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EXXONMOBIL AND THE CHAD–CAMEROON PIPELINE (A)
In November 1999, ExxonMobil CEO Lee Raymond faced the potential collapse of the
Chad–Cameroon Petroleum Development and Pipeline Project. Both Royal Dutch/Shell (Shell)
and France’s TotalFinaElf (Elf), ExxonMobil’s partners in the pipeline consortium, had just
withdrawn, citing environmental concerns among other things, thus leaving the pipeline’s future
temporarily in doubt. This withdrawal delighted many environmental groups long opposed to the
pipeline. A spokesperson for the Rainforest Action Network (RAN), a grassroots environmental
organization and longtime pipeline opponent, said in a press release:
Based on its experience in Nigeria, Royal Dutch/Shell recognizes a bad situation
when it sees one, and Elf Aquitaine will avoid becoming part of the tragedy. The
human and environmental costs of proceeding with an oil pipeline that cuts
through the heart of Africa’s rainforest are simply too great.1
In 1996, after years of economic and environmental feasibility studies of accessing oil
reserves in the Central African country of Chad, a consortium of oil companies that included
ExxonMobil, Shell, and Elf signed a memorandum of understanding (MOU) with the
governments of Chad and neighboring Cameroon. The Chad Development Project involved, over
the span of 25 to 30 years, developing oil fields in southern Chad, drilling approximately 300
wells in the Doba Basin, and building a 650-mile underground pipeline through Chad and
Cameroon to transport crude oil to the coast for shipping to world markets. Cost of the project
was $3.5 billion; expected production was one billion barrels of oil; according to World Bank
estimates, the project would generate $2 billion in revenues for Chad, $500 million for
Cameroon, and $5.7 billion for ExxonMobil and its project partners.2
1
“On Anniversary of Nigerian Executions, Shell, Elf Pull out of African Oil Project,” Rainforest Action
Network press release, November 10, 1999, http://www.rainforestinfo.org.au/wrr42/shellout.htm (accessed June 17,
2013).
2
For maps of the project, see http://www.esso.com/Chad-English/PA/Operations/TD_ProjectMaps.asp
(accessed January 9, 2007).
This case was prepared by Jenny Mead, Senior Researcher; Patricia H. Werhane, Ruffin Professor of Business
Ethics; R. Edward Freeman, Elis and Signe Olsson Professor of Business Administration; and Andrew C. Wicks,
Associate Professor of Business Administration. It was written as a basis for class discussion rather than to illustrate
effective or ineffective handling of an administrative situation. Copyright 2003 by the University of Virginia
Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system,
used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying,
recording, or otherwise—without the permission of the Darden School Foundation.
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Shell and Elf’s withdrawal threatened to sideline the whole operation and seemed to give
credence to those critics who thought that environmental and human risks of oil exploration and
extraction in the extremely poor countries of Chad and Cameroon were too great. The project’s
many issues burned in Raymond’s mind as he considered whether ExxonMobil should follow
suit or proceed with the pipeline project.
ExxonMobil
At the time of their December 1998 merger, which some oil industry analysts called
“seismic,” Exxon and Mobil, each a multi-billion-dollar operation, were the world’s two largest
oil companies. In 1997, Exxon had a net income of $8.5 billion, a “AAA” debt rating, revenues
of $137.2 billion. and sold 5.4 million barrels of petroleum products daily. It also had the largest
refining capacity in the world, 1.7 million barrels daily. Mobil had a net income of $3.3 billion;
revenues of $65.9 billion; and total petroleum product sales of 3.3 million barrels a day.3 Many
analysts attributed the merger to tough times for oil companies, which in the 1990s faced lower
prices, decreased demand, fierce competition, oversupply, and a general global economic
weakness.4 Nonetheless, the two companies had very different images in the oil industry. Mobil
was seen as having a “combative feistiness,” whereas Exxon had a “relentlessly efficient
stuffiness.”5
By the mere fact that a growing population of environmentally concerned people
worldwide was skeptical of large oil companies and their promotion of fossil fuel use, both
Exxon and Mobil struggled with their public image. Exxon had the most damage to contain,
however, because of the 1989 disaster in which the single-hulled oil tanker Exxon Valdez hit a
reef outside the shipping lane near Alaska’s Prince William Sound and spilled 53,094,510
gallons of oil. The spill covered 460 miles, took four years to clean up, and killed an estimated
250,000 seabirds, 2,800 sea otters, 300 harbor seals, 250 bald eagles, 22 killer whales, and untold
numbers of salmon and herring eggs.6 Worldwide public outcry was fierce, and Exxon’s
reputation was severely tarnished.7 The company’s clumsy handling of the Exxon Valdez episode
and its subsequent appeal of a $5 billion jury award to spill victims was viewed in general as a
public relations debacle.
