by Tom Bower
Andy Hall disagrees. The scarcity of oil, he believes, is indisputable, and that will enrich the oil majors, whose unique expertise will be needed to produce an increasingly valuable commodity. Oil, throughout Hall’s career, has been pitched in a crisis between glut and famine. He will bet both ways, on the oil majors’ success and on their failure. In 2008, Phibro declared profits of $700 million, and Hall’s personal bonus was $125 million. His success had become an embarrassment for Citigroup, beleaguered and under the US government’s control. The bank’s solution to Hall’s bonus entitlement was Phibro’s sale to Occidental Petroleum for a net value of about $250 million, a giveaway if Hall maintained his genius. He possesses a financial acumen that has eluded others in the trade. In the course of 35 years, he has encountered all the traits of oil’s personalities — self-glorification, greed, hubris, nemesis, deception and self-destruction; but also genius, integrity and bravery. Each individual, whether explorer, geologist, executive or trader, seeks to establish a profitable balance between governments, regulators, markets and nature. Over the last 20 years that balance has been elusive. Navigating around the mystery, Hall says, recalls the Red Queen’s words in Through the Looking Glass. To survive in her country, the queen explains to Alice, depends on a single rule: “Now, here, you see, it takes all the running you can do, to keep in the same place.” The last 20 years confirm that paradox, uniting both sides of an irreconcilable argument.
John Browne (left) enjoys his moment of triumph. BP’s successful bid for Amoco in 1998 propelled BP to rank as a world-class player. Amoco’s chairman Larry Fuller (center) and Peter Sutherland (right), BP’s chairman, would both become disenchanted with Browne.
Browne’s glory was tarnished in 2005 after the giant Thunder Horse platform in the Gulf of Mexico tilted because of an engineering fault (above), followed in 2006 by oil leaking from a corroded pipeline in Alaska (below).
Shell’s fortunes soared after the 1960s thanks to huge oil discoveries in Nigeria, but attacks by armed gangs in the Delta region (top) and pollution (below) fractured Shell’s reputation. The Nigerian government’s show trial and execution of Ken Saro-Wiwa (above) for campaigning to curtail the exploitation in 1995 transformed Shell into an international pariah.
Trading oil on the margins is attractive to those occupying the shadows: Marc Rich, among the most infamous oil traders, avoided prosecution for tax evasion and sanctions-busting but was pardoned by President Clinton.
John Deuss is infamous for “squeezing” North Sea oil supplies.
Even the Queen was asked in 1998 to help BP secure sympathy from President Heydar Aliyev of Azerbaijan, a former KGB chief who became a shrewd oil supplier.
In 1997, Russia’s fledgling bankers offered to save their country from bankruptcy if President Boris Yeltsin pledged the nation’s oil and mineral reserves to the bankers in exchange for loans. (Left to right: Rosprom’s Mikhail Khodorkovsky, Media-MOST’s Vladimir Gusinsky, SBS-Agro’s Alexander Smolensky, Onexim’s Vladimir Potanin, Inkombank’s Vladimir Vinogradov, Alpha Bank’s Mikhail Fridman, Yeltsin)
The following year, Mikhail Khodorkovsky (above left), Mikhail Fridman (above right and below left) and Vladimir Potanin (below right) became oligarchs and billionaires by securing shares in Russia’s vast oil fields for minimal amounts.
Chastened by John Browne’s success in buying American oil companies, Lee Raymond (above right), Exxon’s chairman, persuaded Lou Noto (left), Mobil’s chairman, to agree to a merger and stymie Browne’s ambition for BP to become number one in the world.
Raymond (below) hoped in 2003 to persuade President Putin to allow ExxonMobil to buy Yukos, owned by Mikhail Khodorkovsky. Rex Tillerson (above), Raymond’s successor, witnessed the destruction of that strategy.
Chasing Browne’s success in Russia (left to right: ExxonMobil’s Rex Tillerson and Lee Raymond, Chevron’s David O’Reilly, ConocoPhillips’s James Mulva, Vladimir Putin, interpreter, Putin’s adviser Sergei Prikhodko, Lukoil’s Vagit Alekperov, Ambassador Yuri Ushakov).
