216.46.238.34
From Newsmax.com
Mike Adams
November 18, 1999
(Part Four of a Five-Part Series)
Few would argue over the importance of oil to our national
economy. We've gone to war over it, we've lost lives over it and
we've spent hundred of billions to find more. Oil is of such strategic
importance that, during World War II, one of Hitler's main reasons
for pushing Eastward was to capture the Soviet Union's precious oil
fields.
Clearly, our economy is addicted to fossil fuels. We simply cannot
operate as a country without a steady supply of oil.
Unfortunately, the Y2K bug threatens the supply of oil. The United
States imports most of its oil, and much of it comes from countries
with questionable Y2K compliance, such as Venezuela. Sure, these
countries have promised everything will be fine. But so has Italy. So
has Russia and China. So has everybody. Which country is going to
stand up and say, "We're not compliant" and instantly lose its export
market?
The answer is obvious: none. So we're stuck with unverified claims
of Y2K compliance from countries we don't necessarily trust
(which is, of course, the same way many other countries view the
United States).
As a result of all this, there is an undeniably real possibility that our
oil imports could be disrupted next year. The duration of these
disruptions is largely unknown.
But that's not the end of this Y2K oil problem. Once crude oil
reaches the United States, it must be refined. Oil refineries depend
on thousands of potentially date-sensitive embedded systems -- and
unlike computer software, you usually can't "roll forward the
clocks" on embedded systems to test their Y2K compliance. Many
refineries are taking a "fix on failure" approach which means,
essentially, you cross your fingers and pray. When something
breaks, you order the replacement parts, then cross your fingers and
keep praying the parts show up sometime soon.
Oil companies paint a pretty picture of their Y2K compliance. On
their web sites and in their press releases, they imply Y2K has been
solved. There will be no disruption whatsoever to the nation's oil
supply thanks to all the efforts of these companies. As they tell it,
this is a rock-solid statement of fact.
But their SEC 10-Q filings paint a very different picture. I decided
to investigate the 10-Q filings of major U.S. oil companies. If
you've never read these statements before, what you're about to
learn will probably shock you.
CHEVRON
The Chevron document opens with a flat-out admission that Y2K
could disrupt the company's operations:
"Among the factors that could cause actual results to differ
materially are...potential disruption to the company's operations
due to untimely or incomplete resolution of Year 2000 issues by
the company and other entities with which it has material
relationships; potential liability for remedial actions under
existing or future environmental regulations; and potential
liability resulting from pending or future litigation."
That's just the warm-up. Next, I was stunned to learn that Chevron
readily admits it is "impractical" to fix everything before January 1:
"Because of the scope of Chevron's operations, the company
believes it is impractical to eliminate all potential Year 2000
problems before they arise."
This seems to be saying the company has thrown in the towel on
Y2K compliance and, instead, chooses to focus on fixing the
problems AFTER they occur.
Yet even the effectiveness of those contingency plans is called into
question by Chevron:
"In the normal course of business, the company has developed and
maintains extensive contingency plans to respond to equipment
failures, emergencies and business interruptions. However,
contingency planning for Year 2000 issues is complicated by the
possibility of multiple and simultaneous incidents, which could
significantly impede efforts to respond to emergencies and resume
normal business functions. Such incidents may be outside of the
company's control..."
Given the potential complexity of Y2K failures, Chevron says it is
unable to gauge what might happen. This stands in sharp contrast to
the President's Y2K explanation where he says, essentially,
"Nothing will happen." Chevron, apparently, disagrees:
"...[Chevron] is not yet able to fully assess the likelihood of
significant business interruptions occurring in one or more of its
operations around the world. Such interruptions could delay
manufacturing and delivery of refined products and chemicals
products by the company to customers. The company could also
face interruptions in its ability to produce crude oil and natural
gas."
Finally, Chevron describes how outside factors could play havoc
with the company's operations:
"Because of uncertainties, the actual effects of the Year 2000
issues on Chevron may be different from the company's current
assessment. Factors, many of which are outside the control of the
company, that could affect Chevron's ability to be Year 2000
compliant by the end of 1999, include: the failure of customers,
suppliers, governmental entities and others to achieve compliance,
and the inability or failure to identify all critical Year 2000
issues, or to develop appropriate contingency plans for all Year
2000 issues that ultimately may arise."
How does Chevron describe all this publicly? Jim Sullivan,
Chevron's Vice Chairman, in a statement on Chevron's web site,
says, "As for Chevron, we expect some possibly minor Y2K-related
upsets, but nothing major. And certainly nothing we think we will
not be prepared to handle through contingency plans and
emergency preparedness."
Sounds a little different, doesn't it? That's because the SEC
statement is a legal document, enforceable in a court. The public
statement made by Sullivan carries almost no legal weight.
