(FORTUNE Magazine) – When he first heard that Exxon Mobil would be drilling for oil a mile beneath his village of Mbanga, in southern Chad, Patrice Matangarti's head swam with expectations. Perhaps his village would finally get the things it so desperately needed: a health clinic, a proper school, clean water, electricity. Maybe Exxon would even build him a house, something better than his one-room mud hut.

But today, the village chief is plainly unhappy with a visiting Exxon representative. "Nobody here has been hired for the project," he complains, sitting in the shade of a fig tree, while dozens of villagers look on silently. "And [Exxon] has cut those big trees that make it rain. The wind passes, the clouds pass, but it doesn't rain."

The power disparity could not be wider--a poor villager in the world's fifth-poorest country lecturing the world's second-largest corporation--and in a different day and age, Exxon could easily have shrugged off the complaints. Today it cannot afford to. That's why Ellen Brown is careful to hear the chief out, politely leaving a gift of tea and sugar.

Brown is Exxon's anthropologist, an odd job to find on an oil company payroll. But in its bid to build a 660-mile pipeline from the oil fields of Chad, in the geographic heart of Africa, to the coast of Cameroon, Exxon has had to turn itself into something more than an oil company. Under pressure from activists, who have made the pipeline a focus of their campaign against globalization, Exxon has been forced to take on the unlikely role of development agency, human-rights promoter, de facto local government, and even (don't laugh) environmental watchdog. It's an unfamiliar way of doing business for a company used to having its way around the globe. But if the experiment succeeds, observers say, it could rewrite the rule book for how multinationals operate worldwide. "It's a whole new ball game for Big Oil," says Terry Lynn Karl, a Stanford political scientist who studies oil and development. "The traditional way of doing business--getting the oil out of the ground without getting involved in politics, human rights, and the environment--just isn't tenable anymore."

Even before pipeline construction began in December, the $3.5 billion project was one of the most scrutinized in history. Oil projects have historically been a curse for Africa, and critics were convinced this one would only despoil the environment while enriching Chad's President Idriss Deby, a former warlord whose regime has a flair for human-rights abuses. But others considered the pipeline Chad's last, best hope for development: At war for much of its four decades of independence, it is a land of subsistence farming and pre-industrial villages, where a plow is the rare luxury. Annual per capita income is $230. Life expectancy is 47. Three-quarters of the population lacks access to health care, sanitation, or safe water. By carrying some 225,000 barrels of oil a day to a marine terminal for export, the pipeline could bring the landlocked nation more than $2 billion over 25 years, boosting the government's annual budget by half. "The critics forget that this is the opportunity of the century," says Nassour G. Ouaidou, a former prime minister of Chad and now the government's coordinator for the project.

The solution: a complex, four-way agreement between Exxon, the host governments, activists, and the World Bank. In exchange for the privilege of making money on the project--Exxon and its partners, ChevronTexaco and Petronas, stand to earn as much as $5.7 billion over the project's 25-year life--Exxon would carry out many of the activists' demands. And so began an unusual experiment in the multinational as missionary.

"The first thing people ask me is, 'What's an anthropologist doing working for an oil company?' " says Brown, 57, who came to Chad with the Peace Corps in 1968 and has remained, off and on, ever since. "I tell them that there's a lot of oil in the ground, but there's a lot of people living on top of it too." Since joining the project in 1995, she has spent hundreds of hours in villages like Mbanga, consulting with locals about what the pipeline would and would not bring. "In the beginning," she recalls, "people were saying, 'If you drill for oil, won't there be a big hole in the ground and a big earthquake and everything will collapse in the hole?'"

While reassuring people on that score, Brown has helped oversee a $1.5 million initiative in which Exxon has built schools, funded health clinics, dug wells, advised local entrepreneurs, fielded an AIDS-education van, and distributed 32,000 anti-malarial mosquito nets. It has also paid for prostitute focus groups, gorilla habitat studies, even ritual chicken sacrifices.

That's right. When a sacred tree stands in the pipeline's right of way, villagers must coax the spirits inside to decamp to a new locale. This requires a ceremony involving live poultry. To make sure cultural sensitivities aren't ruffled, Brown foots the bill, making for a memorable expense report and earning herself the local nom de guerre "Madame Sacrifice."

