Partnering and Technology for Turkmenistan and Beyond

By Jay R. Pryor, Vice President
Corporate Business Development, Chevron Corporation

Oil & Gas in Turkmenistan Conference

London, England, Thursday, April 17, 2008

Good morning – ertiriñiz haÿyrly bolsun.

I'm delighted to join you today, and Chevron is proud to be a sponsor of this conference. Our sponsorship reaffirms Chevron's long and enduring commitment to the Caspian region, a commitment that extends back more than 20 years.

As the Caspian region's leading private oil producer, Chevron takes this commitment very seriously.

Our sponsorship also reflects our belief that Turkmenistan and its people are poised on the threshold of a new era of promise and opportunity; a new era that has been launched by the vision and leadership of President Berdymukhamedov; and a new era that will be greatly enhanced by the further development of Turkmenistan's already strong and respected energy sector.

President Berdymukhamedov and the government of Turkmenistan are to be highly commended for having the vision to recognize this pivotal moment in Turkmenistan's long and storied history. The president has moved decisively to improve Turkmenistan's investment climate, and he has welcomed the foreign investment community. He has initiated inclusive diplomatic and business outreach not only to Russia, China and the United States, but to other countries in the Caspian region and beyond.

It is clear to us at Chevron that Turkmenistan's recent high profile at the United Nations reflects the country's increasing participation in world affairs.

In today's world, it is truly impressive that Turkmenistan has the foresight to seek partners to further develop its hydrocarbon resources for the advancement of the Turkmen people.

And it could not happen at a more auspicious time. In recent years, the world has undergone an economic expansion that is raising the standard of living for many millions of people. Access to reliable and abundant energy is essential for human and economic progress. As the world's population continues to grow, so does our need for greater supplies of energy. How we deliver that energy, in ways that sustain and protect the environment, is one of the great challenges of our time.

Turkmenistan and the Caspian region are helping the world meet this challenge. Indeed, the Caspian region has played an important role in world affairs for centuries, going back to the days of the Silk Road. The historic Silk Road cities of Konye-Ur-gence and Merv remind us of Turkmenistan's strategic importance down through the ages. And the Caspian has played a role on the world energy stage for almost that long.

Wells were dug in the region as far back as the 10th century, and several hundred years later, the famous Venetian trader Marco Polo witnessed crude oil being delivered by camel from the Caspian region to the Middle East. By 1873, some of the largest known fields in the world at that time were being developed in the Caspian region. The world's very first offshore wells and machine drilled wells were in the Caspian Sea in the late 19th century.

By the beginning of the 20th century, the Caspian region was the center of the international oil industry. Since then, the importance of the hydrocarbon resources in Turkmenistan and the greater Caspian region has grown steadily.

Today, the region is critical to a world that needs all the energy it can get. In particular, Turkmenistan's role in supplying energy like natural gas is crucial, and the importance of that role will only grow in the future. That will result in greater opportunities for all Turkmen people as the country's energy resources are further explored and produced.

Over the course of Chevron's 129-year history, we have witnessed again and again a simple but profound truth — and that truth is: There is a dynamic relationship between the development of energy and the development of a host country's economic and social infrastructure. One simply cannot be sustained without the other. And with the right policies, one will contribute even more positively to the other.

Today I want to offer some ideas for Turkmenistan to consider as it continues developing its oil and gas resources to deliver the most value to the Turkmen people over time. But first, let me provide some context. I want to share with you a brief description of Chevron's presence in the Caspian region.

More than 20 years ago, Chevron began exploring opportunities to help countries in the region develop economically. In those days, I remember riding out on horses to look at oil wells with our future Kazak partners. We came to learn and appreciate the culture and customs of the Kazakh people — as we do in every host country where we operate. At the time, we all knew that it was the beginning of an era of profound change in the Caspian. It was then that Chevron made its commitment to the Caspian region and its people.

We made a very large investment in the Caspian region — specifically Kazakhstan — and we made that investment when much of the rest of the world was holding back, waiting to see what would happen in the region. And I am proud to say that our commitment to the Caspian region has never wavered.

