Saudi Aramco CEO: "We Have to Invest Wisely"

change why she had to be done July's change organizations guy he organized I might change the world truly a pleasure to be here of course being a good businessman I tried to size up the competition and checked on who's been here thank you three meetings ago you had the CEO Citigroup one of those institutions that are too big to fail but keep failing and you had partner from McKinsey and last week as you mentioned Dean you had the president of Turkey so a banker a consultant and a politician and you're rounding up that list of most popular institution with Big Oil's but seriously it's indeed nice to be here I I of course love the Bay Area I had the fortune that Aramco sent me here on a developed on a working assignment in San Francisco back early in my career in the very early 80s and like all of you you're I'm sure this is an area that one can't resist and then of course our company extends back in history our roots are actually in the Bay Area Aramco Saudi Aramco is the Saudi Arabian oil company today but we started with a concession to Standard Oil of California and the first name of the company that ran that concession was called California Arabian Standard Oil Company so California was a head of Arabian and in the roots of Saudi Aramco and of course to top it off just a couple of weeks ago my youngest son has announced that he's joining Stanford in September so this is just around so you may be seeing more of me in the future but it's it's truly a pleasure to be here this is the finest school in my opinion on many fronts and certainly the business school ranks as one of the best and in fact I have some of my colleagues for products of your executive education program and also the school of Earth Sciences those historic links with with the institution are reflected in many ways today I mentioned colleagues we have 40 Stanford graduates the highest of which is actually the chairman of Saudi Aramco and our minister of petroleum who is also a graduate of the school of Earth Sciences and geology and we have 13 students who are enrolled here I hope some of them are here ok good I saw a 13 hands if not you are gonna hear from me but we also had 30 MBAs I understand earlier this year I tried to meet them when they were here any of them bees who came to Saudi Arabia and in the crowd today and visited the company I see a few hands I hope you enjoyed your trip and it was instructive and useful for you and certainly we hope that more of these exchanges between our employees and the students of Stanford will be continuing in the future later on tonight I will be having the pleasure of joining with your Provost at chemin D dr. Rachael Andy and some of the leadership of the school of Earth Sciences to celebrate an endowment that Saudi Aramco is putting in place to endow a chair and the name of Max Steiner Keith at the Dean has talked about our first chief geologist and a pioneer and every meaning of the world if I can elaborate in what he said this man who came from very humble beginnings had his education here at Stanford who went and tried finding oil and Indonesia and Alaska and elsewhere and just thought that the frontier place to go to was the Kingdom of Saudi Arabia so he called Chevron said you just signed a concession with the kingdom and I want to be part of it and he was sent to a country with no roads no airports no air conditioning no electricity for that matter literally a country that was hundreds of years behind at that time in terms of infrastructure and amenities to support life and he mapped the whole kingdom there were no Maps and started drilling after five years of frustration the headquarters office and San Francisco Opera Road sent a cable to to the people in the field and order them to stop working well max didn't want to hear of this so he hid the instruction from his team and they were drilling at that time the 7th world and ordered them to drill a little deeper after receiving a distraction well the rest is history because drilling a little deeper they discovered our first gusher our first commercial oil discovery and the mom number seven which became lucky number seven and later on was named by the king of the kingdom as the prosperity world well since then more oil has been produced by our companies than any other company in the world so it's in there inspired by this instruction and the spirit of Steiner cave drilling a little deeper that I would like to talk to you today I'd like to drill a little deeper about Saudi Aramco and I think the Dean did a good job of giving you some of the top-line numbers and our position of the market but for you to really make sense of my views from the top as lecture series is called you really need to understand what is happening at the bottom so to speak and a cross-section of functions and levels of the company so I will try to drill a little bit deeper about what around Co is what it is context and how it runs its business nationally globally and the very important energy markets now one thing I want to be careful because I know this lecture is taped and I want later on to be used as evidence I am NOT encouraging any of you to refuse the instructions of your bosses when they ask you to do something so although we're we're very happy with the fact that Stein Ackley continued drilling and discovered oil the and 10 always we encourage our people to do listen to instructions from their management let me start by giving you that in depth presentation about what the company does and where we are as I mentioned we produce more oil than any other company the D mentioned that we're producing 10% actually the numbers has gone up you can count today that we produce one out of every seven barrels of oil produced around the world that is 10 million out of about 72 barrels 72 million barrels of oil that are produced globally Saudi Aramco is also a significant Gaza gas producer we are one