Book: Private Empire: ExxonMobil and American Power

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Nine

 

“Real Men—They Discover Oil”

 

Lee Raymond had always believed that he could rationalize the $81 billion Exxon paid for Mobil by driving operating costs down enough to justify the combination for shareholders. Assessing the true long-term value of Mobil’s sprawling oil and gas assets was difficult, however—and that would determine the strategic payoff from the merger. The long-term value of Mobil’s holdings would be a function of many factors—not just how much oil and gas actually lay in the ground when all the wells were drilled, but also the evolution of global markets, geopolitics, and the advent of new technologies that might unlock value from reserves previously thought to be worthless. After the merger, Exxon’s geologists, engineers, and marketing specialists tore through Mobil’s business divisions on a quest to understand the assets they had taken on. Gradually, they came to appreciate the astonishing value of one asset they had not comprehended adequately at the time of the merger deal: Qatar’s North field.

Raymond would eventually quip in private that the North field alone was probably valuable enough to justify the full Mobil merger price, and that everything else that came with the company—all its oil and gas fields in Africa, Asia, and the former Soviet Union—were a bonus. That was an exaggeration, intended in jest, and yet “it would be fair to say that we did not totally appreciate what the scale of it might be,” Raymond recalled.

Qatar protruded into the Persian Gulf from the desert landmass of Saudi Arabia; on maps, it looked like a small spruce tree. It was a featureless, flat, barren, sandy, humid kingdom without oases or other natural greenery. At the turn of the twentieth century, Qatar’s native population of impoverished fishermen, pearl divers, and Bedouin Arab herdsmen numbered perhaps five or ten thousand. Even by comparison with the other sparse, isolated emirates of the Arabian peninsula—Saudi Arabia, Kuwait, Bahrain, Oman, and the United Arab Emirates—Qatar had been a backwater. A single family, the Al-Thanis, had ruled the peninsula since 1825. Japan discovered a method for synthesizing pearls during the 1930s, which caused a crash in the global pearl market, leaving Qatar even more isolated and poor. Around the same time, the emirate’s Persian Gulf neighbors discovered and pumped oil, but Qatar lagged. It had been endowed with more natural gas than oil and it lacked the leadership and skills to exploit either profitably. The Al-Thanis feuded among themselves; in 1995, one of the king’s sons, Hamid Bin Khalifa Al-Thani, overthrew his father bloodlessly. As late as 1990, the emirate remained a ramshackle, underdeveloped place, whereas in oil-engorged Saudi Arabia booming revenue after the 1970s paid for California-style freeways, industrial ports, airports, skyscrapers, ornate princely palaces, and shopping malls.

Geologists knew that Qatar’s North field held natural gas—lots and lots of gas. It held so much gas that it was not easy to estimate the full amount accurately—800 trillion square feet eventually became a common estimate, the equivalent of more than 130 billion barrels of oil. By comparison, Mobil’s highly lucrative gas field in Aceh, Indonesia, held only about 17 trillion square feet, equivalent to just under 3 billion barrels of oil. For all practical purposes, the size of the North field was infinite; it would last for generations, probably beyond the point when fossil fuels would be a dominant source of energy supply for the world economy. After the Mobil merger, Lee Raymond organized a natural gas task force. The paradox its members confronted was that while the North field’s abundance was assured, little had been done to develop it profitably. Why had other corporations failed, and what might ExxonMobil do differently?

The natural gas industry differed from the oil business in that, during the postwar period, the main challenge had not typically been the search for new fields. The problem instead was to profitably exploit the largest natural gas reserves that were known to exist but were geographically “stranded,” that is, physically disconnected from commercial markets. Pressure and heat formed and trapped natural gas beneath the ground by processes similar to those that formed oil. Much of the world’s gas was mixed up with, or “associated” with, oil deposits. Qatar’s North field was a mother lode of “nonassociated” or freestanding natural gas. There were a handful of proven, concentrated areas of large nonassociated gas reserves in the world: in Qatar, Iran, and Russia. The latter two could use some of their gas domestically, and Russia exported gas to Eastern Europe, where it was a critical source of heat and electricity. Qatar’s gas, on the other hand, was sitting thousands of miles from any customers that might burn it. It would be prohibitively expensive and politically impractical to connect Qatari gas by pipeline to large population centers in Europe or Asia.

