Chevron CEO John Watson to Step Down -- 3rd Update

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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 could change, the people said.

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The leading candidate to replace 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 low prices, the people said.

Such a background has grown far more important for executives at the world's largest oil companies as they seek out investment opportunities that pay back quickly and move to allay investor concerns about when demand for crude will peak.

A Chevron spokesman declined to comment. Attempts to reach Mr. Watson Tuesday weren't immediately 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.

Write to Bradley Olson at Bradley.Olson@wsj.com

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)