of the top gas producers in the world we have we're the only one that has any spare production capacity to speak of as a company we have more than half of the global spare oil production capacity so our decisions on production our ability to respond or god forbid not not being able to respond could have consequences not only to the oil market but to the global economy that are not equalled or not matched by any other company in the world this of course requires not just reserves and resources which we have plenty of but it requires unique capabilities operational capabilities technical capabilities financial capabilities management and leadership capabilities and the ability to lead in a business that is the most politicized of any business the oil market is highly politicized as you all know and downstream in addition to that dominant position in the upstream we are also quite sizable we have joint ventures around the world and we sizeable refining capacity in the kingdom and our operations range from here in the US all the way extending in China and in Japan and Korea in Asia in terms of our financial position we're probably one of the very few probably the only company I know of of our size and scale that have no debt on our balance sheet we are so strong financially that we have been you know financially long and our cash flow for as long as I can remember we pay taxes and royalty and we have an arm's length relationship with with the shareholder which is the tax collector at the same time we fund our own capital and operating expenditures and then we pay dividends afterwards but we've never been in a situation where we as Saudi Aramco have to borrow money to fund our operations so we're fiscally responsible and capable as a company of course with this competence financial position and influence on global markets energy and otherwise there comes a lot of responsibility that comes a lot of global responsibility because we always look at the influence that oil has on global economy and we have to manage that relationship very carefully but also being the national oil company of a developing country like Saudi Arabia that is still relatively early in its development cycle we have a unique responsibility within the Kingdom of Saudi Arabia to leverage everything we have and enable the acceleration of the development of the kingdom we are of course the predominant source of revenue for the kingdom we are the only supplier of energy to businesses utilities and individuals within the kingdom but beyond that we are expected to do a lot more in addition to what you would expect an oil and gas company to have that drilling the subsurface reservoir management the vast operating plant for upstream midstream and downstream given the concentration and complexity of our oil and gas core business and the scale of what we do we also run a lot of support businesses that are unique for any company of any kind we have a significant fleet of aircraft both fixed-wing and helicopter to manage our operations we have hundreds of marine vessels that manage both our offshore production as well as our transportation of crude around the world we have housing compounds that houses tens of thousands of our employees and their families we have remote area camps that support our plants in the desert we have a health care system that has hundreds of thousands of patients that will fully support on all of their medical care so the company an addition of being at scale to say the least in oil and gas we have all of these unique and diverse support services that make Saudi Aramco indeed one of acount one of a kind now because of the breadth and complexity of these various mandates that I talked about the international the national the business it is always a challenge to remind ourself to stay close to our mission and let me just say for for your sake what the mission is Saudi Aramco's mission as an integrated international company is to engage in all activities related to the hydrocarbon industry on a commercial basis and for the purpose of profit this is a very focused and a very smartly written mission statement to remind us that despite everything I said about the international the geopolitical the macroeconomic impact of the company that ultimately at our core just like any other multinational company and the other private company we have to operate with profitability and commerciality first and foremost on our mind that means a number of things we have to execute at best-in-class levels we never let the fact that we are a National Oil Company get in the way of being best-in-class and all of the key core operations of the company whether it's our rate of discovery of hydrocarbons how we recover them our cost of production and if we measure ourselves typically typically we are the lowest cost or the highest performance in every metric that we use and measuring ourselves against our peers and the competition we also have to constantly focus on building capacity and renewing ourselves our business is a long-term business and being in Saudi Arabia accessing talent is not easy so we always have to build capacity from within especially training and developing our own people and I talked about the various people who have sent to Stanford over the many decades and will continue to do that so building capacity for the company is something that we have done and we will continue continue to do managing execution means that we have to work on day to day operations extremely closely we never get away and you have seen in the headlines what oil companies get into if they ever miss a step so to speak so focusing on day-to-day operations ours is probably by far the most risky and dangerous business of any business out there and we focus on safety environmental stewardship and operational reliability I talked earlier about the impact of Saudi Aramco slipping on its commitments and we never take a chance in allowing