Steve Coll has had a fascinating journalism career, from writer and contributing editor at California magazine to various positions at The Washington Post, including feature writer for the Style section, South Asia bureau chief in India, managing editor and publisher of its magazine. His book "Ghost Wars: The Secret History of the CIA, Afghanistan and Bin Laden, from the Soviet Invasion to September 10, 2001" won the Pulitzer Prize for general nonfiction in 2005, and "The Bin Ladens" was a finalist for the 2008 National Book Critics Circle Award. But Coll has long been interested in business, going back to his time as a financial correspondent in New York for the Post in 1987. In 1990 he won a Pulitzer Prize for explanatory journalism for his coverage of the Securities and Exchange Commission, and he has written books on the breakup of AT&T and the takeover of Getty Oil.
His latest book, "Private Empire: ExxonMobil and American Power," takes on the equally tough subject of one of the most powerful and secretive publicly traded companies around. It's getting positive buzz for its delicious details (including the fact that the inner suite at its Irving, Texas, headquarters is called the "God Pod" and how its infamous "employee ranking system" works) and its measured approach toward a company a lot of folks love to hate (remember the Valdez?). It's certainly well reported, tapping information from 450 interviews around the world and SEC documents, newly released State Department documents and even WikiLeaks cables to show how deeply the company's power reaches.
Coll is currently president of the nonpartisan public policy institute New America Foundation and a staff writer at The New Yorker. The Deal magazine's Claire Poole spoke with the 53-year-old Coll by telephone in early May from Los Angeles, which he was visiting on his book tour.
The Deal magazine: Why did you write a book on this particular subject?
Steve Coll: The last two projects I'd been working on were about America's asymmetric place in the world after Sept. 11. When I finished the [Bin Laden] project, I really wanted to write about oil and globalization, the way our global energy economy was being changed by the rise of new powers and the information age. I had Dan Yergin's "The Prize" as the model, but rather than oil in the age of expansion and discovery, oil in the age of constraints and consternation about it. I got six months into the research and thought I needed to pick a company, and really there was no choice but to write about Exxon Mobil.
You portray Exxon Mobil as obviously very large and very autonomous, even self-sufficient, even more so than the other oil giants. How do you think it got that way? Inbred culture going back all the way to Rockefeller?
There is a combination of reasons. Looking over 20 years, they were the most consistent child of the Standard Oil breakup over a whole century, Rockefeller's dream of an autonomous company that was redoubled after the Valdez. They thought seriously about how to automate the business model and make it sustainable over a long period of time. The scale after the Mobil merger gave them, in a period of rising oil prices, an amazing amount of cash flow to make them resilient against any pressure, whether it was political or otherwise. It also became a curse, because it made their reserve replacement that much more difficult. The pressure to meet that has pushed them into more risky frontiers, whether it be geographical or geological.
Exxon has had, going back to the '70s, a spotty record in terms of M&A, particularly in terms of its nonoil targets (its purchase of electric motor maker Reliance Electric Co. in the 1970s and its disappointing investment in the early '80s in Colorado shale). That led to a "phobia about acquisitions," in the words of former CEO Clifton Garvin. What did you uncover about that?
Diversification was popular in the 1970s, in energy and in corporate America generally, to make yourself more resilient, versus today's investments at Exxon and other companies to focus on your core strategies. It's mind-boggling the business lines they were in, the things they were making; it's hard to associate with the current Exxon Mobil, which is so focused on oil and gas. They were also in nuclear, in coal. [Former CEO Lee] Raymond brought the company back to oil and gas. He had to sell all that stuff.
The other reputation they have is they never had a great exploration and production discovery record. They didn't need it because their operating and financial discipline was so good. They could buy what they couldn't find. Mobil was their biggest bet of all that you can really score them on: It was $80 billion, it's the only deal of that size, they bought at the bottom of the commodity price cycle, and they unlocked a lot of value. It worked. There was more value than was thought of at the time. Their property in Qatar was stuck, and some of it was how the gas industry evolved, but some of it was how Exxon did full exploitation of the gas, including the manufacturing of petrochemicals. You have to give them pretty good grades.
XTO was bought for $40 billion, half as much minus inflation, the biggest since Mobil, but that was a strategic investment. There are questions both around the company and the analytical community about whether they bought at the top of the market.
What did you learn about Exxon Mobil's dealmaking skills?
