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June 2012 The Journal of American History 145
American history texts often portray the large international oil companies as one-dimensional
and unchanging agents of the dark side, exercising monopoly power here, corrupting
politics there, and despoiling the environment everywhere. These companies have another
important, though often-neglected dimension: they supply energy that fuels our econ -
omy and shapes our lives. They are hardly unchanging, having survived from the days of
kerosene lamps to the days of jet airplanes by adapting their internal operations to vast
changes in markets and governments. The pace of change accelerated in the last forty
years, when the major oil-producing nations asserted control over their domestic reserves
and created national oil companies to manage their development.
A good place to start in the quest for a fuller understanding of Big Oil is the biggest of
them all, Standard Oil, the predecessor of ExxonMobil. For almost 130 years, John D.
Rockefeller’s company has ranked among the largest and most profitable of the major oil
companies. Rockefeller left a dual legacy, making Standard Oil both the best run and the
most hated oil company. Stressing the core operating principles of financial discipline,
organizational innovation, and technical leadership, he created a model of efficiency that
remains embedded in the corporate dna of ExxonMobil more than a century later. The
behavior and the tone of his company, however, also made it an enduring symbol of cor -
porate excess and power. During the century since Rockefeller’s departure, the company
has sought to remain true to his basic approach to internal operations while adapting to
external, societal demands he did not face. 1
John D. Rockefeller’s Company
When Rockefeller entered the oil business in 1863, soon after the initial discovery of oil
in 1859 in northern Pennsylvania, he found a world of cutthroat competition with almost
no government oversight. The rapid discovery and depletion of new fields fed cycles of
boom and bust in oil prices, creating chaos for investors and operators. The refining,
Exxon and the Control of Oil
Joseph A. Pratt
Joseph A. Pratt is the Cullen Professor of History and Business at the University of Houston. Thanks to Louis Galambos, Ty Priest, and Bill Hale for their comments. Readers may contact Pratt at [email protected] .
1 Big Oil is used here to designate the largest international oil companies. Standard Oil (New Jersey) and Standard Oil (New York) were original members of the Standard Oil Trust formed in 1882. They became separate companies in the 1911 dissolution of Standard Oil. In 1975 Standard Oil Company (New Jersey) consolidated its operations under a new name: the Exxon Corporation, which merged with Mobil in 1999 under the new name ExxonMobil. 146 June 2012 The Journal of American History
transportation, production, and marketing of oil each spawned separate industries
with little coordination among them. From the 1860s through the end of the century,
Rockefeller relentlessly imposed his own brand of order on the oil business. In the process
he established core operating principles that made Standard Oil the dominant economic
force in this vital industry. 2
Financial discipline guided the company’s efficient use of capital. Rockefeller used an
early form of cost accounting to root out all chances to cut costs: “Many of the brightest
[businessmen] . . . did not actually know when they were making money on a certain
operation and when they were losing. . . . We knew how much we made and where we
gained or lost.” He reduced costs obsessively, knowing that in a continuous process indus -
try, a penny saved through improvements in manufacturing processes was a penny saved
again and again. Strict cost controls systematically enforced at every level helped produce
the competitive advantages at the heart of Standard Oil’s long-term strategy. The success
of this strategy allowed the company to use internally generated funds for expansion, free -
ing it from the control of outside investors and allowing a relatively small group of like-
minded leaders to pursue long-term goals. Budgetary discipline in good times prepared
the company to seize opportunities during downturns in the industry, when other com -
panies often could be acquired at bargain prices. 3
To make his company an industry leader, Rockefeller focused sharply on oil: “We
devoted ourselves exclusively to the oil business and its products. The company never
went into outside ventures, but kept to the enormous task of perfecting its own organiza -
tion.” This “enormous task” required finding a path to orderly expansion amid the chaos
of the early years of the oil industry. Rockefeller cleared his own path with vertical inte -
gration, an organizational innovation that became a defining characteristic of the modern
petroleum industry. 4
First, he took control of the Cleveland refining industry—by any means necessary.