In fact, it has only grown stronger. Chevron is proud to have been the first Western oil company to invest in Kazakhstan. In 1993, we formed the landmark Tengizchevroil (TCO) partnership between Kazakhstan and Chevron. Today we are the country's largest private oil producer and its foremost foreign investor.

But we have also extended our presence throughout the Caspian region. Chevron is the largest private shareholder in the Caspian Pipeline Consortium. We are also a partner in the Baku-Tbilisi-Ceyhan pipeline, which transports oil to deepwater port facilities in Turkey on the Mediterranean Sea.

These projects have enabled us to apply our expertise and experience transporting hydrocarbons from, and through, land-locked countries and regions.

In the western Caspian, we have an interest in the Azeri-Chirag-Gunashli project. We also have partners in Russia. In 2006, Chevron signed a framework agreement with Gazprom Neft to form a joint venture to explore and develop resources in western Siberia. With Chevron's Oronite subsidiary, we have developed strong partnerships with several Russian oil companies to which we supply fuel and lubricants additives. We are pursuing heavy-crude production and processing in Tatarstan. And we have significant exploration activities in Turkey.

Here ends the Chevron commercial. But I do want you to understand our presence in the Caspian region; the synergy of our operations in Kazakhstan, Azerbaijan, Russia and Turkey; and the importance of the region to Chevron and our local partners. With billions of dollars in capital currently employed in the Caspian region, it is one of our key markets and we hope to be there for a very long time.

As we all know, there are many ways that a country can enhance and sustain development of their oil and gas resources. A strong foundation is critical. Chevron believes that a strong foundation for most energy developments have five important attributes.

The first attribute is open markets. Transparency and the free flow of energy, trade and investment can only occur on a level playing field. Removing market barriers can significantly increase production and help moderate the price volatility we face today.

The second attribute is sound policies to promote stable and predictable tax and regulatory regimes, the sanctity of contracts, and the rule of law. The better established these are, the greater the investment, development and the security of oil and gas resources will be.

The third attribute is robust technology to conserve and optimize the resources we have now and to develop a full range of new energy resources while protecting the environment. Robust technology is best achieved through joint ventures and partnerships that foster the sharing of technology and best practices.

For example, our Kazakh partners — and now our Chinese partners too — value Chevron's extremely safe technology for handling one of the world's most toxic gases, hydrogen sulfide.

The fourth attribute that builds a foundation for strong energy developments is responsible and sustainable development. The production and use of energy must serve as a platform for broader economic growth and social well-being. We must ensure that the economic benefits of energy flow to all stakeholders including the poor and less-fortunate among us.

And finally, a strong foundation for energy partnerships requires recognition of the interdependence of global energy markets. Quite simply, no one country can go it alone.


Stable, predictable tax and regulatory regimes.

Robust technology.

Responsible, sustainable development, and interdependence.

With a foundation in place that includes these attributes, energy developments can be a vehicle for economic growth and human development. Because as people everywhere aspire to a rising quality of life for themselves and their children, the role of business in economic and social development is broadening.

At Chevron, we believe that the communities where we operate should be enhanced, both economically and socially. And, we believe our industry can act as a catalyst in this process. Successful economic development leverages the key strengths of an economy. It might be natural resources like oil and gas, or manufacturing, or knowledge and innovation, agriculture or a combination of things.

Successful economic development generates capital for investment in social infrastructure. This, in turn, helps create an environment for growth and stability by enhancing education, health care and the overall social fabric. That is the theory, anyway. But we all know about the uncertainties between theory and reality. And that is where our industry must assert itself.

In economies like those in the Caspian region, where natural resources like oil and gas play a big role, we can serve as a catalyst to build a bridge between theory and reality. We do that in three primary areas: capital, technology and partnerships. These are the three legs of the stool, if you will, of our value proposition in the Caspian region and every other producing region where we do business.

Let me talk briefly about each of them.

