Good morning, everyone. It is a pleasure to be back this year to speak with you again.
Last night I had the pleasure of participating in the presentation of the Petroleum Executive of the Year Award to His Excellency [Khalid Al-Falih]. And again, I want to congratulate him on that honor.
It is a well-deserved recognition for his numerous contributions, both to our industry but also his contributions in our friendship.
Preparing for the events last night and today gave me the opportunity to reflect on my four decades in the industry. In doing so, I was once again struck by the incredible advances in technology and expertise that I have witnessed over this time.
When you consider the extent of our industry’s achievements, it is not hard not to be taken aback. It is truly remarkable when you think about the challenges we have faced and overcome – as well as the solutions we have developed.
Many professionals throughout the industry have made substantial contributions – both in terms of innovation and research – to access new supplies of energy that the world needs to power everyday life.
I am certainly proud of the work the thousands of men and women at ExxonMobil who have helped advance our business every day.
It is constant innovation and the cumulative efforts of many that have made this current period of supply expansion possible.
As we look ahead, this is an especially fitting time to consider the game-changing developments we’ve seen and reflect on what they mean for the future.
The past few years have made it clear that advanced technologies deployed in the United States have fundamentally transformed the global energy landscape and changed it forever.
Our recent successes have led to this era of “energy abundance,” which has created market challenges – challenges that demand investment discipline, lower cost structures, and effective project management. These challenges have been amplified by the sluggish global economic growth which has moderated demand.
However, for those of us who take a long term view – and for companies able to create value through the cycle – there will be new business opportunities.
So with these realities in mind, I’d like to share a few perspectives from my time in the energy business – perspectives that I believe are relevant to today’s challenges – and the broader economy.
Managing Through the Cycle
I'll begin with the need for our industry to continue to expect the unexpected.
The energy industry often has to face and overcome many obstacles, like those created by today’s price volatility, market oversupply or other unanticipated challenges.
It was not that long ago when many so-called experts believed that affordable and abundant energy from hydrocarbons was about to run out – during the supply shortages of the 1970s, or more recently, by those who espoused the once-popular peak oil theory.
What most commentators on peak oil were unwilling to acknowledge was the record of this industry to develop and adopt new technologies that would change that future of diminishing supply. Those of us who dismissed the peak oil theories weren’t any more prescient in our ability to forecast the future - we just held a different view shaped by our experience in this industry of innovators.
Fast forward to the advent of the shale boom in the U.S., where operators are now employing that same spirit of innovation and strong entrepreneurialism to become more efficient, more nimble, to manage through this recent period of low prices and oversupply.
In fact, evidence shows that the global market supply has exceeded demand by an average of 1 million to 2 million barrels a day since the beginning of last year. This is in part due to the resilience of what many thought was a significant supply at a marginal cost of somewhere in the $70-80 per barrel range. Never bet against the creativity and tenacity of this segment of our industry.
The rate of economic growth is another force shaping markets. In both developed and developing countries, economic growth has been weak, moderating growth in energy demand. With this rebalancing of supply and demand, the energy sector is facing pressures around the globe – pressures that require flexibility and a keen focus on operations.
While many may still grapple with these unanticipated developments, those with experience in the industry know that such down cycles are just a fact of life in a commodity business.
It is with this reality in mind that at ExxonMobil we have built our business to be viable at the bottom of the cycle. When you get to the bottom, that’s when your focus on the fundamentals really comes to bear.
So our response is to direct the organization to the things we can control. We can’t control the price, but we can control our cost structures, we can control how efficient we are, and we can control our reliability.
An important reality whether we are at the top of the cycle or at the bottom of the cycle is that our business continues and always is largely one of risk management.
We deal with a broad variety of risks that must be managed with a constancy of purpose. Geopolitical risk, financial risk, technical risk, operational risk, environmental risk, and those relating to the development and implementation of many new government policies around the world.
In fact, everything we do contains elements of risk. And because of that, we must maintain a rigorous process in our work to understand the risks and to mitigate them. Only when we are able to do this effectively are we in a position to make wise and disciplined investment decisions.
The Invaluable Role of Technology
A great enabler of our risk management is technology.
I have learned in my career to never underestimate the ability of technology to advance and transform. Human curiosity and resourcefulness have often been the drivers behind taking something ordinary and turning it into something extraordinary.
In the context of our industry, these forces have been major catalysts in developing many of the advanced technologies in use today.
The media and public often mistakenly see Silicon Valley as the sole developer and purveyor of game-changing technologies. But as recent years have proven, the energy sector is a high-tech pioneer – constantly inventing, testing and improving technologies and techniques around the world.
Technology is improving performance in every part of our business, from unlocking new opportunities in frontier basins to improving profitability of our core assets.
Advanced technologies have enabled unprecedented offshore exploration and production. Decades ago, engineers of my generation were working at drafting tables with drawing pins and pencils, while geoscientists were manually interpreting seismic shoots.
Today, the use of high-speed, sophisticated computers enable our people to build complex sub-surface simulations to determine where to drill and how to design rigs that can operate in water depths of more than 10,000 feet to drill wells that are five miles beneath the ocean floor.