Notice, too, how the Sullivan article is absent any claim of Y2K
compliance. In fact, the only thing that comes close is when
Sullivan says, "I believe Chevron will be prepared for the
transition to the Year 2000" rather than "Chevron will be prepared
for the transition to the Year 2000." Adding the "I believe" qualifies
the statement, making it a personal belief -- an opinion or guess --
rather than a description of the company's state of compliance. You
can bet Chevron's lawyers are well aware of this distinction.
Granted, these SEC statements are designed to explore worst-case
scenarios in order to warn investors of all possible outcomes.
However, I believe it is misleading for companies to publicly imply
that these worst-case outcomes don't exist. Chevron, for example,
publishes on its web site a summary of its 10-Q filing that edits out much of
the worst-sounding text I've included here.
SHELL OIL
I found a similar strategy underway at Shell Oil. Shell's 10-Q statement, in my
opinion, is camouflaged in more obscure language.
For example, Shell says, "These new systems are represented to be fully Y2K
compliant by their manufacturers, and Shell Oil believes that it will have no
Y2K issues in its important business computing systems."
Notice how Shell says its vendors told them they were compliant, not that Shell
actually tested the systems to verify it. This statement also offers a
high-fudge-factor statement, "Shell Oil believes that it will have no Y2K issues..."
rather than the much more certain version, "Shell oil will have no Y2K issues..."
Shell's 10-Q statement gets far more interesting, however, when it brags that the
company's vendors are "well aware" of the Y2K problem:
"Current indications are that all of Shell Oil's major Third Party customers,
suppliers and service providers are well aware of this problem and have
programs underway to address it. Physical testing of key interfaces and
ongoing discussions are continuing with certain Third Parties to best position
Shell Oil to continue its business operations without interruption."
This paragraph, of course, promises nothing. It says, basically, that vendors are
aware of Y2K and trying to fix it. That's no different from 1996. Next, Shell implies
that one reason it needs contingency plans is because it can't necessarily trust
third-party vendors:
"Specific attention is being given to Third Parties that have critical
relationships with Shell Oil to insure [sic] that there is not a disruption in the
flow of those products or services that are essential to the ability of Shell Oil
to carry on its business operations. However, since Shell Oil will remain
dependent on Third Party confirmations in certain areas, appropriate
contingency plans are being developed in each of Shell Oil's businesses."
Here, finally, Shell admits Y2K could halt company operations:
"Shell Oil realizes that its failure or the failure of critical Third Parties to
identify and correct a material Y2K problem could result in an interruption in
or failure of certain normal business activities or operations."
Adding to this, Shell describes all the various ways in which outside factors might
make their Y2K problem worse:
"Shell Oil's ability to achieve Year 2000 readiness and the level of costs
associated therewith could be adversely impacted by, among other things: the
availability and cost of programming and testing resources; vendors' ability to
install or modify hardware, software or other computer technology in Shell
Oil systems; and unanticipated problems identified as the Year 2000 Teams
conclude their analysis and verification of IT and Imbedded Technology
Systems. Additionally, no precedent exists as to the manner in which to fully
detect and eliminate Y2K risks. Thus, it is possible that despite all efforts to
identify, analyze and remediate Y2K related problems, not all potential
problems may be detected or all remediation efforts operate as intended; it is
impossible to accurately predict the impact on Shell Oil in any such case.
Finally, the failure of Third Parties to achieve acceptable Y2K compliance
and the absence of available contingent suppliers and resources could also
materially adversely affect Shell Oil."
That last paragraph lays out the bottom-line truth about Y2K and oil companies. In
a world of Y2K spin, half-truths and P.R. promises, the SEC statement is the only
legally-binding statement on which we can depend.
EXXON
I was unable to find a Year 2000 section on Exxon's web site. But I did find their
SEC statement in the Edgar database. It sounds much like the others:
"...[Exxon] could potentially experience disruptions to some mission critical
operations or deliveries to customers as a result of Year 2000 issues,
particularly in the first few weeks of the year 2000. Such disruptions could
include impacts from potentially non-compliant systems utilized by suppliers,
customers, government entities or others. Given the diverse nature of Exxon's
operations, the varying state of readiness of different countries and suppliers,
and the interdependence of Year 2000 impacts, the potential financial impact
or liability associated with such disruptions cannot be reasonably estimated."
MOBIL
Mobil takes a novel approach to implying a high state of Y2K readiness. They
interview Dan Zivney, their Year 2000 project director, then let him make all the
great-sounding statements. If Mobil experiences major disruptions after January 1,
Zivney might serve as a convenient scapegoat.
The interview with Zivney exudes confidence: "So by planning, preparing and
double-checking, Zivney and his team are working towards a January 1,
2000, on which oil and gas wells should pump, refineries should run and
customers should be able to buy Mobil gasoline using cash, credit card or
their Mobil Speedpass."
