To The The National Society Of Black Engineers Annual Awards Luncheon

By Peter J. Robertson, President
Chevron North America Exploration & Production

Annual Awards Luncheon

Kansas City, Missouri, Mar. 25, 1999

Since I became president of Chevron's exploration and production operations in North America two years ago, I've begun to feel like the skipper of the Titanic just after it hit the iceberg — except the iceberg we hit was low oil prices.

Between March of 1997 — when I assumed my current position — and December of 1998, prices dropped nearly 50 percent. Although prices have rebounded a bit just recently, imagine yourself owning a business and having to sell your primary product for only half of what you used to sell it for. That's what the petroleum industry is faced with today. Demand is lower and supplies higher than anyone predicted.

The economic slowdown in Asia, combined with increased production from the Organization of the Petroleum Exporting Countries (OPEC) and other areas, has caused a worldwide glut of oil. We've also had a couple of mild winters in a row which has lowered demand and increased inventories of both oil and natural gas. In reality, worldwide demand for oil and natural gas keeps rising. It's just that the rate of increase has slowed considerably.

As a result, oil company earnings (Chevron's included) have dropped enormously in the last year or so — 40, 50, 60 percent and more. The low prices have driven some companies to merge — and some very big companies at that. Worst of all, low prices have meant layoffs, an unfortunate side effect of tough times like these. In 1998 alone, the petroleum industry lost 30,000 jobs in the United States. To put it simply, things are really tough right now in the oil business.

If the petroleum industry is consolidating and losing jobs in the process, you might be wondering why I've come to talk to you today? If the industry is laying off people, why would anyone be interested in a career in the oil business? That's simple. Unlike the Titanic, the petroleum industry is not about to sink. Today's world relies heavily on oil and natural gas, and that's not about to change.

Today in the United States, for instance, 65 percent of the energy that Americans consume comes from oil and natural gas. Worldwide, the percentage is about the same. And it's expected to stay that way for at least the next 20 years. The primary reason is that oil and natural gas provide customers with the best bang for their buck. Right now, no alternate fuel can compete with them when it comes to providing reliable energy at reasonable prices. That's why oil and gas as primary sources of energy won't disappear anytime soon. All the same, the petroleum industry is in for rough ride in the next year or so.

To compete in the global marketplace, a company needs certain skills. One of the most important is an ability to use new technology successfully to reduce costs.

If someone asked you to name a high-tech industry, you probably wouldn't choose the petroleum industry. Well, I've got news for you: The petroleum industry is high-tech. Let me give you a couple of examples:

First, there's Chevron's Genesis Project. It's our first deep-water development in the Gulf of Mexico. In fact, I was in New Orleans just last week to celebrate first oil from Genesis. The Genesis Platform is an amazing structure. The part that extends down into the water is a cylindrical "hull" made of steel — 122 feet in diameter and more than 700 feet tall. I happened to go inside it when it was on its side in Corpus Christi, Texas. I've been to St. Peter's in Rome, and I've seen the pyramids in Egypt, but the sheer size of the Genesis hull is truly incredible.

Perched on top of the hull are the "topsides" which include all the drilling and production equipment as well as the living quarters with all the amenities. Altogether, the hull and topsides weigh more than 48,000 tons. That's as heavy as the battleship USS Missouri. Oh, and one more thing. Like the Missouri it floats. It doesn't rest on the sea floor like most offshore platforms do. That means we can just tow it away when we're finished.

The platform, which we call a floating spar, sits in water a half-mile deep and is anchored in place by 14 3,000-foot-long mooring lines. The lines are made up of individual chain links — each 3 feet in length and weighing 400 pounds — plus a five-and-a-half inch diameter steel cable with a breaking strength of 1,710 tons. The lines are secured to the sea floor with 8-foot-diameter steel piles, 250 feet in length.

