Global Energy Risks and Opportunities: Meeting the Challenge of Change

By David J. O'Reilly, Chairman and CEO
ChevronTexaco Corporation

17th World Petroleum Congress

Rio de Janeiro, Brazil, September 4, 2002

Speech in Portuguese

Speech in Spanish

[Read the related press release.]

I'm delighted to join you all here today.

Ever since 1913, our company, featuring the Texaco brand, has had a steadfast presence in Brazil.

Today, we remain every bit as committed to providing quality energy products and services and helping the nations of the region to develop their energy resources.

I want to thank Eivald Røren and João Carlos de Luca for all they've done to make this World Petroleum Congress a memorable one. And I also want to thank them for inviting me to speak on such an important topic. It is also an honor to share this plenary session with Chakib Khalil.

The "challenge of change" is front and center not only for the energy industry but for peoples and nations in every part of the world. Almost everywhere you look, existing institutions, assumptions and practices are being challenged.

After a decade of singing the praises of globalization we all know that a "smaller" world is not necessarily a better one and not automatically a more prosperous one.

Changes come quickly at the start of this new century:

  • global terrorism,
  • financial contagion,
  • technological innovation and
  • political upheaval.

The ripple effects are felt far and wide and are too complex to be easily defined or predicted. Changes of this magnitude pose an unprecedented challenge for all of us. Today, I'd like to address one approach to helping navigate these turbulent waters — a principle that I believe is equally effective for all businesses, not just those in our industry: and that is partnership — partnership of different kinds: with governments, host communities, nongovernmental organizations (NGOs) and other companies.

Partnership, more and more, is a basic business principle that is central to any successful strategy. And may be one of the best means we have, perhaps the only means, to make our businesses more profitable while making our world more stable and secure.

I have just described partnership as a principle, but I'm less concerned with how we describe partnership than how we practice it.

Certainly, the "practice of partnership" was a central theme at the World Summit on Sustainable Development in Johannesburg. The appropriate role of business in addressing global challenges was widely debated. As Secretary-General Kofi Annan said, "We are not asking corporations to do something different from their normal business; we are asking them to do their normal business differently."

The discussion of the importance of partnership for our sector could not be more timely.

The next 10 years will bring changes to our industry as dramatic as any decade in our history. That is true not only of our industry but of the countries where we operate - countries that span from North to South, East to West, and rich to poor.

Each of these countries is unique. Each is at a different stage of development. Each, therefore, has its own needs, agenda and ambitions.

While many developed nations continue their transition from a manufacturing-based economy to a service-based economy, many developing nations are building or still seeking the basic infrastructure and the financial wherewithal they need to fully participate in the global economy.

That's where we come in, literally. Oil and gas companies operate by necessity in some of the world's most challenging places, where tax trade and investment policies are evolving as developing nations evolve, where the distribution of wealth is uneven and where environmental and social policies differ widely.

Anyone who thinks that globalization is creating a homogeneous world hasn't spent much time in the oil business. There was a period when conventional wisdom suggested that globalization could break down virtually any border. But in reality the forces of nationalism are equally strong, and every day we see evidence of basic nationalistic pride in the actions of people and their governments.

There is more distinctiveness to each country than there is similarity. Still, we can be clear about some basic truths that transcend borders and issues of national identity.

We know that the shape and structure of our industry is changing.

Hydrocarbons are a finite resource. And the resources that do exist are increasingly concentrated in very few hands. Close to 75 percent of the world's oil reserves are in seven countries. And more than two-thirds are controlled by national oil companies, with no equity access for international oil companies. Where the state-owned companies previously kept within their borders, today, national oil companies are beginning to look more and more like international oil companies, operating around the world, seeking partners and investors and embracing a more entrepreneurial business model.

We see that here in Brazil. Petrobras is an operating partner with ChevronTexaco in a deepwater block in Nigeria and is pursuing other opportunities far beyond its traditional boundaries. And we see this trend across the globe.

Of course, what international oil companies bring to the table is the access to the capital and the technology and experience that many of the national oil companies need to realize the value of their resources. Effective partnerships play an important role in this effort.

As the shape of our industry is changing, our stakeholders are, too. They're increasing in voice and in what they expect from us. Companies are accountable not only to employees, stockholders, neighbors, partners and host governments but also to nongovernmental organizations, multilateral organizations and community leaders on a much wider range of issues.

Accordingly, success is no longer determined solely by traditional financial or operational metrics. Today, we are held to new standards for corporate citizenship, human rights and the environment that are no less rigorous than the financial requirements of the investment community.

We have new benchmarks for performance -- from the Global Sullivan Principles to the World Bank's newly required environmental and social impact assessments to the United Nations Global Compact.

Now, amid all this change, there's one constant, and that is the demand for energy. It underpins everything -- economic development, health, education and civil society. The standard of living doesn't rise by the power of our best intentions. Building a modern economy takes energy -- and lots of it.

As the world's population continues to soar, adding 3 billion people over the next half century, we will see a corresponding rise in energy demand and in basic aspirations. In my view, whether you're in business or in government, this will be the defining challenge of the 21st century: How do we enable these 3 billion people, mostly in the developing world, to have a standard of living that at least in some way approaches the standard that many of us in the developed world now enjoy?

