In its annual report to the U.S. Securities and Exchange Commission, or SEC, in 2014, Exxon Mobil delivered a sobering description of its condition. Oil prices were falling below $100 per barrel, costing the company an estimated $350 million in earnings for every $1 drop in the price of a barrel of oil. The company had recently been forced to abandon a multibillion-dollar deal to drill in the Russian Arctic because the Obama administration imposed sanctions on the Russian government. Meanwhile, the progress being made by the international community and the U.S. government to curtail carbon pollution and fight climate change was, from the perspective of Exxon, likely to make the company’s “products more expensive, lengthen project implementation times, and reduce demand for hydrocarbons.” On top of it all, the company told the SEC that it could face “very large and unpredictable punitive damage awards” from ongoing litigation. Exxon is currently under investigation by two state attorneys general who allege that the company knowingly misled the public over the causes and costs of climate change. In the two years following the company’s status report, Exxon’s stock price slid 17 percent, prompting financial journalists to speculate that the company “may be in irreversible decline.”
Fewer than two years and after tens of millions of dollars spent on lobbying, political donations, and lawsuits aimed at bullying its critics, Exxon has executed what could amount to a staggering reversal of its political and financial fortunes. For the company, the 2016 presidential election was the inflection point. Instead of fighting to survive in a carbon-constrained world in which many of its oil and gas reserves were at risk of being stranded, Exxon now has the opportunity to build a policy environment of largely unrestricted greenhouse gas pollution that facilitates the expansion of fossil fuel production and consumption for decades to come. Investors in the U.S. stock market seem to understand the financial implications of the election for Exxon: Between November 8 and December 31, 2016, the company’s share price rose 7 percent, amounting to a $21 billion increase in the market value of the company in fewer than two months.
The financial benefits of the 2016 election for Exxon—which will be attained and compounded by the unprecedented corporate power the company is building inside the Trump administration—are difficult to measure at this point but nearly impossible to overstate. This column identifies seven major financial payouts that could flow to Exxon during the Trump administration, assisted by five Trump Cabinet nominees: former Exxon CEO Rex Tillerson for secretary of state; Oklahoma Attorney General Scott Pruitt (R) for Environmental Protection Agency administrator; Rep. Ryan Zinke (R-MT) for secretary of the Interior; former Texas Gov. Rick Perry (R) for secretary of energy; and Sen. Jeff Sessions (R-AL) for attorney general. Each of these nominees has either been employed by Exxon or received massive financial contributions from it. All told, these potential benefits could amount to at least $1 trillion for Exxon over the coming years.
Exxon payout #1: Expand the company’s control over foreign oil and gas reserves (at least $500 billion)
Exxon produces oil and gas in 22 countries, with plans to be producing in 36 countries by 2030. Because its share of production from the United States is expected to shrink in the coming decades, the company’s international relationships—which could be nurtured by the next secretary of state—are indispensable to the future of the company. Exxon, for example, has a number of projects in Russia that have been allowed to continue under U.S. sanctions; others, however, have been blocked, including a deal with Rosneft, the Russian state oil company, that is reported to be worth $500 billion.
If confirmed by the Senate as President-elect Donald Trump’s secretary of state, Exxon’s most recent chairman and CEO, Rex Tillerson, could work to roll back these sanctions, providing what could be a massive windfall for the company. Tillerson, who received a $180 million payout from Exxon after he was nominated, has close ties with Russia and its president, Vladimir Putin. A company man who has only worked for Exxon in his career, Tillerson reportedly also defied U.S. State Department policy in the Middle East by making an independent oil deal with the Kurdish government in 2011. Tillerson later told State Department officials, “I had to do what was best for my shareholders.” As secretary of state, Tillerson could presumably align State Department policy in the Middle East, China, Russia, and elsewhere with the financial interests of Exxon.
Exxon payout #2: Facilitate the mining and transportation of Canadian tar sands (at least $277 billion)
Exxon is one of the largest owners of tar sands in Canada, with more than more than 5.14 billion barrels of oil equivalent in reserve. At current oil prices, these reserves are worth at least $277 billion. The problem: Tar sands are among the dirtiest and most expensive energy sources to produce.
