“It Just Happened”
Randy Ezell reached over from his bunk and touched a button to illuminate his electronic alarm clock. It read 9:50 p.m. He picked up his ringing telephone.
“We have a situation,” Steve Curtis told him. “The well is blown out. We have mud going to the crown.”
“Do y’all have it shut in?” Ezell asked. Ezell carried the title “senior tool pusher”; he was one of the more experienced hands aboard the rig that night. Curtis was an assistant driller.
“Jason is shutting it in now,” Curtis said. “Randy, we need your help.”
“Steve, I’ll be—I’ll be right there.”
In the darkness, the Deepwater Horizon floated on 4,992 feet of seawater in the Gulf of Mexico. It had been commissioned nine years earlier, one of a new generation of seagoing industrial robots designed to drill for oil in unprecedented saltwater depths. It was a towering, brightly lit metallic behemoth—almost 400 feet tall and 250 feet across. The rig had hovered for weeks over a BP-managed prospect called Macondo No. 252. The name referred to a fictional town in the Gabriel García Márquez novel One Hundred Years of Solitude. One hundred and twenty-six men and women were aboard the rig that night. Only six worked directly for BP; the rest, like Randy Ezell, worked for BP’s contractors and subcontractors, including two of the largest corporations in the global oil service industry, Switzerland’s Transocean and America’s Halliburton.
Ezell got up and lurched into the hallway. The explosions began: They were “take-your-breath-away explosions, shake-your-body-to-the-core explosions, take-your-vision-away explosions,” one of his coworkers said later. Ezell knew roughly what had happened. Drilling any oil well required managing the risk that trapped oil and gas under extreme pressure in the ground, when punctured by a drill bit, might escape uncontrollably and ignite. Since 2001, the workforce drilling for oil in the waters of the Gulf of Mexico—about 35,000 people altogether—had endured 60 deaths, 1,550 injuries, and 948 fires and explosions.
The blasts bounced Ezell off the bulkhead and left him trapped on the floor beneath debris. He twice tried to raise himself, but could not. The third time adrenaline jolted him. “I told myself, ‘Either you get up or you’re going to lay here and die.’” He raised himself.
Methane shooting through well pipes whooshed eerily in the darkness outside. Fire rolled in waves across the platform. Ezell heard calls for help and stayed behind as more explosions rumbled. He tended an injured coworker and then carried the wounded man to safety. He found coworkers lowering lifeboats and rafts into the water. He joined the exodus with Curtis.
On another part of the platform, Mike Williams, the Deepwater Horizon’s chief electronics technician, stood on the rig’s edge with Andrea Fleytas, twenty-three, one of three women working aboard. They watched as the life rafts and rescue boats pushed away onto water now illuminated by fire and searchlights. The two of them seemed to be marooned.
“It’s okay to be scared,” Williams told her. “I’m scared, too.”
“What are we going to do?” she asked.
Williams said they could either stay on the platform and burn to death or jump more than one hundred feet into the sea and hope for the best.
Williams jumped. He fell “what seemed like forever,” plunged into the water, resurfaced in a pool of greasy fuel, swam free, and found a rescue boat. The boat carried him to a larger vessel, the PSV Damon B. Bankston, which had responded to distress calls and pulled up nearby to collect survivors.
On the Bankston, Williams discovered Andrea was alive and well. Back on the rig, she had seen a last life raft lowering from the platform and had leaped in.
A roll call confirmed that eleven men were missing and presumed dead. As dawn approached, the Deepwater Horizon workers watched from the Bankston as the drilling ship burned and listed. It would soon sink to the bottom of the Gulf’s seabed.
BP later investigated the Deepwater Horizon accident and issued a report concluding, “A complex and interlinked series of mechanical failures, human judgments, engineering design, operational implementation and team interfaces came together to allow the initiation and escalation of the accident. Multiple companies, work teams and circumstances were involved.”
Mike Williams put it this way: “All the things they told us could never happen, happened.”
BP’s catastrophe soon surpassed the Exxon Valdez wreck as the worst oil spill in American history. The Valdez had released 257,000 barrels of oil into Prince William Sound. The amount of oil released by the Deepwater Horizon’s blown well proved harder to measure, but eventually, the best scientific estimates held that almost 5 million barrels spilled before the well could be plugged. The Exxon Valdez had jolted America’s largest oil corporation to remake its safety, operations, and management systems. Over the ensuing two decades, within ExxonMobil, the wreck on Bligh Reef provided a kind of origins myth for internal reform and redemption, one repeated at employee meetings and safety minute rituals, as well as to journalists and shareholder audiences. If ExxonMobil regarded itself now as straighter than straight, the corporation’s narrative went, it was only because it had known firsthand the terrible consequences of failed risk management.
ExxonMobil’s K Street staff often extrapolated the corporation’s relatively strong safety record into an argument to members of Congress and oversight agencies that industry self-regulation can work well, and that ExxonMobil’s self-regulation, in particular, was highly credible and should be relied upon by government and the public.
Twenty-one years and twenty-seven days after the Exxon Valdez struck Bligh Reef, the Deepwater Horizon blowout exposed what the bipartisan national commission that investigated the disaster would call “such systematic failures in risk management that they place in doubt the safety culture of the entire industry.” Deep-water oil exploration and drilling, in particular, involved “risks for which neither industry nor government has been adequately prepared.”
