Part One: An Age of Limits & Change

“I wanted to write about oil in an age of limits and change.”

Steve Coll (SC)— [00:00:39:04] The book is a kind of investigative narrative history of ExxonMobil and its place in public life here and abroad from the time of the Exxon Valdez spill in 1989 through to basically the present day.

[00:00:55:25] Why start with the Exxon Valdez spill in 1989?

One of the conclusions I came to about ExxonMobil was that it was useful to think of it as a kind of independent sovereign state spread around the world. And, if you think of it as a country, the Valdez spill was kind of a 9/11 event for them. So, they really overreacted to some extent but also were galvanized through and through by that accident.

[00:01:46:11] Why this book now about this company?

[00:01:51:11] I didn’t go in a straight line to this book.

I had been working on subjects that have to do with America’s sort of a-symetric power in the world, particularly in a post-9/11 setting. And, after doing the book before this one [The Bin Ladens: An Arabian Family in the America Century], which was basically about modernization in Saudi Arabia and all of the complicated ways that Saudi society produced not just Osama bin Laden but his 53 brothers and sisters, who had wildly different sources of global identity, I came out of that book about Saudi Arabia and I really wanted to write about oil. And, oil in an age of limits; oil in an age of contest; oil as a proxy for America’s place in the world; as a source of struggle.

I had been inspired as a younger journalist by The Prize, by Dan Yergin, which is a large, historical, well-reported narrative. It’s sort of about oil in an age of expansion and discovery. And, I wanted to write about oil in an age of limits and change.

So, I actually started out this book without ExxonMobil as the particular focus. And, I was going to write a wider narrative about America in the oil in the modern era. And, I got out into the field about six months and I thought, ‘You know, I really need a company to tell this story properly. I am too spread out.’

So, once I made that decision, then ExxonMobil was the only logical choice because they are the largest corporation headquartered in the United States. They receive very little scrutiny. They have a very strong culture—very particular sense of themselves. They’re a very closed institution, which makes them both difficult to report on and kind of intriguing as a project.

And, so off I went.

And, as I got going, I would just say that I was very glad that I had chosen them because they are a very powerful subject in lots of ways. But also, I came to think of the book a little bit differently than when I started out. I came to think of it as a case study of corporate sovereignty and power in our political economy and in the world’s political economy.

We live in a time when, I think, governments matter less and non-governmental entities are rising in importance. Technological change is a factor. Globalization is a factor.

And in the United States, corporations are more influential, I would argue, than at any time since the Gilded Age. You can measure this statistically. Corporate income relative to household income relative to small business income is greater than its been at any time since people started keeping statistics about such things. And we know intuitively, whether you’re coming at it from the Tea Part or the Occupy side, that income inequality is related to the role that corporations play in our politics and the degree of industry capture that’s emerged in sections of our government.

And so, if that’s the context, well ExxonMobil is a very interesting example because they...their revenue last year [$486.4 Billion according to Bloomberg Businessweek; $41 Billion earnings after taxes, according to ExxonMobil’s 2011 Financial & Operating Review] was greater than the economic activity of most countries in the world. But, as journalists, we don’t really scrutinize them very much.

[00:05:01:05] What was the biggest challenge writing Private Empire?

[00:05:06:05] Mostly, that they were a very closed institution. Very disciplined. They don’t volunteer to be written about. They didn’t want to be written about here.

It’s my professional life to write about hard subjects. So, I have a method. But, even as I applied my method, I found that they were—their walls were thicker and they were just a tighter subject.

Now, there are ways you can break down a corporation like ExxonMobil as a reporter in this society. One example is court records. They sue a lot of people. They get sued by a lot of people. Some of those cases go to trial. The records that are generated there, the testimony that is generated there, while selective, can be very revealing. And, there are some trial narratives in the book that help kind of go down layers of depth that it wouldn’t be possible for me to do without their cooperation while interviewing. I also filed extensive Freedom of Information Act requests with the United States government, looking at places abroad where I knew they operated and where I knew the country was troubled, so there had to be an interesting story there.

So, it was a little bit like throwing a message in a bottle into the State Department and other sections of the government, asking for cables that would describe ExxonMobil’s activity in periods of violence, in Aceh, Indonesia, for example, in Equatorial Guinea, Nigeria. And those efforts actually over time yielded very, very strong material.

And then I interviewed. I interviewed as many people as I could find.

I approached the company directly. They provided a limited amount of background cooperation. I came later to understand that they probably thought they were being exceptionally cooperative. But, my experience was that it was helpful but pretty limited.

[00:06:52:06] Is writing about ExxonMobil a bit like defining the existence of a far-off planet based on its gravitational effect on surrounding light?

[00:06:59:06] Yeah. There’s a kind of outside-in process that’s  a little bit like that. And, I try to, what I feel like what I’ve learned, just as a journalist over 30 years of doing this, is that there’s really no one method. You kind of have to do everything.

If the target is really hard, if it’s really hard, you just have to surround it with every method of effective reporting that you know how to conduct and do them all simultaneously and then follow the threads that open up. And outside-in, though, that notion of interpolating your way forward is the basic framework.

