in the business -- that is oil but also gas liquids, which is the most valuable of the properties that they own -- about 25 percent of that production is in West Africa in basically in four places, Nigeria, where they have large-scale production offshore, and a little bit of an onshore footprint. Compared to Chevron and Shell they're very fortunate to be out in deep water, so when the guerrillas try and attack them they have to go on speed boats and they're not as accessible -- it still happens, though. And then Equatorial Guinea, this tiny but fantastical dictatorship -- a small country, one of the few Spanish colonies in Africa, and they are the major producer offshore there. Chad, where they entered in this radical World Bank nation-building experiment -- building a pipeline across Cameroon to try to create a new model of oil revenue management that would lead to Chad's social development. They started there in 2000; 12 years later, they're the only big operating producer in the country and the World Bank experiment has ended. Chad is still at the bottom of the Human Development Index tables but Exxon is still producing a couple hundred thousand barrels a day. And in Angola they have a very large presence, mostly offshore.
Elsewhere, Venezuela was a very important property to them until they were expropriated in 2007. They and Conoco were the two companies that responded to President Hugo Chavez's confrontational reform plans by leaving. Everyone else compromised. If you count the geological survey numbers on a barrel basis, it's an enormous amount of oil, but it's hard to mine and expensive and not as profitable per barrel as, say, Nigerian crude, which is some of the most profitable in the world. But anyway they got thrown out of Venezuela. They're trying to get into Brazil but it's not clear what they're going to end up with.
Russia is another important story for them. They were in Russia early in the 1990s in the Yeltsin era, way out in the Far East on Sakhalin Island. This is an example of how their technological prowess got them into a place that might otherwise have been difficult to enter because they alone could credibly propose to drill in these Arctic conditions of the Russian Far East, and they have created this pioneering horizontal drilling project under frozen seas. And they used that as leverage to try and get into some of the bigger Russian oil plays. They negotiated to buy the majority of the stake in Yukos before Mikhail Khodorkovsky was arrested in 2003. That failed, but now they've come back as a big partner of Rosneft where they're now up in the Arctic in Russia, which is a big part of what they hope to do in the future.
Another footprint that's really important to their current financial profile is in Qatar, where they basically have a huge liquefied natural gas and chemicals manufacturing operation. They basically are the most important partner of the Qatari government, which is coming into its own because of these gas assets. They're also in the UAE, where they've got important oil fields and they've come back into Iraq over the last two years.
And that's really interesting, because in 2009 when Iraq finally started auctioning off some of its fields in order to get its production up as the war settled down, Iraq went in with the other supermajors and did business with the Baghdad government and ExxonMobil got a piece of the field in the south. It was advertised by everyone at the time as just a sort of beginning of what they hoped would be a long-term presence in the Iraqi upstream. And then this year, they shocked everyone by defying the preferences of the Obama administration and the Bush administration before them by doing business directly with the Kurdish Regional Government. They now have signed an agreement with the Kurds which Baghdad regards as illegal. And these fields in question are not only disputed because the Kurdish Regional Government has auctioned them off, but they're also in areas that are the among the most disputed between the Arabs and Kurds.
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