EXXON MOBIL

Recommendation
ExxonMobil is a singular corporation. One of America’s most profitable companies year after
year, the energy giant generates immense revenues from its oil and gas products, as well as
almost constant publicity – both good and bad – about its global activities. Yet the public
knows little about what really goes on inside ExxonMobil, whose top executives work in
offices known as the “God Pod” in corporate headquarters nicknamed the “Death Star.” From
its vast size to its huge earnings and global operations, everything about ExxonMobil is
imposing, even intimidating. Pulitzer Prize-winning journalist Steve Coll’s definitive study – a
factual compendium complete with statistics and insider interviews – is sure to become the
standard reference work on a multinational corporation with enormous influence on US and
global geopolitics. getAbstract recommends Coll’s reportorial achievement and informed
analysis of an American colossus to executives, business historians and anyone interested in
energy and finance.

In this summary, you will learn

 How ExxonMobil has evolved over time,

 How its influential leaders have steered the company, and
 How its policies and interests shape the US corporate and political environment.

Take-Aways

 Standard Oil of New Jersey was the largest of the oil companies to emerge after the US-
mandated breakup of John D. Rockefeller’s monopoly in 1911.
 In 1973, the company changed its name to Exxon; it became ExxonMobil after its 1999 merger
with Mobil Oil.
 Lee “Iron Ass” Raymond, a blunt-speaking, obdurate global-warming skeptic, was
ExxonMobil’s chairman and CEO from 1993 to 2005.
 More than just a business leader, he was a powerful peer to US presidents.
 His company operated as a corporate “private empire,” with vast holdings worldwide.
 The catastrophic Exxon Valdez oil spill in Alaska made Exxon a despised firm.
 For years, ExxonMobil sowed doubt about human involvement in global warming.
 ExxonMobil’s public posture on climate change shifted after Rex Tillerson became its
chairman and CEO in 2006. He supported a carbon tax on corporations.
 With its 2009 purchase of natural gas firm XTO, ExxonMobil prepares for the future.
 ExxonMobil has achieved remarkable financial success as the most profitable private-sector
company in the US.

Summary

Big, Big, Big Oil

At Standard Oil’s pinnacle early in the 20th century, it monopolized 90% of the US oil market
as the world’s original “integrated” oil firm. Energized by investigative reporter Ida Tarbell’s
muckraking The History of the Standard Oil Company, populists worked overtime to
encourage and convince the government to break up John D. Rockefeller’s massive
corporation.

In response, in 1911, the US Supreme Court mandated the dissolution of Standard Oil. The
biggest “baby Standard” to emerge was Standard Oil of New Jersey. For decades, it sold its
products under the names Esso, Enco and Humble Oil. In 1973, Standard Oil of New Jersey
became Exxon, soon to be the US’s largest oil company. By 1989, it was double the size of
Mobil Oil, another baby Standard that became America’s second largest oil company.

“Exxon made more profit on each dollar it invested than any of its American or international
competitors.”
Despite its various name and organizational changes, Exxon continued to exemplify the
Rockefeller tradition of “discipline, rigor, technological research and unsentimental
competition.” For years, “Exxon was America’s energy policy” due to its remarkable size,
power, global footprint and industry dominance.

“ExxonMobil’s interests were global, not national.”

Lee R. Raymond

From 1993 to 2005, Lee R. Raymond, the chairman and CEO of Exxon – and after its 1999
merger and name change, of ExxonMobil – was the living embodiment of the firm. He held a
doctorate in chemical engineering from the University of Minnesota, where he was a National
Science Foundation fellow. And, throughout his lengthy, accomplished career, he worked only
at Exxon.

Tough and demanding – and an ardent free-market capitalist – “Iron Ass” Raymond managed
the mammoth oil company like a powerful sovereign. He behaved as an equal, not a
supplicant, to the US presidents with whom he interacted. According to some ExxonMobil
employees, Raymond fomented an “atmosphere of terror and deference.” When he could,
he would align ExxonMobil’s operations with America’s global policies, but many times the
company and the country would be out of sync.

“Exxon’s empire would increasingly overlap with America’s, but the two were hardly
contiguous.”
Raymond thought of ExxonMobil as a corporate “private empire,” not a subordinate US
corporation. The word “empire” is accurate: Because ExxonMobil’s business model was to dig
to find oil and gas, it had to control vast amounts of territory all over the globe. Often, such
land was in “poor or unstable countries.” Because of its size, far-flung worldwide operations
and singular business model, ExxonMobil operated like a “corporate state” that just
happened to be headquartered in the United States.

