When Darren Woods took the helm of ExxonMobil six years ago, few could have predicted that the Kansas native would soon face what Texas oil patch veterans colloquially refer to as “a whole heap of trouble.” Three years later, the oil market’s collapse during the COVID-19 pandemic dealt the 140-year-old oil institution its first annual loss in four decades. Shares tumbled, and the company was booted from a perch in the Dow Jones Industrial Average index that it had occupied for nearly 100 years. As competitors stepped back from fossil-fuel investments, ExxonMobil leaned in, and shareholders rallied against its finances and its core oil and gas extraction strategy.
As the war in Ukraine firmed oil and gas prices and refocused the debate over how to tackle global warming to include energy security, ExxonMobil rebounded. Armed with record profits last year, strong cash flow, and a $9 billion multiyear restructuring that Woods had launched to lower costs and apply technology more directly to its core businesses, the company is primed for growth and investment in its traditional businesses and what it sees as low-carbon solutions, such as hydrogen, carbon capture and storage, and lower-emission fuels. Woods recently sat down with McKinsey senior partner Thomas Hundertmark to explore ExxonMobil’s position on the changing energy landscape, the importance of sticking to fundamentals, and the leadership lessons that come with bouncing back. This interview has been edited for length and clarity.
The Quarterly: Let’s begin with some context: How should consumers and businesses think about the global energy system within society and with the challenges society faces?
It’s an enormous system that today we’re looking to transform, and I don’t think people fully appreciate just how big a job that’s going to be.
Darren Woods: I’d say there are three key elements. First is size. I think people don’t fully appreciate the magnitude of today’s existing energy system. On the oil demand side, there are about a hundred million barrels of oil a day. If you convert gas to equivalent barrels a day, it’s 70 million barrels, so 170 million barrels a day of demand. It’s hard to get your mind around just how big that is. It’s an enormous system that today we’re looking to transform, and I don’t think people fully appreciate just how big a job that’s going to be.
The second is the critical role [the energy system] plays in supporting economic growth and people’s living standards. There are still almost a billion people living in energy poverty. Third, the vital role oil and gas play in the energy system because of their characteristics: energy dense, transportable, extremely available. That brings a level of convenience, reliability, and affordability that is hard to replace.
So when you think about an energy transition and replacing the size, the utility, the need, and then the effectiveness of today’s energy system with something new, it is challenging. Given the size and the complexity, it will be a transition that has to be managed thoughtfully and carefully over many decades. For every barrel or ton of natural gas we produce, we’ve got to find a new replacement to maintain the level of supply and, at the same time, make the investments to transition. Striking a balance between continuing to do what the world needs with today’s energy system, while working to develop the technologies and drive down the cost of transitioning to a lower-emissions energy system, is critical.
The Quarterly: What is the right problem statement to address climate change and energy security?
Darren Woods: One of the difficulties in solving the challenges of climate change and energy transition is the problem statement. There is a cost associated with today’s energy system, which is the emissions and the impact it has on climate. That’s real, that’s true, and we need to deal with that cost. But that view ignores the benefits it brings to society. And we’ve seen, over the last several years, that when those benefits disappear—think of the Russian invasion of Ukraine, when Europe lost natural gas—those economies and countries quickly convert back to burning coal for power generation.
Some define the issue as, “We need to get rid of oil and gas.” The issue needs to be defined as, “We need to address the emissions associated with the combustion of oil and gas.” In many cases, that will mean you stop burning oil and gas and you have an alternative. That’s where wind and solar will play a role and electric vehicles will play a role. Those are necessary solutions, but they’re not sufficient. So I think the problem statement should be: reduce the emissions, find the technology to do that, and find technology that’s affordable to effectively implement solutions. We haven’t spent enough time as a society working on that piece of the equation.
The Quarterly: What’s the conversion challenge?
