Exploration & Production

Wirth ... cutting the company’s massive global upstream group into individual units

Wirth ... cutting the company’s massive global upstream group into individual units

Chevron CEO plans major cost cuts

NEW YORK

Chevron Corp Chief Executive Michael Wirth is preparing sweeping changes at the No. 2 US oil and gas company that would cut costs and streamline operations in a drive to boost profitability, according to people familiar with the matter.

Wirth, who took over the company 21 months ago, intends to cut the company’s massive global upstream group into individual units, focusing on shale as well as liquefied natural gas and deepwater businesses, the sources said.

Chevron has been among the strongest performers among the big oil majors but the company is trying to stay ahead of weakness in shale that has hurt other large oil exploration companies.

All of the changes are not yet approved, one of the sources said.

"The company is proactively evaluating existing operating models and structures to better position Chevron to compete and win in any environment," said Chevron spokesman Kent Robertson.

Known for cost cutting at refining and chemical operations earlier in his career, Wirth’s overhaul will apply those skills to Chevron’s upstream operations, which supply 90 per cent of profit but face challenges from shale fields that require constant investment to keep production rising.

With expectations that US oil prices will stay below $60 per barrel for an extended period, "Everyone, not just Chevron, will be revisiting their structure with an eye on cost-cutting," said Jennifer Rowland, analyst with Edward Jones.

The revamp could include a standalone shale unit, similar to those at rivals ExxonMobil Corp, and BP. In April, Exxon collapsed seven of its business units into three to better coordinate output with logistics and refining businesses.

Chevron’s proposed changes could lead to the departure over time of several hundred employees now assigned to overlapping production technology groups likely to be consolidated or folded, the sources said.

These would be the first major changes to the organization since its merger with Texaco in 2001. Wirth foreshadowed the move by naming Pierre Breber, another cost cutter, as his finance chief earlier this year.

Shale, which did not exist in Chevron’s portfolio 10 years ago, will make up about 27 per cent of its total production by 2023. Chevron has been heavily investing in the Permian Basin, the top US shale field, but has not yet turned a profit from shale. The company expects the investment to start generating free cash next year.

"One of the great benefits of the advent of shale is it has inspired greatness in other asset classes," Wirth told Wall Street analysts in March.

Chevron’s exploration and production business earned $2.7 billion in the latest quarter, down from $3.4 billion in the same period last year, due to lower oil and gas prices. Annual profit has gradually improved since the nadir of the 2015-2016 oil bust but remain below the $26.2 billion peak in 2012.

Its stock traded at $119.08, up 9.5 per cent year to date, outstripping other oil majors but well behind the 24 per cent gain in the S&P 500 Index.

The company recently warned of massive cost overruns at a giant Tengiz oil project in Kazakhstan. Overall costs are projected to rise 25 per cent to $45.2 billion, with Chevron’s share of the overrun expected to be about $4 billion to $5 billion.

"It does feel like they have more they can cut and more they want to cut following the issues with Tengiz," said Anish Kapadia, director of energy at researcher Palissy Advisers.

Other oil majors that have faced greater challenges from deepwater or reserves cuts have cut deeper than Chevron for several years, he said. The company pays shareholders a 4 per cent dividend, below its rivals, which has helped its balance sheet relatively strong, Kapadia said.

Meanwhile, Chevron is seeking to sell several Nigerian oilfields as part of a global drive to reshape its portfolio as it focuses on growing its US shale output, banking and industry sources said.

Chevron joins rivals including Exxon Mobil and Royal Dutch Shell in a drive by foreign oil companies to reduce their footprint in Africa’s largest oil producer which has been mired in political and security instability in recent years.

The San Ramon, California-based company, Nigeria’s third largest oil producer, is looking for buyers for a number of its the onshore and shallow offshore fields, where local producers have expanded their presence.

Chevron did not respond to a request for comment.

Chevron’s Nigerian subsidiary operates and holds a 40 per cent interest in 8 blocks.




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