Private Empire: ExxonMobil and American Power

by Steve Coll

  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.9

  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.10

  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.11 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.12

  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 we
re 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.13

  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.14

  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.15

  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.16

  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.”17 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 directo
r 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.”18

  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.”