WHEN: Friday, November 13th
WHERE: CNBC's Business Day Programming
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with EXXONMOBIL Chairman & CEO Rex Tillerson today, Friday, November 13th. Excerpts of the interview will run throughout CNBC's Business Day programming.
All references must be sourced to CNBC.
SOONG: Let me start with a really basic question, that is the price of oil - lets be more specific - if you take a look at supply/demand fundamentals we are well supplied, demand still looking pretty fragile, but we're sitting at 70 dollars does that make sense to you?
TILLERSON: We're well supplied in the markets, but inventory levels are at historic high levels - especially in the US - even floating inventories that are floating off shore, so we're well supplied to the market, the market continues to be a bit soft I think we see a little bit of firming demand, but I think it's a little too early to tell exactly whether that can be sustainable or not. You know if you put the price of oil, which is priced in dollars around the world, and if you look at what some of the currency effects are with the weak dollar - in our view that is contributing about 20-25 dollars a barrel to the price. If you just look at oil at a dollar basis as opposed to a Euro basis over the last 2-3 years you'd see a kind of a gap opening up. So clearly there is an FX effect on the price of oil as well.
SOONG: Effect of the weak dollar very important at this APEC - a lot of people calling it the mother of all carry trades, the borrowing the dollar and investing it in a whole load of other high yielding assets - including commodities and oil - how worried are you at some point it will drive oil up to, lets say a hundred and kill the recovery?
TILLERSON: Well of course oil being a commodity it is a volatile commodity, well it has been over the last decade, relative to how that affects us? It really has little affect on our business plan because we kind of plan and look through this volatility we kind of have a view of kind of where we think commodity prices will act across a range, so we just test our plan across a range of prices, never getting too exuberant when prices get too high, nor making too many steep adjustments when they get too low - so in terms of the effect on us - not a lot because we do have a view of where we think it will move within a range and by and large it tends to move within that range - if you look over the long period of time.
SOONG: Lets talk about how the business is for the world's most valuable company – you've had the price of oil come down by about 40-45% the cost though, on average, are only down 15-20% does that hold true for Exxon?
TILLERSON: Well that's not a bad estimate and of course a lot of the investments our industry makes are very long term in nature, now the projects take multiple years to execute so a lot of cost commitments we're made during the overheating markets, when the price was running up, and it takes a while for that to play out and work it's way out of the system - a lot of your labor costs rarely adjust back down - so there is a certain element when the prices run up and the cost run up that is very difficult to bring that cost back down and there is always a delayed response on the cost side again because of the long term nature of the contracts and the material order commitments so it is .. the cost has certainly not come down as quickly as the commodity price has, but we are seeing it continue to readjust and that will just take some time.
SOONG: And your spending at last count 75-79 million dollars a day in the search for oil - lets talk a little bit more about competition. Specific deals I am not going to mention until they are actually done, but lets focus on West Africa - I think a quarter of your reserves and your global production come form there - the Chinese - the big state backed ones are on the hunt as well to secure supply chain - you've got more than enough cash to go out there and bid and fight with them, how do you get the upper hand though?
TILLERSON: Well we have to demonstrate the value we have - to the resource owner - the host govt. If we can't make the case that by ExxonMobil's involvement will create more value for you - the resource owner of the country, with our technology, our know how, our project execution capabilities - our 125 years experience - we have to convince the host government that with Exxon's involvement they are going to actually realize greater value from that same resource than if they undertake a partnership with others. And so that requires us to not just talk about it, but to demonstrate that we do it, and that's what we try to do on all of our major projects in that region and around the world and in the way we carry on our operations, the way we conduct our businesses and the way we integrate with local activities with local communities so that we have a sustainable relationship, not just from an economic standpoint but from a local community standpoint as well, that's the only way we can really respond because the Chinese have a whole lot more money than I have and so I can't get into a bidding war with them and if it all comes down to who will pay the most money I'll probably lose.
SOONG: Lets talk about the china thing - where a lot of the demand seems to be coming from - booming over there - and a lot of people see that moving in the opposite to china and also the west. Big strategic shift at Mobil to do two things - 1) focus on china as a new source of demand but also in terms of your product mix refining, chemicals etc., with China demand you're spending a lot of time and money out here in Asia - Fujian and Singapore as well - is it all down to demographics? 1.3 billion people, rising incomes and an almost insatiable appetite for stuff you could.