There are moments when a door opens and you go straight in. And, you stay in that hallway or that room that you’ve gotten into until you’ve emptied it. And then you try to find another door to go through. And if you don’t, you back back out and look for another way.

[00:07:54:17] What is an example of a door opening and you going straight in?

[00:07:59:17] Well, it’s mostly interview break-throughs are the big serendipitous kind of mapping aspects.

There are lots of ways to try to approach people to ask them to help you, even if the corporation’s official position is, ‘we’re not cooperating.’ So there are, you look for people who are former executives or...who may not be afraid to talk about the company.

One thing that was particularly difficult about ExxonMobil is that...it’s a very comfortable place to work, if you can abide their rules and their culture. It’s a place where many people stay for life. They have an excellent defined benefit pension plan. And they tie everyone up with non-disclosure agreements that are tied to their retirement benefits. So, people really feel like they have skin in the game. If they’re accused of violating their non-disclosure agreements, they could put their entire retirement at risk. So, that makes people cautious in a way that you wouldn’t normally find.

But, look, I wasn’t asking anyone to turn over their secret sauce or business secrets. I was just asking them to talk about matters of public accountability and business strategy in a country that has the First Amendment to protect speech. So, I would do my best to persuade people.

[00:09:17:27] If ExxonMobil is engaged in a highly public part of our highly public economy, what is ExxonMobil protecting?

[00:09:26:27] It’s a good question because other corporations in their position manage their position differently—by trying to have a proactive communications strategy, really trying, recognizing that not everyone is going to see the world as they would wish but recognizing that if a reasonably balanced, credentialed professional approaches them, whether they’re from a journalistic organization or a university or an industry group, and asks for understanding, that they...some corporations say, ‘Oh, yeah. Let’s get going. Let’s tell you how we see the world.’

Well, ExxonMobil has a very different view.

They basically take all of their decisions on the basis of strict financial interest. And...that’s a little bit of an over-statement but not a lot.

And, when they think about their communications strategy and their press strategy, I think rather than following some theory that they generally benefit from explaining themselves or that they have a responsibility to the communities where they operate, the country where they’re headquartered to be an active participant in public life—rather than that, they ask themselves, ‘What are the cost-benefit equations of cooperating’ with people like me? And, I think the answer they come to is, the costs are higher than the benefits because they operate in controversial settings.

They knew that I was interested in their operations in West Africa, where they produce 25 percent of their oil and gas liquids in the decade after 2000. You know, it’s not a pretty picture. Some of the host regimes that they work with have pretty terrible human rights records or—and/or the populations that surround their operations are living in pretty bad conditions. And they might wish for West Africa to be a better place than it is: It would be good for business and good for the people who live there. They’re not against that. But, they’re there as the guests of these host regimes. And if they start telling their story, they’re more likely to irritate their host government than they are to gain anything in the eyes of, say, American readers about how sophisticated they are.

—End of Part One—

Part Two: Chad: A Basic Dilemma

“Chad was one of the places I visited and worked. And, as I was going around the country and trying to understand ExxonMobil's presence there, the biggest question I had is, 'Why are they here? Why are they here at all?'”

Steve Coll (SC)—[00:12:00:25] Yeah. Well, and...when I first started, one of the first things I did was travel to West Africa because once I kind of mapped out where their oil and gas holdings were and how, where my interests were likely to lie, I thought West Africa would be an important part of the story.

So, I went out. And Chad was one of the places a visited and worked. And, as I was going around the country and trying to understand ExxonMobil’s presence there, the biggest question I had is, ‘Why are they here? Why are they here at all?’ Because this is, you know, an enormous corporation with deep financial resiliency. And here’s Chad, really, you know, the bottom of the world tables in quality of life indicators. Life expectancy is still under 50 years. So, it’s not even—Nigeria looks like Holland by comparison.

So, the answer as to why they’re there, why they gravitate to an environment like that is actually of real importance. And it has to do with the basic dilemmas that they face in their business.

In the 1970s, resource nationalism and expropriations threw them out of all of these big pools of safe oil. And, they basically started to face a dilemma they’d never faced before which is how to replace the oil that they pump and sell each year so that they don’t shrink. Because their whole business model is based on ownership. They’re not a service company. They’re not like someone you hire to renovate your house. They want to own the oil and gas in the ground. And that’s how Wall Street values them. And they produce 4.5 Million barrels of oil and gas equivalent a day. Multiply that times 365 days and that’s a Billion and half barrels they’ve got to find every year just to stay even.

Now...once they got thrown out of the Middle East, because of nationalism and anti-colonial attitudes, and those attitudes spread all over the world in post-colonial societies, there really were not that many places that they could own oil and gas anymore. They could own it in the free market West, where property rights are sacrosanct: North America, Australia, Europe. But, there’s not much oil and gas there any more. It’s all been pumped out and used. And that drove them, basically, into weak states. That’s why they’re in Africa. Because these are states that are too weak—do not have the national capacity to assert their own nationalism over oil.

