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Chevron Engineer Rises to CEO -- WSJ

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09/29/2017 | 08:48am CET
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 [email protected]

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