April 3rd, 2006:

By Nelson D. Schwartz, FORTUNE senior writer
April 3, 2006: 2:31 PM EDT
NEW YORK (FORTUNE) – The barons of big oil filed warily into the ornate Senate hearing room and raised their hands to be sworn in. Spotlights glared, cameras clicked, and members of the Senate Judiciary Committee leaned in for the kill.
Standing at the back of the room were two dozen college students wearing EXXPOSE EXXON T-shirts. It promised to be a classic showdown: politicians browbeating petroleum CEOs for earning record profits while ordinary Americans were being squeezed at the pump.
The only problem was that Rex Tillerson hadn't bothered to read the Senators' script. Despite the best efforts of lawmakers who normally interrupt with impunity, the new CEO of Exxon Mobil (Research) made it clear that he was not about to be bullied.
One after another, voluble Senators like Arlen Specter and Charles Schumer tried and failed to talk over Tillerson, who answered their queries in a deep Texas baritone befitting his background as a lifelong oilman and rancher. Even Joe Biden, who has been known to interrupt himself, had to wait until Tillerson was finished before lobbing another question at the imperturbable CEO.
“We are investing heavily in conventional oil and natural gas, which is the business we are in,” Tillerson said, when asked why Exxon was spending so little on renewables such as ethanol. “We are not in those other businesses.”
Nor would Tillerson apologize for his company's record haul at a time when Americans are paying $2.50 a gallon for gasoline. Those $36 billion in profits, he told the Senators, “accrue to the more than two million individual Americans who own our shares.” And in case anyone in the room missed his point, Tillerson added, “I suspect people on this committee benefited from our success last year.” (He's right: Arizona Republican Jon Kyl is an Exxon shareholder, according to recent financial disclosures.)
It's that same steely authority that catapulted Tillerson, 54, to the top of Exxon at the end of last year, when he succeeded the legendary Lee Raymond. It's also typical of the toughness that enabled Exxon to capture the No. 1 spot on the FORTUNE 500 for the first time since 2001, supplanting recent champion Wal-Mart.
With $339.9 billion in revenue and profits of $36.1 billion, Exxon earned more than any U.S. company in history last year—more than the profits of the next four companies on the FORTUNE 500 combined.
Exxon's return to No. 1 caps its emergence as not only the biggest but also the most powerful U.S. corporation by just about any metric. Last year it surpassed General Electric to become the most valuable U.S. company by market capitalization ($375 billion). It pumps almost twice as much oil and gas a day as Kuwait, and its energy reserves stretch across six continents and are larger than those of any nongovernment company on the planet.
This year Wall Street expects it to spend roughly $15 billion on exploration and production, buy back at least $20 billion in stock, and pay $8 billion in dividends, all without having to raid a cash hoard that exceeds $30 billion.
Exxon's power now echoes that of John D. Rockefeller's Standard Oil, the trust whose breakup by the government nearly a century ago spawned not only Exxon and Mobil but also Chevron, Conoco, and Amoco, and marked the beginning of a new era in Washington's regulation of business. This time the stakes are just as high. As its profits multiply, Exxon is drawing increased criticism for its stance on global warming and its support of drilling in the Arctic National Wildlife Refuge. Schumer may not have been able to interrupt Tillerson, but he clearly would like to remind him that Exxon's power isn't unlimited.
“Exxon's attitude is that they're the big boys on the block, and they don't have to bend for anybody,” the New York Democrat told FORTUNE after the hearing in March. “But there is no question there is a new phase of scrutiny for Exxon. If I were giving them advice, it would be, 'Get used to it and prepare for it.' They have a self-righteousness that sooner or later will catch up with them.”
If Exxon's leadership is arrogant, as Schumer claims, it could be because they know their company is the best-run energy firm in the business. As Royal Dutch Shell struggles to replace the oil and gas it pumps out of the ground and watches its production sag, Exxon has replaced more than it has produced for the last 12 years. Since 2004, its stock has outperformed BP's (Research) and Chevron's (Research). And while BP tries to change the subject by claiming it's Beyond Petroleum, Exxon offers no apologies for being in the oil business.
Whether you love 'em or hate 'em, understand that Exxon's rise to the top of the FORTUNE 500 wasn't just a function of high oil prices. Sure, $65-a-barrel crude helped, but the real reason for the company's success is a word you hear again and again if you spend time in what Exxon insiders call “the God pod,” the wing of Exxon's headquarters in Irving, Texas, where Tillerson and other top execs have their offices.
It's discipline, and it's apparent in everything from the company's dress code (forget casual Fridays in Irving) to its ability to cut more than 10,000 workers from its payroll since 2000, even as revenues rocketed. While Shell's (Research) project off Russia's Sakhalin Island is running months late and billions over budget, Exxon's Sakhalin venture came onstream on time and within 10% of the original cost estimate. (That project was overseen by Tillerson.)
Exxon's relentless emphasis on consistency and discipline can seem forbidding to outsiders, but that's fine with Tillerson. “Simply put, it works,” Tillerson told analysts in New York City in March. “The Exxon Mobil culture is something that a lot of people would like to understand better. I'm not really going to help them understand it, because it's the source of our competitive advantage.”
From the moment Tillerson was tapped for the top job in 2004, the oil patch has been abuzz with speculation about how he might change Exxon and whether he would strike a kinder and gentler tone than the famously gruff Raymond. The truth is that while Tillerson lacks Raymond's caustic side, it's unlikely he will tamper with a formula that has been so successful for so long.
“I don't think people should look for much to be different,” Tillerson told FORTUNE in response to written questions. “It's a culture that started many, many years ago. It's a culture familiar to me since I joined the company, now almost 32 years ago.”
A native of Wichita Falls, Texas, Tillerson graduated with a civil engineering degree from the University of Texas at Austin. He had spent summers working in construction and in steel and wasn't sure about a career in oil. But he went to work for Exxon at a natural-gas field in Katy, Texas, and as he puts it, “I've never looked back.” Most of Tillerson's career at Exxon has been in the upstream end of the business—finding and developing oil and natural gas, first in Texas and later as far afield as Russia and Yemen.
In the 1990s, Tillerson won notice as a skilled dealmaker when he led talks with the Russian government to develop oil and gas fields off Sakhalin Island, an area expected to contribute 250,000 barrels a day in new production by the end of 2006. “Russia was Rex's show,” says Eugene Lawson, president of the U.S.–Russia Business Council, of which Tillerson is a board member. “He's got a lot of gravitas, he's physically strong, he's a rancher—and the Russians just eat that stuff up. He's the best negotiator I've ever seen.”
Tillerson's going to need all his negotiating skills, because the key to Exxon's growth lies in some of the world's most difficult places. Besides Russia, the company is counting on volatile Nigeria and Angola to contribute nearly one million barrels of new production by 2010.
In Venezuela, where Exxon has invested hundreds of millions turning tar-sand into crude, the company finds itself in a standoff with Hugo Chávez, who has forced other companies to renegotiate their deals and pay more in royalties. But Exxon isn't budging, and if negotiations fail, it could be forced out.
