By Bradley Olson
Chevron Corp. on Thursday named Michael Wirth as its next chief
executive, choosing an engineer experienced at finding efficiencies
and cutting costs as it copes with a prolonged period of lower oil
prices.
Mr. Wirth, 56, a Chevron lifer who has overseen the company's
vast network of refining and pipeline assets, will become chairman
and chief executive on Feb. 1, replacing John Watson.
Mr. Watson, 60, has led Chevron through a tumultuous era defined
by high and low prices, one in which the company made several
multibillion-dollar investments that surged over cost
expectations.
The Wall Street Journal first reported the executive change was
expected last month.
The ascendancy of Mr. Wirth follows a pattern at big oil
companies as they adapt to an oil glut and corresponding slump in
prices brought about by the U.S. shale boom. Exxon Mobil Corp.,
Royal Dutch Shell PLC and French oil giant Total SA are all run by
former refining chiefs.
The largest five Western oil companies slashed spending 30% in
the last three years, or about $50 billion, as oil prices fell by
more than half from $100 a barrel. While much of the Big Oil
cost-cutting is already done, success in a new era of plentiful
supply will be defined by keeping costs down, operating efficiently
and focusing on developments that can pay off quickly.
Finding new oil at any cost is no longer a primary objective.
The move to executives with experience in finding efficiencies and
reigning in costs reflects a profound shift in thinking from
optimism to a kind of pessimistic realism, said William Arnold, a
former energy banker and Shell executive who teaches at Rice
University.
The optimists, a swaggering, big-dreaming group of risk takers
who would not blanch at drilling six straight dry holes as long as
the seventh found oil or gas, are being replaced by disciplined,
pragmatic engineers, he said.
"The new leaders with this capacity are there to protect the
balance sheet," he said.
Chevron began the succession process earlier this year when it
appointed Mr. Wirth vice chairman. Mr. Watson and Mr. Wirth will
spend the next four months meeting key leaders around the world,
ensuring an orderly transition, Mr. Watson said in an interview
Thursday.
He added that Mr. Wirth was chosen for many reasons that extend
beyond his experience as an operations specialist.
"Mike is broader than that," Mr. Watson said. "He was selected
because of his track record of accomplishment and his breadth of
leadership."
A Chevron spokesman said Mr. Wirth was not available to
comment.
For Chevron, mastery in shale will be paramount. Giant companies
such as Chevron, known for specializing in oil and gas projects of
immense scale, have lagged behind smaller peers in recent years as
they moved to join the U.S. drilling frenzy in earnest. Recently
they have been catching up, seeking the best mix of techniques as
they break up rocks in thousands of individual wells and inject
sand, water and other chemicals to make oil and gas flow.
That move plays to the strengths of people with experience of
Mr. Wirth, who joined Chevron as a design engineer in 1982 and
gradually rose through the ranks while leading trading, refining
and pipeline business units. The relentless focus on cost reduction
and maintaining profit margins at big fuel processing plants will
help as companies such as Chevron and Exxon push further into
shale, which some have compared to a manufacturing process.
"Mike is exactly what Chevron needs," said Kevin Holt, chief
investment officer for U.S. value equities at Invesco, which owns
Chevron shares. Refining executives "are much more returns focused.
They are less worried about finding the next barrel of oil."
Under Mr. Watson, the company has already moved in this
direction, promising to boost output in the Permian basin -- the
hottest region in the industry -- as much as 700,000 barrels a day
within a decade. Those plans have helped make Chevron one of the
most highly recommended energy stocks by analysts.
Chevron has outperformed peers since Mr. Watson took over in
2010, with the value of shares rising more than 100% including
reinvested dividends, according to FactSet. That's more than double
Exxon's rise and also far exceeds the performance of Shell, Total
and BP PLC.
Yet Mr. Watson also presided over two gas export projects in
Australia where costs for Chevron and its partners reached almost
$90 billion, or $23 billion higher than initial projections,
according to analyst estimates.
That spending hampered Chevron's returns when prices were much
higher a few years ago. In 2013, when global crude sold for an
average of about $109 a barrel, Chevron's spending on dividends and
new investments exceeded the cash it generated from operations by
more than $8 billion. In 2015, after prices fell by more than half,
the overspending reached about $15 billion. So far this year, the
numbers are roughly balanced, according to FactSet.
Always an unapologetic advocate for the industry in his tenure,
Mr. Watson said oil-and-gas companies are a "vital industry that
really has been and will continue to be the lifeblood of our
standard of living for the foreseeable future."
He said "the public is demanding those products be delivered in
a safer and more environmentally friendly way, and we and others
need to work very hard to meet that expectation."
Write to Bradley Olson at Bradley.Olson@wsj.com
(END) Dow Jones Newswires
September 28, 2017 15:29 ET (19:29 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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