BLUEPRINT FOR DISASTER: THE SPILL THAT DIDN'T HAVE TO HAPPEN
HUGE DESCRIBES EXXON. IT MAKES HUGE PROFITS ON HUGE SALES AND HAS A HUGE AMOUNT OF ASSETS, BUT WHEN IT MAKES A MISTAKE IT IS GENERALLY A BIG BLUNDER

By RICHARD MAUER
Daily News reporter

ANCHORAGE- During a telephone conversation recently, Anthony Sampson, the British journalist whose ground breaking 1975 book examined the big oil companies during one of their most tumultuous decades, paused for a moment as he reconsidered the Exxon Corp. and its most famous tanker.

"I thought they had become very much more shrewd and careful at that time," the author of "The Seven Sisters" finally said. "But I guess not. Exxon's general record in the past has been one of amazing international blunders.

"It's not a very intelligent company. They're run by rather unintelligent people, the pipeline of people coming up from refineries and the engineering and technical side that doesn't know very much about the rest of the world. They haven't much had a chance to learn what the world is like outside of the oil company."

That harsh observation is characteristic of at least part of the relationship the second largest U.S. industrial corporation has had with the state of Alaska during the past two decades.

Until the Exxon Valdez ran aground March 24 and spilled 11 million gallons of crude oil into Prince William Sound, Exxon has been mostly a ghost of a giant for Alaskans accustomed to the highly visible presence of Atlantic Richfield and British Petroleum, the two companies that operate the Prudhoe Bay field.

But many of the people who have dealt with Exxon describe a common experience of arrogance and disrespect, while others offer what seem, at first glance, to be contradictory observations: that Exxon may be the most professional and technically competent oil company in Alaska. Both views come from people who have been critics of the oil industry in the past.

"Their attitude toward lobbying was to get a legislator drunk," recalled Chancy Croft, a lawyer and former state legislator who led the fight in the 1970s to tax and regulate the industry.

"They answered all questions by saying, "If there isn't a healthy atmosphere in Alaska, we're just going to leave.' They wanted no taxes, no changes just let them do what they want."

Vic Fischer, another former Democratic senator, remembers the party at the downtown Petroleum Club on the night of Sept. 10, 1969, "Alaska's richest day." The state had just sold $900 million worth of North Slope leases, and the club was mobbed. Fischer was talking to Charlie Edwardsen Jr., an Eskimo activist, when a Texan with an Exxon badge, a cowboy hat and a jiggling drink in each hand bulldozed his way through the crowd.

The Texan and the Eskimo exchanged heated words, then Fischer told the Texan, "We don't talk to people that way here."

"Well, things is gonna be different now," the Exxon man shot back.

From the beginning, Fischer said, there were distinct differences between the three major North Slope players.

"The BP types were by far the most sophisticated. They very clearly already knew how to deal with colonials. They had no reluctance to dealing with local people, dealing with natives, keeping in mind they're here for the long pull. They were very cultured, very sophisticated and very pleasant about it.

"Exxon was the opposite extreme. They came over and didn't give a crap about what anybody in Alaska thought about anything. They did what they wanted, and nobody could stand in their path."

"The gentlemen in the game were the people from BP," agreed John Havelock, a former Alaska attorney general. "In the middle range was Arco, the American corporate conscience people, the people who had a higher degree of awareness of the larger responsibility of corporations and society and the power that they had and the care that had to be exercised in exercising such great power.

"And then you had the guys that basically came out of Texas and were used to playing a pretty roughandtumble game in dealing with local landowners, the small holders down there, in terms of the approach they used to get leases and to make their arrangements. Alaska was no different to them than another county in west Texas."

FEW WORKERS IN ALASKA

Though it owns the rights to about 22 percent of the oil of Prudhoe Bay and 43 percent of its natural gas, Exxon's physical presence in Alaska consisted mostly of a small exploration staff, a few people to tend to politics and the accountants to watch how Arco and BP ran the fields and pipeline for them.

Fischer suggested that if Exxon had stayed to learn about Alaska, the Exxon Valdez spill might have turned out quite differently.

"They would've known how to deal with Alaskans, would've known who to talk to, would've understood the politics better, and would not have shown the kind of overbearing arrogance they displayed right off the bat," he said. "Since Exxon was not on the scene, and didn't know, they basically acted the way they usually do they either own the place or might as well own the place."

