Speech Sept. 12, 2013 Learning the Lessons of Innovation: Sound Policy and Education Rex W. Tillerson Chairman and Chief Executive Officer George W. Bush Institute Energy Conference Dallas, TX It was my honor and pleasure to be here in April on a beautiful, beautiful Texas day for the official opening of the Bush Presidential Library. What a marvelous day it was, and the realization of what has been a longtime dream and work of love. The goal of this conference and the ongoing mission of the Institute are to examine how we, as a nation, can expand growth and prosperity for all. It is appropriate, then, that as part of this examination we discuss energy regulation and explore the “lessons about growth in the states, the nation, and abroad.” This theme implicitly recognizes an important fact: Few frontiers of human endeavor are more universally needed or more deeply shaped by government policies than the energy sector. Policy decisions in this sector have far-reaching consequences that affect everything from economic growth and quality of life to national and international security. Whenever we discuss energy policy, whether at a public forum or in private conversation, we must remember two things. First is that energy provides the fundamental underpinnings for quality of life. Energy powers the world’s economies and allows us to improve our standards of living. Regrettably, today nearly 1.3 billion people on our planet still live without access to electricity – electricity to enable basic needs like clean water, cooking, sanitation, light, and safe storage for food and medicine. For this reason, we must recognize that there is a humanitarian dimension to energy policymaking and a humanitarian imperative to expanding energy supplies safely and responsibly. Tonight I will briefly discuss how the energy industry’s investments and innovations are transforming North America; the lessons we should draw from these successes; and why government, industry, and society must each do their part to build a nation that values education and innovation for generations to come. Transformational Technologies As many of you are aware, we are living at an extraordinary moment in the history of global energy markets. Our industry’s technological innovations have made it possible to unlock vast, new supplies of energy across North America. In our nation’s heartland, and in regions with long histories of successful oil and natural gas development, the industry’s application of new and proven technologies are allowing us to recover sources of so-called “unconventional” oil and natural gas, sources that were once dismissed as “uneconomic,” and even “inaccessible.” This increased production of oil and natural gas is sourced from extremely dense geologic formations – often called shale or tight rock, as Don [Evans] has indicated – and it is these vast, new supplies that are helping to move our nation from an era of energy scarcity to an era of energy abundance. Across our northern border, industry innovations are enabling the safe and responsible development of another source of energy: Canada’s vast oil sands. Improving technologies are enabling access to a resource base of approximately 170 billion barrels of oil. That’s enough energy to fuel today’s North American personal vehicle fleet for about 45 years. In the Gulf of Mexico, advanced technologies that allow for unprecedented offshore energy exploration and production have provided access to new sources of energy in multiple regions. In less than a generation, we have progressed from engineering concepts on drafting tables that were hand-drawn when I first came to work to sophisticated computer-designed rigs that can operate in ultra-deepwater depths of more than 10,000 feet, and can drill wells that are five miles below bottom of the ocean’s floor. Our industry has been drilling in the offshore for more than a century. But the one constant during that period has been continuous improvement in the technology and processes we employ. These enable us to do more … to do it deeper … and to do it better than we have in the past. As a result, with ever-improving technologies and risk-management techniques, we project that over the next 25 years, the industry will more than double deepwater production in North America and worldwide. The benefits of these expanding supplies of energy are being felt throughout our nation. According to a just-released study from the consulting firm IHS Global Insight, the new domestic supplies of shale gas and tight oil are powering job growth, strengthening our manufacturing base, and improving our international competitiveness. IHS estimates that the full unconventional energy value chain supported 2.1 million jobs in 2012, and it is projected to support 3.9 million jobs by the year 2025 – including more than half-a-million manufacturing jobs. IHS also found that the unconventional revolution contributed $284 billion to the U.S. GDP last year, and projects that this contribution will rise to more than half-a-trillion dollars by the year 2025. For American households, disposable income grew by about $1,200 in 2012 on the back of lower natural gas prices, which translated to lower home heating bills or electricity costs. And IHS expects families to continue to benefit, with the increase in discretionary income topping $2,000 by the year 2015 and $3,500 by the year 2025. Now that’s a real economic stimulus. In addition to these new supplies, they also generated $74 billion in new tax revenues to the government last year alone. They attracted U.S. capital investments of $121 billion and supported $150 billion in wages for employees. It is no exaggeration to say that a new era of energy abundance is transforming America. But these are just the contributions on the economic front. The new supplies of natural gas are also helping our nation meet shared environmental priorities as natural gas supplants coal for electricity generation. The U.S. Energy Information Administration has estimated that in 2012, energy-related U.S. carbon dioxide emissions had fallen to their lowest level in more than a decade and a half. What makes this particularly extraordinary is that the United States has about 50 million more energy consumers and an economy that is about 50 percent larger than in 1995. And yet our CO2 emissions are close to what they were in the mid-1990s. Hope in Innovation This historic moment, building on many decades of success, provides lessons that should inform every policy discussion. Our successes are a reminder that new technologies and proven techniques are the key to unlocking abundant sources of energy for our economy – safely, securely, and responsibly. Sound policy making – whether at the state, national, or international level – must begin with acknowledging how innovation comes about so that we best can structure our tax, legal, and regulatory frameworks to enable and support innovation. Simply put, human ingenuity and innovation have always powered progress in the energy sector. To ensure that innovation moves forward quickly and effectively, government must put in place policies that allow for long-term planning and long-term investments. Only then can industry provide the sustained support for the scientists, engineers, and visionaries who create new ventures, new technologies, and new techniques that expand supplies. In this effort, government and industry each have very specific roles to play. Lessons on the Role of Government Government has unique responsibilities for fostering a national culture of innovation. Only government is empowered by the public to stand above market competitors, maintain a level playing field, and hold industry accountable for its operations. When government performs this role, respecting the strengths of industry and the private sector, by providing a sound structure for the rule of law and