Meanwhile, Exxon has compiled a database of every mango tree, bean plant, and cotton field in the pipeline's path. Their cultivators are entitled to compensation based on a plant's life expectancy, annual yield, local fruit prices, and so forth; Exxon says it has paid out $7 million to 7,000 people so far. (Recipients can either take cash or select goods from a glossy catalog of plows, carts, sewing machines, bicycles, water pumps, and other items.)

Hexes are another business challenge. When Cameroonian workers went to clear mahogany trees from one farmer's land, they came face to face with a wood-and-bark symbol--and refused to go a step farther. The symbol meant the farmer wasn't satisfied with the compensation he was receiving for his trees. "I think we ended up paying him another half-million francs [$675]" to take it down, says Grant Batterham, an environmental consultant.

All this is a world away from Exxon Mobil's Irving, Texas, headquarters, not exactly known as the capital of progressive business. The company's 63-year-old chairman, Lee Raymond, is a hard-boiled figure even by oil-industry standards, known for opposing everything from global-warming treaties to tougher environmental controls in developing countries. He has also been unapologetic about Exxon's dealings with repressive regimes, declining two years ago to join other major oil companies in signing a pact to prevent human-rights abuses near their facilities. (The issue came back to haunt Exxon last year when military forces providing security for the company in the rebellious Indonesia province of Aceh were accused of torturing and killing civilians. A labor-rights group is suing Exxon in a Washington, D.C., court; the company denies the charges and has moved for dismissal.)

While Exxon hasn't exactly gotten religion, it has gotten wise to the perils of what Harvard Business School professor Debora Spar has dubbed the "spotlight phenomenon." Using the Internet and mass media as cudgels, nongovernmental organizations (NGOs) such as Greenpeace, Human Rights Watch, and Friends of the Earth have grown increasingly adept at singling out multinationals for their misdeeds. And oil companies offer a particularly ripe target. They are big, which NGOs readily translate as "bad." They have highly visible brands, making them vulnerable to boycotts at the pump. They cannot choose where oil deposits are located, meaning they increasingly operate in countries with unsavory rulers, sensitive environments, and impoverished populations. And their power tends to dwarf that of their host countries: Exxon's 2001 revenues were $191.6 billion, compared with Chad's GDP of $1.4 billion.

In the 1990s this combination proved calamitous for Royal Dutch/ Shell, as NGOs blamed it for environmental and human-rights atrocities in Nigeria, including the government's execution of the writer and anti-Shell activist Ken Saro-Wiwa. (In one notorious instance, security troops summoned by Shell ended up massacring 80 civilians and destroying hundreds of homes.) More recently, Canada's Talisman Energy saw its stock tumble when activists accused it of fueling civil war and slavery in the Sudan. Today both companies are chastened: Shell reports ooze talk of "stakeholder dialogue" and "sustainable development," while Talisman has pledged to pressure the Sudanese government to clean up its act. Though the financial toll of these reputational assaults is hard to calculate, says Spar, it's clearly no longer just a moral issue--"it's a bottom-line issue."

There's another reason the NGOs hate oil projects: Instead of enriching developing nations, they have tended, perversely, to further impoverish them. It's not just that the money ends up in the pockets of a corrupt few. By holding out the promise of easy wealth, oil also has a record of distorting economies while inciting political conflict, as people who might otherwise engage in productive activity instead fight for a share of the spoils. Stanford's Terry Lynn Karl, author of The Paradox of Plenty: Oil Booms and Petro-States, calls it the Midas myth: "Oil promises to make you rich, but instead it makes you poor."

Chad is surrounded by cautionary tales. To the west is Nigeria, where per capita income has dropped 23% since 1975, despite $300 billion earned from oil. To the east is Sudan, with its petroleum-fueled civil war. And to the south is Angola, where international oil companies (including Exxon Mobil) have indirectly financed 27 years of ruinous conflict. "Look at Gabon, look at Algeria, look at Equatorial Guinea," says Samuel Nguiffo of the Center for Environment and Development, an NGO in Cameroon. "You have no example of oil leading to development. How do you believe that things will be different in this case?"

