Information Technology: Critical Link to Human Energy

Peter J. Robertson

By Peter J. Robertson, Vice Chairman
Chevron Corporation

Microsoft Global Energy Forum

Houston, Texas, March 25, 2008

It's good to be here in Houston with "all y'all." And thanks to Microsoft for putting together such a timely forum. Another big thank you for your ongoing contributions in your partnership with Chevron. When we think about our daily operations, we simply couldn't do it without you.

It is great to be here. I only wish my schedule had allowed me to attend last night's dinner at the (Houston) Natural Science Museum. Maybe it's my European or — better yet — my Scottish upbringing, but I've always been fascinated by antiquities. And I would've loved to have dinner with da Vinci, so to speak.

Our information gurus tell me the exhibit features da Vinci's Perpetual Motion Machine. Da Vinci apparently disproved the theory of perpetual motion — but he never saw the Chevron IT (Information Technology) tech who gets the frantic call that, "Dave O'Reilly's computer won't work." No rest for the weary there.

I understand da Vinci's genius was pulled in many different directions, which exasperated him. And he'd jot all over his notebooks: "Tell me if anything was ever done." In the IT world, which keeps evolving, the answer appears to be a resounding "no." IT is perpetual motion.

You're all familiar with Moore's Law, which estimates that the power of computers doubles every 18 months or so. Or, put another way, the power of computers increases by a factor of a thousand in little more than a decade.

I've witnessed this theory in action firsthand. Thirty years ago I worked in London as comptroller of our refining and marketing subsidiary, Chevron Oil Europe. When we needed to close the books at the end of the month, our oil and gas production engineers had to shut down their Ninian field reservoir simulators. There simply wasn't enough computing power in our modern mainframe to run both applications.

You can imagine how folks in operations felt when they had to turn over their computers to the accountants! Today, of course, we can run a reservoir simulation on a desktop.

Our networks also accommodate a lot of email traffic these days. In fact, Chevron's employees generate some 1 million emails every day. But, it's a lot more than e-mail. The amount of digital information we've amassed — from Word documents to spreadsheets and images — equals about 1,250 terabytes. One terabyte alone equals about one million books. If that weren't enough, we're seeing an information growth of about 60 percent a year, which one Chevron IT expert has called a "digital tidal wave."

Fortunately, the world's appetite for energy isn't increasing at quite the same pace — it's more like a steadily rising tide. A global recession would have a dampening effect, but the world is still expected to use up to 50 percent more energy by 2030. Growing economies, especially in China, India and the Middle East, account for a good part of that increasing demand for energy.

Our challenge is to squeeze even more from an energy system that already produces about 420 million gallons of oil equivalent every hour. That's about 7 million gallons a minute, or 120,000 gallons a second. It took us humans 125 years to consume the first trillion barrels of oil. We'll consume the next trillion in just 35 years.

To meet that kind of demand, we'll need to produce every molecule of energy we can, from every available source. This includes next-generation renewables, such as biofuels, solar, wind and marine power. However, getting these next-generation renewables to commercial scale will require lots of work, investment, time and technology — just as it took years to develop our current renewable energy sources: geothermal, nuclear and hydro-electric power.

Of course, the challenge will also include finding better and better ways to utilize fossil fuels — oil, natural gas and coal — which are expected to provide over 80 percent of the world's energy for decades to come.

Clearly, to meet demand, we must rely on many ingredients. If I were to elaborate on each one, it would take far longer than my allotted time. So, let me make a few points on the investment piece and on the people part of the equation. Then, I'll focus the bulk of my remarks on the technology — including the information technology — that will help Chevron people meet our energy future.

So, first the investment: Last year, Americans spent close to $10 billion to go to the movies. That's a lot of money. But, you'd have to double that and add in $3 billion more to get to the $23 billion that Chevron alone plans to invest to bring new energy supplies to market — just this year.

Investing in energy supply isn't new. From 2002 to 2007, Chevron earned close to $72 billion. During that same period, we invested about $72 billion bringing new energy supplies to market. Or, put another way, we invested what we earned.

Whether it's wildcat exploration, development of a new oil or gas field, upgrading a refinery or establishing a new office, every business project has a critical IT component. Accordingly, when our capital expenditures increase, so do our investments in information technology.

This investment pattern is mirrored in the industry as a whole. Estimates of the capital investment required to keep up with expected energy demand growth show that the world needs to invest $1 trillion a year, from now until 2030, in new energy infrastructure.

Part of that investment, of course, will be in the people who have the know-how we need — or our "Human Energy." In my industry, we think a lot about the big crew change ahead. As a "Boomer" myself, I take it personally when they start talking about the "aging workforce." But, I guess it's a reality.

This crew change will have a significant impact on my industry, with estimates that more than half of the industry's employee base will retire over the next decade.