Let's look at one of our other projects:

In the refining and marketing area, we're evaluating a high-tech process that turns natural gas into a liquid fuel. Currently, natural gas can only be transported by pipeline, which means the gas field has to be fairly close to its market. It can also be liquefied by chilling it to minus 160 degrees Celsius and shipping it by specially designed vessels, which is relatively expensive. Imagine, then, if you could find a way to economically convert natural gas to a liquid state at room temperature. Actually, the basic technology for doing this has been around since the 1920s, but it's never been very cost effective. We're trying to find out if we can fine-tune the basic process to make it economically viable.

The process focuses on converting the lighter components of the gas — basically methane and ethane — into a liquid. Right now, our study is focused on improving that part of the process which currently takes very high temperatures, requires expensive metallurgy and consumes large amounts of energy. If successful, we will be able to produce fuel with absolutely no sulfur, no nitrogen, and no aromatics - a perfect "green" fuel.

The "high-tech" part of our business extends as well to one of Chevron's newest business partnerships — a company called Dynegy, which started out as Natural Gas Clearinghouse (NGC) 15 years ago. Today, it's involved in energy marketing, independent power generation, and gathering, processing and transportation of natural gas and natural gas liquids. Chevron owns 28 percent of Dynegy. I happen to represent Chevron on Dynegy's board of directors.

What makes this company high-tech? From a pure engineering standpoint, possibly nothing. But as a modern financial instrument, it's state-of-the-art. Besides building and operating modern gas-turbine, power-generation plants, Dynegy uses complex computer programs to assess future demand for power generation. And, depending on the outcome of that assessment, the company can either "pre-sell" future power at current prices or decide to sell power on the spot market. These sophisticated computer programs also model the power-transmission grid and determine how much power can be delivered to different areas. That information can be useful in assessing the viability of a new power generation plant.

Because of our interest in Dynegy, Chevron is one of just a few oil and gas companies that's involved in a significant way in power generation and power trading in the United States.

I can go on describing other high-tech wizardry.

We're using advanced directional drilling techniques that allow us to hit subsurface targets below thousands of feet of water. We've got down-hole sensors that provide us with in-situ temperature and pressure in real time as we drill the well. We've also got Visualization (Viz) Centers, equipped with Silicon Graphics supercomputers, that use 3D imagery to help geologists evaluate subsurface geophysical data. We're evaluating selective production techniques that will allow us to leave behind undesirable elements, like sulfur, in the ground.

There's a statistic that demonstrates, better than anything else I can think of, how the pace of technological innovations has allowed the petroleum industry to respond to low oil prices. It took the industry 40 years to move from drilling wells in a maximum water depth of 20 feet to drilling wells in water a thousand feet deep. It took just 15 years to conquer water depths down to 2,000 feet. But, it has only taken four years to move an additional 3,000 feet deeper.

Shell now has the deepest producing well in the world — in water over a mile deep — in the Gulf of Mexico. And Chevron recently drilled a well in the gulf in a world record water depth of 7,718 feet. We did it using an old "spy ship" that's been refitted with the latest drilling and positioning technology that allows us to drill wells in ultra-deep water. The ship's called the Glomar Explorer. Maybe you've heard of it. It was first built by Howard Hughes to raise a sunken Soviet sub.

There's much, much more I could tell you about, but I think you get the idea. The petroleum industry truly is high-tech. And since we are high-tech, we require high-tech professionals with the very latest skills - skills that will allow our industry to keep pace with the challenges that lie ahead.

Since the early 1990s, we've heard a lot about the effects of the global economy and how companies have had to expand their worldwide operations in order to compete successfully. Well, the petroleum industry has been global for many years. Chevron, for instance, first discovered oil in Saudi Arabia way back in the early 1930s. Within the last 10 to 15 years, the industry has continued to expand its worldwide operations. This heightened international focus has placed an added emphasis on the need for our technical people to expand their skills beyond the technical. The global focus of our business demands global attributes in our people.

In addition to strong technical skills, our industry needs professionals who are adaptable — people who are willing to take on a variety of assignments in different parts of the world. We also need people who have a strong business focus and understand the financial end of the business. We need people who have both the desire and the ability to share information with others and who demonstrate a willingness to work as part of a team.

