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This is a great day for view from the top, I get to introduce two people, because we have the interviewer and the interviewee.
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Neither of whom needs an introduction, but both of whom deserve an introduction.
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So the interviewer today will be Jim Meeks, many of you here know him, but for those who don't know him as well as you should, Jim's one of our second year students.
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He's a graduate of Harvard University, he spent four years in the US army, some of it as a tank commander, much of it on duty in Iraq.
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He was awarded, I don't know if award is the right word, a Purple Heart and a Bronze star, and he left the army as captain to come here to the GSB.
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And he's been part of our view from the top leadership team, so, Jim, thank you for doing the interviewing.
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Now, the interviewee today, as you heard, will be the chairman and CEO of Chevron Corporation, Mr. David O'Reilly.
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Dave was born and raised in Dublin, Ireland, he went to university college in Dublin where he got a bachelor's degree in chemical engineering.
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He took a job with Chevron Corporation and he has been able to keep that job for 40 years.
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Of course, as you can imagine, at a company as big, and diverse, and important as Chevron, and he would have had a number of jobs over that 40 year career at one company.
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He would have been upstream and downstream and line and staff, and he has done all of those things for the last eight years, of course, he has been their CEO.
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He is now the longest serving CEO of all the major oil companies in the world.
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He is the 11th CEO in the history of Chevron, and the first to be born outside the US.
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Just to set the stage a little bit Chevron, of course, is an enormous company, $220 billion in revenues, $185 billion in market cap, $19 billion last year in earnings, these are dollars, those are shrinking a little bit.
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[LAUGH] You might call Dave the $100 billion man, on his watch, the market cap of chevron has grown $100 billion, but its proven reserves have also doubled over that time.
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It's the number two oil company in America, but it is the largest company in the Bay Area, which often surprises people, but it is by far the largest public company in the Bay Area.
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And Dave is an exceptional leader and CEO, he grew up in a small country.
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He's been quoted as saying, when you're from a small country, you learn to look outward.
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He's known for his informality, he's known to be a good listener, he's known to be a great people person.
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And increasingly in recent years he has been the public face of the oil industry, as certainly the most capable, and able spokesperson for that industry.
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And able to interact with critics who are often disarmed by his skill, and his style.
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We're very fortunate today to have Jim Meeks as the interviewer, Dave O'Reilly as the interviewee, please welcome them both.
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>> [APPLAUSE] >> Speaker 2: So I want to thank you again on behalf of Stanford Business School to come and speak with us today.
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It's exciting to have a CEO of a company as extraordinarily profitable as Chevron, and also a company that's kind of in the center of the global economy.
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In your time at Chevron, you've had to deal with labor unions, some disgruntled customers, dictators, congressional inquiries, human rights activists, environmental activists.
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In 39 years at Chevron, what has been the single greatest leadership challenge you've faced?
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>> Speaker 3: Well, thanks, Jim, for the question, I think that I know you made that long list of things, and they're all interesting and complicated things and concerning things.
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But I think the most, the greatest challenge is having people understand, the oil business itself and communicating the fundamentals of it.
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In fact, the whole fundamentals of energy, which I think are widely misunderstood.
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So I think clearly the greatest challenge is having people understand, where energy comes from.
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And how dependent we are on oil, and gas, and coal and nuclear, and renewables, and the whole plethora of energy supply choices that we have.
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And also convincing people that energy is not a God given right, it's something that we have to work to produce.
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And that we ought to use carefully because it is a very valuable resource, that's very important and we take it, we take it for granted.
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So to me, that's the biggest challenge, it's a challenge we've had in our industry for 100 years or more, and we still have it today.
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And I'm not sure that we've been able to overcome challenge effectively yet.
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>> Speaker 2: One of the things that Dean Jos mentioned is that you almost alone of the super major oil company CEOs have really been outspoken in addressing the media on this issue.
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Why is it falling on your responsibility to kind of be the global spokesperson?
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And what kind of leadership challenges have that brought to you both personally with increased scrutiny for being so in the public face, and professionally to make sure that you're both leading Chevron, and also leading the oil industry?
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>> Speaker 3: Well, I think from a scrutiny standpoint, I've never felt that's been a problem.
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But I think the issue is that there's a tendency for people to batten down the hatches when under fire, and no question, our industry has been under fire.
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I think it's very important that we talk from facts, because there are lots of opinions out there, but very few facts.
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I had this story from an ambassador who was leaving Washington after 30 years of being an ambassador from a very important country.
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He was asked when he left Washington, you've been an ambassador in Washington for a long, long period of time.
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What are your observations about Washington?
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And he said, it's a very interesting place, he said, everyone has an opinion, but nobody knows anything.
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And there's something in that about the energy, a lot of people have opinions, about how we're going to solve the energy problems that we have today, the challenges that we have.