After the Exxon Valdez incident, Exxon tried to establish an environmentally friendly
image and began using increasingly sophisticated navigational equipment, such as global
positioning systems, to guide its tankers through the waters. Much of ExxonMobil’s website
dealt with the issues of environment and sustainability and several acknowledged the damage
3
“Exxon and Mobil Sign Merger Agreement,” Business Wire, December 1, 1998.
Tim Smart, “Increasingly, Size Counts; Falling Prices in a World of Plenty Drive Mergers Such as ExxonMobil,” Washington Post, December 4, 1998.
5
“From Mobil to Exx-Mobil: Pegasus Gets His Wings Clipped,” Petroleum Review (January 1, 1999): 38.
6
“Oil Spill Facts: Questions and Answers,” Exxon Valdez Oil Spill Trustee Council website,
http://www.evostc.state.ak.us/facts/qanda.cfm (accessed June 17, 2013).
7
If there was an environmental silver lining, the Exxon Valdez disaster prompted passage of the long-debated
(14 years) Oil Pollution Act of 1990, 17 months after the spill.
4
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done in the Exxon Valdez incident and confirmed that the company had developed an “Oil Spill
Response Preparedness” program. The site also included a link to the company’s “Environmental
Performance Indicators,” which provided: statistics on the company’s marine spills, regulatory
compliance (number of penalty assessments), cogeneration capacity, greenhouse gas emissions,
and the reduction of nitrous oxide (NOx), volatile organic compounds (VOCs), and sulfur
dioxide (SO2).
In part because it had suffered no disasters akin to the Exxon Valdez oil spill, Mobil’s
public image—on the surface at least—was different; the company, focusing on support of the
arts, sponsored Masterpiece Theatre and ran full-page “advertorials” featuring discussions of
timely issues. Aside from Masterpiece Theatre and PBS programming, the company had funded
community projects focusing on minorities, the handicapped, and the elderly.8 Perhaps
foreshadowing its eventual participation in the Chad–Cameroon pipeline, Mobil had sponsored
“The Art of Cameroon,” a traveling exhibition, in 1984. Mobil had also initiated some
environmentally friendly programs, which included planting half a million trees around the
United States in the mid-1990s and proposing the same for Peru and Indonesia. In smaller, more
specific ways, Mobil had a softer image; in its service stations, the oil company had reinstated
the practice of having employees clean car windows and offer coffee to drivers.9 But the bottom
line remained for Mobil, which in the early 1990s had exited the more environmentally friendly
solar power business “because it was not economically attractive.”10
Exploration areas
By 1999, ExxonMobil, leading almost 60 exploration projects worldwide, was considered
one of the strongest oil companies in upstream operations.11 Its exploration and production
efforts were scattered throughout the world, including some emerging exploration areas in West
Africa, South America, the Middle East, the Caspian region, and Eastern Canada. See Exhibit 1
for ExxonMobil’s major areas of exploration.
Exploration options in the late 20th century
In a report, “Changing Oil: Emerging Environmental Risks and Shareholder Value in the
Oil and Gas Industry,” the World Resources Institute (WRI) examined and evaluated the state of
worldwide oil exploration in the late 20th century. In this 39-page assessment of the state of the
oil industry, WRI presented the following conclusions about the financial implications of
restricted access to oil reserves:
8
“American Business and the Arts,” Forbes special advertising section, October 28, 1985.
