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Financial Times: Big Oil drills for vote of approval

Published: July 25 2007 18:36 | Last updated: July 25 2007 18:36

When Conoco­Phillips was battling to prevent a state takeover of its multibillion-dollar investments in Venezuela last month, why was one of its top executives talking to elementary school teachers about lightbulbs?

Jim Gallogly, head of refining and marketing, was conducting a day of questions and answers on recycling and other issues in Columbia, South Carolina. The third-biggest oil company in the US had sent him to a small city – where it has no operations – at this a critical time.

“People are mad at us,” Mr Gallogly explains. “We have to get out and answer their questions.”

Explaining its activities is something Conoco, and the industry at large, has started to do in the hope of turning round the poor reputation of the oil and gas sector. The public might be more sympathetic to $3-a-gallon petrol, executives reason, if it understands how the money is spent.

Companies such as Conoco spend billions of dollars each year to find hydrocarbons in remote lands and deep under the ocean. The precious chemicals fuel everything from cars to power stations and are used to make everyday products such as toys and medicines.

People might also be less inclined to demonise Big Oil if they knew that oil and gas were produced at considerable political risk, the argument runs. In Venezuela Conoco was forced to abandon $4bn in investments as a result of the country’s nationalisation programme. More­over, Americans pay some of the world’s lowest petrol prices – ounce for ounce, less than a frappuccino at Starbucks.

This long-term marketing effort began to take shape late last year, when Gallup published annual ratings of various US industry sectors. It was no surprise when the oil industry, usually a poor performer, came in last. With petrol prices spiking at above $3 a gallon, its score went from -42 to -62, the poorest rating for any industry since the poll began in 2001.

Oil industry managers realised they needed to do more to explain themselves to the public. For years they had relied on traditional print and television advertisements. But these left no room for questions and were often dismissed as propaganda by people angry that unheard-of prices at the pump coincided with record profits for the industry.

“It’s a complex industry that can’t be explained in a 30-second soundbite,” says David Samson, general manager of public affairs at Chevron. “There is no industry more important than energy, and most people are unaware of the value energy delivers to their quality of life.”

At the start of this year, the American Petroleum Institute, the industry’s main trade organisation, began inviting oil company executives to join its leaders at speaking events. It also holds media round tables, offers podcasts and blogs with interested parties. “We are trying to reach out in all kinds of ways to help people understand the industry,” says Jim Craig, an API vice-president. “People don’t know the scale, cost, how much it takes to recover oil and natural gas and turn it into products.”

Indeed several people remained distinctly baffled after hearing Mr Gallogly speak at Columbia town hall later on the day of the school-teacher session. One woman complained angrily that he had failed to explain why petrol was $3 a gallon – even though the question was never put. If he wanted to tell the public, she reasoned, he did not need to wait to be asked.

Does that mean Mr Gallogly’s day was a waste of time? Not necessarily, says Betsy Gelb, marketing professor at the Bauer College of Business at the University of Houston. People can be persuaded by reason but also, in a less conscious way, by associating the industry with something pleasant, “even if it’s nothing more than putting a human face on an oil company”, she says.

The woman who went away angry will acknowledge on some level that Mr Gallogly was “pleasant enough”, Prof Gelb says. After all, he came all the way from Houston to talk to the people of Columbia, where his company does not even have business.

“It could help on the margins. And helping on the margins is all they can hope for,’’ she says.

For the oil companies, such help could be enough to keep someone from writing an angry letter to Congress to demand higher taxes on the industry.

Ken Cohen, ExxonMobil’s vice-president for public affairs, says the timing for an educational drive is not auspicious. That is particularly the case in Washington DC, where politicians are gearing up for an election. High petrol prices and industry earnings have put oil companies in the middle of the political debate. “In effect, we’re a candidate, and we’re not electable,” he says.

According to Amy Myers Jaffe, an energy expert at the James A Baker III Institute for Public Policy at Rice University in Houston, the industry faces a battle on several fronts. It is easy for the politicians to say they will fix energy problems by making Big Oil pay.

“If you’re the oil industry, you had better get out in front,” Ms Jaffe says.

The industry, she says, must address its past mistakes – for example BP’s safety lapses in the US – if it hopes to build credibility with the public.

“The lesson of BP is it is not enough to have a publicity campaign if you’re not going to have an underlying policy that supports that,” Ms Jaffe says.

Exxon’s management committee is targeting policymakers and the company has trained 400 executives to speak to schools, chambers of commerce and others. Up to 60,000 people have been reached in this way in the past 12 months.

“At least 55,000 people now attach a name and a face to ExxonMobil,’’ Mr Cohen says.

Four times a year he invites leaders in environment, human rights and social development to a free-ranging discussion about the industry. “It isn’t one of these Kumbaya sessions where everyone leaves smiling. But the attendees leave thinking, ‘It’s not as easy as I thought.’”

The emphasis in Exxon’s approach is on education. “If someone doesn’t have a grounding in industry fundamentals we’re not communicating,” Mr Cohen says.

A recent survey by API underscored how few Americans have that grounding. For example, 42 per cent of respondents guessed that the industry made between 16 and 20 cents in profit on every dollar of gasoline sales in 2006. In fact, the industry average was 9.5 cents.

Marketing through education is, of course, a long-term approach. Yet Shell believes it worthwhile to send John Hofmeister, the president of Shell Oil, to all 50 US states to meet elected officials, local media and the public at targeted meetings and town hall sessions that can last three hours. “For too long the industry has lived in a bunker,” he says.

Shell uses these sessions to put its ideas forward, he says, but also to gauge the views of the public and respond to them. Such feedback, Mr Hofmeister says, prompted the company to join the United States Climate Action Partnership, a group of businesses and environmental organisations that calls on the government to enact strong legislation to reduce emissions of greenhouse gases.

On Mr Gallogly’s trip to Columbia, he was careful to ask people how the industry could better serve them. He listened as they suggested grant programmes for educators to study and teach energy issues. He discussed efforts to conserve petrol. And he answered questions about Conoco’s investments in alternative energy.

“We’ll just keep talking,” he says, “and maybe we’ll find a few solutions along the way.”

Copyright The Financial Times Limited 2007

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