Raymond (left) and Khodorkovsky at the World Economic Forum in Moscow in October 2003.
Oil speculators, many trading through the New York Mercantile Exchange (Nymex), pushed oil prices up from about $30 a barrel in 2003 to $147 in July 2008.
The most admired trader was Andy Hall, the head of Phibro, who personally earned about $125 million during 2008.
Recruited to Phibro in 1982 by Tom O’Malley, Hall emulated his mentor’s discretion and savvy.
After meetings with Putin, Phil Watts (above right), Shell’s aggressive chairman, reinforced Shell’s foothold in Russia but his success unraveled as Walter van de Vijver (below), his deputy, accused him of deception over Shell’s oil reserves.
Walter van de Vijver exposed the company to accusations by Oleg Mitvol (above) of environmental destruction in Siberia, which required Jeroen van der Veer (below, second from left), Watts’s successor, to humiliatingly apologise to Putin.
Ironically, the Russian oil industry ranks among the world’s worst offenders as enemies of the environment, as indicated by this photograph, taken in Siberia.
Oil creates strange bedfellows: (above) US Vice President Al Gore chased Nursultan Nazarbayev, the suspicious president of Kazakhstan, to secure more supplies for America; while (below) President Vladimir Medvedev of Russia courted Hugo Chávez (standing, left), Venezuela’s left-wing president, to challenge a historic source of America’s oil supplies. German Khan (seated in front of Chávez) of TNK signed the deal on Russia’s behalf.
John Browne was thrilled in 2003 that his deal with Mikhail Fridman was blessed by Putin.
Browne imagined that Rodney Chase (above), his enforcer, had tied up all the loose ends but he failed to account for Igor Sechin (below), the Kremlin’s “Mr. Oil,” and his sympathy for the oligarchs.
The efforts of Tony Hayward (right), as Browne’s successor, to resolve BP’s crisis with Alexei Miller (left), Gazprom’s chief executive, at a football match, failed.
Ali al-Naimi, Saudi Arabia’s 74-year-old oil minister, shrewdly talked up oil prices during an early-morning run in Vienna in May 2009 before an OPEC meeting.
Acknowledgments
No previous book has attempted to tell the story of oil over the past 20 years. Compressing in effect several books into one narrative is a challenge. Oil follows the stories of BP, Shell, ExxonMobil, Chevron, the traders, the Russian oligarchs and the environmentalists. Fortunately, I received generous cooperation from nearly all those involved. I interviewed about 250 people who over the years have been employed in diverse aspects of the oil industry. Besides their recollections, the principal sources of information for this book were government regulators’ and company reports, specialist magazines, the major newspapers in America and Britain and the best of the huge library of previous books.
While I am not identifying or thanking my interview sources here, they know who they are, and I want each of them to know how grateful I am for their support and assistance. There are, however, many people whose invaluable help can be acknowledged. I could never have started this book without the guidance of Patrick Heren and the subsequent introductions to a wide range of people. I am also grateful to Shamil Yenikeyeff for his help in Russia. In Moscow, Lyuba Vinogradova was a terrific researcher. Several people helped in research, but in particular I am grateful to Olly Figg, a trusted friend. Many individuals read parts of the book, and in particular I owe thanks to Peter Gignoux. In the USA, Mike Lance and Bob Royer were good friends. Others whose contributions were invaluable were the directors and staff at BP, Shell, ExxonMobil, Chevron, Cairn and Tullow. All wanted their help to remain anonymous.