He then asserted dominance over other refining centers. Rockefeller acquired the largest
and best refineries, centralized their administration, and improved their operations to
increase efficiency. Professional economists later called the lower unit costs that resulted
“economies of scale.” But Rockefeller was not done. To protect his large investments in
refineries, he built or bought pipeline transportation into and out of the plants, acquired
large markets for refined products, and, finally, moved into crude-oil production. By the
turn of the twentieth century, he had consolidated large segments of the oil industry into
a single vertically integrated company with overwhelming market power. 5
Late in his career at Standard Oil, Rockefeller led his industry in the application of
scientific knowledge to oil refining by hiring a professional chemist to remove sulfur from
2 Ron Chernow, Titan: The Life of John D. Rockefeller Sr . (New York, 1998), 3–95; Allan Nevins, Study in Power: John D. Rockefeller, Industrialist and Philanthropist (2 vols., New York, 1953), I, 1–55. 3 John D. Rockefeller, Random Reminiscences of Men and Events (New York, 1909), 74. See also Chernow, Titan . For the company’s corporate history under John D. Rockefeller, see Ralph W. Hidy and Muriel E. Hidy, Pioneering in Big Business, 1882–1911: History of Standard Oil Company (New Jersey) (New York, 1955). 4 Hidy and Hidy, Pioneering in Big Business, 169–200, esp. 88. Alfred D. Chandler Jr., “The Standard Oil Company—Combination, Consolidation, and Integration,” in The Coming of Managerial Capitalism: A Casebook on the History of American Economic Institutions, ed. Alfred D. Chandler Jr. and Richard Tedlow (Homewood, 1985), 343–71. 5 John McLean and Robert Haigh, The Growth of Integrated Oil Companies (Boston, 1954); Hidy and Hidy, Pioneering in Big Business, 40–121. 147 Exxon and the Control of Oil
crude oil, paving the way for making commercial products from crude that previously
could not be refined. The company also remained at the cutting edge of pipeline and
tanker technology, either through its own research or the purchase of the work of others.
New technology helped it grow while also driving down the cost of its refined goods. 6
Looking back from a century later, the creation of Standard Oil seems almost inevita -
ble. To many contemporaries, however, its scale and power appeared both radical and
frightening. Competitors first felt the pain as Rockefeller took control of the industry.
They voiced indignation at the competitive abuses and the arrogance of the “Standard Oil
gang.” But some paid grudging respect to the company’s ruthless efficiency. Testifying
before the U.S. Congress, the railroad leader William Vanderbilt said of the company’s
leaders: “I never came into contact with any class of men as smart and able as they are in
their business. . . . They will be on top all the time.” 7
Standard’s leaders relished competition. Viewing it as a fight to the death between “us”
and “them,” they remained highly confident of the outcome. With few laws to restrain
him, Rockefeller made his own rules and zealously enforced them with his company’s
economic power. He demanded and received rebates on his posted railroad rates and
drawbacks on those of his competitors, which meant that a portion of their rate secretly
went to Standard Oil. He made use of industrial spies and destroyed competitors with
predatory pricing. Long after Standard had won near-monopoly control in oil, laws
passed partly in response to its abuses outlawed many of these practices. But changes in
the law did not remove the outrage engendered by Standard Oil’s behavior. 8
Public fury grew at the turn of the twentieth century. The historian and muckraker Ida
Tarbell recognized Standard Oil’s “legitimate greatness” in building an efficient organiza -
tion but condemned its behavior as excessive and unnecessary. The muckraker Henry
Demarest Lloyd captured the company’s reputation for political corruption in memorable
language: “The Standard had done everything to the Pennsylvania legislature except refine
it.” The New York World, a part of Joseph Pulitzer’s chain, did not exhibit prize-winning
standards of objectivity: “There has been no outrage too colossal, no petty meanness too
contemptible for these freebooters to engage in. From hounding and driving prosperous
business men to beggary and suicide, to holding up and plundering widows and orphans . . .
all this has entered into the exploits of this organized gang of commercial bandits.” More
than the company’s hard-edged competitive practices fed this fear and loathing. Many
Americans worried that its near monopoly spelled the end of traditional free markets and
of American democracy. Others, including Theodore Roosevelt, made use of this potent
symbol to organize support for political reform. Some simply found Rockefeller to be a
compelling villain. 9
In response to this avalanche of criticism, “The Great John D.” counseled his compa -
triots to focus on their work and “Let the world wag.” The efficient production of useful
products would answer critics. Those within the company viewed political leaders as
opportunistic and insincere. The public seemed ignorant or at least economically illiterate.