The chain of errors that destroyed the Deepwater Horizon also exposed deep failures within BP and its contractors that were obviously not ExxonMobil’s doing or responsibility. Yet as had been the case in Prince William Sound two decades earlier, ExxonMobil and BP were linked in one critical aspect of the risk management system designed to protect America’s ocean ecosystems from oil disasters: response and cleanup.
The Mississippi River dumped sand, dead plants, and other precursors of fossil fuels into the Gulf of Mexico over millions of years. Freshwater delta flows sometimes produced pressurized traps of oil and gas offshore, as was the case off the Niger Delta in West Africa. The Gulf of Mexico’s salt domes held fossil fuels, as it turned out, as a result of many of the same ancient geological processes that had endowed onshore Louisiana and East Texas with oil riches. Early American oil geologists did not take long to follow the oil trail from Texas into the Gulf. Prospectors drilled the Gulf’s first offshore well in 1938. The returns proved compelling. Oil exploration in shallow Gulf waters delivered high rates of success—new wells struck oil twice as often as on Texas or Louisiana lands, and the volumes uncovered were often much greater. For a while, the only wells that made technical and economic sense were those that could be drilled in waters shallow enough to support a drilling platform anchored by pilings in the seabed. Profits incentivized innovation. In 1962, Royal Dutch Shell announced that it had invented a floating drilling contraption that would allow oil exploration in waters too deep to support a traditional platform. The deep-water oil era began—and it, too, boomed. Floating platforms spread from the Gulf to the Pacific Ocean and Alaska. Production from the Gulf of Mexico alone soared from 348,000 barrels per day in the year of Shell’s announcement to 915,000 barrels by 1968, almost 10 percent of America’s domestic total.
On January 28, 1969, Union Oil Platform A-21 blew out in the Santa Barbara Channel. The spill soaked thirty miles of California beaches in oil. It was the early age of color television and dramatic visual news—moon landings, Vietnam jungle firefights, and televised presidential debates. Images of dead seagulls coated in oil and California beach enthusiasts mucking in tar beamed across national newscasts night after night, adding momentum to America’s burgeoning environmental movement. President Richard Nixon’s secretary of the interior, Walter Hickel, imposed a moratorium on all drilling and production in California waters.
That decision initiated what became an undeclared, ad hoc system for controlling offshore drilling in American waters. If the waters to be leased for risky oil drilling adjoined states with tourism-dependent economies or voters who supported tight environmental regulation, drilling would be banned. But if the waters adjoined states with pro-oil politics, such as Texas and Louisiana, offshore drilling would be permitted and even encouraged. (Alaska, with its gung-ho pro-oil politics and its vast stretches of protected public lands and waterways, was a special political case; some offshore leasing proceeded there, but it was often contested.) Under a federal law enacted in 1953, individual states own and manage resources beneath ocean waters for three nautical miles from the shore, although Florida and Texas own nine nautical miles’ worth, because of old treaty claims. The federal government owns and manages the rest of America’s territorial waters, through the Department of the Interior. Even President Ronald Reagan, who was elected with a sweeping mandate to deregulate industry and spur economic growth, could not overcome America’s strangely Balkanized politics of offshore oil drilling. Reagan’s secretary of the interior, James Watt, initiated plans to lease oil in all of America’s oceans, but in the end, aggressive drilling went forward only in the waters off Texas, Louisiana, Mississippi, and Alabama. The eco-minded West Coast states of California, Oregon, and Washington wanted no part. Florida’s tourism and coastal real estate industries could not abide the risks of a Santa Barbara–scale spill, even though the state’s voters sometimes leaned Republican. Thus even Governor Jeb Bush, a scion of oil, would oppose offshore drilling for a time. On the Atlantic coast, Virginia, North Carolina, and New Jersey occasionally flirted with leasing Atlantic Ocean tracts for oil drilling in exchange for royalty revenue, but none of these states ever produced governors and political constituencies strong enough to go ahead.
After the Deepwater Horizon blowout, it became commonplace to observe that Big Oil had captured and weakened Washington’s regulation of offshore drilling, by influencing and outfoxing the weak and underfunded unit of the Department of the Interior, the Minerals Management Service, or M.M.S., which oversaw leasing and drilling in federal waters. It was certainly true that the oil industry outmatched M.M.S. regulators and that the industry muscled through an oversight system that relied heavily on self-regulation. But the weak regulatory system was also a consequence of the segregated American politics of offshore drilling.
The most powerful national environmental lobbies—the Natural Resources Defense Council, the Environmental Defense Fund, the Nature Conservancy, and the Sierra Club—did not focus heavily on the technical, regulatory, and risk management issues surrounding the Gulf’s Red State deep-water drilling operations. To the extent that the environmental lobbies worked on offshore oil issues, they focused more on preventing new leasing in Alaska or in the eastern Gulf, off Florida, where the oil industry sought to expand.
Also, as drilling boomed, Interior became the conduit for annual royalties that reached $23 billion in 2008, $17.3 billion of which was funneled to the deficit-burdened United States Treasury. This cash flow reinforced congressional complacency. Besides, in most years, shipping accidents accounted for much more oil pollution leaching into ocean waters than offshore drilling or associated pipeline leaks. All this created a pressure-free atmosphere around Interior’s Minerals Management Service. Compared with food safety, toy safety, mountaintop coal mining, climate change, air quality, or water quality, the rigors of deep-water drilling operations and worker safety in the western and central Gulf of Mexico did not attract great scrutiny—as evidenced by the high numbers of deaths and injuries that took place on offshore platforms.
