0:00
It is a tremendous honour to come and have the chance to do this.
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Not many people get the chance to come and talk to this group and I'm certain that you'll have some great questions for me later.
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As we've heard, BP has some long links with Stanford going back very many years.
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And there are one or two people on the faculty here who probably know more about BP than I do.
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In particular John Roberts down at the front here, who's written, I suspect, more case studies on BP than any other practicing expert.
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This is an interesting time to be in business.
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It's interesting because of course there is a big anti business sentiment out there at the moment.
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It started with the chaos in the financial markets, but it spread.
0:51
And there is a big debate going on in the world about the role of business and the importance of business and where the right balance is struck between business and government.
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And we're clearly living in difficult times in many dimensions.
1:09
I was struck by some data.
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I saw recently that across the world, two thirds of the public now trust business significantly less than they did a year ago.
1:21
So I have to say I'm an optimist.
1:23
I think you can see beyond today's headlines and I'll share some reasons for my optimism a bit later on.
1:32
Of course, it's interesting.
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How do you define optimism in the spring of 2009?
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And the most interesting definition of optimism I've heard so far is an investment banker on a Sunday evening ironing five shirts.
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So I am undoubtedly a subscriber to the five shirt school of optimism.
1:56
I do also think that this is an important moment for business.
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It's an important moment for good business to stand tall and speak up, because there is no doubt we need the entrepreneurial spirit of business to lift countries across the world out of recession.
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I thought I could do three things today and I'll try and do it in 25 or 30 minutes.
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I thought I'd talk a little bit, which is something I don't normally do at all.
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A little bit about me and my experiences of leadership and just by a way of offering you some things that have worked for me.
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I'm not a believer in books on leadership.
2:34
I don't think I've ever read a book on leadership.
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For me, leadership is about developing and encouraging the development of young men and women to figure out their own way of doing it.
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But I thought I'd share with you some things that have worked for me and maybe one or two of them might work for you.
2:49
I then thought it would be interesting to spend a little while talking about some of the challenges that we've had at BP over the last few years.
2:59
We had an interesting period which caused us to really sit back and take stock about what we were doing as a company and how we were trying to do things and then providing time permits.
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I thought I'd talk a little bit about the challenges of the energy industry, and I'm sure there'll be one or two people will be very interested in my perspective on that as we go forward.
3:24
So I'm going to start with some things that have worked for me, and I've got sort of four things here that have been helpful as I've developed my career.
3:34
The first thing is the notion of following your heart.
3:37
I don't believe that you can be successful in life unless you're absolutely passionate about it.
3:44
And I once heard someone say that if you live each day as you'll last, someday you'll be right.
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Seems true, I sort of translate that into, if today was my last day, am I doing what I want to be doing?
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And if the answer to that is no too often, then you should change what you're doing.
4:08
So my sort of first lesson in life is about be passionate about what it is you're doing and for me, the passion was geology.
4:14
You heard that I joined BP as a geologist.
4:17
I'm not quite sure how I got into geology originally, I can't remember.
4:20
But I became passionate about it and I joined BP and for eight or nine years, I had a fantastic time.
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I was doing geology in the Arctic Circle of Alaska and Canada.
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I was doing fieldwork in the jungles of South America, the highlands of Papua New guinea, the deserts of North Africa, Central Asia and China. And, it was wonderful. And I was sort of.
4:43
It was all I ever wanted to be.
4:46
So passion about what you do, I think alongside that goes, you have to work hard at whatever it is.
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I saw some research recently that said you can only become really good at something if you've invested at least 10,000 hours of effort.
5:03
If you actually do the maths, that's quite a lot of effort.
5:05
So be passionate about what it is you want to do and invest the time to do it really well.
5:14
My second sort of lesson is be persistent. Nothing comes easy.
5:20
And we all have these little stories.
5:22
But my sort of lesson of persistency was when I finished my undergraduate degree at Aston, I applied to BP and they rejected me.
5:31
So I thought, well, interesting.
5:34
I'll see if I can figure out another way in here.
5:36
So I went off and did a PhD and the second time round I got offers from lots of oil and gas companies and I sort of turned the negotiation around.
5:44
They were negotiating to attract me rather than me trying to negotiate to attract them. So be persistent.
5:53
The third little lesson is about taking risks.
5:56
And by this I don't mean bet the bank don't take out massively unhedged positions against some CDO, but I do mean take some risks in what it is you're doing.
6:08
And again, a little personal story.
6:11
So I've been a geologist for eight or nine years.
6:15
All I really wanted to do, and I was asked if I'd like to become the executive assistant to the then chief executive.
6:21
This was back in 1990, 1991, and this was a new role at BP.
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No one had a clue what an executive assistant was.
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And I said to my then line manager, what do you think about this?
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And he said, I wouldn't do that. Far too risky.
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What do you want to do that for?
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Glorified personal assistant, carrying papers around.
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Stick with it four or five years, you can get my job.
6:45
And then who knows, you may ever be the chief geologist.