Don Cornett, Exxon's Alaska chief for the past three years, acknowledged that the word "arrogant" is sometimes paired with Exxon, but he doesn't believe it appropriate.

"I've found people are very high in character, very strong on fairness and honesty, and have a very strong work ethic," said Cornett, 52, who has not worked anywhere else since leaving college. "They've got a sort of selfconfidence and strength that I feel is sometimes mistaken for arrogance."

TOP OF THE LINE

Rep. Kay Brown, a liberal Democrat from Anchorage, would appear to agree. She remembers the company's professional staff in Anchorage as being among the best she dealt with as head of the state Division of Oil and Gas. "Generally they have a reputation for being a big bureaucracy, for competence. Their engineers are considered top of the line, the best in the world."

Jim Eason, the man who took her place at the division, has had similar experiences.

"Without exception, they're a very professional group of people," Eason said. "Over the years, through a number of contentious issues, they've always acted gentlemanly in settling them. They can have very strong differences with you, but unlike some companies, they have more moderate ways of approaching them."

Even in the bitter Amerada Hess lawsuit, in which Alaska has accused virtually all of the North Slope lease owners of shortchanging the state out of a billion dollars in royalty payments through 1986, Exxon is portrayed as much less of a villain than other producers. The state says three companies cheated through fraudulent bookkeeping practices, while Exxon at least has been honorable in its documentation of oil sales.

Those views of Exxon do not necessarily contradict Fischer, Croft or Havelock. When it comes to business and solving technical problems, Exxon's reputation is among the best.

"The thing about Exxon, I think, is that it's a very well run company," said oil analyst Benjamin M. Rice Jr. of Brown Brothers Harriman, a New York investment firm.

Yet all that technical expertise came to naught on March 24, and the days and months that followed, when it came to preventing a huge tanker from striking a wellmarked reef, making good on the pledge to "restore" Prince William Sound and the Gulf of Alaska, and preventing a public relations disaster of epic proportions.

"We're talking about guys, from top to bottom, who can solve problems," said one knowledgeable industry source.

People who could suck oil from unimaginable depths, construct an 800mile pipeline from the Arctic to tidewater, and make money nearly as well during times of glut as times of scarcity, couldn't imagine being stymied by oil afloat.

"But it turned out to be something alive, like cancer, or AIDS, an uncontrollable thing. The thing escaped from them. They began to realize it after they washed rocks for five times, and it made no difference. At that stage, they felt they couldn't sit back and do nothing, they had to go in there and do something. It was, "Hell, man, we can lick this problem. Hire more ships! Hire more men! Spend more money!'

"I don't think anyone really knew that nature and the spill were beating them from the very start. You're dealing with people who for 30 years of their life have solved problems. They're still considered excellent management for solving problems, but they're forever besmirched."

PRIVATE BUT SOLID COMPANY

Exxon, secretive and insular for much of its 107 year life, has been as solid a business as there is, at least as measured by bottom line profits and the steady accumulation of wealth. Wall Street has considered Exxon stock as solid as a bond; the conservative money managers of the Alaska Permanent Fund felt Exxon was secure enough to have invested nearly $30 million of its $10 billion nest egg there.

Though the Rockefellers are only remotely linked to the company now, and Exxon has even recently abandoned its Yankee roots by moving its headquarters to Dallas, a lingering heritage of John D. Rockefeller remains. Author Sampson in his "Seven Sisters" tells how Rockefeller scorned public discourse of his activities, finding a passage in an 1883 work by J.C. Welch he thought particularly descriptive:

"If there was ever anything in this country that was bolted and barred, hedged around, covered over, shielded before and behind, in itself and all its approaches, with secrecy, that thing is the Standard Oil Co."

"However much the company was attacked and abused," Sampson wrote, "Rockefeller had insisted that his colleagues should not reply, so that as he realized years later "the more we progressed yet kept on gaining success and keeping silent, the more we were abused.' "

Of nine Exxon officials and directors whose comments were sought for this article, Cornett, the company's former Alaska coordinator, was the only one to consent to an interview, aside from those who agreed to talk on condition that they not be named and press officers whose job it is to talk the media. Declining were Exxon Corp. Chairman Lawrence Rawl, President Lee Raymond, Exxon Co. USA President William Stevens, Exxon Shipping Co. President Frank Iarossi, and outside directors William Andres, Randolph Bromery, Margaret MacVicar and John Steele.

