Private Empire: ExxonMobil and American Power

by Steve Coll

  The generous terms were required, the oil companies insisted, to compensate for the exceptional risks they would endure in Chad. No political order in the country was likely to last for thirty-five years. Exxon’s negotiators addressed this conundrum not just by negotiating for favorable royalties; they also inserted into the 1988 contract what was known in the oil industry as a stability clause. Article 34, entitled “Applicable Law and Stability of Conditions,” placed the terms of the convention beyond the reach of any Chadian law that might be enacted by any government of the future. The clause protected Exxon against political risk. That Exxon had the power to carve out rights trumping any future law passed by any future Chadian regime was perhaps not surprising in this instance; Exxon’s 1988 net profits of $5.3 billion exceeded by several times the size of Chad’s entire economy. Article 34.3 declared:

  During the term of this Convention the State guarantees that no governmental act will be taken in the future, without prior agreement between the Parties, against the Consortium which has the effect either directly or indirectly of increasing the obligations or amounts payable by the Consortium or which adversely affects the rights and economic benefits of the Consortium provided by this Convention.

  The language binding Chadians to Exxon’s “rights and economic benefits” was strikingly broad—it could even be interpreted to mean that future governments in N’djamena might be prevented from broadening civic freedoms or permitting unions to organize if such changes raised the oil consortium’s costs. More realistically, the stability clause provided a strong defense against any future Chadian coup maker’s inclinations to raise taxes on Doba oil production. The contract was unambiguous about the parties’ relative sovereignty: “In case of contradiction or inconsistency between this Convention and the laws and regulations of the Republic of Chad, the provisions of this Convention shall prevail, unless the Parties decide otherwise.” When Déby presented the contract to his cabinet for approval, recalled Salibou Garba, then the country’s minister for post and telecommunications, the president declared, “You don’t have time to read this—and they need it in Houston.” Even Déby “did not take time to go through it,” Garba said. “Only later did he realize that the terms were not as favorable as he wanted.”4

  Rosemarie Forsythe, who rose to run ExxonMobil’s global political department out of Irving, had been a precocious child. She graduated from Indiana University at the age of sixteen after studying the classics, Russian literature, and political science. She overcame the psychological burdens of prodigy and grew into a calm, professional woman with a knack for making herself useful in large organizations. Fascinated by Russia and its neighbors, she joined the State Department in 1987 and then moved to the National Security Council, where she became a traveling specialist in the political affairs of the new republics born from the Soviet Union’s dissolution. In the late 1990s, Forsythe left government to work for Mobil Oil as a political adviser, based in London. After the Exxon merger, she was summoned to build the combined corporation’s political department at the Irving headquarters. She came to function as ExxonMobil’s chief political risk analyst. She filtered and synthesized political assessments flowing to Irving from the corporation’s far-flung field offices. She adjusted gradually to ExxonMobil corporate culture with some of her sense of irony intact; she told friends that the oil corporation’s system for maintaining confidential information was far more severe than anything she had seen while holding a top secret clearance at the White House. (ExxonMobil so guarded its internal estimations of country-by-country oil reserves, for example, that when executives talked about that subject with outsiders, they used the published estimates of rival BP rather than reveal their own.)

  Forsythe worked in a modest-size office on the ground floor of the Death Star; she enjoyed a window looking onto the campus’s green lawns. Each April, when ExxonMobil conducted an annual multiyear strategic planning exercise, she integrated global and demographic forecasts into the plan. She also advised Lee Raymond and the Management Committee about the international political dimensions of investment and technology decisions.5

  Chad presented an emblematic case of the challenges Exxon faced abroad. Much of the oil and gas ExxonMobil could hope to acquire and book as equity reserves by the year 2000 lay in weak states—countries that were too poor, underpopulated, or badly governed to produce and control their oil on their own. Many of these weak states lay in Africa.

  In her presentations to ExxonMobil’s Management Committee, Forsythe showed PowerPoint slides that divided the world’s governments into three categories: democracies (blue), authoritarian regimes (yellow), and transitional governments (red). The latter were characterized by political instability. One slide showed that in recent decades the percentage of the world’s known and estimated oil located in unstable countries had doubled to about half. (By comparison, much of the world’s natural gas reserves lay in authoritarian nations, particularly Russia and Iran.) Forsythe’s work also showed how demographics in the red and yellow countries—particularly the “youth bulges,” or the growing generations of young people swelling in the Middle East—suggested that even more instability in oil-producing regions could be anticipated. (Large numbers of teenagers tended to create havoc wherever they lived; her forecasts anticipated the Arab Spring many years before it arrived.) Forsythe also produced maps showing global piracy problems and threats to shipping lanes.6

  An implication of her analysis was that if a company like ExxonMobil wanted to continue to replace the hundreds of millions of barrels of oil reserves it pumped and sold each year, and to show Wall Street that its booked reserves were holding steady, the corporation would be drawn more and more into poor and unstable countries, and it would have to find ways to operate successfully in such places. As Vice President Cheney had once remarked when he ran Halliburton, “The good Lord didn’t see fit to put oil and gas only where there are democratically elected regimes friendly to the United States. . . . We go where the business is.”