6:48
It's a position we don't have anymore.
6:50
>> [LAUGH] >> So I sort of thought about it and I thought, well, nothing ventured, nothing gained.
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And I accepted the role and it opened my eyes to the world of business.
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At that time, I knew nothing about business.
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I certainly didn't know my way around a balance sheet.
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I didn't know some of the very basics of cash flow.
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What I knew about business at that point, you could put on a very small postage stamp. So take risks.
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And a few years ago, someone gave me a little plaque that I have on my desk which says, if you knew you could not fail, what would you try?
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And that seems to me to be a great way to think about the idea of taking some risk in your personal development, be it career or otherwise.
7:45
So that's the third thing, and the fourth little principle that's worked well for me is.
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And I think this is really important as you go up an organization, doesn't matter what sort of organization it is, it's the idea that you remain connected, you stay dedicated. Down to earth.
8:01
And I've had a number of experiences that have really brought that home to me.
8:06
The one that was probably the most profound was in Venezuela in the mid-90s.
8:11
So I was a relatively young manager running BP's operations in Venezuela.
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And we had a young man was killed in the course of conducting one of our operations.
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And I went to the funeral, and at the end of the funeral, his mother came up to me and beat me on my chest, and said, why did you let it happen to him?
8:38
Why did you let it happen?
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And that was a real wake up to me that if you lead an organization, you have a duty of care for everyone in it, it's a fact.
8:50
And the bigger the organization, the more people you're taking care of.
8:56
And it has influenced enormously my view about safety in our operations, BP has many operations and some of them are very dangerous.
9:06
But it also made me realize how important it is to recognize that you have a duty of care for people.
9:15
And in that same spirit, someone who I have a lot of respect for, taught me a lot about operational safety, said that, you need to recognize as a leader when you visit somewhere in your organization, it is a reflection of you.
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What you see, is what you do.
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So, stay down to earth and connected.
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And the sort of final piece in that, is again, experiences in Latin America, I spent almost seven years in Colombia and Venezuela.
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And when I went down to Colombia, I was this sort of bright young thing, thought I knew everything, and could articulate with great clarity intellectually what it was people needed to do.
9:58
And it took me a couple of years to realize that, connecting with people with this is only half of it, you have to connect with this, connecting with your heart.
10:08
And I learned a lot in Venezuela in terms of connecting people, and grabbing their heart.
10:19
And if you want people to follow you, you need to connect with their hearts as well as their heads.
10:25
One of the things that I think all of us in big corporations, need to remember that, for many of us through our careers, we sort of turned up at the front door, and I know I did this.
10:36
I sort of left half of Tony Heywood at the front door, and I walked in, put my corporate suit on and was sort of Mr. Corporate BP.
10:44
And it was only after my experience in Latin America that I actually realized one of the most powerful things you can do is bring all of yourself into the office.
10:54
So rather than leave half of me at the front door, take all of myself in, and let people see the real you, the good and the bad.
11:03
So, four little things that have been helpful to me in my career to date, follow your heart, be passionate about what you do, be persistent, life isn't always easy.
11:17
Be prepared to take some personal risk, and stay down to earth and connected.
11:24
And I think that the last point is particularly true as you assume larger, and larger leadership roles.
11:31
So that's some thoughts on what's worked.
11:35
Lemme turn now to say a few things about the last few years at BP, which have been an interesting few years for those of us, everyone in BP actually, not just those at the top, but everyone in BP.
11:51
And to sort of put it in context, I just have to say a few things about the history of BP.
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Until the late 90s, BP was a relatively small regional oil and gas company.
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It was described as a seventh sister, but actually it had two big assets.
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It had the North Sea oil fields and it had the Alaskan oil fields, and not very much else.
12:11
And in an extraordinary period between 99 and 2003, we put together a whole series of mergers and acquisitions under the leadership of my predecessor, John Brown.
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I was very much involved in it, but it was undoubtedly John that created the drive to do this, such that by 2003 we had created BP in pretty well its current form.
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One of the largest integrated oil and gas companies, energy companies in the world, a so called super major.
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I will debate with Dean Josh whether we're second or third, but depending on what metric, we're sort of equal second really with these operations everywhere.
12:55
And then, we sort of catastrophe struck, and in the space of several years we had a whole series of real disasters actually.
13:06
We blew up a refinery in Texas city and killed 15 people.
13:10
Our flagship project called Thunder Horse almost ended up on the seabed in 6,000ft of water in the Gulf of Mexico.
13:18
We had a major, major oil spill in Alaska.
13:22
We were found guilty by the Department of justice for a trading manipulation in the natural gas markets of the US, and our financial performance over that time period was appalling.
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We underperformed our major competitors by anywhere between 30 to 50%.
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And at the end of that two year period.
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So this is sort of in the early spring of 2007, the sort of general view in the world was, this was either analysts or the news media.
13:51
Two years to fix it, otherwise someone's going to come along and put them out of their misery.
13:55
And so it was with that that I was given the job of being the CEO at BP.