Indeed, the Chad-Cameroon project seemed to meet all the preconditions for disaster: repressive governments (the U.S. State Department reports that Chad's security forces kill, torture, and rape with impunity), corruption (Transparency International ranked Cameroon as the most corrupt nation in the world a few years ago), and simmering ethnic tensions (Chad's northern Muslims dominate a Christian and animist south). "Here's Your Chance to Invest in Corrupt Governments and Get High-Yield Rainforest Destruction at No Extra Cost," offered an NGO-sponsored advertisement that ran in the New York Times. The activists, it was clear, were fixing to turn this project into Exxon's Nigeria. So in the mid-1990s, Exxon decided to call in the World Bank.

It was, even Exxon's critics concede, a brilliant tactical move. In keeping with its mission of alleviating poverty, the World Bank would lend $93 million to the governments of Chad and Cameroon so they could participate as equity investors in the project. But the Bank's real value extended far beyond that. By standing between Exxon and its worst critics, on the one hand, and between Exxon and the troublesome host governments on the other, it could serve as a moral buffer, providing Exxon with invaluable political insurance. "I don't mind if we become a lightning rod," affirms Gregor Binkert, the World Bank's representative in Chad.

With its own credibility on the line, though, the Bank needed to show it had learned from history, lest this project be doomed to repeat it. So it was with considerable fanfare that it unveiled a landmark agreement with Chad's President Deby in 1998. Under a law passed by the country's parliament, 10% of the oil revenues would be held in trust for future generations. Of the remainder, 80% would be earmarked for education, health, and rural development, and 5% would go back to the oil-producing regions. All expenditures would be under the supervision of a nine-person committee that included four NGO representatives. And because Chad lacked a basic system of financial control, the Bank would help the government build one from scratch. "We really had a blank page to start with," notes Rex Tillerson, a senior vice president of Exxon Mobil. "And when you have a blank page, you have the opportunity to do some things differently."

Many NGOs still oppose the deal, arguing that the oil should be left in the ground until Chad sprouts real democracy. But such appeals have little resonance in Chad, where villagers are desperate for something, anything, that might improve their lives. "Saying that Chad can't exploit its natural resources is condemning everyone you see here to another generation of this kind of poverty," says Ted Ahlers, World Bank operations director for Africa.

Unable to halt the project outright, the NGOs went to Plan B: browbeating Exxon into serving their goals. For starters, Exxon was figuring on running the pipeline straight through the pristine Mbere Rift Valley and Deng Deng forest, home to rare plant life, endangered species, and several thousand Pygmies. "Exxon to a certain extent belittled the environment," says Mohamadou Diop, who heads the Cameroon office of the International Finance Corp., the World Bank's private-investing arm. "They were shocked when people said, 'Well, this is your plan.'" By the time the activists had weighed in--there were 145 meetings involving 250 NGOs between 1993 and 1999, some of them polite, some not--Exxon had agreed to 60 changes in the pipeline's route. It had also promised to help create an environmental foundation, two national parks in Cameroon, and an "Indigenous Peoples Plan" for the Pygmies. And to submit to two more oversight groups of international inspectors. And to hire many of the NGOs to help with projects in the field. "You name it, everything had to be negotiated," says Diop. "And each time [Exxon] made an effort, the NGOs kept upping the ante. The project was entirely redesigned to take into account their feedback." This was something new--a venture in which multinationals, governments, NGOs, and the World Bank all shared a stake. Some dared to herald it as a new and better model of globalization.

Now that model is being put to the test. In the remote oil fields of southern Chad, there's a burgeoning trailer compound of more than 700 workers, 55 of them Exxon expatriates who come for eight-week tours of duty. The project has clearly brought some economic life to the area: Workers hired from surrounding villages arrive each morning by bus, and just outside the compound's gates is the boomtown "Kome Satan," so called for the liquor and prostitutes found at its makeshift bars.