Among many others, I am particularly grateful to Terry Adams, Meg Anesley, Faucon Benoit, Mike Bowlin, Mike Bradshaw, Axel Busch and Paul Sampson at Energy Intelligence; Carl Calabro, Daniel Carr, Guy Caruso, Guy Chazan, Judith Chomsky and Jennifer Green at the Center for Constitutional Rights; Brent Coon, Bill Cran, the producer and director
of the BBC series The Prize; Mark Crandall, Ed Crooks of the Financial Times; John D’Ancona, Alan Detheridge, Kenneth Dickerson, Paul Domjan, Ray Drafter, Mary Dwyer, Chris Fay, John Fitzgibbon, Doug Ford, Herman Franssen, Lars Garrison, Fadel Gheit, Chuck Hamel, Tom Hamilton, Robert Healy, Albert Helmig, John Hoffmeister, Dennis Holden at the CFTC, Alex Kemp, Lutz Kleveman, Steve Levine, Laney Littlejohn, Richard Mabley of Reuters, Helen Manning, Jorge Montepeque, Ed Morse, Carl Mortishead, Colin Moynihan, John O’Connor, Teo Oerlemans, Willy Olsen, Tim Osborne, Stephen O’Sullivan, Ron Oxburgh, Greg Pytel, Michael Ritchie, Laurent Ruseckas, Professor Richard Sakwa, Adam Shrier, Adam Sieminski, Chris Skrebowski, Nick Starritt, Mark Stephens, Jonathan Stern, Doug Terreson, Charlie Tuke, Phil Verleger, Mike Watts, Chris Weafer, Julian West, Mike Wiley and Ian Wybrew-Bond.
The picture research was executed by Anna Phillips. The legal chores were undertaken by Godwin Busuttil. Jonathan Lloyd of Curtis Brown was as ever remarkably steadfast in his support. I am particularly grateful to Mitch Hoffman, Grand Central’s astute editor, and to Kim Hoffman, for their advice and help. At HarperCollins, I owe a great debt to Robert Lacey, whose editing as always transformed the manuscript, Martin Redfern and Richard Johnson.
As always, my principal gratitude is to my family — Veronica, Nicholas, Oliver, Sophie and Alexander — who with my mother, Sylvia, always provide stability, humor and love.
Notes
PREFACE
xii last battle: Anthony Sampson, The Seven Sisters: The Great Oil Companies and the World They Made p. 16
xii The fascination of: Ibid. p. 30
xiv His lack of scruple: Ibid. p. 31
xiv African oil did not: Nicholas Shaxson, Poisoned Wells: The Dirty Politics of African Oil p. 100