Deep-water drillers “succumbed to a false sense of security,” as the national commission put it. One warning sign was the well-documented unreliability of blowout preventers. These were contraptions meant to function as last-ditch fail-safe devices to smother uncontrolled wells before they could blow. A Norwegian firm, Det Norske Veritas, published a paper that examined fifteen thousand offshore wells operating between 1980 and 2006. It found eleven cases where teams drilling deep-water wells, fearing a blowout, had switched on their preventer devices. In only six cases did the wells come under control—an apparent failure rate of almost 50 percent. The Department of the Interior commissioned studies by WEST Engineering Services in 2002 and 2004 that looked in detail at the workings of certain types of blowout preventers, including that deployed on the Deepwater Horizon, and found that in many cases, the preventers did not work as advertised. The findings illustrated, the authors of one of the Interior-commissioned studies wrote, “the lack of preparedness in the industry” to manage “the last line of defense against a blowout.”
Complacency ran to the top of the American political system. While seeking the White House, Barack Obama excoriated John McCain for proposing to expand offshore drilling, because this would have “long-term consequences for our coastlines but no short-term benefits, since it would take at least ten years to get any oil. . . . When I’m president, I intend to keep in place the moratorium.” In office, he did not. An Interior Department review overlooked the evidence of weak fail-safe systems and implausible cleanup preparations, and, noting the lack of serious accidents to date, Interior secretary Ken Salazar recommended new leasing to the White House in early 2010. In a political trade-off made to advance climate change legislation pending in Congress, legislation that would never pass, Obama announced plans to consider drilling in previously closed areas of the south and mid-Atlantic Ocean and the eastern side of the Gulf of Mexico—if it were approved, this would amount to the largest geographical expansion of domestic offshore leasing in a generation. “I don’t agree with the notion that we shouldn’t do anything,” the president explained. “It turns out, by the way, that oil rigs today generally don’t cause spills. They are technologically very advanced.”
In the sections of the Gulf open to drilling, Exxon was a laggard. Its annual reports and public affairs campaigns boasted about the cutting-edge technologies that made deep-water drilling so promising, but the truth was that ExxonMobil had for long missed many of the big opportunities in the Gulf. Humble Oil’s early exploratory offshore wells, drilled off Texas during the 1970s, were expensive busts. By 2010, Chevron had drilled many more deep-water wells worldwide, proportionate to its size, than ExxonMobil. At the time of the Deepwater Horizon accident, ExxonMobil had only a single drilling project under way in the region. The corporation’s major deep-water projects lay offshore in Equatorial Guinea, Angola, and Nigeria. This imbalance was not by design; ExxonMobil had simply missed out on the Gulf’s early deep-water boom.
As a condition for leasing tracks in the Gulf of Mexico, the Minerals Management Service required companies to prepare and file spill response plans that addressed a long list of questions laid out by the regulators. These plans included how boats would be deployed, how chemical dispersants might be managed, how injured wildlife would be cared for, and above all, how oil would be cleaned up. In its filings to the Department of the Interior, ExxonMobil reported that it had developed experience and systems that would allow it to respond forcefully to even a major blowout in the Gulf of Mexico, one that might threaten the economies of built-up coastal areas from Tampa to Galveston.
“ExxonMobil’s primary focus remains the prevention of incidents which might cause pollution” the corporation’s 2009 filing to the regulators declared, “but in recognition that complete elimination of risk is impossible, the Oil Spill Response Plan describes the resources and procedures that would be used to mitigate potential impact.”
To write and file spill response plans, ExxonMobil turned to The Response Group. So did BP, Shell, Chevron, Conoco, and other Gulf drillers. The Response Group, a business dedicated to providing “effective emergency preparedness and response solutions,” was a small planning and regulatory paperwork consultancy located in a tree-shaded two-building office park in Cypress, Texas, to the northwest of Houston. The firm specialized in helping oil, chemical, and other industrial firms develop, write, and file the disaster response plans required by state and federal regulators. The result was that all of the major American companies operating in the Gulf of Mexico filed essentially the same five-hundred-page boilerplate plan describing their emergency preparedness, even though each of the companies drilled as lead operator in different conditions and had distinct corporate capabilities. Each plan filed with the M.M.S. promised blithely that the driller could handle a spill even larger than the one that began on April 20, 2010, with the blowout of the Deepwater Horizon. Each plan declared that the driller would rely on response equipment that, as listed, was transparently inadequate to fulfill the plan’s claims.
After the Exxon Valdez wreck, Lee Raymond reflected, “The lesson learned here was to try and make sure that there were procedures both in the company and in the respective governments that they knew and we knew that if an incident were to happen, exactly what to do and how to do it.” The lesson had not been learned; living up to Raymond’s exhortation would have involved more extensive investments in boats, planes, and predeployed equipment than either the oil companies or the government was prepared to make. The plans on file with Interior did contain credible organizational charts, analysis of oil spill response procedures, and emergency planning manuals. Few of these were linked to real-world capabilities, however. The plans also contained howlers—ExxonMobil’s plan, and several others evidently prepared from the same Response Group text, referred to preparations that had been taken to protect walruses, although walruses have not swum in the Gulf of Mexico for about three million years. The same plans listed as a marine wildlife expert a Florida Atlantic University professor, Peter Lutz, who had been dead for several years. (Tillerson later acknowledged that this was an “embarrassment,” but he added, by way of justification, “The fact that Dr. Lutz died in 2005 does not mean his work and the importance of his work died with him.”) The Department of the Interior accepted the filings as adequate.