that to happen we also have to invest very very wisely every dollar we invest we ensure we'll have the highest possible rate of return the upstream is always first but we are long on capital so we look also at our downstream which were those of you not familiar with the industry that means the refining the chemical the marketing and trading businesses just yesterday I was in Texas for inaugurating a ten billion dollar refinery at Port Arthur this is an expansion of a refinery that was built initially in 1903 and we bought into an a joint venture with Texaco which ultimately became wood shell and this ten billion dollars will take probably a few decades for it to pay off but that's the kind of business we're an investing for the long term and our assets and facilities are designed for that purpose earlier in March I was in China and we designed a number of agreement joint venturing with a number of Chinese firms to invest both in China and various downstream facilities there as well as cementing an agreement already in place to build a refinery on the west coast of Saudi Arabia so we're involved in the Western Hemisphere as well as an emerging markets in Asia and China is not the only one last month in Tokyo we had our board meeting and one of the presentations and that board meeting was by our upstream engineers and scientists who were presenting our long term production profile showing where we would be producing literally in the next century so we're looking a hundred years in advance at how we will continue to steward and produce the resources we've already identified and booked as well to unlock additional resources through a commitment to science and exploration and investing and long-term program now these are programs that would keep any company extremely busy and and [Music] unchallenged but I already alluded to a unique position that Saudi Aramco and which is which is being the engine of a whole nation of about 30 million that is relatively early in its development cycle so in addition to all of the financial contributions we make the whole nation expects Saudi Aramco to do a lot more and leveraging our capabilities enhancing human resource development within the kingdom partnering with educational institutions today one of the colleagues I have with me is the executive vice president of cows which is the King Abdullah University of Science and Technology this is a university that we built from scratch and we aim for it to be an equivalent of Stanford not too long into the future focusing on the specific disciplines that it's focused on which is science and technology also we are leveraging the various downstream investments I talked about to create value addition and manufacturing and attracting investment either of our own or partners or third parties to create value addition and jobs for a young population which is a demographic challenge that the kingdom and many countries in the Middle East have a fourth challenge that I would mention is the fact that oil is a political commodity it is quite intertwined with not only economy but also environmental issues geopolitical issues and that complexity creates a lot of pressure on the industry there is a lot of debate they say that all of the debate you hear about energy and oil creates a lot of heat but unfortunately not much light and we try to do our bit to engage in that debate so you will find oil executives and my company and myself engaged in discussions ranging from the World Economic Forum to g20 discussions to developing countries discussions like in China when I was there in March to try to enlighten the public opinion about energy and the central role that fossil fuels will continue to play for decades to come until we're able to transition in a more rational way to renewables and other sources of energy so to recap on the little deep drilling that I was trying to do today on the company we are the world's largest and I would argue the most successful unprofitable energy enterprise but we do face tremendous challenges as an industry and in terms of development of our nation the Kingdom of Saudi Arabia as well as a host of other challenges we have but I think the important thing that we realized is we have great opportunities ahead of us the challenges are manageable and we are dealing with them and what we are looking for the opportunities we have when I took office in 2009 and I looked at the company and I just recited to myself some of the things I just mentioned to you you could make an argument that the best thing we could do was continue to operate at best-in-class improve incremental e on the areas where improvements are required and basically protect the great company we have however we viewed tremendous opportunities available to Saudi Aramco opportunities available at the international level opportunities available at the national level and a huge deal of untapped potential within the company leveraging the physical position you we have the financial position leveraging the talent that many of our people want and the desire to do more and contribute more to to the company and to themselves and to their nation and to the world so we launched after much deliberation and consensus building within the company we launched a program that we termed the accelerated transformation program we take this jacket at that time to build that consensus one of the metaphors were used as we went around and talked amongst ourselves as the leadership team and then with the rest of the company Saudi Aramco was in an equal position to a racing car to a Formula One vehicle but it's a Formula One vehicle that is being driven within the city and going through stoplights and intersections and therefore driving at a much slower speed than its full potential and the only way that Saudi Aramco would be able to attain its full potential would be to take it out from the inner city put it on the superhighway rev up the engine and