value and opportunity

In my quest to learn more about the oil industry, I came across this book. It is a quite long book with about 700 pages and is covering basically the time between the Exxon Valdez accident in 1989 until around the time the book was written in 2012.

The chapters are to a certain extent random, jumping between how Exxon influenced politics to problems they encountered in various countries, among others Indonesia, Nigeria, French Guinea and Iraq.

The book itself has a rather critical tone, for instance they make a pretty good point that Exxon denied global warming for a long time, even when evidence and opinion even within the company pointed to the opposite. The ties from Exxon especially to the Bush administration are critically commented. The author claims that Exxon to a certain extent was (or still is) a kind of state within a state and using the US Government facilities only when it fits them.

Most interesting for me were the chapters about Exxon itself and its corporate culture, as well as the merger with Mobil and the later acquisition of fracker XTO.

Overall one gets the impression, that Exxon, especially before the Mobil merger was a true “outsider company”, doing business very differently than other oil companies.

Under the old CEO Lee Raymond for instance, Exxon abandoned any oil price forecasts for its planning starting in 2004 as the CEO judged all efforts to do so completely worthless. The book even quotes Exxon that they couldn’t figure out why oil prices went up so much in 2008 despite putting a lot of effort in to do so. This might be a very important message from the book: Do you still believe in all those incredibly sexy conspiracy theories about oil price manipulation if even the largest private oil company in the world cannot predict the oil price ?

Other examples of “outsider behaviour” are:

– military like control style with regard to safety, expenses and purchasing
– purely engineering driven culture, no “swashbuckling” oil wildcatters
– total discipline in allocating capital to projects

This was especially true under the old CEO, Lee Raymond.

But less so under the current CEO who, among other spent 41 bn on XTO and had to admit later that the deal was not a very good one.

Another interesting aspect was the continuous struggle of Exxon to be able to book new reserves. For a time they used a different reserve definition to the one allowed by the SEC, similar what frackers seem to do now.

All in all, despite the length of the book, I found it very interesting. To me, it offered new insides into an Oil giant like Exxon and the oil industry in general. Although it does not offer any “actionable investment advice”, the book is a good read for anyone interested in the Oil industry and Exxon.