July 19, 2013 Categories: 49 History
Note: The following book review first appeared at AlaskaDispatch.com.
Joseph A. Pratt with William E. Hale, Exxon: Transforming Energy, 1973-2005 (Austin, Texas: Dolph Briscoe Center for American History, 2013).
By Ross Coen
Official corporate histories, those funded by the corporation itself and coauthored by a handpicked writer and a company PR man, should usually be taken with a grain of salt. Exxon: Transforming Energy, 1973-2005, the fifth volume in a series that records the history of Standard Oil from its very founding in 1870, making this the most in-depth study of a private company in existence, might seem at first glance to be one such book.
Alaskans able to keep an open mind should give the book a chance for a couple of key reasons. First, its lead author, Joseph A. Pratt, is a historian of energy and business at the University of Houston and a highly respected author of dozens of books and articles about the oil and gas industry. No corporate flack he.
More importantly, as with the first four volumes in the series, this newest book draws upon candid interviews with Exxon executives, as well as internal reports, documents, and correspondence. While there are no smoking guns or bombshell admissions by loose-lipped executives, the mere fact that the book cites internal communications from perhaps the most circumspect corporation in history is noteworthy.
Alaska figures prominently in three sections of the book, all of which are illuminating in their own way.
The first occurs in a chapter entitled “Colder and Deeper” where Pratt places Alaska in a category that includes Malaysia, Australia, and the North Sea—places where extreme environmental and climatic conditions required technological innovation and project-management skills on a scale never before achieved by the industry. Exxon personnel cite Prudhoe Bay as the capstone of this effort. The North Slope field so stretched the technical and managerial capabilities of the company that it became a “proving ground” for an entire generation of executives and engineers.
This section also describes Exxon’s internal deliberations regarding the long-awaited gasline project. In noting the value of re-injected gas to enhanced oil recovery and by placing the various gasline proposals in the context of Exxon’s global reserves—all of which are orders of magnitude cheaper than North Slope gas—Pratt achieves a level of analysis that has escaped many Alaskans over the years. One executive put the gasline’s prospects best: “It’s never been economical” (120).
Next comes the design and construction of the Trans-Alaska Pipeline System (TAPS), which Pratt cites as an example of the environmental regulatory regime that arose in the 1970s and forced the industry to confront issues it never had to deal with before. TAPS was the first private construction project that required an Environmental Impact Statement and, as the author notes, neither Exxon nor federal regulators knew quite how to proceed. The manner in which both groups stumbled forth leads Pratt to conclude the oil industry had indeed entered a new era, one that would play out as much in Congress, the courts, and the arena of public opinion as in corporate boardrooms.
From Exxon’s perspective, these were not welcome developments. The company and its Prudhoe Bay partners, writes Pratt, “did not offer much praise for the government’s overall management of the Trans-Alaska Pipeline” (94). Lawsuits and intergovernmental wrangling over environmental controls contributed to a four-year delay in TAPS construction (1970-74), and while many industry officials later admitted the delay gave them time to engineer a safer, more environmentally sound pipeline, a number of Exxon executives quoted in the book openly lament the near-complete loss of autonomy they had enjoyed for decades.
That the book offers these inside perspectives is most welcome—but at times exasperating. The author notes that by the time TAPS was finally completed in 1977, “the price of the pipeline had grown to approximately $8 billion as inflation, design changes, and environmental safeguards greatly increased the original cost estimates” (95).
Such a facile explanation is disappointing to anyone familiar with TAPS history. The construction delays and excessive costs resulted more from the industry’s unpreparedness and disorganization than from any other factor. In 1977, state investigators determined a full $1.5 billion in cost overruns came about directly from mismanagement by Alyeska and its owner companies. That the author fails to delve into this history from his insider’s perch is a disappointment.
Also ignored by Pratt is the well-documented pattern by Exxon itself of holding up pipeline construction. At the time, the company held crude reserves around the world, especially in the Middle East and Venezuela, that could be developed much more easily and profitably than those in Alaska. Exxon was therefore more than willing to sit on its Prudhoe Bay leases, especially when doing so frustrated its rivals British Petroleum and ARCO, neither of which was in an economic position to absorb delays the way capital-rich Exxon could. Exxon’s own chairman at the time, Mike Wright, was on record stating simply, “We aren’t as eager as they.” (In fairness to Pratt, brief mention of this powerplay does occur in the previous volume in the series, Growth In a Changing Environmentby Bennett H. Wall, published in 1988. By leaving it out of the present book, however, Pratt incorrectly apportions most of the blame for TAPS problems to government regulators.)
The third mention of Alaska and the section of greatest interest is, of course, the chapter on the Exxon Valdez. Here again, a peak into the company’s mindset is simultaneously fascinating and maddening.
That Exxon, Alyeska, the Coast Guard, state and federal regulators, and pretty much everyone else bungled the spill response is beyond dispute. Rather than rehash this history, Pratt examines Exxon’s corporate culture of the time and concludes the company’s health and safety standards had regressed to an alarming degree. Two other accidents that same year—a pipeline spill in New Jersey and an explosion at a Louisiana refinery that killed one worker—convinced everyone in the company something was badly broken. Pratt describes in great detail the creation of the Operations Integrity Management System, a companywide plan to improve safety and ensure accountability for mistakes.
The legacy of the oil spill, within the company at least, includes this cultural transformation. One could argue Exxon’s successful 1999 merger with Mobil and record profits in the past decade—$45.2 billion in 2008, for example—came about in part from the housecleaning that followed the disasters of the 1990s.
The twenty-year legal battle over the oil spill saw punitive damages against Exxon reduced from $5 billion to just one-tenth that amount when the case was finally settled by the U.S. Supreme Court in 2008. Alaskans who have long wondered why Exxon didn’t just pay the fine and be done with it, especially considering its continued promises to “make people whole again,” will not be surprised to read the following quote by company president Lee Raymond, given in a 2007 interview for the book: “We made a decision very early on [that] time is on our side. To the extent we can draw it out, the legal system was gradually going to close down on punitive damages” (306). One hardly knows whether to cry at the tragedy or laugh at the farce of it all.
The book’s subtitle—“Transforming Energy”—refers to the ever-shifting social, political, and environmental circumstances that over the past four decades forced Exxon to transform itself into a more nimble, adaptable company. You don’t get to be the largest, most profitable private corporation in the history of the world without doing a few things right. Alaskans who wish to understand both our place in the global oil industry and the nature of our past, present, and future relationship with Exxon need to understand how the company works. This book is an excellent place to start.