In most of the Arab world, foreign corporations are not allowed to own oil because there’s a national attitude that this is a special national resource. ‘It’s not like any other property. It belongs to our people. It’s a source of national pride. We’re not giving it to Exxon.’

And, in Chad, I would imagine some of that same sentiment, if it could come forward, is probably present in the minds of Chadians. But, they don’t have a government that could do it themselves, which is what the Middle Eastern governments did. They built their own strong national oil companies. They operate and they own the oil. They hire westerners for technical service support the way we would hire a contractor to renovate our house. But, they do not allow the contractor to own the oil.

In Chad, basically, they can’t build such a national oil company. So, they invite ExxonMobil in and they say, ‘Look. Will you pump it out of the ground? We’ll let you own some of it, too. We’ll split it fifty-fifty.’

So, ExxonMobil ends up in these weak states, where they can actually own the oil and gas in the ground. And these are large reserves—especially Nigeria and Angola. So, that’s why they’re there. And the irony is that this kind of map of the way the world looks to them and the imperative of constantly replacing the reserves they produce every year, is driving them into settings of instability.

And here’s this company that’s very rule-bound, very rigid, you know, very focused on trying to ring all risk out of their daily operations to the extent engineers can figure out how to do it. But, their business model is driving them into risk. So, they’re in countries that are much more unstable than they would like. But, they have no choice but to be there.

[00:16:32:20] How does ExxonMobil balance the economic incentive to be an owner in unstable countries like Chad with the relative freedom, as a sub-contractor in more nationalistic and stable countries, from human rights issues ExxonMobil would prefer to avoid?

[00:16:41:20] Yeah. No, I mean, I think they would wish to be in more stable places for the reasons you cite. And...but they, as they would put it, ‘we have to go where the oil is.’

Well, you have to go where the oil is and you can own it. And that takes you to Chad.

But, I think what you say is correct. The one thing that’s so striking in Chad, is very vivid there, but it’s true in other countries where they operate—they’re now operating in Papua New Guinea, for example: In the most poor societies where they work, their influence is so outsized that it really changes the equation.

In Chad, for example, when this agreement that Chad put together with the World Bank and the Clinton Administration, and ExxonMobil facilitated it, ultimately didn’t sign up as a party to the agreement, to use these, their oil revenues to promote social development goals, and then that deal fell apart in 2006 and Idriss Debi, the president, basically bought his way out of the World Bank obligations by re-paying loans early.

Now, he could do that because in that year, 2006–2007, ExxonMobil’s tax and royalty revenue to Chad was in the order of $750 Million a year. That’s basically one-fourth of the national budget, all in, for 11 Million people. And, it’s...by comparison, the United States government’s embassy in Chad that same year was doling out a maximum of about $10 Million in aid.

So, you know, if you’re Debi and you look across the capital and you see the embassy on the one hand and ExxonMobil’s country representative office, who actually represents American power?

Theoretically, the embassy could call in the Marines, I suppose, in a way that ExxonMobil could not. But, otherwise, ExxonMobil is the government. And, in the south, they really are a much more powerful representative of sovereignty, order and development strategy than either the state of Chad or any other government that’s trying to provide aid.

[00:18:42:00] Unlike, say, the [Bill and Melinda] Gates Foundation and international health policy, it seems ExxonMobil engages international development goals as a cost of entering a country and in service of financial profit and political stability. Once ExxonMobil’s financial and political incentives disappear, so too does the commitment to broader development. Is that true?

[00:18:58:00] That is true. And, I think it’s a problem, myself. They don’t.

I think what they would say is that their core competency is oil and gas production. They’re not an international aid agency. They wouldn’t be a good one, if they tried to be. They’re not a charitable organization. They do give to charity but in a measured way.

Their view is that the best way to let market forces lead West Africa out of poverty is for ExxonMobil to stick the things it does well: Produce oil and gas profitably; pay it’s law abiding taxes and royalties to the host governments in copious amounts; and let those host governments figure out how to govern their own people and not to have ExxonMobil get into the business of substituting for their role just because they’re weak. If they’re weak, then other governments should be helping those governments come forward, etc, etc.

So, that’s their kind of argument. ‘We’re just here to do the thing that we know how to do. And we produce revenue that other people should use to achieve these worthy goals. We’re not saying the goals aren’t worthy. We’re just saying they’re not our goals.’

[00:20:05:14] Yeah. I mean they do some of that because they give, you know, about—I think in the most recent year a half of one percent of their total net profits to charity. And, some of that flows into the countries where they operate in West Africa. And the projects they do are, you know, well selected, in some cases. Malaria eradication in Equatorial Guinea is certainly a good thing for them to be involved in with others. And, they work with NGOs [non-governmental organizations] in those kinds of charitable…

But what they don’t do is show long-term leadership of the sort that they show where their business interests...or that the...are on the line or leadership comparable to the Gates organization.

I mean, the Gates Foundation says, ‘these are our goals’—Millenium goals or health goals. ‘We’re going to invest and show leadership, bring other partners to the table. We’re going to insist that we move the needle. And, if we try one road and it doesn’t work, we’re going to shift and go in another direction and we’re going to get there because these are long-term and deeply important goals and we’re committed to them.’