xv among the least stable: “The End of Oil” p. 6
CHAPTER ONE: THE EMPEROR
2 a flagship for: New York Times 4/23/03
5 Raymond refused to add: Wall Street Journal 8/29/01
CHAPTER TWO: THE EXPLORER
17 We drilled in: Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power p. 733
28 Thunder Horse meant: Hubbert Revisited
29 Publicly, BP reported: Financial Times 7/26/06
31 Mexico’s proven reserves: New York Times 3/3/05
CHAPTER THREE: THE MASTER TRADER
36 A huge spurt in demand: Sampson p. 240
36 Armand Hammer: Ibid. p. 212
36 The Arabs, he noted: Yergin pp. 580ff, 600
36 fool’s paradise: Sampson p. 275
38 Iranian officials received “chocolates”: A. Craig Copetas, Metal Man: Marc Rich and the $10 Billion Scam p. 119
39 catastrophic problems: Yergin p. 626
43 Exxon invested in: Ibid. p. 665
44 In the early 1980s these restrictions: Nigel Lawson pp. 163ff
54 the 600 staff struggled: Senate Ag Com 6/5/96
CHAPTER FOUR: THE CASUALTY
58 Shell’s engineers had considered: Financial Times 8/23/97
61 In 1990 they fell by: Wall Street Journal 2/3/92
63 after Fay telephoned: New York Times 6/21/95
65 I arrived in this job: Harvard Business Study
66 The new dictator repressed: New York Times 9/6/94
68 in helping to preserve: Mail on Sunday 4/4/04
71 become inward-looking: The Guardian 5/14/97
73 stewardship over: Harvard Business Study
73 begin to take: Financial Times 10/14/97
74 There will be a coming crisis: Financial Times 3/3/98
75 while contributing to the well-being: Harvard Business Study
75 Beethoven’s “Ode to Joy”: New York Times 3/12/04
CHAPTER FIVE: THE STAR
77 D’Arcy’s team ignored: Yergin p. 146
78 The problem was: James Bamberg, British Petroleum and Global Oil, 1950–1975 p. 209
81 This is a long-term business: New York Times 11/13/90
82 the fundamental realities: Statement to shareholders, AGM, April 1992
88 Oil prices, David Simon predicted: New York Times 8/9/94
89 Browne’s admirers spoke of: Wall Street Journal 11/5/93
89 After substantial criticism: Financial Times 2/8/97
90 This is the classic way: New York Times 3/20/94
CHAPTER SIX: THE BOOTY HUNTERS
93 Gorbachev appealed to Germany: Marshall Goldman, Oilopoly: Putin, Power and the Rise of the New Russia p. 52
94 Oil prices had in fact fallen: Ibid.
95 the Yamal Peninsula: New York Times 11/27/94
95 Conoco excitedly signed deals: New York Times 4/12/94
97 cataclysmic event: Wall Street Journal 5/17/99
97 its oil reserves would slump: New York Times 6/12/04
98 The knowledge that production: New York Times 2/4/91
98 gave Russia’s media: New York Times 8/16/91
99 Unlike the oil majors: New York Times 3/23/91
99 Gorbachev bowed to threats: New York Times 8/6/91
104 deal of the century: Steve Levine, Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea
106 Phibro would lose: New York Times 3/20/94, 3/31/94
108 increasingly tilted in Azerbaijan’s favor: Levine p. 161
108 the demand by Marat Manafov: Sunday Times 3/26/00
108 Circumstances change: Wall Street Journal 4/25/94
109 In Washington, Bill White: Levine pp. 211ff
110 Amoco’s ambassador to the NSC: Ibid. p. 232
110 an outbreak of violence: Ibid. pp. 203ff
112 Both countries enjoyed: vol. 93/19, 5/8/95
113 The fate of the $1.4 billion pipeline: Levine
113 he slashed investment: Wall Street Journal 2/13/95
CHAPTER SEVEN: THE OLIGARCHS
115 Western analysts’ estimates: BusinessWeek 11/29/94
117 Yeltsin gave his formal approval: Freedland pp. 171ff
118 Arco became the first: New York Times 8/31/95
118 At every level: Freedland p. 274
119 One obstacle was: New York Times 11/8/98
120 Our long-term security interests: New York Times 5/9/97
121 Yeltsin restored tax: New York Times 12/9/97
123 On auction day: Wall Street Journal 7/8/98
123 In July, the White House: Freedland p. 297
125 Browne was mocked: New York Times 12/2/99
127 aggressive meddling: Oil & Gas 9/27/99
CHAPTER EIGHT: THE SUSPECT TRADERS
138 BP was fined £125,000: www.fsa.gov.uk/pubs/additional/sfa004-00.pdf
139 Being in the physical business: Wall Street Journal 3/3/05
139 Their expectation: New York Times 12/26/90
140 You know it’s going to be: Wall Street Journal 6/30/89
141 Alaska’s officials would assert: Wall Street Journal 2/7/90; New York Times 11/19/92
141 the corporation was “sloppy”: New York Times 1/6/90
141 without any punishment whatsoever: Wall Street Journal 7/13/92
142 The settlement: Wall Street Journal 1/31/91
143 you mention oil: New York Times 8/19/90
144 In 1996 he would agree: Wall Street Journal 9/26/96
144 Unexpectedly, the public outcry: New York Times 6/28/90
145 Lawmakers are driven: Oil & Gas 3/4/91
151 paying the paramilitary leader: The Observer 7/1/01
CHAPTER NINE: THE CRISIS
153 Costs had fallen: New York Times 10/22/96
154 I hope this doesn’t: Wall Street Journal 12/1/99
155 This is corporate: Wall Street Journal 5/2/94
156 I was shocked: Wall Street Journal 7/6/89
156 Raymond argued: New York Times 11/19/92
156 scientific studies: Wall Street Journal 3/25/93
156 400,000 birds: New York Times 4/30/93
156 The verdict is: Wall Street Journal 9/19/94
157 The damages could: Financial Times 6/25/0
8
158 the biggest criminals: Yergin p. 92