Rex W. Tillerson, chairman and CEO of ExxonMobil, l smiles during a news conference after the shareholders meeting in Dallas, Wednesday, May 30, 2007. (AP Photo/LM Otero)
Lm Otero
Rex W. Tillerson, chairman and CEO of ExxonMobil, l smiles during a news conference after the shareholders meeting in Dallas, Wednesday, May 30, 2007. (AP Photo/LM Otero)

When: Today, March 9, 2011

Where: CNBC’s “Street Signs”

Following is the unofficial transcript of a

CNBC Exclusive interview

with Rex Tillerson, ExxonMobil Chairman & CEO, on CNBC’s “Street Signs” today. All references must be sourced to CNBC.

ERIN BURNETT: All right Mister Tillerson thanks so much for taking the time to be with us.

REX TILLERSON: My pleasure.

BURNETT: So looking at oil right now, $104, $105-- dollars a barrel. And the Saudi Arabian oil minister who really obviously speaks for the world's largest oil reserve said prices have more to do with financial speculation right now than they do with fundamentals. When you look at Libya, it's what, two, three percent of global production, so maybe he has a point. I'm curious to what-- how you answer that question. How much is the $20-plus per barrel jump we've seen is due to speculation?

REX TILLERSON: Well, I think the-- you know, the $20 jump we've seen in the last few weeks is-- is really the market pricing and the risk premium, as they view it on the future supply of oil. Today, all the markets are well-supplied with oil. We had our own supplies in the Mediterranean interrupted when we had to cease lifting-- Libyan crude. We've not had any difficulty replacing that supply. And I'm not aware of anyone who's having difficulty securing supplies of oil.

So I think from a supply and demand-- standpoint, the Saudi minister's comments-- around that are accurate. There is no shortage of supply in the market. So my conclusion is it's just reflective of the risk-- premium the market's placing on crude supplies, concerns about what might happen next. And that-- you know, geopolitical events unfolding are difficult to predict.

BURNETT: And I-- I want to ask you more about what does happen next. But let me ask you about this. OPEC members, Saudi Arabia, UAE, even-- Kuwait have apparently increased their supply-- despite the formal mandates to do so. Clearly we know Saudi Arabia has. But the big debate out there is how much cushion OPEC has. That's always the big debate. You know, 2 million barrels, four, six. What do you think?

REX TILLERSON: Well, the-- spare capacity for-- within OPEC over the last-- couple of years-- our view has been between 4 and 6 million barrels a day. Now how much of that spare they've actually put into the market just in the last-- couple of weeks, it's a little hard to tell, until some time goes by, and we can-- we can-- try and discern how much of that spare has actually been put into play. But even if they've done that, there's still a sizable amount of spare available-- there in Saudi Arabia. And in probably a couple of the other countries as well.

BURNETT: A spare that according to your risk analysis would make up for continuing spread of unrest, whether it be more in Algeria, or perhaps even more-- in the Gulf or in Saudi Arabia itself?

REX TILLERSON: Well, certainly if something happens in one of the major supplying-- producing countries like Saudi Arabia-- that would be a-- very different situation, because there is not capacity to replace a loss of that kind of supply, which today is somewhere between 8 and 9 million barrels a day.

That's why we have the strategic petroleum reserve in the United States. That's why the European countries have strategic reserves. That's why the Japanese and Asian countries have strategic reserves. It's for a physical interruption in the supply. And that would cover a period of time. It would cover, you know, several months in terms of a response to a loss of supply of that-- that significance.

BURNETT: Am I reading too much into what you're saying-- when-- if I say-- it would seem like you're saying don't tap the SPR right now. Wait in case you have a disruption fall in place like Saudi Arabia?

REX TILLERSON: Well the strategic petroleum reserve was created on the heels of the last physical significant supply and eruption we had-- due to the events in Iran. And it has always been put aside for use of a physical interruption. But the few times it has been tapped, the last significant was after Hurricane Katrina came through, and disrupted the ability of tankers to deliver crude to Gulf Coast refineries.

So even though the crude was out there, physically it couldn't be delivered. Where as spare reserves could be delivered. So I think you want to maintain the use of the strategic petroleum reserve to meet the energy supply that's vitally needed to keep people going about their daily activities. I would not use it in a response to the fact if people have got plenty of supply, they can still buy gasoline at the corner without having to wait in a line. They just don't like the price they're having to pay. That's a different problem.