ExxonMobil could articulate that. And my view is that, it’s fine to have a normal corporate responsibility charity profile in many environments where ExxonMobil works. Let their shareholders and their employees debate whether their rate of giving, at less than one percent, is acceptable to them when WalMart is doing five and Target is doing seven. OK. Those are retail companies, maybe that’s best seen as marketing.

But, in any event, they’re in the game and there’s, in most settings, they can...I think defend their record of social investments and employee...it’s a very good place to work. Maybe they’re not as generous on the charitable side.

However, in my view, there are some settings where they work, they come of their own free will to Chad to make money pumping oil out of the ground. If they would drive out of their fenced compounds and out of their security perimeters and go down these little muddy roads and see the conditions that people are living in, you know, with life expectancy of 50 years, and recognize that they are the international power in Chad, as the lead operator of this consortium, more influential than the United States government, probably more influential than the French, and they’re in a position where they have the organizational strengths to achieve complicated targets. That’s what they do.

I mean, they could say, ‘You know what? Standard operating procedure just isn’t good enough in Chad. When life expectancy is under 50 years and we’ve been here ten years and we have made X Millions of dollars for ourselves, it’s just not good enough. You know, we’re going to have to do something, in some of these settings we’re going to have to do more because we’re here.’

And...I think other corporations do start with that premise. It doesn’t make it easy to achieve something. But, I find it unpersuasive ExxonMobil’s idea that, ‘Well, we’re not very good at that.’

Actually, they’re the most efficient, best organized institution of any kind inside Chad’s borders. So, if they wanted to show leadership to say, ‘Alright. These are the things we think we can achieve. We can see...lead the international community to build the following number of rural health clinics and make sure they’re staffed with well-trained nurses and rotating doctors. And, we are going to commit ourselves to take a leadership role, not the sole provider but we’re going to get international aid organizations, international governments, NGOs, and others. We’re going to get everybody rowing in the same direction; we’re going to set targets; and we’re going to deliver change in these communities.’

They could do that. It wouldn’t be that expensive, either.

—End of Part Two—

Part Three: Standard Bearers

“[Y]ou can still see this sense of conservative religious mission present in the corporation’s outlook on the world. But, they remain ideologically committed to capitalism above all else.”

Steve Coll (SC)—[00:23:55:08] Yeah. It’s interesting.

I mean, the...both strands of the original Standard Oil mission are present in Exxon. And there are many people in the business who will say that, of all the baby Standards that evolved out of the 1911 break-up, Exxon has always been closest to the parent in its culture and its sense of itself: the most rigid; the most conservative; the most influenced still by religiosity in the workplace and in the culture of the corporation; and also the most hardline: the most ruthless; the most inclined to play hardball the way [John D.] Rockefeller did before he entered his philanthropic phase.

And so, you can still see this sense of conservative religious mission present in the corporation’s outlook on the world. But, they remain ideologically committed to capitalism above all else.

And...I mean, the current Chief Executive, Rex Tillerson, who was the son of a mid-level Boy Scout administrator in Texas and who grew up in an East Texas town, a very Boy Scout-driven and religious household, his mother was also deeply religious, and he’s now, you know very active in the Boy Scouts of America and active in his church and in the Republican party. All of that would be, ‘OK. That’s a corporate Texas life.’ Except, he recently told Scouting Magazine that his favorite book is Atlas Shrugged by Ayn Rand. And you think, ‘OK. Right. Now the colors are getting a little bit shaded over on another side.’

They hold on to their sort of original Baptist culture. But, they also are really mad at their enemies. And, they see the government as hostile to them. They see many other forces in society as not willing to give them a break or understand who they are. And that, I think, has impeded their potential to evolve in these directions—whether it was influence by the Rockefeller family’s example of broad-minded philanthropy or whether it was influence by other corporations’ different kinds of social responsibility strategies and so forth.

They’re down in a strategic crouch: Ready to shoot first and ask questions later.

[00:26:49:28] Is ExxonMobil’s assessment of the outside world as the enemy realistic?

[00:26:54:28] I wonder.

I mean, on the one hand, they would say, ‘Look at our numbers. What’s wrong with what we’re doing?’

And...but the answer is, I mean part of the explanation for their numbers, of course, much of the explanation is that the oil industry is a kind of utility that is pretty idiot-proof. If you can run it, if you can run an oil company reasonably well, you’re going to make lots of money—at least in this price environment. They run their company better than most, so they make even more money. And, they’re enormous, so they have enormous benefits of scale.

So, is that durable?

It has been durable. Will it be durable for another 30 or 40 years? There’s a couple of reasons to question.

One is, Chad, and the examples elsewhere in the book, of their position in troubled societies, which is not going to change—the resource nationalism that drove them into these settings is not going away—demonstrates, I think, and it’s not the only example, but it’s enough: The oil industry, the energy industry is increasingly a world of partnerships. It’s hard to do it yourself anymore. You’re going to have to partner with governments; you’re going to have to partner with communities, non-governmental organizations; you’re going to have to take account of the media. In this global environment, where information is flat, available to everyone, you cannot hide in a box. And, you can’t be a bad partner. And, they are seen as closed. And they’re not seen by even their industry peers as good partners. They’re prickly, arrogant and headstrong. And that is not a prescription, I don’t think, for success over 30 or 40 years in the world we’re moving into—especially a world where American relative power is in decline.

