Exxon CEO Rex Tiller­son gives per­spec­tive on Arc­tic oil drilling, risks, lessons

The China Post - - WORLD BUSINESS - BY JONATHAN FA­HEY

The Arc­tic is the next great fron­tier for oil and gas — and one of the most en­vi­ron­men­tally frag­ile places on earth.

An En­ergy Depart­ment ad­vi­sory coun­cil study adopted last week said the U.S. should start ex­plor­ing for oil and gas in the Arc­tic soon in or­der to feed fu­ture de­mand, and that the in­dus­try is ready to safely ex­ploit the Arc­tic’s huge re­serves, de­spite re­cent mishaps.

In an ex­clu­sive in­ter­view with the As­so­ci­ated Press, ExxonMo­bil CEO Rex Tiller­son, who led the com­mit­tee that pro­duced the re­port, talked about why he thinks Arc­tic ex­plo­ration is worth the risk. Exxon has decades of ex­pe­ri­ence work­ing in that part of the world, in­clud­ing suc­cess­ful projects in Rus­sia — but also a cat­a­strophic oil spill in Alaska’s Prince Wil­liam Sound when the Exxon Valdez oil tanker ran aground in 1989.

Be­low are ex­cerpts of the in­ter­view, edited for length and clar­ity. AP: Why now? Tiller­son: There are two im­por­tant el­e­ments for peo­ple to un­der­stand. One is the time­lines that are re­quired. Any­time you are deal­ing in th­ese fron­tier ar­eas where you are re­ally driven by tech­nol­ogy, th­ese are very long time frames, multi-decade time frames.

The sec­ond el­e­ment is just the enor­mity of the en­ergy de­mand in the world. It’s be­tween 85 and 90 mil­lion bar­rels of oil per day to­day. That takes huge re­sources to sup­ply that in a re­li­able way.

We are in the de­ple­tion busi­ness. There will come a time when all the re­sources that are sup­ply­ing the world’s economies to­day are go­ing to go in decline. This will be what’s needed next. If we start to­day it’ll take 20, 30, 40 years for those to come on. AP: Why the Arc­tic? Tiller­son: The size of the re­source prize has to be large to sup­port the risked cap­i­tal that has to be put in place. The Arc­tic is one of the few places left where we be­lieve those op­por­tu­ni­ties ex­ist.

AP: En­vi­ron­men­tal­ists would

also say that it’s one of the last few places left that are un­spoiled. Why not leave it alone?

Tiller­son: Be­cause even­tu­ally we are go­ing to need it. It’s back to that in­sa­tiable ap­petite that the world has for en­ergy. Oil de­mand is go­ing to con­tinue to grow as pop­u­la­tion grows. If you look out 25 years from now we are go­ing to have an­other cou­ple of bil­lion peo­ple on the planet, we’re go­ing to be at 9 bil­lion peo­ple. Some­thing like 3 bil­lion peo­ple are go­ing to move from poverty into mid­dle class sta­tus. When they do that, the en­ergy de­mand goes up enor­mously.

As we move out into the mid­dle of this cen­tury our out­look shows you are go­ing to need those re­sources even with a lot of other al­ter­na­tive forms of en­ergy con­tin­u­ing at a fairly ag­gres­sive growth rate.

AP: Why put your com­pany’s rep­u­ta­tion at risk, es­pe­cially af­ter Valdez?

Tiller­son: Valdez was a dev­as­tat­ing ex­pe­ri­ence for our cor­po­ra­tion. What emerged from that was a com­mit­ment to de­velop a sys­tem­atic ap­proach to man­ag­ing risk in ad­vance.

Since Valdez we have gone into some very chal­leng­ing en­vi­ron­ments and we have been very suc­cess­ful in de­vel­op­ing those us­ing this ap­proach, which iden­ti­fies the risk, takes steps to mit­i­gate that risk but then rec­og­nizes im­por­tantly that you can­not elim­i­nate that risk.

None of us live in a zero risk world. We don’t think it’s ap­pro­pri­ate nor do we think it’s what our share­hold­ers want for us to walk away from some­thing be­cause we had a bad ex­pe­ri­ence. Rather, we choose to take that chal­lenge on, and we have.

