When the Wall Street Journal last week reported that Chevron’s chief executive John Watson would step down, the most likely replacement as a “new leadership for a changing oil world” was thought to be vice chairman Michael Wirth. Wirth’s background in refining and his experience in cost efficiency improvement, according to unnamed sources from the company, had tipped the scales.
According to a Goldman Sachs note to investors, Chevron’s move is the latest sign that the oil and gas industry is making cost discipline and improved returns a top priority.
Following the WSJ’s report on the Chevron regime change, MarketWatch published an analysis in which author Claudia Assis noted that several other Big Oil companies are also headed by downstream exports rather than upstream vets like Rex Tillerson, for example. Tillerson himself was replaced by a downstream vet, Darren Woods, when he became Secretary of State.
A look at other major oil companies suggests that indeed a lot of oil and gas CEOs are professionals whose area of expertise is either refining, where, as Assis notes, margins are tighter and financial discipline is essential, or business strategy and finance.
Shell’s Ben van Beurden is a chemical engineer. Anadarko’s R. A. Walker’s educational background is in business administration. Bob Dudley, BP’s CEO, started at Amoco in engineering and commercial positions. His executive career at the company resulting from BP’s merger with Amoco has been first in strategy and then in upstream.
Other analysts, such as Raymond James’ Pavel Molchanov, believe that executive changes such as the one reported for Chevron are just part of a bigger process and won’t result in any radical change in the way business is run.
Interestingly enough, four years ago, executive search company Egon Zehnder warned against a looming shortage of CEOs for the oil and gas industry. Amid the influx of new field development technologies that significantly improved exploration results, four Egon Zehnder experts wrote that the industry was in dire need of a new generation of leaders. New technology, they argued, marked a pivotal moment in the history of oil and gas. There was, in 2013, a“growing concern about finding the right leaders for this rapidly changing and increasingly complex industry.”
The 2014 oil price crash highlighted some of the challenges changing the nature of oil and gas produced, such as stricter cost control and utilizing new technological solutions to improve exploration results, yields, and process management. In the three years to 2013, the CEOs of more than a third of public E&Ps and oilfield service companies with a turnover of over US$1 billion were replaced. In the three years since 2014, Big Oil and large independents have been too busy surviving and staying profitable to make major executive changes.
Judging by the latest quarterly reports from the industry, business is improving, so it’s not all too likely that many large companies will follow Chevron’s example. The CEOs that survived the downturn and led their companies to calmer waters should be safer than ever in their positions, especially if they’re open enough to renewable energy; activist shareholders are becoming a major pain in the neck for Big Oil in the age of socially responsible investing.
By Irina Slav for Oilprice.com
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