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>> Speaker 1: [LAUGH], >> Sort of interesting place to start life, it's not what I probably would have chosen, however.
14:09
And, the first thing I would say is I think when you're faced with a situation like that, the only thing you can do is to confront it head on.
14:19
Now, that's probably harder to do as an insider than someone coming in from the outside, frankly.
14:25
But, I assembled a new team, partly in fact, in large part from people within the company, with one or two people that we brought in from the outside.
14:37
And we underwent a really critical self assessment, actually which is quite difficult to do, but it was clearly absolutely necessary.
14:47
So what was our diagnosis?
14:49
Well, we diagnosed, in no particular order, the following.
14:54
A company that was too top down, too directive and not good at listening.
14:59
And there used to be a little joke about, good news traveled instantly and bad news didn't travel at all.
15:06
We failed to recognize we're an operating company.
15:08
We had too many people that did not understand what it took to run operations.
15:14
We had too many shallow generalists, people who knew a lot about not very much, but not a lot about specific areas.
15:23
We had too many people that were working to save the world.
15:26
We'd sort of lost track of the fact that our primary purpose in life is to create value for our shareholders.
15:33
How you do that, you need to take care of the world, but our primary purpose in life was not to save the world.
15:40
We had created an extraordinary amount of complexity as we put these companies together.
15:46
We created this very complex matrix organization.
15:51
And one of the only pieces of external input we got at the time was I asked a consultant to come and hold up a mirror to BP I just said, I don't, Any answers about what we should do, but I would like an outside in perspective of what you see.
16:08
And they came back after a couple of months and said, we've got some interesting news, we think.
16:14
And I said, really, what's that?
16:16
We think you've set a new benchmark, in fact, we know you've set a new benchmark. And I said, really?
16:22
Yes, they said, you are the most complex company we've ever come across.
16:27
And they had mapped 10,000 organizational interfaces in the BP of 2007.
16:37
And for a company that has 100,000 employees, that's pretty impressive.
16:42
So a lot of complexity and we were bedeviled, which happens to many corporations from time to time.
16:48
Too much analysis, not enough decision making, I just need to give my mobile phone to someone. Thanks, John.
16:55
So fairly critical self evaluation, and we sort of then sat down as a team, not with any external help, to figure out what we're going to do about it.
17:09
And we did a few simple things.
17:10
We created something called, which we referred to as the Forward Agenda, which was a focus on safe, reliable operations, people having the right people with the right skills in the right place.
17:22
And if you take the top 650 people of BP at that time, we reduced that number by 25% and we changed out 50% of them.
17:31
Big change, and the third piece of the forward agenda was about performance, which was about restoring revenues that were missing and reducing complexity.
17:40
And we did some fairly conventional things that to reduce complexity in terms of organization, which is nothing very magical but necessary, I think the second thing.
17:53
So Forward Agenda, the second thing that we did was we'd lost track of the competition and we reinstated very rigorous competitive benchmarking across the company.
18:10
The most profound level or the most rudimentary level actually it was looking at our performance as a company against our principal competitor Shell.
18:21
And in the second quarter of 2007, on an annualized basis, we had a gap of $8 billion relative to Shell in terms of what we should have been generating from our asset base versus what they were.
18:35
And we use that as a burning platform, we use that as the rallying cry behind this big change that we have subsequently been driving through BP.
18:50
So the second piece of this was about recognizing the competitive dynamics.
18:55
The third thing was to do with leadership and the culture of the company.
19:03
At that time, it turned out we had 36 live and operating leadership models at various parts of BP.
19:10
Not surprising, we assembled all these companies from all over the place and they all had their different bits of heritage.
19:16
So my team spent three or four months without any consultants, without any external help, talking about the company that we wanted, the culture that we wanted and the leadership framework that we called it, which would begin to enable that sort of culture.
19:40
And it was pretty simple, everyone does this sort of stuff from time to time.
19:43
I'm not arguing that it's any great sort of revolutionary insight, this, but it was an important thing for us at that time to create a coherent way of talking about what we felt was important in leadership at BP.
20:00
The first one was this idea of recognizing skills and professional capability and competence.
20:05
We had lost that, so we had, as I said, far too many generalists and not enough deep specialists.
20:14
The second thing was to recognize how important it is to energize and motivate people.
20:18
Sounds pretty straightforward, but a lot of our leadership had lost focus on that.
20:23
The third piece of it was around taking decisions, too much introspection, too much debate, not enough people taking decisions and getting on.
20:33
And the fourth piece of it was delivering results.
20:36
So a new leadership framework which was to begin to enable the culture that we wanted to see.
20:42
And leadership frameworks mean different things to different folk.
20:47
What I'm very certain about is that a culture of an organization is shaped by the leaders in it.
20:55
People do what leaders do, that's been proven time and time again.
20:59
So this was about beginning to change the culture of BP, we never talked about it like that.
21:07
We never used the word cultural change or anything like that, but that's what we were doing and we were creating the leadership basis on which that would happen.
