Private Empire: ExxonMobil and American Power

by Steve Coll

  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.”11

  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.12

  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.13

  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.”14

  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.”15

  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.”16 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.17

  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 2005.18 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.19 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 1.20

  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.21

  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.22

  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.”23

  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.”24

  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 f
rom 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.”25 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.