As secretary of state, Tillerson could reverse the United States’ move away from Canadian tar sands by recommending that President Trump issue presidential permits for cross-border liquid pipelines, such as for the Keystone XL tar sands pipeline. Expediting approval of additional tar sands pipelines would be a major boost to a company whose future is highly dependent on tar sands, given that 35 percent of Exxon’s liquid holdings in 2016 were in the fuel source.
Exxon payout #3: Weaken regulations that protect the climate, clean air, and clean drinking water (financial benefit: To be determined)
If confirmed, Exxon’s allies in President-elect Trump’s Cabinet will have the authority to dramatically weaken environmental protections that the company claims are too costly and burdensome. The Department of the Interior, or DOI, and the Environmental Protection Agency, or EPA, for example, could target the Bureau of Land Management’s recently implemented methane rule and the EPA’s methane standards, both of which require oil and gas companies, including Exxon, to use the latest technology and best practices to curtail methane leaks that pollute the air, cheat taxpayers, and waste a valuable natural resource. In 2014, Exxon was one of the top five onshore methane polluters.
President-elect Trump’s EPA could also lend a hand to Exxon by establishing less strict ozone nonattainment areas—or areas that do not meet the air quality standards for ground-level ozone—which the EPA is finalizing now. This could have a significant impact on how the oil and gas industry, which releases pollutants that cause ozone, operates in nonattainment areas. Exxon opposed the strengthening of the ozone standard in 2015. Likewise, the EPA could move to reconsider the Clean Water Rule. Exxon, and the rest of the oil industry, would benefit financially from a weaker rule that is more permissive of pollution of rivers, lakes, and streams. Exxon has opposed the rule and used a loophole in the Clean Water Act to try to shield itself from liability for an oil spill that polluted a stream and wetlands.
Leading the charge for Exxon would be President-elect Trump’s nominee for EPA administrator, Scott Pruitt. Pruitt has received hundreds of thousands of dollars from the oil and gas industry over the course of his political career, including $6,500 from Exxon. In addition to filing several lawsuits against federal environmental protections, Pruitt used his role as Oklahoma attorney general to defend Exxon as allegations of it funding fraudulent climate science studies came to light. He later argued that the SEC should not move to require companies to disclose climate change risks to their businesses, calling climate change part of a “political agenda.”
Exxon payout #4: Lock up more taxpayer-owned oil and gas resources at low royalty rates (financial benefit: To be determined)
Exxon closely watches the federal government’s decisions about the management of taxpayer-owned oil and gas resources. DOI, for example, manages leasing and permitting for oil and gas extraction on U.S. public lands and waters. According to a CAP review of federal revenue data, Exxon produced oil and gas worth approximately $3.9 billion on leases on DOI-managed federal lands and waters in 2013 alone. Exxon stands to profit if the agency moves to become even more lopsided in favor of oil and gas production, such as by selling drilling rights in the Arctic, Atlantic, or Pacific oceans.
If confirmed, President-elect Trump’s nominee to lead DOI, Montana Rep. Ryan Zinke, could also lend Exxon a hand by halting the agency’s progress toward raising royalty rates for oil and gas production on federal lands. Keeping royalty rates at or below current bargain-basement levels would be a windfall for Exxon and other oil and gas companies.
Exxon’s political action committee was one of Rep. Zinke’s top energy and natural resource donors for his 2015 congressional bid, and oil and gas political action committees overall gave more than $60,000 to his campaign. Zinke has intervened frequently on behalf of his oil and gas industry donors by, for example, voting to block efforts to raise royalty rates on public lands.
Exxon payout #5: Attack alternative fuels and electric vehicles (financial benefit: To be determined)
Exxon is in the oil business, wants to stay in the oil business, and has reported to the SEC that alternative fuels are a threat to its business. The company has lobbied against electric vehicles in the United Kingdom, funds organizations in the United States that advocate against renewable energy, and has refused to make significant investments in renewable energy development.
The good news for Exxon is that President-elect Trump has nominated a longtime friend of the company, former Texas Gov. Rick Perry, to lead the Department of Energy. During his presidential runs in both 2012 and 2016, energy companies were one of Perry’s largest sources of contributions. In his most recent Texas gubernatorial election, Perry received more than $5 million in contributions from the oil and gas industry, with Exxon donating $40,000 directly. G. Brint Ryan, an Exxon tax consultant who once won a $20 million tax refund for Exxon, has also been a donor, fundraiser, and ally to Perry in the Texas political sphere and founded a political action committee that donated $250,000 to Perry’s presidential campaign in 2012.
