The Exxon scandal: an industry insider’s view

I have no additional beans to spill about Exxon’s internal discussions on climate change, so if that is what you were looking for, I offer my apologies and advise you to read no further.

Nor will I spend much time rehashing the recent reports from Inside Climate News, the LA Times, the New York Times or the Guardian that recount what Exxon knew about climate change and what they did to promote doubt and delay climate policy in recent years . What I will offer is my perspective as an ex-oil industry insider on Exxon’s corporate culture and why their downplaying of their own in-house research is perhaps even worse than it appears. I’ll also look at how differently Exxon approached climate change compared to BP and Shell.

I have never worked for Exxon but, in my 30-plus years of oil industry experience, I have had a fair bit of exposure to Exxon’s culture through being involved with project partnerships with them, interactions with Exxon employees at technical conferences, and working with colleagues who had spent their formative years at Exxon. Most of my career was spent working for lesser-known, mid-size companies (Husky Oil, OMV, Encana) rather than the notorious Big Oil Companies. From the perspective of the smaller companies, the giant multinationals are seen as lumbering beasts, slow to act, slow to innovate, secretive and over-confident. Exxon was the biggest of the lumbering beasts, easy to run rings around in mature basins. As an example, consider how the big companies were bystanders and taken by surprise in the North American fracking revolution.

In recent decades the big companies have lost the technical edge they once held over their smaller competitors. Much of the R&D work done years ago in the Big Oil laboratories has now shifted to the service companies like Halliburton and Schlumberger. Intermediate companies and, importantly, the bigger-than-Big-Oil National Oil Companies can now simply buy the best technology and expertise off the shelf. To be sure, the Big Oil companies do maintain some proprietary research capabilities in niche areas, but often this blinds them to the better work being done by academics, research institutes and the service companies. Nevertheless, a corporate culture exists among the big outfits that their competitive advantage is driven by their superior technical expertise. In fact, their true competitive edge lies in their world-class project management skills, their huge technical staffs and their deep pockets. Exxon employees, in particular, get immersed in a culture that believes that their in-house technical expertise trumps anything else on offer from any source. I’ll offer some anecdotal examples in the section that follows.

Close encounters with Exxon

I organized and chaired a workshop meeting on reflection seismic imaging of complex geological structures at the Society of Exploration Geophysicists convention in 1995 in Houston. The program and the text of my introductory talk can be downloaded here (8.5 MB pdf). One of the points I made in my talk was that p-wave anisotropy in shales was a neglected factor in seismic imaging. (This was not my sole idea, others were also aware of it and the Colorado School of Mines had a research program aimed at dealing with it.) Basically, the problem is that acoustic waves travel faster along than across bedding planes and this plays minor havoc with raypaths when rocks are tilted or folded.

At that time, Amoco had a controversial plan to drill an exploratory well in the Southern Alberta Foothills, in a particularly beautiful  and sensitive location known as the Whaleback Ridge, on what I believed to be a seismic artefact. The anticlinal target that was imaged on reflection time-structure sections is not a real structure in depth, in my opinion, but is instead caused by steeply dipping shales that overlie a gently-dipping deep layer, which does not form a structural trap for oil or gas. I alluded to this in my talk, but I didn’t name any names. Luckily for all involved, the Alberta regulator, in a rare sensible ruling, stopped Amoco from drilling it.

Anyway, in the question and answer session, an elderly geophysicist stood up and said something like: “Anisotropy can’t be a problem, because if it was, Exxon would have recognised it and solved it by now.” To which the only answer, I could muster was “Um, thank you for your input”.

A few years later, I worked under a senior manager who had just been hired from Exxon after many years there. Every time we presented a new  prospect he would ask—in a variation on the story of the economists’ apocryphal $20 bill lying on the sidewalk—”if this prospect was so good, how come Exxon hadn’t already drilled it?” Never mind that we had had a string of recent successful wells and that Exxon’s Canadian subsidiary had long abandoned exploration in the Rocky Mountain Foothills. Practically every comment he made began with: “But at Exxon we did it this way…”

I offer these anecdotes only to show that the people at Exxon are genuinely convinced of the superiority of their technical expertise. They eat their own cooking and think it’s better than any restaurant fare or take-out. There’s little doubt, I think, that Exxon’s  management would have considered their in-house research on climate change to be as reliable—or more reliable—than anything in the literature.  When they ignored their own company reports and exaggerated the uncertainty and paid others to spread the same misinformation, it was calculated deception. If they had done this kind of thing in their financial reporting or in putting together a data package to support the sale of an asset, it would likely be actionable.