6 Chandler, “Standard Oil Company,” 365; Hidy and Hidy, Pioneering in Big Business, 155–68. 7 Peter Collier and David Horowitz, The Rockefellers: An American Dynasty (New York, 1976), 38. 8 Ron Chernow, “The Lady and the Titan,” Vanity Fair (May 1998), 225–39. 9 Hidy and Hidy, Pioneering in Big Business, 639–70, esp. 648; Ida M. Tarbell, The History of the Standard Oil Company; Briefer Version, ed. David M. Chalmers (New York, 1969), 196–208, 144–53. Collier and Horowitz, Rockefellers, 28. Nevins, Study in Power, II, 467–76. 148 June 2012 The Journal of American History
Accustomed to the logic of engineering, Standard’s executives appeared baffled by the logic
of political change. Failing to take seriously the rhetoric and symbolism of democratic
politics, Rockefeller and others underestimated the political risks from the antitrust
movement. The dissolution decree by the U.S. Supreme Court in 1911, which broke up
Standard Oil, hammered home the cost of their insularity, forcing them to look beyond
their disdain for politicians to the potential impacts of political change. 10
Standard Oil (New Jersey): King of the Oil World, 1911–1973
The battle over antitrust in the United States, one of the world’s first major oil-producing
nations, foreshadowed events in other nations. One of the first encounters with producer
nationalism experienced by Standard Oil (New Jersey)—the largest of the thirty-four
companies created in the breakup of Standard Oil—came in the 1920s and 1930s in
Mexico, then a major exporter of oil to the United States and Europe. In that era of
unabashed exploitation, the company joined other international oil companies in defying
the Mexican government’s power regarding taxes, the treatment of labor, and the owner -
ship of subsoil rights. The control of Mexico’s oil by foreigners inflamed public opinion.
In 1938 the government finally expropriated the properties of the international oil com -
panies. This stunning reversal came to symbolize the ultimate cost of failing to meet the
legitimate demands of producing nations. 11
After World War II the company used lessons learned in Mexico to try to accommo -
date growing demands for better working conditions and a greater “take” from oil pro -
duction in both Venezuela and Saudi Arabia. To maintain control over oil production and
oil prices, Standard Oil (New Jersey) expanded training for host country workers, split
profits fifty-fifty, and improved wages and benefits at Creole (Venezuela) and Aramco
(Saudi Arabia), where the company worked in a joint venture with Mobil, Socal, and
Texaco. These were very profitable ventures for the company, and sharing the wealth with
these important producing nations helped it retain control over the level of production
and the pricing of these giant foreign reserves into the 1970s. 12
The steady discovery of new oil fields produced a glut of oil that the so-called Seven
Sisters (Exxon, Mobil, Gulf, Texaco, Chevron, British Petroleum, and Royal Dutch–
Shell) successfully managed for a time. They played nations against each other while
controlling the supply of oil through a system of overlapping ownership ties in the major
producing nations. Critics have long focused on one result of the oil companies’ strategies:
the propping up of dictators with oil revenues, which assured access to reserves. But a
fuller historical understanding should acknowledge that during the Cold War, govern -
ments of the major consuming nations—led by the United States—supported these
10 “The Rockefellers,” prod. and dir. Elizabeth Deane (episode of American Experience, ex. prod. Margaret Drain), wgbh (pbs , 2000), transcript, http://www.pbs.org/wgbh/amex/rockefellers/filmmore/pt.html . Bruce Bringhurst, Antitrust and the Oil Monopoly: The Standard Oil Cases, 1890–1911 (Westport, 1979); Nevins, Study in Power, II, 328–436. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911). 11 Lorenzo Meyer, Mexico and the United States in the Oil Controversy, 1817–1942 (Austin, 1977). 12 For accounts from within the company, see Henrietta M. Larson, Evelyn H. Knowlton, and Charles S. Popple, New Horizons, 1927–1950 (New York, 1971), 618–27; and Bennett H. Wall, Growth in a Changing Environment: A History of Standard Oil Company (New Jersey), Exxon Corporation, 1950–75 (New York, 1988), 396–430. On Venezuela, see also Terry Lynn Karl, The Paradox of Plenty: Oil Booms and Petro-states (Berkeley, 1997). On Aramco, see Robert Vitalis, America’s Kingdom: Mythmaking on the Saudi Oil Frontier (Stanford, 2007). 149 Exxon and the Control of Oil
