The Economist's 4th Annual Latin American Energy Summit
Robert A. Solberg, Vice President, Texaco Inc. and President Texaco Worldwide Upstream Commercial Development
Good afternoon, everyone, and I appreciate the opportunity to discuss issues of vital importance to the future of both Latin America and the energy industry.
Before I continue, however, I'd like to add my voice to those who have expressed the deepest sorrow at the recent calamity in Venezuela. The outpouring of support from the nations of the world, their inhabitants, and the international business community can only partly relieve the suffering exacted by this tragedy.
But for those of us who consider ourselves citizens of Venezuela as well as part of the family of humankind, it was the very least we could do. Our hearts and hands go out to the people of Venezuela and to their representatives here today in the continuing effort to overcome this adversity.
Indeed, the very fact of a Venezuelan presence at this forum underlines its importance. And I'd like to thank The Economist and our fellow sponsors . BP Amoco, KPMG, and KMR Power . for making this meeting possible.
There are several reasons that I'm very pleased to be here, but I'll mention just three.
First, it. s an honor to be among such a distinguished gathering of diplomats, government officials, business executives, and energy-industry authorities throughout the Western Hemisphere . but it. s also a challenge.
Nearly a century ago, a great British diplomat and historian, James Bryce, said that "in Latin America, eloquence comes by nature, and seems to become a part of thought itself." I. m afraid I. m not endowed with Latin American eloquence . but I do hope my remarks today will become part of your thought processes about the future of energy in Latin America.
The second reason I. m happy to be here is to welcome you to Houston, the perfect setting to discuss our future together.
This city is arguably the energy capital of the world, with more than 5,000 energy-related firms in the area. Nearly one of every three U.S. jobs in crude oil production, natural gas extraction, and related services and manufacturing are located in Houston. Thirty of the nation's hundred largest oil and gas exploration and production firms are headquartered here . including many of the U.S. and international operational activities of Texaco, which alone employs 3,200 people in the Houston area.
It was on this very day 99 years ago . January 10th, 1901 . that the Texas oil boom began with the discovery of the Spindletop well, just about 80 miles from where we. re assembled. That discovery led directly to the establishment of Texaco, then called the Texas Company, in 1902.
Its founder, Joe Cullinan, with vision to go along with his business sense, moved his headquarters to Houston because, he said, "Houston seems to me to be the coming center of the oil business."
In the aftermath of Spindletop, about one hundred oil companies sprang up, but, by the late 1980s, only one of the original remained . Texaco.
What differentiated us from the rest was grasping early on that producing crude oil would not be enough to create a successful company for the long term. Long-term success relied also on storing it, transporting it, developing it, transforming it, marketing it, and getting it to customers throughout the world.
In other words, we invested in infrastructure because success requires a global supply chain that encompasses upstream, midstream, and downstream elements of the energy industry. And, as the years went by, that meant forming partnerships and alliances, staying on the leading edge of technology, and . more recently . leveraging the communications revolution and adapting it to our requirements.
And that takes me to the third reason that I. m eager to talk with you today: to explore the enormous opportunities for all of us in the energy industry and, more important, for the nations and people you represent.
I. d like to look at those opportunities by addressing three things:
- First, Latin America. s future energy needs.
- Second, the international experience, the technology, and the investments required of energy industry partners to meet those future energy demands.
- And third, the energy industry's expectations of host countries to make doing business together a win-win situation.
As the people here today know better than anyone, Latin America is poised to play a pivotal role in the world's quest for energy in the 21st century . not just as exporters but as consumers as well. You are no doubt acquainted with the United Nations study estimating that in 25 years, Latin America's population will grow nearly 40 percent to almost 700 million people . and will be closing in on one billion people by the year 2050.
This large increase, along with a clear trend of migration to the large cities, will obviously cause enormous demand for more energy. Add to that the vital efforts to create new infrastructure . roads, bridges, factories, and power plants . that require vast infusions of energy, and it's no wonder that Latin America's energy consumption is expected to double in just 20 years.
Continued substantial outside investment will be essential to meet future energy demands, and that takes me to my second point . the need for energy industry partners with global experience, technological expertise, and a willingness to take on the costly risk of exploration and development.
Today's economic world is a world without borders, and energy companies were instrumental in making it that way. Texaco, for one, has nearly a century of international experience, including more than 85 years in Latin America.
- We started doing business in Brazil in 1913.
- Today, we're in 40 Latin American countries where we employ 4,500 people, operate a major refinery, and have 5,300 service stations throughout the region.
- And our five year worldwide investment plan, with $4.7 billion earmarked for this year, includes six major exploration and development focus areas, two of which . in partnership with PDVSA, Petrobras, Shell, Phillips and others . are in Latin America.
These risk-sharing partnerships, along with the industry's technological advances in recent years, have enabled us to greatly increase our success in such major projects and to improve business results.