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But they're not grounded necessarily on facts, and on logic, and I think we have an obligation as people who have the facts, or a lot of the facts, to communicate those.
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So I think it's really important to step up and do that, and that's something that we have consciously made a decision to do, I'm not the only one in my company doing it.
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Our vice chairman, Peter Robertson, was in Washington last week in front of one of the House committees, and he was very outspoken about communicating the facts in light of some very harsh, and tough questions.
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But he stood his ground very well because we've just got to get the message out.
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>> Speaker 2: Well, one of the facts that I think I'm interested in, and a lot of us are interested here, is this future of return of energy.
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And you are an oil company, but more so you're really an energy company.
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And your competitor BP has said our new brand is beyond petroleum.
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Do you see a future in which Chevron's revenues, the majority of which come from something other than hydrocarbons, and what would have to happen in order for that to be the case?
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>> Speaker 3: I think it'll be a long, long time to get to the point where alternatives will overcome.
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Overcome basic hydrocarbons.
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Now, I want to make it clear, I'm not saying hydrocarbons aren't important, I mean, alternatives aren't important, but they are extremely important.
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But if you just look at the facts and the scale of the system that we have today, we're going to spend an hour here, I think, in the auditorium, roughly.
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The world will consume the equivalent of 10 million barrels, the equivalent of 10 million barrels of oil in the 1 hour that we're sitting here.
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That's 4 if you add oil, coal, nuclear, convert it all into the energy equivalent of oil, 10 million barrels of oil, 4 million barrels of oil, in fact, will be consumed, that's 44,000 gallons a second.
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So the scale of the system is absolutely enormous.
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And the interesting thing is renewables, while they play an important role, are very small.
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And even if they were to grow by a factor of 10 or even a factor of 100, you still would have 80% of the world's energy to supply, and where is it going to come from?
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It has to come from the basic sources that we have today.
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And that's one of the facts that needs to be more widely communicated.
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So, yes, renewables can help moderate the demand for the hydrocarbons side of the business, for the nuclear side of the business, but they can't substitute at all.
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It just cannot be done, certainly not in the next generation or two, no.
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100 years from now, perhaps, with the technological advances that we have, perhaps something else will come along, but it's not going to happen in 10 years, or 20 years, or 30 years.
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There's just not enough alternatives out there, there's not enough technology advancement yet out there, and there's not enough time for capital stock to turn over to allow the new technology that hasn't yet been invented to be deployed in any reasonable time.
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So I think we've got a long, long period of time when we're going to have to recognize and cope with the hydrocarbons as a part of our supply.
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>> Speaker 2: Most companies that we've studied try to increase customer demand and try to convince people to buy more of their product.
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Chevron has actually had advertisements saying that people should focus on energy reduction, and you have a consulting firm that advises companies on how to reduce their carbon footprint. >> Speaker 2: Yep.
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>> How does that quite make sense?
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>> Speaker 1: Well, let me tell you, it makes a lot of sense, and it ought to send a signal to all of you that when an oil company is saying you need to conserve, that we are concerned about our ability to supply as an industry, the total world energy demand.
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And we believe that the cheapest source of new energy that's out there is to use energy more efficiently.
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I ask you to look at a study that was completed last year by the National Petroleum Council.
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It's an advisory committee to the Department of Energy.
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And it was asked by Sam Bodman, the Energy Secretary, to look at the supply demand picture for the globe and project the opine on theories such as peak oil and other important energy supply questions.
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It was not a study done by the oil industry.
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The oil industry participated in it but there were consumers, there were advocacy groups, there were NGOs, it was international in its scope.
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All of these people, hundreds and hundreds of people combined to deliver this study.
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The title of the study is a little bit revealing in itself, it's that facing the hard truths about energy.
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And the key finding was that there's an accumulating risk that the pace of development of oil and gas supplies and the capital involved will not be able to keep up with the demand during the next 10 to 20 years.
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And its very first recommendation, and this is a study that the government has fully endorsed, the first recommendation was moderate demand growth, the very first recommendation.
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So I think you can see why now we would be promoting energy efficiency as an important value system for our country and for the globe.
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And if you want to read the study in more detail, go into npc.
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org the study, the summary is there, the background information, it's for those of you that really want to get into it.
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It's a very well done piece of work.
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And anyone who reads it and understands it, I think will share the concerns that I have and that our company has about the future of energy supply and the importance of beginning to take action, and not fall into the trap of endless debates based on very few facts, thinking that there's a magic silver bullet that's going to come along that's going to solve our energy problem.
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And that's the misleading thing about Beyond Petroleum.
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There is a Beyond Petroleum, but it's an and world, not an or world, and we've gotta recognize that petroleum is going to play an important role.
