这家135年历史的石油公司，败在何处？

WHEN IT COMES to trash-talking, Exxon Mobil CEO Darren Woods isn’t exactly on par with, say, NBA legend Michael Jordan or former Dallas Cowboys All-Pro Deion “Prime Time” Sanders. At least in public, the buttoned-up Big Oil executive typically speaks in a near-monotone drone, softened slightly by his light Texas drawl, and chooses his words so carefully as to suggest a curated blandness. That understated presentation style was on display once again in late April when Woods announced the oil and gas giant’s first-quarter earnings. And yet, behind the Exxon-speak, there was an unmistakable note of triumph, perhaps even a hint of defiance.

On the webcast call with Wall Street analysts, Woods pointed out that a year of tumult—a pandemic, the resulting waves of lockdowns, and tumbling crude consumption—had done nothing to change the energy giant’s perspective on the world. And he offered that Exxon’s $2. 7 billion profit in the first three months of 2021, helped by rebounding oil and gas prices, was proof that the company’s strategy was right. “We knew economies would recover, populations and living standards would continue to grow—ultimately driving demand for our products and industry recovery.” Woods said. Meanwhile, he noted, the efforts by the company over the past few years to restructure and reinvest had paid off: “We are a stronger company with an improving outlook.”

Translation: Take that, haters.

The strong quarter was a much-needed win both for Woods and his company after a year in which once-mighty Exxon has suffered a series of painful indignities. Collapsing oil prices caused Exxon’s revenues to sink by some $83 billion in 2020 compared with the year before and sent the energy titan tumbling in this year’s Fortune 500, from No. 3 down to No. 10—Exxon’s lowest-ever spot in the rankings. Worse still, after more than two decades without a negative quarter, the company took a record $22. 4 billion loss in 2020. That made it the biggest money-loser in the Fortune 500 by a wide margin. In August, Exxon was removed from the Dow Jones industrial average after 92 consecutive years as a member of the 30-company index, and replaced by software giant Salesforce. Adding further insult to injury, Exxon’s longtime rival Chevron (No. 27 on this year’s Fortune 500, down 12 spots) kept its place in the Dow. That had to sting.

By April 2021, both Moody’s and S&P Global had downgraded Exxon’s debt for a second time in just over a year. The reason? Increased pressure to address climate change combined with the highest debt levels in Exxon’s history—a by-product of aggressive investments intended to boost the company’s oil and gas production. The company’s net debt-to-capital ratio has risen from 16. 5% to 27. 8% in the past five years, and its total debt load increased by nearly $21 billion last year alone.

The setbacks have given an oil-rig-size opening to Exxon’s critics, who argue that the company’s fortunes have been on the wane for years. Look no further than its market performance. Exxon has long enjoyed a reputation among investors as perhaps Big Oil’s most disciplined operator—so cash-rich that it could invest during downturns and capitalize in booms. Love it or hate it, Exxon was the oil stock you could count on. But over the past five years, its shares have fallen 32% while Chevron’s have risen 6% and the S&P 500 has soared 102%. Exxon also lags rivals BP (down 16%) and Shell(down 21%) over the same period.

The news, reported by the Wall Street Journal in January, that Exxon and Chevron had held preliminary merger discussions raised even more questions about the future direction of the company. (Exxon declined to comment on the report.)

Underpinning all the tumult is a suspicion that Exxon's long-established world view—of oil and gas being at the center of economic growth for decades to come—has become financially shaky, even deeply risky, in a new age of energy transition away from fossil fuels and toward more sustainable sources. While peers like BP, Shell, and France's Total have made commitments to reach net-zero carbon emissions by 2050 and have said they will accelerate investments in wind and solar, Exxon has dragged its feet on investing in anything outside its core oil and gas business.

Sensing weakness, activist investors—led by a newly created investment firm called Engine No. 1—have launched a proxy battle challenging Exxon over its lack of action on an alternative energy strategy. They are seeking to remake the company's board with a slate of four new directors who, they argue, can help guide Exxon's long-overdue evolution. In response, Woods has announced a series of overhaul initiatives-in particular, the launch of a new business to commercialize Exxon's low-carbon technology-that have been received with raised eyebrows by a wide range of skeptical observers, who view the moves as half measures and distractions. As Fortune went to press, the two sides were gearing up for a showdown at Exxon's annual meeting in late May.

Problems are brewing for Woods inside Exxon, too. Morale has been hurt by the company's plan to lay off 15% of its workforce, cutting some 14, 000 jobs, including contractors.

And four years into his tenure as CEO, Woods has become a divisive figure for many at the company, according to interviews with current and former Exxon employees from all levels and departments. He is criticized by some as lacking the blustery defiance and swagger of his predecessors in the corner office, and by others as not being more of a visionary change agent.

