Spill shouldn't halt drilling, Chevron CEO says

By Brett Clanton
Tuesday, May 25, 2010

Chevron Corp. CEO John Watson said he was humbled by the fatal rig explosion and oil spill in the Gulf of Mexico and that the incident has clearly hurt the industry's reputation, but stressed that offshore drilling is too important to U.S. energy supplies and the economy not to go forward.

"It's not an either or. We need to drill safely, and we need to produce the supplies that are needed," he said.

But to regain the confidence of the American people, he acknowledged, "it may be that we need to raise the bar to be sure that everyone is operating at the same high standards."

Watson - speaking ahead of the San Ramon oil giant's annual shareholder meeting in Houston on Wednesday - said what is taking place in the gulf today is not what the public should expect from the offshore drilling industry going forward.

"This is a humbling accident, and it's important for us to recognize that the American people want energy to be supplied, but they expect it to be provided in a safe and reliable fashion," he said. "In this instance, that didn't happen."

Though Chevron has no ownership in BP's well - still spewing oil into the gulf after a deadly April 20 rig fire there killed 11 workers, sank a rig and launched an environmental catastrophe - the company has a big stake in seeing the disaster is quickly resolved.

At the end of 2009, the nation's no. 2 oil company was the largest leaseholder in the Gulf of Mexico and had one of the biggest positions in the deepwater, defined by U.S. regulators as more than 1,000 feet, which has come under particular scrutiny since the Deepwater Horizon disaster.

Though virtually nonexistent in the gulf as recently as the early 1980s, oil and gas exploration and production in the deepwater has accelerated with the advent of better drilling technology and limited access elsewhere. The region now accounts for roughly a third of the U.S. oil supply.

Risks of drilling

But as the current situation illustrates - BP has repeatedly talked about the difficulty of plugging a well in 5,000 feet of water - it also comes with bigger risks.

Watson said he feels very confident in Chevron's deepwater procedures, which nevertheless have been reviewed since the BP incident.

Even so, "our industry has to show some humility here and see if we can learn and enhance the practices from where they are today," he said. That includes both drilling procedures and equipment as well as practices for responding to spills, he said.

This month, Interior Secretary Ken Salazar said no new offshore drilling permits would be issued until at least Friday, his department's deadline for producing a report to President Obama on ways to improve offshore safety. Last week, an industry task force including representatives from Chevron submitted a report to Salazar with recommendations.

While the temporary ban is in place, the oil and gas industry could be forced to delay between $1.6 billion and $2.9 billion in spending, according to industry consultant Wood MacKenzie. Extended for six months, it could postpone up to 4 percent of deepwater oil production now slated for 2011, the firm said in a report this month.

Accepting scrutiny

Watson said the freeze on new permits has not yet had a significant impact on Chevron. He even gave a nod to the Obama administration for striking the "right balance" in responding to the spill so far.

But he said the industry must get back to work quickly or jobs and vital oil supplies could be jeopardized - even if it means doing so with additional oversight by regulators.

"We're not troubled by more scrutiny," he said.

The gulf oil spill will be an unavoidable part of the backdrop as Chevron gathers in Houston for its annual meeting. The company also will have to contend with a phalanx of environmental and human rights groups expected to protest its alleged abuses from Ecuador to Nigeria.

Shareholders, meanwhile, will hope for word of better days ahead, after the company's net income dropped 56 percent last year to $10.5 billion amid the turbulent economy and lower commodity prices.

 
 

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