Crude World (20 page)

Alekperov, at the front of the room, spent much of his time reading a company brochure. When he wasn’t doing that, he fiddled with a fountain pen; he spoke only once. After a perfunctory vote to approve
everything that had been outlined by the management, the meeting was wrapped up with final words from Valery Grayfer, chairman of the board but far lesser in wealth and status than Alekperov. “I thank you all, dear colleagues,” the gray-haired Grayfer said meekly. “Our work is finished today.” The meeting had lasted for less than an hour.

Shows of this sort are common at board meetings. Particularly in the oil world, CEOs have for the past century been especially strong-willed, accustomed to running things with minimal oversight or interference from their boards (the members of which the CEOs usually handpick). So long as company executives are sustaining or expanding profits, boards will give a nod to almost anything that comes up in their meetings, including exorbitant compensation packages. (Exxon’s board did not blink as Lee Raymond walked away with that $686 million in his CEO years.) Spirited arguments about oil pollution, human rights violations or corruption in the countries where contracts are signed will perhaps be made by dissident shareholders who grab a microphone at an annual shareholders’ meeting, but that’s usually it. Board meetings are intended to ratify the status quo, not disturb it.

A look at board membership helps reveal why. In 1991 Condoleezza Rice joined the Chevron board. She had worked as a Russian expert on the National Security Council under President George H. W. Bush and at the time of her Chevron appointment was a professor at Stanford University. Just thirty-six years old, she had almost no experience in the financial world. But she had political connections. Shortly after joining the board, Rice traveled to Kazakhstan to help Chevron win a slice of the multibillion-dollar contracts being negotiated there. Chevron, in addition to paying Rice $60,000 a year for her part-time efforts and awarding her several hundred thousand dollars in stock, even named a supertanker after her (though the S.S.
Condoleezza Rice
was quietly renamed when its namesake became President George W. Bush’s national security adviser).

Today, Chevron’s board, like the boards of its rivals, consists of a friendly group of establishmentarians from the business, political, military and academic sectors. And they are drawn from both sides of the mainstream political spectrum. Until President-elect Barack Obama
named him as national security adviser, retired General James L. Jones was on Chevron’s board. Like Rice, Jones severed his corporate ties to serve in the White House. That doesn’t imply a severing of sympathies or interests. Supportive of business as usual when they were on the board, neither Rice nor Jones showed a significant change of heart when they returned to government service. For a corporation, the only thing better than having a former White House official on its board is having a future official on it.

The board meeting I attended was a private vaudeville. The public vaudeville occurs at times of high gasoline prices, when Americans join Nigerians and Angolans in beseeching oil companies to sacrifice profits for the public good.

The script sounds serious. Inundated with pleas for relief at the gas pump, the companies respond that they are investing in exploration and doing everything they can to bring cheaper gasoline to the marketplace. A refrain is heard from the boardrooms in Houston and Dallas:
We are your friend
. As prices soared to ever-higher levels in recent years, industry advertisements in the
New York Times
and other newspapers offered reassurances that, as an Exxon ad put it, “Today’s energy industry earnings are important for meeting tomorrow’s energy needs.” In 2006 Exxon spent $19.9 billion exploring for oil and updating its refining systems—an impressive number that was relentlessly promoted. The same year, without any mention in its self-lauding publicity, Exxon dispensed more than $35 billion on dividends and stock buy-backs. The bulk of its windfall went into the hands of the company’s owners.

This is completely normal in the business world. Apple, enjoying record earnings from its iPods, did not respond by giving away the wonderful little machines. It continued to sell them for as much as the hungry market would bear. Nobody expected that Steve Jobs would forgo his profits or invest them in socially useful projects. But when oil firms began to clock quarterly profits in the billions and then tens of billions, the public and politicians clamored for these companies to
behave like nonprofits. The oil companies, preferring PR to honesty, did their best to portray themselves as public-minded.