It's a huge challenge to capture and pass along institutional knowledge and meet the needs of the new "XYZ" generation. IT will facilitate the process and already provides the glue that binds together our employees, more than half of whom live outside the United States and many of whom operate in locations far removed from the closest servers.

Each of the last two years, Chevron has hired close to 6,000 new employees. This year, we plan to bring on 4,500 more. Chevron's collaborative culture emphasizes sharing data and best practices across the enterprise. Technology helps us expand and streamline our data highway, linking new hires with knowledge the experts have amassed over time. This is a critical success factor since it's likely that by the end of 2008, about one-third of our employees will have less than five years of Chevron experience.

Of course, we're all wondering: how will a new generation of workers affect the workplace? For many of them, even cell phones are too slow, and text messaging may well be the next big thing.

In fact, last year, some enterprising folks with extremely fast thumbs produced five of Japan's top 10 best-selling novels — on cell phones. As a lover of books, I was pleased to read that "cell phone novels" don't make a single yen until they go into print.

How this younger generation's efforts to be connected — fast — could change our business remains to be seen. It's one more frontier for the field of information technology, where the only constant is change.

But, constant change is a reality in business as a whole. Advances in technology have not only transformed how we do business, they've changed the energy equation. Let me elaborate.

I often worry that Americans don't think of the energy industry as a high-tech business — that they lump us in with the notion of rust-belt decline because much of what they see is outdated service stations or rusty oil field equipment — not Chevron's I hasten to add!

The real face of energy today is something most people don't have the opportunity to see: the sophisticated control room inside the 21st century refinery; the 3-D visualization technology that gives geologists a virtual tour through the rock, deep underground, allowing them to "see" potential reservoirs; or the multi-story offshore platform beyond sight of land, producing oil from reservoirs five miles below, some of the most inhospitable environments on earth.

This is the true face of the industry today. And at its heart is the technology that makes it run.

I once had a conversation with a Microsoft executive who told me that Chevron stands out among his customers in pushing the limits of IT. We might attribute this as much to Chevron's collaborative culture as to its strategic initiatives to find and produce energy.

Each industry has a technology strength. But, it seems fair to say that the energy industry is a leader in developing, applying and stretching technology's limits, especially when it comes to how we explore for, drill, produce and process oil and natural gas.

This trend will only continue. Think of the industry's enormous scale, its ability to feed a market that consumes the energy equivalent of 4 trillion gallons of oil per year. Think of the environments in which we operate — from the deep water offshore, to the arctic, to an oilfield on the shores of the Caspian Sea in Kazakhstan that produces deadly natural gas laden with hydrogen sulfide from a reservoir at a pressure of 10 thousand pounds per square inch. Imagine the technology we use, some of which can take 15 years from invention to large-scale deployment. Think of the risk, above ground and in time and capital investment, involved in bringing these complex, multi-billion dollar projects to fruition.

Despite the fact that most people see us an "oil" company, we think of ourselves as an "energy" company. And, in truth, you could argue that we're a "technology" company that produces energy.

In this business, technology is pervasive — especially IT, which links us with our external partners, facilitates our internal interactions and allows us to manipulate massive amounts of data. Let me mention a few examples.

The first lies at one of energy's frontiers, in the deep waters of the Gulf of Mexico. One hundred seventy-five miles offshore, in about 8,000 feet of water, we set several industry records when we drilled a well called Jack. At five miles deep, it's the deepest well ever tested in the Gulf. The Jack reservoir is part of a larger trend that could contain between 3 and 15 billion barrels of recoverable oil — which is very significant.

The next time you're in an airliner cruising at 35,000 feet, think about what it would take to hover over Yankee Stadium, trying to hit the pitcher's mound with a very long straw — and do it in the dark.

That may actually be a bit easier than drilling a well below thousands of feet of ocean and through four or five miles of rock, where pressures can reach 20,000 pounds per square inch and where temperatures can reach 260 degrees. This is where the elegance of a sophisticated technical solution intersects with brute force and the sheer physical size of the equipment.

The discovery is just the start of a multi-year process of appraisal wells, engineering design and construction of the facilities needed to produce energy from Jack. We're proud of the industry records we set testing Jack. We're more proud that we achieved such a milestone without a single safety or environmental incident. That's not just a testament to technology. That's a testament to the kind of people and expertise in our industry today.

As our IT programs get more sophisticated, they pave the way for more opportunities like Jack. Here's one example.

Periodically the U.S. government opens blocks up for lease in the Gulf of Mexico or other places. Once this happens, there's a time crunch to prepare our bids. Our software enables us to assemble detailed subsurface seismic data covering the available blocks and allows our geologists and geophysicists to analyze vast quantities of data and assess the possible value — very, very quickly.

Not so long ago, we'd spend most of our time in the data gathering phase. Today, some very smart people have designed programs that make it easier to formulate bids that not only give us a good chance of outbidding the competition while meeting the government's threshold, but which also don't result in our overbidding and leaving large amounts of money "on the table."

