Private Empire: ExxonMobil and American Power (60 page)

In Irving, Strategic Planning turned to the corporation’s Biomedical Sciences laboratories in Clinton, New Jersey, to head the review. Its scientists were asked to start with the most basic questions, familiar though some of them might seem: What is the science? What are the relevant technologies? Who are the leaders in the field? “We pulled together a pretty high-powered team to look at . . . literally all of the biofuel options,” recalled Emil Jacobs, the vice president of research and development at ExxonMobil’s engineering division. They evaluated four factors: One was the ability to scale a fuel, that is, to produce enough volume to have a meaningful impact on American or global fuel markets. Second, they dug into specific technical challenges facing innovators in each fuel type. Third, they reviewed environmental impacts, such as land use, water use, carbon dioxide emissions, and other by-products. Finally, they analyzed cost and economic factors.
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They concluded that Congress’s ethanol mandates were a fantasy. Globally, because of the efficiencies available to sugar-producing countries such as Brazil, ExxonMobil forecasted production of 40 or 50 billion gallons of biofuels annually within two decades; even so, that would amount to no more than about 3 percent of total oil production. In the United States, “the 35 billion gallons [the approximate federal mandate]—you can’t do it—and there is no technology that can get you there” in the time frame ordered by the government, Ken Cohen, the corporation’s public affairs chief, declared. Another Irving executive was equally blunt: “We just ignored it because we don’t think it can be done.” Only government subsidies and mandates made ethanol competitive in the United States. ExxonMobil refused to enter subsidized businesses because the subsidies might not prove to be durable, and also because any subsidy known to benefit ExxonMobil would almost certainly fall to political assault. Nonetheless, ExxonMobil was routinely accused of biofuel denial and obstructionism. Cohen replied, “It’s strange for some to want ExxonMobil to get into businesses that would require a government subsidy.”
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B
attery technology interested ExxonMobil’s corporate strategists most of all. If there was one emerging energy technology that seemed to have the practical potential to disrupt the oil industry’s assumptions about the transportation economy, this was it. “I always put batteries in the category of game changers,” an ExxonMobil executive involved in the strategic technology review recalled. The most important questions involved the potential for breakthroughs in the “energy intensity” of batteries, which referred to the ability of a car battery to store and release large amounts of power at a competitive cost.

ExxonMobil’s corporate planners had already concluded by 2007 and 2008 that gasoline hybrid vehicles—those that combined existing battery technology with a traditional combustion engine—would be very successful in the marketplace, although the growth of sales of these vehicles, they believed, would be gradual and would not threaten the fundamentals of the oil business in the United States or abroad. A more disruptive scenario might involve the rapid adoption of all-electric or plug-in cars. That was a focus of ExxonMobil’s white-paper research.

“In the case of batteries, we felt we had to bring in some outsiders,” the executive involved recalled. “And they spent a considerable amount—I’m talking many, many months—looking at this. . . . ‘Here’s the technology, here’s where they are, here’s the likely breakthroughs or possible breakthroughs.’”
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ExxonMobil conducted its own in-house battery research, in its chemicals division, and so it also employed scientists who were familiar with the core issues. The corporation also maintained research partnerships not only with Stanford and M.I.T., but with car manufacturers in Detroit and Japan; during the technology review, corporate planners reached out to all these sources to help study the technical questions about a prospective battery revolution.

The internal study’s conclusion, the executive involved recalled, was that “there is just nothing there . . . no pathways we see to cracking that code.” The main obstacle was “the cost of batteries as a storage device.” Gasoline hybrids made “a lot of sense,” particularly when you combined batteries with combustion engines that could increase their fuel efficiency in the years ahead, through improved engine designs. But the “technology is just not there” for a step up to a radical new transportation economy dominated by all-electric vehicles, the study concluded.
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There might be some early adoption of all-electric plug-ins, particularly if the sale of such cars was encouraged by government subsidies. Hybrid growth would probably contribute to an overall 20 percent decline in oil use for transportation in the United States within two decades, but that reduction would be more than offset by growth in car and truck consumption in China and other developing countries, and so the net effect to ExxonMobil, as a global oil producer, would be inconsequential. For the time being, the review found, ExxonMobil could rest easy: There would be adjustments ahead, but the gasoline and diesel industries were not about to be wiped out by a great leap forward in battery innovation.

Rex Tillerson believed that transformational technological change would upend the oil business and global energy economy eventually. Breakthrough batteries might be the pathway, or breakthrough biofuels, or cheaper, more efficient solar technology, or some combination of those technologies, or perhaps something unimagined in the present. Not anytime soon, however. For two decades and probably much longer, Tillerson’s Management Committee concluded after its reviews were completed and digested in 2008, ExxonMobil could feel secure about its investments in oil and gas.