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Now, having said that, it may surprise many of you to know that Chevron produces more renewable energy than any other major oil company, any other major oil company, and it's primarily our geothermal business.
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We are a major geothermal producer in the Philippines and in Indonesia, and it's a profitable business for us, but it represents only 2% of our energy production today. We intend to grow that. It will grow.
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But even if we grow it by a factor of 10 over the next 10 to 15 years, it will still be 20% of our energy production as an energy company.
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So you can see that, yes, renewables can make a difference.
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They can add value, they can create value for the shareholder, they can provide value for customers, but they don't.
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It's not an either or thing, it's an and thing we've gotta look at.
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We're going to need both renewables and we're going to need oil and gas, coal, nuclear power, which has been very much neglected in our country, particularly over the last generation, and other sources.
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>> Speaker 2: In terms of supply, especially supply from some foreign sources, I think you've had to deal with some people that I studied in my military days, but probably from a different perspective.
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>> Speaker 2: [LAUGH] >> I was just wondering, could you give us some maybe anecdotes or some diplomatic skill about how do you work with, say, governments in Venezuela, or Saudi Arabia, or all the different spots that you have to find yourself getting your supply?
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>> Speaker 1: Well, I mean, you actually spend some time in one of those countries, from what I heard.
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>> Speaker 2: I'm not looking to go back, but from your perspective.
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>> Speaker 1: [LAUGH] I don't blame you.
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[LAUGH] No, look, the world, it's a very interesting world that we live in, and it's a very good question because first of all, the world, I think you'll all realize, because many of you come from different parts of the world, like I come from Ireland, but it's a small little place.
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Many of you, I can see around the room, probably come from other countries as well.
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There's no one-size-fits-all in the world.
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Every country is different.
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And when we look at it through the lens of how the United States would like to see it, they don't necessarily look similar to us, nor should they have to be similar to us.
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The big question for me is.
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Is are these places that you can invest and be treated well and are on the right track?
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We are in many, many countries around the world.
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I can say this, that over my career of almost 40 years now, that I can never remember a time when everywhere in the world was running well all at one time.
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There's always some problem going on somewhere.
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Just about the time I joined the company, we had two big flare ups in the Middle East.
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We had the oil embargo which happened in the early 70s.
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Then we had the Iranian Revolution which happened in 79.
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All these were enormously disruptive to the energy supply system, particularly the oil supply system at the time.
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Now, if you think of it in terms of what's going on today, actually what's happening today compared to what happened in the early 70s and again in the late 70s is relatively benign.
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I hate to say it, but it is relatively benign.
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The world economy is functioning.
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Oil and gas and other energy products are flowing.
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Yes, there are disruptions in the world, but we haven't had lines at the gas pumps.
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We haven't had people, I mean, having to go without.
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The market has responded reasonably well.
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So I think this idea that somehow that the world is in a completely unmanageable state is I think unrealistic thinking based on the history. Now, are there risks? Yes.
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Could we have another blow up that would impede supplies from the Middle East? Yes, that could happen.
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These are all risks that could happen.
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But the facts are that what's going on today, uncomfortable as it is, is being driven primarily by the fact that the developing world is actually growing at a very healthy clip and is causing demand to increase for all types of commodities.
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Oil and gas, agricultural commodities, mining products.
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All of these things are in much greater demand because of the health of the developing world economies today.
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And we're seeing that throughout our business.
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In the last half of last year, I was in 14 countries, what I would consider developing world countries.
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And the lowest growth rate that was being experienced last year was 7% and the highest was 11. 5%.
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So those are very, very healthy growth rates and are contributing to the raising of the quality of life of millions of people.
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And as the millions of people's quality of life goes up, their incomes go up, their disposable incomes go up.
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You start seeing demand for many of the things that we also want.
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There was another part to your question though, and that is dealing with all these countries, how difficult it is. And it's not easy.
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It's not easy dealing with any government anywhere in the world. Let me put it that way.
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>> [LAUGH] >> Yes, we have had some royalty and tax increases that we didn't like in Venezuela but guess what?
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The biggest tax increase that we incurred and it was retroactively imposed over the last few years, the one that hurt us the most was in the United Kingdom.
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Alaska just raised its taxes this year on the industry.
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The government, our government in the United States is talking about raising taxes, removing so called tax breaks.
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And when they talk about removing tax breaks, what they're really not talking about is removing tax breaks.
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They're talking about taxing the oil industry at a different rate to everybody else and in some bills even taxing five companies at a different rate to all the other companies in the universe.
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So it's difficult to deal with governments in any environment.
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So it's not just a kind of developing world under new growing economy, new political system that we're dealing with here.
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We're also dealing with challenges in these existing, what you would consider to be, quote, stable, long lasting experienced government systems I think we have in the United States.