An Atlantic Divide

In his book Challenged by Carbon: The Oil Industry and Climate Change, ex-BP geologist Bryan Lovell lays out some of the evidence for climate change and discusses what the industry can do about it (spoiler: CCS). He also describes from the inside of BP how that company, around 1996, came to grips with the fact that climate change was real, man-made and dangerous. They realized that denial was futile, counter-productive and would have ultimately been damaging to the company’s reputation. In 1996, BP was the first oil company to leave the Global Climate Coalition (GCC), an industry group formed in 1989 to oppose action on emissions reductions. Shell followed a year later.  Exxon and other American oil companies kept the GCC alive and it wasn’t until the early 2000’s that it folded and every company moved away from simple denial of man-made climate change. Instead, they started alternative misinformation  strategies: feeding the uncertainty monster and scaring people with talk of high taxes and low economic growth if the environmentalists ever got their way.

In his book, Lovell devotes most of a chapter to a technical meeting and public debate on climate change among petroleum geologists held at Burlington House, in London in March 2003. Exxon was represented by Frank Sprow, Vice President, and he laid out the company’s position on climate change, which, as far as I can tell, is close to their position more than a decade later. To summarize his opening statement, after some throat clearing:

  • Fossil fuels will remain dominant until mid-century.
  • The world needs affordable energy to drive economic growth.
  • Finding oil and gas is hard, expensive and often dangerous.
  • Renewables are non-economic and will require taxpayer support. “Where is best for governments and others to spend their money?”
  • “The third point is that whilst we may pick [sic] about the climate science and talk about the uncertainties that are there, which we have done and probably will continue to do as long as those uncertainties remain, the point is that the risk of adverse climate change is high enough to take strong and effective action. That is our conclusion on dealing with the risk. We also note note that the actions taken to mitigate climate change must take into account their impact on economic growth and societal values as well …”  [ellipsis in the original]

Exxon observers will note that over the following twelve years the company has certainly  lived up to the bit in the last bullet point about highlighting the uncertainties, but Exxon has not exactly been a leader in taking strong and effective action. Note the careful framing about Exxon’s essential role in economic and societal well-being, the “taxpayer” dogwhistle, the lack of specificity about what constitutes “strong and effective action”, and the burying of their acceptance of the science between talk of uncertainty and the economy.

Oil companies have to deal with a lot of uncertainty in their business plans. In exploration particularly, there are risks of drilling dry holes and huge uncertainties—even after a discovery has been made—about how big an oil field will turn out to be. Companies like Exxon understand uncertainty and deal with it very well. Oil field sizes are distributed lognormally, with the means of the probability distributions often being much larger than the modes or medians. Not only are the elephant fields found in the fat tail, but the value of those big finds is disproportionate to their size: a field of 500 million barrels of recoverable reserves will have more than ten times the value of a field with 50 million barrels. Uncertainty does not imply inaction, it means that opportunity is lurking.

Similarly, the worst climate outcomes, expressed as global temperature increases, occur in the fat tails of skewed distributions: a six-degree Celsius increase is more than six times as damaging as a one-degree increase. This stuff may be non-intuitive to the layman, but it it is everyday knowledge to business people like Lee Raymond, the CEO of Exxon from 1999-2005. To characterize climate uncertainty as an obstacle, rather than as a spur to action, goes against all of their business experience and is dishonest.

As the Globe and Mail reports, the Atlantic Divide is still wide open, with European big oil companies playing an increasingly constructive role in the run-up to the Paris talks, while American and Canadian companies remain cool or lukewarm, at best.