21:18
And we're early in that journey, it's probably a three to five year journey with the people who work in the offices and it's probably a five plus year journey with the people who work out on the facilities.
21:30
What was my role in all of that?
21:33
Well, it was to keep it focused, to create clarity for people.
21:39
I think the most important act of leadership any of us do is to create clarity for for folk, to create clarity from ambiguity, to be consistent.
21:47
I have got so bored with saying safety, people and performance, but I'm determined that I'm not going to say anything else.
21:56
And finally, and the most important thing, the most important thing I do now is to encourage and motivate folk.
22:04
I think of myself as BP's highest paid cheerleader, what I do is go out and encourage and motivate people.
22:12
That's what I do, I don't actually take big decisions.
22:15
I actually, I'm out there encouraging and motivating people.
22:20
Is it working, well, I would say we're making progress, we're not there yet.
22:24
We've closed the financial gap, so $8 billion in the second quarter of 2007 has become no gap at all in the second quarter of 2009.
22:35
So that's worked, we've beaten the market throughout the last four quarters and there is a lot of momentum in the company in terms of rising revenues and falling costs.
22:44
So there's a lot of momentum but it's clear that to create the sort of company that we now want to create, which will be sustainable, we have more work still to do.
22:57
So that's a little bit about BP, now I think I've still got time to say a few words about the world's energy future before I find out what all of you want to grill me about.
23:08
So I think I should begin this by saying, as far as I'm concerned, the future has not been cancelled.
23:18
It has been delayed by a year or two, but it has definitely not been cancelled.
23:22
The world will recover, growth will resume, and when it does, energy demand will continue to rise inexorably.
23:32
And on most projections, the world will need 40% more energy in 2030, which is not very long away, than it does today.
23:42
That is driven by two things, it's driven firstly by population growth.
23:47
In the time that I've been on the planet, the population has doubled from 3 billion to 6 billion.
23:54
And by the time most of the people in this room are my age, another three.
24:00
3 billion people will be on the planet.
24:03
So the first thing is this extraordinary population growth.
24:07
The second one is the industrialization that is taking place in the developing world at a scale that the world has never before seen.
24:18
In the next decade, just in the next decade, 500 million people are going to make the transition from a rural way of life to an urban one.
24:29
And that brings tremendous challenges.
24:32
And I thought I could tell you a little story that's a deeply personal one, but sort of captures it.
24:39
So 20 odd years ago I was a young geologist in Beijing and at the time you weren't allowed to drive a car.
24:45
So I had a driver, young guy, he just got married, had his first child.
24:49
He was living with his parents in a two roomed hutong and their energy consumption was two kerosene lamps and a small coal brazier for four people, three adults and a four adults and a child.
25:05
Last summer I took my family out to the Olympics.
25:09
It's the first time my wife had been back for 20 years and obviously the first time the kids had been there because we didn't have kids when we were there before.
25:17
And the same man is working as a driver for BP.
25:21
So that's an important piece of this story, same job, same person.
25:27
After a couple of weeks, coming to the end of the trip, he said, come and see my new apartment.
25:32
So we duly went round to see his new apartment.
25:35
We get out the car, 25 story tower block, their apartment's on the 18th floor.
25:42
There's underground car parking for his Chinese built automobile.
25:47
We got out at the 18th floor and there is an electric scooter.
25:51
His wife's electric scooter is in the hallway.
25:54
We go into the apartment, it's a three bedroom apartment, underfloor heating, air conditioning and humidifying for the summer.
26:04
One of these enormous American style, I call them fridge, freezer things that we don't get in the UK, but you guys have all got these enormous great things you can walk in.
26:15
On the wall of the kitchen there's a small flat screen TV.
26:18
On the wall of the lounge there's an enormous flat screen TV.
26:21
And on each one of the three bedrooms was a flat screen TV.
26:25
So he's got more flat screen TVs than I have, that's true. And that was it.
26:32
And I sort of looked at this and I went back 20 years to what had happened.
26:38
And it's an extraordinary story.
26:41
It's an extraordinary story, of course, of what China has achieved.
26:45
China has done that to 350 million people.
26:49
Now that's great, of course, the problem is there are another 800 million to go.
26:55
And if you think about his energy consumption or his family's energy consumption over that time period, a cold Brazier and two kerosene lamps, two aircon AC humidifying flat screen TVs.
27:06
I'm certain, half a dozen laptops, I didn't see them, but I'm certain they were there.
27:13
So the world is going to continue to demand ever increasing amounts of energy.
27:21
And the energy industry has a hell of a task to provide it.
27:25
Most estimates suggest that we're going to have to invest $26 trillion between now and 2030 to provide the energy that the world needs.
27:34
You do the maths, that's more than a trillion dollars a year.
27:38
And it's interesting to put that in the context of the commitment by the new president in the US to invest $150 billion in alternative energy over 10 years.
27:49
It just puts it in context.
