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Speech

May 1, 2014

North American Energy - Creating Opportunity and Transforming the World

Rex W Tillerson

Rex W. Tillerson Chairman and Chief Executive Officer

Eighth Annual Oklahoma State University Energy Conference
Oklahoma City, Oklahoma

It is indeed a pleasure to be with you today in Oklahoma City and to reconnect with Oklahoma State.

When I was 14 years old, I became an employee of Oklahoma State University.

I was a bus boy in the Student Union. Seventy five cents an hour. Which was pretty good. And when I turned 16, I found out that janitors made a dollar an hour. So I became a janitor and was assigned to one of the engineering buildings.

I worked five to seven in the evening, sweeping floors and dumping trash out. On Saturdays, we worked eight to twelve polishing the linoleum floors and doing a good cleaning of the bathrooms.

Believe it or not, that it is where I had my first exposure to engineering. I was cleaning up one of the rooms and there were a bunch of guys in there and they were doing a lot of stuff that looked kind of neat. So I asked them, “What are you guys doing?” And they said, “Well, we got this project we are working on.” And I said, “Who are you?” And they said, “We are engineering students.” So I started to talk to them more and that was my first contact with engineering. Obviously it made an impression on me.

I do often reflect on my growing up in Stillwater and those early employment opportunities at Oklahoma State. And I am very grateful to OSU taking me in. They taught me early lessons about work ethic and with regards to your job: do it well, be reliable and be dependable.

I believe the U.S. energy industry plays a very important and similar role in our society by opening up avenues to hope and advancement that go beyond just the jobs created in oil and natural gas fields.

In fact, over the past five to six years, our nation – and the world – has been reminded of the fundamental importance and far-reaching impact of this industry.

This afternoon I want to discuss with you how our innovations in the energy sector are creating a new era of abundance for North America; how new supplies of energy are transforming our economy; and how North American energy and technologies are already reshaping global markets.

The Impact of Investment and Innovation

The extraordinary changes in the North American energy sector are a truly remarkable story of investment and innovation.

New technologies and techniques pioneered by our industry are now enabling us to unlock new conventional and “unconventional” resources of energy all across North America.

To our north, industry innovations are enabling the safe and responsible development of Canada’s vast oil sands. New technologies have opened up access to approximately 170 billion barrels of proven oil reserves. Now, that’s enough energy to fuel today’s North American passenger-vehicle fleet for more than 45 years.

To the south, in the Gulf of Mexico, advanced technologies have enabled unprecedented offshore exploration and production. A generation ago, my generation of engineers, we were working at drafting tables with hand drawings of design specs for drilling rigs and geoscientists were hand interpreting seismic shoots. Today, of course, we use high-speed, sophisticated computers to find resources and design rigs that can operate in water depths of more than 10,000 feet and that can drill wells five miles below 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. As a result, we project that in the period from 2010 to 2040, deepwater worldwide production will grow 150 percent.

Yet, the most unexpected technological breakthrough has been right here in the United States with our industry’s integration of hydraulic fracturing and horizontal drilling. These technologies and techniques have made it possible for our industry to develop North America’s shale gas and tight oil – resources found in dense rock formations thousands of feet below the surface.

In less than a decade, our innovations have completely rewritten what everyone thought they knew about North America’s energy supplies.

Sources of oil and natural gas once dismissed as “uneconomic” and “inaccessible” have been transformed into supplies that are accessible, competitive, and reliable. And, just as important, our technologies are enabling us to develop these resources in a safe, secure, and environmentally responsible way.

The results are more than impressive.

They are historic.

Since early 2008, U.S. natural gas production is up about 25 percent. Natural gas reserves are up more than 25 percent from 2008 to 2012 – and they are likely to increase further. To put it another way, our industry technologies are putting within reach enough natural gas resources to help power the U.S. economy at current demand for about a century. This new abundance of natural gas is so significant that in the years to come it can help us meet domestic demand and provide a valuable national export.

Innovations on the oil front are also record breaking. Since early 2011, U.S. oil production has jumped more than 50 percent – from 5.4 million barrels per day to the current daily production rate of 8.2 million barrels. That’s an increase of 2.8 million additional barrels produced in the United States every day. According to the U.S. Energy Information Administration, U.S. production will continue to expand to approximately 9.4 million barrels per day by the end of 2015.

In 2013 alone, domestic crude oil production increased more than the combined increases in the rest of the world. And last year set the record for the largest observed annual increase in U.S. history. Given these striking statistics, it should not be a surprise to learn that oil production in the U.S. is now at its highest level in 24 years.

In fact, the United States is now the No. 1 producer of oil and natural gas in the world, based on energy content.

Of course, most Americans – and even many policymakers – are still coming to grips with the implications of this new reality – and what the lessons mean for expanding our energy infrastructure, manufacturing base, and international trade.

Impact of North American Energy

With all our achievements, the U.S. energy industry is proving, once again, that investment and innovation are the keys to unlocking abundant sources of energy, safely and responsibly.

The resulting supplies are also proving that our industry brings a tremendous multiplier effect to the economy as new sources of energy power domestic growth and global opportunity.

