The New Face of an Oil Giant
By JAD MOUAWAD
New York Times
March 30, 2006
Mr. Tillerson ... said he saw no reason for any sharp departure in strategy. Exxon's business is about increasing oil and gas supplies to consumers, he said, not chasing alternatives that offer little prospect of replacing the fossil fuels that he views as the only realistic way to meet the world's huge and growing demand for energy.
Jerry W. Hoefer for The New York Times
If Rex W. Tillerson has his way, Exxon Mobil will no longer be the oil company that environmentalists love to hate.
Since taking over as Exxon's chairman three months ago from Lee R. Raymond, his abrasive predecessor who dismissed fears of global warming and branded environmental activists "extremists," Mr. Tillerson has gone out of his way to soften Exxon's public stance on climate change.
"We recognize that climate change is a serious issue," Mr. Tillerson said during a 50-minute interview last week, pointing to a recent company report that acknowledged the link between the consumption of fossil fuels and rising global temperatures. "We recognize that greenhouse gas emissions are one of the factors affecting climate change."
But despite the shift in style to a less adversarial tone, the substance of Exxon's position has not changed with the new chairman. The company said the recent report only clarified its long-held position on global warming. Indeed, Mr. Tillerson noted that he, like Mr. Raymond before him, remained convinced that there was "still significant uncertainty around all of the factors that affect climate change."
To Fadel Gheit, a longtime industry analyst at Oppenheimer & Company in New York, Mr. Tillerson certainly presents a kinder, gentler face for Exxon. But in the end, Mr. Gheit cautioned, do not expect much difference between Mr. Tillerson and Mr. Raymond.
"It's the same old wine in a new bottle," he said. "You can't expect a company this size to change on a dime, but you might see changes in how it projects its image to the public, to its clients."
"Lee was impatient," he added. "Rex is firm, but with a smile."
Mr. Tillerson, who succeeded Mr. Raymond in January, said he saw no reason for any sharp departure in strategy. Exxon's business is about increasing oil and gas supplies to consumers, he said, not chasing alternatives that offer little prospect of replacing the fossil fuels that he views as the only realistic way to meet the world's huge and growing demand for energy.
In contrast to rivals at BP and Royal Dutch Shell, which plan to invest billions of dollars in the next decade to develop renewable energy sources like wind and solar power, Mr. Tillerson sees Exxon's future as still firmly tied to oil and natural gas.
The answer to today's high prices? "More supplies." President Bush's reference to America's "addiction to oil"? "An unfortunate choice of words." Exxon's role in society? "A good business, and what we do brings good things to people."
"To say suddenly that there is something wrong about that," he said, "I can't connect with that."
With 30 years at Exxon, Mr. Tillerson has taken over the company at a time when the oil industry faces formidable new challenges. Not since the 1980's has there been as much talk about energy costs and the nation's dependence on oil.
After nearly two years of high energy prices, oil companies are facing public discontent at $2.50-a-gallon gasoline and political pressure over the companies' record profits. Mr. Tillerson said the situation offered him an opportunity to better explain his company's position.
"The only thing I've said to people will change, maybe, is the management style, the way I communicate," Mr. Tillerson said. "We're all individuals. Lee Raymond is Lee Raymond. He has his style. I am Rex Tillerson and I have my style."
Whatever Mr. Raymond's legacy on the environmental front, there's no arguing with Exxon's financial success. He pulled the company far ahead of rivals by engineering the 1999 merger with Mobil that partly recreated the original Standard Oil trust.
Exxon is now the world's largest publicly traded oil and gas producer. Last year, its net income surged to $36.1 billion, the highest for any American corporation and a 43 percent jump from the previous year. That is a legacy Mr. Tillerson is proud to defend.
But to its many critics, Exxon, based in Irving, Tex., is locked in an increasingly frustrating race for additional oil supplies and is failing to help develop alternative fuels, curb consumption and act on the real threat of global warming.
"They have to be part of the solution," said Kert Davies, a research director at Greenpeace. "They have too much money; they are too powerful. Without Exxon pulling with the rest of the world, it will take longer to solve global warming."
For Shawnee Hoover, the campaign director of Exxpose Exxon, a coalition of the nation's leading environmental groups, including Greenpeace and the Sierra Club, "Exxon has this prehistoric culture."
She added: "They dig their heels in."
But at Exxon, executives see very little reason to alter a course that has proved exceptionally profitable.
In a capital-intensive business, the company's obsession about costs has allowed it to outperform all its rivals. Its rate of return on capital employed, which the company says is the best indication of performance and cost management, reached 31 percent last year. The second-highest return among the giant oil companies, BP's, was 20 percent.