The biggest challenge for Tillerson will be fulfilling Exxon's promise to increase output from 4.1 million barrels a day to five million by 2010. As analyst Paul Sankey of Deutsche Bank notes, that implies production gains of 4% to 5% annually, which Exxon has fallen far short of in recent years. If Exxon can't do that, future earnings growth will depend mostly on oil prices continuing to rise—something Tillerson doesn't think likely.
The Sisyphean effort to replace reserves and boost already staggering production levels is a challenge Exxon shares with other supermajors. But while Exxon's $30 billion in cash and its AAA-rated balance sheet would allow Tillerson to add reserves by buying a smaller company—as Chevron did with Unocal last year—its disciplined approach to using capital means he would rather wait until oil prices come down before doing a deal.
“I'm not sure it makes sense in this environment to make a major acquisition,” he says. “When I look at some of the transactions that have occurred, they seem rather pricey to me.” That kind of patience has a way of paying off: Lee Raymond bought Mobil just as oil prices bottomed out in 1998.
Exxon can also afford to go its own way because of its technological edge. Despite Big Oil's reputation as an old-economy industry, Exxon likes to think of itself as a technology company, pointing to systems like its brand-new Fast Drill Process that have allowed it to reduce the time it takes to drill wells by 35%, saving hundreds of millions of dollars annually.
In a shabby townhouse on Capitol Hill, a few blocks from where Tillerson faced down the lions of the Senate, Exxon is drawing a different type of attention than it's accustomed to from Wall Street admirers. This is the home of Exxpose Exxon, established last year by a coalition of organizations ranging from radical Greenpeace to mainstream Sierra Club.
While Big Oil has had its adversaries going back to Ida Tarbell and the muckrakers of Rockefeller's day, Exxon has always seemed to draw more fire. There are no comparable campaigns aimed at Chevron or ConocoPhillips. Exxpose Exxon director Shawnee Hoover says her group was set up to protest the company's support for drilling in the Arctic National Wildlife Refuge, its skepticism about the causes of global warming, its refusal to pay $4.5 billion in punitive damages to fisherman affected by the Exxon Valdez oil spill in 1989, and its puny investments in alternative energy. Hoover is calling on consumers to boycott Exxon and will begin spotlighting the company's donations to political candidates.
It doesn't hurt her cause that, as Hoover puts it, “no company is like Exxon—it's the stereotypical, old-school company.” Representatives from U.S. Public Interest Research Group, an Exxpose Exxon backer, have enjoyed canapés and conversation with John Browne, CEO of BP, but Exxon hasn't offered Hoover or her colleagues even a cup of coffee. The closest they've come to a face-to-face meeting, says U.S. PIRG's Athan Manuel, was handing Lee Raymond a letter on Capitol Hill last year. “He groaned,” says Manuel.
Although it's unlikely Hoover will get an invite to Exxon headquarters anytime soon, Exxon's status as America's biggest company and its antipathy to the kind of green talk favored by BP means it will face more heat on issues like global warming. If the Democrats win control of the House or Senate this fall, the company could face a windfall-profits tax and increased regulation.
“I was in business all my life,” says Senator Herb Kohl (D-Wisconsin), who listened to Tillerson's testimony. “But I wish we could see a little bit more sympathy for consumers. They need to show a responsibility beyond the share price—they remind me of the tobacco industry.”
For its part, Exxon isn't afraid to play hardball. It has donated millions to groups like the Competitive Enterprise Institute, a Washington think tank that calls itself “a leader in the fight against the global-warming scare.” Another beneficiary of Exxon's largesse: Public Interest Watch, a group that asked the IRS to audit Greenpeace, which the agency did. An Exxon spokesman says the company had nothing to do with the audit request.
But there are signs of glasnost, even if Tillerson insists there is still uncertainty about the amount of temperature change attributable to emissions. He notes that Exxon has spent more than $1 billion on cogeneration at its plants to reduce CO2 emissions and has contributed $100 million to Stanford's Global Climate Energy Project.
“What we support is continued efforts to understand the problem better,” Tillerson says. “We need to work harder on articulating our views, and we're going to try to do better at that in the future.”
If America is addicted to oil, as President Bush says, Exxon's Baytown, Texas, plant is the needle. Stretching over 3,400 acres along the Gulf of Mexico, Baytown is the nation's largest refinery, turning more than 560,000 barrels of crude a day into the gasoline America craves, along with jet fuel and other petroleum products.
A maze of white pipes connects the refinery to the docks where tankers unload their cargos of black gold day and night. But the most amazing thing about Baytown is the absence of people. While improvements in the plant have lifted capacity by 100,000 barrels over the last decade, the workforce has dropped by nearly a fifth. State of- the-art systems allow managers to monitor flow rates and check valves without leaving the control room. If capacity falls short of targets, they know in real time how much money is being lost, down to the dollar.
Despite Exxon's reputation among greens, Baytown is remarkably clean. There are no pools of oil lying around, and it's no smellier than a gas station. “If we see stuff or smell things we don't like, it gets cleaned up right away,” says technical manager, Jeff Beck.
Baytown is a metaphor for Exxon itself—the ruthless drive for efficiency, the close attention to the bottom line despite record profits, and the no-nonsense attitude. It's not for everyone, but the culture has a way of getting hold of its employees and never letting go. Just outside the refinery gates at a bar called Don's Place, retired foreman Eddie Glynn Walker is nursing a beer. “I worked there 35 years, and it was tough in terms of what they expected,” he says. “I miss the plant. I miss the people.”
Exxon may not be loved like Apple or Starbucks, and Tillerson may never win any popularity contests. But as long as Americans love cruising down the open road on a full tank of gas, Exxon is likely to remain at or near the top of the FORTUNE 500. And that's just the way the folks in the God pod like it.
THE WORLD ACCORDING TO REX
The CEO of America’s biggest company shared his thoughts, via e-mail, about some big energy issues.
On George W. Bush's 'addicted to oil' speech:
It’s an unfortunate choice of words, quite frankly. Oil and natural gas have been the enablers of economic growth in this country. And to say that you’re addicted to oil and natural gas seems to me to say you're addicted to economic prosperity.
On energy independence:
Energy independence is not only unrealistic and unachievable, I’m not sure it’s even desirable. We live in a global community; our economies are interdependent. Our goal should be to diversify our dependence.
On global warming:
We recognize that accumulation of greenhouse gases in the Earth’s atmosphere poses risks that may prove significant for society and ecosystems. We believe that these risks justify actions now. But the actions must consider the costs and the uncertainties that remain.
On the peak-oil theory:
We are not running out of oil any time in the foreseeable future. I’ve been in this business for more than 30 years. There’s never been anything easy about it, and that’s not any different than where we find ourselves today.
REPORTER ASSOCIATE Patricia Neering FEEDBACK [email protected] read more

