JANUARY/FEBRUARY 1989 - VOLUME 10 - NUMBERS 1 & 2
C O R P O R A T E P R O L I F I L E
Exxon: The Oil King
by John Summa
While independent oil producers in the United States are still suffering from the bottoming out of the crude oil market in 1986, the giant energy multinational Exxon is doing better than ever. Even though prices for oil fell from $34 a barrel in the early 1980s to $15 a barrel in March 1986 (since hovering in the $15 to $18 a barrel range), Exxon has boosted earnings and is sitting atop a mountain of cash.
Exxon is the world's largest oil company, with 102,000 employees, operations in 80 countries and a string of affiliates and subsidiaries that extends its reach far beyond petroleum. Ranked second on the Fortune 500 (behind General Motors), the company posted revenues of $84.12 billion in 1987, up 9.3 percent from 1986 and generating net profits of $4.84 billion. Exxon has assets totalling more than $74 billion, and Fortune magazine estimates its market value at $58 billion.
While many oil companies suffered in 1987 as a result of the collapse of oil prices, Exxon fared better, partly because in 1985 it began down-sizing and reducing outlays for exploration and capital spending. This generated an enormous cash flow, from which Exxon conducted an aggressive stock buyback plan and made some relatively small acquisitions. According to financial analysts, the company has purchased roughly 25 percent of its outstanding shares, and bought over $3 billion of oil and gas reserves since 1984.
Although other majors have taken advantage of the fall in oil prices and its impact on stock values by buying up reserves and other companies, Exxon appears to be playing a waiting game. Royal Dutch/Shell has outstripped Exxon in worldwide oil and gas reserves and revenues through an aggressive acquisition strategy. British Petroleum (BP) has moved to the number three position in terms of total reserves with purchases of Standard Oil of Ohio and Britoil in 1988. Exxon, however, has been less ambitious about buying up reserves.
Yet, Exxon may not hold out forever. Financial analysts are saying that Exxon may soon move to buy reserves and is in excellent financial shape to do so. According to Ellan Hannan, senior analyst with the oil consulting firm John S. Herold Inc., in Greenwich, Connecticut, Exxon is extremely liquid, holding some $2 billion in cash and marketable securities as of June, 1988.
The company has spent over $11.8 billion since the mid-1980s buying its own shares in the stock market. But the scheme has overvalued the company's stock. "The buyback activity and high dividend payments," says Hannan, "keeps the stock prices up." Nevertheless, Exxon is considered a rock-solid investment for those who want steady, assured growth. The company is so sound that some analysts say that it could borrow as much as $20 billion tomorrow and still maintain its triple-A rating. Some critics contend that Exxon should be adding to its total reserves faster than it has been, but the company claims that its 'static' reserves (those that are too expensive to develop at current oil prices) will save them in the long run.
At Exxon's helm is Larry Rawl, who took over from Clifton Garvin in 1986. CEO Rawl, like General Electric's John F. Welch, Jr., is no friend of formality. He has been described as blunt, arrogant and irreverent. He wants to make Exxon the most efficient producer in two major areas: chemicals and energy. Some of the casualties of his mission have been a cut in public service grants, an end to investments in solar energy and a 30 percent reduction in employment in just two years. Furthermore, Rawl's restructuring has led to a number of foreign subsidiaries being sold off, along with disinvestment of businesses involved in office automation systems and electrical motors.
The company was started by John D. Rockefeller in 1870 in Cleveland as the Standard Oil Co. By 1880 he controlled 95 percent of all oil refining in the United States. By using secret rebates and making "drawback" agreements with the railroads, he eliminated most of his competitors or convinced them to join his growing combine. Bribes and deal making with legislators greased his way along to the formation of a trust, which allowed him to circumvent Ohio laws restricting ownership of out-of-state companies. He then began buying oil reserves around the country and abroad. Sales growth in Europe and other foreign markets toward the end of the century provided bigger profits and greater economic power.
In 1911 Rockefeller, the archetypical robber baron, drew fire from critics of monopolies, and the Standard Oil trust was broken up by the U.S. Supreme Court into 34 separate companies. Untouched, however, was the ownership group, which meant that effective control of most of the companies remained within the Rockefeller circle. For instance, the Rockefellers would retain substantial control over Standard Oil of New York (Mobil), Standard Oil of New Jersey (Exxon) and Standard Oil of California (Socal); these are today three of the biggest energy multinationals in the world. The Seven Sisters of the oil industry (six, since Socal bought Gulf in 1986) now nearly dominate the capitalist world's non-renewable energy resources (and also to a large extent solar energy resources).
Exxon's global expansion has at times brought it into partnership with authoritarianism. The company, for example, had close ties to the Nazi Party in Germany before and during World War II. Like General Motors, ITT and a number of other multinational firms during the 1930s, Standard Oil, then run by Walter C. Teagle, had business operations in Germany, and forged close financial ties to the industrial chemical plant of l.G. Farben, a firm that supported the Nazis and drew on concentration camp labor.