The truth lay elsewhere. The chartered purpose of American oil companies is not to supply consumers with cheap gas but to make as much money as they can by selling their product at the highest possible price. It is reasonable to ask them to obey the law, but it’s a different thing to ask them to have a soul and care about our pain. On occasion a CEO might admit the truth, but that’s only because he wandered from the script. This happened on a morning in 2006 when Rex Tillerson, who succeeded Lee Raymond as Exxon’s chief executive, was interviewed on the
Today
show. Softball questions were the norm on this show, and Tillerson certainly intended to polish Exxon’s image, but the host, Matt Lauer, threw a curveball.

“Would ExxonMobil be willing to lower profits over the summer to help out in this time of need and crisis?” Lauer asked.

“We work for the shareholder,” Tillerson said. “And the investors who own our stock are over two million Americans. A lot of pension plans, a lot of teacher retirement plans, and our job is to go out and make the most money for those people so their pensions are secure, so that they see the benefits of our work.”

Lauer wasn’t satisfied.

“That’s a no?” he asked.

“We’re in the business to make money,” Tillerson replied.

If the industry’s critics were hoping for a paradigm-changing chief executive, John Browne seemed to answer their dreams. A gregarious physicist who loved cigars, art and opera, Browne became chief executive of British Petroleum in 1995 and started a revolution. Everything Big Oil had done wrong for the past century, BP would do right, he vowed. As Exxon continued to fund pseudoscientific groups that claimed global warming was a hoax, Browne promised to cut BP’s carbon emissions and spoke in favor of the Kyoto Protocol, which most oil companies vehemently opposed due to the expected onset of carbon caps and taxes. The American Petroleum Institute, a lobbying arm of
the industry, sourly complained to Browne that he had “left the church.”

He was making a new one, launching a $200 million rebranding campaign in which British Petroleum’s name was shortened to “BP” and its logo became a green-and-yellow sun—a happy friend of the earth. The firm ran TV commercials that extolled its solar and biofuels programs and often used the slogan “Beyond petroleum.” Of course, BP continued to depend on fossil-fuel revenues, so its ads acknowledged the step-by-step nature of corporate change with the catch-phrase “It’s a start.” In essence, BP asked the public to trust its sincerity when it promised to be as green and conscientious and forward-looking as possible.

Skeptics were naturally concerned that BP was engaged not in revolution but in greenwashing—using climate-friendly PR to make the public forget climate-unfriendly realities. For instance, while the company announced that it was best friends with Mother Nature, it supported efforts to allow drilling in Alaska’s Arctic National Wildlife Refuge. Greenpeace mockingly gave Browne an award for “Best Impression of an Environmentalist,” but many environmentalists quietly hoped that he meant what he was saying.

It didn’t take long for them to get an answer.

In 2005, a BP refinery in Texas suffered a massive explosion that killed fifteen workers and injured hundreds. Investigations revealed that BP had cut the refinery’s capital budget by 25 percent. Broken or outdated equipment had not been replaced, while worker training and safety had been ignored. Months before the explosion, the refinery had commissioned an independent report that had warned, prophetically, of “a series of catastrophic events.” The report’s authors wrote, “We have never seen a site where the notion ‘I could die today’ was so real.” Even though BP earned a record $22.3 billion profit in 2004, the refinery ran on a catastrophe-beckoning budget. A BP official admitted that the disaster had been caused by “incompetence, high tolerance of non-compliance, inadequate maintenance and investments.” BP set aside $1.6 billion to settle lawsuits related to the explosion. In the twenty-first century, a Dickensian tale of greed and callousness had unfolded at
a facility owned by a firm proclaiming itself the most conscientious its industry had known.

This was not the end. A year later, a BP pipeline dumped more than 200,000 gallons onto the North Slope region of Alaska’s coast—the largest spill ever on the slope. BP, ordered by regulators to inspect the entire pipeline, found that corrosion had reduced the pipeline’s steel in some places to the thickness of a beer can’s shell. The pipeline was closed for urgent repairs. Follow-up investigations found that the company had cut costs by forgoing maintenance and updates. As one newspaper wryly noted, “For a company that claims to have moved ‘beyond petroleum,’ BP has managed to spill an awful lot of it onto the tundra in Alaska.”

