speech

The Future of U.S.-Arab Energy Relationship: Drilling for Every Drop of Value

By David J. O'Reilly, Chairman and CEO
ChevronTexaco Corporation

U.S.-Arab Economic Forum

Detroit, Michigan, September 29, 2003

Distinguised panelists, ladies and gentleman, I am delighted to be with you here this afternoon.

My company has deep roots in the Middle East, dating back to the discovery of oil in Bahrain about 70 years ago and in Saudi Arabia 65 years ago. Today, on behalf of Saudi Arabia, we are producing quite a bit of oil in the Partitioned Neutral Zone between Saudi Arabia and Kuwait. That long experience has taught us the value of strong relationships, not just between governments, not just between companies, but between people. The relationship between the United States and our Arab partners is central to the strength of both regions, and it is vital for the health of the world. We all have a stake in the success of that relationship.

So, today, I want to focus briefly on three points:

  • first, the need for broader economic development in the region, not just in the energy field;
  • second, the need for more foreign direct investment and private indigenous investments in the energy sector in the region;
  • third, and perhaps most importantly, time – I believe time is of the essence. The pace of the past simply is not good enough for today's environment.

I'd like to start with a broad-based economic growth.

Arab countries bring extraordinary strength, entrepreneurial traditions, young and energetic populations, and, clearly, vast energy resources. Yet deep challenges remain. A generation of young people faces uncertain prospects – oil revenues that fuel development today won't be enough by themselves to create broad-based economic growth.

Recently, scholars convened by the Arab League emphasized that gains must be made across the region and across the board. Gains must be made in education, in investment, and in opening markets to the world marketplace.

Expanding trade beyond oil can be one of the greatest positive forces for development, and while oil has been a boon to the Arab economy, there is still too much reliance on it and not enough diversification into a broader range of economic activity. That is one of the reasons why this summit is so important, and I know that a number of the region's leaders have been working hard to promote that economic reform.

Those with energy resources should use them as catalysts to promote development of the energy sector as well as other sectors of the economy.

Let's turn briefly to the second item: the need for more foreign and private investment in the energy sector. In the early years, all of the investment in the oil and gas sector in the region was made by foreign companies that had obtained concessions. Governments collected taxes and royalties. Beginning about 30 years ago, the pendulum swung to significant nationalization, and since then, much of the oil and gas investment has been made directly by governments. I think it's time for the pendulum to swing back, at least part way.

If the region is to flourish, if it's to come close to meeting the total investment required over the next 25 years, it will need more private investment so that valuable government funds can focus on the things that governments do well: security, health care, education and infrastructure.

If governments in the region create environments which attract private investors, both foreign and indigenous, those investors will come. The governments can do this by tackling the barriers to investment, such as bureaucracy and uncertain regulatory regimes.

There are positive signs: Saudi Arabia is opening large tracts for national gas exploration, and Kuwait has recently announced the opening of the northern fields. Qatar and the United Arab Emirates have attracted significant investment in their oil and gas sectors.

Three years ago, we opened Saudi Chevron Petrochemical Co. in Jubail, a joint venture that is the first totally private basic petrochemical facility in the Kingdom. There we partnered with a group of private Saudi investors, at least one of whom is at this conference.

If an attractive investment environment exists, it will attract foreign and indigenous private investment. The wealth created from such investments will have positive economic benefits on a broad basis, and this should be a high priority for the governments of the region.

My last point is a note of urgency – one sounded more and more by the region's business and political leaders themselves: Time is of the essence.

I hope that all here today will agree to achieve more, to commit to more achievable timelines, so that more of the opportunities to accelerate development of energy resources can move forward.

Together, as investors, officials and business people, we should demonstrate more progress – and soon.

Let's agree that, when it comes to opening the doors for cooperative investments, the next five years will bring much more than the last five or last 10 years have. This means not just recognizing what needs to be done, but adjusting the pace so that we all begin to realize the full potential of the relationship, which will bring opportunities to individuals, prosperity to communities and economic growth to countries. If we do this right, we can add new emphasis to the momentum of the Middle East.

The chief beneficiaries will not be governments alone or the oil companies, or any business, for that matter. The greatest gains will go to the broad public that seeks hope and rising opportunity – that extraordinary talent pool in the region, the source of creativity and energy, which we are just beginning to tap. The local economy, not to mention global well-being, depends on fully engaging these young men and women. They can't wait, and neither should we.

Thank you.

Updated: September 2003