And, the other factor is that, we haven’t talked about this, but in order to compete against the very large state-owned oil companies in the world—because they’re the largest company headquartered in the United States but you make a list of oil companies worldwide, including those owned by governments, and they’re not even in the top ten—their competitive advantage is science and technology and engineering. They compete with the Chinese is Africa by saying, ‘We can do oil drilling that nobody else can do. We can do it in deeper water. We can do it in harsher climates. We can pipe it across landscapes that no one else can pipe it across. We can do that safely. And, we can do it on time and on budget and you’ll make lots of money.’ And that claim, which is valid in general terms, reflects their ability to stay ahead of global competition on science, engineering and geological exploration and insight. So, they’re a science company and an engineering company maybe even more.

Well, can you really attract and retain, in a world—the Chinese are going to get better and better and better; the Russians are, you know, may not get better and better and better because of their political economy; but Indian and Chinese and other global...Brazilian competition is going to rise, the quality of that competition is going to rise. Can they maintain their edge with a workforce that is so closed, so insular, unfriendly to women, not very globalized, not where people go home to their Thanksgiving dinner and says, ‘I work at Exxon’ and everyone draws in their breath.

I don’t...you know what scientists are like. They’re not going to thrive, if they can’t open their open their windows a little bit, I think, and develop a talent culture that is a little bit less rigid than the one that they possess now. I mean, that’s at least a question that I raise.

[00:30:54:18] Does the insularity and hostility—to industry partners, to corporate social responsibility—you find at ExxonMobil also foreclose a competitive edge developing alternative energies?

[00:31:01:18] It does, to an extent. Although there, I think they...that’s at least inside the lines of what they do, which is energy. You know, so energy broadly defined.

They’re interested, I think, genuinely in watching the alternative energy space defensively. So, they study it very carefully.

They...you know, they’re an enormous incumbency that has a very profitable business model that presumes the role of oil in the transportation economy. They’re naturally going to resist changes in technology that would threaten the primacy of oil fuels in the global transportation economy. That’s a threat to them.

But other kinds of changes to the energy economy that might be enacted for environmental reasons, particularly a price on carbon to address the dangers of global warming, they’re already adjusting to that by...partly by necessity, partly by choice, by shifting towards natural gas, which, you know, they see as a winner in a carbon constrained twenty-first century. It’s easier for them to access gas anymore than it is for them to access oil. So, that, they’re making a virtue of a necessity to some extent by doubling down on gas.

Also, the United States is, of course, in the midst of a potential kind of unconventional natural gas boom. That allows them to come back into the free market West and enjoy the property rights of ownership. If they can find the gas here, they can own it in an uncomplicated way.

The political risk is different. Now they have to deal with environmentalists who are concerned about the damage that fracking industrialization causes.

So, anyway, it’s complicated.

I think their view of alternatives is that they have an incumbent business that they like and they don’t want to run themselves out of business.

As to wind and solar, that’s a power generation story. They’re not, you know...gas puts them in the power generation business. But, they don’t want to be...I don’t think there’s any philosophical reason why they wouldn’t incrementally go into power generation, whether it’s hydro or geothermal or solar or wind. It doesn’t threaten their business. It’s just not what they’re...they don’t see scale in it and profitability in it the way they see it in oil and gas.

—End of Part Three—

Part Four: Coherence

“I think that there’s a lot of incoherence in the politics of energy and energy policy. Except that one very large, durable, coherent corporation is sitting right in the middle of our political economy.”

Steve Coll (SC)—[00:33:39:08] Yeah. I think that’s right.

I think that there’s a lot of incoherence in the politics of energy and energy policy. Except that one very large, durable, coherent corporation is sitting right in the middle of our political economy and they have a coherence that the [US] Department of Energy, the environmental movement and other players, you know, don’t always have.

I think they’re probably a more practically important and effective representation of what our actual energy policy is than the Department of Energy is, for example. And, their scale is larger.

But, you know, on the environmental side, in the NGO [non-governmental organization] world in general, there’s an enormous amount diversity and fragmentation. No question about it. There is not a galvanizing crisis or perception that is unifying the environmental movement or the NGO around common cause.

You know, it’s not global warming because public opinion isn’t there—in part because companies like ExxonMobil manage to sew doubts about the validity of climate science in its embryonic phase. There’s not a perception that air pollution or water pollution or the risks of catastrophic oil spills or the risks of global warming pose an acute threat to living generations. That’s when the American people normally, in their, you know, sloppy, zig-zagging sort of way, will very rapidly impose costs on themselves in order to address environmental problems.

If the threat of air pollution or water pollution is documented to increase the risks that living family members will contract debilitating or fatal diseases, then you’re willing to pay higher taxes. But, if it’s something that’s a little more indirect and in the future, and you’re not even really sure what it really amounts to, as in global warming, then you’re not willing...to pay that price.

