Ex-Chevron CEO John Watson: Oil and Gas Around For Long Term
John
Watson stepped down as CEO of Chevron last year at the age of 61. Now, settling
into retirement in California, he was recently awarded the American Petroleum
Institute’s highest honor, the Gold Medal for Distinguished Achievement, for
“exceptional leadership and service to the natural gas and oil industry, their
community, and the nation.” In between board meetings at the agriculture giant
Cargill and the University of California-Davis — and the occasional round of
golf — Watson sat down to talk about the industry and his place in it. Edited
excerpts follow.
Q:
You retired last year but play CEO for a moment. Oil is stuck between $50 and
$60 a barrel today, and with all this new supply coming online in Brazil and
Guyana, analysts are projecting prices could go even lower. If you were still
running an oil company, would you be worried?
A:
I was at Chevron 38 years and I saw oil prices fall 50 percent five times.
We’re in a commodity business. Demand is fairly predictable, but where supply
and demand get out of balance you can see sharp increases and sharp decreases.
Companies have to earn a good return or they’ll moderate their investments and
supply and demand will come back into balance. And I think we’re seeing that.
It’s still a big, growing business but low prices impact investments all over
the world, not just the United States.
Q:
When you retired you posted a retirement note on LinkedIn that described the
“tremendous adversity” felt in the oil industry during your tenure as CEO. Do
you expect your successor to have an easier go of things?
A:
I don’t think anyone in any industry is preparing for an easy time. The pace of
change, whether it’s the geopolitics, technology, consumer expectations or the
political changes here and elsewhere, is incredible. The best companies are
those that prepare for the adversity. You don’t know where it’s going to come
from, but you have to invest through the cycle and take a long term view of our
business. Ours is a vital business that’s going to be around for a very long
time. You don’t plan for things to come out exactly as you anticipate because
that’s never the case. It’s a very humbling business.
Q:
Was there a time you felt particularly humbled?
A:
When Chevron made $26 billion one year and a couple years later made zero, I
was pretty humbled. We didn’t expect prices to stay as high as they were but
came down much more sharply than we anticipated. We were prepared for it in
that we had a strong balance sheet and with some adjustments to our activity we
were able to withstand it. When you’re making $26 billion a year it’s easy to
feel good about what your doing, but in many ways our company and our people
responded very well when earnings weren’t as strong.
Q:
Looking longer term, as society starts to shift towards lower emission sources
of energy to address climate change, what does the future of the oil and gas
industry look like? Shell’s CEO Ben van Beurden has predicted demand could peak
by 2030. How would the industry handle that outcome, considering Wall Street’s
demands on growth?
A:
If ultimately combined demand for oil and gas declines, we will see that
decline coming a long way out. If we’re oversupplied, we’ll adjust our
investment and natural declines will take place. If there are advancements in
the technology that allow for more rapid turn over in the energy mix, we’ll
adjust to that as well. I’m confident oil and gas will be around for a long
time. We can do our business in a more efficient fashion and get attuned to the
things that are a concern for the environment, like venting and flaring.
Ultimately, I think of our business as a critical one for mankind. Light heat
mobility, mechanized agriculture, so quite literally the clothes we wear, the
food we eat, requires affordable energy.
Q:
Some in the industry are looking to expand their companies outside of oil and
natural gas to less carbon intensive forms of energy, such aswind and solar
power or biofuels. Do you think the industry is capable of making that sort of
drastic shift?
A:
If you go back 30 or 40 years, there were people that thought the hard rock
mining business would be a natural thing for us to do. But it’s very different.
When I was at Chevron I didn’t have a view we have a competitive advantage in
making wind mills and solar panels. There are some areas of biofuels
manufacturing that could potentially supply a lot of fuel, but doing it on a
competitive basis requires a lot of work. Chevron and a lot of others have
tried to crack the code on advanced biofuels, but it’s proven very difficult to
do at scale.
Q:
Chevron was in the headlines earlier this year when it tried to take over
Anadarko Petroleum, a bid it ultimately lost to Occidental. Where does that
leave Chevron?
A:
Look, I don’t speak for Chevron anymore. That’s something you’d have to speak
to Mike [Wirth] or the company about. I’m going to pass on the M&A.
Q:
You joined Chevron right out of business school and spent your entire career
with the company, something that’s becoming increasingly rare among modern
workers. How do you think this trend towards a more transient workforce works
out for companies and the individual workers?
If
you think about a company like Chevron, it’s a long-cycle business, so you want
your employees to have a long-term orientation and to make decisions that
endure. And when you’re changing jobs within a company, you’re building equity
not only in the company but in your relationships. The challenge for the
company is to continue bringing in new blood with new ideas and different ways
of looking at things. Young people today are looking to belong, and I think you
can continue to have that long-term model. But in many industries it doesn’t
work that way.
Q:
I could keep asking you questions, but is there anything else you felt like
getting off your chest?
A: We’re living in a pretty polarized world these days, and something I always try to encourage API to do is be active in dialogue, particularly with people with views different from our own. The idea our industry shouldn’t be around isn’t well grounded, if you want people to have a good standard of living. One of the things I enjoyed most was talking to reporters and editorial boards. I liked the sparring, but I also tried to be respectful. I hope to do more of it, but maybe that's just a retiree speaking.