Charlie Rose Talks to Chevron CEO John Watson

The Chevron chief discusses oil’s wild ride, fossil fuels’ future, and his company’s $19 billion legal battle in Ecuador.

Key Speakers At The International Conference & Exhibition on Liquefied Natural Gas
Photographer: Aaron Bunch/Bloomberg

How do you answer when someone asks about the prospects for fossil fuels?
If you think about the last 150 years, all the advancements in living standards, everything that we enjoy—light, heat, transportation by land, sea, and air—everything we value is coincident with fossil fuels. New York would be dark without them. Fossil fuels are important now and will be for many, many years to come. It’s going to take nuclear. It’s going to take coal. It’s going to take renewables. Remember, the developing world needs all this energy to raise living standards, because they aspire to the things that we have.

On the issue of oil’s price swings, is it just supply and demand?
At its simplest, it is. What’s not told is that demand rises relatively predictably over time, but supply comes online in big chunks. The industry does many long-lead projects. And if you get supply and demand a little bit off as you’re building that new capacity, you can get big excursions up and down in price. And that’s what we saw recently. Over the last five years, we had production that went offline in the Middle East. So prices went up. Then we got it a little bit off as the economy slowed down and Saudi Arabia and Iran returned supplies to production.

And what’s the impact of shale oil?
Well, it surprised the oil market, would be the first thing I would say. But what it really showed the market is there’s a fairly resilient source of supply that’s available on short notice. What the shale business showed is that, with the combination of hydraulic fracturing and horizontal drilling, we can grow production pretty rapidly if we have the right price environment. When oil was over $100, we were growing production in this country by a million barrels a day per year.
 
What’s the status of your Latin American lawsuit?
You’re referring to a large case in Ecuador, where a New York trial lawyer attempted to defraud my company out of $19 billion. Fortunately, we were able to prove, in a New York court, in a civil case, that RICO statutes were violated, along with numerous other laws—Foreign Corrupt Practices Act, extortion, wire fraud. We continue to fight that. Thus far, we’ve been very successful. There’s risk, but we’ve been able to manage it.
 
What do you see happening in Venezuela?
Venezuela, technically, holds the largest reserves in the world. But it’s facing internal difficulties. We’re the only American company there right now. We work very hard to maintain our relationships. We deal in long cycle times, so we work with governments across the political spectrum, including the Chávez government and the Maduro government today. One of the things that distinguishes American companies is we really don’t adopt an ideology. If it’s legal for us to do business and we can do business according to our standards, we’ll do business in many different countries around the world, regardless of ideology.
 
How would you assess Obama’s administration in terms of energy, the environment, trade?
They’re rushing out regulations as we speak, in their final six months. Just in the last couple of weeks, they’ve done some—a well control rule in the Gulf of Mexico. Our industry has put in place a hundred new practices in collaboration with the government since the Macondo incident to improve drilling safety. And yet, with very little engagement with industry, they rushed out new provisions. Also, methane regulations. The cost of these methane regulations is disproportionate to the benefits, at any reasonable price on carbon. Those are just two recent examples. In general, I would say the power has shifted toward regulators in this country. I don’t think it’s a coincidence that we’re seeing subpar economic growth. I think it’s a burden.
 
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