This oil industry leader is a problem-solver who relies on his HR skills to tackle the most intractable challenges.
By Ann Pomeroy
John Hofmeister, president of Shell Oil Co. and U.S. Country Chair for Royal Dutch/Shell Group, exudes an air of quiet confidence.
Seated in his book-lined office overlooking the collection of glass skyscrapers that forms the Houston skyline, the head of U.S. operations and former HR leader at one of the world’s largest oil companies strikes an observer as a man who is comfortable in his own skin.
Although he works in what he describes as “a dangerous business” at a job that demands he be on call 24 hours a day, seven days a week, Hofmeister is undaunted.
“I love it,” he says. “I hope to do this for a long time to come.”
Hofmeister the Behaviorist
While today he is a focused executive, Hofmeister wasn’t always so sure of his career path. Like most college freshmen, Hofmeister entered Kansas State University in the late 1960s without a clear idea of what career he wanted to pursue. He was interested in political science, but less as a study of government than as a study of behavior. Growing up in the Cold War era, he recalls that “the great democratic/communistic divides were fascinating to me as a student.” He was 14—“a very impressionable age”—when the Berlin Wall was built. The arms race and then the Vietnam War galvanized his political thinking, Hofmeister says.
He earned bachelor’s and master’s degrees in political science and also studied economics and the social sciences with a view toward giving himself several career options. His wrote his thesis on a form of political behavior, and considers himself to be a behaviorist.
When he graduated, he was broke and in debt, recalls Hofmeister. “I didn’t have two nickels to rub together.” As he considered what to do next, he examined four possibilities: attending law school (he had applied and been accepted at several schools), going back to graduate school for a Ph.D. (he had been offered a fellowship), working for the federal government or working for General Electric (GE).
Pragmatism carried the day. Deciding that further schooling could wait—“I needed money!”—Hofmeister entered GE’s Human Resources Management Program in 1973. This turned out to be a felicitous choice that established his HR career path, and Hofmeister spent 15 challenging years working in five of GE’s major businesses in several locations.
A Businessman First
“My first assignment in HR was actually in the marketing and sales of lightbulbs in France and West Germany” as part of GE’s cross functional training program, says Hofmeister. It was his job to commission a study on how to improve the sales penetration of lightbulbs in those countries and make recommendations to GE.
“I enjoyed it,” he says. “I learned a lot, and GE became more successful as a result of my recommendations.”
Hofmeister praises the training he received at GE, where he took courses—complete with homework—taught by senior GE executives. In some ways, he says, the classes were like a continuation of graduate school. It was at GE, says Hofmeister, that he learned to approach business issues from an HR point of view.
“I am a businessman first who worked in HR as my main contribution to business,” he says. He has always been interested in working in large technical global companies that are “multi-industry, multi-country, multi-function and multi-technology,” he says. And he has always loved a challenge. “The pattern of my career,” says Hofmeister, “has been to be with extremely challenging technical businesses at difficult cycles in their history. I’m a sucker for difficult cycles.”
Hofmeister has ridden out difficult cycles to eventual success at four major corporations: GE, Northern Telecom Inc. (now Nortel), Allied Signal Inc. (now Honeywell International) and Shell. At each company, he says, he has had the satisfaction of feeling that he has made a difference.
Some Major Challenges
The toughest challenge at GE came in the mid-1980s, says Hofmeister, “when the Rust Belt issues of America were roaring in my ears.” Facing high domestic costs and global competition—especially from Asia—in GE’s motor business, “we arrested the decline in” the division, he says.
He left GE in 1988 to join Northern Telecom, where he took up the challenge of shifting that organization from a national company to a global company.
At Allied Signal, which he joined in 1992, he discovered that “we were organized backward to the industry,” he says. Realizing that the company needed to become more market-focused, Hofmeister helped it take 23 product divisions and reorganize them around four major divisions. “We reorganized for the customer, not for ourselves,” he says, “and gained a competitive advantage.”
When Hofmeister joined Shell as group human resources director in 1997, he was one of the first external hires into a senior leadership position at a company that favored long-term employees and promotion from within.
Hofmeister brought 25 years of experience to the job, including stints in Hong Kong and Paris at Allied Signal. That global experience was extremely valuable, he says, as he tackled the challenges of shifting Shell from a national to a global focus.
The company has faced plenty of challenges during his tenure, including what Hofmeister terms a “hugely embarrassing” situation involving Shell’s oil reserves. In 2004, the company’s proven oil reserves base was discovered to be significantly less than had previously been stated, and Shell was forced to perform a major re-categorization of reserves. The company also postponed publication of its 2003 annual report. Hofmeister, who was based in The Hague at the time, maintains that the problem was the result of a “flawed process” and involved no intentional wrongdoing. “We didn’t know what we didn’t know,” he says.
“Shell investigated and corrected the problem,” says Hofmeister, and two senior executives were asked to leave the company following a vote of no confidence by the board.
In the wake of this scandal, the company merged Royal Dutch and Shell Transport and Trading into a single entity known as Royal Dutch/Shell Group. The reorganized company is headquartered in The Hague and trades both on the London Stock Exchange and the New York Stock Exchange.
Running U.S. Shell
In March 2005, Hofmeister was named to the new position of president of Shell’s U.S. affiliate, Shell Oil Co. In that role, he represents the interests of the Shell Group to U.S. stakeholders, including investors, the government, customers, staff and communities. Working closely with U.S. policy-makers, Hofmeister says he is a “bipartisan business leader” who tells every member of Congress, “It is my goal that you will never know whether I’m a Democrat or Republican.”
As a 23-year Shell veteran, Dale Wunder, vice president of human resources in the Americas for Shell’s exploration and production business, says he wasn’t surprised by Hofmeister’s promotion to president. “HR plays a significant role at Shell,” he says. “HR isn’t just warming a seat [here]; it’s clearly at the table, and John is a strong proponent of HR as part of the business.”
David Sexton, vice president of strategy and portfolio and a 28-year Shell veteran, agrees that Hofmeister is eminently qualified for his current role. “He sat at the highest levels of Shell” before becoming president, Sexton says. “Having an HR person [as president] sends a message to employees that HR and talent and people” are important to the company.
In addition, Sexton says that Hofmeister is an extremely effective company spokesman and “a very good communicator who doesn’t allow us to become too siloed.” He adds that Hofmeister is “a believable, creditable presence when giving congressional testimony.”
(Hofmeister was one of several oil company executives who appeared before the Senate Energy and Commerce committees last fall to answer questions about high oil prices and high oil company profits following the Gulf hurricanes in August and September.)
Wunder says he appreciates the fact that Hofmeister provides a broad perspective and a long-term vision, and then “allows people to deliver without micromanaging.”
Shell’s U.S. Country Controller, Randy Braud, says that in addition to understanding the business, Hofmeister knows that “it’s all about the people. He’s a great listener with an excellent radar detection system.”
As U.S. Shell’s “head bean counter,” Braud says he and Hofmeister developed a close working relationship last year during hurricanes Katrina and Rita. Shell’s offshore platforms in the Gulf of Mexico were heavily damaged, as were refineries in the affected area. Nearly 5,000 Shell employees were affected by the storms, he says, and 1,000 New Orleans employees had to be evacuated and relocated to other offices.
“John’s passion for HR was evident” in the way he handled this disaster, says Braud. “Our employees were the top priority.” Braud says all affected employees remained on the payroll and the company located apartments and homes for those whose homes were damaged or destroyed by the hurricanes.
Managing Globally
Talent management will be a critical focus of Hofmeister’s efforts to position U.S. Shell for the next 50 years and build its reputation as a major U.S. company, he says, and that includes recruiting and retaining new staff to keep up with attrition; 70 percent of Shell’s 24,000 U.S. employees are baby boomers in their 40s and 50s.
In his previous role as head of HR for Shell, Hofmeister says he wanted “a globally consistent HR agenda for the world, recognizing that its application had to be locally adapted and managed.” To that end, Shell has developed a global framework for talent management that encompasses recruitment, compensation and benefits, HR information management, and leadership learning.
Shell’s integrated global pro-cesses “work throughout the whole of Shell,” Hofmeister says proudly. “All are focused on today’s business deliverables we are trying to achieve.”
Shell has facilities in 140 countries, and Hofmeister says the company “needs to be developing global nationals around the world so that our future management population is not dominated by any particular nationality” to pursue a diversity of thought.
To aid in such efforts, he advises HR executives to take global assignments. It’s difficult to understand global operations if you haven’t worked and lived internationally, he says. “They can’t be understood by visitors.”
Hofmeister stresses three critical success factors that have worked for Shell and should be the focus at any major organization: Have a succession plan, a talent management plan and a leadership development plan, he says, with each plan serving the future purposes of the organization. “But you need all three. You can’t do just one.”
The Workforce of the Future
A major HR issue for the next 20 to 25 years will be ensuring the availability of future talent, says Hofmeister, and he’s greatly concerned about what he terms a “bipolar future workforce.” In his opinion, the U.S. education system requires a “serious update” to avoid creating a society of haves and have nots, a society in which some children receive an excellent education and others—those in poor inner-city schools—receive a very poor one.
“HR people must address this [issue]. It is missing the boat!” he says. The problem falls under HR’s purview, he insists, because the function is responsible for ensuring the welfare of the workforce. At Shell, he says, the company’s workforce development program is working to improve math and science in the nation’s secondary schools. “We’ve started in six states, and the program will continue to grow.”
According to Hofmeister, HR also has another critical responsibility. He stresses the need for HR to “advocate on behalf of employees and not simply be stewards of the organization. Our people are the reason for our success.”
A Balanced Life
Unlike business leaders who talk about concern for employees but personally model a lifestyle where work/life balance is nearly nonexistent, Hofmeister makes time for personal pursuits.
That’s a tall order, given that his responsibilities require him to burn the midnight oil at times. But even workaholics need a respite now and then. He says executives need to learn, early in their careers, to “compartmentalize” their responsibilities at work and at home. “There must be room for both,” says Hofmeister, “as well as room for their responsibilities to society.”
We all make choices, he says, and he is comfortable that his have been balanced choices. “I have no regrets. All choices have consequences,” he says, and he and his wife “thought about the consequences ahead of the choice,” rather than after the fact.
“I’ve always compartmentalized my time and energy,” he says, “and tried to have invigorating pursuits outside work.”
One of those outside interests is the historic farm and gristmill he owns in Lancaster County, Pa. “This is a deliberate pursuit to take me out of my ‘compartment’ as business leader,” says Hofmeister, “and put me into nature and agriculture.” His farm, he says, provides “a complete refreshment of my otherwise very busy business life, far removed from shareholders, quarterly results and other business dynamics.”
Hofmeister, who grew up in New Holland, Pa., has fond memories of childhood summers spent working on a farm. He’s also interested in historic preservation. These interests mesh as he and his wife work to restore the 18th century mill and convert what is a traditional dairy farm today “back to its organic, non-chemical tradition.”
He is able to visit the farm about three times a year, he says, and one of those visits coincides with an annual event that represents another of his interests—cycling. Each August, Hofmeister participates in a 100-kilometer bike ride over a route that crosses seven covered bridges in the Amish countryside.
Being who he is—the quintessential businessman—Hofmeister and his wife have formed the John and Karen Hofmeister Foundation and incorporated the farm. It’s a working farm, he says, which sells wool from the sheep raised there, as well as corn and other field crops. (The web site is www.limevalleymill.com.) Although restoration efforts are expensive, Hofmeister says the farm has been profitable two out of the last five years.
‘Success Is Fleeting’
Asked to describe his greatest career success, Hofmeister maintains that he’s “not satisfied with anything yet. Success is fleeting,” he says. “Today’s success is tomorrow’s challenge.” Good HR people, he says, can never rest on their laurels because tomorrow’s business needs will be different.
In the highly visible energy business, “everybody in all walks of life is interested in what we do and how we do it,” says Hofmeister. He’s on call around-the-clock because “the refineries never stop. And if the phone rings in the middle of the night, it’s probably an important call,” he says, and one that he must take.
Hofmeister admits that this nonstop responsibility has “given me headaches, it has given me stomachaches, and it has exhausted me physically. So it’s not easy.”
And yet, he says, “I deeply embrace what I do. It gives me joy, fulfillment and the satisfaction of challenge.”
At a Glance: John Hofmeister
Personal: Age 58. Born in Cheverly, Md. Lives in Houston with his wife, Karen. They have two adult daughters.
Current Job: President of Shell Oil Co. and U.S. Country Chair, Royal Dutch/Shell Group, based in Houston, 2005–present.
Previous Jobs: Served as group human resources director at Royal Dutch/Shell Group, based in The Hague and London, 1997–2005; worked at Allied Signal Inc. (now Honeywell International) as vice president, international human resources, based in Hong Kong and Paris, 1995–1997, and as vice president, aerospace human resources, based in Los Angeles, 1992–1995; served as vice president, U.S. human resources, at Northern Telecom Inc. (now Nortel), based in Nashville, Tenn., 1989–1992, and as assistant vice president-human resources based in Raleigh, N.C., 1988–1989; began his career at General Electric, working in several GE facilities from 1973–1988.
Ann Pomeroy is senior writer for HR Magazine. read more