This is a huge challenge. Even though we've made a lot of progress, today there are still a billion people in the world who are struggling to survive on less than a dollar a day. From an economic, security and moral perspective, the challenge is growing, and it cannot be ignored.

One of the solutions is to responsibly develop the resources and supply the energy that the world needs to grow. Developing these resources will take capital. It will take expertise, sound management, creativity and technology. It will require all of these things, but, increasingly, it will take something more: It will take partnership.

There is no "one-size-fits-all" definition for partnership. Still, our company has listed some of its essential elements in a document we call "The ChevronTexaco Way." It sets out, in clear terms, our company's "unwavering commitment to being a good partner, to building productive, collaborative, trusting and beneficial relationships."

We don't see partnership as a virtue simply designed to inspire. Rather, when done right, partnership is a pragmatic way to confront challenges that are too big and risks that are too complex for any one of us to go it alone.

But you can't just bring a few parties together to sign a sheet of paper and call it a partnership. For a partnership to succeed it has to be built on a foundation of trust, integrity and accountability. That's why dependable partners establish clear ground rules - and make sure they're respected. No hidden agendas. No shifting standards. Just an honest dialogue about mutual interests.

For a partnership to endure - it has to be mutually beneficial and sustainable. Then it can be a driver of success. The business case for partnership is increasingly clear and so are the benefits for developing countries. On the macro level, there is energy itself, which fuels economic growth and raises the quality of life. The revenues and ripple effects from oil and gas production can fuel social and economic development long after the closure of an oil well. Petroleum may be finite, but progress doesn't have to be.

Beyond this stream of energy and revenue, there is more:

  • local hiring and purchasing,
  • training and skills development,
  • technology transfer and
  • building infrastructure

There is a powerful example right now in Central Asia where three governments and 10 companies from six different countries have worked together to build the Caspian Pipeline. In the course of the project, more than 70 percent of expenditures, almost $2 billion, went to local companies.

And here in South America, the Venezuelan government and PDVSA have actively sought the participation of international oil and gas companies to develop Plataforma Deltana, a major offshore gas opportunity.

The economic benefits are not limited to the life of a project. Initial investment is a magnet for additional investment. The economic foundation we build is one that can attract investors from outside the energy industry, helping host countries build a more diversified and stable economy, become bigger players in the global marketplace and create truly sustainable development.

There are certain things that government, and only government, can achieve. Government can maintain civil order impose the sanctity of law and contract and can fulfill citizens' most basic needs, from housing, to clean drinking water, to primary education.

But here's what international oil companies can do - we can:

  • create jobs and spur economic growth,
  • be a catalyst for positive change, and
  • provide the energy that countries need in order to increase growth and raise the standard of living for their people.

And there's another thing we can do: We can stop making excuses. We can stop citing our limitations as reasons for keeping silent or looking the other way. It is true that sweeping societal reform should not be imposed from the outside.

But as Britain's Chancellor of the Exchequer, Gordon Brown, has said, businesses are obliged to "engage with the development challenge and not to walk away."

Indeed, there appears to be a new resolve that, in this time of globalization, there are shared challenges for which we must find shared solutions. All member states of the United Nations have come together and agreed on a set of bold development goals for the world to reach by the year 2015.

Wealthy nations have come together to create a global fund to fight AIDS. African nations have come together to create a new union that addresses their common concerns. Of course, it is one thing to agree that we must step up our response; it is another to agree on what that response should be or even who should have a role in shaping it.

We can talk tough about accountability eliminating corruption or raising the standard of living for the poorest people, but how do you achieve these things in a developing country when it is so difficult to do them in the developed world?

Tough talk has its merits. But talk doesn't equal true dialogue, and it certainly doesn't amount to action.

Real solutions require real dialogue and real leadership. Simply declaring that your company won't do business in places where there are contentious issues isn't leadership and doesn't solve the problem.

Instead, international oil companies should be leading by example. We have a crucial role in raising difficult issues directly with our partners - from good governance to transparency to equitable sharing of revenue — issues on which the world community is demanding action be taken by both governments and businesses.

Now, I know that many of us are engaging with our partners in these positive ways. But in many circles, that is perceived as the exception in our industry and not the rule. What is needed is a more effective dialogue with our partners. A true dialogue, not dictating terms.

If we all get this right, if we apply our expertise and experience toward shared goals, the net benefits will be enormous.

If we develop energy resources in the right way, the benefits will flow to the citizens of our host communities, helping to fulfill society's needs, and to our stockholders, who are, of course, the people we are working for.

Clearly, expectations for our collective performance are increasing. So it is no longer enough to point out that partnerships work. We have to make them work better.

So, let's engage the challenge. Let's have that dialogue. This is the model of partnership to which ChevronTexaco aspires, and I believe it is one to which all global businesses should aspire.

Because all of us are part of the issue, all can help in the solutions, and all must be ready - and willing - to meet the challenge of change.

Thank you.

Updated: September 2002