The corporation nonetheless remained vulnerable to unexpected, game-changing disruptions, its senior executives in Irving believed. In their view, however, the most likely strategic surprises would not involve technology. “Geopolitics, by far, is the largest uncertainty in the entire world of energy,” one of the executives involved in the strategic technology review said afterward.
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As the review wound down, events proved the point. By then, the most material and volatile facts in the global oil business arose not from alternative energy technology labs. They involved extortion rackets, kidnapping, and maritime piracy carried out by militia cult leaders in the swampy deltas of Nigeria. Here, too, ExxonMobil and the Bush administration struggled to align their interests and their influence.

Twenty-one

“Can’t the C.I.A. and the Navy Solve This Problem?”

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round 9 p.m. on October 3, 2006, seven ExxonMobil contract workers—four Scotsmen, a Romanian, a Malaysian, and an Indonesian—sat drinking in Nancy’s Bar, a bush-hut pub inside the oil corporation’s walled compound in Eket, Nigeria, in Akwa Ibom State, on the eastern side of the Niger River Delta. The compound sat on a rise beside the wide, muddy Qua River in downtown Eket, a tumbledown town of market stalls, flophouses, water-streaked concrete buildings, and shacks with rusting corrugated metal roofs. Billboards, cell phone towers, palm trees, and church steeples protruded into the low skyline. Motorcycles and scooters poured out smoky exhaust as they swarmed like schools of fish through streets flanked by open drains. The stenciled names of small contracting businesses and places of worship (sometimes colocated) suggested the striving ambition of a faith-influenced oil hamlet: “Divine Hands Ventures,” “Mount Zion Lighthouse,” and “Success World.”

Nancy, the pub owner, was upstairs cooking. She was the Nigerian wife of George McLean, one of the Scotsmen at the bar, a British army veteran who had been settled in Eket for a dozen years, employed by the ExxonMobil contractor Oceaneering International. The three other Britons—Paul Smith, Sandy Cruden, and Graeme Buchan—were relative newcomers. They maintained cranes for Sparrows Offshore, which is based in Aberdeen, Scotland. About three hundred expatriates lived on the Eket compound, of whom about fifty were Americans. Their work supported one of the larger and more profitable oil and gas production operations in ExxonMobil’s global portfolio. In recent months, the corporation had brought on line two large, floating offshore production platforms in Nigerian deep water. These platforms lifted ExxonMobil’s production in Nigeria to a record 850,000 barrels per day, more than 15 percent of the corporation’s worldwide total. High royalties and taxes limited profits but Nigerian crude was of high, sweet quality and commanded premium prices. The country’s deep water beckoned with additional discoveries that might add to ExxonMobil’s booked reserves. In a global oil system constrained by rising nationalism in Venezuela, Russia, and the Middle East, West Africa appeared to be a locus of abundant supplies available for the most part on free-market terms.

Automatic gunfire and pistol shots jolted the men at Nancy’s. They heard shouts and cries at the ExxonMobil security gate. Eighteen young Nigerians burst into the bar. They wore head scarves and fired weapons in the air. They ordered African customers to lie down on the floor, and then they frog-marched the seven expatriates into the darkness. Two Nigerian security guards employed by ExxonMobil to protect the compound’s perimeter lay dying outside. “Run!” the kidnappers ordered. The prisoners jogged for about five minutes to a bridge, where two large speedboats stood ready. The armed boys loaded the foreigners aboard, and the engines roared. They weaved and raced for about eight hours until they reached remote Delta swamplands.
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Within a day the kidnappers had issued their ransom demands to Sparrow Offshore and to the governor of Akwa Ibom State, a Christian politician named Victor Attah, who was a relatively effective governor by the Niger Delta region’s abysmal standards. The Delta suffered from what the writer Chinua Achebe called a culture of “political godfatherism.” The kidnappers demanded $10 million for the safe return of each of the four British ExxonMobil contract workers among the seven men abducted, or $40 million in total. The largest kidnapping in the corporation’s history was under way.

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ohn Paul Chaplin oversaw ExxonMobil’s operations in Nigeria. The corporation maintained offices in Abuja, the purpose-built capital in the center of the country, and Lagos, the commercial hub on the Atlantic coast, nearer the oil. Dozens of government affairs lobbyists, public relations specialists, security officers, and corporate intelligence collectors reported to Chaplin along with the usual array of engineers, lawyers, and labor supervisors. Especially during the first years of his tenure in the country, Chaplin had taken a somewhat optimistic view of Nigeria’s oil potential. “It’s like the Gulf of Mexico in the 1970s,” he told American diplomats privately. Nigeria’s gas reserves offshore could turn out to be the largest in the world, Chaplin thought. For all of its corruption and flaws, Nigeria’s government had a decent record, to date, of honoring contracts with the big oil corporations that fed the government so much revenue; the government favored Western corporations and resisted China. Nor had Nigeria’s rulers resorted to the sort of manipulated nationalism and populism roiling Venezuela. The centrality of Nigerian booked reserves and production to ExxonMobil’s corporate performance reflected the broader rise of West Africa as a critical oil supplier to the United States after 2000. Nigeria was on track to soon pass Venezuela as America’s fourth largest supplier of oil, after Canada, Mexico, and Saudi Arabia.
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The corporation produced about the same amount of oil in 2006 from Nigeria, Chad, Equatorial Guinea, and Angola as from the United States and Canada combined.