“‘Bringing order to chaos’ was the way Rockefeller had once described his monopoly. That
ambition had not ebbed with Exxon almost a century later.”
Employees at other oil firms saw Exxon’s executives under Raymond as “ruthless, self-
isolating and inscrutable, but also...priggish.” One Exxon board member described the
company’s leaders this way: “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.” Exxon was not a good place for
“restless free thinkers and habitual dissenters.”

The Exxon Valdez

On March 24, 1989, during Raymond’s tenure as president of Exxon, one of its oil tankers ran
aground in Prince William Sound off Alaska’s coast. Within days, the Exxon Valdez had leaked
257,000 barrels of oil into the pristine waters – at the time, the largest oil spill ever off
American shores. In 2010, BP’s Deepwater Horizon explosion outdid the Exxon Valdez, spilling
nearly five million barrels of oil in the Gulf of Mexico. Like the Deepwater Horizon disaster,
the Exxon Valdez oil spill turned into a high-profile environmental disaster, including a
“wildlife massacre.” Exxon spent $2.1 billion on cleanup activities during the year of the spill,
but, according to an executive at BP at the time, the Exxon Valdez accident severely damaged
the public’s “flimsy trust in oil companies” and dragged down the industry’s reputation.

“At industry meetings the Exxon participants could be easily identified: conservatively dressed,
hairstyles that seemed influenced by military rules, cliquish, secretive and businesslike.”
After the catastrophe, Exxon managers felt so beleaguered that the company moved its
headquarters from New York City to Irving, Texas. Before the accident, Exxon was already a
rigid company; afterward, its operations became tighter and more by-the-book. “Fear-
inspiring management” became the norm. The firm began to place great emphasis on “safety
and risk management.” Every company meeting, no matter its purpose or topic, started with
a “safety minute” during which an employee discussed a safety issue. At the same time,
Exxon’s profits soared to record-breaking heights.

“The Exxon Valdez accident had been preventable. It exposed the risks that arise when
industrial systems of enormous scale and consequence are entrusted to imperfect human
beings without adequate safeguards.”

Transformation

Exxon constantly had to locate or purchase new oil and gas reserves to replenish the resources
it extracted. A failure to do so would mean the firm’s eventual collapse. Exxon was so huge it
had to replace more than one billion barrels of reserves annually.

By the mid-1990s, Raymond was in full control at Exxon. He recognized that merging with
Mobil Oil would help solve his company’s challenging reserves-replacement problem. Exxon’s
energy holdings were concentrated in North America and Europe, while Mobil held more of
its reserves in Latin America, the Middle East, Africa and Asia.

“Raymond conceded that the Exxon Valdez episode suggested the need for ‘perhaps a
rebalancing of risk-reward in many of our operations’.”
Of course, both firms also had extensive “downstream” operations – fuel processing and
refining, as well as retail gasoline sales. Raymond understood that an Exxon-Mobil tie-up
could compete more effectively with state-owned oil companies across the globe. Therefore,
under Raymond’s leadership, Exxon used shares of its stock to purchase Mobil and its giant
energy reserves. The 1999 result: the 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.”

“Raymond’s relentless proselytizing about ROCE was part of a larger pattern of his leadership:
He chose his own metrics; he declared that other metrics were wrong; he delivered profits;
and he ignored criticism.”
“It’s a great time to be ExxonMobil,” Raymond said, touting the economies of scale the
merger brought at a time of rising oil prices. After this mammoth corporate transformation,
the United Nations listed ExxonMobil as the globe’s 45th most powerful economic entity,
“including national governments.”

Global Warming

Just like his close friend Dick Cheney, the US vice president during George W. Bush’s two
administrations, Raymond was sceptical about scientists’ warnings of climate change. Both
men also opposed government regulations. Raymond worried that growing concerns about
global warming would seriously impede ExxonMobil’s future international business activities.

“It was extraordinary for the chief executive of a US-headquartered multinational to lobby
against a treaty [Kyoto] he disliked by appealing to a Chinese Communist government...to
adopt a negotiating position opposed to a sitting American president.”
Climate scientists report that burning fossil fuels like oil and natural gas speeds up the
greenhouse effect, resulting in an increasingly warmer world. However, Raymond – who
wrote his doctoral thesis on mathematical modelling – believed he could reach his own
informed conclusions about whether man-made climate change was real or not, and he
remained unconvinced.