Reuters
Apr 3, 2006 — By Janet McBride
LONDON (Reuters) – Oil prices nudged back above $67 on Monday with 23 percent of Nigerian output still shut by rebel attacks and no sign of Royal Dutch Shell restarting exports from its vast Forcados oilfield and terminal.
The removal of 550,000 barrels per day of Nigerian oil has coincided with growing demand from refiners in the United States, consumer of 40 percent of the world's gasoline.
“The loss of critical Nigerian barrels just as U.S. refiners are returning from maintenance has established a $60 floor (for U.S. crude) and threatens to re-test the all time high of $70.85,” analysts at PFC Energy wrote in a note.
U.S. crude oil was up 44 cents at $67.05 a barrel at 1040 GMT. London Brent was up $1.20 at $67.11.
Nigerian Minister of State for Petroleum Edmund Daukoru told reporters on Monday the biggest foreign operator Shell would restart its offshore 115,000 bpd EA field in days.
There was no immediate comment from Shell. Nor was there any sign of its more important onshore Forcados oilfield restarting.
Reuters reported on Sunday that Shell was reluctant to send its staff back into the violent southern delta region despite more naval patrols there.
Deutsche Bank noted many analysts expected attacks on Nigeria's oil industry to continue in the run-up to the presidential election early next year.
U.S. oil hit a $70.85 record high last September after hurricanes knocked out a big chunk of Gulf of Mexico refining and oil and gas production.
Analysts say another active U.S. hurricane this year could strain the oil market still further.
IRAN
On Friday Iranian Foreign Minister Manouchehr Mottaki was the latest Iranian official to vow that the world's fourth-largest oil exporter would not use oil as a weapon as it faces a UN Security Council rebuke over its nuclear research.
But the assurance did not entirely calm market nerves.
“No one is willing to assume Iran will never use oil as a bargaining chip,” said Tobin Gorey, commodity analyst at Commonwealth Bank of Australia. read more

