Exxon and Chad-Cameron Pipeline

Topics: Petroleum, ExxonMobil, Exxon Valdez oil spill Pages: 22 (7328 words) Published: July 5, 2013
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EXXONMOBIL AND THE CHAD CAMEROON PIPELINE In November 1999, ExxonMobil CEO Lee Raymond faced the potential collapse of the Chad/Cameroon Oil Pipeline project on which the company was about to embark. Both Royal Dutch/Shell and France’s TotalFinaElf, ExxonMobil’s partners in the Pipeline Consortium, had just withdrawn, citing environmental concerns among other things and leaving its future temporarily in doubt.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 memoranda 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 landlocked Chad and the adjacent 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 “On Anniversary of Nigerian Executions, Shell, Elf Pull out of African Oil Project,” Rainforest Action Network Press Release, 10 November 1999; http://www.ran.org/news/newsitem.php?id=139&area=newsroom (accessed .6 March 2003). 2 For maps of the project, see http://www.esso.com/Chad-English/PA/Operations/TD_ProjectMaps.asp (accessed 09 January 2007) This case was prepared by Research Assistant Jenny Mead under the supervision of Patricia H. Werhane, Ruffin Professor of Business Ethics, R. Edward Freeman, Elis & Signe Olsson Professor of Business Administration, and Andrew C. Wicks, Associate Professor of Business Administration, Darden Graduate School of Business, University of Virginia. 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@dardenpublishing.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. Rev. 1/07. 1

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Shell’s and Elf’s pullout 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 CEO Lee 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 it sold 5.4 million barrels of petroleum products daily. Mobil had a net income of $3.3 billion;...
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