The spill response plans by BP and ExxonMobil on file at the time of the Deepwater Horizon blowout were almost identical, except for one feature. ExxonMobil’s plan contained a forty-page appendix K, entitled “Media.” The media management appendix was more than four times longer than the plan for oil removal, and eight times longer than the plan for “resource protection.”
The appendix provided a snapshot of ExxonMobil’s uniform systems of public information management. It instructed ExxonMobil public affairs officers that information requested by a reporter during an oil spill emergency should be sorted into four categories. The document provided examples of types of information in each category. With Category A information, for example, it was permissible to say, at any time, on any occasion, “ExxonMobil said today no details were yet available.” In Category D, the most sensitive, the example listed in the Interior response plan was “Global Warming.” The document instructed, “All response statements and media releases from Category D are to be issued from” headquarters. If a reporter asked a question on this subject, the correct response was, “We will have someone from our Corporate Headquarters contact you to discuss any impact on global warming.”
The appendix also provided employees and contractors with thirteen draft press releases that might be used. These included a “holding statement,” a statement for “facility fire/explosion,” a “product spill [reported],” a “product spill [actual],” an “employee fatality,” and a “public fatality/serious injury.” In the latter case, the canned statement read, “We are greatly saddened by this tragic event and express our deepest sympathy to the families of those affected. We are working with [APPROPRIATE AUTHORITIES] at the site to investigate the cause of the incident.”
If criminal charges were even a remote possibility, the correct statement would be, preemptively, “We believe that there are no grounds for such charges. This was clearly an accident and we are working to respond to the immediate needs of the incident.”
Flying over Prince William Sound twenty-three years earlier, as the Valdez’s oil spread into dark shapes, BP’s Lord Browne had reflected about how the oil industry would now be “measured by its weakest member, the one with the worst reputation,” that is, Exxon. After long years of resentment and competition between the two companies, the tables had turned.
Browne was no longer around to face criticism. He had resigned as BP’s chief executive on May 1, 2007, after admitting that he had made false statements in a British court document about the origins of his relationship with a Canadian man, Jeff Chevalier, with whom he had been romantically involved. The pair had been dining and social companions, court records showed, of Prime Minister Tony Blair; Peter Mandelson, Blair’s controversial adviser; and other former luminaries of New Labor in Britain. Lord Browne’s resignation from BP had seemed, in 2007, only a distasteful coda to the end of credulity about the Blair era. By 2011, it was plain that BP’s corporate culture, more focused on hubristic global strategy than on day-to-day execution, had helped to set conditions for the Deepwater Horizon accident.
When Browne took charge of BP in 1995, he inherited a bloated, government-influenced corporation in deep trouble. Collapsing oil prices threatened BP’s viability. Browne had responded much as Lee Raymond and Lawrence Rawl had done when confronting oil price declines in the 1980s, during the years leading up to the Valdez: He slashed costs and reorganized departments aggressively. After timely acquisitions of Amoco and Atlantic Richfield, he cut the corporation’s combined costs by one fifth. “For us, it was clear that it [scale through merger] could permanently change the cost structure of the company. . . . It opens up opportunities to do new things because they’re cheaper.” His financial engineering turned the corporation’s profitability around and vaulted BP to the top of the global oil tables, positioning the company to compete anywhere. Browne also oversaw a successful push into the Gulf of Mexico. In 1999, with Exxon as a minority partner, BP discovered a billion-barrel offshore Gulf field called Thunder Horse, which would pump, after costly delays, 250,000 barrels of oil a day by 2009, or almost 5 percent of all American production. BP became the largest holder of deep-water leases in the Gulf and had exploration wins in American waters where ExxonMobil had struggled. At a prospect called Tiber in the Gulf, BP found a field it estimated to contain about 5 billion barrels of oil.
Cost cutting and management redesign undermined BP’s safety culture, however. “We have never seen a site where the notion ‘I could die today’ was so real,” Telos, a consulting firm that inspected BP’s Texas City, Texas, refinery, reported in 2005. Two months later, fifteen workers perished in an explosion there. Browne vowed reform, but neither he nor his successor, Tony Hayward, who styled himself as a work boots–and-coveralls antidote to Browne’s slick globalism, actually delivered. The year after the Texas City disaster, a BP pipeline broke and dumped 200,000 gallons of oil in Alaska. Inspectors fined a BP refinery in Ohio $3 million because it had persisted with dangerous practices that had contributed to the Texas City explosion. The Center for Public Integrity found that between 2007 and 2010, BP refineries in Texas and Ohio were responsible for 97 percent of the “willful, egregious” safety violations documented by the federal Occupational Safety and Health Administration, the American regulator in charge of workplace safety. Many citations involved BP’s failure to live up to previous settlements and commitments. The corporation racked up 760 violations in the willful category; during the same period, ExxonMobil had 1.
On the morning after the Deepwater Horizon caught fire, if a pollster had telephoned executives or engineers in the American oil industry, described the circumstances of the blowout, and asked which major oil corporation was most likely to have been the platform’s operator, an overwhelming majority probably would have blurted out, “BP.” The corporation had partnered over the years with all of its major competitors and in these projects had earned a reputation for poor operations management in project after project.
BP paid $34 million in March 2008 to lease Mississippi Canyon Block 252, about nine square miles, which it renamed Macondo. Houston project managers dispatched the Deepwater Horizon to drill a single well, confirm the presence of oil, and if the prospect looked promising, cap the well and return later to begin production. In such deep water, high pressure at the seabed and temperatures at the bottom of the well that can reach 240 degrees Fahrenheit require extraordinary vigilance. Macondo was troublesome from the start. A drill bit stuck in rock. By mid-April, the project was running six weeks behind deadline and more than $58 million over budget. The pressure to finish the well, cap it, and move on intensified.
