Proven in Partnership, Focused on the Future

Guy Hollingsworth

By Guy Hollingsworth, President, Chevron Europe, Eurasia and Middle East, Exploration and Production Company
Chevron Corporation

World National Oil Companies Congress

Abu Dhabi, UAE, June 2, 2009

To everyone: As-Salamu Alaikum [peace be upon you].

According to an Arabic saying, "A good day is known by its start." And I think this conference is off to a good start. So let me add my compliments to our hosts for organizing this forum. I love coming to Abu Dhabi where office towers gleaming in the sun have found a harmonious blend with traditional Arabian culture and offer proof of another Arabic saying: "The sands of change are blowing" and bringing with them incredible energy and change.

You have assembled an impressive gathering of industry and government leaders who will, no doubt, test our thinking and provide many insights into the challenges and opportunities we face.

This morning, from my hotel room, I could see the waters of the Gulf, which remind me of another great body of water where I grew up. Back home in Natchez, Mississippi, I sometimes sit and watch the Mississippi River's inevitable flow to the Gulf of Mexico, and it makes you think about our business, as the industry endures and influences the course of human progress.

For any energy company, the ability to endure and make a positive contribution, especially in tough times, is noteworthy. To do so for more than 130 years, as is the case with my company, Chevron, is even more remarkable, especially when you consider the dramatic changes more than a century has brought to the energy landscape.

Some essential ingredients are at the core of Chevron's staying power: our values, our business conduct and, particularly, the strong relationships we've established over the past 13 decades. Values like trust, integrity, partnership and mutual respect, coupled with an operating philosophy committed to delivering high performance and placing real responsibility and accountability in the hands of our local people on the ground, have helped us earn and maintain our reputational stripes.

The Middle East is a relatively new part of my portfolio, but I come to it knowing that Chevron's history in the region is very long and very rich and is a result of these values in action. Today, Chevron pursues a wide range of petroleum interests — lubricants, aviation and marine fuels — and it maintains a marketing presence in many of the region's countries.

Today, I would like to primarily reflect on the value of partnership. However, I am also very much aware of another Arabic saying: "Never give advice in a crowd." So please consider my remarks less as advice and more as food for thought.

Chevron's history in the Middle East began more than 75 years ago. That's when our then-chief geologist went ashore at Al-Jubail in the eastern part of the Kingdom of Saudi Arabia. There the sands of change were indeed blowing — although in the grip of the worldwide Great Depression, no one knew at the time quite how much change this would bring.

It was no easy feat to produce a discovery well at Dammam Dome. But determined Saudi and American pioneers collaborated to conquer the desert's challenges. Their resolve and ingenuity set the stage for the subsequent emergence of both Chevron and Saudi Aramco as global energy companies.

This energy partnership prepared the way for a further connection between the Kingdom and the United States and between two leaders who looked beyond the world's immediate challenges and envisioned a new world. This happened when King Abdul Aziz Al-Saud met President Franklin Roosevelt on a Navy cruiser during the Second World War on Egypt's Great Bitter Lake.

The two men began by focusing on their big responsibilities. On that common ground, they built a relationship even the blowing sands could not change. It was a relationship that did indeed change the course of human progress and shape the modern world.

Now, this short history reminds us: whether you come from east or west, NOC [national oil company] or IOC [international oil company], big company or small, the enormous strides of the last few decades have depended on the power of working together.

Today, NOCs and IOCs share remarkably similar concerns. We are all challenged by the global economy. We serve similar stakeholders. We all need to be socially and environmentally responsible. We all need to find more efficiency in the execution of projects, in managing the base business and in lowering the cost structure for goods and services. Most importantly, we all need to deliver energy to a world whose prosperity is highly leveraged on our collective abilities to perform.

World energy demand will continue to increase greatly in coming decades. Consider as a starting point the fact that every day in the life of the world we use — from all energy sources, not just oil and gas — the equivalent of 245 million barrels of oil. Demand on that order is a fact, and it will continue to grow. Worldwide, we use 50 percent more energy than we did only 20 years ago. And 20 years from now, demand can be expected to rise by another 30 percent or so.