They go about this like anything else. They are unusually driven in-house, and everything they look at and pursue is connected to their management committee system for decision making. They will take advisers on, but they use outside advice and outside networks less than others. They have a conviction they can do it themselves. Looking at the XTO deal, for example, I was not impressed by their ability to replicate deep thinking and red teaming [viewing a problem from an adversarial perspective]. It was a very straightforward transaction, done in a characteristic way, without a great deal of outside input, and that is their signature.
What can you say about the involvement of Jack Randall [Jefferies Group partner and XTO director] in the deal?
Jefferies was shopping XTO. Exxon Mobil didn't have a comparable banker. They really did it themselves. "How do we solve our gas problem?" That was the impetus for the deal. My own judgment is [that] their record of doing things themselves, whether operating refineries or drilling platforms or managing cash flows, it's hard to argue. When it comes to complex factors -- politics, communications strategies, dealmaking, the subtler human interaction -- their in-house-only approach doesn't serve them especially well. They have a resistance to opening themselves up to outside points of view. "We don't do it that way."
How were Raymond's and [Exxon Mobil CEO Rex] Tillerson's approaches the same and different when they did the Mobil and XTO deals?
Raymond -- oddly, for the reputation that he deservedly acquired, as a hard man, very unto himself -- I came to appreciate that he was maybe more worldly than a lot of Exxon executives. He had a lot of relationships with people at the top of energy companies and banking. He's been on the board of J.P. Morgan for a long time. He knew the investment banking world more in depth than any Exxon CEO could claim. He was part of New York-based Exxon. And when they saw in the post-Cold War world the rise of state-owned companies and the scramble for companies to combine, they were not the first mover. BP forced them.
They were able to close with Mobil; it was as if Mobil had nowhere else to go. They had cash that Mobil shareholders couldn't refuse. They were not first movers, but they ended up in a good place. Both deals had a strategic context. For Raymond, it was to get big. It wasn't preconceived: If they didn't get big given other mergers, they would surrender their position. It was more defensive.
For Tillerson, it was also defensive. By 2010, they had missed the onshore gas opportunity in the U.S. and failed to build an in-house capacity that they could rely on to scale up globally. Given their conviction that not only unconventional but conventional gas would be the pillar of their strategy for 30 to 40 years, they needed a position. They had tried to create their own position and failed. Shell had used landmen and put together their own position. Exxon's strategy to do that wasn't working very well. The book quotes Tillerson as saying that "I have to do something about gas."
So did Exxon Mobil overpay for XTO, and do your sources think the company will be vindicated with higher natural gas prices someday?
They're divided over that. The numbers argue that they overpaid if you look at it today. XTO did an amazing job rolling up a lot of small holdings into a big Wall Street story, and they were Wall Street darlings, run by a finance guy and generating amazing numbers.
They also didn't use outside advisers.
They understood each other that way; their headquarters were right nearby, their cultures were similar. Natural gas prices were relatively high, it was a really fashionable business. It does look like Exxon bought at the top. And what Exxon will say is, "We don't make a purchase like this on five-year or 10-year forecasts. This is a 30-year, 40-year play for us. We extract value with engineering prowess that others can't accomplish." They did the same with Qatar. The other thing was, they might need to overpay for the right organization. They needed the functional expertise that they could scale around the world. That's what they were buying. I remember, looking at the filings, being impressed by the five or six XTO people they had locked up.
Do you think we'll see more deals from Exxon Mobil, given its cash position, and what will be its approach?
I wonder what they would have on their shopping list. They're obviously overinvested in gas. I don't think they would make a big acquisition there. Everyone is looking for equity oil, and there aren't a lot of sellers that would make a lot of difference to Exxon. On the oil side, it's an era of creative partnerships, if you want to keep in place what you find or find in areas where there's nationalization, like in Russia. The Rosneft deal is more of the template of what they will do in the upstream. If you look at Brazil, or other areas like West Africa, where there are pools of oil offshore, that's the model they're going to have to follow. Alaska is another interesting question, to figure out a way to buy into that once there's a transportation solution.
Are there any obvious successors to Tillerson and what would their approach to M&A -- and running the company -- be?
I did not scrutinize that question. There were two people I came across. But there's a timeline. Unless the board judges Tillerson's performance is failing, he still has another six years.
How was it working on the book?
It's obviously a very hard subject to take on. They weren't very helpful. They're very unusual. That's what got me through it. Among the companies that I've written about, they're very different: very insular, very successful at shutting out the rest of the world and doing it their way. It's hard to do it for 30 to 40 years. But the oil business is a good business, and if you can do it with consistency, you can do it your way.