It’s official: Former ExxonMobil CEO Rex Tillerson will serve as secretary of state. The Senate voted 56-43 to make the Texan multi-millionaire the nation’s top diplomat just one day after ExxonMobil reported its lowest profits in almost 30 years. The oil major’s weak performance raises the question of whether Tillerson’s business leadership is as stellar as both the public and elected officials tend to believe.
Under then-CEO Rex Tillerson, ExxonMobil’s profits fell by more than 50 percent to $7.84 billion in 2016 $16.15 billion a year earlier. Those 2015 profits, in turn, were half of the $33 billion the company earned in 2014. Even though oil prices climbed higher by the end of the year, the oil giant’s $1.7 billion in fourth-quarter profits in 2016 were 40 percent lower than its profits earned the same period in 2015. Adjusted for inflation, Exxon’s 2016 earnings were the lowest registered since 1989, when its profits stood at $3.5 billion, or $6.77 billion in 2017 dollars.
Tillerson retired on January 1 as CEO after Donald Trump nominated him. He left ExxonMobil in far worse condition then when he took over the company in 2006. Tillerson is one of the most controversial and broadly opposed of Trump’s troublesome cabinet picks. Every one of the 10 Democrats on the Senate Foreign Relations Committee voted against sending his nomination to the full Senate while all 11 Republicans on the committee backed him.
Three Democrats—Joe Manchin III of West Virginia, Heidi Heitkamp of North Dakota and Mark R. Warner of Virginia—plus Angus King, an independent who caucuses with Democrats, crossed party lines to join with Republicans in supporting the oilman’s confirmation by the full Senate. Chris Coons, a Delaware Democrat, abstained.
Despite ExxonMobil’s poor performance during his tenure, most of Tillerson’s critics in Congress have expressed respect for his business acumen. For example, when Senator Chris Murphy, a Connecticut Democrat, said: “There is no doubt Rex Tillerson is a successful businessman and a very smart person, but he has proven, many times, his willingness to put oil profits before national interests and handing him the keys of U.S. foreign policy is a recipe for disaster.”
Buy the company’s latest earnings report should give senators pause on this front as well. Under Tillerson’s watch, ExxonMobil’s profits collapsed by more than 80 percent, falling from $39.5 billion in 2006 to $7.84 billion in 2016.
He spent his entire professional career at ExxonMobil, having been recruited into the company straight out of college and going to work there after graduating from the University of Texas at Austin in 1975. He rose steadily through the ranks to become CEO and Chairman of the Board in 2006. Two years later, riding a wave of record-breaking high oil prices, ExxonMobil’s profits rose to $45.2 billion — the highest annual corporate profits ever recorded until surpassed in 2015 by Apple.
Oil prices crashed in 2009, rebounded by 2011 and then crashed again. This time, there’s no recovery in sight. While other companies tried branching out into alternative fuels and renewable energy, ExxonMobil has stuck rigidly to oil and natural gas. As I reported for Rolling Stone in 2013, “Since 2002, ExxonMobil, which took in $45 billion in profit last year alone, put a grand total of $188 million into its alternative [energy] investments, compared to the $250 million it dedicated to U.S. advertising in the last two years alone.” In so doing, it has also seen earnings steadily crater to today’s low levels.
For the first time since the Great Depression, Standard & Poor’s stripped ExxonMobil of its AAA credit rating last year, citing the “reserve-replacement ratio” as the company’s greatest challenge — that is, it’s not clear that the company will keep finding enough new oil reserves to replace the petroleum it pumps from the ground.
This week, ExxonMobil reported having to write off $2 billion worth of a so-called “impairment charge” in natural gas assets primarily in the Rocky Mountains, according to the company, which, under current price conditions are not viable to extract. Even excluding the impairment charge, however, “both U.S. and international upstream fell short of expectations,” Wells Fargo Senior Analyst Roger Read said in a research note on the corporation’s earnings.
The impairment was, nonetheless, a massive blow to the company’s financials. Yet, it is likely not the worst financial problem the company will face as a result of Tillerson’s leadership. As I reported last month for In These Times, the Securities and Exchange Commission (SEC) is investigating whether Exxon Mobil has been inflating the size of its oil reserves by counting reserves as “booked”— meaning planned and accessible for producing — when they should not be.
In response, the company reported in late October that it would likely need to “de-book” some 3.6 billion barrels of tar sands oil in Canada and about 1 billion oil-equivalent barrels in other North American fracking operations. This would mean that with the stroke of a pen, ExxonMobil could lose nearly 20 percent of its booked reserves — the measure that most determines the value of an oil company’s stock.
The SEC investigation stems from a 2016 report by InsideClimate News raising potential fraud concerns perpetrated by ExxonMobil against the public and its shareholders regarding what the company knew about climate change and when, and what it did with that information. A finalist for the 2016 Pulitzer Prize, the investigation uncovered that Exxon’s own scientists confirmed in the 1970s that the burning of fossil fuels harms the climate. The company then chose to publicly deny the reality of climate change and finance the climate denialist movement (findings ExxonMobil disputes).
As Bloomberg reported following this week’s earnings news, “Exxon expects to follow through with most of the 4.6 billion-barrel reserves reduction it warned investors about in October because depressed prices made some fields unprofitable to drill, Vice President Jeff Woodbury said during a webcast on Tuesday. The disclosure will occur within the next two weeks, he said.”
Senator Elizabeth Warren, a Massachusetts Democrat, said Tuesday, “Handing American foreign policy over to a giant oil company is not something we do in the United States.” Based purely on its financials, it appears to be sage advice against giving both ExxonMobil and Rex Tillerson this kind of power.
An earlier version of this post appeared on Medium.