The Energy Industry: Catalyst for Partnership and Stability in Times of Change
Peter J. Robertson, Vice Chairman
Cambridge Energy Research Associates Conference, Feb. 12, 2002
Last year, when Cambridge Energy Research Associates (CERA) invited me to speak, I thought the biggest thing I'd have to talk about would be the ChevronTexaco merger.
But of course, the terrible tragedy of Sept. 11 has given us much more to consider - and worry about - from the year 2001.
My first thoughts that day -- as I arrived at the office and heard the news -- were of my son, James, who lives in New York and saw the first jetliner hit the World Trade Center.
Our chairman, Dave O'Reilly, was in Washington and actually heard the plane crash into the Pentagon.
But what struck me most were the dozens of letters of concern from government, competitors, suppliers and partners.
“Global energy is not just a big business, it is also a community of world citizens.”
From Japan, one letter read: "It is beyond our imagination to see what happened ... we cannot help but worry about everyone concerned."
From South Africa, another said: "We would like to assure our American associates our full support during this time of crisis."
And from Kazakhstan were these words: "We will stand together in the fight against terrorism."
From France, Russia, Kuwait and other countries as well, the letters came almost immediately.
You could say it was a small thing. But for me, it reconfirmed what many of us already know very well: Global energy is not just a big business, it is also a community of world citizens.
For our company, the first month after Sept. 11 was also the final month of our marathon project to combine Chevron and Texaco. So our feelings of shock and sadness were mixed with the emotional intensity of closing this enormous merger after almost a year of hard work.
At the peak of activity last summer, we had more than 1,000 people -- full-time -- on special merger teams tackling more than 700 specific initiatives.
Working together, we embraced a new vision for ChevronTexaco: To become the global energy company most admired for its people, partnership and performance.
Finally, on Oct. 10, a group of our top executives stood up at the New York Stock Exchange to ring the bell and officially launch our new company. It was an emotional moment for them being so close to Ground Zero. But it also gave the Exchange and our company a way to show support for President Bush and Mayor Giuliani, who both said that it was imperative for the American people and American business to keep going and not surrender to fear.
Since that time, ChevronTexaco has come together very well:
- We generated over $100 billion in combined revenue for 2001.
- We grew production in Angola, Venezuela and China.
- We helped to make history with the opening of the Caspian pipeline.
- We have been consolidating locations, rationalizing operations, combining systems and all the rest that goes with completing a merger of this kind.
- We expect to capture $1.8 billion in annual savings from merger-synergies by early 2003 - 50 percent more than we projected at the outset.
- We are fully absorbed with the business tasks of the year ahead.
What we expected to be working on before Sept. 11, we're working on today. That's probably a true statement for most of the companies here this morning. But the nation and the world are still a long way from "business as usual."
So we've assembled here today in America's international energy capital to try to define what CERA has called the "new face of risk" and to identify the best strategies for a "changed world."
Dan Yergin has noted that the term "energy security" used to mean security of supply for consuming nations and security of markets for producers. Now he's saying that "energy security" also means infrastructure.
Serious security issues -- hostage-taking, pipeline bombings and the like -- have always been with us. In ChevronTexaco's case, our people have faced some truly catastrophic situations, such as the destruction of Neutral Zone oil facilities by Iraqi soldiers.
Working in partnership with host countries, our industry has kept oil and gas flowing despite civil wars in Africa, terrorist incidents in the Middle East and prolonged civil unrest in Southeast Asia.
Still, the tremendous loss of innocent lives in the Sept. 11 attacks -- and the resulting international campaign to fight terrorism -- tell us we're looking at an extraordinary situation today.
The world has great potential for new unity in one scenario but global disorder and conflict in another.
The Center for Strategic and International Studies predicts that neutralizing global terrorism will require "an unprecedented degree of coordination" between law enforcement, government and the private sector, to name a few. I certainly share that view.
But it is also true that in those places where security needs have been high -- in some cases, for years -- our commitment to security has been also high.
That will continue with fresh concern, and I'm aware that the International Energy Agency and other institutions are giving this their attention as well. But it is the United States in particular where we're seeing the most comprehensive security review, for obvious reasons.