The last few years have been rough for Exxon. The mammoth corporation came into the decade saddled with titanic blunders. When Exxon errs, they are billiondollar mistakes.

In 1986, Exxon paid the largest civil regulatory judgment ever awarded against an American company. The penalty, $2.1 billion, was for violating price controls on oil it pumped in Texas in the 1970s. After the judgment, Exxon filed suit against 2,300 individuals and companies including widows, orphans, the Salvation Army and a struggling black college to try to recoup some $638 million in royalties it had paid based on the inflated oil prices.

Flush with cash from the oilprice runup of the 1970s Exxon's worldrecord profit of $2.5 billion in 1973, at the height of the gasoline shortage, was widely regarded as scandalous, and was followed by revelations of millions of dollars in illegal payoffs to foreign officials and political parties the industry across the board began making foolish investments outside the oil patch.

In the mid'70s, Exxon began investing heavily in office equipment through a small company called Vydec and with word processing gear with names like Qyx and Qwip.

But giant, bureaucratic Exxon had trouble managing a small, creative entrepreneurial enterprise like Vydec. Qyx and Qwip lost out to well established companies like IBM, Xerox and Wang. In 1985, after investing an estimated $2 billion, it sold off the pieces at a loss.

Ventures in uranium and nuclear fuels were failures, too, though not as spectacular that financial meltdown had cost more than $200 million over nine years by the time the uranium mines were shut down in 1984. Copper mines in Chile and other mineral developments also proved to be bad investments.

Most embarrassing of all was the Reliance Electric fiasco.

With uncharacteristic showmanship, Exxon officials ventured from their fortresses to meet the press and demonstrate a gadget their engineers estimated would save the United States the equivalent of a million barrels of oil a day by making electric motors run more efficiently. To manufacture the device, in 1979 Exxon journeyed into the unfamiliar brick belt and bought Reliance Electric, an aging industrial concern in Cleveland, for $1.2 billion. Wall Street analysts at the time figured the company to be worth half that price.

But Exxon hadn't done its homework.

Far from being out in front of the pack, other companies already had similar devices in production. Exxon's alternating current synthesizer turned out to be too expensive to mass produce.

"No one at Exxon, nor its consultants, asked the fundamental questions: It was Exxon's intuitive belief that Reliance could turn out energy efficient motors at a far lower cost than anything the competition might bring out, 90 percent lower," Forbes magazine wrote in 1981. Fortune magazine said Exxon's investment was one of the seven worst mergers of the 1970s.

After denying that Reliance was for sale in 1985, Exxon sold it in 1986, the same year it sold its historic Manhattan headquarters to a Japanese company for $610 million.

Exxon's next blunder came in 1980, when it committed $2 billion to a giant synthetic fuel project in western Colorado's oil shale country. Exxon turned a sagebrush bluff above the Colorado River into the town of Battlement Mesa, starting constructing of 8,000 housing units and poured money into research and development.

By 1982, shale was bust, Battlement Mesa a ghost town, and Exxon's investment abandoned. Gloom replaced boom in Colorado's West Slope.

FIRM SHINES ON WALL STREET

Three years later, though, all was forgiven, at least as far as Wall Street was concerned. Exxon cut loose most of its failures outside oil and gas, and began preparing for uncertainties in energy by scaling back. Staff was cut and gas stations closed. Exxon found itself to be as attractive an investment as future oil fields, so the company began an aggressive stock repurchase plan that raised the value of shares held by other investors.

The slashing gathered steam in 1986 and 1987, the year Lawrence Rawl moved into the chairman's office from the presidency. During that period, entire divisions were wiped out, thousands of employees took early retirement or special severance benefits and hundreds more were laid off.

Exxon stock prices did well against the rest of the troubled oil industry, and the once topheavy bureaucracy ran much more efficiently. But employee morale slipped and expertise built up over the years, in everything from shipping to oil spill response, was lost.

"They cut out a lot of the corporate staff, a lot of corporate review bodies," said one manager who survived. "Then there was pressure on the affiliates as well to look at their own organizations to see if there was fat. It was mostly in staff areas where there was no perceived direct contribution to the bottom line."