Former New York Times writer and biographer Charles Higham reveals in his book Trading With the Enemy that, "From the 1920s on Teagle showed a marked admiration for Germany's enterprise in overcoming the destructive terms of the Versailles Treaty. His lumbering stride, booming tones, and clouds of cigar smoke became widely and affectionately known in the circles that helped support the rising Nazi Party."
In addition to running Standard Oil, Teagle was director of l.G. Farben's American subsidiary and was a close friend of Hermann Schmitz of I.G. Farben. Teagle and Schmitz were also friends of Sir Henri Deterding of Royal Dutch/Shell, who had conspired with Standard and oil giants BP and Gulf to control prices in the famous "As Is" agreement of 1928. According to the late staff economist for the Federal Trade Commission, John Blair, who documented the collusion, the pricing and market share agreement was so effective that from 1950 to 1972 (when the agreement was still in effect) the industry had a constant growth rate of 9.5 percent, without any serious supply/price problems, despite the industry's long history of overproduction crises and price collapses.
Standard Oil of New Jersey's placing of profits before democracy has its modern form, too. Exxon has expanded its investment in Chile, a country run by a right-wing dictator. Church groups filed a resolution in 1987 requesting that the "directors of Exxon Corporation adopt a policy prohibiting further investments in its Chilean subsidiaries until the government there restores full democratic rights to its citizens, including the rights of workers to organize, to demonstrate peacefully and to obtain fair wages and benefits by collective bargaining without police or military interference." But, the company is continuing its mining operations there. Exxon voted against the shareholder resolution and similar ones filed in 1981, 1982 and 1986.
The company recently completed a $50 million expansion plan at its El Soldado mine in Chile. Critics view this investment as a "vote of confidence" in the Pinochet regime. Since the stepped- up repression began in September, 1986, workers have been the target of harsh reprisals and critics assert that the repressive environment, and its consequent low wages, benefit Exxon.
Exxon claims that "the expansion should ensure El Soldado's competitiveness in future years and create many additional jobs in mining and the local economy." Wages earned by workers in this mine, says the company in its vote against the resolution, "rank high relative to those of other wage earners in Chile and other miners in Latin America."
In South Africa, meanwhile, Exxon has been forced to take some action. On December 30, 1986 Exxon announced that its South African affiliates had been sold to an independent trust which was set up to continue the operations of the firm. Exxon claimed in a proxy statement that "none of the trustees are South African nor are they employees of nor under contract to, Exxon or any of its affiliates. With the sale, Exxon relinquished all ownership and management control of its former South African activities." The company maintains, furthermore, that "all existing agreements and contracts between Exxon and the South Africa companies" have been terminated. The trust, headquartered at the Isle of Jersey off the coast of the United Kingdom, will deliver dividend payments to Exxon as they accrue to the trust from continued operations in South Africa, until the loan is paid back. The company will be able to recoup all the money it lent the trust, which purchased its assets, and will survive without South Africa sales, which accounted for about 1 percent of Exxon's worldwide revenues.
While some anti-apartheid activists see the move as a positive step (the trust will continue support to the black community in the form of educational benefit programs), others see it as a way for Exxon to sidestep the U.S. ban on new investment in South Africa contained in the Anti-Apartheid Act of 1986. Since the trust is an entity legally established outside the United States, it need not conform to U.S. laws. It can continue business as usual, and if it chooses, expand investment in South Africa. Exxon can even continue to make loans to the trust, as it did in order for the trust to buy Exxon's South Africa assets.
Richard Knight of the American Committee on Africa says that "Exxon's situation in South Africa is a peculiar one. One theory is that they couldn't find a buyer for their assets so they set up a trust." The company claims that it will not renew licensing and technology agreements and will cease use of its brand names, says Knight. But, he adds that "We really don't know what is going on. It is hard to discover if technology is still going through or not."
Some shareholders are apparently not satisfied with the arrangement. At the 1988 annual meeting of Exxon, religious groups filed a shareholder resolution stating that "the severance of all international economic ties to South Africa increasingly isolates the country and brings pressure on the white government to end apartheid," and demanded that Exxon take immediate steps to "terminate all economic relationships with South Africa including sales and purchases of products or parts; licensing, management or franchise agreements and servicing of parts."
Exxon does admit to continuing the sale of chemicals to South Africa, and defends that position. According to Exxon, one of its former affiliates sells chemical products which it buys from the Exxon Chemical Company based in the United States. "Exxon Chemical Company affiliates are selling, from time to time, some chemicals and solvents on a spot basis to the successor where not prohibited under U.S. or other applicable laws," Exxon states in a 1988 proxy statement.