The American Association of Petroleum Geologists

I was a member of the AAPG for more than thirty years, but I just recently let my membership lapse. Of all of the world’s big geological societies, the AAPG has the worst record on climate denial. The lowest point came in 2006 when the society awarded Michael Crichton an award for journalism for his denialist book State of Fear. That award was one step too far for many members, especially academics and Europeans who insisted that the society revisit its denialist 1999 statement, or else. I played small role in the subsequent discussion. I had accepted the basics of climate science much earlier, but at that time I had a lukewarmist view before I changed my mind. One of my contributions was to point out that the new first draft didn’t even mention carbon dioxide. Eventually, the AAPG adopted a compromise statement that attempted the impossible task of satisfying everybody.  The AAPG doesn’t discuss climate change any more, it’s too divisive.

Looking back, I can’t help thinking how useful it would have been for Exxon’s in-house assessments of climate science to have been prominent public knowledge ten or more years ago. Many oil industry scientists are very distrustful of what they see as alarmist, industry-hating scientists living in ivory towers. Having access to Exxon’s own reports might have helped squelch that notion. But it didn’t happen and it’s easy to see why.

The society’s flagship journal the AAPG Bulletin occasionally did not stick to its knitting on petroleum geology and published papers on climate science: the most prominent being one by Lee C. Gerhard in 2004. Bryan Lovell, whom we met previously, submitted a rebuttal to this paper. Lovell reports in his book that:

I got a cool response from the reviewers and a detailed letter of comments from a colleague in ExxonMobil. I had overdone the politics and underdone the science, manifesting to my American colleagues as an environmental zealot rather than a detached scientist.

This was despite the fact that Gerhard’s original article was full of political commentary. The reviewers, presumably, were all affiliated with a society that was blind to its own political biases by awarding Michael Crichton for his science journalism. Lovell nevertheless relented, removed most of the political discussion and the AAPG published his rebuttal and a reply by Gerhard.

Exxon’s lame responses

Exxon has been inept and reluctant in its response to the recent charges against it. On National Public Radio, Exxon spokesman Richard Keil was eviscerated by an interviewer who politely accepted no obfuscation.

There have additionally been a couple of blog responses from Ken Cohen, the company’s VP of public and government affairs, here and here that boast of Exxon’s commitment to climate science, the 50 peer-reviewed publications they have made (a listing of them would be helpful), and all of the great work the company is doing on biofuels and CCS. There is no mention at all of the PR and lobbying strategy that was at odds with what their experts really knew. As Robert Brulle responded in the comments:

2015-10-18_16-42-09

Ken Cohen posts this  text and diagram (with my highlights)

2015-10-18_16-21-39

Let’s contrast this with what Exxon’s Roger Cohen (who changed his mind on climate science after he retired from Exxon in 2008) wrote in a report in 1982, as reported in Inside Climate News:

“Over the past several years a clear scientific consensus has emerged,” Cohen wrote in September 1982, reporting on Exxon’s own analysis of climate models. It was that a doubling of the carbon dioxide blanket in the atmosphere would produce average global warming of 3 degrees Celsius, plus or minus 1.5 degrees C (equal to 5 degrees Fahrenheit plus or minus 1.7 degrees F).

“There is unanimous agreement in the scientific community that a temperature increase of this magnitude would bring about significant changes in the earth’s climate,” he wrote, “including rainfall distribution and alterations in the biosphere.”

He warned that publication of the company’s conclusions might attract media attention because of the “connection between Exxon’s major business and the role of fossil fuel combustion in contributing to the increase of atmospheric CO2.”

Note how Ken Cohen (no relation, I assume) accuses activists of conspiracy theories, when the firm conclusion in 1982 that there would be significant changes to the climate if nothing were done came from an Exxon employee. Exxon is and was decidedly a hippy-free zone.

Then Ken Cohen throws in the uncertainty monster for good measure by showing a graph that show climate model results for four greenhouse gas concentration pathways that range from a barely plausible strict mitigation model (RCP2.6) to a barely plausible unbridled emissions scenario (RCP8.5). Conflating uncertainty in the physical science with uncertainty in socio-economic pathways is sophistry. In any case, as I argued previously, uncertainty is a spur for prompt action, not delay.

This is a surprisingly weak response from Exxon. This is all starting to look more like a cock-up than a conspiracy.

