[Congressional Record Volume 143, Number 32 (Thursday, March 13, 1997)]
[Extensions of Remarks]
[Pages E476-E478]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 THE CHANGING ROLE OF ENERGY COMPANIES

                                 ______
                                 

                        HON. SHEILA JACKSON-LEE

                                of texas

                    in the house of representatives

                        Thursday, March 13, 1997

  Ms. JACKSON-LEE of Texas. Mr. Speaker, I rise to speak on the 
changing role of energy companies in the United States as we look 
forward to the 21st century. It is ever apparent that we, as a country, 
are in the process of change. Technology is shaping the future of not 
only the way we think, but also the way we act and react to information 
that we receive and put out.
  There is no doubt that energy companies, like other industries that 
touch the lives of people across the globe, must change and adapt to 
meet the growing needs of people in a world that is affected by new 
technology daily. In fact, some may say that we are in the process of a 
new revolution; an information revolution.
  Mr. Speaker, on this subject, I would like to introduce into the 
record an insightful speech by Philip J. Carroll, the president and CEO 
of Shell Oil Co., on Adapting to a Revolution: The Challenges Facing 
Energy Companies in the 21st Century.

Adapting to a Revolution: The Challenges Facing Energy Companies in the 
                              21st Century

                         (By Philip J. Carroll)


                              Introduction

       I have been invited here today to talk to you about one 
     man's view of energy companies as we near the close of the 
     20th century and begin looking forward to the 21st. It's 
     somewhat awkward standing before an energy audience at the 
     end of the 20th century. I feel a bit like a Trannosaurus Rex 
     in a Gary Larson cartoon speaking before the Society of Late 
     Cretaceous Dinosaurs on ``How to Enjoy the Cooler Weather''--
     he had the idea right, but didn't fully understand the 
     implications of what was going on in his environment.
       While there are no meteors crashing down from the sky, we 
     all know that we are nonetheless in the midst of a change in 
     our environment--a true revolution. This particular 
     revolution is the ``information revolution'' and I want to 
     talk to you about how it will change our markets, our 
     organizations, and most importantly, how it will impact you 
     individually.
       A revolution is a brief period of time where the whole 
     nature of a system makes a radical transformation from the 
     way things ``are'' to the way things ``will be.'' A 
     revolution usually begins when existing institutions fail to 
     meet the present needs. When coupled with a vision of the way 
     things ``ought to be'' from forces outside the establishment, 
     a revolution results in great turmoil as the opposing sides 
     struggle to define the future.
       I believe that a dominant theme of this revolution will be 
     to place less value on physical assets and much more value on 
     human. This will mean that our organizational structures, and 
     the people within them, will have to adapt rapidly to 
     changing and increasingly competitive markets.


                               Background

       Allow me to go back in history a bit to try to set the 
     stage. Humankind spent thousands of years making the first 
     revolutionary transition from hunting to farming. This time 
     scale was so long, that its study is relegated mostly to the 
     field of archeology. Life during the agrarian age was simple, 
     but quite hard. People toiled physically day in and day out, 
     just to provide for the basic human needs of food and 
     clothing. Change continued during this age as organizations 
     moved from large feudal systems to single family farms. 
     With each change came new responsibilities, but also new 
     freedoms and opportunities. In spite of the drawbacks and 
     tough conditions, the human welfare was nonetheless 
     improved as civilization continued to grow.
       The next revolution, the industrial revolution, was a 
     phenomenon principally of the last century. It began at the 
     dawn of the 19th century with the introduction of simple 
     machines in the British textile mills, and the perfection of 
     the steam engine in the British coal industry--both of which 
     substantially reduced production costs. Although commerce 
     itself had been around for thousands of years, these new 
     industrial capabilities

[[Page E477]]

     caused the birth of new industrial enterprises. The changes 
     had a profound effect on society as people began to move away 
     from the farms and into the factories. Although this 
     revolution was also fraught with turmoil, once again the 
     overall physical condition of humanity improved.
       The essence of the industrial age was the physical 
     transformation and transportation of goods and services. It 
     was characterized by big physical ``machines'' that changed 
     raw materials into physical products. There was no missing 
     this revolution--it changed the skyline of civilization 
     around the planet and it changed it rapidly. The energy 
     industry was central to this age because energy itself was at 
     the very heart of the revolution, it was the common 
     requirement for running the machines that changed and moved 
     things.