As an energy source, gas had many attractions. It could heat homes, cook food, power turbines to produce electricity, fuel automobiles if the cars were configured properly, and be used to make chemicals and other industrial products. Gas also emitted considerably fewer greenhouse gases than oil or coal when burned. Qatar’s case illustrated one of gas’s major liabilities, however: Its form made it difficult to transport. Oil was a remarkably easy fuel to move around. It sloshed easily into storage tanks; it streamed cooperatively down pipelines; it poured smoothly into supertanker holding bins; it poured out again into refinery pipelines; it flowed out the other side of a refinery as gasoline; and it spilled into tanker trucks for delivery to retail stations. Gravity was oil’s friend. The natural tendency of gas, on the other hand, was to dissipate into the air; gravity was its enemy. Engineers could design systems to transport gas by pipeline easily enough, but for many decades that had been the only practical way to move it from a field where the gas was pumped out of the ground to facilities where it was burned. This meant gas-fired electricity plants, for example, had to be located within economical piping distance of a gas source, whereas an oil-fired plant could use oil from halfway around the world.

For Qatar, rich in gas but bereft of oil, in the first decades after the Second World War, all this had amounted to an equation that kept the emirate locked in poverty. The only semimodernizing economies within easy pipe distance—Saudi Arabia, Iran, and Iraq—had plenty of their own gas. Qatar also lacked even the basics of a manufacturing economy of its own, such as freshwater and a skilled workforce.

It had been known since the early twentieth century that, as a matter of chemistry, natural gas could be converted into a liquid and then, after transport, be reconverted into a gas for burning. This process might solve the problem of a stranded-gas holder like Qatar: Its gas could be turned into liquid, loaded into oceangoing tankers, shipped to populated markets, and then reconverted into gas for commercial use. The technology to accomplish this conversion and reconversion at a large scale was unwieldy, however. Britain and Algeria signed the first major commercial liquefied natural gas contract in 1961. A huge refrigeration plant in Algeria cooled that country’s stranded gas into a liquid; ships carried the liquid gas to Britain; and a reconversion plant turned it back into a fuel for electricity. Indonesia soon moved into the L.N.G. industry with energy-starved Japan as a customer; Mobil became the operating partner in Aceh. For years the profitability of Mobil’s L.N.G. business in Aceh was an exceptional success, however. It relied, effectively, on Japan and South Korea, which were industrializing very rapidly but had few hydrocarbons of their own; they were willing to pay high prices for secure L.N.G. supplies. The technology Mobil employed to fill these contracts was very costly, and it seemed that it would be some time before those methods would be economical enough to deploy worldwide.

Exxon had a troubled history in the L.N.G. business before the Mobil merger. The corporation had built, relatively early on, an L.N.G. plant in Libya and a reconversion terminal at La Spezia, Italy. The Libyan plant proved to be balky and trouble-prone. In the early 1970s, Exxon’s Italian subsidiary became embroiled in scandal when the unit’s president, Vincenzo Cazzaniga, was accused of setting up a web of hidden bank accounts to funnel almost $50 million of Exxon’s revenue to Italian political parties—including a small amount to the country’s Communist Party—to win tax and other favors. Exxon eventually entered into a consent decree with the Securities and Exchange Commission over the matter; the affair soured the corporation’s executives on their Italian subsidiary, and their L.N.G. investments languished.

Mobil had stumbled into its gas partnership with Qatar during the 1990s. A substantial number of the oil industry’s big success stories were the product of luck, not brains. Oil executives had flown in and out of Qatar for years, but none of them could think of how to commercialize the North field. Royal Dutch Shell led the global L.N.G. business by the 1990s. Mobil was a second-tier but significant player, because of Aceh. Shell negotiated access to the North field but pulled out in a dispute over financial terms. British Petroleum and the French giant Total moved in afterward and negotiated to build an initial pair of L.N.G. “trains,” the industry term used to describe the giant refrigeration complexes that converted gas into liquid form for sea transport. The consortium struggled with some of the technical challenges; British Petroleum pulled out. “They had it on a golden plate, but they rejected it,” Abdullah Bin Hamad Al-Attiyah, Qatar’s energy minister, remembered. The Qataris realized there was hardly anyone else in the global oil industry but Mobil who could do the work they wanted. “They came immediately,” recalled Al-Attiyah. Lou Noto slipped into the Total deal as a partner, but he also won the exclusive right to build future Qatari gas trains. He structured a long-term sales contract for Qatari gas with South Korea as the customer and handed off the whole project to Lee Raymond at the time of the merger.