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>> Speaker 2: So in your role as CEO, what percentage of your time is dealing with these external factors, foreign governments or advocating for the oil industry?
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And how much of it is actually running the company to make sure that Chevron operates as efficiently or better than your major competitors?
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>> Speaker 1: It's about 50, 50, maybe even 60 external, 40 internal.
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I'm very blessed, we have a very strong management team.
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So we in essence have, you might say two or three chief operating officers.
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We have one that manages all of our upstream globally, another one that manages are downstream and then we have another that manages a portfolio of mix of businesses that includes chemicals and coal and some of the other what I consider these smaller businesses that we're in.
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So their role clearly is to manage the businesses.
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But I spend most of my time on the external activities and strategy and of course a percentage of the time worrying about the business itself.
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>> Speaker 2: And starting as an engineer 39 years ago and working your way up through one organization this whole time.
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How has your perspectives on leadership, management, the responsibilities of a manager changed in that time?
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>> Speaker 1: Clarify that last part of the question.
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>> Speaker 2: So have your perspectives changed and what does it take to be a good say, middle manager or plant manager?
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And how is that different than say being a worldwide CEO?
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>> Speaker 1: It's an interesting question because I don't think this may seem very.
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I don't think it's that different.
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I don't feel that I have changed significantly in the way I interact with people.
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I don't think I've changed significantly in my management style.
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I've learned a lot though.
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I have a much broader perspective because of the exposure that I've had.
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But I don't think people change that much when it comes to the basics of how they deal with what you would consider to be the main characteristics of leadership.
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I mean, the very first test of leadership for me, dealing with anybody is the integrity of the individual.
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Is that individual trustworthy? Can you count on them?
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That's absolutely critical.
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Just like it is in the military.
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You've got to have their ability to play as a member of the team.
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Because a company is definitely a team business.
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I mean, there are roles for individual contributors, but you're part of a team and you're trying to generate shareholder return as part of that team collectively, not as an individual.
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And I think so that's a very important issue as well.
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So if you go down the leadership attributes, I think they really work at all levels, whether you're a first line supervisor or a middle manager or a CEO.
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>> Speaker 2: There's been a little bit of talk about how you personally, maybe coming from Ireland and different background, addressed the hierarchy and the hierarchical culture of Chevron.
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What were some of the things you saw about the culture at the, At the company that you thought were good and what did you want to change as part of your leadership role over the last 40 years?
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>> Speaker 2: 40 years, let me think about this.
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Look, when I joined the company, first of all, I can't take credit for the changes that have occurred in the company myself because I think that I've been the CEO for eight years now.
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But I inherited a company from my predecessor that had already made significant changes prior to that maybe had been a normal hierarchical structure.
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So I think I was just part of continuing that trend.
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I think when companies change and businesses have to change to fit the way people work, to fit what people who are employed today or want to be employed today, how they view things, how technology changes, how we work.
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So the hierarchical system that I think in some ways was a military type system, which you should be familiar with, Jim, right?
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In the post war era, the management that came through in the post war era, in the 50s and 60s and 70s, they were basically more attuned to responding to a hierarchical system.
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I think as the baby boomers that I'm at the leading edge of and many of you are too young to be part of the baby boomers had a different kind of perspective on how work should be conducted.
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And I think that was part of the informality that substituted for the formal hierarchical approach that occurred as a result of the post war leadership era, as I call it.
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But in today's environment, it's even different.
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We have the XYZ generation and a number of you, I think, fall into that category.
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Many of you do, probably, if not all of you.
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And that group works in an even different way, communicates in a different way.
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I mean, this is the era of Facebook, for example.
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And it's the era of multiple communications, multitasking, all sorts of things going on at the same time.
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My four year old granddaughter is very adept at getting on the Internet and navigating through Barbie Land and all these other things that little kids will do.
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Well, heck, we're dealing with a whole different way of communicating, a whole different way of doing work.
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And we have to recognize that and provide an environment in which people can do the work while it still has structure, can do it in a way that they can truly contribute in the best way that they know how.
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So we have much more flexible systems today and we need to have more flexible systems in order to attract the brightest and the best.
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>> Speaker 1: What happens when those systems kind of develop over a more gradual period of time within the culture of Chevron and then a new company comes in like Texaco and needs to be merged into the fold.
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When you were leading that merger, how did you kind of handle some of those cultural issues?
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>> Speaker 2: Well, the issue there was not that the businesses were different, but the people and the way the work was done was different, no question about it.
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I think the way we dealt with that was, first of all, we picked the first about the senior 40 people that were going to manage the new merged company.
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And I'm trying to remember, eight or nine months in advance, we began to have meetings about how we were going to manage, how we were going to run the company.
