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30 Nov. 2016

The Importance of Foreign Investment to Australia’s Economy

Richard J Owen Chairman, ExxonMobil Australia

Hilton Sydney
Sydney, Australia

~Check against delivery~

It’s great to be back again with members and friends of the American Chamber of Commerce in Australia.
AmCham has been working hard for many years encouraging international trade and investments in this country
For most of Australia’s history, we have worked hard to attract foreign investment and it’s our success in these efforts that have made us the country we are today.
However, for some reason, foreign capital or foreign investment is becoming increasingly viewed in a negative light and it even seems to be feared by some in the community.
Well today I’ll set the record straight. I will give you an idea of the importance of foreign investment and just what it has contributed from our perspective.
Along the way I hope to dispel another persistent myth that’s been driving me mad for years – the idea that big is bad in business.
About us
For those of you who don’t know us, ExxonMobil has been supplying petroleum products in Australia for over 120 years.
In the fifties we built refineries in Adelaide and Melbourne.
Half a century ago we teamed up with BHP Billiton in the historic joint venture to find and develop oil and gas in Bass Strait between Victoria and Tasmania.
We found gas and then oil offshore in the Gippsland Basin.  These discoveries came at a point in our history when Australia needed a local supply – we were struggling with the cost of importing energy.
ACIL Allen report headlines
The benefit was immediate and significant as the Bass Strait discoveries turned us from a oil importer to an oil exporting nation; and the natural gas provided opportunities for new businesses in Victoria
ACIL Allen recently completed economic modelling that determines just how much of a boost this country received from this Gippsland Basin Joint Venture.
Let me give you a few headline numbers to put it in to perspective.
Our Gippsland operations have delivered both direct and indirect benefits to the economy.
Over its life to date, Gippsland has produced more than half of all of Australia’s crude oil and hydrocarbon liquids. – Over half.
Gippsland has also produced over 40 per cent of all of Eastern Australia’s natural gas.
In financial terms it has contributed an average of 2.5 percent of all Commonwealth Government tax receipts.

2.5 percent! I say it again because to me that is a truly astonishing number.
And what’s even more amazing is the fact that throughout the peak of our oil production – the decade leading up to 1985 (a decade in which I joined the company) – we were delivering an average of 10 per cent of Commonwealth Government revenue.
Bass Strait oil and gas has paid for a lot of political promises over the years. Revenues from Bass Strait underpinned a number of the dramatic changes in our nation in the 1970s and 1980s.
But it’s not just these direct benefits. Once you establish reliable, indigenous oil and gas production it leads to the growth of all sorts of industries, most notably in the manufacturing and engineering. 
Bass Strait discoveries delivered a shot in the arm for manufacturing, led by petrochemical companies.
Chemical manufacturers use natural gas as the feedstock to produce ethylene for making plastic. Their plastics then form the building blocks for the manufacturing of a whole host of products. 
As industries grow, so too do all the small businesses required to service these industries.
At every level this growth leads to more jobs – highly skilled technical jobs for scientists, engineers and technicians, right through to employment in construction, manufacturing, retailing and other commercial enterprises.
According to ACIL Allen, when you add these indirect benefits of our Gippsland operations to the direct benefits, their modelling shows that we have added over $570 billion to Australia’s GDP. That’s in real terms based on today’s dollar value.
That’s equal to more than $780 per year for every man, woman and child in this country – which has been delivered as improved living standards including health, education and infrastructure.
Brief Energy Outlook
It is so important for us all to appreciate, that our choices when it comes to providing the energy we rely on into the future are actually very narrow.
Despite what you may have read or heard, our future is not about a choice between oil and gas or alternative energy sources.
Our future is a choice between how much of our oil and gas we will be able to produce and how much we will have to import.
Yes of course we will see a rapid growth in wind and solar, but nevertheless their contribution to our overall energy consumption will be marginal.
Each year ExxonMobil publishes a detailed Outlook for Energy looking out to the year 2040.