BURNETT: That's where we are right now. All right, let me ask you about the price people are paying on the corner. That's 12 percent over the past few weeks, $3.51 a gallon. What's-- what's the break point? I mean, obviously, to a certain extent, you're going to benefit from some prices going up for oil. But even Exxon at some point is going to be negatively affected 'cause demand is going to drop. What's that magic level? Was it $3.50? Is it $4.00? What do you think?

REX TILLERSON: Well, I think it's-- it's largely a bit of a psychological question on when does the consumer say that's it, I'm going to change my behavior. And if we look in the past-- when we last saw oil prices at this level, from my perspective, as things approached $4 gasoline and as you hit $4, it was like that was a-- that was the straw that broke the camel's back for many consumers psychologically, but also managing their household budgets.

You know, an extra $50 a month in gasoline costs-- may not sound a lot to a lot of people. For a lot of people's household budgets, that's a problem. And when things hit $4 the last time, we saw a significant up tick in-- public transportation ridership. We saw higher volumes of cars in HOV lanes. People were carpooling. And we saw people cut back on discretionary driving. And that's-- that's about the only thing that consumers can do is alter their consumption patterns, and put back pressure on those prices.

BURNETT: so more towards $4 than where we are now. Let me ask you this then. The CEO of Hess Oil at the conference in Houston-- said that we should put a $1 a gallon tax on gasoline to CERA energy conference. Now, obviously, that would put us above $4 right now, so maybe-- maybe that's something you don't think we should do today. But big picture. Dollar tax-- tax on gasoline?

REX TILLERSON: Well, again, I think it's a question of why are you putting the dollar tax on the gasoline. Are you trying to alter demand behavior with that? If that's what-- I mean, you just need to be upfront about why you're putting the dollar on. I don't think that's necessary. I think you'd like to not intervene in this market as much as possible. Let some events play out; let the market see what the security and supply situation is. Because I think to the extent the supply-- confidence grows, as people experience the loss of Libya, and they see that, okay, the market does work, more supply came in, and it is reliable that that will have a calming effect on markets.

Another intervention by government trying to manipulate so to speak either behavior or the markets itself doesn't do anything to build market confidence- in my view. I mean, I think the market looks at that and says well this is so bad that even the governments now intervening. And so, I think you have to be careful about those types of actions.

BURNETT: Pertaining to Libya, I know you have rights to explore in Libya, had done a few drills-- that didn't pan out. You had some employees there; they're obviously not there now. Libya has Africa's biggest oil supply though. And certainly, it's the kind of crude that American refineries-- prefer. Light sweet crude. Politics aside, how important is Libya for the future?

REX TILLERSON: Libya's total production capacity is about 1.5 percent or less of global supply. Every barrel is important because it's a barrel of supply available to consumers. But a loss of that supply or an interruption of it for some period of time-- is not in my view going to be a significant issue for the crude markets.

BURNETT: What about the no-fly zone? Would that make a difference? I mean, there's a big debate right now, cost benefit for the government. But as an oil man, if we had a no-fly zone in Libya, like we did in Iraq, would that have prices drop?

REX TILLERSON: You're really asking a foreign policy defense department question now, and I guess all I can say is I've listened to others-- talk about that. I know the Secretary of Defense-- has serious concerns about even taking those types of steps as to where that-- where does that lead you in terms of involvement in that situation in Libya longer term. So, I know everyone is concerned about what's happening to the people there.

Someone asked me earlier in the press conference if I was losing sleep over the situation in the Middle East. And I said I'm not losing sleep from an oil supply standpoint, I'm not losing sleep concerned about our assets. I lose sleep over what's happening to the people there. And I think that's the concern is whether that's going to be helpful or harmful in the long run.

BURNETT: And what about Saudi Arabia? Obviously, I know you've got refining operations there. You travel there; you know a lot of people there. Obviously, you have to. If you're Exxon Mobil. But what about Saudi Arabia? I mean, right now, is it business as usual? And if there were to be a real disruption there? And I'm not asking you to weigh in on what we're going to see tomorrow. Where would oil prices go if we lost the Saudi oil supply? Now there's that strategic petroleum reserve question out there, but we've seen numbers like $200 a barrel. Is that realistic?

REX TILLERSON: Well, I don't think anyone knows because we haven't experienced that kind of a supply disruption since, you know, since the Iranian revolution. That was the last time we had that type of supply disruption. Clearly, the situation today is different, because we have prepared for a major supply disruption. And there are a number of other policy actions that could be taken to mitigate the impact. We can go back to odd, even license plate purchasing of gasoline, careful management of the stocks that are available. And the question would be how long does that situation persist in Saudi Arabia. And whether it's a short-term interruption, or whether it's something that's going to be with us for a long time, would largely determine I think how far those prices went.