get it to drive at its full potential and basically the limitation we figured at that time was us and we really allowing the company to get there or not so we launched this accelerated transformation program and I will just mention briefly what we ultimately came up with which is a strategic intent of the company and it's quite ambitious it says in 2020 Saudi Aramco will be the world's leading integrated energy and chemicals company focusing on maximizing its income facilitating the sustainable and diversified expansion of the kingdom's economy and enabling a globally competitive and vibrant Saudi energy sector so in addition to growing the company substantially in its portfolio we linked and to our basically vision statement for 2020 an element of enabling a whole national economy to transform to diversify and to get into a knowledge base less dependent on us as the sole source of revenue those 39 words became basically the mandate I give to to my management in every interactions with them now that's a very ambitious program we have but translating it down to execution was a whole different matter so we cascaded it down into 14 different initiatives and those 14 initiatives were categorized in four different pillars that are driving the strategic transformation which is now one year and the making the first pillar is what you would call strategy 101 it's basically reshaping the portfolio of Saudi Aramco rebalancing the company from being predominantly upstream oil and gas basically producing raw materials to one where we will have a strong position stronger than we already have in the downstream will be the world's largest refiner will be one of the largest chemical company we will have a huge position of power generation including you might be surprised to hear renewables as we go forward the second pillar was about a focused program to leverage everything we do to help the national economy of Saudi Arabia not just in our immediate businesses but extending beyond so we have partnerships with education we have research partnerships in the kingdom we have manufacturing hubs that we are creating to support us but at the same time to create jobs these two pillars are challenging and huge for any other organization but in my opinion and I think in the view of anybody who has tried to do change within an organization that the other two pillars are the most difficult ones those you can size up you can execute on you can measure money can buy them to a large degree the second and the third and the fourth are the ones that require through leadership one of them is capacity building so reinvigorating the leadership of the company we have a great leadership today and we have taken the company to where it is and there are no regrets but for the company of the future we need a new style of leadership and we need new leadership capabilities and we're working on our human resources from the bottom up to create the next leaders of the company we have and four years time 40% of the company workforce will be below the age of 30 so dealing with the with the wide generation so to speak is is an opportunity as much as a challenge that we have to seize and deliver on the other part of capability building in addition to leadership and human resources is technology and building enough research and development with the company to keep us all myself sufficient we have a good deal of that going on now but we will multiply it by an order of magnitude and the years to come the fourth pillar is changing how we do business I think I've described to a large degree what we do and changing what we do but then short change in how we do things will be even more challenging and that is reinventing all of our business business procedures and systems within the company and that is very tough because these systems and procedures have been good for us they have gotten us to where we are to the leadership position we enjoy today and to convince people that we will go through the change process which is not easy and throw away the systems and processes that have gotten us to where we are is there is a lot of selling and then there is a lot of pain and execution so we've already overhauled our planning process strategy development as well as capital project execution in order to get to that next five 10% of excellence that we think we need to get to be the world's not only leading and largest and most profitable but also most admired company in our space of energy and oil and gas now resistance to change will always be there to any firm even firms that are in trouble but it's particularly difficult for a firm that is successful where the stakeholders from the outside are constantly praising you on being the reliable supply of energy all corners of the world where the kingdom looks and your nation looks at you as an example of success where your neighbors are always thankful for your attention to environment safety and their well-being so when you come to all of the stakeholders and say that's good and that's good but it's not good enough we need to go to the next level of excellence it takes some selling but when the opportunities are presented that are to be attained by going through this change I was surprised by how much consensus we were able to build around it and how much energy and enthusiasm and I thought I will be pulling a lot and now I am being pushed from the back by the momentum that has been created around the ATP so I think I'm taking probably as much time as I should take in that deep drill that I wanted to give you on the company and our strategy and a little bit of our history I will just end with a metaphor if I may on how we looked at our strategy and this metaphor I will call on an athlete called the great one and you'll be this is for those of you who don't know this is Wayne Gretzky is a hockey player and you probably never thought that the Saudi oil man will be will be giving you a metaphor