The North field challenge played to Exxon’s strengths: budget- and performance-conscious management of gargantuan engineering projects, combined with profit-maximizing financial planning. In Mobil’s L.N.G. group Exxon also acquired technical expertise it otherwise lacked. After 2000, ExxonMobil committed to multibillion-dollar investments to develop huge new L.N.G. gas trains from the North field as an exclusive 25 percent partner with Qatar Petroleum. Its engineers found that the emirate’s natural gas was of unusually malleable quality—relatively easy to liquefy or to process to separate out other industrial products. This made it cheap to produce. The projects Raymond authorized in Qatar were designed to be profitable if the natural gas they produced sold at just three dollars per thousand cubic feet. Within a few years, prices soared as high as fifteen dollars. ExxonMobil’s direct gas sales from Qatar took place under long-term contracts, so the corporation did not reap all of the benefit of this windfall on spot markets, but its gas-derived profits soared nonetheless. Also, the corporation’s share of profits from auxiliary products manufactured in Qatar, referred to as gas liquids, would soon exceed $1 billion annually. Only ExxonMobil, Raymond boasted to Wall Street analysts, had figured out how to unlock the value of Qatar’s bounty.

Gas figured increasingly in the search by ExxonMobil to replace the oil and gas reserves it pumped and sold each year. The sheer scale of ExxonMobil’s reserve replacement challenge—its need to find and book oil and gas in equivalent or greater amounts to that which it pumped out and sold—now meant that the corporation “had to find a Conoco every year,” as Raymond put it. (In 2001, ConocoPhillips had worldwide revenues of almost $40 billion.) The scale problem was genuine, but it also sounded more and more like an excuse—nobody had forced Exxon and Mobil to merge, and Raymond had advertised the combination as full of strategic advantage. In any event, ExxonMobil’s total portfolio was shifting away from oil toward gas. In 2002, the corporation pumped slightly less oil than it did in 2001; in the first half of 2003, oil production fell slightly again. For Wall Street, ExxonMobil counted oil and gas reserves as a single number, as “oil equivalent barrels.” Analysts converted gas reserves to equivalent barrels of oil with formulas accounting for energy content and price. Yet the truth was that gas was less profitable than oil, equivalent barrel by equivalent barrel. Oil prices averaged about 30 percent more than natural gas on an energy equivalent basis after 1995, and the United States Energy Information Agency projected that this gap would widen into the future. Gas production could be more costly. Customer markets were less flexible, less interconnected. Yet because of resource nationalism and the depletion of accessible supplies in the United States, oil was harder and harder for ExxonMobil to own. The slow migration of ExxonMobil’s reserves from oil to gas did not show up clearly in the numbers the corporation reported to Wall Street—and certainly not in the numbers it emphasized in public and investor presentations—but over time, the higher proportion of gas investments could threaten the corporation’s impressive record of profitability.

Raymond lobbied in Washington to ensure that the United States had enough big import terminals to handle liquefied natural gas ships. Forecasts by the Bush administration’s analysts at the nonpartisan Energy Information Agency suggested that the United States had only about twenty years’ worth of natural gas supply left under its soil, government analysts then believed. America would soon need to import gas just as it already imported oil. In the United States, in 2003, gas supplied about a quarter of the country’s energy supply, to generate electricity, heat water and homes, and fuel industrial processes. ExxonMobil supported a National Petroleum Council study in 2003 that made recommendations to the Bush administration to expand the industry.

Raymond had developed a friendship with Federal Reserve chairman Alan Greenspan. The men had gotten to know each other while serving together briefly on the J.P. Morgan board of directors, and then stayed in touch. Raymond impressed his analysis about natural gas on the Federal Reserve chairman: The American economy needed planning to build the facilities to import and reconvert liquefied natural gas in the future. ExxonMobil’s economic forecasters in corporate planning reported to the Management Committee that they expected the global L.N.G. market to double by 2010. ExxonMobil was busy investing in that market worldwide. The global sales force in the corporation’s gas marketing division finalized a contract to ship two billion cubic feet of liquefied gas from Qatar into the United Kingdom, for example. Raymond educated Greenspan about the coming shape of the emerging global L.N.G. market. Without telling Raymond in advance that he intended to go public, Greenspan testified before Congress, highlighting America’s coming gas deficit as a strategic issue for the American economy. Preparing for an L.N.G. world would require construction of large import terminals that carried environmental and safety risks, but the thrust of Greenspan’s testimony was that America’s gas deficits would demand such risk taking. Greenspan’s friendship with Raymond was not well known, but one analyst aware of the relationship remembered reading Greenspan’s unusual testimony about natural gas markets and thinking, “He’s giving Raymond’s testimony!”