Along with many others, ChevronTexaco is working through the new Senior Security Policy Oversight Group, which represents the different segments of the industry, at the American Petroleum Institute.
We're going to strive to integrate our security efforts. And we're going to help federal and state-agencies -- from the Department of Transportation to the Texas Railroad Commission to the Coast Guard -- coordinate the multiple initiatives proposed in this area.
Of course, security of infrastructure is only one issue we face.
President Bush made clear in his State-of-the-Union speech that the fight against terrorism is far from over.
And the stated concerns of European leaders in response tells us that defining the best unified path forward won't be easy. With so many different countries involved one way or another, the energy industry must consider a new set of unknowns in our investment decisions.
Governments will make some of our investment decisions for us, as they do now through a range of factors -- from sanctions to new royalty formulas.
Further, we may see policy changes that attempt to steer investment in new directions.
And some countries may now seem safer for investment.
But capital and companies will want to go where the reserves are. And indeed, this is where the developing world, the producing countries and the energy-consuming world still need us to go.
Turning to the marketplace, it seems clear that Sept. 11 was partly responsible for the downturn in oil prices. But it must also be said that price volatility was already a fact of life for us.
Meanwhile, the attacks moved the concept of "energy independence" back on to the national agenda.
There's a new outcry to reduce dependence on imported oil, cut fuel consumption and promote alternative energy.
There are serious plans to expand the Strategic Petroleum Reserve. And there is new momentum to open the Arctic National Wildlife Refuge to drilling and to accelerate development of the Alberta oil sands. Certainly, the United States should do all it can to enhance domestic energy production.
But Sept. 11 didn't create those issues. It merely cast them in a sharper light.
In the same short period, the United States and Russia became closer, finding common interests in the fight against terrorism and the growing role of Russian companies as non-OPEC producers.
But take a closer look, and we see that throughout 2001, both the higher export sales and the improving relations with the United States were already on track.
We might ask whether the shadow of Sept. 11 has made energy companies more cautious in general. If that were the case, then our greatest new risk could be failing to take the old risks essential to earning the rewards of our business and supplying our customers.
“... our greatest new risk could be failing to take the old risks essential to earning the rewards of our business and supplying our customers.”
Those risks include doing major capital projects in unsettled regions and within complex partnerships such as the Caspian Pipeline Consortium as well as investing within countries that need to develop their resources even as they struggle to achieve internal stability.
If we retreated from these calculated risks, we would indeed see a "changed world" and probably not a better one.
Many of us are aware that CERA launched a multiclient study late last year entitled "Beyond the Crisis."
We are still haunted by the events of last September, as we should be. But the CERA study is also looking at our whole spectrum of issues for 2002, as it must.
Even though the world may have changed, the role of the energy industry and our primary mission have not. We must still meet the high expectations of partners, customers, neighbors, governments and especially for the publicly-held companies - stockholders as well.
“Even though the world may have changed, the role of the energy industry and our primary mission have not.”
So there's one new element that stands out for me today: This is the fact that everything that we do, how we do it and how effectively we do it is now more important than before.
We all know that reliable, affordable energy and quality of life go hand in hand. Together, they help create stability, and we can only assume that today's world needs these cause-and-effect relationships more than ever.
I think it's clear also that our growing commitment to corporate citizenship has taken on a greater significance. Certainly this was the view of the late Rev. Leon Sullivan, who was a great friend and counselor to our company and many others.
And at the World Economic Forum last month, U.N. Secretary General Kofi Annan called again for companies to play an expanded role in human welfare and social change.
“... social responsibility and community partnership have evolved to become true business priorities and a competitive requirement.”
Our efforts at ChevronTexaco include scholarships in Indonesia, small-business loans in Kazakhstan, clinics in Nigeria and schools in Venezuela. And I know that other companies here today also have excellent stories to share.
Indeed, social responsibility and community partnership have evolved to become true business priorities and a competitive requirement. And every initiative we undertake brings us closer to our neighbors and stands in sharp contrast to acts of terror, both large and small.
But there is something else perhaps even more important that our industry has to offer. And this is a century of experience in sustaining close relationships with governments and national oil companies around the world. We could never have built the industry without learning something about respect, trust and mutual benefit.
