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Speech

March 1, 2016

The importance of innovation in a downturn

Randy Cleveland, President XTO Energy

Randy Cleveland President, XTO Energy

Annual IADC/SPE Drilling Conference
Fort Worth, Texas

Ladies and gentlemen, it’s an extreme pleasure to be here to welcome all of you to XTO Energy’s hometown.

We were founded here 30 years ago, just two blocks down Houston Street in the W.T. Waggoner building. Built in 1920, it was at the time the tallest building west of the Mississippi.

Waggoner and six other buildings downtown remain the company’s headquarters and are home to about 2,000 of our employees.

I’m confident you’ll enjoy your time in Cowtown … “where the West truly begins.”

This is always an important conference … one that brings together leaders from around the world. As a long-time member of SPE, I’m honored to address you this morning.

In preparing to speak to you today, I took the opportunity to reflect on my career in the oil and gas industry … first with Exxon, then ExxonMobil and now with ExxonMobil’s subsidiary, XTO Energy.

I thought about the extraordinary changes and transformation I’ve seen over the past 30-plus years … both within my company and across the industry. Quite frankly, it’s nothing short of remarkable.

Just think about the scale of the challenges we’ve faced … and those we’re facing today. Then think about the ingenuity and tenacity it took to develop the technological solutions to tackle them.

It’s hard not be in awe of the countless scientists, engineers and entrepreneurs … both past and present … who have worked together to create innovations that have transformed our country … and the world … for the better.

For example, the shale energy boom here in the U.S. over the past decade has brought us out of years of domestic energy insecurity … and into an age of energy abundance.

And the “peak oil” theory of just a few years ago has yielded to a new energy reality.

From its earliest days to the present day, our industry has pioneered technologies that have unlocked new supplies of energy … energy that has brought advancement and opportunity to billions of people around the world.

Even now, in the midst of today’s chaotic markets, we continue to invest and innovate … not just to expand supplies of energy here in the U.S., but for the billions who still live in “energy poverty” across the globe.

Our industry is a shining example of the power of innovation and cooperation … across companies, cultures and continents. And these will also be the key to meeting our shared aspirations to continue to expand supplies … increase energy efficiency … and eliminate energy poverty in every corner of the world.

As everyone here today knows, we’re in a period of extraordinary transformation in the energy sector.

Global energy markets have begun to reflect a fundamental and far-reaching realignment of energy supply and demand.

Decades of sustained investment, innovation and collaboration across the industry have opened up resources from offshore ultra-deepwater reservoirs.

Our ever-improving technologies have made it possible to develop oil sands safely and responsibly.

And most recently … and closest to my heart … a combination of proven technologies and new techniques pioneered by our industry have made it possible to unlock vast new supplies of oil and natural gas from North American shale and other tight reservoirs.

The result of these innovations has been a growth in energy supplies that no one would have imagined even a decade ago.

However, this growth comes just as the global economy has slowed … which is moderating energy demand.

The convergence of these two market trends has led to a significant downturn in the commodity cycle. It’s not the first downturn our industry has endured … not our “first rodeo” as we say here in Texas. And it certainly won’t be the last.

And although no one can predict when things will change, history tells us what we need to do: We must operate more effectively and more efficiently than ever before.

For those companies able to find increased efficiencies through better execution, advanced technologies and path-breaking innovations, there will be tremendous opportunities ahead.

At XTO, for instance, we’re continuing to drill in many of the major basins in the U.S., particularly in the Permian out in West Texas and New Mexico and the Bakken up in North Dakota.

Internationally, we recently expanded our Montney/Duvernay interest in western Canada, and in the coming weeks, we’ll spud our first well on a pilot project in the Vaca Muerta formation in Argentina.

We remain focused on the long-term, because the need for energy is universal. In the decades ahead, the world will need us to develop new technologies and new supplies of energy because the global demand for energy is on a trajectory to grow … and grow significantly.

And we’re not alone in that long-term vision. The U.S. government certainly knows global energy demand is on the rise, and that’s one reason the four-decades-old ban on crude exports was lifted late last year.

And you … the firms represented at this conference … have worked very hard to cut down the number of days it takes to drill and complete wells … enabling us to move into production faster than ever before.

In the Bakken, for example, we now drill wells that are two miles deep and two horizontal miles long in just 17 days … wells that took us 30-plus days just four years ago. And thanks to you, we’ve reduced drilling time in our West Texas horizontal Wolfcamp by 40% since 2014, despite a 20% increase in average well depth.

And … of critical importance … you’re doing it safely. The total lost time incident rate for contractors working at XTO sites has been reduced by nearly 60% since 2012. That’s something we can all be proud of.

It’s that type of responsible and innovative spirit … along with growing support from community leaders and policymakers … that’s enabling our industry to meet rising energy demand.

As I mentioned a few moments ago, XTO is a wholly owned subsidiary of ExxonMobil. And every year, ExxonMobil publishes a long-term projection called The Outlook for Energy. It’s available in its entirety on exxonmobil.com, and I encourage you to download it.

The Outlook shows that future energy demand will be shaped by three major forces: population growth … trade and economic development … and energy efficiency.

We project global economic output will more than double by the year 2040. We also expect the world’s population to grow … adding about 2 billion new consumers of energy … and another 3 billion who will join the middle class.