about a hockey player but Wayne Gretzky is reported to have said I don't skate to where the puck is I skate where the puck is going to be and that's exactly how we think at Saudi Aramco we're not running after what we're doing today we're running after where we want to be in 10 20 30 or even 50 years from now and we're trying to position the company to go from the greatness it has achieved over almost 80 years of history to leading our business and sector for 80 years to come and of course I would just caution that thinking big and thinking's tjak you should never lose sight of managing execution managing day-to-day and staying fit I'm sure Wayne Gretzky had the smarts and had the sixth sense of knowing where to be but he also worked very hard of being as fit as the other guy and working well with the team which is exactly what I try to do building a strong team within my company and a strong teaming relationship with the partners we have around the world so that's all I wanted to say in my opening remarks and I look forward to the Q&A [Applause] thanks again for joining us Jeff review from the top it's it's very fitting to have you as our last speaker for this series given the value of Saudi Aramco he's greater than the combined value of all of our prior 12 CEOs that we've had you talked a lot about education and the investment Saudi Aramco's making I had a question from a personal side what role has education both your time here in the US and your graduate school played for you as a leader and shaping your thoughts about leadership well I for me it works in two ways I would say education has taken me from my humble beginnings where quite frankly didn't have a view of the world where I am today and and for that I'm very thankful but the flip side of that I think an education is it taught me how much I don't know there are things I know and there are things that I continuously learn which is something I learned in school of course I'm sure all of you have learned great things but rest assured in 10 years most much of it will be obsolete so the beauty about a good education is it gets your curiosity and a willingness and an ability to constantly renew your knowledge and learn new things but for me also importantly is taught me how much I don't know how much out there that could be learned if not by me directly at least by my colleagues by my institution so planted in me a belief that without pursuing the highest degree of education as an individual as a family and my own family as an institution and Saudi Aramco and as a nation you are not only stand still but you actually slip behind because the world is constantly advanced and we all need to keep pace and for those of us who aspire to lead you just need to lead through education and that's a belief that I try to as I mentioned planted in the family and the company and in our interaction with the kingdom educational institutions it's great to hear I know you've done tremendous things around education in Saudi Arabia another question that I had was around as a leader you inevitably must face setbacks that come across in decisions that you made what have you done to kind of face them and you can give us an example of a setback and a lesson to you Tron from there I'm not sure I should get for example I'll talk to Natalie you know I think in life in general whether it's in business or in our private lives the road forward always has zigzags so if you believe in yourself and if you believe in your values and if the objectives that you're working for you take those setbacks and stride and you know there will be a better day and of course one thing that I talked to my colleagues in the company especially in the reinvigorated Saudi Aramco over the future that we're trying to take is we have to take risks and risks means that many of the decisions we make we will try to mitigate the risks we will calculate and we will develop what-if scenarios and doesn't work what do we do but once we make the decision we accept that it may fail and we move on we learn the lessons and move forward so that has been a motto for me all of my life rarely have I met all expectations that I set for myself and series there is always every so many steps forward there is a step back and you just work with it great well I'd love to open it up to questions from the audience at this point Authority and thanks for coming you talked about the importance of planning long term including hundred years ahead given the changes in the industry including the fracking and shale gas extraction discovery of oil in Utah as it was nuclear explosion how do you see the changes in the industry and how are you going to respond to that change strategically well we have been arguing for a long time way before the unconventional game-changing developments here in the US became common knowledge that the hydrocarbon resource base on earth are huge they are not what is booked today as conventional oil reserves there is a lot more that will be added to reserves as the technology develops and the performance of the industry improves in terms of the rate of discovery and recovery of those reserves improves and the last 10 to 15 years have proven us correct we have in the u.s. now added production and and the US has reserve has reversed its production decline that has been taken place for for a number of decades and actually now the u.s. is increasing to us that's a good thing because it proves a point that Peak Oil as it was called a few years ago is not accurate at least in terms of the timing of of when the decline will take place that we have many many years left and the resource endowment of there to manage the transition of an economy and a global society that is dependent on hydrocarbons today to other renewable sources and other alternatives that will be developed more economically in a more rational fashion if we allow it the time to do that so we don't have to respond our