Petroleum Executive of the Year Award - Acceptance Speech

By Sam Laidlaw, Executive Vice President, Global Downstream
ChevronTexaco Corporation

Oil and Money Conference

London, England, October 26, 2004

It's a great honor to represent Dave O'Reilly and ChevronTexaco here tonight. Dave had a longstanding board commitment that kept him from attending, so I would like to convey his regrets that he could not be here to accept the award himself.

But he asked me to tell you how deeply honored he is to be named Petroleum Executive of the Year and how proud he is to accept this award on behalf of ChevronTexaco's 50,000 employees. They are, quite literally, at the heart of our company's success.

Dave's tenure as chairman and CEO has been marked by several major accomplishments. But, undoubtedly, one of the overriding achievements has been the successful integration of Chevron and Texaco into a truly global enterprise.

The merger brought together two companies with distinct equities to create a new organization with ambition, focus and momentum. And, quite frankly, from our perspective it happened at just the right time.

Our industry is at a strategic inflection point. It is a fundamentally different industry than it has been in the past. And to ensure our long-term success, we need to do some things in a fundamentally different way.

Think about it for a moment. The first phase of the energy industry's history through much of the 20th century was driven by the rise of independent oil companies (IOCs). The demand for oil was easily satisfied by private enterprise, often at the expense of the owners of the oil.

In the second phase of the industry, during the 1960s and '70s, OPEC and national oil companies (NOCs) came into prominence to ensure the optimal sharing of economic returns during a period of relatively plentiful supply.

Now we are entering the third phase of the industry, which is being shaped by surging demand, supply restraints, population growth in the developing world and geopolitical volatility.

These factors are making us more interdependent than we have ever been. They have created what, in effect, is a new energy equation. So a question we might want to consider today is, What are the opportunities and barriers in this new era?

The fact is that more than three-quarters of the world's known oil reserves are in the hands of oil-producing countries or national oil companies. Massive investment is needed to bring these reserves to market and meet the surging demand for energy supplies.

At the same time, oil-producing countries are facing demands for significant social investments in such areas as education, health care and economic opportunity. In many cases, these countries face hard choices between social investments and investments in new energy infrastructure.

In this new era of interdependence, IOCs can play a unique role in bridging that investment gap. IOCs can help oil-producing countries and NOCs realize their sovereign interests by sharing in the risk and capital investment for new infrastructure and by providing state-of-the-art technology and creating new jobs.

To be quite frank, this era of interdependence hasn't broken completely with the past. It is still driven to a great extent by self-interest, as it should be. For example, oil-producing countries want to secure predictable markets and demand for their energy. It is in their interest to optimize prices and extend the production life of their resources, but at the same time ensure that oil retains its rightful share of the energy mix in a growing world.

It is in the interest of citizens of producing countries to share in the wealth generated by resource development. At the same time, it is in the interest of consuming countries to have dependable, clean supplies of energy at predictable and reasonable prices.

Likewise, it is in the interest of the global economy and people everywhere - especially in the developing world - to have reasonably priced, dependable, clean and efficient energy to deliver an improving quality of life.

But realizing these self-interests will require a greater degree of cooperation and partnership than ever. To create the case for action, we need only imagine the results of inaction.

Let's think back about 30 years ago to the global oil shock of 1973. From May 1973 to June 1974, the average price of gasoline in the United States rose almost 40 cents a gallon. As a consequence, daily consumption dropped more than 6 percent in six months.1 The dollar lost more than 8 percent of its value in 1973 alone and was devalued again in 1974. Stocks on the New York Stock Exchange lost more than $97 billion in value in six weeks.2 In the 1979 oil crisis following the Iranian Revolution, the European Union economies slowed to nearly negative growth.3

It took more than 20 years for the global economy - and our industry in particular - to recover from these supply interruptions and the market, corporate and governmental reactions to them.

We don't want to be victims of volatility like that going forward. Nor do we have to. Inflection points can lead to crises, as happened 30 years ago, or they can create opportunities, which is what we face now.

Not to oversimplify, but in this era of interdependence, I believe our respective roles are clear.

IOCs should do what they do best - provide capital, technology and expertise, and reliable and predictable access to markets.

NOCs should do what they do best - provide reliable and predictable access to supplies in exchange for optimized rates of return and long-term demand security.

And governments should do what they do best - create open and transparent energy policies, build and maintain an economic climate governed by the rule of law and the sanctity of contracts, and provide for a fair, long-term return on investment.

As stewards of this industry, we are in the best position to ensure that stable oil supplies are delivered to world markets at predictable, reasonably priced levels. And now is the time to act, when our industry can do so from a position of strength. But doing so requires growing cooperation, greater transparency, more long-term planning and freer-flowing capital - in short, an era of true interdependence.

This conference comes at an opportune time, a time when energy is at the forefront of national and international agendas. No doubt, some of the issues I have raised here tonight will be discussed at length and in depth in the dialog that will take place during your conference.

I know Dave O'Reilly would have relished the discussions and welcomed the insights of the very talented men and women here tonight. More than that, I know he would have embraced the opportunity to work with you in partnership to address the challenges presented by the new energy equation.

Let me make just one more observation. As I look at the audience tonight, I see many of ChevronTexaco's partners here - partners from host governments and their national oil companies as well as partners from other companies in our industry.

If Dave O'Reilly were here this evening, I know he would tell you how deeply honored he is that the Petroleum Executive of the Year award comes from his peers and partners in the industry. On behalf of Dave O'Reilly, thank you, again.

1 BusinessWeek, May 14, 2001

2 Remarks by Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve System of the United States, to the Economic Club of Chicago, June 28, 2001

3 University of Athens, 2003

Updated: October 2004