BURNETT: According to Deutsche Bank, six of your ten biggest projects in terms of returns and this is their analysis, but they're all in the Middle East. One is in the United States, but that's under force. I'm curious what you think the single biggest opportunity is right now. And has that changed because of the great instability in the Middle East?

REX TILLERSON: In the Middle East or globally.

BURNETT: I guess both.

REX TILLERSON: Yeah. Well, in the Middle East, you know, the Middle East is still-- the place where the largest undeveloped resources of oil are located, conventional oil. So I think there are tremendous opportunities ahead of us in Iraq, as Iraq continues to evolve its government and things continue their path of stability.

They have tremendous resources that are yet to be developed, tremendous resources that are yet to be discovered. I think the same can be said for Abu Dhabi. A lot of resources yet to be developed with exploration potential. So those are two areas that I think are going to be very important to global oil supplies in the years ahead.

Now, closer to home two important areas. The Gulf of Mexico, where we need to get back to work, and then the evolution of unconventional gas and unconventional oil here in the United States. And how that has really changed-- our view of energy supply and energy security here in the U.S. Both of those are tremendous advantages that we need to be taking full advantage of.

BURNETT: Nobel Energy got a permit to drill a deepwater well in the Gulf of Mexico. I know that had been in process before the moratorium, so some people are discounting it. Are we back to normal in the Gulf of Mexico or no?

REX TILLERSON: No. No, we're not anywhere close to back to normal. That is the only deepwater permit that's been issued. We have-- two permits that are in the process-- with the Department of Interior. We too are in the process. Had a rig on location about to spud the well when they-- Macondo tragedy occurred. So we're going through the new procedures-- with the regulator. We're waiting. We've answered-- as far as we know, we've answered all their questions and responded, so we're really waiting on them.

BURNETT: All right. And what about energy independence for the U.S? I know it's something you've been skeptical of, but you're talking about unconventional resources. And--we saw some interesting numbers that in just three states in the western United States, in the oil shale according to Rand, we could get 800 billion barrels of oil, three times as Saudi Arabia. It's not yet recoverable. You're a believer in technology. Will it be? Will we be the big the king of oil in this country again?

REX TILLERSON: Well you never say never because technology changes so many things. There are large resources. The issue is going to be can you develop economic capacity from those resources. I continue to believe it's unlikely we'll ever be energy independent. I don't think people ought to worry about that. But the way you manage that risk is to make sure you're developing and using all of the things available to you that are inside your borders. And the U.S. is blessed with enormous untapped resources yet. Offshore and onshore. And, you know, the prudent policies are going to be let's get that in play, because that gives us so much additional flexibility to deal with the situations like we have today.

BURNETT: Are you going to look at oil shale specifically?

REX TILLERSON: Well we have of course; we have holdings in the shale places that people are developing today. Up in the Bakken and other places. In terms of the oil shale that are located in these tight rocks and in the shale itself in Colorado, we have maintained our technology development of those. And we've maintained an active research program. We have some things that we think might beneficial, but we've got to be allowed to go out and test some of those. So we're trying to get permits to do that.

BURNETT: Environmental, federal land joints, okay, yeah. And obviously, that's a big thing that would be required from the federal government. Before we go, what happened to 5 million barrels of oil that came out of the Macondo well? I mean, did aliens take them? I mean, seriously, right? This stuff was supposed to be sitting there. No one knows where it went.

REX TILLERSON: Well as you know, of course, they can account for the amount they recovered, they account for the amount they burned. And then I think the really important part of that whole response was use of dispersants at depth. So a lot of that oil was dispersed. What happened to the dispersed oil, a lot of it was consumed by natural organisms in the ocean that already exists to deal with natural oil seeds. That ended up being consumed. And so, I think there are some reasonable studies that should be done about what the long-term fade and effect of the use of dispersants are. But I would say that was probably the greatest success story was the effect those dispersants had in keeping most of that oil off of the beach.

BURNETT: And I know we've got to go, but I have to ask this 'cause a lot of analysts wanted this one asked. Natural gas prices, record discount to oil. You bought XTo as a bet that we're going to go to natural gas. We're not yet getting the government impetus to do that. Any regrets?

REX TILLERSON: None whatsoever. It's a quality resource, quality organization, and this is not about what the price of gas is today. This is about the energy supplies that are necessary five, ten, 15, 20 years from now. No, we're very happy with-- with the merger.

BURNETT: All right, thanks very much Mister Tillerson. We appreciate it.

REX TILLERSON: It's my pleasure, Erin, good to be with you.

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