“Merger of Exxon and Mobil: Opposites Attracted; Must Mesh Different Cultures,” Record (Northern New
Jersey), December 3, 1998.
10
“Tree Lover,” International Petroleum Finance, (Energy Intelligence Group), October 31, 1999.
11
Oil companies in general had four major divisions: upstream operations, for exploration and production of
crude oil and natural gases; downstream operations, for transportation and sale; chemicals, for the manufacture and
marketing of petrochemicals; and coal, minerals and powers, for mining exploration and the generation of power.
9
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As traditional oil-producing regions mature and yield progressively less oil, the industry
is increasingly choosing to explore and produce in new areas where environmental and
social controversies may be significant.
New information technologies and emerging networks between NGOs ensure that
companies’ activities become more transparent to their principal markets and
shareholders.
In environmentally and socially sensitive areas, access to reserves can be denied,
restricted, or kept in limbo. Where access is permitted, opposition from local
communities can constrain production operations, making them more costly. One
prominent example is the case of Shell in Nigeria, where production has at times been cut
to 40% of capacity and lower due to opposition and sabotage from local communities.12
The WRI report also touched on other issues facing the oil industry. Aside from
increasingly limited access to reserves, companies must deal with the issues of climate change
and environmental and social effects and how those would affect sales, operating costs, asset
values, and shareholder values. In the late 20th century, environmental issues had already had an
effect on oil companies and would have even greater influence on how these companies
conducted business and how profitable they ultimately would become. Investors were (and
would be) increasingly eager to gauge the environmental “conscience” of a company, and any
lack of transparency would affect investor relations.
Alternative energy
Despite pressure from environmental groups favoring alternative fuel sources,
ExxonMobil remained firmly committed to fossil fuels. Other sources such as solar, biomass,
water and wind power, and electricity were simply impractical, the company claimed, and were
“economical only in niche markets.”13 To illustrate the impracticality of these alternatives,
ExxonMobil utilized a Manhattan Institute senior fellow’s estimate that to power New York City
on solar power alone would take four times the area of the city to hold the required solar panels,
even on a sunny day.14 Ethanol alcohol, another fuel source identified by environmentalists as
more earth-friendly, was not as harmless as claimed, according to ExxonMobil, because of all
the agricultural effort (and byproducts such as wastewater) that grain production required.15
Future efforts looked dim; in a 2000 corporate report publication, ExxonMobil claimed that
despite significant efforts to develop alternative energy sources such as solar or wind, those
12
Duncan Austin and Amanda Sauer, “Changing Oil: Emerging Environmental Risks and Shareholder Value in
the Oil and Gas Industry,” (Washington, DC: World Resources Institute, July 2002), 25.
13
“An Anniversary to Celebrate,” ExxonMobil press release, http://www.exxonmobil.com (accessed June 1,
2000).
14
“An Anniversary to Celebrate.”
15
“An Anniversary to Celebrate.”
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sources comprised less than 0.25% of the world’s energy supply and would not, in the
foreseeable future, be economical without significant governmental subsidies.16
Chad and Cameroon
In the late 20th century, Chad and Cameroon were two of the poorest countries in the
world. (See Table 1.) Both nations had rampant disease, poor nutrition, extreme poverty, and
very little safe drinking water. Although three times the size of France, Chad could claim only
166 miles of paved roads, no rail system, a substandard telecommunications system (only two
phones per thousand people), and overall insubstantial infrastructure and erratic access to
electricity (see Exhibit 2 for maps of both countries).
Table 1. A socioeconomic comparison of Cameroon, Chad, and the United States.
Per-capita GNP
Life expectancy
Infant mortality
Literacy rate
Country GNP
Annual exports
Cameroon
$610
54 years
77 per 1,000 births
80% men
67% women
$8.7 billion
$2.3 billion
Chad
$230
48 years
99 per 1,000 births
49% men
31% women
$1.7 billion
$328 million
United States
$29,240
77 years
7 per 1,000 births
97% (both sexes)
$9,400.2 billion
Source: Chad–Cameroon Development Project Fact Sheet 2001, Esso Exploration & Production Chad, Inc.,
page 2.
