I was asked by a young journalism student lately to do an interview. He wanted my viewpoint on the oil industry and my former company, Chevron, for an article for his school paper. He provided me with 10 questions as a starting point. I surprised him by writing answers. This allowed us to delve into other topics as well during the interview. I thought his questions were quite insightful. I hope my answers live up to the questions. The whole experience was rather flattering. Here is the set of notes I wrote for him:
The article's topic was to be: Either 1) an overview of Chevron activities, or 2) how state regulations are stifling business development and economic recovery.
This young man told me his worldview began as libertarian, became more leftist in school, and now as a journalist is the search for: What are the facts? And what actually works? I think that will serve him well in life and journalism.
Disclaimer: These are my opinions as a private person. They are not the opinions of a Chevron representative or employee and must not be represented as such.
1. What was your career background in regards to Chevron?
a. I had 30 years, beginning in Calgary as a field engineer planning, designing and building small field facilities and pipelines. I moved to Corporate Engineering in San Ramon in late 1980s to write technical manuals. Then I transitioned to facilities engineering and cost estimating for worldwide projects. Later I moved into project management consulting. I ended up as a cost engineer for worldwide projects and as a project manager at Richmond Refinery.
2. What has Chevron done that has been a great benefit to our community?
a. Chevron takes very seriously its role in the communities it operates in, in about 120 countries. Chevron hires local labor, engineering and management staff as best it can. It trains locals in all types of jobs. It improves the local infrastructure whenever possible, both as a good neighbor policy and as a good business practice. It builds wells, schools, libraries, housing, roads, etc. Chevron people donate their time to local charities and community events. Chevron, like most major IOCs, advises local governments on western standards of design and construction, labor practices and business practices. Many developing countries do not have government departments that can write sophisticated regulations about oil and gas activities. The IOCs help to teach this expertise and provide the latest Western standards.
b. Locally Chevron is involved with or is a benefactor to many charities, community activities, and cultural events.
c. Chevron is one of the top employers in the Bay Area – about 8000 people (check number).
3. Do you think Chevron will be a part of the solution for today’s energy crisis?
a. Of course. All the IOCs are working in some respect on alternative fuels, and energy solutions. Chevron is an energy company, not just an oil and gas company. Chevron has interests in coal mines, minerals, solar power, bio-fuels research, high efficiency building systems and other leading edge technologies that will be useful for the future.
4. Do you see Chevron as an environmentally friendly company?
a. Absolutely. All major companies must follow the laws and regulations of the countries they operate in. They do this as a good business practice and because they operate under self-imposed high standards of business practice. Chevron uses the Chevron Way set of guiding principles to guide its personnel. In addition, the engineering profession has a defined set of practice ethics that engineers swear to uphold. If need be, engineers use it to provide personal guidance when one may feel in conflict with company desires.
5. Can you explain some of the history of Chevron?
a. Chevron is a California company founded about 1890. The Corporate web site explains the history.
6. Can you explain the profit margin in oil companies?
a. The IOCs are very large companies. They operate in many countries and must conform to all of those countries laws, as well as the laws of the United States. Each country defines its own system of over-riding royalties, resources extraction taxes, production sharing agreements, and income taxes. In addition, the US taxes all citizens on worldwide income – thus all the recent talk of repatriating profits from overseas. The US essentially wants to tax again what the home countries have already taxed.
b. The revenue of Chevron is about $150 B per year worldwide. Out of that about 8% might be profit. And on average the IOCs pay about 34% of revenue in taxes. Check the company’s quarterly reports for exact numbers. The other IOCs have similar ratios. Ask any small businessman if he can exist on 8% profit – he will say no way! Compare to Microsoft, Apple, Intel, etc. at about 30%. We are more like Walmart, which has the world’s largest revenue but a low profit margin.
c. Out of that 8% profit, which might be $20 Billion in 2011, Chevron pays for investment in new projects around the world. The 2011 budget was about $26B. Some of the big projects are now costing around $40B. Most people cannot understand the magnitude of these numbers or see that they make sense in Chevron’s world of large projects and large product sales.
7. Can you explain how California government regulation affects Chevron and business in general?
a. You may have heard that CA ranks 49th or last among the states in terms of business friendliness. That is true from an oil company perspective especially. California takes royalties from production, taxes the profits higher than most states, has some of the most stringent environmental rules, severely limits offshore developments, has onerous inspection programs at the state and local levels, and generally makes it difficult to do business. It also has a very repressive set of NGO organizations that are ever-vigilant to step into a project and cause delays and extra costs. For instance, the Richmond Refinery project I worked on was delayed by unions, and several small but vocal environmental groups for 2 years, and ultimately was shut down, causing over 1200 people to lose their jobs.
b. In my opinion, much of this is simply obstructionism caused by people with political agendas and a great lack of understanding of technology and what is real vs. hyperbole.
8. How is California a business unfriendly state?
a. See above. High taxes make projects uneconomic. Over-bearing regulations cause extra expense and time in project preparation. Supercilious agencies like CARB and BAAQMD are always stretching the limits of technology, often to the point where things are not yet technically feasible. NGOs have more influence than they should given their knowledge and size (they have a few activists and lawyers who work hard as disruptors).
9. Where do you see Chevron going in the future?
a. Chevron should have a long and bright future. It has great people and a good portfolio of projects and resources. It is learning to be more of an overall energy company. But it also focuses strongly on its core business of oil and gas. Oil and gas will be the principle energy source for at least 100 years into the future for most of the world.
10. Do you have any solutions in regards to the California economy?
a. A more balanced Legislature and Senate would be nice. We are stuck with a leftist viewpoint to most things and it has resulted in the current, almost intractable, state of the State’s finances.
b. California’s school system indoctrinates its kids in liberal and socialist propaganda about big businesses, oil and gas, and economics.
c. The tight union control of the Legislature, the Governor (remains to be seen), the school system, and the prison system is strangling needed economics solutions.
d. The “unfunded liabilities” faced by the State and Local governments may well be the downfall of the state. $500B is may be too much to escape from. Remember that “unfunded liabilities” essentially means that there is a promise to pay but really no plan on how to do so.
e. The poor CA business climate (taxes and regulations) is delaying any economic bounce that would have been expected by now. Every week about 5 companies move out of state. They go to Nevada, Arizona, Texas, Tennessee, etc., and take money and jobs with them.
f. The Legislature seems to be unconcerned about fixing the business climate. They defer economic and tax issues to the people through resolutions. They instead waste their time on bills to control foie gras and licensing of cats, for example. It is said that what starts in California eventually progresses to the rest of the country. I am afraid that if that continues, the country is doomed.
It is easy to be pessimistic as indicated above. I think what I fear may happen to the State is very probable, and that is really too bad. California still has a wonderful work force. It is blessed with immense people and physical resources, if only they would be allowed to thrive.
I advised him to check DOE, O&GJ, and DOGGR for further oil industry statistics and information.