You know, I think, what’s interesting to me about the global warming problem as a political problem is that...is this question of future versus living generations because, in Australia—I mean, that’s country that’s basically a coal mine. It’s a giant natural resources economy. And, they had politics that were deeply unfavorable to carbon pricing. We and the Australians were like the two outliers in the global system in our attitudes toward [the] Kyoto [Protocol] and global warming.

And, they just enacted a carbon price. Why? They had a Labor government. But, that didn’t mean that they had enough of the Parliament to get it through—just as [President Barack] Obama couldn’t get it through.

The reason, I think, is that they had the worst drought in 50 years. And it scared them. Basically, they have no top soil. And, I think they sort of said to themselves, in some way...people did make this argument:

‘This is not a future threat. It’s here now. And, if we don’t start to take it seriously, we could end up acting too late to save Australia as a viable, sustainable community of 20 or 30 Million’—or however many people live there.

And, that sense that its arrived, that the threat is here, that it’s meaningful, that it could affect current farmers and current livelihoods: That is absent in the United States. When will it come? We’re living in very hot times.

[00:38:19:15] What about government regulation? Neither the idea nor the reality of regulation seems politically viable. ExxonMobil isn’t only content but lobbies successfully to keep it that way.

[00:38:28:15] Yeah. I think the only...it’s interesting, you know, the Department of the Interior...doesn’t worry them. They captured that pretty thoroughly as we saw in the Deepwater Horizon case.

I think at the state and local level, especially in the Southwestern, politically friendly states where they produce a lot of the gas that they own, which otherwise could be environmentally problematic, they try and stay away from Blue states. They don’t own natural gas in New York for a reason, I think.

I think the only regulatory agency that worries them, that gets their attention, that is strong enough to compete with them, is the EPA [Environmental Protection Agency]. I think that’s true in the energy industry generally.

And, now the EPA is a political organization that changes with the White House. And, so that explains some of their [ExxonMobil’s] alignment with the Republican party and that of other, you know, other oil and coal corporations.

But, the EPA is sort of this odd hybrid of both a political agency, whose philosophy of regulation can be changed with the Presidency, but also a permanent bureaucracy that has established its rules in law and then has its rules constantly ratified by the courts. So, it’s a big complex that sort of starts with whoever is in the White House, runs through the leadership of EPA, then into the science-based, durable bureaucracy of the EPA and then out into litigation—because everything is litigated that they do—and then established in court-supervised regimes. That’s the actual energy regulation that ExxonMobil cannot defeat, has to live with and constantly tries to influence. But, I don’t think they are as effective there as they are in many other areas of regulatory capture.

—End of Part Four—

Part Five: Valdez|Exxon

“[I]n the energy area, we are not organized to govern ourselves in proportion to the risks that we are collectively under.”

Steve Coll (SC)—[00:40:50:10] Well, it changed their culture and changed the way they operate because they...the executive who was rising to power at that time, Lee Raymond, used the crisis to re-make the company. And, he wanted to do some of this anyway. But, he used the sort of trauma atmosphere, and then the merge with Mobil, to really re-engineer—and that’s they right verb. They essentially created an engineering-led, rule-bound corporation driven by operating manuals. Incredibly rigid. Incredibly uniform. Disciplined. Tight. Effective.

And, it wasn’t just that they changed their procedures, which they did, in every way. Or wrote them all down in manuals so that everything you did at the workplace every day, you could consult a manual to determine exactly how you should do it. But, that mentality, that approach, the force of discipline and accountability and documentation that was required to create those changes, it also influenced their outlook on everything.

The funniest document I found in the Deepwater Horizon investigations was this Spill Response Plan that all the Super-Majors that were operating in the Gulf of Mexico had filed. And, they all used the same consultant. They all filed the same plan. ‘Of course, we will remediate this…’ But Exxon had its own forty-page Appendix that was unique to its filing that showed how to manage the media in the event of an accident. And it had all kinds of press release scripts out, you know: ‘We deeply regret…’ and then ‘fill in the blank here.’ And it just showed...you know, their idea of how to deal with communities in a crisis where oil may be spilling into fisheries and businesses may be upended and not only wildlife but conceivably people could be endangered and their idea is that, ‘OK. Let’s think that through in advance and write down every word we might speak in that setting.’ That’s...you know, that’s how it changed the company.

[00:43:17:05] So, for ExxonMobil, public relations (PR) is engineering, too?

[00:43:22:05] PR is engineering, too.

[00:43:25:21] The oil industry you describe is both increasingly profitable and increasingly dangerous. There is little coherent government or other force to contain a company like ExxonMobil. And, ExxonMobil is keenly aware of and concerned about its position in the market and how it behaves. Does that awareness and the behavior it inspires come largely from within ExxonMobil?

