Oral Statement Before the Joint Hearing of Senate Energy and Natural Resources Committee and the Senate Commerce, Science and Transportation Committee
David J. O'Reilly, Chairman and CEO
Joint Hearing of Senate Energy and Natural Resources Committee and the Senate Commerce, Science and Transportation Committee
Washington, D.C., November 9, 2005
Good morning, and thank you Chairmen Domenici and Stevens, Ranking Members Bingaman and Inouye, and Committee Members. My name is Dave O'Reilly and I'm Chairman of Chevron Corporation. I'm here today representing 53,000 Chevron employees as well as the shareholders who have put their trust and confidence in our company. I welcome this opportunity to talk about working together to deliver reliable energy supplies at a reasonable cost to all Americans.
I would like to make several points today:
One, we have been in a situation of tight supplies and growing demand for energy for several years. The recent hurricanes in the Gulf Coast magnified this situation.
Two, Chevron is investing aggressively to increase energy supplies. Since 2002, we have invested what we've earned.
Three, conflicting government policies and restricted access to opportunities make it difficult to invest in the U.S.
Finally, I will make a few brief suggestions as to how I believe we can work together to create a more robust climate for U.S. energy investment.
Let me provide some context, which will illustrate my first point.
We are here today to talk about energy prices, which came to the forefront following the hurricanes that devastated the Gulf Coast region, including the oil and gas industry. They disrupted oil and gas production, our pipeline network and our refining and distribution operations. I personally visited our operations in the aftermath of the storms. It is difficult to appreciate the devastation until you see it first hand.
We were fortunate that no Chevron employees lost their lives, but many hundreds lost their homes and possessions. Nonetheless, these same employees continue to work around the clock to resume normal operations to get supplies to market. I could not be prouder of their heroic performance in the face of unimaginable adversity.
Clearly, we experienced price volatility in the wake of the hurricanes. These price fluctuations reflected the fact that the storms shut in approximately one-third of U.S. oil and gas production and one-fourth of U.S. refining capacity. Price volatility was also driven by localized panic buying of gasoline, which led to temporary shortages. As we began to normalize distribution and production in the days and weeks that followed, prices began to moderate.
But the more important issue is that we have been operating in a tighter supply situation for some time now. I've been talking about this for the past year-and-a-half, and I'm happy to discuss it with you today.
Today's energy markets are being shaped by several forces.
Growing demand for energy, particularly from China and India, but also the U.S., has resulted in decreased spare capacity in global crude oil supplies and the global refining system. Oil production in mature basins, particularly in Europe and North America, has been declining. New developments are occurring, but in challenging and capital-intensive locations outside of OPEC countries -- such as the deepwater, the Arctic, and oil sands. Meanwhile, OPEC production has been increased, but is now approaching its current capacity to deliver.
This brings me to my second point.
Chevron is doing everything we can to expand and diversify the world's energy sources. We're doing this at huge cost and significant risk in some of the most challenging areas. We're doing it to assure supplies to our customers while providing a reasonable return to our investors.
Since 2002, our company has invested $32 billion in the business. During the same time period, our earnings were $32 billion. In other words, we invested what we earned.
Our investments flow to the areas of greatest opportunity and long-term return. In the U.S., for instance, 90 percent of our capital program for oil and gas production is focused in the Gulf of Mexico because it is open to investment.
While our investment in the U.S. is significant, it's important to note that nearly 65 percent of our capital program is outside the U.S. because of the limited opportunities here.
Investments in energy projects outside the U.S. also benefit American consumers because they increase global supplies. However, let me give you an example of the type of inefficiencies that can occur when U.S. investment is discouraged...my third point.
In our search for natural gas in the U.S., we have found many promising areas off-limits to development. For example, in the late 1980's, we made a significant discovery of natural gas in an area of the Eastern Gulf of Mexico called Destin Dome, approximately 25 miles off the coast of Florida. At the time, it was estimated that Destin Dome held enough natural gas to supply one million American households for 30 years.
Chevron and its partners could not get permits to develop the field because of opposition in Florida and a maze of regulatory and administrative barriers at the federal level. We relinquished the leases as part of a settlement reached with the government in 2002.
So, what actions are we taking now to supply natural gas to this market? We are co-leading a project to produce and liquefy natural gas in Angola, ship it to an import facility in the U.S. Gulf Coast, and then pipe it to the market. The customers will be those same customers who could have been supplied by natural gas just miles off the shore of Florida.
This brings me to my final point: How can we create a policy environment that stimulates more investment in energy production, and allows those investments to be made more efficiently?
As I've stated, the industry cannot pursue its potential in the U.S. without the right government policies in place. The energy bill passed earlier this year was a start, but there is more we can do. I have offered a detailed list of policy recommendations in my written testimony, so let me quickly summarize them here.
- First, the U.S. government should open areas currently off-limits, for the environmentally responsible exploration and development of oil and gas.
- Second, there is a critical need to rationalize regulations that create barriers to the efficient development and operation of energy infrastructure, particularly the siting of LNG terminals and the expansion of refineries. There is also a need to reduce the number of boutique fuels.
- Third, we need to continue effective public/private partnerships that stimulate energy efficiency and research and development of potential new energy sources.
- Finally, the government should look at all of its policies - environmental, trade, and foreign- and ensure that they are aligned toward achieving strategic energy objectives.
Senators, I believe that if the U.S. government can work with our industry as partners to eliminate barriers to investment, the investment will follow.
It is clear that the policy choices we've made in the past have had consequences. So too will the policy choices undertaken from this point forward.
It is important that Congress and the American people recognize the choices that face us, understand their implications, and plot a constructive path going forward.
Updated: November 2005