As it turned out, the natural gas market in the United States was one of the few industry subjects that Lee Raymond had misjudged. “Gas production has peaked in North America,” he declared at an industry conference in 2003. America’s only large, unexploited deposits of gas were in Alaska, stranded from commercial markets in the Lower 48 for lack of a pipeline. Even if a pipeline were built, Raymond continued, he expected total American gas production to decline, “unless there’s some huge find that nobody has any idea where it would be.” In fact, such a find, of sorts, was coming by the decade’s end, and it would transform ExxonMobil’s strategy within the United States. Lee Raymond just did not see it coming. Hardly anyone else did, either.

Abdullah Bin Abdul-Aziz, the crown prince of Saudi Arabia, was in his mid-seventies at the time of the ExxonMobil merger. He moved among manicured, well-watered palace complexes the size of some college campuses. There was one palace in Riyadh, the Saudi capital, and another in Jeddah, and another in the desert where Abdullah bred Arabian horses. The prince kept an unusual schedule. He slept in two four-hour shifts, one between 9 p.m. and 1 a.m. and a second between 8 a.m. and noon. In the hours between he swam for exercise and did office work. He was a goateed, barrel-chested man with a serious and penetrating gaze.

He had much to contemplate. His older half brother, King Fahd, had been incapacitated by a stroke in 1995. The Saudi royal family was too decorous and divided to remove Fahd from power formally, despite his incapacitation, so Abdullah ran the country as de facto king, but he was constrained by shifting family and ministerial factions. Abdullah felt that his kingdom needed to modernize its economy and its education system. Saudi Arabia imported too much of its skilled labor from Asia and Europe while employing its native sons in do-nothing government bureaucracies and religious institutions. The state oil company, Saudi Aramco, which had been owned in part by Exxon and Mobil before nationalization during the 1970s, was so bloated that it employed about three quarters as many people to operate within the kingdom as ExxonMobil did to operate worldwide. The Saudi regime needed to create jobs for its restless population of young men, but even with the inefficiencies that resulted, Saudi Aramco was a rare bright spot in the Saudi economy in that many of its homegrown employees and engineers were professionals who could work to international standards. In many other bureaucracies in the kingdom, too many Saudis lacked the skills and leadership to compete in the global economy. If the royal family did not do something to change this before its oil was depleted, then a common fatalistic aphorism among the Saudi elite—We started on camels; we acquired jets; we will return to camels—might well be borne out.

By 1998, seeing what Qatar had undertaken with its massive gas-fed industrial complexes, Abdullah decided to leapfrog beyond Saudi Arabia’s dependence on oil sales into a more sustainable, job-creating future. The key to his thinking was natural gas.

That year, in the autumn, while on his first state visit to America as regent, Abdullah invited the chief executives of the seven largest American and European oil companies to the McLean, Virginia, mansion of the cigar-chomping Saudi ambassador to Washington, Prince Bandar Bin Sultan. Lee Raymond and Lou Noto attended. It was awkward for them because at the time they were in the advanced stages of merger discussions known only to them and a few dozen others involved in the talks. They agreed to act as if nothing unusual was going on.

It was extraordinary for all of the executives of the largest oil corporations to gather in one place with the head of state of an oil-rich country. In an Arabian-style diwan setting of cushioned chairs and couches, overlooking the Potomac River, the meeting began stiffly; it suggested the formal, tensely competitive atmosphere of a meeting of the heads of competitive crime families trying to divide up casino building rights. Abdullah invited the oil chiefs to speak about how they might work with Saudi Arabia’s natural gas resources if they were invited back to the kingdom as investors for the first time in more than two decades. This was an enormous opportunity for all of the executives present—Abdullah’s gas initiative could not make up for the economic pain of oil nationalization, but it offered a rare chance to reenter the kingdom with a big play, and who knew where that might lead.

Raymond began. He talked about the size of Saudi Arabia’s presumed gas reserves and outlined how Exxon might be able to exploit them. Each of the other executives spoke similarly until the circle came around to Noto: Little had changed since Mobil was the smallest partner in Aramco, he joked. He was still the last in line.