[00:43:43:21] I think that’s true. I think that’s true in the sense that this is a kind of bet-the-company-every-day kind of business. So, if you’re not really under meaningful regulatory pressure, if that’s not your experience of the risks of managing risk, then you do internalize it. And, if you didn’t have that $20 Billion fine hanging over your head,2 which you know is coming if you fail to self-regulate adequately and you blow off a Mocando kind of accident, then, yeah, it’s pretty good motivation.

But, as you say, the dilemma...you know, if you’re writing a novel, you want your protagonist to have a dilemma. So, ExxonMobil’s dilemma is that they are this company that has tried to wring all human fallibility out of their daily operations but their business model is driving them inexorably into risk. So, they’re being driven into political risk in the ways we’ve discussed. They’re also being driven into operating risk because they have to operate in more and more frontier environments.

Now, they can say, ‘Oh, we know how to do it.’ But the truth is that a lot of these...wells under that kind of pressure, in those kinds of operating environments—in Arctic ice, in cold water, in harsh climates, in very deep water, in frontier geology—even fracking, which Exxon, of course, talks about very confidently, the truth is that nobody knows what happens when you frack on this scale of industrial operation because it hasn’t been done before. I mean, maybe its harmless. But, it hasn’t been done before. And, so they are constantly out on risk frontiers while trying to wring all risk out of their operations.

[00:45:27:04] We are in a curious position: To handle energy, we rely on ExxonMobil’s self-awareness & the path from regulatory agencies into litigation. What does that say about American power to govern ourselves?

[00:45:39:04] Yeah. It’s not...in the energy area, we are not organized to actually govern ourselves in proportion to the risks that we are collectively under. That’s my view. We’re just not organized.

I mean, there are other areas where we’re reasonably well organized to do that. I mean, the defense of our shores against attack. I mean, we’ve gotten ourselves over-organized, if anything, about that.

But, it’s a funny thing because there are sections of the energy economy that are reasonably well supervised and organized...Electricity generation, for example, you know, at the regional level, though it’s been deregulated over the last 15 years, so it’s probably more at risk than it used to be. You know, between the rise of the public utility commissions and the electrification of rural America and the long run in which it was recognized that electricity provision is so fundamental to quality of life, health and the economy that it simply cannot be left to the kinds of haphazard, self-regulating market forces that we see in the oil industry.

And so, we developed a public interest standard, a whole system of regulated, mixed private-public enterprise approaches to this with a universal service standard as part of the compact. And the government systems that rose up out of that, you know, they’re expensive, they’re inefficient, they didn’t always produce...but they basically built the infrastructure that allowed for this post-modern industrialization...re-industrialization in the United States through the computer industry, the information industry, telecommunications industry...until recently, we kind of lost our way grip. But, for 50 years, it was a pretty good system.

Now, oil is just a funny thing because, it is a utility. If you go to the gas pump, you drive a car, you know, you can’t get out of your relationship with gasoline. We don’t approach it with a public interest standard in mind.

[00:47:38:22] Do you think energy is a Winston Churchill proposition? We will do the right thing after we have exhausted all other options?

It seems you are saying there will be crisis that will force change. Whether that’s a crisis of morality or availability.

[00:47:52:22] Maybe. I mean, I was on a panel last night with  the former president of Shell USA. And he...we were having a conversation similar to this, and I said, ‘I don’t see where the change comes from unless it’s a crisis that’s really...you know, large scale.’

When we got 9/11, we got the Department of Homeland Security. Now, I’m not sure the Department of Homeland Security is better than what we had before. But, there was a reorganization of federal authority, and certainly more powerful than it was before.

And he was advocating for a single, Federal Reserve-inspired agency that would consolidate the 13 cabinet offices that now regulate the oil and gas industry and the 25 different...you know, that there would be like a quasi...an SEC, Federal Reserve-inspired, non-political, independent regulatory agency that would be...that would govern energy and environmental regulation around energy in one strong shop in part to actually match the potential of the regulated corporations.

Now, it’s interesting that someone like him would conceive of such of a solution. But, as you say, it’s very hard to imagine where the politics for that come from unless there is a ginormous crisis.

[00:49:04:06] Is this the Gilded Age all over again?

[00:49:09:06] Yeah. Yeah. And, the oil industry is creating these Behemoths because of the sheer scale of profitability that that utility function creates.

I mean, ExxonMobil is the largest corporation on the Fortune 500 list. Two of the other top five are oil companies: Chevron and Conoco. I mean, who...who thinks about Conoco every day.

Chevron is, I think, third or fourth. And ExxonMobil’s revenues are twice as great as Chevron’s. And that’s just within the top five of the Fortune 500. So, just putting your mind around the scale of these institutions takes some doing. And, all of that flows into our regulatory system and our political system.

[00:49:46:18] What ended the Gilded Age? A scale that shocked the conscience, from which there arose a progressivism that matched the scale of the shock?

[00:49:53:18] Yeah. We have that shock in the banking and the Wall Street system and we got Dodd-Frank and maybe some revival of Glass-Steagall. And there will still be a contest between regulators and the banks but...at least we’re having the right conversation about ‘too big to fail’ and systemic risk.