As a result, even after factoring in continuing increases in energy efficiency, we expect global energy demand will still grow by about 25 percent by 2040.

This fundamental fact … that energy demand and economic growth are intertwined … guides our view about the importance of our industry meeting its responsibilities.

But there’s also a moral imperative to what we do. Expanding energy supplies safely and responsibly will be critical to securing the future for billions of people across the globe.

Without such ingenuity and innovation, the world will lack the reliable and affordable energy needed to end “energy poverty.”

Now you’ve heard me use the term “energy poverty” a few times this morning. What I mean by that is not everyone enjoys the same living standards we take for granted.

Just think about what you did to get here this morning. Your alarm clock woke you up. You made yourself some coffee and jumped into a hot shower. You checked messages on your iPhone and then you hopped in a car to get to the convention center.

All things we take for granted … and all things that billions of people around the world can only fathom.

According to the latest data, about one in five people around the world still has no access to electricity. About two out of five must still rely on biomass … such as wood, charcoal or animal waste … for basic cooking and heating needs.

For billions of people living around the world, simply gaining access to reliable, affordable energy is the means to a healthier and better life. For their communities, energy is the key to cleaner water … better sanitation … safer, more nutritious food … and even light for education, study and personal advancement.

Energy is essential for modern life, and our industry will be instrumental to meeting this fundamental human need. This means that our investments and innovations will continue to be vital in the decades ahead … regardless of where in the commodity price cycle we find ourselves.

But this increased energy demand creates a second challenge: reducing the greenhouse gas emissions associated with energy use.

ExxonMobil scientists and engineers have been involved in discussions and analysis of climate change since the 1970s. Despite what you may have read in the press in recent months, our message has long been crystal clear: We believe the risks of climate change are serious and warrant thoughtful action.

We also believe that by taking sound and wise actions now, we can better manage those risks.

As we work together to reduce emissions, it’s critical we do so in a way that recognizes the importance of reliable and affordable energy in supporting human progress across the globe.

Throughout our history, the energy industry has continuously proven that technological advances can bring far-reaching and positive change.

Our innovations have brought new supplies to the market and improved energy security and international trade. Technology has also advanced efficiency and contributed to environmental gains.

I’ve witnessed first-hand the success of the U.S. shale revolution on all these fronts. Technological advances have created a new era of energy abundance in North America … spurring job growth … fueling economic opportunity … and unleashing a manufacturing renaissance, particularly along the U.S. Gulf Coast where chemical plants are expanding due to low feedstock costs.

A new era being fueled by natural gas. Reliable … affordable … abundant … versatile … natural gas.

And because natural gas emits up to 60 percent less carbon dioxide than coal when used for power generation, natural gas from shale has been instrumental in reducing U.S. CO2 emissions to levels not seen since the 1990s.

Remarkably, these reductions have come even as the U.S. economy has grown about 60 percent and added 50 million more energy consumers.

Our industry’s commitment to environmental stewardship is also evident in our efforts to reduce methane emissions, which according to the U.S. Environmental Protection Agency, have fallen almost 17 percent since 1990.

Think about that for a moment: a 17 percent decrease! Despite the fact that natural gas production has taken off in this country.

In fact, since 2008 alone, U.S. natural gas production from shale has nearly quadrupled, but methane emissions continue to decline.

That’s a direct result of our industry’s commitment to innovation and investment in new technologies … and operational integrity improvements designed to optimize resource recovery.

It’s also the direct result of innovative companies operating in free markets. The competition inherent to free markets drives us to invest and innovate, creating integrated solutions that improve the production and use of energy at every step in the value chain.

Innovations … that help us reduce emissions.

Innovations … that help us increase energy efficiency.

Innovations … that improve the health and quality of life for communities right here in the U.S. and around the world.

But none of this innovation is possible without one thing … and that’s people.

Outstanding people are the key to creating innovative solutions and maximizing value, regardless of the current state of our commodity market. We cannot repeat the mistake so many of us made in the 1980s, when several companies stopped hiring new talent as a way to manage costs.

One of our industry’s greatest challenges is to find new efficiencies for cost savings … while at the same time cultivating a capable workforce for the future. We must make wise, forward-looking decisions to keep our workforce strong … laying the groundwork now for when the market will eventually turn upward. The importance of continuing to develop a world-class workforce cannot be overstated.

As president of XTO Energy, not a day goes by without me being impressed by the people with whom I work. We depend on roughly 5,000 employees … and countless men and women from many of the firms represented here today … to make it all happen. And make it happen they do.

In these uncertain times, it’s our people who give me faith. Our industry is always facing risk, whether it’s geopolitical … technical … environmental … or as we’re seeing today – financial.

Managing these risks requires an extraordinary workforce, and I believe the men and women in our industry are unequaled. It’s imperative that we continue to invest in their future … and ours.

In closing, let me leave you with this.

Our industry is facing tremendous challenges. But the flip side is we’ve also been given a tremendous opportunity. Opportunity that can only be captured by continuing to innovate.

Innovation doesn’t have to be earth-shattering. It comes in all forms … in all sizes. Sometimes the most subtle changes can make a huge difference.

But one thing is clear: Innovation will help advance economic growth and individual opportunities for future generations.

By valuing the role of continued innovation, we can continue to push our industry forward, and deliver the energy the world needs for decades to come.

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