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What was the vision going to be, what were the value systems.
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And we went through a very systematic layer by layer process, starting with the top 40 and then the next hundred and then the next hundred that were selected, until we literally engaged two or three thousand people in these engagement meetings to define how the company was going to operate, how it was going to run.
28:20
And we probably spent more time on the people.
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I know we spent a lot more time on the people side of this than we did on the asset side. And I think it paid off.
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I think we had a very good bringing together of the people.
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There were very few failures that occurred.
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The big test was, after a relatively short time, the discussion about, is that a Chevron person or is that a Texaco person?
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That kind of fell off the radar screen and people were no longer referring to each other with these tags of whatever heritage company they came from.
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>> Speaker 1: And so when you're looking at, say, employees from Texas or employees from the Bay Area and then broader employees in Nigeria and all the different areas where you have operations.
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Do you have to take on a different managerial style with people who come from different backgrounds and perspectives, or does the Chevron culture trump that?
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>> Speaker 2: No, I don't think you have to have a different management style.
29:20
I think the culture itself, if you come to San Ramon, it's like the United Nations.
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We have kind of a United Nations Day over there every year where people dress in their native dress and we all share different types of food.
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I think the last one of those we had, there were 40 or 50 different nationalities that were working in our campus over there.
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So it is already a representative to some extent of the global workforce that we have.
29:54
>> Speaker 1: You've been extraordinarily successful in your career at Chevron, but if you're at all human, there had to be a mistake has there been one thing that you regret or would have done differently so we don't make the same mistakes when we go out there?
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>> Speaker 2: Yeah, yeah, there have been a number of them.
30:08
>> Speaker 1: So we don't get fired for our first job?
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>> Speaker 2: Well, I mean, one of the most publicized ones was we increased our interest in Dynage to allow Dynagy, which is now a much smaller company, attempt to acquire Enron, which turned out was a shell, as it turned out, and there wasn't much left to it.
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So we lost some money in that deal.
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That was not a good decision on my part and one that I learned a lot from.
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I've certainly made some errors in judgment on people from time to time.
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I can't go into details of those.
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But every now and then, if you judge a book by its cover and don't check enough, you learn the hard way that maybe I should have done a better job on due diligence on that person.
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And the other issue I think that I've learned from is that if you have an issue that's brewing, this is a generic learning for everybody.
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Don't let it brew, get into it early, because problems just grow.
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And the earlier you confront a problem, understand its dimensions, try to resolve it or manage it, the better off you'll be.
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Almost universally, I think that will work.
31:36
>> Speaker 1: So for my last question before I open you up to the much more difficult ones that might be awaiting you in the audience.
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Looking back on a long career, successful career, what legacy do you want to leave and what do you want to be remembered for most, both as CEO of Chevron and as this kind of spokesman for an entire industry?
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>> Speaker 2: Well, there's kind of two questions in there, but the first, First, from the company perspective, next year we'll be 130 years old. That's a long history.
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And I hope that I will be remembered for doing, in a sense, what my predecessors have done, that's leave a stronger, more vibrant company for the next generation of leaders.
32:20
Because it's almost impossible to anticipate what the world is going to be like 10 or 15 years from now.
32:27
I mean, we try to do it, but the test that I put myself to every time I try to think of what might the world be like for our business, say, in 2030, which is only about 20 years out, is to go back and ask ourselves, what was it like in 1988?
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And could we have anticipated 2008 being the way it is today, back in 1988?
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And the answer is almost invariably, golly, how could that have happened?
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For example, in 1988 or in the mid-80s, could you have anticipated what would have happened to the Soviet Union?
33:05
Could you anticipate the growth in China?
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Maybe we should have anticipated all these things, but I hope we didn't anticipate them all.
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So leaving a company that's strong and vibrant and has the right capacity to manage its way effectively and grow successfully through change, I think is the most critical thing.
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And I hope that I will be remembered for doing that very thing.
33:30
From an energy spokesman person, I am on kind of a mission to try to communicate better so that we have more energy literacy in the world.
33:42
Energy literacy, I think we're energy illiterate, I'm afraid.
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Now, I'm not saying in this room we are energy illiterate, but by and large, there's a lot of energy illiteracy around, and we've got to do a better job in overcoming that.
33:56
So that will be the second thing.
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>> Speaker 2: Okay, well, thank you.
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Do we have any other questions about energy literacy or Mr O'Reilly's career at Chevron, please? >> Speaker 1: Hi.
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>> Speaker 2: Hi, thanks for joining us today.
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[COUGH] My name is Howard.
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So I'm just thinking about your growth through the company to CEO and probably some very fast periods of growth and then maybe some plateaus as well.
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It would be great to get your thoughts on two questions.
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One, to learn when did you decide you wanted to be CEO?
