Slippery Business

ExxonMobil is only a business, yet for a century and a half it has vexed, baffled, and unsettled us. Take Hannibal Lecter, Daniel Plainview, and Darth Vader, roll them into a single sinister character, and you start to grasp the feelings of generations of critics. "We need policy change on a global scale, and Exxon has been at the forefront of those blocking change," former Vice President Al Gore wrote a week ago on his blog.

But why? There are its outsized profits, of course — $41.1 billion last year alone — plus the remarkably enduring heartless persona of John D. Rockefeller, its founder in the old Standard Oil days. But Gilded Age ruthlessness and success in the contemporary capitalist West do not sufficiently explain the shadow that ExxonMobil seems still to cast on our collective imagination. After all, today’s Apple is bigger than ExxonMobil, and the last of the robber barons have been dead for the better part of a century.

Enter a surprising and trenchant new decipherer of our confounded anxiety: Rex Tillerson, boss of the oil giant. Since becoming CEO six years ago, Tillerson has muddled the company’s traditional image with a polished and deliberate nuance that seems to project caring. He has been "cautious, genial, accommodating and eager to soften [the company’s] hard edges," Steve Coll, the author of Private Empire, a new book on ExxonMobil, told me.

But two weeks ago, the mild-mannered, pin-striped executive seemed to abruptly throw caution to the wind. In a speech before the elite Council on Foreign Relations (CFR) in New York, he suggested that Americans suck it up and adapt to global warming. "We have spent our entire existence adapting, OK? So we will adapt to this," Tillerson said in reply to a question from the audience. "Changes to weather patterns that move crop production areas around — we’ll adapt to that. It’s an engineering problem, and it has engineering solutions." For starters, Tillerson said, ExxonMobil had set out to educate the "illiterate" public as to the facts, and move them away from the purveyors of "manufactured fear."

At once, we are back to the Exxon we once knew.

What got into the "cautious" Tillerson is a question between him, his board, and their shareholders. But conspiracy theories are unnecessary to explain the resulting nervousness of critics: As Coll’s book describes, Tillerson’s predecessor as CEO, Lee Raymond, declared war on efforts to restrain CO2 emissions, spending millions of dollars of company money starting in the late 1990s to fund writers and think tanks that cast doubt on climate science. The cash came from two places: directly from ExxonMobil’s public affairs unit and channeled through the American Petroleum Institute, the industry’s lobbying arm in Washington, D.C., Coll writes, and it managed to help roil four decades of U.S. environmental politics.

The surprising thing for me has not only been Tillerson’s apparent overnight transformation into an indelicate roughneck on steroids, but the relatively little attention it has attracted in the community that watches him most closely — Wall Street. As far as I can tell, the new Tillerson has surfaced without notice. None of the Wall Street oil analysts I contacted for this story had even heard of the speech. Given the corporate risks of assuming such a bold public persona, it might be prudent for finance types to take a look.

ExxonMobil insists that there is no change in Tillerson or in company policy. Increasing CO2 emissions in the atmosphere are warming the planet, and the risks of this impact must be quantified, said Kenneth Cohen, ExxonMobil’s vice president for public and government affairs. Tillerson’s use of the word "adaptation" does not signal a policy shift, he said. As for Tillerson’s other language, he said, "Rex has a well-earned reputation for being straight-forward and telling people exactly what he believes to be true after spending a lot of time thinking about it."

Is Cohen right? Has Tillerson always been a salty-tongued executive who urged the population to adapt to global warming? Did neither I nor any of my current and former colleagues notice? If that is the case, I apologize to my readers for taking note only now, after years of covering the company.

Moving on to politics, Tillerson’s remarks also seem important in the context of the closely fought U.S. presidential campaign. Given ExxonMobil’s history of putting its lobbying might behind its deepest beliefs (and interests), the partial revival of Raymond’s overt hostility toward climate science seems notable. Tillerson may also be signaling, intentionally or not, a shot across the bow of President Barack Obama’s green instincts. Tillerson and ExxonMobil appear to believe "there is no [political] cost to talking like this," says Edward Chow, Chevron Corp.’s former head of international external affairs, now a senior fellow at the Center for Strategic and International Studies.

