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.
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.