Shaping a sound U.S. energy policy

Ken Cohen, Vice President-Public Affairs

An interview with Ken Cohen, Vice President-Public Affairs

 Working together, Americans can achieve a secure, affordable, environmentally responsible energy future.

Q: With the changes in Washington, what attention do you believe will or should be given to U.S. energy issues, and what role do you see ExxonMobil playing in addressing these critical matters, now and in the future?

A: The level of discussion about energy policy during the recent election campaign shows how important these issues are to our elected representatives and to all Americans. There is a wide diversity of opinion on how to move ahead on this important subject, and we anticipate and look forward to many active discussions with those who have an interest in this area.

Our incoming administration, Congress and all Americans face important challenges, and many of these relate to energy. While we have seen a significant drop in fuel prices, which has brought welcome relief to family budgets, a critical policy challenge remains: How do we ensure reliable and affordable energy supplies to power our economy and safeguard our energy security while preserving the environment?

Our government, the energy industry and all Americans must work together to develop a sound energy policy not just for the next four years, but for the next 40 years, and beyond. We will need massive, long-term investments – in energy production, technology, infrastructure and in the education of the next generation of scientists and engineers. We need to develop solutions that allow us to draw upon all the resources and capabilities our nation can marshal. ExxonMobil is ready, willing and able to do its part.

If we do this right – if we come up with integrated approaches involving all economic energy sources such as more oil and natural gas, as well as nuclear energy, renewable fuels and other alternatives – we can strengthen U.S. energy security, create new jobs, re-energize the economy and contribute significant revenues to state and federal budgets. ExxonMobil is confident that Americans, working together, can achieve a secure, affordable and environmentally responsible energy future for our nation.

Q: We have experienced tremendous volatility in crude oil markets this past year, with prices reaching a high of more than $140 a barrel, along with the average cost of regular gasoline exceeding $4 a gallon. Do you think this caused a material change in the American public’s view of the need for a more coherent, long-term energy policy in this country?

A: We’re experiencing significant volatility not just in commodity markets, but in the financial, credit, manufacturing, housing, retail and other sectors as well. In many respects, this underscores the cyclical nature of the business environment in which ExxonMobil operates, but it also reinforces the importance of developing sound and predictable tax, fiscal and energy policies that take a long-term view and that aren’t simply reactions to fluctuating oil and gas prices. But, yes, I think recent events have raised the awareness of energy issues in the minds of many Americans, and made clear the compelling need to have more options available to us – more oil, more natural gas, more clean coal, more biofuels, more wind, solar and alternatives of all types. Significant improvements in energy efficiency and expanded access to American lands and offshore waters that contain oil and natural gas resources are critical to making this happen.

Abandoning these efforts when prices are lower is not the answer, nor would it be a wise course of action, and I’d hope that doesn’t happen. We need to agree on an energy policy that promotes investment in this country over the long term, one that will increase the diversity of energy supplies, not restrict them.

Q: As follow-up to the prior question, earlier this year policymakers were talking a lot about U.S. energy independence and security, but with the current economic crisis the focus seems to have shifted to economic security. Is it realistic to think this country can eliminate foreign imports of oil and gas, and, if not, what steps is ExxonMobil taking to make more energy supplies available in the United States, either through increased exploration, additional North American projects or greater efficiencies at the company’s U.S. refineries and chemical plants?

A: In so many ways, our economy is intertwined with the global economy: We are not independent in our capital markets. We are not independent in most of the commodities we use every day – and we are certainly not independent in the energy markets. We’ve seen how events around the world can have profound, immediate effects on oil and gas supply, demand and price.

Energy independence is not a practical way for the United States to achieve energy security. But that’s not to say we aren’t doing more to develop more energy resources in the United States, which will have the effect of helping the economy through creation and retention of jobs, purchasing of goods and services and other economic contributions. For example, we’re involved in the development of two U.S. LNG terminals, one of which will begin operations next year, to make more clean-burning natural gas available in this country. We’re continuing work on our Piceance Basin tight-gas project in the Rockies, and the first phase of that facility will start up early in 2009. And across the country, we are increasing activity in onshore gas plays driven by drilling in the Rockies, the Arkoma Basin, and in both East and South Texas. We have an active lease acquisition program, and this year we continued to acquire significant exploration acreage.

We continue to invest heavily in our U.S. refineries and chemical plants, and through technology application and efficiency programs we have more than increased capacity to meet demand for motor gasoline and other essential products.

Q: How is ExxonMobil weathering the economic downturn – does it affect our capital spending in the United States and elsewhere?

A: ExxonMobil’s business is strong and so is our commitment to investing throughout the economic cycle, here in the United States and around the world. We are investing at record levels to find and develop new supplies of energy, and our investment plans have not been affected by the current decline in crude oil prices or the economic downturn.

We are on track to invest between $25 billion and $30 billion dollars a year through 2012 – more than $125 billion. This reflects our proven approach to capital spending and the strength of our industry-leading portfolio of 119 projects, which are expected to bring on more than 24 billion oil-equivalent barrels of energy to U.S. and world markets.