The medley of errors that led to the April 20 blowout “can be traced back to a single overarching failure—a failure of management,” the national commission concluded. That management failure encompassed BP and its two largest contractors on the project, Halliburton and Transocean. Supervisors at each company made errors that if avoided might have prevented the blowout. During the final critical hours, Transocean’s team failed to monitor the well properly. Halliburton provided cement to seal the well that tests later showed was probably unstable—a problem that Halliburton knew about from its own internal testing, but failed to report. BP’s project managers, who had ultimate responsibility, made a series of decisions apparently aimed at reducing costs that made failure more likely. Government regulators also “lacked the authority, the necessary resources, and the technical expertise” to prevent these transgressions, the commission found.
As the oil poured into the Gulf, Tillerson pushed ExxonMobil’s talking points into Washington’s political ecosystem. He characterized the accident as a “dramatic departure from the industry norm in deep-water drilling.” ExxonMobil would never have made the mistakes BP made, he said. Moreover, the recklessness of BP’s operation should not catalyze intensive new regulation because BP’s failure was so unusual. Tillerson spoke so forcefully about BP’s apparent errors that he sounded as if he might be auditioning to appear as an expert witness at BP’s liability trials. “It appears clear to me that a number of design standards were—that I would consider to be the industry norm—were not followed,” Tillerson declared. “We would not have drilled the well the way they did.”
Tillerson arrived one evening that summer at the Metropolitan Club, near the White House, for a private dinner with influential editors and writers sponsored by the Center for Strategic and International Studies. Over roast beef and Yorkshire pudding, Tillerson went after BP’s management. There were many warning signs during the Macondo operation, but BP suffered from a “culture” of looseness and rule bending, Tillerson said. BP had fine engineers and was technologically impressive, Tillerson added, but the corporation did not emphasize safety or individual accountability. “They’ve always been an outlier,” he said. “We work with them all over the world and we’ve seen this.”
Tillerson spoke blithely about the potential ecological damage that might result from the accident. Because Americans reacted so skittishly to the possibility that seafood might be poisoned, commercial fishing in Gulf waters slowed sharply during 2010, even outside of areas restricted by the government, so fish populations would flourish. “You like to fish? The best fishing in the world’s going to be in the Gulf next year,” he predicted.
If Washington now overreacted to the Deepwater Horizon and limited offshore drilling for many years, this would be bad policy, he said, but it would pose no strategic threat to ExxonMobil’s business. “We’ve got opportunities all over the world.”
The swagger was vintage Exxon, but the public policy at issue was the corporation’s philosophy of risk management. Just ten days after the Deepwater Horizon exploded, a ruptured ExxonMobil pipeline dumped about a million gallons of oil in coastal areas of eastern Nigeria, soiling shorelines dotted by impoverished seaside villages. The affected area lay far from American television news bureaus, and its kidnapping gangs made it a risky place to travel in any event. The spill barely registered. Not all accidents can be prevented, Tillerson and ExxonMobil’s lobbyists acknowledged. Even if one accepted that ExxonMobil’s own safety and self-regulatory record was exemplary, relative to peers, and even if one assumed that the corporation’s relatively vigilant internal practices would endure indefinitely, without ever deteriorating again, how did Exxon propose to ensure that every other corporation in the oil industry adopted its standards, if not by government regulation? Tillerson volunteered that ExxonMobil’s safety systems were “not proprietary” and he would share them with other companies, but it was neither practical nor appropriate for the corporation to police its competitors.
In comparison with other regulatory schemes, supervision of oil drilling and transport involved an unusual challenge: The incentive to find new oil in a constrained world drove all of the major companies to risky frontiers. Resource nationalism, the rise of global state-owned companies with favored positions in their home countries, and the struggle for annual reserve replacement at gigantic corporations like ExxonMobil had led them to deep water, to weak and conflict-ridden states with vulnerable populations, and increasingly to the Arctic ice, where cold temperatures might render conventional spill cleanup techniques inoperable. The national commission concluded that BP’s blowout drilling in pioneering conditions in the Gulf of Mexico was not a “statistical inevitability” because sound management and regulation could have prevented the accident. Yet the record of oil accidents worldwide over thirty years was one of repetitive spills and failures, even at the best practitioners, such as ExxonMobil after the Valdez. In commercial aviation, idiot-proof safety systems and close regulatory inspection had reduced accidents to an overall nuisance level, although they were obviously devastating when they occurred. Marketplace incentives played a crucial role in commercial aviation. The public demanded protection from reckless airplane operators and pushed airline companies into compliance—crashes repelled customers. By comparison, in oil’s case, the environmental consequences of a single accident could be very severe, but they did not threaten the lives of oil customers or change their purchasing behavior. The damage was typically remote, and for consumers gasoline remained a necessity. Marketplace incentives did work constructively in one respect—the high financial and reputational costs of the Exxon Valdez and the Deepwater Horizon served as a powerful deterrent to corporate recklessness at drilling sites—but an occasional catastrophic error could be managed and survived, as ExxonMobil had demonstrated and BP probably would. And because the need to find oil in hard places pushed corporations into greater risk taking, the overall effect was very different from aviation: It was as if United Airlines, to remain profitable and viable in the long run, had to fly faster and higher each year, while managing all the risks that came along with that stretching of its capabilities.