We think it gives us something of an advantage in a very competitive, high-stakes arena. And people who work through the process sing the praises of this particular information technology — how it's not only made their jobs easier, but has added real value.

Of course, the innovative thinking and know-how are resources we want to protect, just as much as the cutting-edge technology.

Here's how we're doing that in our core operating business. We often reflect on how technology, in the form of very sophisticated steam flooding and reservoir heat management, has enabled continued production from the hundred-year-old Kern River field in the San Joaquin Valley — which incidentally just celebrated the production of its 2 billionth barrel of oil.

This steam flooding is something we've been doing now for close to 40 years, but it keeps getting better and better. Typically, the industry's been able to recover around 30 percent of the oil in a given reservoir. At Kern River, we've doubled that, and we're hoping to have extracted closer to 80 percent of the oil by the time we're through. We've taken this technology and expertise around the globe to Indonesia, and we're in the process of initiating a steam flood for Saudi Arabia.

But, there's something else going on in the San Joaquin Valley. We're managing the fields with a sophisticated system of digital technology, called the "i-field," or integrated field, that increases reliability, safety and efficiency. And at one particular field called Lost Hills, a team of production engineers is using an artificial intelligence program to analyze enormous volumes of data from over 2,000 wells to alert engineers to problems, especially on high value wells.

The team can respond to a decline in production, for example, much faster than in the past when they had to assemble and massage the data themselves. The tool also standardizes the process of looking for well exceptions and capturing the history of the well. This data can be easily retained or transferred as people come and go — whether it's for career development or if they're part of the big crew change. Now we're working with Microsoft to commercialize the program so we can export it across our assets in the San Joaquin Valley and beyond.

Data sharing also facilitates the research partnerships we have with many academic institutions, such as those we've formed to pursue renewable energy technology, especially biofuels from non-food sources. Each partnership — whether it be with Georgia Tech or Texas A&M — uses feedstock they find in their backyards, from woodchips to switch grass. We're also partnering with Weyerhaeuser, the forest products company, on a technology to commercialize biofuels from wood fiber and other waste products.

We don't know which of these collaborations will lead to the breakthroughs we need. But, diverse ideas and approaches will get us to a solution faster. And IT facilitates these partnerships.

Looking at technology more broadly, one particularly big challenge on our minds is that posed by greenhouse gas emissions and their resulting impact on our climate. With our Australian partners, for example, we're pursuing a natural gas project called Gorgon that emphasizes carbon management. It will be one of the world's largest carbon sequestration efforts — and it will help Australia achieve its goal of reducing carbon emissions.

Carbon capture and storage is widely considered a promising technology. But, like renewables, it has yet to be tested at scale. Let me give you a sense of the scale: if we were to set out to capture and store roughly all of the CO2 emissions from the U.S. power generation and industrial sectors — which is the equivalent of between 50 million to 60 million barrels per day of CO2 — it would require a new pipeline system roughly equal to the present U.S. oil and natural gas pipeline system. Replacing that system today would cost more than half a trillion dollars, a figure which exceeds the gross domestic product of at least a hundred countries. So perhaps that gives you a sense of the challenge of large-scale carbon management.

IT enables each of our partnerships and our complex projects, and provides the gateways to both share information and to protect it as needed.

Bill Gates has called this period in time "the second digital decade." He says it's all about connecting people. And he's right-perhaps with one modification. In the energy business, it's also about connecting people and technology. Here's why this is so important to Chevron.

The energy landscape today is dominated by large national oil companies, which control about 95 percent of the world's oil and gas resources, like the China National Petroleum Corporation and Russia's Gazprom. You also have service companies with very sophisticated abilities, like Schlumberger. So, a lot of people are asking: what's the role of international oil companies (IOCs) in the future?

Well, our world today is driven by many factors: difficult feedstocks — from crude challenges either by extreme viscosity or by impurities like sulfur, acid or mercury; extreme environments like the deep water; the need for multibillion dollar investments; the need to work with multiple partners. In this world, what separates the "majors" is basically one thing: their ability to integrate.

The value of IOCs rests in how they integrate multiple state of the art technologies, such as oil field development and processing technologies. It's how they integrate skill sets and partners and manage through political dynamics. It's how they can operate in a remote location, and transform the increasingly poorer resources that they recover into increasingly cleaner energy products, which they then deliver to markets on continents around the world. It's how they get disparate elements working together toward one goal — affordable and reliable energy.

Nobody else can do all this — yet. And a critical part of getting it all to work together is the connection of our human energy through IT. IT makes the sum greater than all the parts. Which is exactly what puts us on the cutting edge.

I thank you for your attention. And with that, I'll close and I look forward to taking some of your questions.

Updated: March 2008