Working Together to Protect the Caspian

By Guy Hollingsworth, Managing Director, Eurasia Business Unit
ChevronTexaco Overseas Petroleum Inc.

Turkey Oil and Gas Conference

Istanbul, Turkey

Mr. Chairman, fellow panel members, ladies and gentlemen... Thanks very much for inviting me to speak at the first Turkey Oil and Gas Conference.

I am very encouraged to see so many prominent industry and government people participating. It is a testament to the importance of Turkey's role in the ever-expanding search for oil and gas in the Caspian region. And it is a testament of our collaborative approach to developing these resources.

Let me also congratulate you on your choice of venue: the beautiful city of Istanbul -- home to a treasure chest of ancient history, elegant mosques, Ottoman palaces, intriguing bazaars and an engaging people -- and of course, the magnificent Istanbul Strait.

As you know, the Istanbul Strait is a major hub of marine transportation with over 48,000 vessels transiting its waters during 2000. About 3 percent of this number are crude oil tankers, delivering their cargoes from the Caspian region to Turkey and the world.

As I stood on my hotel balcony overlooking the Istanbul Strait, I said to my wife that one of the most important aspects of my job was the protection of the straits. And I want to assure the people of Istanbul that ChevronTexaco takes this environmental responsibility very seriously.

In my brief presentation today, I would like to concentrate on ChevronTexaco's approach to oil tanker transportation in the straits and, at the same time, provide an overview of some of ChevronTexaco's activities and challenges in Eurasia.

ChevronTexaco Eurasia Activities

Last year, Chevron and Texaco merged creating a new company with activities in more than 180 countries. We are now the third-largest global energy company ranked by reserves of about 8.5 billion barrels and fourth-largest in oil and natural gas production of about 2.7 million barrels per day. Chevron Texaco has capacity to refine more than 2.2 million barrels per day and sells daily more than 3.5 million barrels of refined products. We also have more than 25,000 retail outlets under the Chevron, Texaco and Caltex brands.

Our Eurasia investments are a significant part of ChevronTexaco's worldwide growth portfolio, led primarily by major investments in Kazakhstan, including a 50 percent interest in Tengizchevroil, a supergiant oil field with 6 billion to 9 billion barrels of recoverable reserves; and a 20 percent share in the 2.4 billion-barrel Karachagank oil and gas field. Both these projects are under major expansion.

We also hold a 65 percent share in North Buzachi. It is an oil and gas field just south of the Tengiz Field and currently in a development appraisal phase. In addition to our upstream operations in Kazakhstan, we have a retail operations business of five service stations.

We sell lubricants in Kazakhstan and Russia and are constructing a modern facility in Atyrau to manufacture polyethylene pipe.

I want to emphasize that our large investments in Kazakhstan are an indication of the vast potential of the area and our confidence in the stability of the country, its positive investment climate, and the most important, our good working relationship with its people.

Moving now to the greater Caspian, we have a 15 percent interest in the recently opened Caspian Pipeline Consortium pipeline that transports oil from Tengiz to Novorossiysk. And we have future exploration potential at Sakhalin, Russia. In addition to all this, there are numerous other Caspian opportunities being developed by our competitors, who may be interested in having an excellent partner.

In Turkey, we have five exploration licenses near the Turkish-Iraqi border. It is a 50/50 agreement with the Turkish Petroleum Corp., and ChevronTexaco is operator. Due to civil unrest in the area, we ceased fieldwork in early 1989. We are currently evaluating geologic and geophysical information on the region.

Moving Crude Oil to Markets

While the challenges of developing our fields are immense, getting the oil to market is an equally demanding task. And with the probability of significantly increasing oil production in the Caspian region, managing the entire crude oil transportation corridor -- from producing fields to the consumer -- is our greatest collective challenge and is fundamental to the economic growth of the Caspian region.

Shipping Experience

ChevronTexaco is no stranger to the straits. We have over 100 years of experience transporting oil around the world, operating 28 vessels -- one of the largest fleets controlled by an energy company.

Combined with 50 to 60 vessels under term or on single-voyage basis, we have over 11 million tons of carrying capacity, with approximately 80 million barrels of oil on the water at any given time.

Caspian Transit Alternatives

I want to make four simple points:

  • As volumes increase, industry needs pipelines to bring the oil to market.
  • Economics and markets will determine when, where and how much pipeline will be needed.
  • Sufficient port capacity is required to accommodate the expected increase in volume.
  • Continuous improvement to the processes, systems and quality of all vessels is needed to ensure safe and environmentally responsible transit of cargoes through the straits.

With these points in mind, let us look at how ChevronTexaco approaches these challenges.

I will now review five initiatives that we believe will enhance marine safety through the Turkish straits. These initiatives do not stand-alone - they work best as an integrated system.

Creating a Safety Culture

At ChevronTexaco, prevention is our first priority, and it starts with creating a safety culture.

Our goal is to be recognized and admired worldwide for delivering world-class performance in safety, health and environmental excellence. It applies to all of our operations worldwide and is reinforced by our program called "Protecting People and the Environment."

This program is supported by dozens of management and operational practices, in which we rigorously measure our progress and actively strive to improve safety and environmental performance year over year.