Saudi foreign minister Saud Al-Faisal, an enthusiast of Abdullah’s plan, sat quietly in the room; he was a favorite of Raymond’s and other American oil executives because he was pragmatic, competent, comfortable in the West, and interested in forging new pathways to industrial modernization at home. Also present was the kingdom’s oil minster, Ali Al-Naimi, a nonroyal who had ascended through Saudi Aramco’s ranks. Al-Naimi looked on Abdullah’s outreach to international corporations with suspicion; the initiative could encroach on the prerogatives of Aramco, which Al-Naimi oversaw. As Raymond, Noto, and other chief executives spoke, Al-Naimi “looked like he had eaten a sour lemon,” one person who attended recalled.

To Raymond, there appeared to be very few places on the planet with enough oil and gas resources to make a material difference to the revenue and profit picture of Exxon. Chad was a welcome play, but it was hardly an “elephant,” as exploration and production geologists called huge oil and gas fields. Raymond could count on one hand the countries with enough proven oil and gas reserves to lift Exxon’s equity holdings and address its reserve replacement challenges in a serious way: Russia, Iran, Iraq, and Saudi Arabia. Two of them—Iran and Iraq—were entirely closed off to Western investors. If Saudi Arabia was even hinting at the possibility of reopening its reserves—even if it involved only natural gas, for now—Exxon had to try to make it work, Raymond believed. The loss of Saudi oil when the royal family nationalized Aramco in 1975 had been a blow to Exxon’s oil and gas production volumes from which it had never recovered. The expropriation had followed repeated and phlegmatic negotiations in which Exxon’s Clifton C. Garvin Jr. had played a leading role. Not for the first or last time, the Saudis had exasperated an American negotiator with their opaqueness, delays, and changing terms: “I have to say I can’t figure out what they want,” Garvin declared at one stage. “We keep leaving pieces of paper detailing how we can work with them, and they keep asking for more talks.” Raymond felt there was little choice, however, but to try again.

Abdullah’s vision was to allow foreign corporations such as Exxon to develop freestanding gas fields in exchange for their commitment to use the gas to fuel industrial projects such as water desalination plants, electricity generation, and petrochemical manufacturing. These multibillion-dollar projects would create skilled jobs for Saudis while addressing chronic infrastructure and electricity problems in the kingdom. The projects would also allow Saudi Arabia to stop wasting its oil on electricity generation. Most of the world’s economies had stopped burning fuel oil to make electricity decades earlier; it was a dirty method and economically irrational, because the oil fetched greater sums at refineries where it could be made into gasoline or jet fuel. Saudi Arabia still burned off an astounding 200,000 to 300,000 barrels of oil a day to power its heavily air-conditioned cities, a figure that would soon rise toward 800,000 barrels a day—and that production counted against the kingdom’s quota as a member of the Organization of the Petroleum Exporting Countries cartel. By using natural gas instead, the kingdom would earn more revenue overall. ExxonMobil already operated large, profitable refining and chemical plants in the kingdom that it had agreed years earlier to construct and operate in exchange for preferential access to Saudi crude. With this new natural gas opportunity Lee Raymond could expand and diversify Exxon’s position in Saudi industry.

Saud Al-Faisal led the gas negotiations for Abdullah. They proved, unsurprisingly, to be long and complicated. As they dragged on, September 11 became a factor. The attack and its aftermath sowed U.S.-Saudi relations with mutual resentments and mistrust; at night, in their palaces, Faisal and other senior Saudis tuned in to American satellite news programming, whose presenters and commentators increasingly seemed to them to be engaged in anti-Saudi race baiting. When Al-Faisal visited the White House, Bush administration officials, including Raymond’s friend Cheney, urged the foreign minister to take stronger action in response to evidence that Saudi clerics and businessmen were financing Al Qaeda. Al-Faisal had attended Princeton University; it pained and angered him to be spoken to as if he were some sort of double-dealing international criminal.

Raymond sympathized with Al-Faisal. The ExxonMobil chairman had been visiting Saudi Arabia since the early 1970s and had come to know Al-Faisal well. He shared the Bush administration’s outrage over the September 11 attacks, but increasingly, he felt uneasy about the hard line taken by Cheney. Raymond told colleagues he feared that an American overreaction could destabilize the Persian Gulf region. The Bush administration seemed not to understand, in particular, the importance of the Sunni-Shia sectarian divide, Raymond said. Saudi Arabia’s Sunni royal family lived in deep anxiety about the expansionary ambitions of Iran’s Shia-led revolutionary government. There was a restive Shia population within Saudi Arabia, and Iraq’s people were mostly Shia; if the region were destabilized, Iran might emerge stronger. In any event, after September 11, there seemed to be a widening gap between how the Saudis analyzed the region’s challenges—they placed a strong emphasis on the sectarian issue and Iran—and the way the Bush administration saw them, intently focused as it was on Al Qaeda and global terrorism. As Raymond and his colleagues negotiated for access to Saudi Arabian gas reserves, ExxonMobil found itself straddling the chasm that opened between Washington and the Saudi regime. Its executives believed Al-Faisal to be a reliable friend and partner of the West, but also a realist about the Middle East. As it became clear that the Bush administration intended to invade Iraq, against Saudi advice, Al-Faisal told his anxious ExxonMobil colleagues, “It’s inevitable. There’s nothing I can do.”

