Thank you.

It’s my great pleasure to be with you here today. This is my fourth trip to Alaska – the one time I came in winter I only made it as far north as Juneau but the other two were more properly timed around summer. Its not that I don’t hold winter in high regard – I grew up in the relatively tropical climes of Chicago – it’s just that no one has proven to me they can catch a king salmon in a frozen river.

You know we Shell guys in The Hague in Holland don’t get to spend a lot of time fishing. The best one of my predecessors could do when he last came to Alaska was to hook into a five - pounder. I told him that was pretty good, but I didn’t know the season was open yet on sea gulls.

So, Alaska is familiar to me. Over 30-years ago, when I was first studying geology, I took my first advanced course about our business – it was called “Economic Non Metals”. It took me almost three weeks of classes to figure out that that meant mainly oil and gas. Anyway, the first big paper I wrote in college, the very first, was in that course and it was on, “North Slope Oil” and the new discoveries (then) on the North Slope and the challenges faced in their development. And I stand here more than 30 years later now talking to people who helped make that happen – a privilege.

The role Alaska has played and the role Alaska WILL play on resource development and the future of energy is unquestionably larger than any other state, and frankly most countries. So, yours is an enviable place in the world.

I want to talk about a few things today – The world of AND (yes, the three-letter word) in meeting the energy challenge, a bit on the challenges we face in Alaska, the three hard truths about energy supply and demand, and the need for constructive partnerships to help us do it – and do it right.

WHAT LIES BENEATH

What brings us here today is part fascination and part transformation. I think we all share a fascination with the secrets this planet hides below the surface and it seems Alaska has more wonderful secrets than most.

I mention transformation because it accurately acknowledges the ways in which society has changed as a result of fossil fuels, the new ways in which we find and extract them, and the ways society must now change to compensate for their use.

Not only do we need to find more sources of energy to satisfy our growing thirst, it’s imperative that we acknowledge and mitigate any associated future environmental impact - all at a time when the world faces a recession.

But the transformation will have to be a gradual one - a balance: between energy security, economic development, societal needs and the environment.

It is not a question of oil and gas versus renewables, or renewables versus biofuels, or biofuels versus oil and gas. It is not a matter of OR at all. It’s a matter of AND – we need all of the above.

CLEAN ENERGY AND EVERYTHING ELSE

The transformation will need to be well-paced to be successful . Policies aimed at a too-hasty displacement of fossil energy might condemn many of the world’s citizens to energy poverty – something your rural communities know crushingly well. That’s why balance is so important to get it right.

Let me explain why:

Historically, it has taken 25 years for new energy sources to obtain 1 percent share of the global market following commercial introduction. If you recall, when oil was first discovered, it was slow to take off. It would take decades before scientific breakthroughs allowed producers and consumers to make efficient use of oil beyond lighting kerosene lamps.

LNG is another good example. Following many years of research, the first LNG plant came on line in 1964 in Algeria (using Shell technology). Since then, LNG growth has been spectacular. I know LNG tankers leave frequently from Nikiski (Ni-kiss-key) and if more could be loaded, they would be eagerly received.

Still, after 45 years of commercial production and growth, the share of LNG in the global energy mix is about 2%.

PLAYING THE PERCENTAGES

At Shell, we have made the assumptions that wind, solar and biofuels will all grow much faster than traditional energy sources like oil and gas. But even then, it will take decades to get to materiality. Optimistically, we believe renewables could provide around 30% of the world’s energy by the middle of this century, up from 3% today.

Reaching 30% would mean unprecedented growth, but is also means it would take 40 years to get there and that fossil fuels and nuclear will supply the remaining 70%. Imagine, you could do it still faster. Great!

But where will the other 60- 70% come from? Places like Alaska, we hope. Why – because the resource base is huge – another potential Gulf of Mexico scale resource (according to MMS estimates) – and in US waters.

Unfortunately, Alaska, particularly the offshore, is ground-zero in the misguided effort to put us in an ‘”either / or world “ - where fossil fuels play no role in the bridge to an energy future. For economic progress, revenue generation, jobs, energy security AND protecting our environment, it all needs to come together – oil and gas, renewables, biofuels, CO2 management – a world of AND.

No less than five of the largest environmental groups in the world have become rooted in Alaska and some will spare no expense or effort to ensure development of any kind does not take place in the offshore – not news to most of you.

Their strategy is simple: form local partnerships where possible to lend a “face” to the fight against energy development. Pure numbers are not important here but names are and that was never more evident than in April when the Washington D.C. Circuit Court ordered the Department of Interior to vacate its approved 5-year OCS leasing plan.

I won’t dissect the merits of this case but the resulting opinion could significantly impact offshore development in Alaska, the Gulf of Mexico and beyond. The plaintiffs in that case include at least three international environmental groups and one local indigenous group. That local group might be hard-pressed to fill a table at this luncheon.

But for arguments sake, let’s say they do fill a table.