Tillerson rejected the national commission’s finding that the BP blowout placed “in doubt the safety culture of the entire industry.” He argued that the commission “did not investigate the entire industry,” and so their finding “seems to ignore years of record of good performance.” And yet the commission reached its conclusion in part because “the record shows” that in the absence of effective federal regulation, “the offshore oil and gas industry will not adequately reduce the risk of accidents, nor prepare effectively to respond in emergencies.”
Tillerson could hardly reject the criticism about preparedness. Under his leadership, ExxonMobil had not invested in accident response capabilities in proportion to the new risks created by deep-water drilling. The corporation was not especially active in the Gulf, but it was moving to increase its presence, and it pledged preparedness in regulatory filings. The costs of preparing aggressively for a rare blowout such as the Deepwater Horizon’s—acquiring and positioning adequate equipment, rehearsing and planning to the same level of precision that the corporation brought to drilling operations—might be high, but they were far from prohibitive. The record showed that ExxonMobil had not made these investments nor urged that others in the industry do so.
“Your [accident response] plan is written by the same contractor that BP’s is,” Bart Stupak, a Michigan congressman, reminded Tillerson at a hearing that summer, as oil continued to pour into the Gulf. “So if you can’t handle 40,000 [barrels of spilled oil a day], how will you handle 166,000 per day,” as ExxonMobil’s plan claimed could be managed?
“The answer is that when these things happen, we are not well equipped to deal with them,” Tillerson admitted.
“So when these things happen, the worst-case scenarios, we can’t handle them, correct?”
“We are not well equipped to handle them. There will be impacts, as we are seeing. And we’ve never represented anything different than that. . . . That’s just a fact of the enormity of what we’re dealing with.”
“But they do happen.”
“It just happened.”
A containment dome fitted onto the Gulf’s floor above the spewing Macondo wellhead capped the blowout on July 15, 2010, just under three months after it began. The crisis faded rapidly. Americans had other problems on their minds. Voters angry about public debt, busted mortgages, Wall Street greed, and high unemployment went to the polls less than four months later and replaced the Democratic majority in the House of Representatives with Tea Party–influenced conservative Republicans devoted to smaller, less intrusive government. The Deepwater Horizon blowout reinforced popular anger toward Big Oil, but would produce no new politics to threaten the status quo in American energy policy. The accident’s economic victims—commercial fishermen in Louisiana, coastal hotel owners, offshore oil workers—lived mainly in the states whose citizens voted repeatedly to accept the ecological risks of deep-water drilling.
Eighty-five percent of the world’s energy—to fuel cars and trucks, to run air conditioners, to keep iPhone-tapping legions fully charged—still came from taking fossil fuels out of the ground and burning them. The likelihood that this would change anytime soon appeared slight.
ExxonMobil faced serious trials as a business in the years ahead—annual reserve replacement, maintaining its share price by extracting full value from XTO’s unconventional gas holdings, and global competition—but its place at the heart of America’s energy economy, as a bastion of fossil fuel optimism, remained unchallenged.
Forecasting “peak oil,” the moment when world supply will reach its height and begin to decline, is a fool’s errand, the long record of inaccurate past forecasts would suggest. At a minimum, there appears to be enough oil left in the world to meet projected rates of demand for several decades, and likely longer. Gas and coal supplies are even more abundant. Mongolia alone reports probable coal reserves of 152 billion tons, enough to fire every smoke-spewing power plant in China for half a century. Russian, Qatari, and Iranian natural gas deposits should last many decades, and the United States may be able to meet its own gas demand from domestic supply, if unconventional reserves fulfill their promise. Fossil fuels that emit carbon dioxide when burned are therefore likely to remain embedded in the world economy for at least half a century longer, barring a radical scientific breakthrough that allows a renewable energy source to compete economically at gargantuan scale.
It seems just as likely that the costs imposed on American society by fossil fuel dependency will remain high for an indefinite time. Between 2004 and 2009, the United States ran a deeper trade deficit—between $186 billion and $414 billion each year—to import oil and gas than it did to import goods from China. The regimes in receipt of these outbound dollars—Saudi Arabia, Russia, Iran, and Venezuela, to name four—were chronically unfriendly. Rising global oil prices, usually caused by wars, strikes, or other upheavals overseas, have preceded ten of the last eleven American economic recessions, including the Great Recession that began in 2008. (That downturn was caused by a financial and housing bubble that would have burst disastrously even if every American drove a magical self-powering wind mobile, but the spike in fuel prices on the eve of the bubble’s reckoning weakened confidence and household balance sheets at a turning point.) Rising oil demand from two-car families in the world’s rising economies such as China and India, combined with the chronic instability of oil exporters from the Middle East to West Africa to Venezuela, means that oil supply and price shocks are likely to recur more frequently, adding to the multiple sources of American economic insecurity.
All of these economic costs of oil dependency have been evident since the 1970s, yet American democracy has produced no politics to reduce them. The lobbying power of oil corporations is hardly the only factor. Oil prices gyrated during the 1980s and 1990s; at the bottom of these cycles, gasoline was often a trivial segment of many household budgets. During the late 1990s, gasoline expenses averaged as little as 2 percent of American pretax household income. That made it relatively painless for American voters to ignore oil dependency’s indirect costs and to reject the higher gasoline or carbon taxes that would be required to incent change. By the summer of 2011, gasoline expenses approached 10 percent of household income at a time of widespread economic pain. The opposite kind of policy paralysis now took hold: To change the gasoline pricing system would impose heavy new costs on working- and middle-class families suffering the most in the aftermath of the Wall Street–primed housing bust.
