By Bradley Olson
Chevron Corp. Chief Executive John Watson is planning to step
down as the energy giant seeks new leadership for a changing oil
world, according to people familiar with the matter.
The transition is expected to be announced next month, although
Mr. Watson's successor hasn't yet been finalized by the board and
plans could change, the people said. Mr. Watson isn't expected to
depart immediately and is likely to remain after the announcement
for an orderly transition, the people said.
His likely departure underscores the dramatic shift under way at
big oil companies as they adapt to a prolonged period of lower
prices brought about by the U.S. shale boom. While the companies
once favored swashbuckling leaders who bet billions on megamergers
and pricey projects in far-flung regions, many are now turning to
executives adept at squeezing every last dollar from a barrel
through refining, and shorter-term investments that turn a profit
faster.
The leading candidate to succeed Mr. Watson, 60, is Michael
Wirth, 56, a refining specialist who earlier this year was elevated
to the position of vice chairman at the oil company, the second
largest in the U.S. behind Exxon Mobil Corp., the people said.
Chevron directors see Mr. Wirth's years of experience wringing
costs out of big plants that process fuel and chemicals as a
critical need in a new era for oil markets defined by $50 a barrel
of crude, the people said.
A Chevron spokesman declined to comment. Attempts to reach Mr.
Watson on Tuesday weren't successful.
Mr. Wirth's ascent would mean four of the five largest public
energy companies -- including Exxon, Royal Dutch Shell PLC and
Total SA -- would be led by former refining specialists, a telling
indication of transformation in oil markets. BP PLC's Bob Dudley
would be the last holdover from the time of $100-a-barrel
crude.
The executive ranks have turned over at most big oil companies
in the last four years. Former Exxon CEO Rex Tillerson retired to
become the U.S. Secretary of State. Christophe de Margerie, the
former CEO of France's Total, died in a 2014 accident in Moscow.
Shell's leader Peter Voser retired at the end of 2013. All were
replaced by former refining executives.
The expected retirement of Mr. Watson, who has led Chevron since
2010, is taking place on amicable terms: He decided to step down
well before Chevron's mandatory retirement age of 65 years for
executives to allow some of the company's new leaders to flourish,
the people said. His planned departure comes within the period that
he had long outlined to the board, they added. Mr. Watson's
predecessor as chief executive, David O'Reilly, also retired years
before turning 65.
"Big oil is turning toward very disciplined, returns-centric
leaders who can manage razor-thin margins in disruptive, volatile
markets," said Les Csorba, who advises energy companies on CEO
succession at executive search firm Heidrick & Struggles
International, and wasn't involved in Mr. Watson's succession.
"This is the answer for these companies as low prices
continue."
In Mr. Watson's seven-and-a-half years at the helm, Chevron's
shareholder returns -- which include dividends -- have increased by
more than 80%. That performance has far outstripped that of peers
such as Exxon and Shell in that time period, although it fell short
of the advance by the S&P 500 index.
He previously played a major role in managing Chevron's
absorption of Texaco Inc. in 2000 and served as the company's chief
financial officer.
Mr. Watson's tenure was defined by spending on an epic scale to
build out projects all over the world as oil prices ballooned,
including some in which costs far exceeded initial projections. In
Australia, two mammoth gas-export projects cost Chevron and its
partners almost $90 billion, or $23 billion higher than initial
projections, according to analyst estimates.
That spending was a sore spot for some investors, the people
said, although many analysts over the years have come to see the
projects in a favorable light because of how much cash they are
expected to generate.
Last year, investors came close to rejecting Mr. Watson's
compensation in a "say on pay" advisory vote. Although the
compensation measure ultimately passed with more than 50% of the
vote, company officials and directors made an effort to meet with
investors about their concerns and make changes.
After implementing a number of pay reforms, including one
provision that holds executives accountable for cost overruns,
Chevron's executive compensation package for this year won the
support of more than 93% of shareholders who cast ballots at its
annual meeting in May.
Among major oil companies, Chevron also has by far the biggest
position in the Permian basin in West Texas and New Mexico, among
the busiest and most sought-after oil fields in the world. Under
Mr. Watson and production chief Jay Johnson, Chevron has moved to
exploit the resource at a breakneck pace, a strategy that has been
lauded by analysts.
The company's land in the Permian may hold as much as 18 billion
barrels of oil and gas, according to Houston energy investment bank
Tudor Pickering Holt & Co. Some had pushed Chevron to ramp up
drilling sooner, but the company proceeded at a deliberate pace,
seeking partners in an effort to understand how to maximize
returns.
Mr. Watson, a University of Chicago M.B.A. graduate and fan of
free-market economist Milton Friedman, is an unabashed believer in
the importance of oil and gas in the world economy.
In interviews, he has extolled the virtues of cheap energy in
alleviating poverty as more people around the world enter middle
class. He has also expressed concerns about far-reaching
interventions by governments to reduce warming temperatures, often
making note of the potential costs to societies.
His views on climate change aren't believed to have played any
role in his plans to step down, the people familiar with the matter
said.
Mr. Wirth, a Chevron employee since 1982, is said to have views
on climate change that are more in sync with those expressed by
peers at Exxon, whose chief executive, Darren Woods, urged
President Donald Trump not to withdraw from the Paris climate
accords.
Mr. Wirth oversaw the company's refining and chemicals
businesses for about a decade, ending in 2016. Since 2015, profit
from that business unit have far outstripped any other operations
even amid the price crash. It has booked more than $13 billion in
profit in the last 10 quarters, even as the drilling and production
business lost more than $2 billion.
Write to Bradley Olson at Bradley.Olson@wsj.com
(END) Dow Jones Newswires
August 22, 2017 17:55 ET (21:55 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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