NO SAFETY IN NUMBERS

As it stands, the table over there could strongly influence for Alaskans how the State will be prosperous when the Trans-Alaska Pipeline is shut down because no offshore oil is flowing through it. That table could influence an outcome for a country that already imports 60% of its oil how quickly that number will grow to 80%. And that table in the back could drive the US Federal Treasury, (which could use some cash right now), to refund over $10-Billion in lease bonuses because of a 5-year OCS leasing plan that was, in layman’s terms, voided on a technicality.

Now, let me be clear – one can argue the environmental groups represent thousands of people and they can’t be overlooked by the Court. And certainly that group at the table have others supporting them – maybe every table in this room.

Yes, I could and would argue that.

But I would also point out that in many cases there is some missing logic in the piece. Some NGOs often employ a tactic of litigating development projects at every stage and use a “face” of a local community to provide weight behind their tactics. But the interests of many local groups and international NGOs could not be more disparate.

If you don’t think so, ask individual members of many International environmental groups how they feel about harvesting whales - under any circumstances. If they are honest in their response, you will be even more intrigued at the partnerships they have formed in Alaska.

FRIENDS IN THE BUSINESS

Shell is a partner with a number of international environmental groups and they pull no punches in letting us know when and where they believe we can do better. We value their feedback and as a learning company, we often use it to incorporate change.

At Shell we have genuine respect for honest dialogue and believe groups or individuals deserve to be heard on important issues that could impact their lives for generations. Having said that, impact should be examined not just with a microscope, but a telescope as well.

Imagine, for a moment, how drastically different Alaska would look today if not for a pipeline project that, in reality, was made possible by one vote. One vote changed the energy landscape in and outside of Alaska for decades. Fortunately, that vote was in favor of a project that was one of the most significant of its time. But had that vote gone against the Trans-Alaska Pipeline, the U.S. would still be getting its 700-thousand barrels a day. It just wouldn’t be coming from Alaska – where environmental and safety standards are the most stringent in the world.

NO MEANS NEVER

Recently, when Shell made public its plan to explore the Beaufort Sea on a much smaller scale than we had originally planned, most people took away that Shell’s reduced drilling plan was a direct reflection of feedback received from North Slope leaders, particularly North Slope Borough Mayor, Edward Itta, who has always been extremely forthright about his concerns related to offshore exploration, and the need to protect the areas he, his constituents and their ancestors have relied on for centuries.

For obvious reasons, when our new plan was released, we didn’t go into the fact that reducing our drilling program would eventually cost Shell tens of millions in lost efficiencies. We didn’t lead with that part of the story because that was not the point. The point was, “”we hear you and if this is important to you, it’s important to Shell.” Still, the next day the Anchorage Daily News featured the story of our new exploration plan and the one quote from an environmental group was something to the effect of, “…even one drill ship is one too many.”

What a telling remark.

I wonder what we could discuss: are prosperity and principal really mutually exclusive – despite the fact Alaskans continue to enjoy the benefits of development and the bounty of the land and sea? Do they acknowledge that the resources all Alaskans, not just rural Alaskans, have relied on since statehood are in dramatic decline at a time when the price of energy and unemployment in Bush Alaska, especially, is crippling? Is it impossible for development to coexist with environmental sensitivity and awareness in a way that meets the needs of communities? Do we need to live in this world of “my way or the highway?”

Or can we work together to come up with real solutions – ones that enable people, communities, states and nations to prosper – while keeping our environment clean and people safe.

THREE HARD TRUTHS

At Shell, our agenda is clear: Make an oil and gas case for Alaska and develop the resources in a safe and environmentally responsible way that benefits our shareholders and the communities in which we work. If that sounds like a company line, that’s because it is the company line – and we live by it.

That agenda is further defined by an optic we at Shell refer to as the three hard truths. First hard truth is that demand for fossil fuels will only increase over time. Second hard truth is that supplies of easy-to-produce oil will by far not keep up with growing energy demand. That’s because energy demand is likely to double over the first half of this century, and we simply cannot grow oil and gas production that fast. Even if we produce energy from all possible sources, it will be difficult to meet the world’s growing needs.

While theories abound on how much oil and gas remains to be discovered on this planet, most experts agree the “easy oil” is gone. We are now working in the most challenging environments in the world to find the energy supplies we need just to keep up with today’s demand. The fields we are finding and exploring are deeper, more complex and more remote and therefore more expensive to bring on-line.

There is no better example of that than here in Alaska. I trust most of your know our story in Alaska by now. Shell has spent $3 billion in Alaska and to date we have no monetary return to show for it. We believe there’s oil here. We believe we are the company best suited to find and recover it, but I think it’s safe to say there has been nothing “easy” about it.

The final hard truth is knocking on Alaska’s door as I speak. More energy use means more CO2 emissions - at a time when the climate can ill-afford it. In the Arctic, melting sea ice has changed the issue of access and raises questions about who should bear the burden (and cost) of climate change and how we can prevent from accelerating it.

