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Chevron CEO to Retire at End of Year

http://online.wsj.com/article/SB125431595211052413.html

›SEPTEMBER 30, 2009, 10:57 A.M. ET
By BEN CASSELMAN

Chevron Corp. Chairman and Chief Executive David J. O'Reilly will retire after a decade at the helm of the second-largest U.S. oil company, making way for a seasoned strategist and deal maker.

John S. Watson, Chevron's 52-year-old vice chairman, will succeed Mr. O'Reilly on Dec. 31, the San Ramon, Calif., company said Wednesday.

Mr. Watson, who began his Chevron career in 1980 as a financial analyst, rose to prominence leading the company's integration with Texaco Inc. early this decade. He has since held a variety of senior posts, including chief financial officer, head of international exploration and production, and head of strategy.

Mr. Watson's selection wasn't a surprise. His promotion to vice chairman earlier this year was widely interpreted as a sign that he would take over when Mr. O'Reilly stepped down.

The timing of Mr. O'Reilly's departure, after exactly 10 years in the job, was less expected. At 62, Mr. O'Reilly is three years short of Chevron's mandatory retirement age for senior executives, though past CEOs have left before turning 65. Chevron recently has achieved several significant milestones, including the completion of major offshore projects in Brazil, Angola and the Gulf of Mexico, and the final decision to move forward with the company's long-delayed Gorgon liquefied-natural-gas project in Australia.

The board's selection of Mr. Watson, a long-time lieutenant of Mr. O'Reilly, suggests directors don't want a radical shift in direction. So does the board's decision, also announced Wednesday, to promote George Kirkland to vice chairman. A 35-year Chevron veteran, Mr. Kirkland oversees oil and gas exploration and production for the company.

Mr. Watson will take over at a time of uncertainty for both the company and the broader oil industry. After years of record profits due to rapidly rising oil prices, companies have seen their earnings fall sharply along with the price of oil. Chevron's second-quarter net income fell 71% from a year earlier, to $1.75 billion, and the company suspended its share-buyback program to conserve cash.

The industry also is facing longer-term questions about supply and demand. Companies are struggling to find new sources of oil and gas as old fields begin to dry up and governments restrict access to many of the most attractive new fields. At the same time, concerns about global climate change are leading governments in the U.S. and elsewhere to consider policies that could damp demand of traditional fuels by favoring renewable sources of energy.

So far, Chevron has met those challenges better than many of its competitors. The company hoarded cash when oil prices were rising, amassing a war chest of more than $7 billion that has allowed it to keep its capital spending steady, even as other big producers such as Royal Dutch Shell and ConocoPhillips have cut their budgets.

Chevron found more oil than it produced last year, while global oil reserves fell for the first time in a decade. And the company expects to increase oil and gas production by 5% this year, the fastest projected growth of the major publicly traded producers.

Mr. O'Reilly will step down after a more than 40-year career with the company. Born in Ireland, Mr. O'Reilly began his career at Chevron as a chemical engineer and rose through the ranks to run Chevron's chemical business and later, its refining unit.

One of Big Oil's longest-serving chief executives, Mr. O'Reilly made his most lasting mark on the company early in his tenure, orchestrating Chevron's $35 billion acquisition of Texaco less than a year after taking over in 2000. The merger, a deal Mr. O'Reilly's predecessor had tried unsuccessfully to negotiate less than two years earlier, vaulted Chevron into the ranks of the global "supermajors" alongside Exxon Mobil Corp., Royal Dutch Shell and BP PLC.

Four years later, Chevron bought Unocal Corp. for $18 billion, a deal that required fending off a rival bid from the Chinese national oil company, Cnooc Ltd.

But Mr. O'Reilly is also known for insisting on a disciplined, methodical approach to decision making, and analysts said the deals he didn't make may be as significant as the ones he did. Chevron avoided making big investments in Russia, which have proven difficult for Conoco and BP, or in North American natural-gas assets, which have dropped in value along with the price of natural gas.‹