arrangements with tax breaks and the threat of military action to keep oil flowing to their
citizens. This practice was clearest in Iran in the early 1950s, where U.S. and British gov -
ernment operatives orchestrated the overthrow of the regime of Mohammed Mossadeq
and the return of the pro-Western Mohammed Reza Shah Pahlavi to power. Complicating
U.S. foreign policy were growing tensions between supporting Israel and the need
for Middle Eastern oil to rebuild Western Europe and Japan and fuel a postwar boom in
the United States. For a quarter century after World War II, channeling oil revenues to
Middle Eastern producing nations through the major oil companies helped keep U.S.
policies regarding oil and U.S. policies toward Israel more or less separate. As global oil
production rose from about 10 million barrels per day in 1950 to over 55 million barrels
per day in 1973, Standard Oil (New Jersey) remained king of the international petroleum
industry. As late as 1970 it produced almost 15 percent of the oil consumed in the non -
communist world. 13
Refocusing on Core Operating Principles in the Age of Producer Power
In October 1973, war in the Middle East forcibly brought together the issues of Israel and
oil. Arab members of the Organization of Petroleum Exporting Countries ( opec) placed
an embargo on oil exports to the United States in retaliation for the aggressive U.S. support
of Israel. The resulting crises in world oil markets made it painfully obvious that world oil
supplies were stretched thin. opec then asserted control of oil production and quadrupled
oil prices, which had been in the $3 per barrel range before the embargo. The nationaliza -
tion of foreign oil companies by most major producing nations followed quickly, as did
the growth of national oil companies. In 1979 cuts in global oil supplies after the Iranian
Revolution and the hostage crisis more than doubled oil prices again into the mid-$30
per barrel range and increased speculation about the end of the age of oil. 14
The opec nations contain most of the world’s proved oil reserves, and once they
asserted control of their own oil, Exxon’s position in the global oil industry changed
abruptly. Producer power dethroned the king. Nationalizations in Venezuela, Saudi Arabia,
Libya, and Iran reduced Exxon’s production of crude oil from 6.8 million barrels per day
in 1973 to about 1.7 million in 1985, or only about 3 percent of global supply. In this
era, Big Oil lost ownership and control of vast reserves; instead of controlling the oil
under leasing agreements, it became primarily a contractor and a purchaser of crude oil. 15
Exxon first sought to adapt by expanding its search for non- opec oil and using revenue
from higher oil prices to diversify into businesses outside oil. When internal conflicts in
the early 1980s undermined opec ’s capacity to manage production, however, crude
flooded the market and oil prices plunged below $10 per barrel. In response, Exxon
13 Peter Odell, Oil and World Power: A Geographical Interpretation (New York, 1970), 95–129; Fiona Venn, The Oil Crisis (London, 2002); Anthony Sampson, The Seven Sisters: The Great Oil Companies and the World They Shaped (New York, 1975), 119–21; Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (New York, 1991), 456–70. The 15% figure is based on an estimate of free world production at 40 million barrels per day and Standard (New Jersey) production of about 6 million barrels per day. Standard Oil Company (New Jersey), 1970 Annual Report (New York, [1971]), 1, 8. 14 On the October War, see Abraham Rabinovich, The Yom Kippur War: The Epic Encounter That Transformed the Middle East (New York, 2004). On the impact of the embargo, see Karen R. Merrill, The Oil Crisis of 1973– 1974: A Brief History with Documents (New York, 2007). On the Organization of Petroleum Exporting Countries, see Sampson, Seven Sisters, 297–357. 15 Exxon Corporation, 1973 Annual Report (New York, [1974]), 5; Exxon Corporation, 1985 Annual Report (New York, [1986]), 6. 150 June 2012 The Journal of American History
changed course, refocusing on its oil business. The company had lost focus on its core
operating principles during the long era of postwar expansion made possible by “easy oil”
from Venezuela and the Middle East and then in the era of diversification in the 1970s.