Woods insists that the company's strategy doesn't rely on higher oil prices. But he appears to be banking on the success of a classic Exxon tactic in times of trouble: push ahead and wait for the cost of a barrel to rise. The higher that crude goes-the price surged from $37 at the end of October to $68 as of late May-the better the odds that the strategy succeeds. And at a moment when the company arguably is under more pressure to change than at any point in its 135-year history, the bigger question is this: Does it even want to?

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WOODS SOUNDS RELAXED and confident. In a phone conversation with Fortune in early April, he is reflecting on the turbulence of the past year. Painful as it might have been, 2020 was “a pivotal year" for Exxon, he says, “not only because of what happened with the pandemic and the economy and the demand for the products that we produce, but it was also a time when I think several things came together. "The CEO and his leadership team had just completed a reorganization plan in the fall of 2019, he explains. And the fallout from COVID-19 pushed the entire organization to move faster. “The pandemic really accelerated the effort there and gave the organization a better understanding of the urgency.”

Exxon didn’t appear to be in need of a major overhaul when Woods succeeded Rex Tillerson as chairman and CEO on Jan. 1, 2017. Indeed, in Woods’ first full year at the helm, the company earned a hefty $19. 7 billion profit, and its “return on average capital employed”—a metric traditionally beloved by the company- was 9 %, or more than double that of the previous year. But its debt had risen sharply in the years before Tillerson's departure to serve a stint as secretary of state in the Trump administration. And it soon became clear, inside and outside the company, that Tillerson had left Woods with a mess to clean up. Among Tillerson's missteps: overpaying in the $35 billion acquisition or the Texas shale company XTO in 2010. when the shale boom was in full swing.

To jump-start growth, Woods adopted a quintessentially Exxon approach: He decided to bet on big projects that would pay off handsomely when oil prices rose. His reorganization plan called for the company to bump up operational spending by 30 billion to $35 billion every year through 2025, focusing on a "big five" of particularly promising, largescale oil and gas projects - from the Permian Basin in Texas to Guyana to Mozambique-- while selling off other assets. Woods projected that plan would result in a jump to s million equivalent barrels of oil per day, and double earnings, by 2025.

Then COVID-19 changed the math. Global oil demand in 2020 dropped a historic 8. 8 million barrels per day from 2019, according to the International Energy Agency, and prices fell even more dramatically. (The cost of a barrel even dropped briefly in trading to negative $38 per barrel in April 2020.)

Woods immediately slashed capital spending by 30% and said costs would be reduced by 6 billion through 2023. Exxon's dividend, however, was one cost that remained untouched. Unlike BP and Shell, which both reduced their dividends for 2020 in the wake of large losses, Exxon kept its payout steady-even borrowing to keep it fully funded.

And as he was leading the company through these challenges, Woods was struggling to find his footing with Exxon's workforce, according to current and former employees. His two forerunners in the CEO job were a tough act to follow as front men. Lee Raymond-who in 1999 orchestrated the merger of Exxon and Mobil, reuniting two off spring of J. D. Rockefeller's Standard Oil, and led the combined company until 2005--was famously hard-charging. And Tillerson was a brash and charismatic leader in his own right. Woods, by contrast, is more publicly reserved. An Exxon lifer who studied engineering at Texas A&M, he is a product of the company's conservative, command-and-control culture and was regarded as sharp and straight talking when he landed the job. But his leadership style has failed to inspire some employees and rubbed others the wrong way.

As an example, current and former employees point to a disastrous town hall meeting about a year into Woods' tenure as CEO. Speaking off-the-cuff, Woods defended the company's rigidly competitive, deeply unpopular employee ranking system as meritocratic. He also related a story about firing a crying female employee, only for her to come back and thank him a year later for giving her the chance to pursue new opportunities, according to employees who saw the town hall. The meeting's overall effect was to give an impression of Woods as tone deaf and arrogant. Internally, the appearance was regarded as a "car crash,” says one former senior manager, and word spread rapidly within the company. In response to questions about the town hall, an Exxon spokesperson provided this statement: “Darren continues to engage and talk with employees on a regular basis, takes part in town halls, and listens to employee feedback and considers it as he leads the company.”

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ENGINE NO. 1 did not waste any time announcing itself to the world. On Dec. 7, the newly formed activist investment firm, with a bankroll of $250 million deployed in public markets, launched its very first campaign, with Exxon as the target. As an opening salvo, the fund said in a statement that “no company in the history of oil and gas had been more influential.”

but that “it is clear, however, that the industry and the world it operates in are changing and that Exxon Mobil must change as well.”