If confirmed, Gov. Perry can be expected to direct the Department of Energy’s resources away from alternative fuels and electric vehicle research and development, essentially ending the programs by denying them funding.
Exxon payout #6: Being shielded from legal liability by the Department of Justice (financial benefit: Potential $84 billion to $246 billion or above)
Recent reports indicate that Exxon knew about the dangers of climate change decades ago but intentionally misled the public about these dangers. Exxon maintains that it has an “unbroken record of … scientific inquiry” into climate change, despite having funded the research of contrarian scientists such as Wei-Hock Soon. As a result, there have been widespread calls in Congress for an investigation by the Department of Justice, or DOJ. The Democratic National Committee even adopted a resolution into its 2016 platform calling for a DOJ investigation into what Exxon knew.
As the head of DOJ, Sen. Jeff Sessions would have the power to sweep investigations under the rug. It would not be the first time he tried. In 2016, Sen. Sessions sent a letter asking that DOJ quash the investigation into Exxon. Sen. Sessions received a $10,000 political contribution from Exxon the same year.
If DOJ were allowed to move forward with an investigation of Exxon, it could result in a fine or settlement that could rival some of the largest corporate settlement cases in recent years. Volkswagen AG recently settled to pay $14.7 billion for seven years of pollution from diesel emissions cheating. According to a CAP analysis, an Exxon settlement at the same rate, but over the roughly 40 years that the company misled the public about pollution, could be closer to $84 billion. The case may also have the potential to rival the $246 billion settlement reached with the tobacco industry in the 1990s. Just like Big Tobacco, Exxon appears to have fundamentally misled the public about the harms caused by its products. The company could therefore be liable at a similar scale. As head of DOJ, Sen. Sessions could spare Exxon the expense.
Exxon payout #7: Higher oil and natural gas prices (potential of $161 billion over 10 years)
Oil prices are the single largest determining factor in Exxon’s profitability each year. When oil prices were at $94 per barrel in 2012, Exxon reported $44.9 billion in profits. When oil prices fell to roughly $49 per barrel in 2015, those profits fell to $16.2 billion.
Through the work of all its allies in the Trump administration, Exxon would be better able to advance policies that could drive up oil prices. As the largest holder of natural gas reserves in the United States, Exxon would similarly stand to benefit from an increase in natural gas prices. Tillerson, for example, would be interfacing with foreign leaders of the Organization of the Petroleum Exporting Countries, whose production decisions can drive international oil prices up or down. At the EPA, Pruitt could roll back vehicle efficiency standards, which would help drive up oil demand and put upward pressure on oil prices. Gov. Perry, in turn, could discontinue programs that support renewable energy development and electric vehicle deployment, thus locking out competition to oil and natural gas. If the Department of Energy and the Federal Energy Regulatory Commission expedite natural gas exports, demand—along with prices—will go up.
If Exxon’s allies in the Trump administration are able to help oil prices climb back to close to $100 per barrel, CAP estimates that the company would stand to gain at least $161 billion in revenues over the next 10 years, based on the company’s own estimations that every $1 change on the price of a barrel of oil equates to $350 million in earnings for the company.
The bottom line
At no time in recent U.S. history has one company been at the brink of attaining so much power and influence over U.S. policy, both domestic and foreign. If the Senate confirms most or all of the five Cabinet nominees whose backgrounds and positions would most benefit Exxon, the company will have acquired substantial direct and indirect control over the regulatory, law enforcement, lawmaking, and diplomatic powers of the American government. Although the company’s change in fortunes and access to power will undoubtedly boost its bottom line, Exxon’s public policy agenda will come at extraordinary cost to public health, the environment, and taxpayers.
Jenny Rowland is the Research and Advocacy Associate for the Public Lands Project at the Center for American Progress. Matt Lee-Ashley is a Senior Fellow and the Director of Public Lands at the Center. Myriam Alexander-Kearns is the Research Associate for the Energy Policy team at the Center. Erin Auel is a Research Assistant for the Energy Policy team. Howard Marano is a Research Assistant for the Energy Policy team.
The authors would like to thank Meghan Miller, Alison Cassady, and Danielle Baussan for their contributions to this column.
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Director, Public Lands