“We could never have built the industry without learning something about respect, trust and mutual benefit.”
Our work helps to build bridges between cultures. I see this every time I meet with our employees, who represent so many different countries.
We've observed here today that the industry looking for ways to enhance security. But nothing we do with guards and locks and sensors will have a greater impact than tolerance and respect. Those things require removing barriers, not adding new ones.
And while it may be nothing new to say that trade and investment can bind nations in common interest again -- in a "changed world" -- this simple truth gives our work in energy a new importance.
It bears repeating here that ChevronTexaco specifically chose "partnership" as a primary element of our new vision. But to become the "most admired" for this - as our vision requires - is no small task.
It means knowing how to listen. It means showing a sincere desire to appreciate the cultures and aspirations of different countries. It means finding solutions and terms that work for everybody at the table.
Our investment profile is weighted to many of the growth regions of the world, mostly the developing and emerging nations. Look at our portfolio, and you can see why we're determined to excel at partnering: We want to work with these countries on the industry's best new opportunities.
“Look at our portfolio, and you can see why we're determined to excel at partnering:”
Of course, they want to attract capital. But their greatest interest is how effectively we help them invest their own capital in their own energy resources. This is really what our people at ChevronTexaco do for a living.
We manage long-term investments with partners. We share risks and rewards. And we advocate a constant emphasis on fundamentals - the "blocking and tackling" of our business, especially capital stewardship, cost reduction, operational excellence and profitable growth - to keep focused on profitable growth.
That's because the enormous, future capital requirements of our industry place an even higher premium on top business performance within partnerships than in years past.
True, you can find plenty of reasons to fret about the future. But if we look closely at our shrinking world to see what's working - along with what isn't - we find leaders who are reaching out to create positive new relationships.
Sept. 11 elevated the role of Mexico in Western Hemisphere energy security. But well before that, the United States and its neighbor to the south were talking about joining forces in a North American energy policy.
So it's a privilege to be here with General Director Munoz Leos at a time when his country is exploring new options for growing its natural gas sector with help from outside capital and partners.
The concept of the Multiple Services Contract and the new approaches to the Burgos Basin have attracted a lot of attention.
And I hope these positive signals from President Fox and other leaders will help resolve future gas-supply concerns for Mexico and also create new production for export to the north.
I'm reminded also of the visit President Megawati of Indonesia made to the United States last year. She met government leaders in Washington and top energy leaders in Houston.
Her message was partnership, and it comes at a time when Indonesia is struggling to evolve toward a more open and globally competitive structure for its oil and gas industry.
And there's the dramatic story of Kazakhstan.
Kazakhstan inherited much of the old Soviet missile defense system, raising concern in the international community. But despite being landlocked inside a highly unstable region, it became the first big country on earth to voluntarily give up a nuclear arsenal.
During the 1990s -- under President Nazarbayev and in partnership with the U.S. government, ChevronTexaco and companies worldwide -- Kazakhstan set the stage to become a significant new contributor to global oil supplies.
I think the efforts of these countries and others say as much - or more - about our changing world as the frightening events of last September.
Finally, let me say that for all the good that energy partnerships can bring, the platforms for world peace and commerce must be built by governments. They sustain the stable environment which allows companies to provide the basis for energy security -- continuous investment and innovation, everywhere resources are found.
And wherever government and energy meet, greater understanding, strong relationships, investment and trade must top the agenda.
So I was pleased to see Secretary Colin Powell and other leaders in New York recently show such a strong commitment to fostering a new era of coalition-building between nations.
We're destined in this era of globalization to get closer to each other.
And energy development can remain a catalyst for working on positive change and growth together.
“... energy development can remain a catalyst for working on positive change and growth together.”
By meeting the highest standards of partnership, we have an opportunity to deliver superior performance, to benefit our stakeholders, to help bring understanding to the world and to help cast our industry in a new light.
Everything that we have learned in the past century has prepared us for this moment in history.
We at ChevronTexaco look forward to working with partners everywhere to meet this challenge.
CERA speech by Ali Moshiri, managing director of the Upstream Latin America Business Unit in ChevronTexaco Overseas Petroleum Inc.
Updated: February 2002