TILLERSON: Well that's really it - where's the economic growth -where's the most economic growth globally going to be? You have to have energy supplies for you to have economic growth. We every year do our own economic and energy outlook for the world - a country, region and global basis and really about 15 years ago we identified there was going to be this global shift in economic growth from the west to the east and so we began taking steps 10 years ago to build our capability in the region, our discussions around the Fujian petrochemical and refining project that you mentioned that we inaugurated 2 days ago - those discussions began more that 10 years ago with the Chinese, in order to put the proper agreements in place that allowed us to ultimately make the investment and start up the new facilities that supply's fuel projects as well as petrochemicals. Similarly in Singapore we've been building on our petrochemical investments here in Singapore, we're doubling the size of our petrochemical capacity here in Singapore - because of it's proximity to the rapidly growing market, certainly driven by china, but regionally as well - the region we expect will grow from an economic standpoint, so it is very much driven very much by the economic activity - where the demand is going to be and that's where we will invest and governments and host country's that put the right conditions for us to be able to do that
SOONG: The thing that really jumps out of me in terms of positioning yourself of where the new demand is coming from - expansion at the Singapore facility and that's all said and done in 2012 I think. It's going to be your single biggest manufacturing facility in the world - bigger than Baytown
TILLERSON: That's correct the combined integrated facility - it is an integrated refinery and petrochemical complex - it will become our largest downstream facility in the world. The petrochemical plant will start up in a number of phases beginning in 2010 and will be full up in 2011. We have a subsequent investment that we are currently evaluating at the refinery to produce cleaner diesel to meet the region's growing demand for cleaner fuel products. So we have other investment programmes that are out in front of us for consideration here in Singapore
SOONG: With China though this is a market where they are liberalizing price structure, but it is pretty much controlled. A lot of other people - your rivals have got there, maybe a bit earlier and they're still trying to figure out how they are going to make money - what is Exxon's strategy? How you going to do it in china?
TILLERSON: Well the Fujian project is really the model of how we think we can participate in a market place that is evolving in terms of a regulatory structure and a pricing structure and it is one of the reason's it took us ten years to put that agreement together because we are not willing to go in on a non-integrated basis and just participate in a refinery or participate in a string of retail gasoline stations - so the Fujian project is fully integrated from a refinery, to petrochemical and the retail fuel outlet - all three of the partners; ExxonMobil, saudiaramco and Sinopec and the forth part - the Fujian government - are integrated in the refinery/petrochemical and then the three of us are integrated in the marketing, so as the Chinese government wants to determine how it want's its consumers to feel the price and the cost of its energy up and down that value chain we and our Chinese partner are fully aligned. So there are no disagreements over how we need to respond to the government wishes and if we make money in the fuels d marketing we may not make as much in the refining and if make money in the refining and not as much in the fuels marketing, but it was our integrated approach that we felt was our most appropriate way to participate in this kind of a market that is evolving and as it evolves further we'll examine whether that's necessary to participate in the future but certainly today we think it's the most sensible way to participate
SOONG: Gas and diesel, I think are going to be a challenge on the product side, chemicals though is that going to be a little easier to make money there? I mean the demand from china is going very strongly and still projected to be doing so for at least the next decade.
TILLERSON: Well we do see a extraordinarily strong demand for petrochemicals from china - about 60% of all the new bandgrowth in the world is going to be in that country for petrochemicals and the Chinese have been much liberal around pricing petrochemicals into downstream live industries that use those products, so we think as long as we can be very efficient, a very reliable operator in that facility then we think we can do very well with the petrochemical business there
SOONG: If you could just look ahead for us say 5 maybe 10 years - China and Exxon as a brand in that market - even today as we speak your clearing out in the US of gas stations with the brand - China though you are rolling out gas stations across the country. And this is going to be a pretty big change
TILLERSON: Well it's very much a function of the specific markets retail motor fuel markets around the world and in individual countries can be quite different. We still have a very active presence in the retail fuels market in certain parts of Europe and certain parts of Asia and so it is very much a function of what is happening in the retail fuels business in that market place. In the US over the last few years there has been an enormous move by many players into the retail fuels business people who were traditionally not in the retail fuels business. Big discount retailers like Wal-mart, even grocery stores are putting pump islands in the parking lots of their grocery stores to attract customers in to buy groceries. And the fuels margin at the retail level has been under extraordinary pressure that's a model that is different from the way we have traditionally participated at the retail level - so it is our view that there are others who will probably be more efficient at the retail level, so we are going to participate at the wholesale level. The brand will still remain in the market in the US - so you will still see the Exxon and the Mobil brands, but we will no longer own those sites.
SOONG: Understood. Lets talk very quickly if we could about the hunt for reserves. It is an increasingly competitive business and from a cost point of view I think your activity in West Africa is probably one of the cheapest places in the world to pull oil out of the ground. $6.66 the last time I looked - is that the new battle ground?
TILLERSON: Well it's again it's all the different types of resources and the geography will be different, and in Africa there is kind of a range of the cost of production. Our production in Nigeria is reasonably low cost it's conventional, its in reasonably shallow water - deep water Angola the resources are large, so you have a big resource base to bear the burden of that cost. But a lot of our resources around the world are going to operate at different levels of cost and that's just a function of just the resource character itself as well as the location. In any event no matter where we are, a lot of effort on getting those costs down so that you are the most cost efficient producer
SOONG: And the stuff that your pulling out of Africa its white clean sort of stuff that China wants and needs, correct
TILLERSON: It's a good quality crude both in Nigeria and Angola we have, obviously, other operations in the area, but those are the priority and so far we've found good markets for all of it.
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