IN THE NEWS / Mastermind Behind The Merger
Private, almost reclusive, Exxon's Lee Raymond commands massive respect
By DAVID OLIVE
The Financial Post
Lee Raymond is one of the least- known of America's best managers. As a master
of productivity, the chief executive of Exxon Corp. runs circles around his peers at
Royal Dutch/Shell Group, BP-Amoco and other oil giants. His grasp of technology
easily matches that of Microsoft Corp.'s Bill Gates, and he has a better record at
investment timing than even the celebrated Jack Welch of General Electric Co.
Only Mr. Raymond's intense privacy has enabled his strategic genius to remain
something of a mystery. He doesn't talk about his three sons (triplets) or hobbies (he
has none), and is notorious for making decisions in private -- a break with the
cronyism of his predecessor, Lawrence Rawl.
Mr. Raymond's determination to keep a low profile was only reinforced by the death
threats received by Exxon executives at the time of the Exxon Valdez
oil spill in 1989, and the 1992 kidnapping and murder of Exxon's head of international
operations.
But yesterday Mr. Raymond couldn't help but be dragged into the spotlight, however
briefly, to announce the biggest business deal in history -- his firm's acquisition of
Mobil Corp.
After all, the estimated $77-billion (US) deal creates a company whose output of oil
and gas tops that of all nations save Saudi Arabia and Iran. As the two firms are
integrated over the next few months, the austere, almost patrician Mr. Raymond will bear more watching than his merger counterpart. The glad-handing Lucio Noto, CEO of Mobil, could prove valuable to the new firm for his unequalled access to Saudi's oil princes, but is likely to be denied any significant role in running the new Exxon Mobil Corp.
A self-described efficiency zealot, Mr. Raymond, 60, is the first Exxon CEO to
hold a doctorate (a PhD in chemical engineering). He intimidates colleagues with
his detailed knowledge of Exxon's sprawling operations, which range from breakthrough discoveries for turning natural gas into high-value diesel fuels to the geopolitical balancing act his firm must perform in deriving a profit from oilfields near Russia's Sakhalin Island.
And Mr. Raymond's job performance doesn't invite dissent. He has generated a total
of $34.9-billion (all figures in U.S. dollars) in profits for Exxon shareholders in his five
years as CEO. Exxon posted the highest profit of any U.S. company last year
($8.5-billion), and its stock has outpaced the Standard & Poor's 500 for a decade.
Exxon shareholders have benefited greatly from the things Mr. Raymond has not
done. While rivals such as Shell and Mobil were pouring billions of dollars into
liquefied natural gas projects and oilfields in remote and politically risky locales, Mr.
Raymond spent the decade from 1983 buying back $15.5-billion, or about 30%, of
the company's own shares.
Exxon's competitors ultimately wrote off billions of dollars on energy projects that
turned sour. Mr. Raymond's shareholders watched their stock appreciate an average
of 19.3% annually in the 1980s and early 1990s, outpacing even Mr. Welch's GE.
Mr. Raymond was on the sidelines once again in the early 1990s, when Shell and
British Petroleum PLC spent billions of dollars experimenting with deep-water drilling
in the Gulf of Mexico, and Mobil absorbed the stupendous cost of making Canada's
Hibernia oil project economically feasible.
Exxon could afford to sit out those glamorous activities. It was already the world's
largest oil producer when Mr. Raymond, son of a South Dakota railway engineer and
a lifetime Exxon employee, took over the company in 1993. At that time, Exxon had
long been in the habit of paying exorbitant sums to lease oil fields all over the world, a
haphazard strategy designed merely to maintain the firm's number one ranking.
Having earned his shot at the CEO's job by turning around an ailing Venezuelan
operation, then selling feckless diversifications into everything from solar energy to
weigh scales, he quickly applied the same less-is-more logic to the core oil business.
With a brutal lack of sentimentality, he closed and sold refining and production assets.
He also hacked away at dead wood in an industry that is notorious for overstaffing.
In the past five years, as Exxon's sales have climbed 19%, to $137.2-billion, payroll
costs have dropped 2%, and the head count has been reduced 13%, to 80,000
workers -- the lowest number since the breakup of Standard Oil in 1911.
Rather than look for new reserves, Mr. Raymond turned the company into the
industry leader in squeezing the most profit from each barrel of existing reserves. He
did this by means of enhanced recovery techniques and upgraded refineries.
To detractors who have long accused Exxon of falling behind in the search for new
reserves, Mr. Raymond pleads guilty. His stock answer is a company has to get its
house in order before taking on exotic exploration projects.
"Before you can talk about the future in this industry, you need a flawless operation to
begin with," he says. "Then your operating standards become the standard for
evaluating future projects."
As of yesterday, however, Exxon has signalled its desire to shift abruptly into growth
mode. An obvious motive is the 40% drop in the world oil price this year, which has
made acquisitions less costly. A more pressing factor, though, is a deteriorating reserve
position that Mr. Raymond has at last decided to confront forcefully.
Almost a week after rumoured talks between Exxon and Mobil began, the industry is
still shocked by Mr. Raymond's bold move. They saw Mobil as a predator, not prey.
As for Exxon, Mr. Raymond was still insisting a few months ago it would never resort
to a takeover to remedy its declining reserves.
Behind the bravado, however, Mr. Raymond was growing increasingly uneasy about
signs of decline in Exxon's key oilfields in the North Sea, Malaysia, Alaska and
Australia. The company has, at last, moved into deep-water drilling in the Gulf of
Mexico and offshore Africa. And it was wise to wait: The pioneering efforts of
competing explorers reduced development costs to as little as $3 a barrel.
But Exxon's much younger deep-water projects, along with its promising
five-billion-barrel property in the Caspian Sea and its 46-trillion cubic feet of gas in
Indonesia's Natuna field, won't come on stream for several years.
Mr. Raymond needs Mobil's existing and probable reserves as a bridge to the first
two decades of the 21st century. Exxon's production of crude oil has been flat for a
decade. In recent years, it has been replacing each 100 barrels of production with only
104 barrels of reserves, compared with a replacement rate of 140 for Mobil, a far
more aggressive explorer.
In the meantime, though, critics worry about a clash between the freewheeling culture
of Mobil and the buttoned-down conservatism of Exxon. But an admiring William
Randol, an oil analyst at Lehman Bros., sees nothing derogatory in Exxon's frequent
lambasting as a firm with all the wild-catting spirit of an annuity.
"Exxon has proven itself to be very, very stingy," he says. "They just don't piss away
money the way other integrated companies do."
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