"Exxon has really been about discipline," said Daniel L. Barcelo, an analyst at Banc of America Securities. "What Exxon brings to the table is their balance sheet, the technical expertise, and their operational management and development. That's where they shine."
But he said the company's conservative management also had a flip side. "Others have been more willing to take risks," Mr. Barcelo said. "Some say Exxon is actually being blind and missing out on huge opportunities for growth."
Indeed, oil analysts argue that the company has been plowing too little money back into finding hydrocarbons while giving too much back to shareholders. Oil and gas production as well as reserves have remained mostly flat for the last five years. Last year, Exxon paid $23.2 billion in dividends and share buybacks, more than the $17.7 billion it spent on exploration and development.
A native of Wichita Falls, Tex., Mr. Tillerson, who turned 54 this month, joined Exxon in 1975 as a production engineer after graduating from the University of Texas with a degree in civil engineering. He later ran some of Exxon's American operations. In the early 1990's, he was responsible for negotiating the company's investments in Sakhalin Island in Russia, as well as in the Caspian Sea.
Since he started at Exxon, the energy business has changed radically. Easy-to-find oil has been mostly found, opportunities for new resources are scarcer, competition is rising and governments are tightening the screws on international oil companies.
But after taking over as chairman, Mr. Tillerson has already scored two major coups: gaining access to the world's fourth-largest oil field, in the United Arab Emirates, and prevailing in a five-year-old dispute over the development of Indonesia's largest untapped oil reserves.
Mr. Tillerson met with each country's leaders to break deadlocked talks or make a final pitch for his company. In Indonesia, the government fired the head of the national oil company, who opposed Exxon. His successor quickly signed a deal.
But if both agreements proved a success for Mr. Tillerson, they also mask a starker reality for oil companies: their access to the world's top hydrocarbon deposits is more limited than ever. At Exxon, the problem is magnified by the company's size. Each year, its geologists must find huge amounts of oil and gas — nearly 1.5 billion barrels — just to replace the company's production of about 4 million barrels a day.
The model for Exxon's expansion was perhaps best displayed in Qatar, a small Persian Gulf state holding the world's third-largest natural gas deposits, after Russia and Iran. In the early 1990's, Exxon approached the Qatari government with an offer to serve as a joint partner. Today, Exxon is the largest foreign investor in Qatar and the nation is on track to become the world's leading liquefied natural gas producer.
"We are looking for the large opportunities," Mr. Tillerson said.
Referring to Qatar, Mr. Tillerson said "that approach can be replicated around the world."
But can it? Recent setbacks in Venezuela and Russia suggest the obstacles are multiplying. After briefly welcoming foreign oil producers, Russia has now mostly shut the door to new foreign investment. In Venezuela, Exxon is battling the demands of President Hugo Chávez's nationalist government, which wants to increase royalties and other taxes on foreign investors. But rather than give in and set a precedent, the company prefers to scale back its investments or shut fields.
Still, Mr. Tillerson insisted that Exxon was not constrained by a lack of prospects or partners. "There are other opportunities," he said, "in the Middle East, in the Caspian, in other parts of the world where we will continue to take the same approach."
This month, at Exxon's annual session for Wall Street analysts, top executives outlined 22 major projects over the next three years, from Angola to Norway, Malaysia to the North Sea. For 2009 and beyond, they identified another 32 prospects.
To develop these projects, the company plans to increase its capital spending to $20 billion a year by the end of the decade. Exxon hopes to increase its oil and natural gas production to five million barrels a day by 2010 and lift its daily capacity by a total of two million barrels after 2015.
Dismissing the view that the world is running out of oil, Mr. Tillerson said there was still plenty more to be found to meet what Exxon expects will be a 50 percent rise in global energy demand by 2030.
At the same time, he defended Exxon's record of investing in research for alternative fuels, citing a 10-year, $100 million contribution to the Global Climate and Energy Project at Stanford, which focuses on long-term technological research. "We are going to continue to use fossil fuels," he said. "We are looking for the fundamental changes, but that's decades away. The question is, What are we going to do in the meantime?"
Three months into the job, the changes at the helm of Exxon are mostly evident in small, impressionistic touches.
At a refiners' conference in Salt Lake City last week, for example, Mr. Tillerson urged other managers to get the industry's message out by, among other things, attending Rotary Club and PTA meetings.
And at a recent news conference, he displayed a lighter touch that one rarely associates with Exxon executives. In reply to a question about what he thought would happen to oil prices this year, for example, Mr. Tillerson offered this response: "If I knew, I'd be living on a Caribbean island with my flip-flops and a laptop, working just two hours a day."
Posted by Arthur Caldicott on 31 Mar 2006