Indicting an industry

I’m no lawyer, but it seems to me that prosecuting Exxon and other companies for racketeering and corrupt practices is a stretch. There’s nothing quite like the “nicotine is not addictive” testimony in the case of climate change. For many years, most of the big oil companies have not denied the basic science of anthropogenic climate change, even as they lobbied against mitigation policy measures and funded groups that spread misinformation. Companies like Exxon should be ashamed of themselves for this major ethical transgression, but I’m not sure that what they have done is illegal.

Not all companies are equally culpable. European Big Oil companies  have played a much more constructive role, albeit with many of their contradictions unresolved. I have previously half-criticized and half-praised Shell for their internal carbon pricing (good) while they continue to conduct exploration in the Arctic and exploit the Alberta oil sands (not good).  Six major oil companies, BG, BP, Eni, Shell, Statoil and Total are calling on governments and the United Nations to bring in stronger carbon pricing, which is probably as much as we can expect short of corporate seppuku.

Perhaps our expectations run too high that the companies whose business models depend on fossil fuels forever should be the ones that provide the solutions that will render these business models obsolete. Perhaps also, by focussing on the United States, we exaggerate the influence that Big Oil has had  on climate policy. There are plenty of countries that don’t have big domestic oil industries and which still rely heavily on the stuff for transportation (e.g., Japan, Germany, Korea, New Zealand, Sweden). Getting off of oil completely is going to be really hard and it will be a problem for producers and consumers alike. The biggest obstacles to climate progress, in my view, are not the ones placed in our way by the likes of Exxon—or by the dwindling and dispirited band of climate science misinformers— but rather the general apathy of electorates. There are signs that this is changing and I’m optimistic that we will see some important new policies emerge in Paris.

5 thoughts on “The Exxon scandal: an industry insider’s view

  1. Interesting to read about what Exxon’s culture is like from a former industry insider like yourself.

    I only have two comments. First, I don’t think history will treat Exxon and Chevron kindly.

    Second, my understanding is that the West really follows the US lead when it comes to climate change policy. This is certainly true in New Zealand where I’m from. The NZ government is watching to see what the US does before it does anything meaningful on climate policy. NZ has an ETS but it is essentially toothless, and will remain so until the US starts moving.

    The point being, when US climate change legislation failed again in 2010, it kind of put a huge drag on everyone else’s efforts to cut emissions. And why did it fail? Because a small number of moderate Democrats in oil-rich states refused to vote for it. Why didn’t they vote for it? The most likely reason is Exxon/Chevron’s influence on local politics, namely bucket loads of money to fund whoever won’t support effective climate policy.

  2. Hi Andy

    Excellent article. Just two wee typos – the heading half-way down should be American _Association_ of PG not Society of ?? And two lines below ‘An Atlantic Divide’, /discusses/ should have 3 s not 2.

    D

    PS I thought of commenting how it was also many in the American oil industry that were very late converts to plate tectonics – the combination of conservatism (not to be confused with scepticism) and not keeping up to date with the global tectonic picture. But I couldn’t find my copy of Kuhn (The Structure of Scientific Revolutions) to bone up on it. But maybe I never had my own copy – it was just on my shelves for years from the GU library!

    • Thanks, typos fixed!

      Oddly enough, I have a post in preparation on consensus in plate tectonics and how it differs from climate science. The biggest difference is that differences in the acceptance or rejection of continental drift were due more to cultural differences within different geological communities rather than the politics that has come to dominate the rejection of climate science. I have been influenced in this by Naomi Oreskes’ Rejection of Continental Drift, an excellent book that I would recommend.

    • Thanks for the link, Ken.

      I agree that Exxon’s experts had a good grasp of the science, including the uncertainties, many of which persist to this day, particularly regarding climate sensitivity and regional impacts. The problem is that Exxon deliberately highlighted uncertainty as a ploy to delay regulatory action and confuse the public.

      I agree also with the importance of doing due diligence, especially when evaluating an asset purchase, by carefully reading documents to confirm that what is being said squares with what is said in a sales pitch. Some companies come out of that process looking shabby. For what it’s worth, in my recollection, Exxon was always straightforward and honest in such cases.

      I think that the documents that people want to do due diligence on in this case are not so much what the scientists wrote about the science, but what the PR people, the shareholders relationships department and the instructions given to lobbyists had to say. In particular, the internal guidance provided to the CEOs and their reactions to it should be edifying.

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