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And then two, what were some of the opportunities that you had and took advantage of or maybe some that you missed out on that led to you being able to do that?
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>> Speaker 1: That's a good question, thank you.
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Let me start by saying at the very outset, I had no desire or there was nothing in my mind about being CEO when I joined Chevron in 1968.
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In fact, I think it was pretty safe to say that for the first 25 years, I don't think I had it on my radar screen at all.
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But it was in the last, let me see, probably around the mid-90s, which is about five years before I became CEO, that I realized this is something that maybe I could do.
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So it's not something that came along kind of back in day one.
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It was something that I grew into at a certain point, and I looked around and said, I can do this job.
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And then the question, of course, is if selected, there are two things you have to do.
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First of all, you have to be capable of doing it, and then you have to be willing to do it because you give up a fair amount when you become the CEO of a company, it is 24/7, and there's not much.
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There's a limit to life outside Chevron during that period of time, you're signing on for a big, serious commitment.
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That's the first, you've got to be capable and willing both.
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Now, the other part of your question, though, was what was it the experience that helped?
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Right, and what jobs, career moves or whatever that helped me get ready for it?
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I'm kind of paraphrasing the second part of your question, and let me see if I can hit it right.
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First of all, there were some jobs that I took on that nobody else would, and I can think of two.
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The first was when three years after joining the company and having just got married.
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And moved out to California and get settled in and everything else, my boss came to me and said we have an opening in New Jersey.
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We need badly filled, like next Monday.
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And I found out subsequently I did accept the job, but I found out subsequently they'd been asking people for six weeks.
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>> [LAUGH] >> And nobody would take it.
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I didn't find that out until after I moved, but I did it.
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The second time that came up was about 10 years later.
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There was a particular plant in our system that I wasn't really qualified to manage by all the standards of experience.
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But yet again, unbeknownst to me, until after the fact, there were a number of people who were much better qualified than I.
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They just didn't want to take it on.
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So they kind of dipped deep into the pool and said, would you go and do this job? And I did. And I learned a lot.
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I learned a lot about managing people.
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I learned a lot about difficult regulatory climates.
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I learned a lot about labor relations and had that experience at a much younger age than other people might have gotten.
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And it was just because of that willingness to do something without even fully realizing.
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I think maybe I didn't even have enough experience at the time to realize what a hornet's nest I was getting myself into.
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So I think taking on the tough challenges and these were relatively early in my career.
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Now there were also some times when things slowed down.
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There was a period of time when I stayed at the same level for four or five years, nothing happened.
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You kind of wonder, well okay, maybe I've kind of peaked now.
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And then something else would pop up at the end of the time.
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Then there was one time though, just as a kind of a health and safety warning to all of you that we had our Christmas tree for seven successful Christmases in a different house.
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So there was a lot of whipping and moving around and some of it's outside the control of the business.
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The circumstances dictated it, some of it self inflicted.
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So I don't know that's a long winded answer to your question. I hope it helps. Yes.
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>> Speaker 3: Well Mr Raleigh, I hope you've enjoyed your discourse with our dear friend Jamiekes.
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>> [LAUGH] >> I think more than most people you would appreciate the level of anti big oil rhetoric in the popular press and on main street to a degree.
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And if you could help us to respond to those criticisms intelligently.
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Specifically if you could walk us through the economics of industry and I mean this.
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If you look at the price of sweet crude, $106 or whatever, $100 plus. >> Yea.
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>> Off that, how much really is due to the true cash costs of production and how much of that is due to what you would say, scarcity?
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Premium, how much of that is due to geopolitical risk, as you mentioned before, or how much of that is due to speculation and what really is normalized profitability for the industry?
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It may help us to kind of respond to these questions intelligently.
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>> Speaker 1: Well, thank you, I wish I could answer your question very precisely, but the answer to all of that is nobody really knows all of it.
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But let me give you some sort of facts that might help.
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It looks like the marginal cost of production of heavy oil, say in the oil sands in Canada now is up into the $70 range.
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Very, very high, given the capital costs and all the other things.
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So you could say that just based on marginal cost today, that perhaps oil prices should be in the 60 to 70 range.
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I'm picking kind of a rough number.
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But as you all know from your own past experiences, or at least what you probably learned, I know from this program, it's such a great program.
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That doesn't necessarily determine what the price is because there are other factors that set the price.
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Not the least of which is robust demand and concern about what the marginal cost of the future barrels will be.
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So there is a concern, I think, about the future supply and that's built into this price level.
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Then there is no question that there is some concern about geopolitical risk, which is part of the factor.
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So some combination of concern about long term supply, geopolitical risk and speculation probably is in the 20 to $30 per barrel level, from 70 to $100, for example.