The San Francisco–based firm was founded by Chris James, a hedge fund veteran and cofounder of Partner Fund Management and Andor Capital Management. It’s backed in the Exxon campaign by some of the largest pension funds in the U. S. , and it asserts that Exxon’s board of directors does not include members with sufficient knowledge of the energy industry to lead a green transition. They have picked four candidates to join the board who, they say, have the right credentials. One candidate is the former CEO of Andeavor, the U. S. oil and gas company; another led the transformation of a Finnish energy company’s shift toward renewable fuel.

One might view the Engine No. 1 campaign as the most formidable challenge yet to Exxon’s long history of recalcitrance on climate change. Former CEO Raymond questioned the validity of climate change on multiple occasions. Under Tillerson, Exxon publicly acknowledged that climate change was real. But the Union of Concerned Scientists alleged in a report that, behind the scenes, the company was continuing to fund flawed research to muddy the science on the changing climate. Exxon says the report “deliberately misstates” its position on climate change, and that it “inaccurately” accuses trade organizations to which Exxon belongs of “so- called climate denial.”

The long shadow of Exxon’s record is reputational but also legal: The company is currently facing 20 lawsuits from local and state governments that are related to climate change, says Michael Gerrard, founder of Columbia University’s Sabin Center for Climate Change Law. Gerrard says that makes Exxon “far and away” the top corporate defendant for climate change–related lawsuits in the U. S. So far, no such suits have been successful; in 2019, Exxon won a case brought by the New York attorney general, which alleged that the company had downplayed the risks it faces from climate change.

Woods himself has expressed a more open, transparent approach to addressing climate change. He has spoken frequently about the 2015 Paris Agreement, and devoted such long sections of investor presentations to the topic that even longtime critics have sometimes found it jarring. At one Exxon annual meeting, Woods spoke about the environment for the first 20 minutes, says Kathy Mulvey, the accountability campaign director in the climate and energy program at the Union of Concerned Scientists. “If you were an alien dropped from outer space into that meeting,” says Mulvey, “you would have thought this was a company focused on solving climate change.”

But critics say that the kinder, gentler rhetoric on climate change isn’t matched by Exxon’s actions. Consider, for instance, the company’s claims that its emissions cuts are in line with the Paris Agreement. Exxon’s targets—to slash upstream emissions intensity by 15% to 20%, and methane intensity by 40% to 50%, by 2025—cover emissions only on projects that Exxon operates itself. (In 10-K filings, the company reported that about 13% of its wells are non-operated.) And they extend only as far as Exxon’s own emissions or energy used on those projects, known as operating emissions or “Scope 1” and “Scope 2.” BP and Shell have included targets for Scope 3, which covers the largest portion of emissions tied to oil and gas—those that come from burning the fossil fuels to power cars and airplanes. Exxon says it limits reporting to Scope 1 and Scope 2 emissions because they are under the company’s direct control, and it’s clear how to report them, whereas Exxon argues Scope 3 emissions data is less consistent and can be misleading.

Woods has been dismissive of the more ambitious targets of his rivals. In a March 2020 call with investors, he referred to such targets by peers as a “beauty competition,” remarking that selling off oil and gas assets to a “less effective operator” has “actually made the problem worse.” Instead, Woods talks about solving the problem more “holistically.” In response to questions about the company’s approach to climate change, an Exxon spokesperson said that the company had invested more than $10 billion since 2000 in lower-emissions technology, and added: “We are committed to doing our part to address the risks of climate change and being part of the solution.”

But one former employee says ruefully that the true attitude inside Exxon is that consumers need its products, whether they like the company or not: “We don’t dress up our pig at all. We don’t even put lipstick on the pig. We just say, ‘Everyone likes bacon, so shut up.’”

Of course, even the more climate- friendly policies of Exxon’s European rivals may not be going far enough to make a meaningful difference. In a landmark report released in late May, the Paris-based International Energy Agency said that in order to have any hope of cutting emissions to net zero by 2050, no new investments must be made in oil and gas fields at all from now on—a pledge that none of the major oil and gas companies have made.

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WHEN IT COMES TO the question of what, exactly, an oil and gas giant should do about climate change, Exxon has come to a different conclusion. On Feb. 1, Woods announced the launch of a new business, Low Carbon Solutions, to commercialize technologies that Exxon has been developing. It will start, first and foremost, with carbon capture and storage, or CCS—a process in which carbon dioxide from burning or extracting fossil fuels is trapped and prevented from reaching the atmosphere. Woods said Exxon would invest $3 billion in Low Carbon Solutions from 2021 through 2025.

Engine No. 1 claims the company has changed its rhetoric on climate change in response to investor pressure. But Woods says the timing was simply right. Wind and solar power “while important” aren’t a “complete solution,” he says, and the company has been working on CCS technology for years. The aim is not just to offset their own emissions but to build out a new business: Given the explosion of net-zero commitments by companies, those same companies are going to need a way to offset their emissions, he says. There has also been, of course, a shift in the political winds.