And perhaps most important, we need people who can demonstrate a genuine sensitivity for the kaleidoscope of cultures they're likely to come in contact with throughout their careers. I note that our desire to attract and hold on to people who exhibit this quality conforms nicely with the mission statement of the National Society of Black Engineers: to increase the number of culturally responsible black engineers who can have a positive impact on the community. These are qualities we also rank highly, because any business has to be sensitive to the local culture and to the concerns of the community in order to be successful today.

While a reputation for safe and clean operations still ranks at the top of the list, any business can enhance that reputation by communicating openly and honestly with the communities in which it operates. And that communication can't just flow outward. We also need to listen to our communities. People who live near a refinery, oil field or chemical plant have a right to know about its operations and what plans you have in place in case of an emergency.

No matter what kind of industry you end up working in, there's always a chance your activities will have a negative impact on your neighbors. Your business could easily be subjected to the unflattering glare of the media spotlight. That makes it imperative for companies to form close working partnerships with the communities in which they're located.

That reminds me of another important aspect of building relationships "outside the gates" — always tell the truth. That's simple in theory but difficult in practice. That's because everyone has a tendency to pull up the drawbridge when things go wrong. It's hard not to be guarded and defensive when you're faced with phalanx of reporters with their microphones shoved in your face. But, if your company has a policy of being open and honest with the media and the public, you're going to be much better off in the long run.

Another great way to build lasting relationships with the community is to support local education. Today's school children are tomorrow's employees, consumers and voters.

Chevron has a large number of educational contributions and programs throughout the world, largely focused on math and science education. We also provide financial support for classes in music, theater, and the arts — in towns and villages in Kazakhstan, China, Papua New Guinea, South Africa, and many other places around the world.

Our employees are also directly involved in supporting education. We've "adopted" schools in many U.S. cities where our employees volunteer their time for fund-raising drives and other worthwhile activities. Hundreds of our engineers participated in National Engineers Week just last month, volunteering in local schools in many locations.

Although my children didn't choose to follow in my footsteps, I'm very proud that they're involved in activities that benefit people. I have that same sense of pride in my industry and my company — we provide people with inexpensive and accessible products that allow them to go where they want to go when they want to go and to live healthy and comfortable lives.

The nontechnical skills like the ones I've just described will become increasingly more valuable as we enter the next millennium. For the working professionals in the audience, this may sound familiar. For you students, all this may be new because you've been concentrating on mastering the technical skills of your chosen profession. But sometime in the future your employer may very well need you to devote your time and your nontechnical skills to an aspect of work that simply isn't taught in universities.

While many executives start their careers in technical jobs, it's a fact that serious "outside-the-gate" duties will eventually become a major part of their responsibilities. The expanding global nature of most business operations will see to that. Chevron, for instance, is active in some 90 countries around the world. In places as varied as China, Venezuela and Angola. In order to compete successfully in these and other countries we need our professional people to be willing and able to employ their full arsenal of skills, both technical and nontechnical.

Right now, job prospects in the petroleum industry are not the best — it's true. As long as the price of oil remains low, job opportunities probably won't increase much. But prices will recover. I happen to be an optimist on this subject. All the data I've seen suggest prices will strengthen. OPEC's latest move to curtail production is certainly a step in the right direction.

When prices do recover to a reasonable level, we're going to need more people — people with the kind of attributes I've just described.

That's not to say that the door's been completely shut during these tough times. The industry's still recruiting. Just look at my company, for instance. The expected growth of Chevron's business over the coming years — combined with normal work force attrition — means we're still looking for people, although at a much reduced level.

Historically, nearly three-quarters of the professionals Chevron has recruited have been engineers. Petroleum engineers, mechanical engineers and chemical engineers. We're still going to need engineers with strong technical skills and an ability to think "outside the box." That's why I came to talk to you today. My company and my industry will always value new, young talent — even in the tough times.

Good luck to all of you, and don't forget to keep us in mind.

Thank you very much.

Updated: March 1999