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Now the other factor that I think has gone a little unnoticed in some quarters is that of course, the weakening of the dollar has shoved up the price of all commodities.
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Not the least, oil has gone up, but so has coal, so has platinum, so has copper, so has gold.
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Just go through the whole list and you'll see that those prices have gone up.
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So there's a fact there's a dollar commodity price relationship here that needs to be factored in as well.
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Okay, so that's the question I'm trying to answer the question you asked.
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Now I'm going to answer a question you didn't ask.
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And that is, well, why is, why is gasoline priced the way it is today?
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And I want to kind of spend a few minutes on that if I could.
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If you just take $100 oil and you multiply it out into gallons, $100 oil is about $2.
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50 a gallon, roughly, that's what you get to.
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So just the crude oil price of a gallon of gasoline today is $2. 50.
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Now, it probably doesn't surprise those of you that live in California, but the California taxes and federal taxes and sales taxes and local taxes add about another 70 cents a gallon. So you're at 3. 20 to 3.
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30 a gallon or something in that range.
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And you haven't shipped the crude to the refinery yet, you haven't run it through the refinery.
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You haven't collected it in the tanks and separated it out into the different products in the refinery.
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You haven't shipped it to the terminal, you haven't taken it from the terminal to the gas station, and you haven't sold it paid the overhead of all that.
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So you haven't paid your refining, marketing, distribution costs at all.
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And so the nationwide gasoline price today is, I think is $3. 32 a gallon.
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And you can see now why Valero is issuing profit warnings, why Sun Oil company, the independent refiner, just said they're going to lose money in the first quarter.
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So you can't make money at $3. 30 a gallon or $3.
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50 a gallon when oil and crude oil is at $100 a barrel, it's that simple.
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So the consumer is not yet seeing $100 a barrel impact at the pump yet.
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And eventually if oil stays at $100 a barrel, they will, because they'll have to.
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Otherwise there won't be any money being made in the refining and marketing system.
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So it takes a long time to kind of get all that out but it's part of the answer to the question that you asked and question that other people have been asking about gasoline prices.
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>> Speaker 2: Hello, thank you for joining us.
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You mentioned earlier Chevron's efforts to reduce demand for electricity.
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For oil, not only is electricity an issue, but also vehicles and gasoline.
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And many of us for class were assigned the movie Who Killed the Electric Car?
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Which talked about oil industry opposition to the adoption of the electric car several years ago.
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Now, 10 years later, there's another stream of electric vehicles and plug in electric vehicles coming down the pike.
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There are biofuels vehicles, there's mounting calls for regulations to promote these and subsidize them.
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And I was wondering what your thoughts are in terms of how Chevron will approach this movement for vehicles which will reduce demand for oil.
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>> Speaker 1: Well, I mean, there's nothing to stop it.
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I mean, this idea that somehow there's opposition to electric vehicles is, I mean, the fundamental problem with electric vehicles is battery technology.
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And once the battery nut has been cracked, then I think you will see a lot more electric vehicles.
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The state of California mandated that 10% of its vehicles were going to be zero emission, which means electric vehicles.
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That's what they mandated.
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They mandated that in the early 90s and the time was supposed to be 2003, it didn't happen.
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It didn't happen, the cars were out there, but the cars only had a range of 40 miles and 50 miles and people just wouldn't buy them.
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So they have not been successful.
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Now what has been successful, of course have been hybrids.
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And why have hybrids been successful, even though they're more expensive than regular cars, is because you can, you can get the range and customers want the range.
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This is a very good question to put, you should have Wagoner from GM come up here.
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They'll tell you the trials and tribulations of producing electric cars, they've been trying hard for years to do this.
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So you're going to see electric cars, you're going to see more of them, I'm convinced, but you're not going to see them really take off until they can offer customers a range of three or 400 miles without having to plug them in for eight hours.
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And I guess that's the big issue that the electric vehicles face.
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Now, having said all that, biofuels, the United States now has surpassed Brazil as the biggest biofuel manufacturer in the world, and it's growing very rapidly.
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A lot of the gasoline you buy today has ethanol in it, whether you know it or not, it's there and it's expanding.
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But there's a limit to how far we're going to be able to take corn based ethanol in this country.
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And you can already see it in what's happening to food prices, you can see it in what's happening to the environmental impacts of growth.
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In these corn growing and other areas, you can see what's happening to the collateral impacts on soybean and rice and other products all around the world.
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So there's no way that we're going to get beyond a certain amount of supply from biofuels and those are available and commercial and being used today.
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What we are working on in the biofuels area is we've got a joint venture with the Forest Products Company.
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We believe that we're going to have to come up with a biofuel from a non food crop.
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And one that hopefully is not too farming intensive, too land intensive or too water consumption intensive, all of which are big challenges to be faced.