So how can I be so confident that I know what kind of energy we will require in the future?
It’s simple – because you tell me. In fact you keep telling me, day-in, day-out. The moment you start to change your mind, you tell me first.
We have two ways of communicating – everything we say, and everything we do.
For example, when you buy a car you are telling me that you want a reliable and affordable supply of diesel or petrol for at least the next 10 years.
So let me see, the average car today gets about 10 litres to 100 kilometres and travels plus or minus 15,000 kilometres a year.
So I multiply by 10 and it tells me you want about 150,000 litres of fuel over the next 10 years – so about a thousand barrels of oil
I also know you don’t want it right away. You would prefer it delivered in weekly, instalments – not as crude but as petrol. And you will even tell me what grade of petrol.
We can all do the sums and quickly work out how much crude oil, petrol, diesel, even jet fuel we will need to keep our wheels turning.
But this is just one small example of the messages I get sent every day. And they come through loud and clear from everyone in this room and from everyone outside.
You all sing to me with one voice – keep the oil and gas flowing!
Every time someone puts on a kettle, steps on to a plane, turns on a smart phone, they are sending me a message about the oil and gas they will need today and tomorrow.
All these messages from around the world go into our Outlook for Energy and this is what informs our investment decisions.
What if you want to buy an electric car?
Then you are telling me we had better find some more gas. Because when we collectively signed the Paris accord, we all said we want to get more of our electricity from gas, particularly if we are to integrate more renewables on to the grid.
And if we are going to switch our vehicle fleet to electricity, we are going to need a lot more electricity.
Plus we will need more gas feedstock to make the plastics for all the wiring in our new electric car, not to mention the tyres, the windshields, the windshield wipers etc.
When you do the sums, it is pretty clear why we keep saying we need all viable energy sources to meet the world’s growing demand.
Importance of oil majors
So, as I said earlier, the question is where will we  get all this future oil and gas from?
This is where foreign investment from large corporations like ExxonMobil becomes essential to our way of life.
Every industry has its own unique challenges and characteristics. Some cannot survive without large corporations with deep pockets. The petroleum industry is one of them.
Producing oil and gas is not like baking bread. You raise finance, build an oven, buy your flour and start baking.
Oil and gas exploration is highly speculative and involves huge capital outlays.
For example drilling an offshore exploration well today would typically leave you little change from $100 million. Your chances of success are very slim.
Imagine what investment options are open to you with $100 million. Who would choose to put the lot on an investment that might have a 1 in 10 chance of success?
To manage these risks we usually put together a program of wells – so that means multiple $100 million dollar wells.
So a drilling program might be a billion dollar venture.
This is why only large corporations have the capacity to continuously maintain the on-going search for the resources we need.
You need the expertise and the capital to maintain a global exploration portfolio so that you can spread the risk over a large number of ventures.
This is why countries around the world compete so vigorously in order to attract major companies to come and explore their prospects. Just like Australia did before our Bass Strait discoveries, and continues competing to this day.

Our first offshore well in Bass Strait discovered the Barracouta gas field. This made exploration look all too easy. History remembers our successes. We tend to forget the failures – the tens of millions of dollars we spent on dry holes in an effort to find that success.
Before we went offshore, we had been exploring and drilling wells unsuccessfully across the country since the 1930s.
In our first seven years after signing up with BHP Billiton, we drilled 60 wells in the Bass Strait, Gippsland, Bass, and Otway Basins resulting in four developments.
Development costs
But for those successes in Bass Strait – discovering the resources was just the beginning of the spending. 
Now we had to raise the finance to build platforms, more wells, pipelines, and plants.
Normally we would have expected to raise a significant proportion of our development financing from debt sources in country.
But Australian regulators wanted almost all of our financing to come from foreign sources. The idea was to encourage an inflow of funds from overseas to assist with Australia’s balance of payments.
Apart from the huge capital outlays in our business, there are also long time horizons before we see a return on the capital.
Our capital spending began in 1963 in Gippsland, but it wasn’t until 1970 that the first dividend went back to our US shareholders.
Ever since, we have generated a lot more wealth in this country than we have taken out of it. 

When you look at graphs depicting the oil production – or the revenue – from our Bass Strait fields, you see that rapid rise to a peak and then a long decline until we deplete the reservoirs.
This is the typical wave pattern of most oil & gas developments.
They ramp up to peak production, when you hope that you will get a return on all the capital you have spent, and then as the resources decline the operational costs increase to the point that it becomes no longer commercially viable and the wave peters out.
Throughout this process I can assure you our engineers and scientists are working hard to ensure we can ride that wave for as long as possible, by continuing to develop more opportunities as well as reduce costs as the resource depletes.

The reality is, providing the energy that everyone in this room – and everyone outside this room – demands every day is a huge, complex technical and commercial challenge.
The fact that we also need to reduce our greenhouse gas emissions, adds a whole new layer of complexity.
There is no one solution and anyone who thinks they have the answer is kidding themselves.
It’s a task that requires many solutions, involving every source of energy.
We don’t just explore for your energy by drilling expensive holes in the ground.
We explore in universities and laboratories around the world. We explore in our kindergartens, our primary schools and our secondary schools by promoting maths and science.
Because we are playing the long game. We know we are going to need generation after generation of brilliant technical minds collaborating on the case.
Only large corporations with very deep pockets and can afford to take on this exploration challenge.
ExxonMobil spends an average of a billion dollars per year on research and development in an effort to find solutions.
Just last month we announced a major step forward with a fuel cell carbon capture solution that could be a game-changer in the affordability of reducing carbon dioxide emissions from coal and gas-fired power plants globally.

I am sure you can now see why large companies and foreign investment is so important to growing nation like Australia.
And I hasten to add, this is not a one-way process. Most of the oil & gas developments in this country involve Australia companies.
Our Gippsland Basin Joint Venture with BHP Billiton is one of the most enduring partnerships in Australia’s corporate history.
Apart from the capital that I have talked about, we have also delivered a great deal directly to the community. This has included years of support for the arts – particularly Opera Australia – as well as, health, safety, education and a broad range local community organisations.
Another lasting legacies has been the development of a highly skilled workforce, which includes our employees and employees of the many specialised service industries that have grown up around our operations.
Australians today are in key positions throughout the oil & gas industry all around the world. 
Today there are a number of Australian oil & gas companies that have global portfolios.  
I have used my own industry as an example, but I can assure you the messages apply to many industries.
Without large corporations willing to take investment risks, to commit large sums, to undertake new research and development much of what we have and enjoy today would not exist. 
ExxonMobil is proud of the contribution that we have made in Australia over the past 120 years and we are committed to continuing to work to deliver reliable and affordable energy into the future.
Thank you.