I don’t want to gloss over the third hard truth. At Shell we believe industry, along with the public and government leaders, have an obligation to address the threats that come with climate change but we also believe but it’s an obligation that needs to be spread equitably and intelligently.

For example - limiting access to the Arctic for offshore exploration based on climate change is patently illogical and discriminatory. A coal burning plant in the Midwest plays as much or bigger role in greenhouse gas emissions as any facility you have in Alaska.

Yet, as it stands, Alaska would suffer disproportionately as a result of lost revenues and opportunities if Arctic offshore access is denied.

So with those three hard truths in mind, it’s my job at Shell Global Exploration to asses not only the potential materiality of a given hydrocarbon play, but also the practicality of doing so safely, in a timely manner and in a way that is sustainable over a number of decades.

All of the above are not merely suggestions from Shell that look good in the annual report. They are mandates that must be satisfied before a project gets off the ground. It can’t be profit versus principal, it’s profit with principal or it’s a non-starter.

CASE STUDY: SAKHALIN II

Some of you are familiar with Sakhalin II, a project in Sakhalin, Russia in which Shell is a significant partner. Sakhalin II is the world’s largest export-oriented integrated oil and gas project that includes 2 offshore platforms, an onshore processing facility, 300 km of offshore pipelines, 1,600 kilometers of onshore pipelines, an oil export facility and an LNG plant. It’s been a huge undertaking. At the peak of construction, we had 25,000 construction workers.

Conditions, in Sakhalin are extreme: temperatures fluctuate between 30-below zero and 80 above. Like Alaska, there is also the risk of earthquakes.

Clearly, there is an oil and gas case to be made for Sakhalin and the benefits to the region are found in increased jobs and taxable infrastructure. There was great concern surrounding this project and it was directed at a proposed offshore pipeline designed to cross habitat utilized by the endangered Western Gray Whale. Again, I’m giving you the Cliff’s Notes version here, but suffice to say NOT addressing the concerns around this particular pipeline would have jeopardized the entire project.

Enter the International Union for Conservation of Nature or IUCN - the world’s largest conservation network. IUCN brings together 83 States, 110 government agencies, more than 800 NGOs, and some 10,000 scientists and experts from 181 countries in a unique worldwide partnership.

IUCN convened the Western Gray Whale Advisory Panel, which recommended Sakhalin Energy to re-route the offshore pipeline to reduce the possibility of impacting the critically endangered Western Gray Whales. Shell and its JV partners accepted the panel’s recommendations and moved on with a project plagued by delays and cost over-runs.

In March of this year, the first LNG tanker left Sakhalin bound for Japan. It’s fair to say this was an LNG delivery several years in the making. The challenges we addressed by working with stakeholders on a local level eventually allowed for global environmental progress as well.

SHELL ALASKA TRACK RECORD

Let’s briefly discuss the special challenges in the Arctic and how to deal with it.

Many people are talking about oil spills. I prefer to talk about oil spill prevention. In the planning and execution of drilling of wells there are many barriers that prevent spills. There has never been a blow-out offshore Alaska and, in fact, of the 110 or so wildcat wells drilled offshore Alaska and Canada, no well has ever spilled any oil.

In Sakhalin, which has produced more than 100 million barrels of oil over the last decade, less than 3 barrels of oil produced have been spilled in total.

In the unlikely event of a spill, no other company has deployed the immediate response capability in terms of vessels, equipment and trained personnel that Shell has at the field sites. In addition, research of oil spills in ice is advancing and we are confident that we can deal with that unlikely situation well before the time we foresee oil production offshore Alaska.

We have learned at the many locations where we work the importance of the preservation of the environment and traditional lifestyle of the people, ranging from tropical rain forests to deserts and … the Arctic.

THE TIES THAT BIND

When we look at dilemmas like offshore oil and gas development in the Chukchi and Beaufort we look at constructive partnerships. How can we balance our energy needs with economic progress and sustainable development, community concerns and the environment? And the kind of constructive partnerships I am talking about are NOT those in which one party just simply has a strategy of No, “that’s impossible” and turns to the courts.

In the world of the three hard truths, increased demand, harder to find and produce energy, climate change and CO2. This is simply opting out of the challenge. We need people, communities, government, regulators, and organizations to opt in. Lets not talk about the 50 ways that something might not be able to work – lets focus on the way that it can. Lets show we can do it and do it right.

We believe there is possibly more oil and gas in offshore Arctic Alaska than there is remaining to be found in the Gulf of Mexico. It would be our privilege to help you find and produce it safely, with no harm to the environment, and in a way that meets the needs of the communities in which we work.

Alaska really is an enviable place to be. I thank you for the opportunity to be here….again. And hopefully, for a long time to come.

Before I sit down, I’d like to introduce you to Gary Chouest. Gary’s company, Edison Chouest is doing the kind of work in Alaska that makes clear the benefits of developing Alaska’s offshore resources, and just as importantly, developing Alaska’s human resources. I’ll let Gary explain how that’s happening even now.

Thank you.