Looking Beyond Today's Headlines: Long-Term Challenges Facing the Oil and Gas Industry

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

Institute of Petroleum Conference

London, England, February 18, 2003

Good afternoon. I'm delighted to join you here in London for this year's conference. We gather today in interesting times. Even more than usual, we meet against a backdrop of conflict and civil unrest — from Iraq to Venezuela to the Korean Peninsula. The outcome of these crises may define, in many ways, the shape of the world in this new century.

In my view, petroleum isn't the reason for these conflicts. But it's no coincidence that energy is a central element in each.

  • In North Korea, energy production is being offered as a carrot — an incentive for Pyongyang to adhere to prior agreements on nuclear arms.
  • In Venezuela, each side in the constitutional crisis appears to be using oil to force the hand of the other.
  • And in Iraq, which holds the world's second largest oil reserves, we're witness to a conflict that's already creating a ripple effect on the global energy markets.

These dramatic events remind us that in so many places around the world, energy is at the nexus of social, economic and political change. The diversity and continuity of the world's energy supply are vital strategic concerns. National security and energy security are not one and the same thing — but they are clearly intertwined.

So it's hardly surprising that current events have put our industry in the spotlight. They raise familiar questions about what we do, how we do it, and the costs and benefits of our products.

It wasn't unexpected, then, that the Iraq conflict would be used by some as a vehicle to attack the industry. I am talking, of course, about the protests that say: "no blood for oil." The slogan rests on two assumptions: first, that the conflict with Iraq is about nothing but oil; and second, that energy security is not a legitimate reason — even as one among many — to go to war.

We might be inclined to attribute this view to a very vocal minority — to anti-globalization protestors who have found a new target. But consider this statistic from a recent European Gallup poll: although two-thirds of Europeans see Iraq as a threat to world peace, a shocking 70 percent believe that oil is the main reason the U.S. wants to intervene in Iraq. The protests of this past weekend vividly demonstrate this.

I would argue that "no blood for oil" has caught on partly because our industry's reputation is so impaired that the protestors can discredit action in Iraq simply by associating it with us. That's a sad commentary, and it brings me to the topic of my speech today.

I want to talk about the reputation of the energy industry — and what we can do to strengthen it.

I share, of course, the concern about current threats to global energy security. But today I want to take a longer view, because the challenge to our reputation will be with us regardless of whether we have peaceful resolutions in Iraq, Venezuela and North Korea.

If we do not act together to address this challenge, I believe our performance will be impaired, and our basic mission imperiled.

What do I mean by "reputation"? I define it as three elements: performance, behavior and communications. Like overlapping circles, these three elements are connected. At their intersection is reputation. We can improve reputation only by improving all three. And we have our work cut out for us.

Although public opinion appears more positive in the developing world, a majority in Europe and North America view us unfavorably. In the U.S., the number of people who say the industry provides "a much needed, valuable resource" is no greater than those who see us as "motivated by greed."

I'm sure that many of us, at one point or another, have thought: when I joined the industry, people felt more positively. That was certainly the case 35 years ago, when I started as a young engineer straight out of university.

There was no other industry I'd rather have joined ... no other that could match this blend of cutting-edge technology, economics and geopolitics.

That blend still exists. Today, our products and high-tech tools are applied even more widely and effectively to improve standards of living. None can dispute the direct correlation between access to reliable, affordable energy and advances in economic well-being and the quality of life.

Energy is the fuel that has driven progress in so many sectors — including transportation, education, communications and health-care.

So here's the paradox: if the importance of our work is so great, why is our reputation so poor?

The answer can be found if we look at the three elements of reputation, starting with performance.

I'm not referring to financial performance, here. Rather, I'm talking about operational performance. And what we've got is a performance problem with a twist. In some ways, we're doing our jobs too well.

We have been so efficient at discovering and producing oil and gas that the relative cost of our products has gone down considerably — and demand has gone up. And that drives public expectations even higher.

But along with those higher expectations comes heightened concern over the impact of our operations ... over environmental disasters like spills in the short-term ... and over consequences like climate change in the longer-term.

In many respects our industry is invisible to the public, until there is a big price spike or something worse happens, like the Valdez or the Prestige — disasters that grab the headlines and infuriate the public. Because these events are relatively rare, they're much more dramatic when they do happen. And the public response is understandably severe and long-lasting.

Frankly, it doesn't matter to most people whether the responsible party is a super-major or a marginal operator. That distinction counts for little when a coastline is covered with oil. The public — rightly — has higher expectations for our collective performance.

The second aspect of reputation is behavior.

Our industry operates in some of the most challenging places in the world — places where tax, trade and investment policies are evolving as developing nations evolve; where the distribution of wealth is uneven; where environmental and social policies differ widely. And, increasingly, there is a spotlight on our behavior in these places that once stood in the shadows.

Companies like ours must answer to a growing range of stakeholders. We are held to standards for corporate citizenship, human rights and the environment that are no less rigorous than the requirements of the financial community.

And still: too often our behavior seems to suggest that our mere presence is enough ... that we have no further responsibility to the communities where we operate. Few things could be more damaging to the way the world sees us.

The third aspect of reputation is communications.

Frequent and effective communications are the key to winning supporters and answering critics. Without a strong commitment to communicating openly and honestly, a bad reputation will only get worse.

Indeed, some of the criticisms we face are worsened by how we react. Too often, we act defensively about what we do wrong — and sheepishly about what we do right. Too often, we respond with delay and denial. While some of these criticisms are out of proportion, others are based in reality. And until we acknowledge the valid criticisms, we can't really rebut the invalid ones.