Chad
Chad gained its independence from the French in 1960. Almost immediately, the country
was thrown into civil war, primarily between the Muslim northern rebel groups, called by one
journalist “an explosive ethnic mix,” vulnerable to outside manipulation (from Libya and Sudan,
among others), and the government in the south. Politically, culturally, and geographically, the
northern and southern regions of Chad were immensely different. The north was arid, desertlike,
primarily Muslim; the south tropical and animistic. Internal turmoil continued through the next
three decades, resulting in more than 20,000 deaths.
In 1990, French-trained 38-year-old General Idriss Deby staged a coup, ousting President
Hissene Habre. Deby, the fifth Chad head of state in the country’s 30 years of independence,
promised human rights, a multiparty system, and democracy; under his leadership; however,
corruption and human rights abuses ran rampant. According to Transparency International, a
16
“ExxonMobil
200
Financial
&
Operating
Review,”
http://www.exxonmobil.com/Corporate/Newsroom/Publications/shareholder_publications/c_fo_00/c_corporate_06.
html (accessed March 6, 2003).
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global organization monitoring corruption levels globally, Chad and Cameroon repeatedly had
two of the world’s worst records for corruption.17
Skepticism about Exxon’s dealings in Chad were exacerbated by a 1994 incident in
Doba, where a local peasant, having taken his family to watch an airplane land at the Exxon
exploration field, was shot to death by the security forces guarding the Exxon staff.
Miscommunication was the cause: Security forces claimed that the peasant was a rebel, while
villagers claimed he was just a man who wanted to watch the “miracle” of a plane landing.
Ultimately, the cause of the incident was assigned to “language problems.” Other tragic incidents
occurred, most notably in 1998 when Chadian security forces allegedly killed 200 civilians in the
Dobara and Lara villages in the Doba region, a massacre that was never investigated. Amnesty
International accused the Chadian government of utilizing “extrajudicial killings and
disappearances, illegal searches and wiretaps, home demolition, threat of death or grave bodily
harm, rape, and arbitrary arrest and detentions against its political opponents and their neighbors
and family members.”18
Cameroon
Cameroon achieved independence in 1960, after years of foreign domination by the
Portuguese, Germans, British, and French. The next 20 years saw a repressive government under
President Ahmadou Ahidjou, although there was investment in agriculture, education, health
care, and transport. In 1982, the next Prime Minister, Paul Biya, under pressure from
Cameroonians, instituted a multiparty system. Although the country’s literacy rate was one of the
highest on the African continent, its development was slow because of widespread corruption
and huge military and security expenditures.19 Government repression increased in the 1990s,
and while political parties were allowed to emerge, rampant fraud permeated the elections, and
the government arrested opposition leaders. In 1997, Biya was reelected president, although half
of the country’s population was excluded from voting for various reasons. This West African
country was 475,400 square kilometers—roughly the size of California—and possessed 402
kilometers of coastline. In the late 1990s, the population was approximately 16 million.
The Pipeline
Working with oil companies from various other countries, the Republic of Chad began
exploring its own oil resources in the late 1960s. By 1975, after many exploration wells had been
drilled, it was clear that oil was abundant. Further exploration was halted by Chad’s 1979 civil
war and did not resume until the late 1980s. In 1988, an Exxon consortium signed an agreement
17
See
Transparency
International’s
Corruption
by
Country/Territory
website:
http://www.transparency.org/country#TCD (accessed June 26, 2013).
18
“Chad & Cameroon: Oil Pipeline Project Threatens Local Communities and Fragile Ecosystems,” Amnesty
International, www.amnestyusa.org/justearth/chad-cameroon.html (accessed March 6, 2003).
19
“Cameroon Profile,” BBC News, http://www.bbc.co.uk/news/world-africa-13146029 (accessed June 18,
2013).
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with Chad that set the framework for the eventual pipeline project; Exxon had 30 years to
develop the oil fields at Doba in southern Chad and produce and transport the oil to market.
Because Chad was landlocked, the Exxon Consortium signed an agreement with neighboring
Cameroon to buil …
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