IE 11 is not supported. For an optimal experience visit our site on another browser.

Former oil exec talks energy policy

An excerpt of John Hofmeister's "Why We Hate the Oil Companies".

Americans have long had a love-hate relationship with the oil industry. Myself included.

Although I spent the last third of my corporate career working for Royal Dutch Shell, one of the world’s largest international oil companies, and the final three years as president of its U.S. subsidiary, Shell Oil Company, my perceptions of the industry were shaped long before I first stepped through the doors of Shell’s elegantly understated European headquarters back in September of 1997.

I started paying attention to energy policy the year Richard Nixon turned out the Christmas lights. It was 1973, and I had just started working as a management trainee at General Electric’s lighting headquarters in Nela Park, near Cleveland, Ohio. On October 20, Saudi Arabia, supported by other Arab states, cut off all oil supplies to the United States as retaliation for U.S. funding Israel in the latest Arab-Israeli conflict. To conserve energy during the embargo, Nixon asked Americans to turn off their Christmas lights. GE, of course, was in the holiday light bulb business. At the company’s campus where I worked, our Christmas lighting display was a local historic landmark. Generations of Cleveland-area families looked forward to an annual drive-through of the displays. GE made the symbolic gesture of turning off the lights to comply with the president’s request, but the real impact was that we had to lay off hundreds of local employees in a matter of months because of the drop in business caused by that government policy decision. Just down the road from Nela Park was the Gulf station on Euclid Avenue where I filled up my stripped-down 1972 Chevy Nova.

During the embargo, the station owner wore a pistol on each hip because customers were fighting over places in the gas lines and he wanted order, not chaos. Over the next 25 years, as I moved into management and executive positions at companies that were large consumers of energy, oil shocks and surpluses played havoc with business planning, and I continued to manage uncertainty around energy costs. During my 15 years at GE, we were continually buffeted by the energy waves, as prices spiked and fell and alternative forms of energy rose in favor then quickly ebbed. In 1979, when an Arab oil cutback sent U.S. gasoline prices soaring, then-president Jimmy Carter announced a huge push to create synthetic crude oil from coal and oil shale deposits in the Rocky Mountains. He projected 2.5 million barrels of production by 1990.

Three years later, oil prices had fallen, and on May 2, 1982, a day remembered in Colorado as Black Sunday, Exxon shut down its synthetic crude operation, eliminating thousands of jobs on the remote western slope of the Rockies. Over the next several years of my career I was at Nortel, a global telecommunications technology company, and AlliedSignal, a large aerospace, automotive, and engineered materials company, that later acquired Honeywell and took its name. Both companies were large energy consumers that benefited from a period of mostly low oil prices. However, when the first Gulf War took place in 1992, I was at AlliedSignal’s aerospace business, and the airline industry lost more profit that year than it had made in its entire history, due to the high cost of fuel and loss of customers. We shed some 20,000 employees in the restructurings that followed.

After 24 years on the consumer side of oil, I joined Shell. I had worked in companies that paid for the consequences of oil energy policies — or the lack of policy — and I wanted to see if it was possible to make a difference on the energy producer side. I did not have the traditional petroleum engineering or geophysics background of an energy executive — my degrees were in political science — but I had a strong global business strategic and leadership experience, a diverse background in marketing, manufacturing, and human resources, gained at top Fortune magazine-rated companies, and I believed that sometimes an outsider can provide a fresh perspective and accomplish more — or so I hoped.

What I found at Shell was a company that pushes the frontiers of technology, employs many of the smartest people on Earth, enables economic growth and development around the world, increasingly appreciates and responds to sustainable development needs, and provides solid shareholder returns. Yet it is a company in one of the most hated industries in the United States, an industry that consistently ranks at the bottom in reputation polls.

That animosity came to a head after Hurricanes Katrina and Rita hit the Gulf Coast in the late summer of 2005, just months after I became president of Shell Oil Company. Prices had been climbing for the past three years, but the serious supply disruptions caused by the storms sent prices skyrocketing. I started receiving hate mail, including a drawing showing me hanging in effigy. Not exactly what I expected when I took the job.

In June 2006, Jim Mulva, chairman of ConocoPhillips, Dave O’Reilly, chairman of Chevron, and I appeared together on “Meet the Press,” where host Tim Russert began by confronting us with a set of negative poll numbers and asking us, “Why is that?”

Excerpted from “Why We Hate the Oil Companies” by John Hofmeister. Copyright (c) 2010, reprinted by permission of Palgrave Macmillan, a division of Macmillan Publishers Limited. All rights reserved.