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CEO Tillerson, Prototype of Texas Oilman,
Must Focus on Delicate Global Diplomacy
March 8, 2006; Page B1

Rex Tillerson just got the top job at the biggest publicly traded oil company on the planet. But his success as chairman and chief executive of Exxon Mobil Corp. is likely to be measured by how well he plays the diplomat.
With his Texas twang, rugged visage and real-life skills on horseback, Mr. Tillerson personifies Hollywood's image of the swashbuckling American oilman. Yet the days are long gone when the head of Exxon could call all the shots in the global energy game. Though Exxon has plenty of engineers who can turn crude oil into profits, it first has to get its hands on that crude, most of which today is controlled by sovereign governments in politically dicey places.
Mr. Tillerson, who turns 54 years old next week, is scheduled to make his first major public appearance as Exxon's chairman and chief executive when he addresses analysts in New York this morning. Next Tuesday, he heads to Capitol Hill, where he and other oil-company executives are scheduled to testify in a hearing held by the Senate Judiciary Committee to examine whether consolidation in the oil industry has led to today's high gasoline prices.
He succeeds one of the most financially successful yet politically vilified CEOs in history. Lee Raymond engineered the 1999 merger between Exxon Corp. and Mobil Corp. that produced today's colossus, and he followed up the merger with a ruthlessly efficient management style that delivered quarter after quarter of dependable financial results regardless of whether oil prices were high or low. But Mr. Raymond also was a lightning rod for his unrepentant views on social issues like global warming, voicing skepticism that fossil-fuel emissions are the main cause.
In an interview last spring, seated next to Mr. Raymond at a conference table in Exxon's Irving, Texas, headquarters, Mr. Tillerson made clear he shares Mr. Raymond's doubts about the link between his company's products and the environmental problem. “At a minimum, there's an enormous amount of uncertainty around this whole question,” he said.
Mr. Tillerson declined to comment for this article ahead of his presentation to analysts today. But he notes frequently, as did Mr. Raymond, that Exxon believes oil, natural gas and coal will continue to provide more than 80% of the world's energy through 2030. Most oil companies share the view that fossil fuels will remain dominant for many years. What differentiates Exxon is its view that renewable energy sources like solar and wind aren't worth investing in as viable businesses today.
BP PLC and Royal Dutch Shell PLC have hatched small renewable-energy businesses. Exxon is investing in alternative-energy research, but it's not trying to sell solar panels or wind turbines today. Mr. Tillerson shows no signs of changing that strategy.
In a March 2005 speech in Dallas, Mr. Tillerson warned against “wishful thinking” about energy, according to a transcript on Exxon's Web site. He criticized as “unrealistic” the “perception by some in the United States that this country can achieve energy independence.”
If there's little difference in strategic outlook between Mr. Tillerson and Mr. Raymond, many observers do detect a difference in style. Mr. Raymond was famous for his frosty response to critics; how to ask a penetrating question without getting publicly dressed down by the Exxon chief was something many Wall Street analysts worried about as they prepared for their annual meeting with Mr. Raymond each spring. Mr. Tillerson is expected to be less publicly confrontational.
“Rex Tillerson's more avuncular style means the traditional Raymond analyst humiliation during questions will probably not occur,” Deutsche Bank analyst Paul Sankey deadpanned in a research note this month.
Analysts won't be the only group eyeing Mr. Tillerson. The new Exxon chief is likely to face more hostile questioning next week on Capitol Hill. Exxon has argued since gasoline prices soared following last year's hurricanes that it has done everything it could to minimize the spikes. But Exxon — fresh from posting a record $36 billion profit for 2005 — clearly is worried about potential political fallout.
The biggest challenge facing Mr. Tillerson in coming years will be inking deals to get access to oil and gas. This tension is nothing new for the Wichita Falls, Texas, native. Mr. Tillerson went to work for Exxon in 1975. In the 1990s, he led tense negotiations for access to underwater fields off Russia's Sakhalin Island.
By Mr. Tillerson's own account, the negotiations were plodding. At one point, a Russian minister slammed his fist on the bargaining table in a dispute over a permit, prompting visions in Mr. Tillerson's mind of former Soviet President Nikita Krushchev banging his shoe on the table during a 1960 United Nations debate. “I thought, OK, he's slipped back,” Mr. Tillerson recalled in a 2004 interview. “How do I get him away from that place and back to today?”
The answer: gingerly. The long-running talks required a careful touch. The danger was that the Russian officials would resent the Exxon leaders, thinking: “Here come the powerful Americans that won the Cold War, and now they're going to come in and tell us all how messed up we are and how we got it all wrong,” Mr. Tillerson recalled. “You make yourself very aware of it, and almost go out of your way to make sure there's nothing that conveys” such a sentiment.
Exxon's Sakhalin project began producing in October. The fate of a related nearby project, known as Sakhalin 3, is up in the air. In 1993, Exxon won an auction for the right to develop that area, and it expected that its license would be codified in another “production-sharing agreement” similar to the one Exxon had inked for the first Sakhalin project. But in 2003 the Russian government passed a law against new production-sharing agreements. A key decision for Mr. Tillerson will be how to proceed.
Beyond Russia, some other oil-rich governments that reached deals to hire Exxon to help pump out their oil and gas are now trying to rewrite the contracts. Their motive: Today's high oil prices hold the promise of greater riches than the governments initially expected.
One hot spot is Venezuela. President Hugo Chávez has raised royalties on Exxon and other Western oil companies operating in the country. Exxon says it is paying the higher royalties under protest and is talking with the Venezuelan government to iron out a solution.
Another spat has erupted in the African nation of Chad. In the late 1990s, Exxon, the World Bank and Chad's government reached a deal to allow an Exxon-led consortium to tap oil in the country. In exchange, Chad pledged to reserve most of its revenue from the project for development projects in the country — as opposed to enriching the country's leaders. But recently Chad announced it was loosening those spending restrictions. Exxon has held back its payments for this year in a separate account. Chad signaled it would force Exxon to stop production if it doesn't pay the money directly to the government. Exxon says it hopes to resolve the dispute.
In the interview last spring, Mr. Tillerson said he was sanguine about the mounting assertiveness of some oil-rich governments. Exxon brings a track record of efficiency and technological prowess to projects, he said, and it tries to convince national governments that those are skills worth paying for.
“That's kind of just the state we find ourselves at today,” he said. “Some place a value on that, and some don't.”
–Susan Warren and Gregory L. White contributed to this article.
Write to Jeffrey Ball at [email protected]

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