By Spencer Swartz,
Last Update: 5:38 AM ET Apr 3, 2006
ABUJA, Nigeria (MarketWatch) — Nigeria's Oil Minister Edmund Daukoru said Monday Royal Dutch Shell PLC (RDSA) has told him it will take around a month to bring back most of the country's shut-in oil production.
Daukoru, who is also the president of the Organization of Petroleum Exporting Countries, told Dow Jones Newswires in an interview: “We expect most of it back within a month. Shell told me last week that they needed about month before they can get most of their production back.”
He said around 27% of Nigeria's output had been knocked out by ethnic rebel attacks in the Niger Delta region. Attacks by the Movement for the Emancipation of the Niger Delta have cut the country's crude oil production by more than a quarter, or 641,000 barrels a day, out of some 2.4 million b/d of production.
Almost half of the country's daily output comes from Shell-run operations and it is the fifth-largest exporter of crude to the U.S. Nigeria's oil is high-quality light, low sulfur crude referred to as sweet, and is coveted by refiners in the U.S. and Europe because of its high gasoline content and relatively cheap processing costs. The attacks also have reduced Nigeria's electricity generation by a quarter.
Separately, Daukoru said he was increasingly concerned by rising world oil prices, that Monday were again pushing above $67 a barrel for U.S. light, sweet crude for May delivery.
“Prices are getting to the high side again. But it's not surprising because of all the concerns about the U.S. summer driving season and on concerns over the switch to ethanol,” he explained.
There are worries over new U.S. federal regulations and a planned nationwide phase-out of the additive methyl tertiary butyl ether used to make cleaner-burning gasoline.
The New York Mercantile Exchange's gasoline contract is based on the MTBE-blended gasoline and while the exchange has made use of MTBE optional in deliveries against its contract, analysts say commercial hedgers are increasingly shying away from the contract.
Daukoru said those in OPEC are “observing this and will be vigilant in moderating these types of price swings,” higher or lower, though he gave no details.
He reiterated Nigeria would lift its oil production capacity to 3 million b/d by the end of the year.
-Contact: 201-938-5400 read more

By Dow Jones Newswires
SYDNEY (Dow Jones Commodities News via Comtex)
A landmark gas contract with China stands to cost Australia's biggest natural resources project up to A$20 billion (US$14.3 billion) in lost sales due to contractual terms that fail to account for the increase in oil prices to record levels, the Australian Financial Review reported Friday.
The 25-year gas contract between China National Offshore Oil Co. and the North West Shelf Venture was struck at prices that are half those enjoyed by project operator Woodside Petroleum on other major contracts, the paper said.
The 2002 liquefied natural gas contract doesn't contain clauses allowing the six North West Shelf partners to alter prices in line with changes in the oil price, potentially costing A$3.5 billion (US$2.5 billion) in lost revenue over the next six years alone, it adds.
Details of the price of the contract haven't been released by the North West Shelf partners, but analysts have now been able to piece together just where the LNG was priced, the report says.
The North West Shelf partners are Woodside, BHP Billiton, BP, Chevron, Shell, and Japan Australia LNG, which is an equal joint venture between Japan's Mitsubishi Corp. and Mitsui & Co. CNOOC is also a member of the venture but doesn't have an interest in the North West Shelf's infrastructure.
Copyright (c) 2006 Dow Jones & Company, Inc read more

Publish Date: Monday,3 April, 2006, at 10:30 AM Doha Time
RAS LAFFAN: Qatar has still not finalised agreements with Total and Royal Dutch/Shell for equity stakes in two liquefied natural gas (LNG) trains in the Gulf state, Qatargas said yesterday.
CEO Faisal al-Suwaidi said negotiations were in the final stage with Total for the Qatargas 2 project’s second train, which is expected to produce 5mn tonnes a year.
“Hopefully, Total will join us soon in the train. It will take anything between 15-20%,” he told reporters.
State-run Qatar Petroleum has a 70% stake in Qatargas 2 while ExxonMobil holds 30%. The project will develop two LNG trains – trains 4 and 5 – to supply 15mn tonnes a year to Britain and North Europe for 25 years.
Al-Suwaidi said talks were still going on with Shell to finalise an agreement for Qatargas 4, a 7.8mn tonne a year project with one train to supply North America and Europe.
“We are still in the final stages of a development agreement with Shell. This has to happen before the third quarter, otherwise we cannot finance the project,” he said.
“We are (also) in negotiations with a Japanese trading house (to take a stake in Qatargas 4), but they really need to show value,” Suwaidi said without naming the Japanese company.
In February 2005, QP and Shell signed an agreement for the development of Qatargas 4, in which QP would hold a 70% interest. The project, which will own train 7, is expected to cost between $6 and $7bn with LNG deliveries in 2010.
Al-Suwaidi was speaking after a ground-breaking ceremony for the Qatargas 3 and Qatargas 4 projects.
Asked whether he saw a spot market emerging for LNG, Suwaidi said: “I don’t think there is eagerness on the side of producers or buyers … I think we are years away from that.”
He said Qatargas has introduced the right of diversion – diverting LNG cargoes to different buyers – but said the firm was committed to meeting its customers’ needs.
“If I look at the total system, there’ll be limited diversion,” he said, adding that diversions would address seasonal shifts in demand and economic benefit. – Reuters read more