The threat of climate change presents the most serious danger yet to arise in the long age of fossil fuels. But global warming’s victims—future generations—do not vote. Durable political majorities in advanced democracies have often been willing to impose economic costs on themselves to address current pollution that endangers living generations—smog, acid rain, poisoned water, and toxic runoff from manufacturing. Persuading those same voters to impose costs now to protect their grandchildren from climate risks that can be described only in outline has proved much more difficult.
The British economist Nicholas Stern credibly forecasted that reducing carbon dioxide emissions enough to avert potentially catastrophic global warming would cost 1 to 2 percent of global gross domestic product now, while failing to act may eventually cost five to twenty times that amount. That seemed a more politically plausible trade-off in the economic boom year of 2006, when Stern announced his findings, than it did in 2011, in the maw of stock market panics, European sovereign debt crises, flat growth across many industrialized democracies, and rising income inequality.
Britain and continental European democracies have already taxed themselves to ease the climate risk faced by future generations. Coal-dependent Australia, after long resistance, has adopted a carbon price. In the United States, most of the major oil corporations that had earlier undermined the findings of climate science, including ExxonMobil, now accept, if reluctantly, that a price on carbon is coming, and that it might be justified. The near-bipartisan deal on climate policy in Congress during 2009 suggests that America will likely enact some carbon price, but only a relatively modest one, and only after the American economy recovers from recession and stagnation, which may take five or more years.
In Washington, higher taxes on carbon-based fuels will inevitably come later than they might have due to the resistance campaigns funded by oil and coal corporations—particularly ExxonMobil’s uniquely aggressive influence campaign to undermine legitimate climate science during the late Clinton administration and the early Bush administration. With its ideological allies, ExxonMobil funded the promotion of public confusion about climate science by means that future employees and executives of the corporation are likely to look back on with regret.
The climate risks future generations will inherit will pass to them from many authors, of course, and hardly just from ExxonMobil. Even if ExxonMobil began immediately to invest all of its lobbying and public policy expenditures to help enact an aggressive carbon price in the United States, the West’s ability to persuade China, India, and other poor, industrializing countries to adopt and enforce adequate emission reductions would still appear doubtful.
Early in 2011, the research group Climate Central, working from BP forecasts about future energy demand, calculated that stabilizing carbon dioxide concentrations by 2050 at five hundred parts per million (about a quarter higher than current levels) would require reducing average emissions per unit of energy used in the world by 4.2 percent per year. The analysts noted, “The highest previously recorded rate of decarbonization in a country probably took place in France between 1975 and 1990, when that country’s nuclear power system expanded very rapidly,” and yet even in that extreme instance, France’s emissions fell by only 2.6 percent annually.
The numbers argue that global warming on a scale scientists describe today as dangerous will occur.
On July 1, 2011, ExxonMobil’s Silvertip pipeline, running from Wyoming to the corporation’s refinery in Billings, Montana, sprang a leak and poured about 1,000 barrels of oil into the majestic Yellowstone River. The corporation estimated that cleanup and payments for damaged property would cost $42.6 million. “We deeply regret this incident has happened,” corporate spokesman Kevin Allexon said.
On the same day, Baltimore County jurors deliberating in the second of two civil lawsuits filed over the massive leak of gasoline from the former Jacksonville, Maryland, Exxon station—the case filed by Peter Angelos, Stephen Snyder’s archrival in the Baltimore plaintiff’s bar—returned a verdict of actual and punitive damages of $1.5 billion, ten times greater than the award Snyder had won for his clients. ExxonMobil vowed to appeal; the corporation continued to appeal Snyder’s award of damages, too.
A week later, on July 8, the United States Court of Appeals for the District of Columbia reinstated the lawsuit filed by villagers in Aceh, Indonesia, who alleged that ExxonMobil bore responsibility for torture and killings they had suffered at the hands of Indonesian soldiers guarding the corporation’s gas fields. ExxonMobil’s lawyers had challenged the case at every turn; the lawsuit had now been pending without trial or settlement for more than a decade. The corporation again filed an appeal. A month later, ExxonMobil announced that it was placing its interests in Aceh’s gas fields and liquefied natural gas operations up for sale. A spokesman said the sale had “nothing to do with the Aceh lawsuit,” but was the result of routine reviews of worldwide holdings.
In Russia, later that summer, Rex Tillerson flew to the Black Sea resort of Sochi to meet with Vladimir Putin. Before television cameras, the two men sat on opposite sides of a horseshoe-shaped table and announced a new partnership between ExxonMobil and Rosneft, the Russian oil company. The oil firms agreed to invest at least $3.2 billion to develop oil beneath the Arctic Kara Sea; if the deal survived the backtracking and disputes that disrupted so many other Russian oil deals, the total investment in the project could reach $500 billion. The United States Geological Survey estimated that the Arctic held about 90 billion barrels of recoverable but undiscovered oil and about as much natural gas as Russia’s onshore supplies, which were the world’s largest. Most of the Arctic’s oil and gas is believed to lie in areas controlled by Russia. In the Kara Sea, where ExxonMobil agreed to drill, oil development has become easier because of the rapid retreat of Arctic sea ice, most likely due to global warming. In 2011, on a typical August day, the amount of Arctic sea ice was about 40 percent less than had been present on an average August day between 1979 and 2000. At the announcement in Sochi, Vladimir Putin spoke approvingly of ExxonMobil’s “unique technology” and the corporation’s ability to operate in the Arctic’s “difficult conditions.” As to the scale of the investment planned, Putin added, “It’s scary to utter such huge figures.”