One of the fundamental contributions we make toward economic development is the capital necessary to commercialize the resource base. Just to provide a little context: the International Energy Agency estimates that over the next 20 years some $16 trillion dollars in investment will be required to meet global demand.

That is a staggering number. Making that kind of investment will require the full participation of our industry as well as private equity, public financing and multilateral agencies such as the World Bank and the International Monetary Fund.

In Kazakhstan alone, Chevron has invested more than $12.5 billion. This investment is creating production facilities that will produce hydrocarbons and revenues for Kazakhstan for many decades. Just as important, it will create tens of thousands of good jobs for Kazakhs throughout the life of the projects, as well as a platform to support local supply chains. It is this kind of multiplier effect that gives capital investment a fundamental and critical role in economic development.

At Chevron, we commit to hiring and training a local workforce, and we invest in the creation of local supply chains. This commitment is an integral part of how we do business and our record reflects this commitment. In Chevron's operations in Saudi Arabia's Partitioned Neutral Zone, for example, Saudi citizens make up 90 percent of the workforce — including the top managerial positions. Closer to home in the Caspian region, Tengizchevroil spent $1.2 billion in 2007 on Kazakh goods and services, up from $27 million in 1993, the year we formed our partnership.

The second value proposition that our industry provides for economic development is technology.

Increasingly, the success of hydrocarbon exploration and production rests on the smart economical development and application of technology. This is especially true at a time when soaring global demand requires us to develop all the resources we have available to us.

Whether it is heavy oil, the deepwater, oil sands or molecular transformation in the refining system, technology is a driving force in the success of our partnerships and the sustained economic growth they produce.

One of the most powerful examples of the application of technology is TCO's Sour Gas Injection and Second Generation Plant expansion project in Kazakhstan, which we call SGI/SGP. With pioneering gas injection technology, SGI/SGP will dramatically increase production from 14 million up to about 25 million tons per year.

Our expertise in producing sour gas at Tengiz was the key factor in our recent selection by the China National Petroleum Corporation for the development of the Chuandongbei natural gas area in central China. As a matter of fact, I just flew here from a meeting with our partners in Chuandongbei.

At the same time, the success of our Tengiz sour gas partnership holds tremendous significance for the workers of Kazakhstan. The technical skills they are learning — and skills in safety, efficiency and quality — will benefit the nation for years to come.

In the U.S. Gulf of Mexico, we have developed industry-leading expertise in computer-assisted imaging and 3-D views of the subsurface — so we can see what lies beneath massive sub-salt layers. Today, the application of this technology has found a lot of oil and gas in an area that many believed was empty. As a result, the U.S. Gulf of Mexico has become a very productive area for Chevron's deepwater exploration efforts.

On the downstream side, Chevron recently announced a breakthrough heavy-oil upgrading technology that has the potential to boost yields of cleaner-burning gasoline, diesel and jet fuel from heavy and ultra-heavy crude oils.

Finally, in Russia, several of Chevron's industry-leading technologies have been licensed to Russian oil companies. For sustained economic development, these types of technologies are critical. They help promote the full commercialization of a country's resource base, and they create platforms to extend technology to other processes which create new efficiencies and economic opportunities.

It is clear that many national oil companies have impressive technology capabilities. International oil companies offer the capacity to deploy technology on a large scale and significantly augment the capabilities of local producers and suppliers.

This brings me to my final point about what our industry can offer to promote economic and social development. And that is partnership. The success of our business is built on partnerships.

The scale of our business requires partnerships to share best practices and mitigate operating and financial risk. And the long-term nature of our business compels us to build partnerships with the communities where we operate.

Because of our partnerships, we have developed a good knowledge of, and respect for, local cultures and customs in the Caspian region. And we have learned how to adapt our business practices to local markets. What Chevron does in all of our partnerships, no matter what the size of our interest, is to focus the full capabilities of a large, integrated energy company for making a project successful.