Strict adherence to this program helps us to run safe and incident-free operations -- letting our employees and members of the community go home safely every day.

Creating this safety culture is one of our highest priorities. It is a responsibility we share with society who expects and demands no less.

Developing Excellent Safety Processes and Support Systems

Our next step in improving safety is through training, experience and strict adherence to processes and systems.

This applies to the Istanbul Strait where:

  • We use highly trained and technically competent crews on all vessels.
  • We provide extensive training for employees and plan to use the Bridge Simulator at ITU-Tuzla Nautical College to train our navigation teams. We will also encourage the owners of our time-chartered vessels to use this excellent facility for their officers.
  • We ensure all charter vessels are subject to a rigorous clearance or vetting process to confirm they are operated and maintained to the highest international standards of safety, consistent with ChevronTexaco's own vessels.

ChevronTexaco applies this vetting procedure system to all vessels transiting the straits, including the recently opened Caspian Pipeline Consortium terminal near Novorossiysk.

  • We use pilots for all transits of both the Canakkale and Istanbul straits.
  • No transit of the straits is permitted if visibility is less than two miles.
  • All vessels observe strict compliance with Turkey's navigational regulations, applicable to the straits.
  • Transit of larger, deep-draft vessels though the Istanbul Strait will occur only during daylight.

These same high standards are also applied to our chartered vessels through a separate and explicit "charter party" clause.

State-of-the-Art Vessels Enhance Safety

The next initiative to improving safety, is ensuring we only utilize high-quality vessels maintained to the highest international standards.

  • We are committed to using double-hulled vessels for transport to the extent they are available in the market.
  • Before the end of this decade, all of our owned or chartered tankers carrying ChevronTexaco crude oil will be double-hulled.

Emergency Management -- Responding Promptly and Effectively

The fourth initiative is to ensure we have an effective emergency-management system.

As I mentioned earlier, it is our policy to take every precaution to avoid a spill. However, in the event of an incident, we are fully committed to responding promptly and effectively to minimize any impact on people and the environment.

We are members of the world's largest international oil spill response cooperatives that support our operations around the world. These cooperatives provide a wide variety of equipment and personnel to respond quickly and effectively.

We applaud the Turkish government's ratification of the 1992 Oil Spill Liability Conventions and will support efforts that support these conventions. Our vessels in the Turkish straits are insured against third-party liabilities -- about $1 billion for oil spill liabilities and an additional $850 million for other liabilities for each case.

We also have several teams of employees who are highly trained in oil spill response management that can be activated on very short notice to support a local response.

Efforts Yield Results

Thankfully, we do not need to rely on these people very often. For, in a period over ten years, our vessels transported over 2.5 billion barrels of oil around the world -- with less than 240 barrels of that total spilled.

This is equivalent to spilling one drop while filling 600 motor vehicles full of fuel -- a remarkable safety record we are extremely proud of.

Support Initiatives to Improve Safety

The fifth initiative is to support the Turkish government's efforts to further improve safety in the straits.

We fully support the implementation of your safety boosting Vessel Management Traffic Information Management System (VTIMS) and the development of training programs for operators of this system.

We are working closely with Turkish authorities, nongovernmental organizations and other industry organizations to raise the overall safety standards of the straits, including the effective use of escort tugs.

We are also willing to participate in industry studies and programs that increase maritime safety standards in the region. This includes programs at ITU-Tuzla where four graduating cadets have been selected and assigned aboard ChevronTexaco tankers for their final seven months of onboard training.

We also support the ratification of other IMO (International Maritime Organization) conventions aimed to formalize and enhance regional incident response cooperation and encourage the developing of regional oil spill response plans.

Pursue Multiple Pipelines

Let me mention one additional activity that reduces the future use of the straits: the development of multiple pipelines.

We learned from shipping oil from Tengiz on over 7000 rail cars that choice and multiple pipelines are a necessity for the successful movement of oil from the Caspian.

Choice provides maximum flexibility and access to competitive alternatives.

The CPC pipeline is one alternative. And contrary to popular opinion, this alternative will result in no immediate increase in oil and tanker traffic.

In fact, we project a reduction in the current number of transits carrying our Tengiz oil: from about 160 to around 100 vessels. This is due to consolidating loads at various other locations and placing them at CPC's new terminal.

Also, other CPC participants will use CPC's pipeline, thereby shifting the loading point of some of their cargoes to the CPC terminal. This will increase safety through the Turkish straits, as only the highest-quality tankers will be allowed to load at that terminal.

With the predicted increase of oil volumes in the Caspian, other projects like the Baku T'bilisi Ceyhan pipeline are a welcome alternative, and we are very supportive of this initiative.

Working Together to Protect People and the Environment

I have talked today about developing an integrated system to improve safety in the Turkish straits that relies on the combination of people, training, vessels and facilities, traffic and emergency management, as well as industry and government participation.

I encourage and support the dialogue we are having today and pledge our ongoing support and commitment to improving the safety of the straits.

Together we can do it cost effectively, efficiently and fairly. And most important, we can do it in a manner that ensures the safety of people and the protection of the environment for years to come.

Thanks for the opportunity to speak to you today.

Updated: March 2002