27:52
The good news is that we do have the natural human and financial resources to provide the world with enough energy and do it in a sustainable way.
28:04
The challenges today are not below ground, they're above ground, they're not geological, they're human.
28:11
And it's creating alignment around what the right approach is that is the big challenge.
28:18
It's fair to say that not everyone is agreed on how to, on the one hand, create the energy the world needs, on the other hand, do it in a sustainable way.
28:28
But as I've said, I am a five shirts on a Sunday night optimist.
28:33
And I think increasingly principal stakeholders are coming to a consensus.
28:39
And a consensus probably looks something like this.
28:43
It recognizes that for this to happen, you need a stable and transparent business environment.
28:51
Because it is business that's going to make this investment.
28:53
It's not government, it's business.
28:56
The second is that free and open energy markets are the best way of getting the resources allocated in the right way.
29:05
The third is that we need to be honest about the future of hydrocarbons.
29:09
We can't deny that the future is only about alternative energy.
29:14
We can't pretend that it is only about alternative energy.
29:18
Hydrocarbons represent 80% of the world's energy today.
29:22
And by everyone's projections, by 2050 they will still be the majority.
29:27
And just another little point of data today to create the same unit of energy, you invest a dollar in oil and gas and you need to invest $5 in alternative energy averaged across the portfolio.
29:41
That's the energy efficiency equation that we have today.
29:47
So the final point, I would say, is that the world is coming together around the need for an economy wide carbon price to promote energy efficiency and to support alternative energy developments.
30:04
For a long time BP has argued that the right way to do this is through a cap and trade mechanism.
30:09
My expectation is that the US will implement a cap and trade mechanism probably in the course of next year, if not then by 2011.
30:18
That will be a defining moment for the world because there's no doubt that once the US crosses the Rubicon, others will follow.
30:27
And I was with a couple of the Chinese Vice Premiers on Sunday evening actually in London and we were talking about it and it's very clear when the US moves, China will follow.
30:38
They haven't quite figured out what they're going to do, but they are definitely will be evolving their position.
30:45
So just to conclude, as you've heard me say, I am an optimist.
30:51
I believe absolutely in the power of technology and innovation.
30:55
And it is through those two things and human ingenuity and cooperation that we have cracked the world's problems in the past.
31:03
And that's what I expect will happen this time.
31:06
It is undoubtedly one of the world's biggest challenges, probably the biggest challenge today and will be for the next 20 or 30 years.
31:16
On the one hand provide energy that is safe and affordable for continued economic development and on the other hand do it in a sustainable way that preserves the environment for future generations.
31:31
And I have to say it's that challenge that gets me up in the morning.
31:34
That's a good place to stop.
31:36
Let me see what you'd like to talk about.
31:39
>> [APPLAUSE] >> Someone down in front here.
31:55
You just have to wait for a mic I think, otherwise people won't hear you.
31:59
>> Speaker 1: Hi, if you were to.
32:00
Assess yourself as a leader.
32:02
What are two things you're really good at and what are two things that you really need to improve upon?
32:08
>> Speaker 2: It's a great question.
32:09
So the two things that I really need to improve on are listening better and harder and being less impetuous and less prone to take rapid decisions.
32:23
I think things that I'm good at, I am good at tracing clarity for people and I'm good at engaging with people as I walk around the refineries, I can engage with the folk running the refineries.
32:40
But my weaknesses are undoubtedly a need to listen more, which is interesting, given what I said about BP, right?
32:51
And be less prone to take decisions.
32:55
Sometimes it's not a good idea to take a quick decision.
32:57
Sometimes it is, but sometimes it isn't, yeah.
33:01
>> Speaker 3: So last quarter we had the CEO of ExxonMobil here and he was calling- >> My friend Rex.
33:05
>> Speaker 3: Yes, exactly.
33:07
>> Speaker 2: We've known each other a long time, [LAUGH].
33:09
>> Speaker 3: He made a very well, to me was at least a surprising call for a carbon tax.
33:14
He viewed that as preferable to cap and trade or other carbon credit transfer schemes because it would be more transparent and simpler.
33:23
So the question is, you said that was BP's view.
33:26
It's cap and trade is the way you're looking, is that your own personal view?
33:29
Do you think there should be more alignment within the oil industry itself to solve this problem?
33:34
Because I want to know as well, do you have projects, for instance, that you're holding up because of the uncertainty around how is carbon going to be priced?
33:42
>> Speaker 2: Well, I think, I mean, the first thing I'd say is the most important thing is to put a price on carbon, because until that is done, there is no certainty about the benefits or otherwise of alternative energy and the costs through the carbons they emit of existing sources of energy.
34:03
I think my personal view, and actually the view of BP, is that cap and trade is best because what we're looking for is environmental certainty.
34:15
We're not looking for an extra source of revenue.
34:18
Now, the current administration clearly sees this as an opportunity to raise additional revenue.
34:24
But this is about providing environmental certainty.
34:26
And if you put a carbon tax on, it gives you no environmental certainty, tells you nothing about what's going to happen to emissions, tells you energy is going to be more expensive, but it will tell you nothing.