That's not so surprising. The economic downturn hasn't eliminated growing populations, advancing technology and an appetite for energy's necessities and conveniences. People want to live good lives. They want to live better. That will continue to drive a need for more energy — in all its forms — renewables, alternatives and, of course, oil and natural gas. Perhaps I should say "especially" oil and natural gas. For even with the most aggressive development of renewables and alternatives, the world will continue to rely on fossil fuels for at least 70 percent of its energy needs, even in 2030.

Since energy will propel economic recovery and continue to be an essential ingredient of a healthy global economy, our collective responsibility as IOCs and NOCs is to invest in delivering that energy.

It's a tall order. The IEA [International Energy Agency] estimates that the global energy system's investment needs from now to 2030 are on the order of US$26 trillion. That translates into about US$1 trillion a year. For oil and gas alone, the figure is about US$350 billion per year. Some have estimated that replacing the aging oil delivery system alone will be more costly and complex than the Second World War.

And yet, even though demand will grow, investments are falling short. The effects are already beginning to show. Seven of the top 15 global oil exporters have seen their production stagnate or even decline. But, as we all know, tomorrow's energy is found with today's investments. So, no new investments, no new energy. That makes our task even more difficult, given the long lead times from discovery to production. In some cases, it is 10 or more years from discovery to first production.

Now our challenge is heightened when margins and cash flows are low. At Chevron, I'm proud to say that we will maintain our annual capital and exploration program in excess of US$20 billion this year — the same level this year as last year.

Among the NOCs in the region setting the investment bar is Saudi Aramco. The Kingdom is committing tens of billions of dollars to the development of a large spectrum of energy; it has a string of world-class projects that are moving from plans into development and production.

Also, in Qatar, the country's investment in liquefied natural gas and gas-to-liquids may represent one of the most intensive capital investment programs in the world.

Investments are crucial going forward, but no less crucial than collaborative partnerships and the need for good people. But with the world's financial ups and downs, we see questions about NOCs' and IOCs' supposed competing interests and objectives.

Well, the reality is, we need each other — now more than ever. Solutions to our challenges call for a new level of collaboration between NOCs and IOCs. That means more, not less, engagement, just as in those early days in the desert, a place where, as another Arabic saying has it that, "the wise travel by caravan and only a fool travels alone."

Even when 85 percent of the world's oil reserves are in the hands of governments and NOCs, our world becomes more interdependent each day.

If relationships between IOCs and NOCs — the two major sources of new production — remain key, these relationships will continue to evolve in ways that benefit both and, ultimately, benefit global energy markets. Successful relationships and partnerships will be built on pairing the specific needs of a particular NOC with the special abilities of IOCs.

So what are the special abilities that IOCs bring to the table?

First, as I alluded to, we have staying power. Few industries depend on weathering public anxiety, political change and market volatility like the petroleum industry.

Talk about change. Forty years ago this week when I started in this business as a roustabout, oil was US$3 per barrel. That later rose to over US$147 per barrel last year and came right back down again. We have seen this several times. We have seen costs rise and fall, many changes in public policy, and many a political debate.

Throughout these years, one thing stays the same: only those companies that excel in managing through adversity can today point to strong balance sheets and a healthy queue of great projects. These are projects that operate with the collaboration of our many partners and with the permission from our many stakeholders. At Chevron, we have a very strong portfolio; it includes 40 major projects where Chevron's equity is over US$1 billion dollars in each.

We are Asia-Pacific's leading IOC, the largest producer in Thailand and Indonesia, the largest resource holder in Australia. And we're the largest producer of geothermal energy anywhere in the world. We're also the largest private investor in western Africa, Kazakhstan and Indonesia, and we have a downstream presence on five continents.

Here in this region, King Abdullah has extended our operations in the onshore Partitioned Neutral Zone for another 30 years; that will bring our relationship to over 100 years.

Working in partnership with the Kuwait Gulf Oil Co., we operate four fields and more than several hundred active wells with annual production more than doubling since 1990.

Staying power depends on something rather obvious: IOCs make good partners. And decades-long alliances endure by producing more than energy alone.

We help integrate partner aspirations and steer projects through challenging political dynamics. We manage our projects with a fundamental long-term commitment to that partnership and to the communities where we operate.

An important outgrowth of this long-term commitment is our investment in capacity building — whether involving local workers on one of our projects or those entrepreneurs who benefit from microloans, as one example.

Local capacity building is fundamental to our partnerships. Investments in people — in human energy — benefit us all.

