Monday, September 10, 2007

EXXON REX TO STELMACH: 'BE VERY CAREFUL'

Exxon is a big, big oil company. The biggest. Its roots go back to the kerosene days of the 19th century and the baby steps of the Rockefeller fortune. It is rich too. In 2006, it made in profit almost 4 and a half million bucks an hour. Its profit for the same year was a cool 40 billion. The government of the Province of Alberta - supposedly rich - made about 12 billion from oil and gas revenues this past year. This is about 30% of Exxon's profits. Exxon also owns 70% of Canada's largest oil company, Imperial Oil.

The new CEO of Exxon is a fellow with the rakish but fitting name of 'Rex.' Rex Tillerson. 'Rex' means a King, a Sovereign, a male king. He's a Texan. Rex is big in the oil biz and will become bigger in the years ahead. His predecessor was a fellow with a more modest and plebian moniker. His name was Lee Raymond. But don't let the name fool you. When Lee walked out the Exxon door for the last time a year or so ago, his golden parachute was, when it all added up, a cool 400 million. What is 400 million anyway? Its half the cost of the big new hospital to be built down in the southern extremities of Calgary. Its about 70% of all of the money spent to date on the 42 kilometres of existing LRT track in Calgary. That's the kind of retirement money Lee took from Exxon. Approved by the Board of Directors, naturally. All going into one man's pocket.

But Rex needn't worry. There will be plenty more where Lee's rainy day fund came from. And he's off to a great start. On the job for only a year, Rexy already had a pay raise of 17% to almost 2 million a year, and his bonus has gone up more than two-fold to about 3 million a year. When he bites the dust, you can rest assured there will be no tag days to pay his funeral expenses.

Yes, Lee Raymond did well alright. Not that his career was unblemished. It was on Raymond's watch - in 1989 - that the Exxon Valdez oil spill happened in the environmentally sensitive Prince William Sound in Alaska. It was one of the worst environmental catastrophes of all times. 240,000 barrels of oil - and some say much more - was dumped into the sea, killing wildlife and polluting shores. A half million seabirds perished. So did 5000 sea otters, 300 seals, 250 bald eagles and 22 orcas. The spill continues to affect the environment and will continue to do so for generations. The captain of the vessel, a relapsed alcoholic, was drunk when it struck the reef that caused the spill. The owner of the vessel: Exxon. Cleanup cost was about 2 billion dollars, and Exxon remains in litigation over the debacle to this day.

It is interesting to follow the litigation. I think it says something about Exxon. In a class action brought in 1994 by thousands of fishermen and landowners, native groups and so forth, an Anchorage jury awarded the actual damages for clean-up plus 5 billion dollars as punitive damages. Punitive damages are awarded when the offence giving rise to the lawsuit together with the aftermath is egregious. In this case, the short-term and long-term environmental impact caused by the spill was so extreme, that the jury deemed that a punitive penalty should be paid. The purpose is to teach the perpetrator and all other potential perpetrators of such a disaster that such irresponsible actions will not be tolerated. The 5 billion was one year's profit for Exxon at the time. It is now 13% of its current profit.

Exxon was not happy with the result. It carried on with the fight over punitive damages. The various stages of litigation had the award reduced to 4 billion, increased to 4.5 billion plus interest, reduced to 2.5 billion, and upheld at 2.5 billion. Not happy with the results so far, Exxon has decided to appeal to the Bush-heavy Supreme Court. The company has still not paid a dime towards the punitive damage award. For the record, its position is that since the mishap was caused by an accident, then the punitive damage award should be limited by law to 25 million. Besides, its lawyers say, the company has already spent 2 billion in clean-up costs and 1 billion in settling suits.

Well, the other day Rex was in Calgary to speak at the annual Spruce Meadows Round Table, a genteel gathering of 70 or so business notables who pass the day discussing and pontificating weighty issues while watching equestrian show jumping. It was a timely visit. The Alberta government-appointed panel on what to do with oil and gas royalties in Alberta is about to report its conclusions. And Rex was there to have his say, perhaps - with luck - even to have the last word. In a message tailored for the ears of the Stelmach government and the people it governs, Rex warned, "I say be very careful and recognize that none of us know what oil prices are going to be - none of us." He also urged caution in amending the 1 % sweetheart royalty deal in the oil sands, saying, ". . . you need to be very careful about dealing with ongoing projects . . . because all of that risk is still out in front of us." Of course Exxon is big in the oil sands - 'big' as in high double digit billions.

And, naturally, he resorted to that tried and true bludgeon that big oil and little oil in these parts always dig up for doing battle with governments that want them to cough up a little more for the people - the National Energy Program. He urged the policy makers to 'look at the past,' and remarked, "We have a history in Canada of failed energy policies and fortunately sensible people came in and fixed that."

As could be expected, many industry executives oohed and aahed over Rex's warning with pursed lips and furrowed brows, vigorously nodding their collective heads in approval.

Despite putting all that money into Exxon's coffers, its executives', and the retirement accounts of senior officers, Exxon still pursues government handouts like a smitten young man pursues his first young sweetheart. Back in June at the Exxon Annual Meeting Rex said that the Canadian taxpayer must kick in with part of the 16 billion necessary to build the Mackenzie Valley pipeline project. Otherwise, said Rex, it should be scrapped. Exxon, Shell and Conoco Phillips are partners in the project.

Whether he is working hard enough to earn his current generous salary and bonus take, or to receive retirement stipends of $400,000,000 (yes, count the zeros!) plus is highly problematic. But give Rexy his due. He's a company man through and through.

And that is something that Stelmach, his government and the royalty panel should remember. Rex is a company man. That company is Exxon. It is not the people of Alberta.

Let's hope Eddie gets it right.

3 comments:

anya ahoy said...

Darryl, Mulroney memoirs remind me of Frank magazine's lead title on David Frum's appologia on Mulroney some years back "Polishing the Turd". Regards, Norman Conrad

Darryl Raymaker said...

You got that right, Cap'n Normie!
DJR

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