Darren Woods: The big challenge with converting today’s system to a new system is the cost. To get the cost down with the alternatives available today, you’re going to need technology breakthroughs. The solutions we have today are too expensive, and they themselves may have issues that bring an additional or different cost to the equation. So technology breakthroughs will be critical to bring down the cost and to make sure that alternatives are broadly available and reliably available and affordable. That’s number one.
Number two is we’ve got to develop an economy that pays for carbon reduction. Eventually, there must be a market where consumers and companies are willing to pay some level of premium to reduce carbon. Because today, there’s no incentive to justify the investments that, frankly, private companies in just about every sector will have to make. With time, and hopefully as technology costs come down, there will need to be what I refer to as a “carbon market,” where society pays for carbon reductions, which will then incentivize the investments required to reduce that carbon. The third critical element will be policy. Governments can play a role in catalyzing private industries today to start those investments, to start down the learning curve, to drive technology investments. That policy needs to be transparent, stable, and temporary. Because the world’s governments cannot afford to pay for this in the absence of the technology development and carbon markets developing. But it’s critical to get things started.
The Quarterly: Where does ExxonMobil fit in that equation?
Darren Woods: Many people are looking at going into new and different businesses in response to the challenges of climate change and the transition. Our view was that we bring a unique set of skills and capabilities to the world that we’ve developed over the last 140 years. And it’s generally focused on transforming molecules: hydrogen and carbon molecules. And what are our skill sets? What are the technology areas that we have expertise in that will be needed? We’re focused on carbon capture and storage, hydrogen production, and biofuels, which will be needed solutions and part of the equation going forward. Our job in that space is to leverage our capabilities, continue to evolve that technology, drive down those costs, and then build up those businesses at scale.
The other advantage is that we start up brand-new value chains and businesses in countries all around the world. We have the capability to work with governments, communities, and stakeholders to build businesses from scratch. And, frankly, in the carbon reduction business, we need to do the same thing. So that skill set we’ve developed in our traditional businesses lends itself to application in the low-carbon businesses.
The Quarterly: Can you give an example where a core strength can be applied to such a new business?
Darren Woods: Think carbon capture and storage. It requires storing CO2 underground. Our subsurface skill set—our ability to model reservoirs, to inject CO2 underground, and to drill the wells—is applicable in our traditional businesses and has an important role to play in carbon capture and storage or in building projects at scale. The size of the investments required and the technology in those investments are all part of our wheelhouse. When you think about our traditional businesses in terms of the molecules we’re managing, and then think about the transition and the business associated there, they both involve hydrogen and carbon molecules.
The Quarterly: What is the vision for your Low Carbon Solutions business?
Darren Woods: It’s in areas that we have these core capabilities. The challenge is getting the cost down. So we’re doing a lot of work in the [technology] space and, frankly, building a brand-new business. We have the world’s largest commercial contracts to manage customer CO2 emissions and to transport those and sequester them safely.
That’s an important business we will grow. We, as a company, have captured more anthropogenic CO2 than any other company in the world. We’ve got a lot of experience in this space. We’ve used it in a different application. We’re now using it to store CO2, and we’ve got to find ways to get the cost down. I think biofuels will be another important area where we can contribute. We’ve got in-ground facilities that we can convert to use in the biofuels space, which will be a critical part of the equation as well. And hydrogen is the third area that will be critical to a lower-emissions future.
We’ve got a lot of experience in hydrogen. We use it in just about every one of our facilities, so we know what it takes to run a hydrogen business. In fact, we’ve got a project to build the largest hydrogen plant in the world. We’ve got the aperture wide open around what the opportunity could be. And the only criterion we’re using is that it fits well with our core capabilities so we can drive an advantage and deliver returns that are above industry average. If we can’t do that, our view is we shouldn’t be in those businesses.
Other than that, we’re open minded. If we can find a way to reduce the cost of making carbon fiber, we could find ourselves in the building materials business. We recently bought a small company that has a proprietary technology to transform a derivative of gasoline molecules into products that replace steel. So today, we are making a product that can replace rebar in construction.