Across America, vast, new supplies of energy are spurring economic expansion, creating jobs, and strengthening our international competitiveness.

We are experiencing profound economic benefits in energy-producing states such as Texas, Pennsylvania, North Dakota, and right here in Oklahoma.

Since the recession began in 2008, employment is up 40 percent in the oil and gas fields. And in every one of the 10 states where hydrocarbon production is on the rise, overall employment growth has outperformed the rest of the nation.

The benefits of our industry’s investment and innovation have also set in motion what is being called America’s “manufacturing renaissance.” Factories are relocating from abroad, companies are hiring, and domestic petrochemical facilities are expanding.

The positive economic effects are also being felt in America’s non-energy producing regions. Energy-related economic benefits have touched 32 states which do not have direct energy production. New York State, which has a moratorium on hydraulic fracturing, has more than 44,000 industry-supported jobs – with many of those the direct result of the Marcellus Shale development in next-door Pennsylvania.

In total, the benefits of domestic energy production are truly extraordinary.

The oil and natural gas industry now supports 9.8 million jobs. The U.S. energy sector accounts for $1.2 trillion of the U.S. economy, which is equal to 8 percent of our gross domestic product.

At a time when our economy continues to struggle and government budgets are hard pressed, the energy research firm IHS estimated that the development of shale gas and tight oil contributed more than $63 billion in federal, state, and local tax receipts in 2012 alone. By 2020, total government revenues are likely to nearly double. And on a cumulative basis, between 2012 and 2035, unconventional oil and natural gas activity is forecast to generate more than $2.5 trillion in tax revenues. And that’s just the contributions of unconventional development.

The contributions from our industry are not limited to economic revitalization or support for the public treasury.

Our investments, innovations, and operations are safely expanding energy supplies while reducing environmental impacts. In particular, as natural gas supplants coal for electricity generation, we are helping to reduce air pollution and greenhouse gas emissions.

The U.S. Energy Information Administration recently found that in 2012, energy-related U.S. carbon dioxide emissions had fallen to their lowest level since the mid-1990s.

Now, what makes this particularly remarkable is that the United States has about 50 million more energy consumers and an economy that is about 50 percent larger than it was in 1995. And yet our carbon dioxide emissions are close to what they were in the mid-1990s.

Re-Shaping the Global Landscape

For North America, new supplies are bringing energy security. For the world, North American energy is providing diversity, flexibility, and reliability to the global energy portfolio.

U.S. oil reserves are now at their highest levels since 1976. And for the first time in nearly two decades, domestic oil production now exceeds imports.

The energy industry is working hard to use these new supplies wisely. We are expanding our nation’s energy infrastructure. For instance, we are now better able to transport crude oil from the Bakken, Permian, and Eagle Ford tight-oil formations and Cushing, Oklahoma to U.S. refineries. Such investment in infrastructure is helping to further strengthen domestic competitiveness and energy diversity.

It is noteworthy that given all these changes, in 2013, China surpassed the United States to become the world’s largest importer of crude oil.

Even more extraordinary is that the United States is now in a position to become a net exporter of energy – completely turning on its head the idea of American energy scarcity that has dominated our public policy discussions since the 1970s.

As we look to the challenges of the future, it is clear that North America’s newfound abundance and energy security can help reduce the potential for international conflicts.

In addition, there is also the potential that our industry’s revolutionary technologies can be applied beyond the borders of North America to shale gas and tight oil resources all over the world. With such development, we could see the same economic and environmental benefits that have taken place in the United States.

As we consider the needs of billions of people around the world, it soon becomes evident that they will need North American energy and innovations in the decades ahead.

It is no exaggeration to say that there is a humanitarian imperative in the global effort to expand energy supplies.

At ExxonMobil, we project that increases in population, along with growing trade and development, will increase global energy demand by about 30 percent over the next 25 years. This number may not sound high when you first hear it, but it will be like adding more than the current energy demand of Russia, India, Africa, Latin America, and the Middle East combined.

To meet this tremendous growth in global demand, the world will need to develop all sources of energy, wherever they are economically competitive. Experts from government and industry agree that the world will need wind, solar, nuclear, and geothermal as well as oil, coal, and natural gas.

Many of the sources will grow rapidly. For example, we expect wind power to grow seven-fold over the next 25 years. Solar energy will increase about 1,000 percent. But even with that rapid growth, wind will account for about 7 percent of global electricity supply. And solar will account for about 3 percent.

It is important to recognize that in the decades ahead, oil and natural gas will continue to shoulder the vast majority of the world’s energy needs – about 60 percent. That is a slightly higher share than current levels, and with global demand rising, we will also be in need of much greater volumes in the future.

Increasing the world’s supplies of energy is a vital step for unleashing economic growth and technological advancement. With energy and development, nations gain new avenues for efficiency, breakthrough innovation, and the sustained opportunities to help individuals and communities prosper. In addition, technological solutions will be the keys to improving our stewardship of the environment for the benefit of all.

Enabling Future Investment and Innovation

The economic and environmental challenges of the future will require us to answer the question: How can we build on our past successes?

Simply put, we will need a new mindset in public policy making.