Abdullah appointed ExxonMobil as the lead partner in two of the three gas projects he initially approved. Abdullah staged a ceremony in Jeddah for about three hundred people at which the crown prince, resplendent in robes, held court to congratulate the ExxonMobil team: “Mabruk!

Raymond selected Ralph Daniel Nelson, a longtime Mobil executive with extensive experience in the Middle East, as his point man—lead country manager, in the ExxonMobil vernacular—in Riyadh. Nelson was a Naval Academy graduate and former U.S. Marine infantry officer who had served in Vietnam during the late phases of the war. He was a tall, silver-haired, broad-shouldered man. He could handle Raymond’s intimidations and he conformed to Saudi expectations—born of Dallas and other prime-time soap operas relayed by satellite—of what American oil executives should look and sound like. Nelson had years of experience in Qatar and the Gulf region and he knew the natural gas industry from previous work for Mobil. With Raymond behind him, Nelson pressed for deal terms that would produce returns for ExxonMobil of more than 16 percent on capital invested. A successful deal would deliver as much as $15 billion in investment to the kingdom.

Nelson dined monthly with Saud Al-Faisal at the foreign minister’s relatively modest (by the standards of Saudi princes) Riyadh home. Five or six days a week, Nelson and Raymond conferred by telephone about the Saudi project, punctuated by face-to-face meetings in Irving. Nelson grew into a mysterious and somewhat feared figure in ExxonMobil’s executive ranks, by virtue of his unusual access to the chairman; he was the only lead country manager who worked directly for Raymond.

Terrorists struck Saudi Arabia sporadically after the September 11 attacks. Slightly before midnight on a dark Riyadh night in 2003, a car pulled up to the security station of the Al-Hamra Oasis Village, a 404-unit residential compound favored by Western professionals. As the guards began to open the compound’s formidable gate for the car, whose driver they recognized as a resident, an unfamiliar Toyota sedan and GMC Suburban truck turned into the entrance. The vehicles were moving suspiciously fast. The guards scrambled to shut the gate, but were foiled by a spray of bullets shot from the Toyota’s windows. As the guards fell, the cars forced their way into the grounds and proceeded to the swimming pool, where a residents’ party was in progress. Four men armed with AK-47s sprang from the Toyota and mowed down as many guests as they could before continuing to the compound’s villas. The gunmen banged on doors and mercilessly shot those who emerged. “I will kill them all!” one gunman cried.

When they had restored order, officials reported at least thirteen dead and dozens injured. Among those harmed were two ExxonMobil employees and one of their wives, who was pregnant at the time.

Raymond and the Management Committee at headquarters set up a corporate security team to assess the vulnerability of employees and assets worldwide, in light of Al Qaeda’s terrorism. Saudi Arabia was a place of obvious risk. Michael Shanklin, a former marine and Central Intelligence Agency case officer from the Watts neighborhood of Los Angeles, who now worked for ExxonMobil Global Security, traveled to the kingdom. He developed a security plan in consultation with Mohammed Bin Nayef, a powerful royal family member at the Saudi Ministry of the Interior. The local C.I.A. station relayed intelligence that Nelson himself was an Al Qaeda target. Senior executives at Irving proposed evacuating Nelson and the rest of the corporation’s staff in the kingdom; Nelson resisted. “An evacuation will kill our venture potential,” he argued. Although there were fierce internal debates over the question, most of the corporation’s employees remained.