In the villages themselves, however, disillusionment with the project is already widespread. In nearby Dildo (it means "mahogany on a hill"), a group of otherwise genial young men turn indignant when the subject is brought up. "They speak, but they don't follow through on what they say," one says of Exxon. "We asked for a school, and nothing has been done."

"They said all the young people would have jobs," another adds. "Three months, and nobody has been here to recruit." Concludes a third: "They tricked us."

The NGOs are quick to lend credence to such complaints, issuing reports with titles like "Broken Promises." Nor do they have trouble finding other problems to publicize. The influx of workers has sent food and housing prices soaring. Laborers in Cameroon went on strike for higher pay. A microcredit initiative is off to a late start. And stories circulate about entire schools emptying as both teachers and students bolt to seek work on the pipeline. "I see [Exxon's activities] as a whole lot of propaganda and nothing else," says Korinna Horta, an economist with U.S.-based Environmental Defense. "As one person told me, the project is a cadeau empoisonne"--a poisoned gift.

Project officials concede that expectations could have been managed better. "People don't want to wait for the revenues to come, for the government to put them in schools, for their children to have better opportunities," says the World Bank's Binkert. "They want it now."

To complicate matters for Exxon, the demands of Western NGOs often conflict directly with the wishes of locals. The NGOs want Cameroon's rain forests untouched; local farmers plead for Exxon to clear them with chain saws. The NGOs want roads routed around villages; villagers sneak out at night to move road markers closer to their homes and shops.

Other times, Exxon is torn between appeasing the NGOs and maintaining its own internal standards. Activists, for instance, berate the company for not hiring enough local contractors. Yet Exxon insists, perhaps not unreasonably, that any trucks it hires must have brakes. It also balks at buying food from local farmers who lack hygienic standards--though it's now helping organize growers into cooperatives that can sell in bulk. (It has also sent Chadians abroad for technical training in petroleum production.)

Especially thorny is the issue of compensation for the land that Exxon commandeers. In the village of Mbanga, Djimadem Pierre describes how he received $1,250 for the four acres of land he used to farm. "The first thing I did was buy some grain so we could eat," he says. The rest went for clothing, a sewing machine, a cart, a plough, and six oxen. "I was very happy to get [the money], and I invested it," he says, "but now it's all gone." His uncle has since given him a smaller plot of land, but Pierre says that's not enough to support his two wives, eight children, an aged mother, and the widow and family of his dead brother. "I'm in a bind. Maybe I'll take up goat farming."

Another villager, Cecile Yossanguem, received $875 for lost land, but because it was the "hungry season," when the previous year's crop is mostly eaten and the new one not ready for harvest, she spent it on food for herself and her four grandchildren. "I've eaten all the compensation," she laments. "What do I do now?" Exxon has encouraged villagers to invest the money for the long haul, distributing comic books that depict a couple saving it for their children's education. But Brown, the anthropologist, acknowledges that there's a fine line between a helping hand and a meddling one. "How far should the corporation go?" she wonders. "Where should you draw the line?"

The one thing that is proceeding without complication is the pipeline itself. In the oppressive humidity of southwestern Cameroon, men in overalls work feverishly to weld 40-foot lengths of pipe along a ribbon of land torn through the jungle. They are moving at the rate of nine miles a week, meaning that by the fall of 2003, all 90,000 lengths will be in the ground. (To discourage tampering, the pipeline is being buried three feet under.)

Today construction is passing through the home of the Bakola Pygmy people, an ethnic minority who eke out a marginal existence at the bottom of Cameroon's social ladder. A half-mile path through dense rain forest leads to a Pygmy settlement--small huts of wood and thatch, children playing in the dust, women preparing strong-smelling manioc. A diminutive man, the local healer, emerges with the spear he uses to hunt porcupines and rats.

"Where have you been?" he asks, addressing George Koppert, a Dutch anthropologist and nutritionist who works with Exxon. "Why have you forgotten me?" At the insistence of NGOs, Exxon took pains to steer the pipeline clear of the Pygmies' hunting grounds and settlements. Yet that left some Pygmies feeling excluded. With Cameroon's government all but nonexistent on the ground here, Exxon is the first real authority they have known. That left Exxon scrambling to distribute gifts of machetes, axes, and hoes. "I was very happy with the machete and the axe," says the healer. "But I want a big dog to go hunting with. Will you bring me a big dog?"