                              new markets

       Now, the experts tell us we are in the midst of the 
     ``information revolution.'' It is a bit harder to see on the 
     city skylines, but it is no less real. The industrial 
     revolution was about applying physical leverage, a multiplier 
     for the power of human muscle. The information revolution is 
     all about intellectual leverage, a multiplier for the power 
     of the human mind.
       It is easy to see how the information technology industry 
     itself will be central to this revolution. However, the 
     information revolution will also profoundly affect the energy 
     industry, just like the industrial revolution changed the way 
     we farm.
       The demand for food did not go away at the end of the 
     agrarian age the means of production and delivery simply 
     changed. The industrial age dramatically lowered the costs of 
     food production. First farm machinery, and then new chemicals 
     increased crop yields on both a manpower and acreage basis. 
     We also saw a whole new service sector develop in the form of 
     highways and supermarkets for the transportation and delivery 
     of food products. You could still get your green beans before 
     and after the revolution, but now you could buy them fresh, 
     frozen, or in a can.
       Likewise, the basic need for energy will not dissipate in 
     this revolution. However, energy products and services will 
     change form as this current revolution has profound effects 
     on the drivers of both supply and demand.
       On the supply side, information technology will 
     dramatically reduce the costs of finding and extracting 
     conventional fossil fuels. 3D seismic, horizontal drilling, 
     and deep water structure design are all examples where 
     information technology has been a multiplier for the human 
     mind. Information technology will also reduce the costs of 
     transforming these raw materials into various conventional 
     products such as gasoline and electricity. Furthermore, 
     information technology could become the critical cost 
     reduction enabler which finally makes renewable energy 
     resources such as solar, wind, and biomass economically 
     viable.
       The very same forces will also cause fundamental changes to 
     the demand side of the energy industry as well. We will see 
     new demands emerge in both industrial and residential 
     consumer markets. These demands will be driven by new work 
     processes and lifestyles which are themselves influenced by 
     the changes in information technologies.
       For all the debate about electric versus gasoline cars, how 
     many of us truly understand the ramifications of consumers 
     who can choose between bringing to the theater, or bringing 
     their next entertainment experience home with the click of a 
     mouse? Even if motor transportation demand shifts away from 
     gasoline and into electricity, will consumers choose to 
     purchase it at a quick-charging station, or will they plug in 
     at home? How will they prefer to pay for it?
       One way or another, the marketplace will continue to demand 
     energy. The question is simply one of form. Products will 
     become replaceable with services. The information revolution 
     means that the ``value add'' no longer has to be a physical 
     product--it can be information, or the ``service'' that 
     accompanies the ``product.''
       I enjoyed a recent example from my colleague Robert Shapiro 
     of Monsanto. He offers that the chemical products division of 
     our industry could move away from producing chemical sprays 
     for crop protection. In its place, we should be able to add 
     value by inserting information directly into the plant to 
     serve the same purpose. Thus, genetic engineering, or 
     rearranging the information in a plant, becomes a competitive 
     ``service'' to chemical ``products.''
       Even the traditional ``services we have provided will 
     change. Although the industrial revolution brought us a broad 
     diversity of service choices, when compared to the 
     information revolution, the industry was characterized by 
     relative sameness. The age was defined by mass replication of 
     a particular product or service. You wanted gasoline in your 
     car, there was only one means to get it, drive to a corner 
     filling station. You could fill up at my pump or someone's 
     else's, but for all practical purposes, the delivery system 
     was the same.
       In the future, some consumers will choose to purchase their 
     energy in one form delivered in one particular way. At the 
     same time, others may choose both a different product and 
     a different delivery service. This diversity of demand 
     will only increase the opportunities for a wide variety of 
     businesses to enter and thrive in the marketplace.
       As in the case of the genetically engineered plant, it also 
     means that our competition will be harder to define. The 
     ``fully-integrated major'' model which was well suited for 
     the industrial age is already breaking apart. 
     ``Independents'' are a major force in the upstream sector 
     once dominated by majors. Likewise, they are a growing force 
     in the downstream sector as well.
       We also see changes in the traditional roles of the 
     ``operating'' and ``service'' sectors as ``service 
     companies'' begin to participate in investment risks for a 
     share of the rewards. The change will continue as ``operating 
     companies'' begin to offer services to the broader industry. 
     Shell's newest independent subsidiary, Shell Service Company, 
     is today offering a broad array of information technology and 
     business processing solutions to the entire energy industry.