By SANDRA WARD
April 2, 2006
After three booming years in the energy sector, investment bargains still can be found although oil and natural gas prices are expected to level off this year, according to respected oil-patch analyst Art Smith, chairman and chief executive officer of research firm John S. Herold Inc., of Norwalk, Conn., and Houston.
Valuations, especially among the large multinational companies, continue to look compelling based on earnings and cash flow. Mr. Smith points to ConocoPhillips, Exxon Mobil, Chevron, BP and Royal Dutch Shell as examples of top-flight energy companies trading at between 6 and 11 times earnings even though they should continue to generate gobs of cash flow if oil and gas prices stay flat.
“Overall, the big integrated oil companies' earnings power continues to surprise us,” says Mr. Smith, “and they are enjoying something they haven't seen before: upstream profits [from finding and producing oil and gas] at an all-time high at the same time refining and marketing is also generating some of the best returns in recent years.”
The stock market continues to discount the companies and place a much lower price tag on them than exists in the forward market for oil and gas. The current 12-month strip, or the average price for contracts in the next year, is $65 a barrel for oil and nearly $9 per million BTUs for gas. Yet, says Mr. Smith, the stock prices for Anadarko Petroleum, Kerr-McGee and Pioneer Natural Resources and others imply an oil price of about $45 a barrel and a natural-gas price of $6 per million BTUs, much less than the consensus view of where prices are headed eventually.
That's an indication of profound investor cynicism toward energy pricing, though the futures market has correctly pointed to the price gains of the past three years, notes Mr. Smith.
Despite his outlook for flat pricing this year, he believes there will be another major surge in prices at some point, based on demand trends and supply limitations. The discrepancy between stock prices and energy futures is likely to result in more companies seeking to unlock share value by recapitalizing. “Their balance sheets have gotten so strong, a compelling theme for companies is to borrow money,” buy back stock, “and then deleverage [reduce debt], which drives the stock price,” says Mr. Smith, adding that Cimarex Energy is a likely candidate for a leveraged recapitalization.
He cautions, however, that a tinge of speculation has entered the oil-field equipment and drilling sector in the form of orders for new offshore rigs and oil-field equipment and notes, too, that cost inflation is soaring as parts and labor are in short supply.
Sandra Ward is a senior editor of Barron's magazine, which is found online at www.barrons.com. read more

Apr 03, 2006
When talk turns to big-money spending these days, the conversation usually begins and ends with the oilsands. And with good reason. Over a 20-year stretch, spending on oilsands projects is expected to reach around $100-billion. That's 11 zeros, enough to make even Bill Gates jealous. Enviable, yes. Alone at the top? Not quite.
In the world of big round numbers, oilsands may be the headliner, but it's not without a hungry understudy. Quietly, the amount of spending on coal bed methane programs, though not single projects in the classic sense, can already go head-to-head with the dollars being put into the oilsands.
“The resource and total capital is similar in scale,” said Stephen Paget, an analyst at FirstEnergy Capital in Calgary.
Take EnCana Corp., which plans to spend $4.5-billion drilling coal bed methane wells in the next five years.
That puts it in the same ballpark as the Long Lake oilsands project being built by partners Nexen Inc. and OPTI Canada Inc., and not far behind Suncor Energy Inc.'s next 100,000 barrel-a-day expansion.
Ranked against other projects in Alberta, EnCana's coal bed methane program comes in a respectable fifth, according to a list compiled by FirstEnergy using data from the province.
“To me, the interesting thing is how quickly … coal bed methane has gone from something that was seen by visionaries to something that is now very much an economic resource,” Mr. Paget said. “The oilsands took 50 years to get that first economic production, coal bed methane was much more rapid.”
Over the last five years, parallels between the emergence of the oilsands and coal bed methane abound.
Both are considered unconventional resources, a term that means industry needs to use different methods to extract the hydrocarbons than the techniques it typically uses.
In the oilpatch, which thrives on cutting costs through repetition, having to stray from the norm nearly always equates to extra costs. As with oilsands, that's the case for coal bed methane, which can be twice as expensive as producing conventional reserves.
For years, that meant each stayed on the fringes of industry thinking.
Then, around the beginning of this decade, the energy world started to transform. Surging global demand caught supplies of oil and gas flat-footed. Instead of oil at US$20 a barrel and gas at US$2 per gigajoule, prices leapt to their current levels around US$60 a barrel and US$7 a gigajoule.
“Just as the world oil market has become limited in supply, the North American natural gas market has become limited at close to the same time,” said Mr. Paget. “Generally, energy … supply is much closer to demand than it has been in the past.”
With commodity prices tripling, the break-even costs for each play became a memory, moving oilsands and coal bed methane from marginally profitable experiments to veritable cash cows.
Where the resemblance really hits home for industry is in the size of the respective resources.
Oilsands reserves are now tabbed at 175 billion barrels, dwarfing estimates for Canada's conventional reserves of four billion barrels.
While the powers that be haven't yet agreed upon an estimate for recoverable coal bed methane reserves, a looser projection for total gas-in-place puts them at more than 500 trillion cubic feet, about double that of conventional gas.
“The resource is there to spend the money on,” said Kin Chow, chairman of the Canadian Society for Unconventional Gas.
The simple fact that the gas is there to tap is a comforting thought for an industry that, fundamentally, is based on always having fresh prospects.
Virtually nowhere only a few years ago, the emerging significance of coal bed methane can be found in the numbers.
When the current drilling programs from Apache Corp., MGV Energy Inc., Conoco Phillips, Compton Petroleum Corp., CDX Canada, Trident Exploration Corp. and others are added up, the tally comes to $9.1-billion over the next five years, according to FirstEnergy.
MEGA-PROJECT COMPARISONS:
Company Project cost ($billions)
1. Syncrude Canada expansion $8.3
2. Canadian Natural Project Horizon $6.8
3. Imperial/ExxonMobil Kearl Lake oilsands mine $6.5
4. Suncor Energy expansion $5.9
5. EnCana coal bed methane $4.5
6. OPTI Canada/Nexen Long Lake project $3.5
7. Synenco Northern Lights bitumen upgrader $2.8
8. Shell Canada Scotford upgrader expansion $2.7
9. Albian Sands Energy. Muskeg River mine expnsn. $2.5
Source: FirstEnergy Capital Infrastructure Survey, Alberta Economic Development read more