34:36
There's no reason to believe with the carbon tax that people use less energy.
34:41
Whereas if you have an absolute cap on emissions and the cap comes down over time, then you know, you have a mechanism that's solving the problem of the moment, which is how do we get emissions down?
34:54
So that is the rationale for believing that a cap and trade mechanism is the best way of doing it.
35:01
I think a secondary argument, maybe less important, is if you use a carbon tax, it means that a government somewhere has got to decide what is the best way to allocate resources.
35:14
They've got to say we're going to tax this by this much and that by that much.
35:18
Whereas if you have a cap and trade mechanism and the market is working, then the resources will go be distributed in the most efficient way.
35:27
But I think the big point is this thing about environmental certainty, because that's actually what we need.
35:33
And Rex and I debated this long and hard, [LAUGH].
35:37
I failed to convince him and he's failed to convince me, [LAUGH]. All right, yes.
35:44
>> Speaker 1: Given the ongoing role that you foresee for hydrocarbons in the economy, could you talk a little bit about the role of carbon sequestration technologies, what BP is doing to advance those or other carbon.
35:55
>> Speaker 2: Mitigation strategies that you have a great question.
36:00
I think without sounding arrogant, I can reasonably say that BP has probably got the two leading commercial scale carbon capture and sequestration projects in the world today.
36:14
One of them is in Abu Dhabi and the second one is here in California at Bakersfield, where we are looking in the case of Bakersfield, to take petroleum coke to burn it, to separate the gas into hydrogen, to run through some big turbines and to sequester the CO2 in some old oil fields.
36:35
And the CO2 will actually help increase the recovery from the old oil field.
36:40
The technology is all proven in the component parts.
36:44
So we know how to build a turbine to run hydrogen.
36:47
We know how to build a gasifier to separate the gas and create CO2 and the hydrogen stream.
36:53
And the oil industry has been using CO2 to increase recovery for 30 or 40 years.
37:00
So all of the pieces are known, no one has put it together at scale.
37:06
And the big challenge is the cost.
37:09
So it just so happens that I spent an hour this morning reviewing this project before I came down here.
37:13
So it's all fresh but the fact is that the fully built up cost of what would be a 400 megawatt power plant is $3 billion.
37:24
If you just went out and built a gas fired power plant to the same scale, the cost will be about $800 million.
37:33
So there is an enormous incremental cost.
37:36
And if you do the maths, then the cost of CO2 sequestered is around 1:25, $130 a ton.
37:46
So the problem today is the technology exists, but it's very expensive and the world has to decide whether it's prepared to pay the cost.
37:55
What does that translate into in cents per kilowatt hour?
37:59
Californians today pay 12 cents a kilowatt hour for their electricity.
38:04
Electricity from this plant will cost 31 or 32 cents a kilowatt hour.
38:10
So it's the sort of choice, right?
38:13
So it would be nice to say carbon capture and sequestration is going to come along and save the world in the next three or four years, it isn't.
38:21
It may be very important in 20 or so years time, but it's not going to be important at scale in the next ten years. There's one at the back.
38:35
>> Speaker 4: You painted one scenario of your view, what the most likely energy future will look like, including a relatively rapid recovery in energy demand and a sustained role for fossil fuels through 2050.
38:47
But on the other hand, the head of research from the IMF spoke about the potential for a sustained recession scenario where we don't see energy demand recovering to previous levels until around 2014.
38:59
We also know that there are many clean tech startups in the Bay Area and elsewhere that are looking to develop breakthroughs that could significantly change the trajectory for alternatives vis a vis fossil fuels over the next few decades.
39:10
My question is, what are the big uncertainties out there that you think could potentially change, fundamentally change your business model and the scenario for energy more generally that you presented?
39:20
And how do you think about mitigating those or turning them into opportunities?
39:24
>> Speaker 2: Yeah, well, I suppose the most sensible way of mitigation is to be participating in that world and of course we are.
39:36
We have arguably the biggest alternative energy business.
39:40
We're in biofuels, we're in wind, particularly in the US we're in biofuels in Brazil, in Europe and in the US we're in carbon capture and sequestration and we're in solar.
39:52
So we're very cognizant of what is happening.
39:57
Back to the beginning of your question, I hope very much that, We don't have a recession, depression for the next four or five years, that will be a very bad outcome for the world.
40:10
What I would say is, irrespective, at some point we will start growing again and the world's demand for energy is on the trend that I talked about.
40:22
And I think to put it in perspective, you have to recognize that at the moment the Chinese are putting on the ground 1500 megawatt coal fired power plant a week, a week.
40:36
So believing that we will see a dramatic breakthrough in the next 10 years in terms of the sources of our energy, I think is probably unlikely.
40:50
It really is, it's not ever been the history of the energy space.
40:54
The transition from wood to coal took place over 30 or 40 years, the transition from coal to oil took place over 30 or 40 years, the transition from oil to gas took place over 30 or 40 years.