"Seeing a lot of your friends leaving is always disruptive to morale," he continued. "Then the pressure on costs, and the reduction in the level of salary increases they were passing out, didn't help things. Then the other thing that happened, when you have seven companies that get reduced to one company, you've got seven presidents reduced down to one president. Let's say the other six take jobs, they're going to have to take a one, two, three or fourlevel cut they can't be president anymore. I'd guess that threefourths of the people in the new organization took one or twolevel demotions."

The hit may have hurt especially hard at Exxon, which has always taken pride in its generous employee benefits, advancement policies and opportunities. Exxon has consistently rated above average among the top U.S. industrial companies in hiring and promoting blacks and women, and has model programs for evaluating employees objectively and identifying potential managers. Workers come to Exxon for life and enjoy it.

"People tend to come to work for Exxon and stay with it, more than any company I know," said Cornett, Exxon's Alaska chief until he transferred to Houston last week to join an oilspill task force. "From my own standpoint, they kind of confirm your feeling when you first come in, that you're going to be working with people you trust, and are honest with you, and give you meaningful work. That's certainly kept me going."

Did Exxon's big cutbacks play a role in the Exxon Valdez disaster? Exxon Corp. spokesman Bill Smith said no. The ship actually had more crewmen than the Coast Guard required, he said, and the company was able to respond to the spill with experts from all over the world.

But others aren't so sure. Oil analyst William Randol of First Boston Corp., himself a former Exxon planner, said some Exxon watchers think the cutbacks may have gone too far.

"They have barebone, skeleton crews on these tankers, and they work them very hard. And they've cut to a large extent their environmental staff," he said.

The union that represents the sailors in Exxon's U.S. fleet is much less equivocal.

"When you reduce the manpower, the manpower that you do have on board is worked until fatigue sets in, and mistakes are made," said John Spencer, president of the Exxon Seaman's Union. "The less people that we're getting on these ships, you're gonna have less safety because you're not going to have time to take care of the equipment on the ship needed to maintain safety."

The union has fought Exxon for years over reductions in crew sizes, the transfer of overtime work from hourly seamen to salaried officers and the use of merit evaluations in promotions.

OIL SPILL IN HAWAII

The Valdez spill was Exxon's second shipping casualty last March. The first occurred March 2, off Barbers Point of Hawaii's Oahu Island.

The Exxon Houston, under the command of an inexperienced captain who normally worked for Exxon as a chief mate, was moored to an offshore oil buoy 11|2 miles off the coast. An underwater pipeline linked the buoy to a refinery owned by Pacific Resources Inc.

After pumping out most of the 20 million gallons of Alaska crude from its tanks the day before, the weather turned. Winds rose to 35 knots and 14foot waves swept the mooring. About 5:15 p.m. on March 2, the 11|2inch diameter chain anchoring the ship to the mooring snapped. Buffeted by wind and sea, the Houston drifted away, ripping the two floating hoses connecting it to the buoy.

According to the record of an administrative trial that took place in May, by 5:30 p.m., the captain, Kevin Dick, was talking to the Coast Guard, who told him it would take two hours for a tug to reach his ship. Dick said he could handle the situation without help.

For the next three hours, the ship maneuvered in reverse off the coast, as Dick tried to move the vessel without ensnaring the dangling hoses in the Houston's propeller. For an hour and a half, no one on the bridge plotted the ship's position on a chart. At one point, a shipboard crane holding the hose collapsed, and the operator narrowly missed serious injury.

At 8:06, the ship grounded on a coral reef. The spill totaled 35,000 gallons of oil and fuel, endangering a habitat of Hawaiian green sea turtles. The Houston had a cracked hull and later had to be taken out of service as a tanker.

The Coast Guard charged Dick with negligence and sought to take away his license. But an administrative law judge dismissed the case, blaming the chain for what happened. Exxon USA President William Stevens agreed with that conclusion at a press conference in Anchorage last month.

But Spencer, of the seaman's union, said Exxon Shipping Co.'s management philosophy rotating "stepup captains" from mate positions to try them out once they obtain their full master's license was at least partly to blame for the neardisaster.

