By Bradley Olson
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 29, 2017).
Chevron Corp. on Thursday named Michael Wirth as its next chief
executive, choosing an engineer experienced at finding efficiencies
and cutting costs as the energy company copes with a prolonged
period of lower oil prices.
Mr. Wirth, 56 years old, 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, succeeding John Watson.
Mr. Watson, 60, has led Chevron through a tumultuous era defined
by high and low prices, and 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 five largest 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. With much of Big Oil's
cost-cutting 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
reining 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 wouldn't 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 wasn't 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. shale-oil frenzy in earnest. Recently
they have been catching up, seeking the best mix of techniques for
breaking up rocks in thousands of individual wells and injecting
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," he said. "They are less worried about finding the
next barrel of oil."
Under Mr. Watson, the company has already moved in that
direction, promising to boost output in the U.S. Southwest's
Permian basin -- the hottest region in the industry -- by 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 its shares rising more than 100% including
reinvested dividends, according to FactSet. That is 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 whose costs for Chevron and its partners reached almost
$90 billion, or $23 billion higher than initial projections,
according to analyst estimates.
That spending damped Chevron's returns when energy 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."
While Mr. Wirth's views on how to respond to climate change are
largely unknown, the company continues to be under investor
pressure to show that it is properly preparing for potential
impacts and making efforts to reduce the emissions from its
operations.
Although Chevron has increased its disclosure on these issues in
recent years, Mr. Watson was alone among major oil company
executives in opposing efforts, such as a carbon tax, to put a
price on emissions.
Write to Bradley Olson at Bradley.Olson@wsj.com
(END) Dow Jones Newswires
September 29, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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