AP: Shell thought it un­der­stood the risk of drilling off­shore in the Arc­tic, but then al­most im­me­di­ately had prob­lems when it be­gan work in 2012. How can we be sure the in­dus­try is re­ally ready?

Tiller­son: We can de­velop all of the best tech­nolo­gies and we can prove their ef­fi­cacy, but at the end of it, it al­ways comes down to ex­e­cu­tion.

Al­most al­ways — and you can look at all of the catas­tro­phes that the in­dus­try has ex­pe­ri­enced — it was never a fail­ure of the tech­nol­ogy, it was a fail­ure of peo­ple to ex­e­cute.

We are al­ways deal­ing with the hu­man el­e­ment. And that’s prob­a­bly the most chal­leng­ing el­e­ment for us. But I would also say it is not unique to the oil and gas in­dus­try. Air­lines have hu­man com­pe­tency prob­lems. Rail­roads have hu­man com­pe­tency prob­lems. Ev­ery­one has hu­man com­pe­tency prob­lems.

AP: Given th­ese in­escapable hu­man fac­tors, is the Arc­tic too frag­ile to ex­pose to this kind of risk?

Tiller­son: Well you could say that about, pick an­other en­vi­ron­ment that’s im­por­tant to peo­ple, the Gulf Coast es­tu­ary en­vi­ron­ment. We have that chal­lenge any­where and ev­ery­where. But pick an­other ac­tiv­ity and I could ask the same ques­tion. Do you get on an air­plane? You are sub­ject­ing your­self to hu­man er­ror. Why do you get in your au­to­mo­bile ev­ery day?

There’s been Arc­tic devel­op­ment since the 1920s. Im­pe­rial Oil, our af­fil­i­ate in Canada, was the first, in Nor­man Wells. There’s been a lot that we have al­ready done and demon­strated we can do.

AP: You can look for oil al­most any­where in the world. How does the U.S. Arc­tic com­pare to other op­por­tu­ni­ties you have?

Tiller­son: The U.S. is im­por­tant to us but we’re not the ones de­cid­ing how to go about that. The leas­ing plan dic­tates that, the reg­u­la­tory frame­work dic­tates it, and to­day we find it very dif­fi­cult to work in the U.S. arc­tic be­cause of those two fac­tors. Other coun­tries are tak­ing a dif­fer­ent view and they are mov­ing ahead.

AP: Can you give an ex­am­ple of why it’s so tricky to drill in the Arc­tic?

Tiller­son: It may take you sev­eral years to have a good un­der­stand­ing of (the) ocean con­di­tions both at the sur­face and at the subsurface.

(For ex­am­ple,) the pipe­lines that run from those (Arc­tic) fa­cil­i­ties to the shore have to be buried at a suf­fi­cient depth be­low the seabed so ice goug­ing doesn’t dam­age them. If you have an ice­berg com­ing along it’s dig­ging into the floor. And we col­lect enor­mous amounts of data so we know we are well be­low the goug­ing depth.

It takes a lot of peo­ple out there gath­er­ing data in some pretty crummy con­di­tions. I have some won­der­ful pic­tures of some of our early re­search peo­ple off­shore Sakhalin Is­land (in the Rus­sian Arc­tic) climb­ing around on this ice that is mov­ing and they are tak­ing mea­sure­ments be­cause they are try­ing to fig­ure out how deep the goug­ing is. You have to get the data.

AP: How can you try to con­vince peo­ple that this is the right thing to do?

Tiller­son: First we try to work at a very broad con­text so the Amer­i­can peo­ple un­der­stand this is im­por­tant to them.

Ob­vi­ously we’ve got a huge econ­omy here that has to be fed. If we stopped to­day, every­body’s lights would be go­ing off be­fore not too long, be­cause there wouldn’t be any­thing to fuel that.

When we’re try­ing to in­flu­ence pol­icy and reg­u­la­tion, it’s re­ally around how do we get the right reg­u­la­tory and fis­cal regime in place that al­lows us to con­tin­u­ally do what we need to do, which is re­place all of this, and sus­tain it, and grow it for the fu­ture eco­nomic growth and de­mand that we know is com­ing.

AP

In this March 27 file photo, ExxonMo­bil CEO Rex Tiller­son de­liv­ers re­marks on the re­lease of a re­port by the Na­tional Petroleum Coun­cil on oil drilling in the Arc­tic, in Wash­ing­ton.

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