“ExxonMobil had...self-consciously invested in the dissemination of doubt about climate

change.”
Given his considerable scepticism about global warming, Raymond also did not believe in
cleaner energy alternatives like solar and wind power. This is why he did his best to scuttle
the US’s agreement to the Kyoto Protocol to reduce worldwide greenhouse gas emissions. In
a keynote address in Beijing in 1997, Raymond cast strong doubts on human-caused global
warming.

An executive close to Raymond noted that Exxon’s senior leaders during that era “had come
to the conclusion that the whole debate concerning global warming was kind of a
hoax...Nobody inside Exxon dared question that.” Indeed, ExxonMobil worked to bring about
complete “havoc in the climate science debate.”

“With XTO, ExxonMobil would buy some attractive American gas properties...It would be a
way to buy depth in the natural gas sector faster than ExxonMobil might create such capability
on its own.”
Rex Tillerson

ExxonMobil’s public posture on climate change shifted after Rex Tillerson became its
chairman and CEO in 2006, and after the Intergovernmental Panel on Climate Change (IPCC)
reported in 2007 that global warming was “unequivocal” and was due, in part, to burning
fossil fuels. Thereafter, ExxonMobil no longer offered a formal opinion on climate change. It
began to acknowledge that limiting man-made greenhouse gas emissions would be sound
public policy, and even went on record that a carbon tax would make sense.

“It remained arguable how ‘American’ ExxonMobil’s private empire was, given its global
reach.”
Tillerson publicly proposed such a tax in 2009. However, some felt that his proposal was a
nonstarter. Advisers to incoming president Barack Obama felt that Tillerson “was happy to
have a position that nobody was going to embrace.” On the other hand, Tony Kreindler of the
Environmental Defense Fund believed that ExxonMobil came to support the idea of a carbon
tax because the firm “decided they could simply outcompete everyone else if the policy were
a carbon tax.”

XTO Energy

In 2009, with $30 billion of cash on hand and 3.2 billion shares of its own stock worth about
$220 billion, ExxonMobil decided to use some of its wealth to make a transformative
acquisition. On December 14, Tillerson announced a $41 billion all-stock purchase of XTO
Energy, a natural gas giant with huge US reserves that would vastly expand ExxonMobil’s
natural gas business.

“Of all the banking, industrial and transportation giants birthed by America’s Gilded Age, none
could look back on a winning streak and a record of durability comparable to those of
ExxonMobil.”
The move strongly resembled Exxon’s acquisition of Mobil a decade earlier: both deals
increased the firm’s reserves and significantly altered its asset portfolio. In the prior decade,
ExxonMobil had replenished slightly less than 100% of the oil it produced, while replacing
158% of the natural gas it removed. With XTO’s natural gas reserves, 45% of ExxonMobil’s
future worldwide energy reserves would be in natural gas.

But Wall Street did not like the XTO deal. ExxonMobil had paid about 25% more than XTO’s
average share price. In the seven months following Tillerson’s announcement, ExxonMobil
shares lost about $41 billion in value, ironically the same amount the energy giant paid for
XTO.

Due to this acquisition, some observers questioned Tillerson’s financial decisions. However,
in each year of his leadership, ExxonMobil realized the highest profits of any US public
corporation. During that period, it normally outpaced PetroChina, the Chinese-owned oil
company, as the corporation with the highest stock market value in the world. In terms of its
return on capital employed (ROCE), ExxonMobil maintained a substantial lead over all its
industry competitors.
ExxonMobil and the United States

ExxonMobil continues its moneymaking ways; it showed $21.3 billion in profits for the first
six months of 2011, just below its record-breaking results in 2008. And since the Mobil
merger, it’s become one of the top three US firms in how much it spends on government
lobbying.

In “an era of corporate ascendancy,” comparing ExxonMobil’s private empire to the public
empire that is the United States is illuminating. In 1999, both ExxonMobil and the US enjoyed
positive income; each took in more money than it spent annually.

After that, the nation and the corporation took dramatically different paths. From 1999 to
2011, America’s net cash flow was a negative $5.7 trillion. In contrast, during that time,
ExxonMobil’s net cash flow was a positive $493 billion. In 2011, the Standard & Poor’s rating
agency downgraded US Treasury bonds, thus making AAA-rated ExxonMobil a better credit
risk than the United States of America.

http://summaryjudgments.lls.edu/2012/10/book-review-empire-
exxon-mobil-and_6377.html