41:08
We could be wrong, but it's not what I think is very likely.
41:14
The big opportunity, and it is a big opportunity for the next decade, is one of energy efficiency.
41:23
It's not where the energy comes from, it's how do we use it, how do we use it much more efficiently than we do today.
41:32
And that is about all of the things that people are talking about.
41:38
It's about buildings, about CAFE standards for cars, it's everything.
41:43
The amount of energy per capita used in this society is extraordinary relative to any other society on the planet.
41:52
The amount of energy per capita used in Europe is similar.
41:55
There are so many things that can be done and that is the big opportunity in the very near term.
42:02
And it's good to see that today that agenda has a lot of serious political support behind it, I guess is what I'd say.
42:13
I think if you look at, it's a hell of a long answer, I'm going to stop soon.
42:17
But if you look at sort of a practical way through this, let's take ground transportation.
42:26
The first thing to do is do fuel efficiency from today's internal combustion engine.
42:31
We could double or more the efficiency of the internal combustion engine.
42:36
We could have cars that do comfortably 70 miles to the gallon easily, and they'd be perfectly good cars.
42:44
The next thing in that space is to introduce biofuels.
42:48
There's no doubt that in the matter of gasoline sales from oil, the peak in history was in 2007.
42:58
There will never be more gasoline sold in this country, not in the world, but in this country.
43:03
There will never be more gasoline sold in this country produced from oil than there was in 2007, efficiency is going to drive overall demand down.
43:13
And within that there will be an increasing wedge of biofuels, so next thing on ground transportation is biofuels.
43:19
Beyond that it's the world of hybrids, and beyond that it's the world of electric and batteries.
43:28
That's a very sensible way of thinking about ground transportation.
43:33
In the matter of power, it's about how do we diversify the portfolio, how do we bring in more nuclear, how do we drive wind to perhaps 20% and how do we take advantage in this country of the tremendous domestic gas resource.
43:50
So you can paint a very credible way of dealing with this challenge without invoking or requiring a major technology breakthrough.
44:02
But it does require some joined up thinking and alignment, political will and leadership, which I would say has hitherto been missing.
44:13
But I'm optimistic is emerging quite quickly at the moment, actually.
44:21
>> Speaker 2: Thank you, changing tack slightly from energy, you face an incredible backlash at home from shareholders and your board as well about your remuneration.
44:31
So if you could talk a bit about how that's affected you personally and how you've reconciled what you earn with what those shareholders think.
44:40
>> Speaker 1: I think this is an interesting moment in, [LAUGH] interesting sign of the times because, I'm pretty modestly paid by some people and I think it's what I talked about at the beginning.
44:53
There is an extraordinary backlash today against business and what are seen as rewards for failure.
45:04
There's not a simple answer to this, what started in the financial community has spread to business more broadly.
45:13
And I think it will be with us for some time, I mean, I'll be honest with you, I haven't thought a lot about it in a personal, personal sense, but I think in a business sense.
45:24
And dealing with the societal backlash against business is something that should concern everyone in business profoundly at the moment.
45:34
Because if it gets too strong, then we will undoubtedly have policies enacted by politicians because they respond to people who vote.
45:45
And if people who vote, they're saying that we need to punish business, then business will be punished.
45:50
And of course, it was exactly that sort of policy in the early thirties that created a prolonged recession or depression.
45:58
So I think it's something that is of great concern.
46:01
I also believe that it's necessary for us to really acknowledge where failure has occurred.
46:08
I mean, it's clear that some of the salaries and bonuses have been wholly inappropriate.
46:18
I would say, I think largely in the financial sector personally but I probably would say that, wouldn't I, I'm not a banker [LAUGH].
46:27
I have a little joke now, because I obviously know some of the guys that do run banks.
46:32
And last time I was in New York, I was chatting with Jamie Dimon and Lloyd Blankfein and they'd just been in front of the Congressional committee and I was saying, it's great not to be on the front pages because it's normally the oil and gas guys who are the bad guys on the front pages.
46:48
For the time being, it won't last forever, but for the time being, someone else has displaced us as being the most popular people on the planet.
46:56
But it's a great question for which I don't have a good answer, in the middle.
47:03
>> Speaker 3: Good afternoon, Mr Hay, we're back to the topic of alternative energy.
47:07
BP's got a growing alternative energy portfolio and it's probably going to play an even greater part in BP's future.
47:14
Given that how does a company balance its decision making with respect to capital allocation and company resources, between its growing alternative energy business and its core expertise in fossil fuels?
47:27
Especially when it comes onto the impact on the bottom line and conflicts in profitability when proceeding with projects?
47:33
>> Speaker 1: Yeah, that's a good question.
47:35
I think our thinking around this has evolved quite a lot over the last two or three years.
47:43
Because I do think there are, in the alternative energy spaces, there are some things that are very close to our core business where we have the inherent skills and capabilities and should be very competitive in those areas, and others where we've got to build new skills.