Apr 03, 2006
NEW DELHI, April 3 Asia Pulse – More than 70 global energy firms including ExxonMobil, Chevron Texaco, Conoco Phillip, BHP and Shell lined up in Houston to have a sneak preview of India's latest offering of oil and gas blocks under the New Exploration Licensing Policy (NELP).
Of the 72 firms, which attended the Houston roadshow, 32 were from the US. The major companies which participated included ExxonMobil, Chevron Texaco, Conoco Phillip, BHP (Australia), Anadarco, Shell, BG, Cairn Energy, Occidental, Geoglobal Resources (Canada), Western Geophysical, GS Technologies, Marathon and Seata Resources.
“Response to the Road Show was upbeat and positive as many companies have already booked data at the Houston Data Centre for NELP-VI,” a government press release said here.
The Houston Road Show comprised extensive and detailed presentations and one-on-one meetings with the companies.
Companies like BG, Cairn Energy, ONGC, RIL shared their successful experience of working in Indian E&P sector.
Industry chamber CII made a presentation, stating its positive perception about investment climate/opportunities in India alongwith representations by KPMG and JP Morgan.
Petroleum Minister Murli Deora called upon the US firms to make use of the attractive investment opportunity provided by India in the form of 55 exploration blocks offered for global bidding under 6th round of NELP.
He said American companies' response in the past has not been encouraging, which should change as there has been a sea change in the policy framework and investment environment in India, the release said. (PTI) read more

Apr 03, 2006
BEIJING (AFX) – China National Offshore Oil Corp (CNOOC) said its petrochemical complex, developed as a joint venture with Royal Dutch/Shell, has started operations.
The CNOOC/Shell facility based in Daya Bay Economic and Technology Development Park in Huizhou city, Guangdong province, has an annual capacity of 800,000 tons of ethylene and 430,000 tons of propylene, CNOOC said in a statement.
“The successful launch of operations signals a substantial step in CNOOC's integration of upstream and downstream production,” CNOOC chairman Fu Chengyu said.
The CNOOC/Shell facility will produce 2.3 mln tons of petrochemical products, the company added.
In November 2002, CNOOC and Royal Dutch/Shell agreed to invest a total of 4.2 bln usd in the joint-venture petrochemical complex.
[email protected]
kz/gf/yt
null read more

Apr 03, 2006

KUALA LUMPUR (AFX) – CS Mutiara Petroleum, a 50:50 joint venture company between Petronas Carigali Sdn Bhd and Shell Exploration and Production Malaysia BV has made a gas discovery in Block PM302 off the northeast coast of Peninsular Malaysia.
In a statement, CS Mutiara said the Bunga Dahlia Channel-1 exploration well was drilled to a total depth of 2,200 meters and encountered multiple gas zones, adding that further technical evaluation is required to determine the volumes.
With the latest discovery, CS said it has recorded six consecutive exploration successes.
It said it is currently embarking on technical studies to assess the development options for the gas discoveries in block PM 301 and PM302.
[email protected]
clf/swp read more

By THE ASSOCIATED PRESS
BELO HORIZONTE, Brazil (AP) — Brazil's state-run petroleum company has signed new oil contracts with Venezuela that give Petrobras Brasileiro SA a 40 percent production stake in Venezuelan fields where it currently operates.
The contracts, signed Saturday, give Venezuelan state oil company Petroleos de Venezuela SA, or PVDSA, a 60 percent stake, Petrobras CEO Sergio Gabrielli said Sunday at a press conference before the annual meeting of the Inter-American Development Bank.
Venezuelan President Hugo Chavez said 17 Venezuelan and foreign companies agreed Friday to turn privately run oil fields into joint ventures controlled by PVDSA.
Under the new arrangement, PDVSA holds a minimum 60 percent stake in the new partnerships, splitting oil revenues with companies.
The new pacts that convert 32 privately run oil fields into 30 joint ventures are replacing old agreements that gave the foreign companies a bigger share.
Exxon Mobil Corp., the world's second-largest integrated oil company, and Italian oil and gas company Eni SpA did not sign the agreements.
Exxon avoided the new terms by selling its stake in the 15,000-barrel-a-day Quiamare-La Ceiba field in December to its partner, Repsol YPF SA, while Eni was not permitted to participate in the joints ventures due to pending Venezuelan tax debts.
Spanish-Argentine Repsol YPF, Royal Dutch Shell PLC and China National Petroleum were among the 17 Venezuelan and foreign oil companies that agreed to the new legal framework.
Venezuela's Congress approved new oil field guidelines on Thursday. read more

By REUTERS
Published: April 3, 2006
Filed at 0:59 a.m. ET
SINGAPORE (Reuters) – Oil prices held steady below $67 on Monday, supported by lingering doubts over Iran's latest pledge not to cut off oil supplies in its row with the West.
U.S. crude oil futures rose 3 cents to $66.66 a barrel in early electronic trade after sliding 52 cents on Friday, retreating from a two-month high.
On Friday Iranian Foreign Minister Manouchehr Mottaki was the latest official from Tehran to vow that the world's fourth-largest oil exporter would not use oil as a weapon as it faces a UN Security Council rebuke over its nuclear research.
The council last week gave Iran 30 days to halt enrichment, but Tehran rejected the call and analysts remain concerned that it could resort to using oil for leverage.
“The fall in prices is modest… No one is willing to assume Iran will never use oil as a bargaining chip,'' said Tobin Gorey, commodity analyst at Commonwealth Bank of Australia.
Despite Friday's dip, prices rose 3.7 percent last week amid a pre-second quarter influx of fund money into the commodities complex, a big draw-down in weekly U.S. gasoline inventories and an ongoing production outage in Nigeria.
About 550,000 barrels per day (bpd) of output has been shut for six weeks in Nigeria, where militants have staged a series of attacks on platforms and pipelines.
Oil industry and military officials said at the weekend that additional naval patrol boats had not made the Niger Delta safe enough to persuade Royal Dutch Shell, the company most affected, to return to fields it abandoned in February.
OPEC, which agreed a month ago to carry on pumping near a 25-year high to offset supply concerns, appeared to have little choice but to carry on that policy as prices drove back toward last August's record high of $70.85 a barrel.
“The price as it is now, nothing will happen'' at OPEC's next scheduled meeting in June, Qatari Oil Minister Abdullah al-Attiyah said on Sunday. “We are doing all that we can do… to stabilize the oil market.''
Attiyah said he believed the global economy could absorb $60 a barrel crude, the latest indication that the Organization of the Petroleum Exporting Countries was unlikely to allow prices to fall back sharply.
Crude oil prices rallied 8.7 percent in the first quarter, but returns for passive index investors such as pension funds were weaker due to the market's persistent contango, which means front-month prices are cheaper than later months. read more