The Quarterly: You’re confident you can build these businesses and meet the pledge to deliver above-average returns?
Darren Woods: The challenge I’ve given the organization is if we have true competitive advantage to bring to bear in the energy transition space, whatever the mechanism is to incentivize investment will, at a minimum, have to be geared to the average, if not the least-efficient, highest-cost tier needed to address abatement. If it’s the average or the highest-cost player that you’re trying to incentivize, our advantages will take us well beyond that, so we should be able to deliver industry-leading returns. We are testing that today. And we are finding that the advantages we bring, compared to others that are in this field, do indeed generate above-industry-average returns and are competitive in our portfolio of investment opportunities. We think we can start these new businesses and develop attractive projects that generate competitive returns, and we’re finding that [to be true] in the early days.
The Quarterly: Your business has long investment cycles, and there’s a lot of uncertainty around policy and technology. How do you decide to deploy capital?
Darren Woods: In running this business, we must take a long-term view and then manage the business so it’s robust in the face of the severe commodity cycles we’ve historically experienced. When we think about the transition and going forward, the big challenge is exactly what would be the form of that transition? What will be the path taken? How will it evolve? There’s a lot of uncertainty associated with that. In this case, the fundamentals we use in our traditional businesses are consistent with the fundamentals we’ll use in the new business. It’s about allocating resources from one sector to another. And that, in my mind, is the challenge for ExxonMobil. In managing the transition, it’s not about starting something brand new, with new capabilities; it’s about how you shift resources appropriately. That’s a huge advantage compared to companies that must build, from scratch, brand-new capabilities and businesses.
The Quarterly: You’ve reorganized and changed your operating model to improve returns. What was your thinking there?
Darren Woods: We have a long track record of leaning on our core capabilities to drive results and to deliver industry-leading performance. We’ve worked over the last six years to concentrate our efforts in this space and more effectively bring our advantages to bear to deliver industry-leading results. And we can see the impact on our ability to deliver. It’s also a big motivator for the organization to see that we have capabilities today and competitive advantages in areas that are critically needed to manage the transition.
Historically, we’ve had advantages with size, our global footprint, our total scale. We have a portfolio of integrated businesses. We’ve had a technology organization that we’ve historically invested about a billion dollars a year in, so we’ve always understood the fundamental role technology plays and invested in that capability.
We’ve concentrated on what we refer to as “functional excellence,” or think about it as “execution excellence”: making sure that at the end of the day, we execute very, very well in the commodity business. And then we’ve always invested heavily in our people and developing those resources. We’ve asked ourselves if we’re effectively utilizing those five core competitive advantages. And as we looked at the organization, we saw a huge opportunity to start consolidating the businesses and to get rid of our organizational silos to truly leverage not only the scale of every single business we’re in but also the scale associated with looking across those different businesses.
The changes we’ve been making are going to allow us . . . to fully leverage these advantages and position our company well in advance of any of our peers.
We recognized that integration comes through value chains and the value that you create—irrespective of which element of that value chain you’re bringing to bear. Our technology organization had been divided among different businesses. We’ve consolidated [these organizations] to make sure we are defining technology and advancing technology based on core capabilities, skill sets, and competencies, not the business we’re in. The changes we’ve been making are going to allow us—I think for the first time in the corporation’s history—to fully leverage these advantages and position our company well in advance of any of our peers.
The Quarterly: What are the biggest risks you see?
Darren Woods: One of the unique aspects of our strategy is that we’re not going out and building grassroots capabilities. For the six years I’ve been in this job, particularly early on, I resisted going into wind and solar. Not because we didn’t see a market for wind and solar, but because we didn’t see how that fit with our core capabilities. We will stay anchored in what we know we’re good at. We’re a company that has built its success on transforming molecules. Our capabilities are generating revenue in our existing businesses. With the transition, we’ll shift those, timed with market development and the ability to generate revenue. And we have tried-and-true practices to execute.