None of our projects relied on the very high oil prices we saw last summer, and in these uncertain economic times, ExxonMobil continues to do what it does best, regardless of the ups and downs of business cycles. We take a disciplined and long-term approach to investment to achieve industry-leading returns and develop new supplies of energy that are vital for economic growth.

Q: We hear that the oil companies are “sitting” upon millions of acres of domestic oil and gas leases that could be easily developed to supply even more needed energy to U.S. consumers. Is this true?

A: It’s simply not true. If you think about it, it doesn’t make sense that anyone with commercially producible oil would sit on it. It costs millions of dollars to acquire and maintain leases, and many millions more to evaluate resource potential and develop new technologies to make production possible in increasingly challenging environments. The only way to recoup those investments is to produce hydrocarbons for sale. As I mentioned earlier, ExxonMobil’s capital investments are long-term in nature, and we invest steadily throughout all price and economic cycles.

A lease term is typically five or 10 years and must be relinquished if production or other activity doesn’t occur within a specified term. ExxonMobil is either producing or evaluating 78 percent of its leased acreage; most of the remainder that we’ve analyzed and deemed not prospective expires within the next 12 months, and will be available for re-leasing.

Q: Climate change is an issue of ever-growing concern, and many believe that an approach to addressing it is through the increased development of alternative and renewable energy sources. What is ExxonMobil doing in this regard?

A: We are working to provide the world with the energy it needs while reducing greenhouse-gas emissions. We take the issue of climate change seriously and the risks warrant action. So what are we doing?

We are reducing greenhouse-gas emissions in our operations, helping consumers reduce their emissions, supporting research into technology breakthroughs and participating in constructive dialogue on policy options with NGOs, industry and policymakers.

Our focus is to reduce emissions and improve efficiency. Since 2004 we have invested more than $1.5 billion in activities that reduce greenhouse-gas emissions and improve energy efficiency, and we will be spending at least $0.5 billion on additional initiatives over the next few years. In addition, we are spending more than $4 billion in gas utilization and commercialization projects to reduce routine natural gas flaring. We’re already seeing results. Through efficiency actions taken in 2006 and 2007, we reduced our greenhouse-gas emissions by about 5 million metric tons in 2007, equivalent to removing about 1 million cars from roads in the United States.

Our strategy for alternatives and low-emissions energy technologies is twofold: First, we’ve developed a variety of technologies available today, such as tire liners that keep tires inflated longer, advanced fuel economy engine oil and lightweight automobile plastics. Use of technologies such as these in one-third of U.S. vehicles would translate to a savings of about 5 billion gallons of gasoline and greenhouse-gas emissions savings equal to taking about 8 million cars off the road.

We are also working on other new technologies both for the mid- and longer term that address the need for both improved fuel economy and reduced emissions. For example, we developed an improved lithium battery separator film that could help launch the next generation of hybrid electric cars. We are involved in advanced engine research that could improve fuel economy by 30 percent. We are researching a way to generate hydrogen on board vehicles to power fuel cells that could improve fuel economy by 80 percent and reduce emissions by 45 percent. And we are investing more than $100 million in a new technology for separating carbon dioxide from natural gas, which could help commercialize applications for carbon capture and storage.

Q: In your view, what are some important considerations that should be addressed if the country were to adopt a national policy on climate change?

A: First and foremost, it should not place the United States at an economic disadvantage with respect to other nations. Given the global nature of the challenge and that developing countries will account for a significant portion of emission increases, any policy framework must encourage global engagement.

In addition, ExxonMobil believes the best policies are ones that let market prices drive the selection of solutions, in part because markets are best at selecting and deploying new technologies. A uniform and predictable cost for carbon across the economy also will allow markets to work effectively, ensuring economic efficiency and the greatest reduction in emissions for the lowest cost. Administrative simplicity and transparency – for companies and consumers – are essential, and any sound policy must evolve and adjust as climate science develops and we see the impacts of climate policy on the economy.

What’s very important is for policymakers to take into account all the cost and benefit options in developing programs for emissions reductions, whether they involve cap and trade, carbon tax or some other approach. ExxonMobil will continue to be a constructive participant in these dialogues.

Q: Throughout the 110th Congress there were multiple proposals for increased taxes on the oil industry and, in fact, as part of the federal bailout package for Wall Street, $9 billion in additional taxes were levied. There is serious talk of imposing a windfall profits tax on oil and gas companies. ExxonMobil has, and obviously will, oppose such measures. Why?

A: For every dollar we earn, we incur two and a half dollars in taxes that governments use to provide schools, roads, hospitals and other essential services. In the United States alone, our total tax obligations during the five-year period of 2003 to 2007 were $64.7 billion, exceeding our earnings from U.S. operations by $18.7 billion.

Yet, unfortunately, some are proposing that new taxes should be imposed on American energy companies. There’s no question that additional punitive taxes will limit the industry’s ability to invest in new supplies, which conceivably could moderate price increases to provide the economic stability we spoke about earlier. Punitive taxes don’t offer any sustainable, long-term solution to help develop new energy supplies. In fact, some of them, such as the windfall profits tax, have been tried in the 1980s, and they resulted in higher imports and reduced domestic production.