48:01
Skills, so they are different and it's appropriate to think about them differently.
48:04
So as I think about our alternative energy portfolio, biofuels will become, it is, but it will become an even greater part of our core business.
48:15
We are the biggest blender of biofuels today in the US and Europe because we're required to by law.
48:21
We believe that if you take the gasoline pool in the US, for certain biofuels will represent 10% of the gasoline pool by 2020.
48:32
And it's conceivable with the right support and legislation and a few technology breakthroughs that are at the point of happening that it could be 20%.
48:44
So in biofuels it's sort of, we're actually talking about should we invest into biofuels or should we make an incremental investment into a refinery?
48:54
It's actually quite a straightforward discussion to take place because you're trying to create the same end product.
49:03
In the case of carbon capture and storage, I've talked about that.
49:05
I mean it clearly is, that is a business if it ever takes off, which today it's not clear that it will, has very strong links to our core EMP business.
49:16
It's about reservoir management and how you put CO2 in the ground and manage it, that's where most of the value will probably reside.
49:23
Today in that area what we're trying to do is demonstrate that you can do it commercially.
49:28
I mean it's not actually commercial because it requires a lot of support.
49:34
In the matter of wind, we've taken a decision to only do wind in the US and I think wind is something that for BP is a marginal capital allocation process.
49:45
We've got a big window portfolio in the US and we build it out as the sort of funds are available so it doesn't compete directly with our other businesses.
49:54
The one that's the biggest challenge for us is this business of solar and how do we participate in that?
50:00
And the answer is we haven't figured out what the right way to do it is.
50:04
It's completely different from our existing business, it is a long term bet on the future and it's not right to compare an investment in it today with an investment in EMP.
50:14
So we sort of try and hold it separately and preserve some elements of investment into it.
50:20
And that, I would say we haven't actually created the right yet way of thinking about that business or the right way for BP to sort of hold it.
50:31
[INAUDIBLE] >> Hi, just a quick question on the operational side of things.
50:36
So when you said there was an oil spill in Alaska and the facilities blew up, the Gulf of Mexico failure, how did you deal with that when you became the CEO?
50:47
So how did you deal with all the negative press?
50:49
Financials were one thing, but there you had to react immediately, you couldn't get a study in place for three months and then respond.
50:55
So one was that, the second thing is more on the alternate side, which is like Chevron has Chevron Energy Solutions, which is working on efficiency.
51:04
Does BP have something on efficiency side?
51:06
Like you mentioned it's one of the most important things over the next decade.
51:09
>> Speaker 1: Yeah, on the efficiency thing we do, we drive it through our existing businesses.
51:15
So all of our existing businesses are targeted to continuously improve their efficiency.
51:22
What we're not doing is providing a third party service to others to improve efficiency.
51:28
Because we just don't think that's what our core skill is, because it's about interfacing with potentially tens of thousands of people.
51:36
It's not what we do, but within each one of our big principal business lines, they have very clear efficiency targets in terms of energy efficiency.
51:46
In terms of your first question, which is a very good question, I think the first thing you have to do is be absolutely transparent and open about what has gone on and recognize it and not sort of be in denial.
52:03
So the first thing is acknowledgement, open and transparent acknowledgement of the issues.
52:10
And then the second thing of course is to have a clear plan designed to go and remedy them.
52:16
And I talked a little bit about some of the things that we've done.
52:18
I didn't have time to talk in detail about everything, but one of the things in an operational sense that we've introduced is a common operating management system.
52:29
One of the issues that those events uncovered was that BP operated to different standards all over the world.
52:37
Not surprising, it had come from many different companies, but we had not put in place a common way of operating.
52:43
So if you went to a refinery in Texas, it could have been no indication it was from BP.
52:51
Went to an offshore facility which was part of that Macau heritage, no indication it was sort of BP.
52:59
So what we've done is put in place an operating management system which is designed to ensure that every one of BP's operating facilities across the world looks and feels the same.
53:12
So you walk onto it you know it's a BP site.
53:15
The operating standards are BP's operating standards, they're consistently high level.
53:22
So there's a lot of things beneath that, but that's one of the big things that, and that won't happen overnight, but we're sort of a couple of years into it now.
53:30
By the end of this year, we'll have probably 75, 80% of our operations running on that system.
53:38
And aligned with that, we have built the ability to deliver a lot of capability to our operational staff.
53:48
It turned out we hadn't been investing enough into our people, didn't have enough skills and capabilities in our operations.
53:56
So we put in place a big program, I won't tell you where it is because one or two people on the front row [LAUGH] won't be very well aware of it, of course, but it's at one of the competing universities.
54:09
But it is designed to create real operating capability in the company in a way that we didn't have.
54:15
And it's part of this really recognizing that BP makes its money by someone somewhere every day putting on boots, coveralls, a hard hat and glasses, and going out and turning valves.
54:33
That's how we make our money, and we'd sort of lost track of that.
54:40
Maybe a good place on which to finish. [LAUGH] >> [APPLAUSE]