But Rockefeller’s approach to the efficient operation of an oil company proved as effective
in the chaotic conditions of the 1980s as it had been in the 1880s. 16
The first wave of deep cuts in employment and costs came as the company “refocused
on the core” by divesting its nonpetroleum businesses. Next came sustained efforts to
capture a new generation of economies of scale, as Exxon systematically closed its least
efficient refineries and increased the size and efficiency of those that remained. The
benefits of this renewed emphasis on financial discipline were clearest in the company’s
merger with Mobil in 1999. Exxon had avoided major acquisitions in the decade after
the oil-price bust, but near the bottom of a long downturn in the industry in the late
1990s, it acquired Mobil on favorable terms. The successful consolidation of the two
largest companies formed from the break up of Standard in 1911 created ExxonMobil,
the world’s largest oil company not owned by a government in the early twenty-first
century. 17
The merger accelerated the pace of change within ExxonMobil. Managing its greatly
expanded global empire required organizational innovations. In the 1980s the company
created its first system for ranking exploration prospects around the globe instead of only
within individual nations or regions as it previously had done. It also sought to improve
the management structure for its sprawling operations by extending Rockefeller’s signal
innovation, vertical integration, to a global level. The coordination of the worldwide
management of each key function—downstream operations (refining, marketing, and
transportation), exploration, development, production, and chemicals—gave Exxon a leg
up on its international competition. 18
In the late twentieth century the application of new technologies became increas -
ingly important at Exxon. As a part of a sprawling fraternity of oil companies, oil sup -
ply and service companies, and university researchers, it contributed to an astonishingly
creative period of technological advances following the energy crises of the 1970s.
Making use of the growing power of computers, geophysicists worked miracles with
new seismic processes that produced increasingly detailed underground mappings.
Other technical advances revolutionized the production of petroleum by greatly extend -
ing the capacity to find and produce oil in deeper waters offshore and in the Arctic.
Chemists and engineers revamped refineries to meet economic and societal demands for
cleaner-burning gasolines, more flexible chemical products, and cleaner and more fuel-
efficient refineries and petrochemical plants. Such innovations, backed by the company’s
proven capacity to manage efficiently the planning and construction of giant projects,
became the calling cards of ExxonMobil in its quest for access to reserves around the world. 19
16 On Exxon’s diversification and strategy in the 1980s, see John A. Byrne, “The Rebel Shaking Up Exxon,” Business Week, July 18, 1988, pp. 104–7, 110–11. 17 Exxon Corporation, 1984 Annual Report (New York, [1985]), 2, 14; Exxon Corporation, 1990 Annual Report (New York, [1991]), 14–15. Christopher Cooper and Steve Liesman, “Exxon Agrees to Buy Mobil for $75.3 Billion,” Wall Street Journal, Dec. 2, 1998, p. A8. 18 On the merger and ExxonMobil’s new strategies, see Daniel Yergin, The Quest: Energy, Security, and the Remaking of the Modern World (New York, 2011), 83–105. 19 See, for example, Fred S. Ellers, “Advanced Offshore Oil Platforms,” Scientific American, 246 (April 1982), 39–42, 45–50, 162. 151 Exxon and the Control of Oil
Extending or Adapting Core Values
The core corporate values and operating principles put in place by Rockefeller thus proved
useful a century later in reviving efficient operations. The world obviously had changed
dramatically in the intervening years, and Exxon had to adapt inherited values and atti -
tudes to new conditions. The company also needed to extend those values and attitudes
to areas not addressed in the company’s formative years. For example, a strong tribal sense
remained an important part of Exxon’s corporate culture, but increased flexibility was
important in the management of joint ventures with others, including national oil com -
panies. In the giant high-risk, high-reward projects of the late twentieth century, such
