ConocoPhillips' Own Inconvenient Truth


CEO Mulva says the oil company is taking its role in global warming seriously and plans to be more proactive

James Mulva says he's recognizing an inconvenient truth. The chairman and chief executive of ConocoPhillips (COP), the nation's third-largest oil company, acknowledged this month that fossil fuels—his company's core product—are permanently warming the Earth. "The science has become quite compelling," Mulva said in an interview with BusinessWeek.com. "We've been studying this for quite a number of years. That is happening."

Energy executives, of course, have taken mixed positions on the climate change debate. Exxon Mobil (XOM) has long been one of the most outspoken skeptics on global warming. Although the position has softened somewhat recently, Chairman and CEO Rex Tillerson told an industry gathering in February that he still doubted burning fossil fuels were causing polar ice caps to melt and temperatures to rise (see BusinessWeek.com, 2/14/07, "Exxon's Boss Is Cool on Green Policies").

Learning Experience

BP (BP) Group Chief Executive John Browne may be at the other extreme. The company recently unveiled a "green" gas station in Los Angeles with solar panels and low-flush toilets, and Browne has long said that oil companies need to look "beyond petroleum" for solutions to environmental concerns. "It would be unwise and potentially dangerous to ignore the mounting concern," he said back in 1997.

Mulva's global warming announcement came amid a flurry of environmental initiatives at the Houston-based company. On Apr. 10, ConocoPhillips pledged $22 million to help Iowa State University develop fuels out of corn and switchgrass. Six days later the company unveiled a joint venture with Tyson Foods (TSN) to produce diesel fuel out of animal fat. Mulva says that venture will operate on a break-even basis and only then as a result of a $1-a-gallon federal subsidy.

The 175 million gallons per year of production is a drop in the bucket compared to the 375 million gallons of gasoline Americans consume every day. Still, Mulva says he hopes the project will be a learning experience leading to other alternative fuel initiatives down the road (see BusinessWeek.com, 4/23/07, "Climate Wars: Episode Two").

Self-Serving Pragmatism?

To die-hard environmentalists there is something self-serving in oil companies jumping on the green wagon. Are they truly trying to save the planet or merely attempting to ward off environmental legislation that could cost them money and reduce gasoline consumption? "We appreciate their corporate citizenship, but is there something we're not seeing here?" asks Tyson Slocum, director of the energy program at the consumer group Public Citizen. "They want to maximize the benefits for their industries and shareholders. With that you don't get very effective environmental policy."

Mulva acknowledges there is an element of pragmatism in his approach. While applauding states such as California that have passed their own requirements to reduce greenhouse gas emissions, Mulva says he'd prefer a national approach that balances environmental concerns with economic ones (see BusinessWeek.com, 4/2/07, "Court Turns Up the Heat on Global Warming"). Mulva was short on specific policy recommendations, but he did indicate he might embrace a carbon trading system that would give companies the flexibility to meet emissions caps by purchasing credits from greener producers.

Adaptation

Mulva did have a specific recommendation on the subject of ethanol, the fuel typically made from corn that burns cleaner than gasoline and is used as a smog-reducing additive in many parts of the country. Environmental activists have talked up the prospects of producing much more corn-based ethanol and adopting as a primary fuel something called E85, a blend of 85% ethanol and 15% gasoline. But Mulva said that rather than try to install an entirely new system of pumps and trucks for distributing E85, the industry would do better with a more gradual approach. While now there's usually not more than 5% ethanol used at gas stations across the country, there could be a shift toward a fuel blend that was 10% ethanol across the board. "That's about 15 to 16 billion gallons, which is about the maximum that can be made from corn production," he said. "All of our current vehicles could use it."

There have been a growing number of groups skeptical of the prospects for corn ethanol (see BusinessWeek.com, 3/19/07, "Ethanol's Growing List of Enemies").

Mulva, 60, worked his way through the ranks of Phillips Petroleum, which merged with Conoco in 2002. He says he can remember the dark days of 1986, when to fight off corporate raids from T. Boone Pickens and Carl Icahn, Phillips had to buy back half its stock. It took on $9 billion in debt, a huge burden for a company with a stock market value of just $3 billion. Then oil prices collapsed, from $27 a barrel to $10, after a big production increase from Saudi Arabia. "We learned how to adapt," Mulva says.

Oil isn't $10 a barrel anymore, but Mulva is still figuring out ways to adapt.

Click here to join a debate about climate change.

Palmeri is a senior correspondent in BusinessWeek's Los Angeles bureau.

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