All this provided ample reason, Chaplin thought, for ExxonMobil to try to continue to adapt to what was, admittedly, one of the world’s roughest political and social environments among major producers. The corporation operated in joint venture with the Nigerian National Petroleum Corporation, and the N.N.P.C. was a mess, riddled with corruption and unable to keep up with necessary investments. When the government was not stealing outright, it operated at a hopelessly slow and inefficient pace; bureaucratic approvals that might take six months elsewhere took twice as long in Nigeria. Civil and political unrest swept the country in waves. Even before the raid on Nancy’s, Chaplin had found it increasingly difficult to persuade expatriate technical workers to come to Nigeria; if the problem of attracting talent worsened, it might threaten production.
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Unlike Royal Dutch Shell and Chevron, which ran many of their Nigerian oil wells onshore, in the midst of impoverished and politically disenfranchised Delta populations, most of ExxonMobil’s operations took place in ocean waters eleven to seventy-five miles offshore. The corporation’s onshore base in Akwa Ibom—a private airport and housing compound in Eket, and its nearby Qua Iboe Terminal on the Atlantic Ocean, where piped oil could be stored and loaded for transport—had not been greatly troubled during past phases of militancy and insurgency in the Niger Delta. Southern Nigeria’s most restive antigovernment ethnic groups, such as the Ijaws, had little local presence. These factors fed a tendency toward complacency about security threats in Nigeria back at headquarters, in Irving. But during the months leading up to the Eket kidnapping, it had become clear that ExxonMobil was coming under serious and unprecedented threat.

The surge in Nigeria’s importance to global oil markets seemed to inspire into action the political and criminal gangs in the Delta’s oil-endowed swamps. Northern ethnic elites had long dominated politics and wealth hoarding in Nigeria; across decades, they had exploited the Delta’s oil and left its people in poverty. The particular wave of violence that washed up at the ExxonMobil compound in Eket was only the latest manifestation of this conflict. In 2005, Nigeria’s democratically elected president, the retired general Olusegun Obasanjo, sought to amend the constitution to extend his rule beyond two four-year terms. The power struggle that ensued among parliamentarians, Delta governors, and supporters of the president led to an upsurge of violence by armed gangs of thugs, students, and legitimately aggrieved insurgents—in Nigeria, it was never easy to separate criminals from political dissenters.

Obasanjo established the Niger Delta Development Commission to invest in the neglected south and address the deprivation that fed crime and militancy. ExxonMobil contributed more than $100 million annually to the budget as part of its operating agreements. Yet the commission failed to deliver; Chaplin grew discouraged. He complained that ExxonMobil and other oil majors could not “continue to be the only entities that address communities’ needs because the companies simply are not equipped nor well suited to become quasi-governments.” Chaplin felt that “now is the time for Nigerians to hold their government accountable.”
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The country’s incipient revolutionaries could be as nasty as the government kleptocrats they challenged, however. Delta gangs in early 2006 became newly audacious and ruthless. Kidnapping in the region had long been rampant, but in earlier eras, cases might be settled peaceably as kidnapper and victim sat together in a Port Harcourt bar, sipping beer and waiting for a final ransom to be determined—which they intended to divide between them. The region’s kidnapping markets were highly evolved. Expatriate workers were assessed by kidnapping gangs on a “potential-for-payment scale,” Royal Dutch Shell’s local executive explained to a visiting U.S. senator, “with hostages from the United States or Western Europe garnering the highest ransoms and Russian, Indian and Asians the least.” The oil majors tracked actual ransom settlements—Shell’s matrix showed that the most recent ransoms were running at about $120,000. By 2006, however, raids and abductions led regularly to murder. Shadowy groups issued political demands, not just requests for ransom, and they spoke of revolution. Insurgent and pirate gangs deployed speedboats and raided corporate platforms offshore that they had never reached before. Once-orderly ransom marketplaces yielded to price uncertainty. This devolution unfolded very quickly in late 2005 and early 2006. The United States, Britain, France, and the Netherlands formed a consultative group, the Delta Working Group, based in their embassies in the capital of Abuja and in their consulates in the economic capital of Lagos, to evaluate the emerging crisis. “The question was,” recalled John Campbell, then the United States ambassador to Nigeria, “have things fundamentally changed?”
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Campbell, an experienced career foreign service officer, believed they had. Insurgent groups in the Delta were issuing statements for the first time that threatened to shut down the country’s oil industry. Their language increasingly attacked the Nigerian state and challenged its legitimacy to rule in the Delta. “If you put all this together, we are far beyond where we have been,” Campbell argued to colleagues that early winter of 2006.

