CSR & BIG OIL

SHAMSUL GHANI
(feedback@pgeconomist.com)
Oct 10 - 16, 20
11

When fired as Russia's prime minister in 1988, Viktor Chernomyrdin quipped: Where there's oil, there is blood". Like world politics, which is essentially linked to Big Oil, the rule of oil industry has changed hands more than once - to the regret of those who enjoyed it unscrupulously in days of their strength.

Oblivious of the future wars for oil, Anthony Sampson, the author of The Seven Sisters, described the Arab-Israel war of 1973 as the "last battle" to control the oil industry. Since the vast middle east oil reserves required western technology and expertise to get converted into some tangible form of wealth, the 'seven sisters' -British Petroleum, Exxon, Shell, Mobil, Chevron, Gulf, and Texaco - which controlled 85 percent of world oil reserves by 1973, combined into a lethal combination to control world oil prices. Tom Bower writes in his book OIL: Blessed by a near-monopoly and a surplus of oil, the seven chairmen would travel as statesmen to the Middle East and inform the Arab producers the price the cartel would pay for their oil the following year, usually around $25.25 per ton, or $3.60 a barrel. The chairmen acknowledged each other's "turf" and, acting like governments, used their intelligence agencies and military supremacy to impose one-sided agreements."

Despite their "overt business love" for each other, the big oilmen never lost an opportunity to grow bigger at the cost of their rival. Exxon and Mobil merged in subsequent years to challenge the position of BP as the industry leader. The hubris of Seven Sisters and West's inclination towards Israel as a counterforce to subdue Arab and Iran to ensure an uninterrupted supply of cheap crude, led to the creation of OPEC and the oil power swung in favor of the OPEC producers. Tom Bower writes: "Stripped of their mystique and their arrogance, the American and British giants were transformed into paper tigers. Anxious to guarantee oil supplies and to maintain their share of markets, the companies that had discovered and developed oilfields and refined the crude became supplicants. To many, OPEC's ascendency appeared to be irreversible. Only a few wise oilmen mentioned the fact that cycles never changed. Permanently fixing the market was beyond any mortal, even the OPEC nations."

During the last 20 years or so, the crude prices have ranged from $7 a barrel to $147 a barrel. The big oil business, not meant for the faint-hearted, has now swung the power in favor of the "business outsiders" - the traders, the speculators and the hedge and sovereign funds. China's increased demand for oil and lack of matching investment in finding new reserves has created an ideal situation for the speculators who, aided by the flow of hedge and sovereign funds dollars, have taken control of world oil markets.

Oil being treated as a commodity, the price is quoted on exchanges and forward trading transactions are undertaken. The prices move up and down well before the crude is ready for supply, with the speculators almost never taking physical delivery. Those who fully understand the stock exchange mechanism can realize how the world economy has been put on knife's edge by a single commodity - oil. Andy Hall dubbed as "Master Trader" and remembered by fellow traders as "God" is reported to have said: "Oil traders work in a whore-house, so don't try to be angel in this business."

The big business and the big money involved have created big enemies of Big Oil. The corporate greed for big profits and concentration of political power in big oil players has raised many eyebrows - particularly those of nationalists and environmentalists. The BP, Exxon Mobil, Shell, Chevron, and many others have found guilty, more than once, of ruthlessly trampling over corporate social responsibility goals. Employees' growing discontent, political interference through corrupt practices in the affairs of client countries, and shameless neglect of environment preservation objectives have been frequently blamed on the big oil business.

Tom Bower writes: "Destitution in the Niger delta, the contamination of Alaska's pristine wilderness, the destruction of Canada's forests and spreading corruption across Africa are all blamed on oil companies...Ever since nearly 11 million gallons of oil had spilled from the tanker the Exxon Valdez into Alaska's pristine waters in March 1989, the public's antagonism toward Big Oil had become entrenched. Big Oil had overtaken Big Tobacco as a focus of hatred."

Almost all of the oil majors suffered public dislike of their oily business ethics. While operating in Nigeria, Shell came under criticism for causing death to the farmers as a result of explosions during siphoning-off operations, and damage through spill to the farmland and rivers. Shell had to pay compensation. The Chevron Texaco Corp, according to a law suit filed against the oil giant by the Ecuadorian people, allegedly dumped into open holes and rivers, during 1971 and 1992, over four million gallons per day of toxic waste besides leaving 350 open waste pits extremely injurious to humans and animals. John Perkins writes about the oil giants' excesses in Ecuador, in his book Confessions Of An Economic Hit Man: "Vast areas of rain forests have fallen, macaws and jaguars have all but vanished, three Ecuadorian indigenous cultures have been driven to the verge of collapse, and pristine rivers have been transformed into flaming cesspools."

The legendary BP CEO, John Browne, had an addiction to cost-cutting. In his pursuit of earning higher profits for his company, he would ignore even some very serious reports about the falling standards of maintenance of the high-value engineering assets, oil and gas transmitting pipelines, and drilling rigs and equipment. A series of catastrophic incidents took place to tarnish the reputation of BP. In August 2002, a BP oil well on the North Slope exploded maiming a worker. The same year, just before Christmas, an explosion in Alaska killed a BP employee. In July 2005, BP's status symbol huge platform Thunder Horse built in the Gulf of Mexico tilted 20 degrees. In 2006, the world heard about the oil leak in Alaska. John Browne took the events in his stride by assigning them the description of "anomalies" and "a series of unrelated events". Tom Bower writes in OIL: "Over the previous years, Browne and his lobbyists had plied their charm and the company's narrative across the capital, endlessly presenting the chief executive to congressmen, senators and the most senior politicians in the White House as the European equivalent of the legendary GE chairman Jack Welch. Methodically, Browne had worked through the celebrity list, especially Senator Jeff Bingaman, the chairman of the Senate Energy Committee, John Dingell, Joe Barton and Dick Cheney. All were friends of Big Oil and all felt betrayed by Browne."

Finally, On September 07, 2006, Steve Marshall, BP president for exploration in Alaska, was summoned to testify to Barton's committee. Barton, in his cutting remarks, told Marshall: "I am even more concerned about BP's corporate culture of seeming indifference to safety and environmental issues. And this comes from a company that prides itself in their ads on protecting the environment. Shame, shame, shame."

Under the pressure of media reports on his homosexual relationship with one of his boyfriends who volunteered to feed the press, John Browne had to resign in 2007, one year before his upcoming retirement the next year when he would be 60. Under normal circumstances, he was expecting a 2-3 year extension to follow in the footsteps of Lee Raymond, the Exxon Mobil chairman, who was given a 2-year extension by the board. Known as Lord Browne and "Sun King", John Browne took Bp from the position of "an oil company" to the ranks of one of the most respected oil majors. In July 2006, BP and Exxon Mobil shares were selling at an almost identical price of $76. In February 2008, Exxon Mobil was up to $90 and BP down to $66. Some might think that John Browne was punished for trying to become the Jack Welch of Britain. Just to remind you, Jack was the CEO of one of the top US companies - General Electric, popularly known as GE.