The Partitioned Neutral Zone, for example, has generated thousands of jobs and billions of dollars in investments. It has transferred new technologies, served as a resource for scientific and technical training, and built a 90 percent Saudi workforce, from the very bottom to the very top of Saudi Arabian Chevron.

Just a few months ago, we opened a new Saudi Petroleum Services Polytechnic, which is already empowering hundreds of young Saudis with the skills to support themselves and their families.

We also support an active technology exchange program between Chevron and Saudi Aramco. Almost 100 Saudi Aramco employees have worked in our U.S. downstream, technology and strategy groups.

In Kazakhstan, and elsewhere like Nigeria, Angola and Asia-Pacific, operations generate significant revenue, jobs, local goods and services as well as employee training and development. Over 81 percent of our Tengizchevroil employees, for example, are Kazakhstani.

IOCs also bring the power of technology and the associated operating expertise required to deliver results, and they leverage this across an array of portfolios and international experience. In areas such as gas-to-liquids, LNG, unconventional oil, secondary recovery, ultra-deep water, IOCs' technology and skills are critical.

But the real edge, I'd say, lies especially in how IOCs integrate today's cutting-edge technologies, such as how we use technology to transform the resources we recover into increasingly cleaner products. How we drill wells in today's most challenging environments — in deep water and under high pressure. How we integrate oil field development and processing technologies with skills we've developed by operating in remote and challenging conditions.

Here in this region, the onshore Partitioned Neutral Zone [PNZ] is pushing the envelope when it comes to enhanced oil recovery. The Wafra steamflood pilots are drawing from Chevron's heavy oil experience in its 100-year-old California fields, as well as from our operations in Indonesia and Venezuela. This is teaching us lessons we can apply to full-field steamflooding in the PNZ — and in other locations with heavy oil in the Middle East and elsewhere.

We're making progress in validating the use of steamflooding to free up, for the first time in commercial quantities, the potential of heavy oil carbonate reservoirs. It is a potential, in the PNZ and elsewhere, measured in billions of barrels of energy resources.

Chevron believes that energy efficiency and conservation are the most immediate and cost-effective sources of new energy, and we are proud to work in partnership with Qatar to help achieve environmentally responsible development and economic diversification.

In Kazakhstan, technology has overcome the formidable twin challenges of Tengiz: high pressure and sour gas — 16 percent H2S [hydrogen sulfide] at close to 10,000 pounds per square inch. A year ago, we celebrated an important milestone in the commissioning of the multibillion-dollar Second Generation Plant and Sour Gas Injection facilities. Along with boosting production capacity at Tengiz to about 540 thousand barrels per day, the new facility re-injects about one-third of the produced sour gas back into the reservoir.

Along with technology, IOCs bring another benefit: our regional expertise and local decision-making power. We know how to manage high-level relationships in our operating regions. In our case, our decentralized organizational structure enhances our ability to build and nurture partner relationships on the ground. Our partners know our local leaders have the ability to make decisions.

We've worked to streamline our processes so we can reach decisions at the local level, fast — a distinct performance and competitive advantage.

Another benefit of IOCs: We help create and expand markets. Strong NOC/IOC partnerships mean producing nations can depend on predictable access to markets. Consuming nations can depend on reliable access to supplies. And this reduces volatility and creates an environment for sustained investment.

The sum total of IOCs' benefits, in short, is this: we're integrators. We know how to bring everything together and make it work. IOCs have, in fact, been moving toward a full-partnership business model for years. Today, much basic industry research, technology, even some of our most impressive community projects are based on public-private partnerships.

You might call what we offer the power of experience, staying power and something every engineer understands: leverage. Put it all together and what you have is not a competing interest, it's a partnership advantage — which is vitally important, given the highly integrated and mutually dependent world we have become, where no one company, no one sector, no one government can go it alone.

The great thing is, we don't have to. IOCs are lining up to provide a full range of investment, in capital, technology and skills.

Today, we can't be sure how close we are to economic recovery. But, we do know energy's role is inevitable. As we move forward, we will see the persistence of the industry's ability to flow around obstacles and influence the course of human progress, always for the better.

However, that recovery, that forward progress and prosperity, all depend on one thing. It's something our predecessors embraced in the early days of Dammam Dome and something two leaders forged on Bitter Lake in Egypt at the end of World War II. It's something even the blowing sands cannot change — and that's the power of partnership.

Published: June 2009