In the oil industry, we’re not. So, the question is, again, what kind of a shock would create...you wouldn’t necessarily want to live through that crisis. But, I think it’s likely over the next 20 years that there will be multiple catastrophic environmental accidents. And some of them will be very vivid north the Arctic Circle. We’re going to have a big wreck up there. And, it’s going to be ugly. And, I don’t know whether that will galvanize the majorities in the lower 48 [states]. Fracking, also, I don’t think is a story that’s finished, yet.

[00:50:51:16] It does seem, in how we think about governance, there is a fundamental dilution of the idea of regulation. Does this obtain in oil, as in banking?

[00:50:58:16] It does. And part of, of course, what you see in banking that you would also see in energy and that was true in the Department of the Interior when you’d look at the specific regulatory regimes that surrounded Gulf deep water drilling in the years leading up to the Deepwater Horizon accident—just read the national commission report—is that federal civil service is just not up to overseeing the degree of complexity and wealth that it is charged to oversee. I mean, it just doesn’t have the capacity to keep up with the derivatives traders and the...speed algorithm writers on Wall Street and it doesn’t have the capacity to keep up with the degree of complex engineering and interdisciplinary project management that’s going on on these off-shore oil platforms.

And, if you did have the human capacity, industry would immediately hire it.

[00:51:52:01] What of this argument, because regulators do not understand the specifics, therefore there can be no regulation?

[00:51:59:01] Right. Well, I think what’s realistic, you know, if were King, would be to identify those utility functions that are essential to the national economy, to society, to an equal, just and accessible economy and ring-fence those and force the corporations out of risk profiles in those areas and then manage the risk profiles without any too-big-too-fail institutions and without any catastrophic risk on the periphery of those core utility functions.

The problem, obviously, in Wall Street was that we mixed our deposit banking system with, you know, a bet-the-company, global derivatives, speed, algorithm-writing financial system. And, there’s no reason why we should do that. If...Citigroup is prepared to provide retail deposit banking and lending…commercial lending services, without intermingling its viability as an institution with that side of the house, so its back to Glass-Steagall there.

And, there’s an analogy in the oil industry, which is, we should determine what is the utility function in our economy, ring-fence that, regulate it carefully and, if we have to exclude environmentally risky activity in the continental United States, we should evaluate what the costs of excluding that are. But, we shouldn’t kid ourselves into thinking that we’re going to be able provide oversight in these frontier environments that’s going to be meaningful to these companies. Either we accept the fact that they’re self-regulating out of fear of failure because of the costs they would pay—the $20 Billion fine—either we accept that as the risk equation we’re going to undertake with some relatively light oversight or we ban the activity.

We do both right now. You know, we’re not really sure. We both ban it and we lightly regulate.

—End of Part Five—

GWorks Interviews: Steve Coll

to Part One: An Age of Limits & Change

Private Empire: ExxonMobil & American Power

and how to write about a crucial resource,

a reticent corporation and what they say

about America’s place in the world.

to Part Two: Chad: A Basic Dilemma

ExxonMobil’s search for oil

in increasingly unstable environments

and the challenges this poses to the

way ExxonMobil does business.

to Part Three: Standard Bearers

How ExxonMobil’s roots in Standard Oil

and the Rockefeller family affect its present and future.

to Part Four: Coherence

ExxonMobil’s relationship to environmentalism

and government regulation and their place

in a political economy.

to Part Five: Valdez|Exxon

The impact of the 1989 Exxon Valdez

oil spill and the future of energy, energy companies

and American power.

For more interviews,

please visit GWorks Interviews

EDITOR’S NOTES

GWorks Interviews: Steve Coll was filmed Tuesday 26 June 2012 in the offices of New America Foundation in the District of Columbia. GWorks would like to thank Mr Coll for his generous participation and Victoria Collins for her work to make this interview happen.

Photo: Book Cover: Private Empire: ExxonMobil & American Power. Courtesy The Penguin Press.

Photo: Steve Coll. Lauren Shay Lavin. Courtesy The Penguin Press.

1 Steve Coll recently resigned as President and CEO of New America Foundation, where he will remain as a Senior Fellow. Twice a Pulitzer Prize winning author—once for explanatory journalism; once for Ghost Wars: The Secret History of the CIA, Afghanistan & bin Laden, From the Soviet Invasion to September 10, 2001—, Mr Coll is the author of eight books on the oil industry; the telecommunications industry; financial regulation; South East Asia; Osama bin Laden; the Central Intelligence Agency; and Afghanistan. He covered foreign affairs for and was Senior Editor and Managing Editor at The Washington Post. He is a Staff Writer for The New Yorker.

2 To be clear, the ‘$20 Billion fine’ refers not to ExxonMobil but to the amount British Petroleum agreed to set aside after meeting with President Barack Obama and in contemplation of claims from the 2010 Deepwater Horizon spill.

GWorks Interviews is a series dedicated to exploring governance issues of interest with persons given to thinking about and having relevant experience. GWorks invites a GWorks Interviewee to respond in depth to questions. GWorks does not edit the substance of what an interviewee says. GWorks edits GWorks Interviews only for editorial and technical considerations including style, length and productions issues. Fore more, please visit GWorks Interviews.