Three years ago, we saw a very different Rex Tillerson. In January 2009, the ExxonMobil CEO was so worried about the Obama juggernaut that he engineered a wholesale change in the company’s public policy. He abandoned his predecessor’s confrontational climate policy, declared ExxonMobil a believer in global warming, and said the company favored a tax on carbon as the best way to reduce emissions. Tillerson’s latest remarks seem to repudiate that switch.

But there appears to be more to it, according to Chow, who thinks it is a clue to ExxonMobil’s national electoral preference. "The same vanity displayed in the speech is in view here, saying ‘The country cannot in its right mind re-elect this guy.’ I can see them believing it," Chow told me.

If this were someone besides Tillerson speaking, however, we could perhaps disregard the speech as a mere rant of a frustrated oilman. After all, on Dec. 14, 2009, Tillerson announced the $41 billion acquisition of XTO, a big U.S. specialist in fracking, a drilling method formally called hydraulic fracturing. At the time, Wall Street asset managers questioned the astuteness of a high-priced deal given that natural gas was selling for about $5.24 per 1,000 cubic meters, or less than half the peak of about $13 per 1,000 cubic meters in summer 2008. Tillerson argued that the deal would pay off in the long-term, but natural gas prices plunged further.

On Tuesday, natural gas futures closed at $2.73 per thousand cubic meters, or 47 percent lower than they were the day of the 2009 deal. At CFR, Tillerson put that fact in context. "We are all losing our shirts today," he said of the industry. "You know, we’re making no money. It’s all in the red." So it’s possible to see the entire speech as a gigantic venting exercise.

But Tillerson is too deliberate a player to succumb to ranting in public, particularly in front of an establishment crowd such as the Council on Foreign Relations. Checking around, what I found is that in fact Tillerson merely expressed publicly what insiders say routinely in private. While it may sound cavalier to the common ear — including mine, even hanging out with oilmen as I do as part of the job — many industry players sincerely believe that adaptation is the answer to global warming. (You know, if Kansas gets too hot, you just pick up the entire population of 3 million people and shift them to, say, Colorado.) Many industry hands regard it as foolhardy and even futile to attempt to scale back fossil fuel consumption enough to contain the rise in global temperatures to 2 degrees Celsius above pre-Industrial Revolution levels, which is the goal of climate scientists.

Tillerson also seems to find industry traction with his suggestion that, instead of focusing interminably on global warming, it would be far more humanitarian to provide fossil fuels to huge populations currently lacking electricity or cooking food over dung-lit fires. "When you are able to lift hundreds of millions of people out of poverty, that has to be the first global objective," Donald Lindsey, chief investment officer at George Washington University, told me. "Maybe that’s the message. If you look at the extent of global problems, poverty is an immediate need that has to be solved, but isn’t something that can be addressed by continuing to attack the industry."

In an email exchange, Coll explained Tillerson’s shift as a reflection of an apparent transformation in industry fortunes. Until just a few months ago, major oil companies spoke mostly of a struggle to replenish the hydrocarbons that they drill every year, and the effort to keep their reserve base stable and growing. But a new North American oil boom, underpinned by a technological breakthrough in fracking, has appeared to fundamentally improve the industry’s outlook.

According to Coll, these happier days have presented the industry with a new political risk — "resistance to fracking and evidence that global warming is getting worse." In this scenario, Tillerson needs to beat down environmentalists if ExxonMobil is to succeed.

Coll thinks this strategy will fail. "Tillerson’s public comments do not represent a convincing or plausible strategy to manage that risk, in my judgment," he told me. "He’s in danger of boxing ExxonMobil in politically." Tillerson’s views might find mainstream alignment if Republican Mitt Romney wins election in November, for example. But what if he doesn’t? Or what if he does but sometime later, U.S. politics shift back in favor of environmentalists? ExxonMobil could be yet again in the awkward position of explaining its apparent antagonism to major green goals. That’s the kind of political risk that used to keep guys like Rex Tillerson up at night.