We will need energy policies designed for a new era of abundance, not policies trapped in a fear of scarcity.

We must put in place 21st century policies – policies that recognize that both government and industry have a role to play to turn investment and ingenuity into bold innovation and new ventures.

For industry, the first and foremost priority is to operate in a safe, secure, and environmentally responsible manner. Those of us in business must uphold the highest standards of operational integrity at every link in the energy chain – from planning and construction to production and project completion. Such a commitment from the private sector builds trust in our industry’s ability to deploy new technologies in new ways, bringing benefits to the public, while protecting the environment.

Government also has a responsibility to enable investment and innovation.

The first priority is to uphold the rule of law. North America’s energy leadership is not just a function of the continent’s resource endowment, it is dependent on the stability and rationality of the tax, legal, and regulatory frameworks put in place by government. Government creates the environment in which we have to operate.

Sound energy policy provides the clarity and climate for long-term investment and innovation. It enables our industry to marshal the expertise, technology, operational experience, and financial capital needed to safely and effectively develop diverse sources of energy.

In contrast, short-sighted policies aimed at achieving a flawed notion of U.S. energy independence by restricting trade or picking winners and losers hinder investment, hinder technological progress, and potentially undermine U.S. energy security.

In pursuing sound energy policies, government also has a responsibility to provide a clear pathway to regulatory compliance. The regulatory process should provide a clear and efficient pathway to meet the public’s expectations for safety, efficiency, and environmental protection.

One of the most important ways to do this is to ensure that public policies are governed by sound science and economic assessments of costs and benefits. And once government officials reach a decision based on rigorous regulatory processes, it is important for government at every level to honor regulatory decisions and avoid last-minute political gamesmanship.

The proposed Keystone XL pipeline is an example of the damage that can be done when energy policy is politicized. Keystone XL is a critical piece of infrastructure that would strengthen the ties between Canada and the United States by delivering supplies of oil from our northern neighbor to U.S. refineries.

For six years now, government and industry have intensively studied Keystone XL. More than 100 open houses and public meetings have been held. Thousands of pages of supplemental information have been gathered providing detailed responses to questions submitted by both state and federal agencies.

During this process, the State Department has studied 14 different routes. It has issued a draft environmental impact statement, a supplemental draft environmental impact statement, and a final environmental impact statement that total more than 10,000 pages. After all of this work, public comment, and legal and scientific input, the State Department has twice determined that the pipeline would pose no undue risks to people or the environment.

And, yet, Keystone XL pipeline is still caught in political limbo.

In this new era of abundance, government policy makers must act to re-affirm our nation’s commitment to open markets and free trade. Government has a special – and primary – role in strengthening international ties by promoting free trade. This role is particularly important now, as North America is well positioned to export a small portion of our vast natural gas supplies to rapidly developing global markets.

Fortunately, economists and political leaders from across the political spectrum have come forward to endorse the increased investment and domestic employment that would flow from free trade in liquefied natural gas (LNG). Nevertheless, some 20 LNG projects still await the regulatory green light. These are massive, multibillion-dollar infrastructure projects that would support tens of thousands of jobs here in the United States and bring much needed energy to our friends and trading partners around the world.

History has proven that when industry and government fulfill their respective roles, sound policies unleash investment and innovation. The benefits are always economic growth, increased opportunity, and technological leadership and advancement.

Supporting the Next Generation of Innovators

Of course, the ingenuity and innovations that created our current transformational moment were decades in the making. And this should inspire us to look beyond just economic and energy policy to the strongest foundations for international leadership.

To sustain our technological progress, we must work to improve educational opportunity and achievement. We must find ways to produce more scientists, more engineers, more mathematicians, and entrepreneurs – because ultimately people are the source for revolutionary ideas, enterprising companies, and widespread national prosperity.

Unfortunately, the evidence from state, national, and international assessments indicates that U.S. students are falling behind. Late last year, the Program for International Student Assessment found that out of 65 nations tested, U.S. students ranked 31st in math … 24th in science … and 21st in reading.

That is why ExxonMobil has taken a leadership position to support teachers and students by promoting research-based programs in science, technology, engineering, and math education.

It is also why ExxonMobil is a supporter of state standards that are rigorous and internationally benchmarked. We believe that education standards must clearly define the knowledge and skills students will need to master in each grade to be college and career ready in the 21st century.

By clearly defining what students need to know and be able to do, we can measure outcomes from year to year and state to state. We can also identify deficiencies and find ways to address them. In short, high state standards will be instrumental in our society’s goal to improve individual education achievement and to unleash innovation in our schools and, ultimately, in our economy.

Recently, however, Oklahoma policymakers have decided to retreat from the state’s prior commitment to implement the Common Core State Standards. My hope is that the state will recognize that there is no substitute for high and meaningful standards in our shared effort to ensure every child is learning.

With government, industry, and society united, we can meet the challenges of the future.

We can expand supplies of energy, safely and responsibly.

We can open up new avenues of international trade and understanding.

And we can improve educational opportunity for every child.

With a commitment to these shared goals, we can lay the foundation for hope, opportunity, and progress for decades to come.

Thank you for your kind attention.

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