Mikhail Khodorkovsky, the oil and banking tycoon who had drawn Lee Raymond into negotiations designed to transform the U.S.-Russian energy partnership during the first term of the Bush administration, languished in a remote Russian prison, under sentence until at least 2017.
In West Africa, ExxonMobil’s managers continued to bring oil to market despite the coup plots, kidnapping raids, corruption, and factionalism menacing the corporation’s host regimes in Nigeria, Chad, and Equatorial Guinea. After millions of dollars in expenditures on Washington lobbyists, Equatorial Guinea’s president, Teodoro Obiang, managed for the first time to have his photograph taken at the side of an American counterpart: Barack Obama, who agreed to pose with Obiang at a museum reception in New York. Obama’s administration continued to license military and police trainers to support Obiang’s regime, although the White House, cautioned by human rights activists and congressional critics of Equatorial Guinea, held back from partnership. Obama’s Justice Department filed a civil lawsuit against Obiang’s free-spending son, Teodoro, seeking forfeiture of his Malibu mansion and other assets on the grounds that Obiang’s money came from “foreign official corruption.” ExxonMobil produced more than 600,000 barrels of oil and gas liquids per day from West Africa; the corporation produced roughly the same amount of oil from the Gulf of Guinea as it produced from the United States and Canada. In 2011, Walter Kansteiner, the assistant secretary of state for African affairs during the first term of the George W. Bush administration, joined ExxonMobil as a senior adviser on the corporation’s Africa strategies.
In Iraq, ExxonMobil followed adventurous Hunt Oil into Kurdistan, in defiance of Baghdad’s government and despite discouragement from the Obama administration, which feared, as the Bush administration had, that oil deals struck independently with the Kurds would worsen Iraq’s ethnic conflicts. ExxonMobil’s decision risked stirring the ire of Iraq’s Shia-led national government, which had awarded the corporation a contract to raise production in its massive West Qurna field in the south of the country. Tillerson undertook his gambit without informing the Obama administration in advance. After ExxonMobil signed agreements concerning six Kurdish oil fields, Tillerson arranged a conference call with senior State Department officials, and told them, “I had to do what was best for my shareholders.”
The Obama administration announced plans in the summer of 2011 for the first sale of oil leases in the deep waters of the Gulf of Mexico since the Deepwater Horizon blowout. Interior secretary Ken Salazar said twenty million acres would be put up for lease—all in the Gulf’s western waters, nearest to Texas, Louisiana, Alabama, and Mississippi. “We have strengthened oversight at every stage of the oil and gas development process,” Salazar said. The sales were an “important step toward a secure energy future.” The administration also considered proposals for a pipeline that would transport oil from Canadian sands to refineries in the United States. Obama initially rejected the arguments of environmentalists and climate scientists who fear the pipeline will lock in energy-intensive oil production, and by doing so exacerbate global warming. The president later put the decision on hold.
It remained arguable how “American” ExxonMobil’s private empire was, given its global reach. Yet in its strategies and systems the corporation remained recognizably a descendant of the American icon John D. Rockefeller and his Standard Oil. And of all the banking, industrial, and transportation giants birthed by America’s Gilded Age, none could look back on a winning streak and a record of durability comparable to those of ExxonMobil’s.
The more recent heights of ExxonMobil’s profitability and political influence during the Raymond and Tillerson eras reflected in part the growing relative power of corporations in the American political and economic system. Corporate profits in 2011 made up a larger share of American national income, when compared to workers’ wages and small business income, than at any time since 1929, when such statistics were first recorded. The United States Supreme Court, in its landmark decision in Citizens United vs. Federal Election Commission, reaffirmed in 2010 the freedom of corporations to fund political advocacy. In the years after the Mobil merger, Raymond and Tillerson oversaw more spending on direct lobbying in Washington than all but two other American companies, General Electric and Pacific Gas & Electric. ExxonMobil had evolved into the most profitable corporation headquartered in the United States—and one of the most politically active—in an era of corporate ascendancy.
On July 28, 2011, ExxonMobil announced its profits for the first half of the year. The total came in at $21.3 billion, a whisker under the amount the corporation reported during the same period in 2008, when it set a record for the most nominal profit earned by any corporation in American history.
Eight days later, on August 5, 2011, Standard & Poor’s announced the first-ever ratings downgrade of the bonds issued by the United States Treasury, marking them down from a AAA rating to AA-plus. The Standard & Poor’s downgrade meant that ExxonMobil, one of only four American corporations to maintain the AAA mark, now possessed a credit rating superior to that of the United States.
Standard & Poor’s received intense criticism for its judgment that the American government’s ability to repay its lenders might be in any doubt. Yet the fiscal trajectories of the United States Treasury and ExxonMobil had certainly diverged. In 1999, the year that Exxon’s acquisition of Mobil closed, the federal government and the corporation each took in more money annually than was required to meet expenses. Their paths then divided. In an era of terrorism, expeditionary wars, and upheaval abroad, coupled with tax cutting and reckless financial speculation at home, one navigated confidently, while the other foundered. From the day of the Mobil merger closing until the day of the S&P downgrade, the net cash flow of the United States—receipts minus expenditures—was approximately negative $5.7 trillion. ExxonMobil’s net cash flow from operations and asset sales during the same period was a positive $493 billion.