“I think the Biden administration change, and the emphasis that they’re putting on that, put an accelerant in that process, and so really provided the underpinnings for us to take that work that we’ve been doing on technology and carbon capture and change that into a full-blown business.” says Woods.

But so far the new venture hasn’t announced any projects beyond what it had already made public. Experts and analysts also say that without new incentives, first and foremost a carbon tax—an option that Exxon Mobil has publicly backed since 2009—it is not currently economical to launch large CCS projects in the U. S.

Exxon doesn’t disagree. When it comes to making CCS projects profit- able, “I would say that the U. S. is not there in terms of incentive structure to make something like this happen.” says Guy Powell, who has led Exxon’s CCS ventures internally since 2018 and is now helping to lead Low Carbon Solutions. “But we do see potentially the political will to put in the right incentives, regulatory and legal structures in place, to make that happen.” The company is engaging with policymakers, Powell said, and has other projects in the works.

While Exxon asserts that it is the world’s leader in capturing CCS, critics argue that the expertise comes with a catch: The company’s approach is focused on “enhanced oil recovery,” a method that injects CO2 into the ground in order to push more oil out, rather than solely long-term sequestration for the explicit purpose of reducing carbon emissions.

Powell says that, indeed, most of the current CCS efforts in the U. S. are for the purpose of oil extraction, and that the technique, used by the oil and gas industry for decades, requires “different applications of technology and operations” than long-term sequestration. But he argues that the end result is the same. “It is a different process, but the net result is that the CO2 stays securely in the ground,” says Powell.

Some industry analysts are openly skeptical about the value of the new venture. “It’s more than a concept, but it’s a direction rather than a big capital shift,” says Alastair Syme, a managing director at Citi who follows Exxon. “I would interpret that as part of the lobbying effort.”

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IN THE MONTHS since Engine No. 1 went public with its proxy battle against Exxon, the stakes of the showdown between the fund and the energy giant have steadily been raised. In what appears to be a direct response to Engine No. 1’s proposed slate of new directors, Exxon has added three new members to its board since the start of the year, including the former CEO of the Malaysian state energy company as well as activist investor Jeffrey Ubben, the founder of the San Francisco–based hedge fund ValueAct Capital.

But Engine No. 1’s campaign continues to gain supporters. It has been backed publicly by three of the largest pension funds in the U. S. —Calpers, Calstrs, and the New York State Common Retirement Fund—as well as Legal & General, a U. K. asset manager with more than $1 trillion in assets. Four major proxy advisers, including Institutional Shareholder Services and Glass Lewis, the two largest voting advisories in the U. S. , have offered Engine No. 1 support for at least some of its proposed board members. Said Glass Lewis in its report: “While Exxon claims to have evolved its strategy and maintained its historical leadership position among oil majors, our review finds the company’s competitive position and financial returns have eroded, and its stated strategy to address the underlying reasons for this diminished performance is generally insufficient.”

The night before the vote, the campaign won another coup when Reuters reported that BlackRock, the world’s largest asset manager, had voted for three of Engine No. 1’s four candidates. The success of the vote would hinge on the support of other institutional giants Vanguard and State Street.

Woods has been aggressive in making his case. Responding to a question from an analyst in the first-quarter earnings call, the CEO staunchly defended the expertise of Exxon’s current board, and said the company has changed how it engages with shareholders. “I think we are responding to the feedback that we get.” he said.

Engine No. 1 says that Exxon has missed an opportunity to have a serious debate over what should be done about climate change in the long term. Before the campaign, “Exxon’s proud answer was nothing.” says Charlie Penner, head of active engagement at Engine No. 1 and the leader of the Exxon proxy battle. “But once there was a risk of losing board seats, rather than having that debate, they just threw on the other team’s uniform”—that is, an energy-transition uniform—“and tried to avoid it.”

Will the campaign force real change at Exxon, even if it doesn’t unseat any board members? Industry observers are divided. Some say it has served as a warning shot that the world is changing, and Exxon is not immune. Others say it’s likely that the oil giant will get back to business as usual—especially if oil and gas prices continue to rise, driving up the value of Exxon’s shares in the process. As of late May, Exxon’s stock was up 41% since the start of the year.

When asked what questions Exxon employees ask him about the future of the company, Woods is circumspect. “The questions internally are very consistent with the external questions.” he says, “which is, you know, given the demand and the desire for less carbon intensive energy sources, how does that demand realize itself with time? And what’s the impact on the company? And how do we think about managing through that transition?” He continues in a reassuring tone: “Our job here is to meet the evolving demands of society. And that’s what we have historically done.” Just don’t rush him.