Technology is probably the one area with a lot of uncertainty. Nobody can predict where technological advances will come from. I could see circumstances where a technology is developed outside our company or not in our wheelhouse. But we’re scanning that proactively. What we bring to bear there, if not the direct technology, is the ability to scale that technology. We’re a global player with the ability to shift resources where they are needed. It’s not that we aren’t exposed to risks, but that we’ve significantly mitigated their ability to materially impact the company.
The Quarterly: How much leverage does a company like ExxonMobil have to influence the direction of change?
Darren Woods: We can play a role in bringing expertise and our understanding of today’s energy system to bear when talking about how you successfully transition. The time it will take to build these solution sets will be fairly long, and we have an advantage in shifting resources to participate. We can play a role that ensures that policies put in place effectively bring solutions at the lowest cost possible to society, because transitioning an energy system will be an expensive proposition. So I do think we can influence the direction.
The Quarterly: What is a leader’s responsibility to advance the energy discussion?
Darren Woods: The role leaders have—and certainly a role I feel like I have—is to bring an objective, clear-eyed perspective on the challenges and to talk straight. There’s certainly a role for aspirations. But that must be built on a solid understanding of what must happen to effect this change and this transition. The role leaders can have in every sector is to make the effort and the investment to truly understand where we are today, where we need to be, and what that transition and cost will be. This will require society to change and to pay a cost for changing out an industrial sector, a power-generation sector, a mobility sector that’s been developed over the last 140 years. You need to do the math and then explain the math. And there’s not enough of that happening today.
The Quarterly: You’ve had an eventful six-year tenure as CEO. What personal lessons have you learned?
Darren Woods: Coming into this job, my challenge was to make a clear-eyed, objective assessment. Very early on, we recognized that the industry was not investing enough in traditional oil and gas supplies. So we continued to look for attractive, advantaged investments and pursued those quite aggressively. We got a lot of criticism for that. But we kept coming back and challenging ourselves on whether or not we had it right. We were convinced we did, and we stuck with that. As you can see today, it has paid off.
We need to do a better job of offering solutions by focusing on what’s needed and how we can help.
The other key learning—which is the new piece—is the need for transparency. Our company historically has grown up with, “We’ll let our walk do our talking.” That’s how I was raised in the company. You never went to reviews and talked about what you were going to do; you talked about what you were doing and what you were delivering. In today’s market and society, with all the uncertainty, being much more forward in our discussions about what we’re trying to do, being transparent, was certainly a lesson I’ve learned in this job. We need to do a better job of offering solutions by focusing on what’s needed and how we can help.
The Quarterly: There’s a saying that the only way to prepare for the CEO role is to actually do it. Personally, what do you think prepared you to execute as CEO?
Darren Woods: I agree because I think CEO jobs are unique. And certainly, for our company, as large as it is, with as many businesses and sectors and the global expanse we have, there’s no other job in the company that you could do to prepare you for CEO.
Our development process, which takes people through the jobs that build core capabilities and core strengths which are applicable to this bigger job, has been critical. I had many managers and leaders who put me through the grind and challenged me and helped me stand up to adversity and be clearheaded in thinking about things.
I can still remember being coached in my first supervisory job to understand that I had a role to play in finding the next CEO, because though we couldn’t know who it would be, [the selection process] would start by bringing folks in and developing them through their careers. As you challenged people over the course of their careers, what you found were their limits and their constraints, which then set their ultimate potential. For some people, you’d keep looking for those limits and constraints, and you couldn’t find them. So you’d take them to the next job and the next job. That process is excellent for eventually stepping into this job, because when you do, that mindset—that muscle—is there. I think I was as best prepared as I could be going into this job. But I wouldn’t tell you I was fully prepared.