For ExxonMobil, the big question remained whether Saudi Arabia had enough freestanding natural gas to justify the risks to employees. (“Associated” gas, intermingled with oil, was too complicated to produce for the purposes the crown prince had in mind.) ExxonMobil still had libraries full of field data from its time as an Aramco partner, before nationalization. The corporation even employed geologists and engineers who had worked for Aramco in that era. Raymond and other executives polled them and discovered that they were skeptical about Abdullah’s hopes. “Our explorers and these guys who worked in Aramco were very doubtful that there would ever be significant reserves sufficient to really support the kinds of projects” that Crown Prince Abdullah and Foreign Minister Al-Faisal envisioned, Raymond recalled. The massive industrialization they outlined would require “an enormous amount of gas. . . . Our people kept saying, ‘No, it’s not going to be there.’” ExxonMobil’s biggest prospect was a structure called Tukhman in the kingdom’s South Ghawar field. The more the corporation’s geologists scrutinized it, the more doubtful they grew.

Raymond and Nelson eventually advised Al-Faisal that if the kingdom wanted to find enough freestanding gas to fuel the projects it had outlined, the partners would have to move into territories previously set aside for Saudi Aramco. But Abdullah proved unable or unwilling to do this. Instead, “what they wanted to do was build the kinds of projects” Abdullah had proposed “and then find the gas,” Raymond recalled.

“No way,” Raymond told his colleagues. “We are going to end up with some projects where the only financial motivation behind them is to produce the gas—and if the gas isn’t there, then we are just going to end up with a bunch of albatrosses.” For their part, Saudi negotiators felt that the midteens profit margins demanded by ExxonMobil and other corporations were too high and that the Big Oil executives were not willing to take enough risks.

Saud Al-Faisal owned a home in Beverly Hills; one of his neighbors was the actress Drew Barrymore. As the negotiations foundered in 2003, he summoned Raymond and Al-Naimi, the oil minister, to his home.

Raymond announced: “I think I ought to pull out of this deal. There’s not enough gas to drive the process forward—it can’t work this way. You’re asking us to drive an Abrams tank with a Toyota engine.”

Al-Naimi challenged him; Saudi Arabia had plenty of natural gas, he believed, more than enough to fuel profitably the projects Abdullah had in mind. “Lee, I think your people aren’t being very honest with you.” He implied that ExxonMobil’s geologists and executives were underplaying the potential of the deal to gain an advantage while negotiating financial terms.

Raymond exploded. “Ali, you can insult the hell out of me—I don’t care what you say about me. But when you start screwing with my people, that’s another matter.”

He was so hot that they had to call a break. The ExxonMobil team stepped outside on a deck, overlooking Drew Barrymore’s yard. “I wish that hadn’t happened,” Raymond said. “Do you think I overreacted?” he asked. Still, “I couldn’t let him insult my workforce.”

They went back inside; the mood was calmer. But the Saudi gas initiative was officially dead. At a later meeting, Al-Naimi handed Nelson a letter, one he would also give to other consortia members, canceling their rights to negotiate.

Raymond eventually learned that Aramco had actually started drilling in the areas ExxonMobil had evaluated; the Saudis apparently wanted their own evidence about how much gas was really in the ground. Raymond was irate; this is not how partners operated. He blamed Naimi. “If that’s the game, you can count us out,” he told Al-Faisal.

Raymond also wrote to Abdullah to ask if Naimi’s actions truly represented the crown prince’s position some four years after the hopeful initial convening in Virginia. Naimi soon eliminated all doubt by redesigning the project and bidding it out to new corporate partners. The areas ExxonMobil said were dry turned out to be dry. Five years of effort had come to nothing.

Lee Raymond ruled over ExxonMobil in the manner of an emir. During the difficult years of restructuring, he had worked very closely on the Management Committee with two key aides. Harry Longwell, a garrulous southerner, ran the upstream. Rene Dahan, the Moroccan-born Dutchman, supervised the downstream operations. Dahan might have been a candidate to succeed Raymond, although he was a little on the older side of the ideal age range. In any event, he decided to retire early and return to Europe, in 2002. Longwell was essentially Raymond’s age, too old to be considered as his successor. By the time the Saudi deal fell apart, Raymond was approaching sixty-five, but showed no interest in retirement. Increasingly the outside members of the corporation’s board of directors regarded the lack of a clear succession plan with concern. Hardly anyone at ExxonMobil stayed on beyond retirement age. Lawrence Rawl, Raymond’s predecessor, had retired at sixty-four. “He wanted to stay longer,” a director remembered. “The board was a little uncomfortable with it.”