ventures became the norm. Exxon could not afford to take the “us versus them” attitude
of the old Standard Oil gang. It had to become more adept at working with outsiders—or
at least at convincing them that its approach produced the best results. 20
In another key area of operations, safety, health, and environment (or SH&E), Exxon
learned to apply its core operating principles to an increasingly important set of issues
slighted in Rockefeller’s era. The 1960s and 1970s were trying times for Exxon and other
oil companies as they responded to a wave of environmental laws backed by powerful new
regulatory agencies, notably the Environmental Protection Agency and the Occupational
Safety and Health Administration (both created in 1970). Exxon often resisted the pas -
sage of these types of laws, which at times challenged their traditional autonomy over
both production processes and investments. New laws mandated the removal of lead
from gasoline, demanded compliance with improved standards of air and water quality,
increased concern for workplace safety, and required advanced planning to minimize the
environmental impact of major projects. In lobbying and testimony before Congress,
Exxon argued that many of these laws were not backed by good science and were ineffi -
cient ways to meet regulatory goals. Again and again, it lost these legislative battles, and
Congress passed strong new environmental regulations. The company then went about
absorbing the new mandates into its operations while trying to shape their implementa -
tion in regulatory rule making and in the courts. 21
A turning point in the company’s approach to SH&E came in March 1989 after the
disastrous Exxon Valdez oil spill in Prince William Sound in southern Alaska. At the time,
it was the largest spill in American waters, and it occurred in one of the most beautiful
places in the world. The events that caused the spill, as well as the company’s early
responses, made a mockery of Exxon’s self-image as the best-run company in its industry.
Scathing public criticism made it public environmental enemy number one, sullying its
reputation for decades. Strict new laws regulating both the Port of Valdez and the oil
tanker business in the United States followed. 22
The big change within Exxon, however, occurred not through new laws but through
determined internal effort to improve the company’s performance. In the year after the
Exxon Valdez oil spill the company suffered a deadly refinery explosion and another large
spill near New York City. These events kept the company in the public spotlight and
20 Pam Kevelson, “A Journey of a Thousand Miles: Historic Investment in China,” Lamp (no. 2, 2007), 7–9. 21 Hugh S. Gorman, Redefining Efficiency: Pollution Concerns, Regulatory Mechanisms, and Technological Change in the U.S. Petroleum Industry (Akron, 2001). 22 Peter A. Coates, The Trans-Alaska Pipeline Controversy: Technology, Conservation, and the Frontier (Anchorage, 1993). 152 June 2012 The Journal of American History
shook Exxon to its core. There it found its historical commitment to efficient operations
and launched a systematic effort to apply it to the issues raised by SH&E. The result was
an innovative approach to the management of safety called the Operations Integrity Man -
agement System ( oi\fs ) that steadily improved the company’s performance on safety,
health, and the environment. Regular, rigorous internal evaluations of the performance
on these issues of every major unit in the company’s global organization, forcefully estab -
lished that safety, health, and the environment were now top priorities. The company
enforced individual accountability for meeting best practices through its personnel evalu -
ation system, with good results a prerequisite for career advancement. Although it took
years to change corporate culture on this issue, the value of doing so came into clear focus
after BP’s giant Macondo well oil spill in the Gulf of Mexico in 2010. In the investigation of
this spill, William Reilly, the cochair of President Barack Obama’s National Commission
on the BP Deepwater Horizon Oil Spill and Offshore Drilling, cited the safety culture
and systems Exxon developed after the Exxon Valdez spill as the “gold standard for safety
in environment protection” to which other companies should aspire. 23
A similar approach proved effective in addressing another issue not high on Rockefeller’s