Many of us here are working to right the balance between credit and criticism. But most of our efforts are competitive rather than collaborative. As companies, we tend to seek advantage over one another, instead of coming together to meet common challenges involving reputation. The industry-wide efforts we do see are neither sustained nor sufficiently resourced. As a result, these efforts have not been good enough or widespread enough to make a lasting difference.

The consequences go far beyond public relations. They extend to the bottom line — and far into the future. At risk is nothing less than our basic mission: providing reliable, efficient, affordable energy over the long term.

I believe that if we do not act individually and collectively to improve our reputation, over time it will constrain us in critical areas. Frankly, it already has.

So we must have a clear understanding of the consequences of a poor reputation. That's the only way we're going to be moved, as an industry, to take real responsibility for the solutions. And let's remember: if we don't, others will.

The most obvious consequence is one we are, unfortunately, well accustomed to — regulation.

When we fail to raise our standards, we invite governments to do it for us, through regulations that can be costly and onerous. If we prefer market-based solutions to government mandates, the burden is on us to confront the consequences of business as usual.

The second consequence is equally straightforward — access to resources. The industry's access to resources is the product of many things, but partly it is a matter of reputation.

In some parts of the world the desire — or the need — to develop oil and gas resources outweighs many other considerations. But that's not necessarily true of every community where resources are found, or of the NGOs and international organizations that play a role in the lives of the people there.

Governments may invite us in with great fanfare, but to what avail if — because of our reputation — protests, boycotts and unrest make it increasingly difficult to fulfill our mission?

In wealthier countries, just about any oil and gas development is politically contentious. Think of the opposition to drilling in the Atlantic Margin, or in parts of Alaska. If we want access to resources to be decided on the merits, we have to make our reputation a help, not a hindrance.

But perhaps the most damaging consequence has to do with the most important resource — talent. People are the lifeblood of our industry. Yet, I fear that recruiting and retaining talent is made more difficult by every spill and every cyclical downturn.

Recruiting — and retaining — the very best talent is vital to maintaining the vision, passion, creativity and diversity we need to succeed. If we fail to improve our image among potential recruits, we won't be able to attract the best people.

Our industry commits massive resources to develop new technologies, new products and new fields for exploration. And yet, we've been unwilling to apply the same effort to the shared challenges of reputation.

Why? One reason is because the industry's reputation has suffered for so long. Some of us have come to believe that improving our reputation is a lost cause.

Well, I disagree. This is far too important to be a lost cause.

So, what's the answer? I believe it's time to rethink the old models. Recalling the three elements of reputation, we should start by improving communications.

As I've said, we provide the energy that powers the world's economic engines. Energy is essential to improving the quality of life — especially in developing countries. That's something to be proud of, and we need to reinforce that value proposition through effective communications.

And yet, there are some in our own industry who are doing just the opposite. They're sending the message that fossil fuels are on their way out, soon to be replaced by alternatives. In my view, that's simply not realistic.

While alternatives may have an increasing role to play, fossil fuels will be the primary source of energy for a number of generations to come. To suggest otherwise calls into question the importance of petroleum products, ignores the vital role they will continue to play, and undermines the reputation we should be working to improve.

I'm proud of what the energy industry contributes. We have a powerful and positive story to tell, and we should be neither shy nor apologetic about telling it.

But we need to do it together. We need to work together to build public awareness about our contributions. Through these shared efforts we can lift all boats, not just our own.

I recognize that it won't be easy, but progress begins with a single step. Several years ago, the U.K. Offshore Operators Association developed a good model aimed at improving the industry's reputation, and initial results were encouraging. But, unfortunately, the effort was not sustained. We should learn from this, and support initiatives that will lead to real and meaningful progress.

While we need to tell our story better, we also need a better story to tell.

So, we have to improve performance, doing more to protect the environment and communities where we operate, while improving our operations. It's not enough to say: "my company operates safely and smoothly; others are the problem." It may be that others are the problem — but they're a problem for us all. We cannot let the lowest performers become our lowest common denominator.

So we need more self-policing. Industry associations still control their membership, and it should not be seen as a birthright. Membership will mean more if we expel companies that fail to meet higher standards of performance — as groups in other industries do.

Finally, our industry must improve its behaviors.

Behavior is how you express your values in practice. I think you'll agree that performance without values is no better than values without performance. We can't focus on one at the expense of the other — like looking at how our products are made and not how they're used.

For example, we should be encouraging consumers to use our products more efficiently. Why? Because we're in this for the long haul. If we want our products to continue accelerating economic growth, conservation will help keep energy plentiful and affordable.

Conservation indeed makes a difference. Over the last twenty years, global improvements in energy efficiency were so significant that it's as if the world "discovered" an extra 20 million barrels of oil a day. With global energy demand expected to grow significantly, we'll need all the energy we can get.

From an environmental standpoint, conservation may be the single most effective way to reduce greenhouse gas emissions, so its importance can't be overstated. As an industry, we must do more to use energy efficiently, and lead others to do the same.

As we consider ways to improve the industry's reputation, I realize that I've spelled out quite a "to-do" list. And I know that we can't fix a reputation — that's been a century in the making — overnight. But I do believe we can turn the tide if each of us leaves this conference determined to do our part, and to encourage others to do the same.

As leaders, let's work harder, smarter and together to improve our industry's reputation through better performance, more effective communications and a higher standard of behavior. Let's be passionate about developing the next generation of talent, promoting conservation, and telling our story. Because one thing is certain, we can't expect others to do it for us.

The commitments we make here and now will have a powerful impact on our future — and they will make us an even greater force for positive change. If we do these things, we can strengthen our collective reputation, as well as our individual performance. And we can better fulfill the mission that is unique to our industry, and so vital to our world.

Thank you.

Updated: February 2003