After the dust settled from the absorption of Mobil, the board had come “to a fairly clear view that, because of the merger, the people who were likely to succeed Lee” were not in position, recalled an executive involved, because these younger candidates were still out leading operating divisions and had not spent enough time at headquarters or interacting with the outside corporate directors who would be responsible for the final choice. A successor needed to be in his early fifties to have a chance to lead the company for an extended time. (There were no women anywhere near in contention for the top job at ExxonMobil.) Younger candidates “should have been brought in much, much earlier, to sit around the table,” the executive who watched the succession process recalled. But Raymond argued that he needed to keep the most talented younger leaders out in the field, to make sure that the reorganization following the Mobil merger took place properly. “The rationale was that we’d lost two years” in developing successors because of the merger.

The board had therefore agreed to extend Raymond’s tenure beyond his scheduled retirement in 2003. At the same time, the directors told him, in essence, “We need to bring these people in.” Raymond named two promising younger candidates, Rex Tillerson and Edward G. Galante, to coequal jobs at headquarters. Tillerson was a Texan who had spent much of his Exxon career in the upstream exploration division. Galante was a New Yorker who had risen on the downstream side. His upstream experience seemed to give Tillerson a built-in advantage, because at ExxonMobil, as a director put it, “real men—they discover oil.” A few members of the board felt, as the director recalled, “there was just no question that Rex was going to be the successor. He came from the discovery side.” Yet Raymond had spent time during his rise running downstream facilities and was not an upstream oil hunter by specialty. Other Exxon chiefs before him had also emerged mainly from downstream careers, including Cliff Garvin, Exxon’s fourteenth chief executive. (Raymond was the sixteenth.) In years past, the profitability of the upstream had subsidized downstream operations, which often struggled to break even or eek out modest returns. Raymond had insisted that the downstream businesses had to stand on their own; Galante had been part of this successful transformation. Still, because some members of the board of directors assumed Tillerson would prevail, largely because of his command of the big oil and gas portfolios abroad, they questioned Raymond’s motivations. “My concern was that it was kind of a charade to buy him [Raymond] more time,” a director said.

Once a year, on a Tuesday afternoon in October, Raymond organized a special meeting of the board. At this session, Raymond was the only ExxonMobil executive in attendance. Raymond provided reviews to the outside directors of the performance and potential of his most senior executives. “It was always the case that the possible successors were not ready yet,” an executive who heard Raymond’s briefings recalled. Raymond would tell the board, “Maybe in eighteen months or two years.” The directors would “talk amongst themselves: ‘This could go on forever.’” They made “several efforts” to raise the matter with Raymond, “and [they were] rebuffed.”

On paper, Raymond worked for the board; in practice, he controlled his directors carefully. “The board wasn’t able to impact management very effectively,” a director recalled. “They were a group unwilling to challenge the status quo. . . . That is one of the few boards I know where the whole is less than the sum of the parts.”

There was very little free-flowing discussion at board meetings. Raymond’s remarks, presentations by other senior executives, and votes on board resolutions were written down well in advance and read out from sheets of paper. Board committee meetings could be a little looser. Even there, ExxonMobil executives listened carefully if outside directors asked hard or challenging questions and then reported back to Raymond—the offending director would soon be smothered with attention, to deflect the concerns he had raised. Once, after a director spoke up to defend one of Raymond’s policies during a committee meeting where Raymond was not present, the chairman approached him to say, “I’m really glad you spoke up in that committee.” The director was taken aback: “I was just amazed that he had that kind of intelligence; it was very revealing to me.”

The approach was a throwback to the way board meetings often had been run in corporate America during the 1960s and 1970s. “The world had changed, but they had not,” the director recalled. As oil prices rose, the corporation’s financial and operating performance was so strong that there were few big issues that the directors felt they needed to intervene about. “That was a little bit of the board’s problem,” an executive recalled. “The company was so successful, it was kind of hard to argue. There was a little bit of a prisoner’s dilemma.”

On the question of Lee Raymond’s successor, about all the board could accomplish was to push Raymond to bring Tillerson and Galante to more board meetings, to show off their skills to the directors. They each made presentations at the board’s retreat in Scotland in June 2003, in the midst of Raymond’s intensifying, failing negotiations with the Saudis. Gradually board members got to know the pair better. The formal presentations they made during meetings were heavily scripted and revealed little, but afterward, at lunches and dinners, the two would sit with outside directors and engage in more informal banter. Also, the corporation periodically organized board field trips to ExxonMobil divisions or operating sites, travel that also allowed Tillerson and Galante to interact with directors spontaneously. At the personnel review sessions with the board each October, however, Raymond’s message did not change: “We need more time to see them perform.”

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