It is not necessary to look abroad for examples of Exxon trampling over the rights of indigenous groups. Exxon mining operations in the Black Hills of South Dakota (uranium), Colombia (coal) and Wisconsin (oil and gas) have been criticized by environmental and indigenous organizations fighting to preserve the land and end exploitation.
According to Jonathan Schorsch, a researcher at the Council on Economic Priorities, Exxon is "a lot more responsive than smaller companies because they have learned that they will pay in the end if they are not." Schorsch says that the company tends to "over-disclose" as opposed to under-disclose information, and also carries out huge public relations campaigns to win the public over.
Schorsch cites the 2,000 page environmental impact statement the firm released regarding its planned mining of 125 million tons of zinc, lead and copper near Crandon, Wisconsin. Opponents of the mining operation say that it will cause enormous ground, surface water and air pollution, in addition to generating sharp socioeconomic problems. The site of the mine is just two miles west of the Sokaogan Chipewa people's Mole Lake Reservation. Environmentalists believe the Crandon project may be only the beginning of an onslaught by multinational companies in the Lake Superior region, where such companies have been acquiring vast holdings for future mining projects.
Historically, criminal charges brought against Exxon and the oil industry have never achieved much success. In the early 1950s, for example, then President Truman buckled under pressure from the oil industry and halted criminal proceedings; the Justice Department had already convened a special grand jury and served subpoenas on 21 oil companies. Then Attorney General James McCranery stated that the "world petroleum cartel is an authoritarian, dominating power over a great vital world industry...." But in 1985, a Washington, D.C. federal appeals court ruled that Exxon had to pay the U.S. government some $2 billion for overcharging customers and violating price controls. The judgment came, however, on the heels of the 1983 Reagan administration sabotage of a six-year investigation into oil company collusion. The case involved charges that Exxon and other major oil companies had conspired to inflate the price of Persian Gulf oil in the late 1970s.
Exxon's management is plugged into the most influential policymaking groups in the United States. According to Who's Who in Industry and Finance, senior vice president and board member Jack Graeme Clark is a trustee of the Carnegie Corporation, member of the Council on Foreign Relations, chairman of the U.S. Council on International Business and a member of the elite, executive committee of the Aspen Institute. He has been an attorney at the law firm of Sullivan and Cromwell (1953-1956). Another senior vice president and director, Jack Bennett, is a trustee of the Committee on Economic Development and also a member of the Council on Foreign Relations (CFR). CFR and these other bastions of corporate America exert influence on the president and Congress. Aided by the might of the oil lobby, Exxon is able to get what it wants out of Washington.
As profits at Exxon leaped to new heights following the oil crisis in 1979, the image of Exxon in the public eye plummeted. Not everybody was convinced that OPEC was the only force behind the price hikes at the pumps. Acutely aware of its bad-boy image, Exxon stepped up its support for the public arts and education. It had already sponsored the PBS program "MacNeil / Lehrer" in 1978. It gave $38 million to education and the arts in 1979; its charitable contributions budget grew five-fold during the 1970s.
Exxon donates money to a range of groups, from liberal to conservative--such as environmental and policy organizations. Exxon has given money to the once-liberal Brookings Institute, but also supports the ultra-right Heritage Foundation and the conservative American Enterprise Institute in Washington, D.C.
Exxon has also made contributions to environmental groups, but the donations do not go to groups that have demonstrated concern about the environmental dangers posed by continued unrestricted use of fossil fuels. Instead, organizations such as the New York Zoological Society, which received $130,000 last year, the Brooklyn Botanical Garden ($62,000), the Nature Conservancy ($50,000) and the Central Park Conservancy ($50,000) are among the environmental groups to which Exxon has made contributions.
Some Exxon grants, moreover, are not voluntary displays of philanthropy on the company's part. Exxon gave $250,000 to the Hudson River Foundation for Science and Environmental Research in 1984 as part of a settlement with the State of New York, and an identical amount to the Open Space Institute. The two groups had charged Exxon with dumping oil-polluted water in the Hudson in 1983. The alleged Hudson dumping, which Exxon never admitted, involved company tankers that dumped the tainted water and filled up with fresh water which they then took to Exxon's Aruba refinery in the Caribbean. What the refinery did not need it would sell to the government of Aruba, where there is a shortage of fresh water. The activity was said to have gone on between 1971 and 1983.
And Exxon's contributions are not even always to charitable institutions. Between 1963 and 1972, the company admitted to having made $55 million worth of "political contributions" to political parties in Italy. Many other U.S. multinationals were also involved in what was reported to be one of the largest bribery scandals in Italian history.
A vision of the future should include realistic alternatives to unlimited corporate control of resources and a plan for developing renewable energy alternatives. But this vision contradicts that of energy multinationals like Exxon.