"It's not the hand of the white man that must feed the Pygmies," Koppert says, obviously picking up a long-running discussion. "It's the hand of the Pygmies that must feed the Pygmies."

"I want a road so people can come see me by car," the healer persists, motioning to several patients who have journeyed here on foot. "I'm in favor of the pipeline, but I asked you to build a road from the pipeline to my settlement, and you've done nothing. Nothing!"

Later, a project official heaves a sigh. "We go through all this trouble to keep the pipeline away from these people, and what do they want? They want it at their back door."

If such dilemmas leave Exxon feeling whipsawed between seemingly irreconcilable demands, they loom nowhere near as large as the question that haunts everyone: Could Chad's President Deby pull a Mobutu? In theory, the country's new revenue-management law will severely restrict Deby's ability to steal the oil money a la the famously kleptocratic ruler of Zaire. But a study by Harvard Law School's Human Rights Program concluded that, in fact, the law leaves plenty of leeway for graft. "The question is," says one World Bank official, "If Deby decides to run off with the money, can we stop him?"

Binkert, the World Bank's man in Chad, answers that question with unblinking optimism. "[Deby] is committed to making Chad a better place--I totally believe that," he says. "When we bring problems to his attention, they get solved, and solved quite quickly." To wit: When Deby's forces detained and reportedly tortured several of his political opponents after last year's presidential election, World Bank President James Wolfensohn--goaded by at least one NGO--telephoned Deby to demand their release. The prisoners were sprung before the end of the day. "The key will be to react appropriately and flexibly," says Binkert. "If it takes a phone call from Wolfensohn, that's what we'll do."

The real test, though, will come next year when the oil starts flowing. "Once you unleash the money for the oil project, you lose a huge amount of leverage," says Peter Rosenblum, the chief author of the Harvard study. True, the World Bank will retain what it privately calls the "atomic bomb" option--cutting off all loans and future aid to Chad--but even that deterrent assumes a modicum of decency on Deby's part. "If Deby turns out to be a sociopath," says Benjamin Esty, a Harvard Business School professor who has studied the project, "there will be plenty for him to live high on the hog, pay his army, and say to heck with the other seven million people."

In late 2000, when the pipeline consortium paid Chad an advance of $25 million, Deby got his first chance to show the world just how trustworthy he is. Though the money was exempt from the revenue-management law, it was widely assumed that Deby would put it toward worthy development goals. What he did with $4.5 million of it, in fact, was buy weapons. The audacity was breathtaking; the cries of "We told you so," thunderous; the World Bank's anger, lavish. And it made some wonder if the basic African plotline was immutable. "Everything is happening exactly according to prediction," says Rosenblum.

Things have been patched up, and Deby has promised there will be no "Oops, I did it again" arms purchases. But the renewal of vows only served to underscore a fundamental question: Is an American oil company cut out to be an emissary of democracy, humanitarian values, and environmental uplift?

A few centuries back, in an earlier era of globalization, European nations conducted a similar experiment when they incorporated what were known as charter companies. In exchange for the privilege of making money overseas, these powerful entities were expected to act as agents of civilization, aiding the spread of Christianity and Western political values in far-off lands. (The 1621 charter of the Dutch West India Co., for instance, gave it responsibility "for the preservation of the places, keeping good order, police and justice.") Economic power, the idea went, should entail a moral mission too.

Yet today the charter companies are remembered mostly as agents of colonization, not civilization. Writing in Foreign Policy last year, Marina Ottaway of the Carnegie Endowment for International Peace worried about the revived image of Western corporations forcing policies--however well-intentioned--on theoretically sovereign peoples and governments. "All that's missing," she wrote, "are the pith helmets."

The imagery may be a bit overwrought for a company that didn't seek this role. But Ottaway is right to wonder whether Exxon can really deliver what the NGOs want: a democratic, prosperous Chad where human resources are respected as much as natural ones. The village of Mbanga may wish that Exxon were a savior. It may be discovering that, in the end, it's just an oil company.

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