I believe that successful energy partnerships require alignment around two objectives. One, deliver affordable, reliable energy in an environmentally sound manner to improves people's lives. And two, establish long-term relationships of mutual benefit.

Every day the people of Chevron in the Caspian region work closely with a wide variety of individuals and organizations to achieve these objectives. They include national oil companies such as KazMunaiGaz and SOCAR; international partners such as BP, Statoil, ExxonMobil, LukArco, Total and Eni; and local contractors and communities across the region.

We believe that Turkmenistan rightly belongs in this group of high-energy partners that drives exploration and development progress; new technology; innovative best practice and sustainable economic development in the Caspian region and beyond.

In particular, partnerships between national oil companies and international oil companies can effectively apply each partner's core strengths. Those core strengths include access to resources and markets; sufficient capital; knowledge of a country's political environment and markets; advanced technologies; safety and reliability; credibility for projects with local communities; and expertise managing long-term, complex energy projects involving multiple partners.

I think I've given you an idea about the scale of our business partnerships.

Also vitally important are the partnerships we forge with the communities where we do business to help create an environment of opportunity, stability and hope. We have a strategic approach to community engagement that targets key areas such as job creation, education and health care.

There is an old saying that the best way to promote economic development is not by giving a man a fish but by teaching him how to fish. At Chevron, we are doing exactly that — with a modern twist.

In Kazakhstan, for example, Chevron and CitiGroup established a business incubator. It gives entrepreneurs without collateral from $100 to $500 to get businesses started. Since the Chevron Small and Medium Enterprise Program began, the center has distributed $1.3 million and created 514 jobs.

The story is the same throughout our worldwide operations.

In Indonesia, Chevron is working in partnership with the U.S. Agency for International Development to build a new polytechnic school in Aceh Province. The school will provide training in electronics, engineering and business accounting.

In South America and Africa we opened Learning Centers in conjunction with the Discovery Channel Global Education Partnership. Participating schools get videos from Discovery Channel's nature, geography and history programs, along with the equipment to show them. Teachers are trained to incorporate programming into lessons in ways that respect the cultural traditions of their communities.

I could go through the entire catalog of our community investments, but in the interest of time — and your patience — I won't do that. My point is that Chevron considers the investments we make in the communities where we operate to be as integral to our business as investments in drilling wells or production facilities.

We believe that the successful development of energy should benefit everybody who is involved, especially the communities who own the resources, as well as our shareholders, our customers, suppliers and our partners.

Tengiz highlights our close ties with the Kazakh energy sector and is a model of what we seek to achieve with other energy partnerships — in the Caspian region and around the world. It's been a beneficial partnership — but not only for us. It's been important for everyone who uses this energy, and most importantly, for the Kazakh people themselves.

In fact, I think that many of our partnerships might more properly be called friendships. At Chevron, we are especially proud of helping to develop the human resources of our host countries. As I mentioned a minute ago, over 90 percent of our employees in Saudi Arabia are Saudi citizens. And, we have many employees from our host countries that are filling assignments around the world, which not only strengthens their careers but also enriches the larger Chevron family.

Let me conclude my remarks by telling you a story.

I am very fortunate to have a beautiful handmade carpet that I got last year on a visit to Turkmenistan. When I look at that carpet, as I often do, I am impressed not only by its elaborate beauty. I am also impressed by the craftsmanship and the fine attention to detail that went into making it. Clearly, this beautiful carpet was made with a great deal of hard work, care and respect for a centuries-old art form.

That hard work, care and respect produced a carpet that is uniquely like the country of Turkmenistan — a carpet of great strength and beauty and a carpet that will stand the test of time.

I believe that energy partnerships can be like the carpets of Turkmenistan. True partnerships, like the carpets of Turkmenistan, are crafted from hard work, care and respect. True partnerships are strong. They deliver mutual benefits. And they stand the test of time.

Chevron would be honored to be partners with the Turkmen people in hard work, care and respect as they embrace their country's energy future.

Üns bereniñiz üçin sagboluñ! Thank you for your attention.

Updated: April 2008