BP was turning into an example of iniquity rather than virtue. A few months after the spill, BP traders were indicted for fixing propane prices. The indictment quoted a BP trader as saying, in a recorded call, “What we stand to gain is not just that we’d make money out of it, but we would know from thereafter that we can control the market at will.” The indictment said that a dry run had even been conducted by the traders and that the scheme, which raised home heating prices in the winter, had “the knowledge, advice and consent of senior management.”

It became possible to suggest that BP stood for Beyond Parody, except that the firm’s self-impalement was not yet finished.

Lord Browne’s sexual orientation—gay—though not a secret, had not been discussed publicly. In 2002 he began a relationship with Jeff Chevalier, a Canadian student. When the relationship ended, Chevalier asked for $600,000 to soothe the hurt. Browne refused, Chevalier went to a tabloid and Browne sought an injunction. Browne lost the case and, problematically, lied in his testimony, claiming that he’d met Chevalier while exercising in a park, rather than through suitedandbooted.com, a gay escort Web site on which Chevalier’s services were advertised. As the presses rolled, Browne resigned. Booted, indeed.

Browne was a torn oilman. He probably would have liked to make BP clean, green and safe, but he needed to satisfy the market, too. “Corporations have to be responsive to price signals,” he once said. “We are not public service.” This was the sort of remark Wall Street
likes to hear. Yet his cost cutting was a key factor in the explosion and spill. In the end, Browne could not make BP a friend of the earth and a friend of the market.

Big Oil is getting the reward it deserves: after more than a century of power and indecency, it is shrinking.

Until the 1970s, Western companies controlled most of the world’s oil and gas. Today, thanks to nationalism and nationalization, Western firms control less than 15 percent of world reserves, and their grip erodes further every day. The bulk is now in the hands of state-controlled companies like Saudi Aramco, Gazprom, Petróleos de Venezuela, National Iranian Oil Company and China National Petroleum Corporation. Exxon, the largest oil company in America, does not even rank in the top ten globally in terms of the oil and gas reserves it controls. State-owned firms, known as “national oil companies,” now set the rules; once-mighty Western companies are being turned into contractors rather than owners. Unfortunately, this is not necessarily an improvement.

With noble exceptions in Norway, Saudi Arabia and Brazil, state-controlled energy companies, though not obliged to follow the fiduciary logic of
Dodge v. Ford Motor Co.
, tend to do as much or more harm than their profit-seeking counterparts on the New York Stock Exchange. The dirtiest oil facilities I have seen were run by state-owned Petroecuador, a toxic example of how a poor government cuts corners on environmental and worker safety. Even Petróleos de Venezuela, run by Hugo Chávez’s leftist regime, has an unenviable environmental record, because much of its revenues go into the government’s social programs, some of which are useful, others of which are wastes of money. Angola’s state-controlled oil company, Sonangol, has been used as a piggy bank by corrupt officials.

The ethical practices of Exxon and Chevron might even look good when compared with those of Russia’s Gazprom or China’s CNPC, which have become major global players in just the last decade. Although it’s hard to imagine the energy business becoming more competitive, politicized or secretive, that’s happening as global power
is defined by control of energy reserves. The U.S. government prohibits American firms from operating in Sudan, whose regime is responsible for genocide in Darfur, but China is delighted to send its companies there. Sudan’s oil is now extracted mainly by Chinese firms that are not restricted by laws like the Foreign Corrupt Practices Act. Although Western firms were hardly transparent about their operations, state-controlled companies tend to be far more opaque. If the profit motive led to unethical behavior by Western firms, imperatives of national glory (or national survival) can be worse incentives for state-controlled ones.

It is comforting to think of history as progress, of life getting better, maybe not every year but over the course of time. If that were so, the future would be dominated by oil and gas companies that shun bribery, that genuinely care about the communities and countries they operate in, that refuse to deal with dictators and thieves. Yet the threat is that the future will belong to state-controlled corporations whose behavior may make us nostalgic for the trifling days of cheating on royalties in West Texas.