Nigerian military intelligence sources began to report specific threats against ExxonMobil in January. They said two groups, the Nigerian Ijaw Martyrs and the Ijaw Patriotic Front, had reportedly been handing out money to Akwa Ibom youths to join an attack on ExxonMobil’s Qua Iboe Terminal. Chaplin’s security team increased their alert status from Code Orange to Code Red, the highest possible level, at the targeted compound, but kept nearby Eket and other facilities at Orange. Threat upon threat followed.

On March 9, a militia group styling itself the Martyrs Brigade, which said it was acting on behalf of the Movement for the Emancipation of the Niger Delta, or M.E.N.D., threatened to carry out “massive attacks” on ExxonMobil’s Nigerian affiliate unless the corporation paid new compensation to local communities, to make amends for a 1998 oil spill from one of its offshore pipelines. “ExxonMobil has continued to pay deaf ears [sic] to the pitiable plight of a now pained and severely exploited people,” the brigade said in a written statement. Along with “all other nationalist and freedom-fighting units in the Niger Delta, we hereby declare a 21-day grace period for ExxonMobil to honor its obligation to compensate every community that was affected by that catastrophic spillage.”
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An ExxonMobil security officer joined the Delta Working Group on March 14 and reported that a militant known as Comrade Owei was behind the protests and threats. ExxonMobil had in fact paid between $25 million and $30 million in restitution for the 1998 spill, but the corporation had turned away demands for compensation from communities that it “does not believe were materially affected by the spill,” the officer said. The corporation felt that it was in a bind. It took the militant’s ultimatum “very seriously,” a second corporate official told the American embassy in Abuja, yet felt its options were limited. ExxonMobil depended primarily on a military command in the Delta, the Joint Task Force, and the notorious State Security Service for protection. Neither seemed prepared to confront the emerging threats. ExxonMobil reported that it had embarked on an advocacy campaign at all levels of Nigeria’s government, arguing that Nigeria “cannot afford to allow M.E.N.D. and other militant groups to creep into Akwa Ibom” and threaten ExxonMobil as they already threatened Shell and Chevron in neighboring states. “Were this to occur, the crisis would encompass virtually all of Nigeria’s oil producing coast.” Chaplin and some of his colleagues feared a step-by-step escalation that might lead Nigeria’s military-influenced government to unleash “a scorched earth policy, regardless of its impact on civilians,” which would only make a bad situation worse for the companies.
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On April 29, a group of local youths, demanding entry-level jobs on offshore ExxonMobil platforms—cleaning, maintenance, and light construction jobs that typically went to foreign nationals recruited from India, the Philippines, or elsewhere—boarded speedboats and occupied a corporate barge twenty miles offshore. ExxonMobil’s Nigerian managers asked an Eket labor commissioner, Chief Samingo Etukakban, to help persuade the young men to leave.

Etukakban was angry with ExxonMobil because in previous talks over jobs for Akwa Ibom youths, he felt that the corporation’s public affairs officers had lied to him. Nonetheless, “we relented and went out to the barge” by corporate speedboat, he recalled. ExxonMobil expatriates were present, Etukakban said, trying to end the sit-in. A Nigerian navy warship soon turned up; ExxonMobil had summoned the navy for assistance. Nigerian officers and sailors—determined to prove that they could defend the property of international oil corporations—boarded the barge on May 1 and arrested everyone, including the mediators invited out by ExxonMobil. “We were detained in very terrible conditions—two people to one handcuff, lying on a concrete floor,” Etukakban recalled. He spent twenty-three days in custody before a National Assembly member secured his release. The next day more youths with machetes forced their way into ExxonMobil’s Qua Iboe Terminal and briefly held two expatriates hostage. The men escaped. Nigerian security forces fired on the demonstrators, killing two of them. ExxonMobil had been “lucky to operate in the most peaceful area of the Delta,” said Chief Nduese Essien, the parliamentarian who freed Etukakban. But after the barge incident, by the summer of 2006, its local standing was deteriorating. ExxonMobil executives seemed unaware about how low its position had deteriorated among some local politicians and their youthful supporters. The corporation repeatedly displayed a “lack of interest” in local issues and welfare, Essien believed. “Everyone in the Delta is fidgety, and militants may be looking for a pretext to expand their swath,” the American consulate in Lagos reported. ExxonMobil is “talking with local leaders” and yet, “even if we keep the professional militants out, [ExxonMobil] will still have a difficult time working with the local youth to resolve this situation.”
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