By Ian Bickerton in Amsterdam
Published: April 3 2006 03:00 | Last updated: April 3 2006 03:00
Dutch prosecutors tomorrow wind up the case against four ex-Ahold directors on trial for their alleged role in an accounting scandal at the supermarkets group three years ago.
They may demand that judges jail Cees van der Hoeven, former chief executive, and Michiel Meurs, ex-chief financial officer, if they are convicted of charges of falsifying documents and misleading Ahold's accountant. Also on trial are Jan Andreae, a former executive board member, and Roland Fahlin, former supervisory board member.
The biggest white-collar criminal trial in Dutch history concerns the consolidation by Ahold of 100 per cent of the sales from four joint-ventures in Scandinavia and Latin America that the company did not fully own.
Documents, called control letters, were signed by the defendants, leading Deloitte, Ahold's accountant, to believe Ahold was permitted to fully consolidate the sales.
Deloitte was not shown separate “side-letters”, which Ahold's joint venture partners insisted upon and which disputed Ahold's interpretation of control. Those letters were signed by the ex-directors, although only Mr Meurs signed all four, and the joint-venture partners.
The defendants deny wrongdoing. Ahold added €34bn ($41.2bn) in sales across several years from full consolidation and be-came the world's third-largest food retailer. The affair came to light in February 2003 when Ahold also disclosed a near $1bn fraud at its US Foodservice distribution unit. Mr van der Hoeven and Mr Meurs resigned.
Mr van der Hoeven said in court that he signed “hundreds of letters every day”, few of which he read. He added he had no detailed knowledge of accountancy. Mr van der Hoeven was Ahold's CFO and spent 14 years before that in accounting and treasury functions at Royal Dutch Shell.
Mr Andreae claimed to have signed the documents at different times and therefore could not have been expected to have realised the connection between them.
Tests by the Netherlands Forensic Institute proved otherwise. His pen had left an imprint on the side-letter which lay beneath the control letter when he signed that document. In other words, it is alleged that he had first signed a letter saying Ahold could not consolidate the sales, then signed another saying it could.
Mr Fahlin also claimed not to be a book-keeping expert, although he was a member of Ahold's audit committee.
However Mr Meurs faces the trickiest task in persuading judges he acted lawfully. He told the court he believed it was not necessary to show Deloitte the side-letters because he felt the documents were not relevant.
His cause will not have been helped by the publication late last week of the report of investigators probing allegations of mismanagement at Ahold. The report, not admissible as evidence in the criminal trial, concluded Mr Meurs was “solely responsible” for keeping the side-letters secret from Deloitte.
A verdict is expected on May 22. read more

Price could see Venezuela producing for 200 years
Mark Milner
Monday April 3, 2006
Venezuelan president Hugo Chávez is poised to launch a bid to transform the global politics of oil by seeking a deal with consumer countries which would lock in a price of $50 a barrel.
A long-term agreement at that price could allow Venezuela to count its huge deposits of heavy crude as part of its official reserves, which Caracas says would give it more oil than Saudi Arabia.
“We have the largest oil reserves in the world, we have oil for 200 years.” Mr Chávez told the BBC's Newsnight programme in an interview to be broadcast tonight. “$50 a barrel – that's a fair price, not a high price.”
The price proposed by Mr Chávez is about $15 a barrel below the current global level but a credible long-term agreement at about $50 a barrel could have huge implications for Venezuela's standing in the international oil community.
According to US sources, Venezuela holds 90% of the world's extra heavy crude oil – deposits which have to be turned into synthetic light crude before they can be refined and which only become economic to operate with the oil price at about $40 a barrel. Newsnight cites a report from the US Energy Information Administrator, Guy Caruso, suggesting Venezuela could have more than a trillion barrels of reserves.
A $50-a-barrel lock-in would open the way for Venezuela, already the world's fifth-largest oil exporter, to demand a huge increase in its official oil reserves – allowing it to demand a big increase in its production allowance within Opec.
Venezuela's oil minister Raphael Ramirez told Newsnight in a separate interview that his country plans to ask Opec to formally recognise the uprating of its reserves to 312bn barrels (compared to Saudi Arabia's 262bn) when Mr Chávez hosts a gathering of Opec delegates in Caracas next month.
Venezuela's ambitious strategy to boost its standing in the global pecking order of oil producers by increasing the extent of its officially recognised reserves is likely to face opposition. Some countries will oppose the idea of a fixed price for the global oil market at well below existing levels. Others are unlikely to be happy with any diminution of their influence over world oil prices in favour of Venezuela.
Caracas's hopes for an increase in its standing would be a far cry from the days when Mr Chávez came to power after years of quota-busting during which Venezuela helped to keep oil prices down. “Seven years ago Venezuela was a US oil colony,” said Mr Chávez.
As he seeks to bolster his country's standing on the world stage, the Venezuelan president has also introduced radical changes to the domestic oil industry. Last Friday his government announced that 17 oil companies had agreed to changes which will see 32 operating agreements become 30 joint ventures that will give the government greater say over the country's oil industry.
The original deals were signed in the 1990s as part of a drive to attract more investment into the country's oil industry. However Mr Chávez said the deals gave foreign companies too much and the government too little. Under the new arrangements state-run Petroleos de Venezuela will hold 60% of the joint ventures. “Now we are associates and this commits us to much more … it's no longer a contract for doing a service, it's a strategic alliance,” Mr Chávez told the companies that signed up.
The new arrangements were not universally welcomed by the oil companies. Exxon Mobil and the Italian energy company Eni have refused to sign up to the new arrangements.
Mr Chávez, a former paratrooper who has survived several attempts to oust him and who faces re-election in December, regards Venezuela's oil revenues as crucial to his plans to fight poverty. Critics accuse him of squandering the country's oil wealth on improvised social programmes.
The Venezuelan president used the Newsnight interview to attack the role of the International Monetary Fund in Latin America, where it has a reputation for pushing market-based reforms as the price of its help to countries struggling with their finances.
The Chávez government has helped a number of countries, including buying Argentinian and Ecuadorean bonds, with Mr Chávez arguing that he would like to see the IMF replaced by an International Humanitarian Fund.
Backstory
Hugo Chávez was born in 1954. The former paratroop colonel first came to prominence after a failed coup in 1992, for which he was jailed for two years. He was elected president of Venezuela in 1998, launching a social programme known as Bolivarianism, after the revolutionary Simón Bolívar, and reversing planned privatisations. In 2002 he survived a coup attempt and, two years later, a bid to unseat him in a referendum. He has close links with Cuba's Fidel Castro and has frequently clashed with the United States. read more