                               structures

       As the old adage goes, ``form follows function.'' If the 
     processes driving supply and demand in the marketplace 
     change, then it stands to reason that the structural forms 
     around which we organize ourselves are also subject to 
     change. Organizations of the industrial age were modeled 
     after machines they operated. We built clearly defined 
     hierarchies with assigned responsibilities to carry out 
     specific tasks in specific ways. This was well suited to 
     machinery which, once constructed, would continue to produce 
     the desired output in a very predictable way.
       Allow me to present a new model for information age 
     organizations through the use of a metaphor. Our conventional 
     description of chemical compounds consists of the elements of 
     which they are made. In the energy industry, our personal 
     favorite compounds, hydrocarbons, are made of hydrogen and 
     carbon atoms. Yet, they are more than just random mixtures of 
     carbon and hydrogen. Their value is not contained in the 
     physical particles of which they are made, it lies in the 
     bonds that hold them together. Break the bonds or recombine 
     them in different ways, and you get valuable substances which 
     can be converted into either energy or products. Someone is 
     willing to pay good money for these mixtures, not because of 
     their raw carbon and hydrogen content, but rather because of 
     the special nature of the bonds which hold them together.
       A ``bond'' is truly ``information'' in its purest form. It 
     is a rule by which two ``things'' are connected to create 
     value. A system of bonds between many things may then be 
     called a ``network.'' A molecular ``network'' actually 
     contains very little physical substance. That which appears 
     to be a thing--is little more than a bit of substance 
     connected by bonds in a very special way. The relationships, 
     or networks, contain all the value. The information 
     revolution can thus be thought of as focusing on the 
     relationships between things, rather than the things 
     themselves for that is where the ``information'' lies.
       A study of ``things'' of the highest form, living 
     creatures, yields two additional observations. First, the 
     bonds in ``living things'' contain a great deal more 
     information, DNA is a lot more complicated than polyester. 
     Secondly, living things change, they are capable of adapting 
     to changes in their environment. A living tree puts out new 
     leaves when the weather warms up in the spring. A dead log 
     simply decays on the forest floor.
       I therefore propose that if the energy industry wishes to 
     thrive--not decay--it must change and adapt. Specifically, I 
     believe that we must alter our model whereby value is 
     primarily extracted by finding or owning a physical asset. We 
     must modify it to become a model where one can also add value 
     by establishing relationships with an asset's owner which 
     leverage one's human talent. The information age in our 
     industry will increasingly be characterized by a shift away 
     from the physical--and towards a focus on human assets. It's 
     no longer just the things, refineries, chemical plants, or 
     oil fields, but also the skills applied to them that creates 
     value. How we build the bonds, relationships, and networks 
     between organizations in order to add value to an asset--
     regardless of present ownership--will be the key to 
     information age economic success.
       The simplest forms of such new relationships would be 
     alliances. Alliances can take the form of any partnership 
     between suppliers, customers, and even competitors. An 
     alliance can form any time there is an opportunity to survive 
     or thrive which is enhanced by being together rather than 
     remaining apart. A good alliance will be one which causes 
     market information to flow more efficiently and effectively 
     so that organization may adapt.
       As you all know, Shell has a keen interest in alliances. We 
     are already moving beyond the early stage of customer/
     supplier alliances and beginning to explore competitor 
     alliances in both our upstream and downstream businesses. Our 
     first E&P venture with Amoco in the Permian Basin should be 
     closing very shortly now. We are developing a similar 
     relationship with Mobil in California, and are working 
     diligently on a new downstream alliance with Texaco covering 
     the whole United States. These alliances are our first 
     efforts towards creating flexible and adaptable business 
     structures positioned to maximize value in the information 
     age.


                                 people

       Just as the industrial revolution changed the lives of 
     people everywhere, so will the information revolution affect 
     our lives as well. As the working class moved from the farms 
     to the factories, they had to learn new behaviors and skills. 
     Despite the similarity of

[[Page E478]]

     human tasks involved with operating a plow and a machine, 
     this transition was very painful. Early 19th century Britain 
     had to deal with the Luddites, a group of people so concerned 
     about the replacement of human labor by machines that they 
     resorted to sabotage.
       The Luddites did not succeed in stopping the last 
     revolution, and none of us will be able to resist this one. 
     We must make the choice to adapt or die.
       First, each of us will need a more diverse set of business 
     and technical skills than we presently employ. The skills 
     needed at any given time will change rapidly depending on 
     market opportunities. Second, we will need the ability to 
     both attract and release talent dependent on the changes. 
     Third, each of us must also realize that we must individually 
     grow to meet the ever changing market demands. The capacity 
     and willingness to learn will likely be the most important 
     characteristics of successful people in the information age.
       Finally, the behaviors suitable to these new organizations 
     will be fundamentally different than in large industrial 
     ``machines.'' Incenting and compensating people for efficient 
     repetition of prespecified tasks is not necessarily a winning 
     proposition. Results-oriented variable compensation and 
     portable benefits are almost certain to be part of our 
     future.
       You may take some comfort in knowing that all of these 
     revolutions have been scary to the people experiencing them. 
     Nonetheless, they have all improved society in the end. Their 
     common impact on people has been an increased role of choice, 
     freedom, and responsibility. No longer will it be ``the 
     machine'' which determined your future for you. You will have 
     to make choices about where you think your talents will be 
     the most valued. You will then have a greater role in 
     educating yourself in order to aspire to these new 
     opportunities. You alone will be responsible for the outcome. 
     You will all have the freedom to choose your own destiny. 
     Good choices will yield great rewards.


                               conclusion

       Soon, this dinosaur standing before you today will be gone. 
     But many of you will remain behind. You will make many 
     choices that will determine not only your own future, but 
     that of the people and the organizations around you. I don't 
     claim to have a crystal ball about what that future looks 
     like, but I do believe that if you seize control of it, the 
     opportunities for greatness are abundant.
       No matter what the precise outcome, I expect to find that 
     successful organizations and people of the future will be the 
     ones who best adapted to this time of great change. The age 
     ahead will be characterized by a declining focus on physical 
     assets, and an increased emphasis on diverse human skills. 
     The need for energy in the information age will not 
     dissipate, but it will change form.
       The road ahead is certainly fraught with peril, yet ripe 
     with opportunity. If we remain rigid and resist, like the 
     Luddites, the only place they will find us in the future is 
     the history books. For those who choose to learn and grow, 
     the future looks very bright from where I stand.
       Thank you for having me here today, enjoy the revolution, 
     and good luck with your future.

                          ____________________