Even this statement, however, doesn't say everything will work. It just says
everything should work. In Information Technology circles, this is a well-known
joke. Imagine the head of American Express asking his chief programmer whether
the new system will share frequent-flyer data with airlines and hotels, and the
programmer answers, "It should!"
In large programming shops, the phrase, "It should!" really means, "We don't know
whether it will." If you translate this back into the Mobil statement, it now reads
(my version):
"So by planning, preparing and double-checking, Zivney and his team are
working towards a January 1, 2000, on which we don't know whether oil and
gas wells will pump, we don't know whether refineries will run and we don't
know whether customers will be able to buy Mobil gasoline using cash, credit
card or their Mobil Speedpass."
Mobil goes on to admit that its operations could be adversely impacted by the Y2K
bug:
"The failure ...for year 2000 reasons of materially important systems or
relationships with external agents could have a material adverse effect on
Mobil's results of operations, liquidity and/or financial condition. For
example, if, for year 2000 reasons, a utility company were to be unable to
supply electricity to a Mobil refinery for an extended period, the refinery
would have to be shut down for that period, which could result in substantial
losses of production, sales and income."
Beyond that, Mobil explains that it can't even describe the multitude of Y2K risks
that exist:
"There are, however, an almost infinite number of additional risks which are
simply not assessable and for which, therefore, contingency plans cannot be
developed. These are the risks of failure for year 2000 reasons of one or
more systems or relationships with external agents which, individually, Mobil
does not judge to be materially important but whose failure could trigger a
cascade of other failures for year 2000 reasons, the combination of which
could be materially important or could prevent Mobil from implementing
contingency plans it has developed. Such a combination of failures could also
have a material adverse effect on Mobil's results of operations, liquidity
and/or financial condition."
In describing all the ways a company can fail to get fully compliant, Mobil wins
hands-down with this paragraph:
"Actual results could differ materially from the estimates expressed in such
forward-looking statements, due to a number of factors. These factors, which
are not necessarily all the key factors that could cause such differences,
include the following: the inability of such staff and third parties (1) to locate
and correct all non-year 2000 compliant computer code in materially
important systems and test such corrected code and (2) to install and test
upgrades or new systems containing year 2000-compliant computer code, all
in accordance with Mobil's estimated timetables; unforeseen costs of
completing Project work; Mobil's inability or failure to identify significant
year 2000 issues not now contemplated; and the failure of external agents to
achieve timely year 2000 readiness."
TEXACO
Texaco, too, admits that Y2K problems could severely hamper the company's
operations:
"Y2K failures, if not corrected on a timely basis or otherwise mitigated by our
contingency plans, could have a material adverse effect on our results of
operations, liquidity and overall financial condition."
Like the other companies mentioned here, Texaco also points to a multitude of
outside factors that could impact operations:
"Factors that could affect our ability to be Year 2000 compliant by the end of
1999 include: the failure of our customers, suppliers, governmental entities
and others to achieve compliance and the inaccuracy of certifications
received from them; our inability to identify and remediate every possible
problem; and a shortage of necessary programmers, hardware and software."
SPIN CONTROL!
As you read this, rest assured the public relations offices of oil companies around
the country are busy crafting damage control press releases. Such press releases
will attempt to counter the publicly-available SEC statements filed by these
companies.
These press releases will have three things in common:
None will use the phrase, "Y2K compliant."
All will use qualifiers such as "things SHOULD work" or "We BELIEVE things will
work."
None will guarantee that the worst-case scenarios described in the 10-Q filings
won't happen.
As a result, the reactionary press releases will be just more fluff for public
consumption, distributed by companies that want to create the impression of Y2K
compliance without actually being compliant. In this way, the American public is
being herded down a path of deceit, oblivious to the real risks that await them in just
forty-two days.
Of all the risk factors present during the Y2K rollover, none is more serious than
the possibility of losing oil. Remember, the 1973-1974 recession was caused by a
mere 6% drop in the oil supply. What, do you suppose, would be the economic
impact if we lose twenty percent?
For the record, let me emphasize that I'm not predicting all these worse-case
scenarios will unfold at Chevron, Shell, Exxon, Mobil or Texaco. Instead, I'm urging
you to consider the fact that these companies -- on their own -- have described
these worst-case scenarios as largely outside their control. And that simple fact
stands in great contrast to the Washington explanation that everything is under
control.
Not only are the most serious Y2K-related issues not under control, they are not
even inside the sphere of control.
Mike Adams is the editor of Y2K Newswire
Part One of Series: The IRS and Y2K
Part Two of Series: Y2K and Hate Speech
Part Three of Series: Y2K Contradictions
For the Latest News on Y2K, Links and Commentary Visit the "Y2K Daily."
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