With each passing year, our industry continues to advance the technologies and processes we employ – enabling us to go deeper, more quickly, more accurately and more safely than ever before.
Throughout the history of our industry, we have seen how technology has driven positive change. Technology is critical to expanding energy supplies, improving efficiency and reducing emissions and other environmental impacts.
We continue to face the dual challenge of increasing global energy supplies while reducing emissions to address the risk of climate change. To many, this seems difficult, if not impossible, and even daunting. I have often talked about – and all of you well know – the many ways the industry is tackling the supply challenge as well as the work to mitigate the risk of climate change.
According to ExxonMobil’s own long-range supply and demand forecast, what we call our Outlook for Energy, global economic output will more than double between now and the year 2040. The world’s population will grow, adding about 1.7 billion new energy consumers. And even after factoring in extraordinary increases in energy efficiency, we expect global energy demand will grow by about 25 percent over these next 25 years.
To meet this growth in energy demand will require adding to the current energy supply of an equivalent of five Saudi Arabias. Energy demand and economic opportunity are inextricably linked. Expanding energy supplies safely and responsibly have and will continue to be essential to improving living standards around the world.
In doing so, we must continue to lower emissions. At ExxonMobil, we share the view that the risks of climate change are serious and warrant thoughtful action. Addressing these risks requires broad-based, practical solutions around the world. Importantly, as a result of the Paris agreement, both developed and developing countries are now working together to mitigate greenhouse gas emissions, while recognizing differing national responsibilities, capacities and circumstances. In our industry, the best hope for the future is to enable and encourage long-term investments in both proven and new technologies, while supporting effective policies.
Which is what we are doing. We have long supported a carbon tax as the best policy of those being considered. Replacing the hodge-podge of current, largely ineffective regulations with a revenue-neutral carbon tax would ensure a uniform and predictable cost of carbon across the economy. It would allow market forces to drive solutions. It would maximize transparency, reduce administrative complexity, promote global participation and easily adjust to future developments in our understanding of climate science as well as the policy consequences of these actions.
From a technology perspective, our own efforts to reduce emissions by becoming ever more energy efficient include deploying proven methods like cogeneration. Many of you use this. By capturing the heat from electricity generation for use in refining and chemical processing, we are able to operate more efficiently and reduce our overall carbon dioxide emissions.
Another technology we have continued working to advance is carbon capture and sequestration. ExxonMobil is a leader in this area. In 2015, we captured almost 7 million metric tons of carbon dioxide for sequestration. That is roughly equivalent to the emissions benefit of replacing 7 million conventional gasoline cars with hybrid vehicles.
In May, we announced a collaborative agreement with a U.S. company, FuelCell Energy, to pursue a novel technology to capture carbon dioxide emissions from power plants by utilizing carbonate fuel cells. This research could substantially reduce the cost of capturing carbon dioxide and lead to an economic pathway toward large-scale application.
Advancing technologies to capture carbon dioxide from large emitters such as power plants is an important part of our suite of research into solutions to mitigate the risk of climate change.
While these are just a couple of examples of promising technologies, the world will need a host of others to meet our shared aspirations for affordable and reliable energy with lower environmental impacts. We know this will take time, perseverance and the efforts of many.
Maintain a Long-Term Perspective
This reminds me of the importance of maintaining a long-term perspective because nothing in this business happens overnight.
Throughout my career, markets have fluctuated and new challenges and opportunities have arisen. The most successful companies and individuals are the ones that plan – and prepare – for the long term.
When we consider an investment decision, we look beyond current market conditions to evaluate what energy supplies the world will need 30 years down the road.
We do it this way because we know that sustained investment and innovation are critical to meeting the world’s future demands.
Doing the Right Thing
So, I’ve talked about the need for preparation and risk management in an ever-changing business environment. I’ve also talked about the importance of sustained investments in technology and the value of taking a long-term view.
I would like to leave you this morning with one last perspective that has been a guidepost for me in my 40 years, and that is the importance of integrity in everything we do. It is vital for success in the energy industry – and for that matter, in any endeavor.
Integrity is the foundational building block of trust and cooperation. A shared focus on integrity makes a corporation more effective.
It is embedded in our culture. It helps us honestly assess our own performance, which in turn helps us innovate and continuously improve.
In all of my experiences, I have seen that doing the right thing, the right way is always going to yield the best results – even if that means avoiding a shortcut and taking the longer road to get there.
I say that because operating this way – every time – makes you a better, more attractive partner and it creates confidence when attempting bolder, more visionary projects.
This is important because in the years ahead, the partnerships that will need to be formed in our industry are only going to grow in importance as we take on ambitious projects to meet increasing energy demand, and do so safely, with a lower emissions footprint.
This moment in the world’s energy history has brought with it new challenges as well as exciting new opportunities.
Even with today’s market pressures, I am confident that with the right focus, continued innovation and a commitment to integrity, we will successfully meet those challenges that we face now and in the future.