production will continue to be there Saudi Aramco will continue to be the lowest cost producer for as long as there is oil production in the world and the last oil produced I assure you will be produced by Saudi Aramco and the Kingdom of Saudi Arabia so we have nothing to worry about from the unconventionals we welcome them and I think we also as I mentioned earlier welcomed the role of renewables and we will be working ourselves with renewables to provide a diverse energy mix to you know to a world population that needs it Saudi Arabia takes some criticism for internal energy consumption levels and do you as a leader of the domestic producer you know think about that or have influence on that we think about that and we have influence about that and we talked about that we in fact the first alarm bells I rang them a few years ago in a talk in Riyadh the Kingdom of Saudi Arabians since then the dialogue has continued and there is increased awareness I would just caution that some of the numbers that are published are exaggerated and they're all and all assuming you know the as is conditions continuing that there will be no introduction of efficiency measures that the kingdom will continue to be wasteful and energy use in the future and that's not correct the government has taken on a number of serious measures including creating an agency that is focused on bringing and renewables and nuclear to complement oil and gas in the energy mix there is a center that has been set and Saudi Aramco is participating in it to bring an efficiency and utilization of energy and of course we're busy exploring for and we'll be producing unconventional gas we hope shale gas and and in the future that will displace some of the oil and oil products that are being consumed domestically so we allow student question hello my name is fawad Saudi from Lebanon so it's an honor to have someone from our region representing Saudi Aramco my question is Saudi Arabia and a lot of other countries in the Gulf have historically relied on talent from outside the borders to build a lot a lot of their great companies and now there seems to be a push from governments whether in like the UAE or Saudi Arabia to push for the local workforce to counter and take on more of these roles like memorize amortization understood in the UAE or salad and Saudi Arabia and my question is what are your thoughts on these initiatives how does it impact you as a business as well well I would I would go back to the story I mentioned about the American oil companies you know that owned Saudi Aramco we give them a lot of credit for investing and in Saudi as a Shahnaz you call it hammered and localization and you know some of the graduates I mentioned our chairman who graduated 50 years ago actually out of Stanford were sent by the American company so it is in our heritage we are not getting directives to do it we've always been an in terment today we have 80 nationalities by the way in our workforce so we're quite a diverse company with both genders working within Saudi Aramco and 80 nationalities representing most countries in the world but the fact is most of our operations today are in Saudi Arabia and it makes sense to hire local whether you're a Saudi or not it's more cost-effective more reliable less turnover and it just makes good business sense so we've done at all these decades on the basis of being a good business and we are a good citizen of course we our company is not going to solve the employment challenge in Saudi Arabia as the Dean mentioned 55,000 56,000 employees today and a country that needs millions of jobs but we try to create job opportunities in the business sector that we deal with our suppliers or customers our contractors we give them training we work with them hand in hand to create job opportunities for the hundreds of thousands of Saudi jobseekers that great and I'd like to ask one last question before we wrap up a question that all of us here at the GSB answer in our process to be admitted here is what matters most to you and why people have answered from a range of family to reading books and would love to ask you that question how you answer it as a leader of such an important company well one thing is difficult you know obviously the emotional side comes first and one has to say my family is first and that's that's the truth but taking that for granted that all of us have their families as their first instinctive thing if you they care for then what is the next thing and for me the next thing is making an impact that that will be remembered and will be important for all of the stakeholders that I can impact the employees of the company the shareholder and the nation of Saudi Arabia and the global community that we serve as a company so running the company the best way we can to meet its objectives and expectation the legitimate expectations of our stakeholders to me something that I think about constantly it is more than having a good financial performance at the end of the quarter or at the end of the year it's more than finishing a set of projects on time on budget it is more than the short to intermediate metrics that we all measure ourselves it's something you know a higher purpose that I believe Saudi Aramco and everybody that works in our company serves not only ourselves as employees of the company not only our nation as the major stakeholder in the company but an every meaning of the world the global community which the company serves by providing reliable supplies of energy and keeping the global markets stable for as long as we can great please thank me thank you join me in thanking mr. Farr [Applause] change lives to be done July's change organizations change organizations change the world

Channel: Stanford Graduate School of Business

Views: 105,944

Keywords: Global, Business, Leadership, Management, Organizations

Id: MbdKK7BIFFM

Length: 47min 42sec (2862 seconds)

Published: Fri Jun 22 2012