list of priorities: curbing corruption. A much-publicized bribery scandal in Italy in the
early 1970s convinced Exxon to strengthen its stance on political “donations.” It aggres -
sively established a distinctive “brand” in its international operations: the biggest and the
best international oil company would not pay bribes. It would earn the right to do busi -
ness through its advanced technology, ample investment capital, and access to global
markets. This stance undoubtedly weakened the company’s competitive position in parts
of the world, but Exxon remained convinced that long-term profitability would be
enhanced by removing the corrosive effects of bribery. 24
Since the fall of the Soviet Union, political issues beyond bribery have tested the company’s
capacity to adapt through managing political risks in a variety of nations with different
systems and histories. In Russia in the 1990s Exxon confronted a nation in flux, with no
clear legal or regulatory framework and great uncertainty about its political future. The
company responded by demanding explicit government guarantees in its contract to
develop giant oil and gas reserves on Sakhalin Island, off the nation’s eastern coast. A Russian
joint venture partner provided local knowledge. The use of Russian contractors when
possible for equipment and supplies bought good will. Advanced technology then enabled
Exxon to complete the project, producing much-needed revenues for Russia. 25
In African nations, Exxon encountered the lingering effects of colonialism, poverty,
civil war, and political unrest. In the late twentieth century, events in Nigeria bolstered
the “oil curse” argument, which held that the discovery of oil could yield more harm than
benefit in nations ill-prepared to absorb its impact. Exxon searched for antidotes for the
23 For a report that describes the inner workings of the Operations Integrity Management System and includes statistics on regulatory compliance, oil spills, and air emissions, see ExxonMobil, “Safety, Health, and Environment,” in Corporate Citizenship in a Changing World (Irving, 2002), 6–15. William Reilly repeated this assessment of Exxon’s safety culture and systems in the commission’s report and in the media. For a video that shows Reilly mak - ing this statement, see Day 2, Panel V, National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling: Meeting 5, http://www.oilspillcommission.gov/meeting-5/meeting-details . See also Jeffrey Ball, “Lessons from the Gulf,” Wall Street Journal, March 7, 2011, p. R5. 24 Wall, Growth in a Changing Environment, 717–29. In 1977 the United States passed an act that established legal penalties for bribery in foreign nations. See Foreign Corrupt Practices Act, 15 U.S.C. sec. 78dd-1, et seq. (1977). 25 Thane Gustafson, Capitalism Russian-Style (Cambridge, Eng., 1999); Tom Bower, Oil: Money, Politics, and Power in the Twenty-First Century (New York, 2009). 153 Exxon and the Control of Oil
oil curse in its development of reserves in Chad, one of the poorest countries in Africa,
and Angola, a nation devastated by a prolonged civil war. In the late 1990s, an Exxon-led
consortium in Chad teamed with the World Bank in an innovative oil revenue manage -
ment plan designed to assure the flow of most of these revenues into projects for national
economic development. In an agreement for funding a major pipeline and associated oil
fields, the government accepted strict limits on its sovereignty, including greater transpar -
ency and the management of the development fund by the World Bank. The bank’s
leverage declined, however, after the completion of the pipeline. After a sharp spike in oil
prices in the mid-2000s and an attempted coup, the government altered the terms of
the agreement. Unable to restore the original agreement, the World Bank withdrew. The
consortium did not have that option, since its multibillion-dollar pipeline could not be
moved. The project continues to produce oil and revenues for both the consortium and
the government, while serving as a symbol of failure for critics and an interesting case
study of a worthwhile experiment for others. 26
In Angola, ExxonMobil took an even broader approach, bringing to bear all it had
learned over more than a century of foreign operations to try to build a durable partnership
with the government—and its citizens—in the development of giant offshore reserves.