  Exxon hired a former career foreign service officer with long experience in Africa, Simeon Moats, to serve as an Africa desk officer in the corporation’s Washington office. Moats consulted with former colleagues at State and at the National Intelligence Council to stay abreast of Chadian affairs. Lee Raymond’s Africa team also brought in Herman “Hank” Cohen, an assistant secretary of state for African affairs during the George H. W. Bush administration. He was hired as a consultant to train Exxon managers about the political and cultural issues they might face in Chad. Exxon ran the Chad project out of an office in Paris and hired French nationals and French-speaking Canadian executives to supervise its operations in N’djamena. Many of the engineers and managers who did the day-to-day work in the oil fields, however, were English-drawling Americans dispatched from Houston. Cohen set up classrooms in Houston and New Jersey; his students were “all white males,” as he recalled it. He developed a syllabus to instruct them “about the nature of the Chadian government, how it worked, how to get along with them,” and perhaps even more challenging, “how to get along with French people.” Cohen had known Idriss Déby during the anti-Libyan campaigns of 1987, when Déby served as Chad’s chief of army staff; Cohen remembered him as “a tribal warlord, basically,” who drank too much and who struggled to share power and wealth adequately even with members of his own tribe. Cohen warned Exxon’s executives that there “would be a challenge to his rule at some point.”7

  The possibility of a coup d’état was not the only political risk the corporation had assumed in Chad. As with climate change and the management of corporate security in Aceh, Lee Raymond’s decision to explore for oil in such a poor African nation had involved Exxon in a burgeoning global contest of ideas, this one concerning the social and political consequences of oil production in very poor countries. Rosemarie Forsythe’s slides for the Management Committee implied that more and more of the world’s oil happened to be located in unstable countries, more or less coinci
dentally. A growing body of academic research suggested that oil production was likely a cause of their instability.

  Exxon’s exploitation of Chad’s oil involved both engineering audacity and big thinking about how to relieve poverty in Africa. To reach global markets, Exxon formed a consortium to build a 660-mile pipeline across Cameroon’s forests to the town of Kribi, on the Atlantic Ocean. From there it would pipe the oil an additional 7 miles to an offshore marine terminal. To ensure that the project met global standards for the management of oil revenue and involved credible plans to relieve Chad’s poverty, Exxon enlisted the World Bank, the Washington-headquartered institution funded by rich countries to support economic development in poor countries. During the mid-1990s, Exxon and the bank conceived an unprecedented plan: In exchange for loans from the World Bank’s finance arm, Chad’s government would be pressured to accept covenants requiring that it spend most of the royalties and taxes it received from oil production on health services, education, economic infrastructure, and other poverty alleviation programs. To ensure that Idriss Déby or others in his government did not cheat, the plan would require that Exxon route Chad’s oil money through special bank accounts in London controlled by the World Bank.

  For a cautious company run mainly by engineers, the Chad project’s terms amounted to an extraordinary venture by Exxon into social engineering and nation building. There was something about the starkness of Chad’s poverty that seemed to attract Exxon’s engineers; they talked about the country as a place that could be entirely remade. “We have the opportunity of applying this model on a clean slate,” explained Tom Walters, the corporation’s vice president for oil development in Africa. “There was no prior history of development to deal with.” Foreign missionaries of an earlier era imagined that they might improve Africa by imbuing its people with Christian values of work and rectitude. Exxon’s managers believed they might improve Chad’s government by demonstrating through their own example the benefits of corporate discipline and principled consistency—the gospel of the Operations Integrity Management System. “A big part of what we think we can bring is a lot of the ethical behavior that we can portray to the government,” Walters said. “We have been working with this government now for a good ten years. . . . And we do not back down, and I think that education is going to have dividends over the long haul.” Rex W. Tillerson, who was rising to prominence as a leader in the corporation’s international division, described the project as “a clean sheet of paper” where Exxon had “the opportunity to put things in place perhaps the way you’d like to see them carried out from the very beginning.”8

  The corporation’s ambition in Chad stood in contrast to its modest local development projects and political quietude, bordering on complicity, in Equatorial Guinea. The difference had more to do with oil market geography than with any deep-seated desire within ExxonMobil to reform Chad. The corporation’s Equatorial Guinea properties lay offshore and could be shipped to markets without much need for ExxonMobil employees to involve themselves in the country, except to go and come from the airport. As long as Obiang’s rule was stable, ExxonMobil could keep a low profile and pump oil. In Chad, the corporation’s oil was stranded inland. Constructing a pipeline to the Atlantic Ocean inevitably meant the political visibility and risks of the project would be elevated. Land acquisition, population resettlement, cutting down trees, and environmental protection plans were sure to attract local and international scrutiny from the start.