"Even with the sea conditions that bad, it was the decision of the ship to continue pumping oil," Spencer said. "All of them (stepup captains) are under pressure of what's gonna happen if I do shut the cargo down. A stepup master wants very little problems on board his ship.

"Exxon plays these little games of letting them step up for three or four ships, and then let another one do it. They're thinking, "If I get the ship in in a little time and make record turnaround, that's going to look good, and I'm going to be promoted,' " Spencer said.

Two weeks before the Exxon Valdez left the Alyeska terminal, Spencer said, he predicted "a major disaster would happen as crews get smaller and equipment fails."

EXXON DOES WELL IN ALASKA

Exxon doesn't have an office tower in Anchorage like British Petroleum or Atlantic Richfield, nor does it have thousands of employees producing oil. Its bureau in one of the Calais buildings in midtown is a field office staffed by a handful of accountants and engineers, a tax attorney and two public affairs officials, an exploration scout and some secretaries. Its top official works as much in public affairs as anything, and reports to Exxon Co. USA in Houston, the remnant of the old Humble Oil & Refining Co.

Until the spill, Exxon has rarely had more than 30 people working in Alaska, and the average is usually about 20.

But that doesn't negate the value of Alaska to the company.

"Alaska is one of the most important states to Exxon," said Exxon's Cornett.

Fortyfive percent of Exxon USA's production is in Alaska, Cornett said, an amount that represents 18 percent of Exxon's worldwide production. Exxon owns about 22 percent of Prudhoe Bay, which means its share of oil profits since the field began producing commercially in 1977 is roughly $6.5 billion, according to the state. Exxon is the state's third biggest taxpayer, right behind BP and Arco.

"The company has done very well, they've had very high returns on their efforts," said oil analyst Benjamin Rice Jr. of Brown Brothers Harriman, the New York investment firm.

Exxon also has significant North Slope reserves in the Endicott and Lisburne fields, and a major gas field at Point Thompson on the edge of the coastal plain of the Arctic National Wildlife Reserve that is years away from commercial production.

Other companies run Exxon's producing properties for it, and the Anchorage staff is here to watch over their shoulders and attempt to influence the political climate.

The arrangement goes back to the early 1960s, when Arco was leaserich but capital poor, and Exxon was shopping for more reserves. The two signed a partnership agreement for the North Slope in 1964. They agreed to split costs and the oil 5050, Cornett said, but Arco would be the sole operator of the fields.

The discovery of the monstrous oil field was announced jointly by Arco and Exxon in March 1968. But within a short time, some Alaskans were starting to have suspicions about Exxon's interest in developing the field.

One of them was Wally Hickel, governor of the state until he was appointed interior secretary by President Nixon in 1969. While the industry was loudly blaming government and environmentalists for delaying construction of the transAlaska pipeline, Exxon itself appeared to be taking steps to postpone it, he said. Other Exxon interests in Canada and Asia conflicted with more expensive Alaska oil, he said.

Exxon spent three years testing the idea of shipping oil by tanker directly from the North Slope. Those experiments with the S.S. Manhattan, a tanker converted to an icebreaker that could navigate the Northwest Passage, was a smokescreen to delay the pipeline, Hickel believes, though Exxon officials deny it.

There came a day in 1970, Hickel said, when he asked representatives of the three Prudhoe Bay companies, Exxon, Arco and British Petroleum, into his office in Washington. He closed the door, pulled out an envelope, and tossed it on the desk in front of the men.

"Here's your permit," he said.

The Exxon man got up and left the room, unwilling to commit the company to building a pipeline, he said. Its public proclamations to the contrary, Exxon wasn't ready to start, Hickel said.

Alaska Sen. Ted Stevens said that Exxon lobbyists effectively argued against allowing export of North Slope oil, which protected Exxon's Asian wells from competition and reduced the value of Alaska oil.

But the pipeline was eventually built, and Exxon engineers and capital played a key role in its construction. Exxon owns slightly more than 20 percent of the pipeline, which has been estimated by the state to have made its owners a $12.4 billion profit from tariffs since 1977.

DUMPING IN THE BEAUFORT

While Exxon's presence on the Slope was minimal, in one area where it was exploring, on Flaxman Island, it got into serious trouble.