open competition, the results can be extraordinary. On such level playing fields there is a natural incentive for companies to seek new markets, new opportunities and deploy new technologies. We can see these principles in action in the transformative impact of hydraulic fracturing and its integration with horizontal drilling. A stable legal system contributed to the creation of this country’s efficient financial markets. These markets provided visionary entrepreneurs access to capital, which helped early commercial risk-takers purchase leases and drill wells. Our uniquely American system of subsurface property rights gave private mineral owners an incentive to become equity partners in oil and gas innovation. And the various regulatory structures in different states, tailored to each locale, have allowed our industry to show what our new technologies can do for citizens and local economies, as safe and responsible development moves forward. Scientists, engineers, and innovators also benefited from our government’s broad respect – and enforcement – of intellectual property rights. These rights helped protect new discoveries in every field and encouraged innovation across the entire economy. But it was our nation’s representative government at all levels that helped build a vast transportation infrastructure – crisscrossing state lines and crossing national borders as well – which enabled us to move the equipment, the vehicles, the people to well sites quickly, and allow us to get our products to consumers efficiently. Of course, because government is the unique repository of public trust and authority, policymakers must also recognize the impact of their oversight. Their choices can carry costs – costs that can undermine investment, slow innovation, and even hurt consumers and the broader economy. For this reason, policymakers must weigh the costs and benefits of energy regulations based on sound science and engineering expertise. Government policies must provide a clear and efficient road map for compliance through the regulatory process - not an unending obstacle course through multiple agencies, each claiming oversight or through lengthy and costly court challenges. Sound regulations should enable progress, not confound it with a thousand ways to say no. And when the unintended consequences of well-intended regulation render the rules no longer workable, they should be revisited promptly. With policy certainty and respect for the private sector’s strengths, government policies can enable the research and deployment of new technologies and the capture of enormous benefits to the American people of economic progress. Lessons on the Role of Industry As for industry, we also have specific responsibilities in building a nation of innovation. The first and foremost priority is to operate in a safe, secure, and environmentally responsible manner at all times and in all instances. We must uphold the highest standards of operational integrity – from planning and investment to construction and project completion. This builds trust and makes a more compelling case for industry’s ability to deploy new technologies in new and safe ways. In communities across the nation, we have safely and successfully implemented hydraulic fracturing, horizontal drilling, and other innovative technologies while managing the risks at a very low level and dealing with incidents responsibly when they occur. This has allowed the energy industry to create jobs and spur growth. It has encouraged our industry to engage with the public at very local levels, communicating a wide array of risk-management techniques, and how we work with state and local officials to ensure industry accountability, how we minimize our environmental footprint, and how we manage the limited impacts when incidents do occur. The Future of Innovation: The Need to Act Even with government and industry both playing their respective roles, innovation ultimately depends on people. We can spur this innovation by creating a culture and a society that places a high value on education and encourages high standards in math, science, and reading. And the best way to do this is to set high expectations for every child. More than a decade ago, President Bush inspired our nation when he stated that we have a moral responsibility to “challenge the soft bigotry of low expectations.” Education is the gateway for individual opportunity. For our nation as a whole, it is foundational for international competitiveness and global leadership. Education equips scientists, engineers, and entrepreneurs with the knowledge and skills to create new, visionary technologies and to take on new frontiers. Education is also critical for a free people because it provides citizens with literacy, numeracy, and critical thinking – skills necessary for science-oriented public discourse and informed fiscal decision making. Unfortunately, there is mounting evidence that our nation is falling behind. According to the most recent Program for International Assessment (PISA), U.S. students rank 14th in the world in reading, 17th in the world in science and 25th in the world in math. Less than a month ago, a new study by ACT found that only 26 percent of American high school students are ready for college-level coursework. Fully 30 percent of high school graduates cannot pass the U.S. military entrance exam, which is focused just on basic reading and math skills. And these trends have been going the wrong direction for some time. Three decades ago, the United States ranked third among developed nations for college students earning science and engineering degrees. Today, about 20 other countries rank ahead of us in these vital subjects. These statistics make clear that we must work to improve our education system to improve outcomes for every child. We need more scientists, we need more engineers – and greater depth of knowledge of math and science among all our citizens. That is why at ExxonMobil we have committed to the effort to raise academic standards and to support teachers and students. We believe that our nation can make a difference by learning the lessons from the nation’s most-effective teachers, schools, and programs. We have seen the value of this approach firsthand. By promoting research-based programs in science, technology, engineering, and math education, we are seeing teachers and students get results. Building a nation of education and innovation will also require parents, teachers, business and elected leaders to come together to promote higher standards. Nowhere is the need for united action more important than the public debate about the Common Core State Standards. The Common Core State Standards are voluntary, state-driven standards that set specific expectations for the knowledge and skills that students need to master for college and career readiness. The standards stipulate what a student needs to know and be able to do from kindergarten to 12th grade. The Common Core encourages students to analyze and apply critical reasoning skills to the texts they are reading and the math problems they are solving. These are the capabilities we need to prepare today’s students for high-skilled jobs in the 21st century work force. We can build a nation that values education and innovation. With government, industry, and society working together, we can put in place energy policies that build on our past successes. By trusting in the dynamism of free markets, we can enable the private sector to invest in tomorrow’s visionaries, scientists, and engineers. By recognizing the challenges in education, we can raise standards and spread programs that support teachers and test students. And with such energy and focus, we can ensure that future generations have the foundation for innovation that will lead to hope and opportunity for decades to come. I thank you for your kind attention.