It made use of joint ventures with Angola’s national oil company, training programs for
Angolan workers, and local contractors as called for by law as well as custom. In both
Chad and Angola, Exxon made substantial contributions to local educational institutions
and health clinics and partnered with other international institutions in efforts to eradicate
malaria. 27
The company’s reputation for technical and operational excellence helped Exxon gain
entry to producing nations with high political risks, but more than its reputation was
required to remain for decades and reap long-term profits. Rockefeller-style internal effi -
ciency simply was not enough in the new era of producer power. The company also could
not count on the strong U.S. government support that it had often received during the
Cold War. To earn long-term profits on its massive investments, it had to adjust to societal
demands within imperfect and evolving political systems—and amid a chorus of criti -
cism. This tested the limits of Exxon’s adaptability. How far could the company go in
fulfilling broad social responsibilities without reducing its effectiveness in performing its
central function—finding and producing energy, and making the profits needed to fund
its operations?
As it seeks practical answers to this important question, ExxonMobil is still plagued by
its historical image as the symbol of the abuses of Big Oil. Why? Its size and power are
never far from view, as witnessed by its record profits in the last decade. Its tone in public
relations still strikes critics as arrogant, as best exemplified in the recent past by its aggres -
sive stance on the incompleteness of the science of climate change. The company’s impor -
tant role in providing a product vital to national security brings additional scrutiny.
ExxonMobil remains a potent political symbol used by U.S. politicians to build support
26 For a discussion of the oil curse in Africa, see Ricardo Soares de Oliveira, Oil and Politics in the Gulf of Guinea (New York, 2007); Pauline Jones Luong and Erika Weinthal, Oil Is Not a Curse: Ownership Structure and Institutions in Soviet Successor States (Cambridge, Eng., 2010); and Stephen V. Arbogast, “Project Financing and Political Risk Mitigation: The Singular Case of the Chad-Cameroon Pipeline,” Texas Journal of Oil, Gas, and Energy Law, 4 (no. 2, 2008–2009), 2–22. 27 Tony Hodges, Angola: Anatomy of an Oil State (Bloomington, 2004). 154 June 2012 The Journal of American History
for reforms and by officials in other countries as a villain useful in rallying the masses
against American influence. 28
Historical memory also plays an important role in the condemnation of ExxonMobil,
and Big Oil in general. Mexicans still celebrate expropriation day; Iranians lament the
overthrow of Mossadeq; Russians remember the foreign oil rush of the 1990s. These
memories confront new generations of ExxonMobil executives as they manage political
risks around the world. Above it all looms the shadow of Rockefeller—the robber baron,
not the business innovator. The collective memory of the Exxon Valdez disaster does not
include the largely unknown story of oi\fs creating a safety culture now used as a bench -
mark by other companies.
Historians did not create this negative image, but we have done little to provide a
fuller, more nuanced portrait of Big Oil. Academic history as now practiced in the United
States largely omits economic history, much less energy history. At times we allow our
skepticism of Big Oil to blind us to the importance of the petroleum products that have
become such vital parts of modern life. We focus on the dark side of oil companies, as if
there is no other story. No production of energy. No job creation. No legitimate greatness,
as even Ida Tarbell conceded. Our static image of Big Oil slights our stock-in-trade as
historians—the analysis of change over time.
As we ponder our energy future, we need a fuller historical understanding of the evolu -
tion of the major oil companies. The first step is to acknowledge the sharp decline in their
power to control prices and production levels in the global oil industry since 1973. The
next step is to accept our complicity in our historical dependence on oil. It is easy to fill our
tanks, ignore energy-related issues until gasoline prices rise, and then blame Big Oil. It is
an enormous task, indeed, to reduce our energy consumption and push our democracy to
frame long-term energy policies that establish a realistic framework for our energy future—
one that acknowledges the historical contributions of the major oil companies and the
reality that we will need them to continue to produce oil and natural gas for generations.
28 On ExxonMobil’s stance on climate change science, see Judith A. Layzer, “Deep Freeze: How Business Has Shaped the Global Warming Debate in Congress,” in Business and Environmental Policy: Corporate Interests in the American Political System, ed. Michael E. Kraft and Sheldon Kamieniecki (Cambridge, Mass., 2007), 93–125.
© 2012 Organisation of American Historians