The drilling site was just off the coast of the Arctic National Wildlife Refuge, and the well would give Exxon a head start on learning what lies beneath its surface. Today the wildlife refuge is considered the last onshore location in the U.S. for an oil strike on the scale of the huge Prudhoe Bay, but the Valdez spill has delayed indefinitely congressional action on opening it to full exploration.

On June 15, 1975, John Janssen, an environmental field officer at the state Department of Environmental Conservation in Fairbanks, got an anonymous call from an employee of Nabors Drilling, an Exxon contractor. The caller wanted to know if it was illegal to dump oil into the ocean. Janssen said it was.

After some convincing, the caller agreed to meet with Janssen. According to Janssen's report, the tipster said Exxon and Nabors deliberately dumped some 600,000 gallons of water contaminated with oil and drilling fluids into the Beaufort Sea and made no effort to either report the action, as required by state and federal law, or clean it up.

After alerting Exxon he was coming, Janssen flew to the drilling site eight days later. He found that the two Exxon employees alleged to have been involved in the dumping had been sent home the day before by Exxon. All along the shore, despite evidence of a recent and hurried cleanup attempt, he observed signs of spilled oil. Everywhere he went, he was tailed so closely by an Exxon official that he complained in his report that he was "followed like a shadow on a sunny day."

Exxon admitted pumping the waste into the sea, though its officials were unusually secretive about the well, Janssen said in a recent interview. "They called it a tight hole they didn't want the world to know or other oil companies."

The drillers had gotten into trouble when they reached a deep area of unexpectedly high gas pressure. They feared the well would blow out, he said, but the only pit that could contain large quantities of oil was already filled with water, fluid and oil. Janssen suspects that Exxon kept the spill secret to avoid tipping off other companies to what was in the hole. After he wrote his report, Janssen said, it became a hot item among other oil companies.

A year later, Exxon agreed to pay a $100,000 federal fine for violating the 1972 Clean Water Act, the highest penalty assessed under the law to that date. The state, under a settlement negotiated by an assistant attorney under Attorney General Avrum Gross, fined Exxon only $5,000, a source of irritation to Janssen to this day.

But since then, Exxon has generally stayed out of the limelight, improving on its dealings with state officials.

"I know the kind of emphasis the company puts on relationships with people in government," said Cornett, Exxon's former Alaska coordinator. "During the spill, we had a number of opportunities to lose our tempers and blast away and feel put upon by the government, and we have resisted that temptation," he said.

Though not achieving the kind of prominence that has surrounded the heads of BP and Arco in Alaska those officials are also much higher in their respective companies Cornett was active in civics. He served on the board of public television station KAKM and was president of the Anchorage Symphony.

Exxon's donations to nonprofit groups in Alaska average between $150,000 and $200,000 a year, said spokesman Tom Cirigliano. That's about the same amount of money that Exxon and its employees donated to political candidates and parties for the 1988 election.

Arco, which earns about the same amount of money from the North Slope as Exxon gave away $1.4 million last year. British Petroleum, which pumps about as much money as Exxon and Arco combined, contributes an average of about $2 million a year.

SHALLOW ANSWERS

"Exxon, wherever I've met them, sort of act like they're a government," said Robert Engler, an author and professor of political economy at the City University of New York graduate school. "At the U.N., you might expect to see a government of the United States, a government of Paraguay, a government of Exxon.

"That's opposed to a coarser breed (of oil men), the independent operators, who in recent years have gone slugging it out in public. Exxon looks down upon that. "That's not us, we're businessmen, we're oil men. We don't have time for that.' But with this business of being aloof, obviously when you stub your toe, there aren't many people who'd help you up."

Engler went to the May meeting of Exxon shareholders to observe how the company's directors performed under criticism over the oil spill, and he wasn't very impressed. Chairman Lawrence Rawl "didn't really answer anything in great depth" and thought Exxon's only problem was that it failed to communicate its position effectively.

"He should have learned that there was real feeling on this issue," Engler said.

It was similar to a performance given by Rawl's predecessor, Clifton Garvin, at an earlier occasion, when the company was under attack for its investments in the late 1970s and early '80s. Engler remembered a timid nun asking Garvin why the company was investing in Chile when it was ruled by the dictator Pinochet, and Garvin's response.

"He could have said, "We've agonized over that decision,' but instead he just said, "We get questions like that of people of your stripe all the time.' He just slapped her as a nun and moved on."

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