  By recruiting the World Bank as a partner, Exxon’s leaders shrewdly insulated themselves from many of the project’s most daunting reputational risks, particularly those arising from the objections of environmentalists and nongovernmental organizations. The World Bank’s technocratic experts in poverty alleviation and development—not the oil corporation—would design and implement the plan to manage Chad’s oil revenue as a public trust. “The notion that ExxonMobil should be telling the Government of Chad how to spend its money—like Shell telling the U.K. government how to spend its money—wouldn’t go down well,” Lee Raymond observed. The World Bank, however, had the mandate.

  “The biggest thing this company can bring to some of these countries is the opportunity to see capitalism and the free market work,” he said on another occasion. “Am I comfortable with everything the government of Chad does? No. Am I comfortable with the concept that we’re now going to give the Chadian people an opportunity to improve their lot through economic development? Extremely comfortable.”9

  The project’s New Jerusalem ambitions reflected the World Bank’s evolving priorities. President Clinton had appointed James Wolfensohn, a multitalented Australian investment banker, cellist, and fencer, as the bank’s president. Wolfensohn inherited an institution under increasing criticism from European board members and antipoverty campaigners for its reliance on the financing of large infrastructure projects—dams, highways, and the like—that did little to stimulate private investment or meet the human needs of poor people. Wolfensohn traveled the world seeking new ideas to address these concerns. The Chad revenue-management plan presented an opportunity to experiment with a new conditional-lending model. It became “the child of James Wolfensohn,” recalled Jane Guyer, an anthropologist who advised the bank.10 Exxon seemed an unlikely corporate partner for a nation-building project of such visibility and ambition. Lee Raymond, however, had confidence in Wolfensohn. In his earlier career as an Australian merchant banker, Wolfensohn had worked with Raymond on some of Exxon’s oil and gas deals. Later, as Exxon’s chief executive, Raymond looked at the Chad property and realized there were only three choices: Do nothing with the oil, which would be unfortunate; ship it north, through Libya, which looked impossible, politically; or sign up to the World Bank’s plan to improve governance and raise living standards in two very poor countries. Why not try?

  Exxon’s plan for Chad offered to break the pattern of oil-related corruption and violence; it offered a way to use public development funds to stimulate private economic activity in Africa; and it seemed to offer a credible reply to the bank’s critics. Persuaded that it had a choice between the bank’s terms and no oil revenue, Chad’s parliament passed Law 001 in 1998, and Déby signed it the following year; it pledged 10 percent of the country’s future oil revenue to a “future generations” fund, and 80 percent of the remainder to “priority sectors” such as education, health, agriculture, and the environment. In addition to parliament, a “college” of civil society groups would provide oversight of these investments.11

  The plan offered an answer to the “resource curse,” a syndrome described by economists and political scientists. The curse referred to evidence that when poor countries became suddenly rich in oil or minerals, they could often expect to go backward rather than forward. In 1993, the British economist Richard M. Auty published Sustaining Development in Mineral Economies: The Resource Curse Thesis. (His work drew on earlier economic analysis about the “Dutch disease,” which referred to the distortions that took place within the Netherlands’s economy after a major natural gas discovery.) Essentially, the resource curse described a condition within governments similar to what happens to many individuals after they win the lottery. When nations became enthralled by the short-term riches offered by a finite national resource, capital and talent often migrated away from more productive and self-sustaining economic sectors such as agriculture. In 1997, the American political economist Terry Lynn Karl applied these insights to oil development in poorer countries; her book, The Paradox of Plenty: Oil Booms and Petro-States, used the example of Venezuela to show that weak governments made rich by oil were prone to corruption and underinvestment in agriculture. These countries also sometimes attracted violence among internal factions competing for control of the engorged national bank vault. Philippe Le Billon of the University of British Columbia reviewed twenty separate studies of the resource curse and found that while “oil broadly correlates with higher risk of conflict,” countries with high wealth per capi
ta faced less danger, even where, as in Saudi Arabia, corruption was pervasive. The highest risk scenario, Le Billon found, was one involving “onshore production, institutionally weak central government, generating low rents per capita, with high level of dependence on the oil sector.”

  That described Chad. Even before the Doba oil flowed, a southern rebel group, the Armed Forces for a Federal Republic, known by its French acronym as F.A.R.F., sprung from nowhere to challenge Idriss Déby’s regime for control of the region around the Exxon fields. Déby violently suppressed the F.A.R.F. and its suspected supporters. “The Chadians came in and were quite rough, but they terminated it,” recalled an oil industry security adviser who monitored the campaign. Exxon stood by as the oppressive violence occurred; security was the responsibility of Chad. “There were regular exchanges between embassy and Exxon officers when human rights abuses occurred” during Déby’s counterinsurgency campaign, noted a State Department cable, but these meetings did not consider “actions Exxon could possibly undertake in reaction to the abuses.”12