Today's technology, as you know, includes everything from remote sensing equipment, to vertical cable seismic technology, to 3-D imaging, to multilateral drilling, to new heavy-oil technology.
And in this age of the Internet, communications technology allows everyone in a partnership . be they engineers, geo-scientists, administrators, or officials . to work together across hallways, across borders, across oceans and around the globe.
Just last month, Texaco's chairman, Peter Bijur, said the Internet "holds the promise of allocating energy products on a global basis with near-perfect efficiency." He said that this promise had better be realized soon "because an exploding world population will need sustained high growth."
Nowhere is that need more apparent than in Latin America . and we want to share in the massive effort to create a better and more prosperous future for its people. In this endeavor, we bring to an energy partnership not only our global experience and our technology, but also . not least . our willingness to risk huge sums of money.
We have a long history and deep commitments in Latin America. I mentioned that two of our six major upstream focus areas over the next five years are in this region of the world. What happens in the five years after that, however, depends on a number of factors . because the reality is that there are many prospective partners and just so much money to go around.
The enormous investments required of energy companies carry a high degree of uncertainty. And that takes me to my final point . the expectations by industry partners that we will enter dependable alliances to reduce investment risks and provide reasonable returns.
And I'm not just talking about partnerships with sometime competitors like Phillips, Exxon Mobil, or Shell, or even with state-owned companies like PDVSA or Petrobras. I'm also talking about reliable, mutually beneficial alliances with host-country governments.
As I noted earlier, this year Texaco has dedicated $4.7 billion for capital and exploratory spending . a 20 percent increase over last year. Our plan calls for increased spending on the commercial development of high-impact upstream projects in Latin America, as well as West Africa, Kazakhstan, the Philippines, and the Gulf of Mexico.
The plan reflects Texaco's global strategy of focusing on high-margin projects of significant size and duration. So it stands to reason that when Texaco enters into partnerships with host countries, we are going to invest most heavily where we are afforded the opportunity to earn reasonable profits for our shareholders.
Without question, Latin America has made great strides in this direction. The 1990s will certainly be remembered in Latin America as the decade of privatization and deregulation as governments and regulators sought economic growth, increased employment and tax revenues, and a reduction in the deficits caused by inefficient state sectors. Specifically, in the closing years of the decade, remarkable progress was made toward privatizing the energy sector.
We are also seeing integration of the energy industry such as cross-border alliances, partnerships with competitors, production-sharing arrangements, and technology transfer. And we hope to see swifter action on developing a more widely deployed energy infrastructure across Latin America. Today, there is a pipeline between Bolivia and Brazil, some electrical connections between Colombia and Venezuela, and some pipeline crossings between Mexico and the U.S.
That's a start. But the world is moving to a global supply chain with complex interrelationships among supply sources, pipelines, refining, and marketing without regard to borders or national identities. These global requirements must overcome any lingering provincialism or rigid nationalism.
It does little good for investors to extract oil or gas from the ground or beneath the sea if they can't get it to market economically. So we ask our governmental partners to increase their efforts to reach regional, cross-border agreements to facilitate the transport and marketing of energy.
As I said, we've been doing business around the world, including Latin America, for most of the past century. So we understand and respect the differences that exist in every country. But, at the same time, before we invest in a country or a region, we seek a common denominator for doing business, as well as conditions that allow us a reasonable return.
Foreign investors as industry partners are prepared to provide host governments their experience, their technology, and their capital without asking them to bear a proportionate risk. We think, however, it right and fair to expect equitable and judicious regulations that allow us to make technical and business decisions that will help balance our risk. We think it right and fair to expect assurances of reasonable profit margins and discretionary use of earnings to maintain our worldwide business portfolio. We also strongly urge continued governmental undertakings to open markets and invite investments.
It will be challenging for Latin American countries to acquire the financial resources needed in the short time available to meet future energy demands. The entry of durable and lasting foreign capital should be permitted and actively encouraged to assure sufficient production, refining, and distribution of oil and gas to meet future demand.
- Latin America's energy consumption by the year 2020 will double.
- Developing and distributing that energy requires partnerships and alliances between host countries and private companies possessing the capital, the leading-edge technology, and the global experience to make it happen.
- Attracting the investments of the type and scale needed will require extensive development of cross-border energy infrastructures, further privatization, and liberalization and stabilization of tax structures and regulatory provisions.
Everyone here knows that petroleum is the product that makes the world go . and grow. It is an economic driver that offers greater opportunity for millions of people to join the world economy and improve their lives.
We at Texaco want to be part of that. The oil and gas are there. We know how to get it, transform it, and distribute it. Together, working hand in hand with our partners and host governments, we can spread the enormous benefits of energy throughout Latin America and the world.
Muchas gracias, muito obrigado, and thank you all.
Updated: January 2000