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But if we can come up with that alternative, so you're not using a food crop for the fuel.
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Then I think there's a big potential commercial opportunity there and one that we hope to take advantage of if we can develop the technology to do it.
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So the jury's out on that yet.
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It's a very interesting article in the Time Magazine this week.
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If you look at the front cover of Time, you see a big ear of corn on there.
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It's worth reading the article.
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It's quite factually correct and it points out that if we used all the corn and all the soybean in the United States for fuel only, take it out of the food system.
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You would satisfy 25% of the transportation fuel requirements.
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That's how big the system is.
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So this is an enormous challenge and one that is going to require a lot of work, there's no silver bullet.
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So we should be working on electric cars.
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Let's develop that battery if we can.
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We should be working on biofuels.
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But let's recognize that food to biofuels has some big collateral impacts that get into that food versus fuel debate.
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There's no easy answer, we've got to work on them all.
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>> Speaker 2: I think we have time for one more question.
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So wanted to continue kind of on the topic of energy and renewables and recognizing Chevron's such a leader in that area, wanted to ask you a question about global warming.
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Do you think that given that oil and coal are going to be remain the dominant sources of energy, do you think it's possible that we will reduce as a globe our consumption of oil and coal by 2050?
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And do you think that we need to do that to avert global warming?
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And if you do think it's possible, what's the role that you expect Chevron to play?
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>> Speaker 1: Well, thank you.
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Let me see if I can answer all those questions in the right order.
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First of all, people talk.
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First of all, yes, we need to use energy more efficiently.
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We need to be concerned about the climate and the impact of carbon emissions and other greenhouse gases on the climate.
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The challenge is to reduce these greenhouse gas emissions by 60% or more that people talk about by 2050.
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I don't think that's going to happen, despite all the good intentions.
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And let me kind of explain why it's going to be so difficult.
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First of all, a lot of people don't realize this, but if you shut down all the transportation system in the world today.
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All the cars, all the trains, all the airplanes, the boats, anything that moves with an engine, you would actually reduce greenhouse gas emissions by 15%.
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That's one five, so nothing moves anymore.
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If you shut down all the consumption of power in residential buildings today and all the consumption of heat and power in residential buildings today, you reduce global greenhouse gas emissions by 8%.
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In fact, if you shut down all economic activity in the globe except for agriculture and land use, you barely get to 60% reduction.
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So the reality is the system is so big that all these numbers that people are throwing around, it's almost, if we didn't start 20 years ago, it's almost impossible to get there.
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And I think the poster child for this is the European Union that have had the Kyoto system in place for some time now.
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And yet carbon emissions continue to grow in Europe and more or less.
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Unless there's some special cases where they happen to shut down the coal mines or they happen to have the Germans inherited East Germany, which was very inefficient.
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They were able to make some rapid changes.
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I think most of the other countries are showing pretty healthy growth in carbon emissions, except France.
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And why is France not on this bandwagon?
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Well, it's because it's a big deployer of nuclear power.
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So unless we're willing to face up to massive deployment of nuclear power and get started on it like now, because if we don't start it now, we're not going to have anything.
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It'll take 10 to 15 years to get the first one, the first new nuclear power plant up and running, we're going to be in a world of hurt.
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So I don't see, I think we'll do well to moderate the growth and to start bringing carbon emissions down.
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But to get it down by 50 or 60% just seems in 40 years with capital stock turnover, I mean, Bob, when was this building built? Here, you told me 65.
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I mean, this building is 43 years old.
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I hope the one you're going to replace it with will be a lot more energy efficient.
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I'm sure it will but all the buildings have to change.
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A lot of things have to happen.
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The vehicles have to change, the lifestyle has to change.
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So I think it's going to be very, very difficult.
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And I think we totally underestimate this.
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And while I admire people, I think it's really important that we focus on this issue from more than just an emissions perspective, because I think there's an energy supply perspective for this as well.
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It's very difficult for me to see how we're going to be able to make progress unless we sit down and very pragmatically agree that this is a big challenge.
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And not something that we can just wave a magic wand and have happen very easily.
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It's going to be very, very difficult.
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We have a couple of things that you might be interested on if you go on our website.
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You'll see we have seven principles about climate change that we think regulators should take into account as they're considering climate change legislation.
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And it has some very interesting facts and figures in there that I think you'll find interesting.
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And then there's another in our website.
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You'll see five facts about energy security which we use to try to promote this energy literacy that I've been talking about with people in Washington and other governments and government officials.
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So I'd encourage you to look at our website, there's a lot of great information in there.
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You've asked a very tough question and I don't see an easy answer to the challenge of reducing emissions, providing energy at the levels that people talk about. 50 to 60% reductions. >> Speaker 2: Ms.
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O'Reilly, we want to thank you again for coming