Chevron CEO’s legacy in peril

Five years ago, Chevron CEO Michael Wirth won Wall Street acclaim as the No 2 US oil company briefly achieved a market value larger than Exxon Mobil’s after he refused to get into a bidding war with Occidental Petroleum over a rival.

He was ahead of the game when the pandemic hit oil and gas demand, forcing rivals to make deep cutbacks that Wirth had tackled at Chevron. Its shares had outperformed rivals for five years until 2022.

Fast forward to this year and Wirth’s legacy is in danger. Chevron’s falling earnings no longer cover its dividends and buybacks. Project overruns in Kazakhstan and Australia have cost the company billions.

The CEO is also locked in a must-win arbitration battle with Exxon Mobil that has held up his $53 billion (R935bn) purchase of Hess, a deal that would give Chevron a stake in a lucrative Guyana oilfield Exxon operates.

Exxon’s challenge has delayed the deal by almost two years, and threatens to kill it by asserting a right of first refusal over a sale of the Guyana properties.

Chevron shares are up 18% since Wirth took over as CEO in 2018, compared to Exxon’s 31% gain over the same period.

His job is not at risk, say Chevron executives and industry sources. The board granted him a retirement-age waiver more than a year ago as he began an overhaul of top managers.

But “if you have $1 to invest in an oil company now, how would you justify investing it in Chevron?”, said Mark Kelly, an analyst with the financial firm MKP Advisors in London.

“The Hess deal delay has left Chevron with no clear (business) growth story to tell.”

Jake Spiering, Chevron’s head of investor relations, said the share performance had been hurt by the arbitration case that had encouraged arbitrage traders to short Chevron.

Spiering said Chevron was poised to deliver the highest production growth rate in the industry over the next 12 months by expanding projects.

Profits have declined for the past five quarters on a year-over-year basis as oil prices retreated from 2022 highs.

Wirth has ushered in a new team with the resignations or retirements of his former finance chief, head of oil products and gas, human resources chief and midstream and trading bosses in a bid to shake things up.

Wirth has shown a knack for multibillion-dollar acquisitions, picking up Noble Energy and PDC Energy in deals near the market bottom or that closed quickly.

“We aspire to be high performance, and you should expect the board to expect that,” Spiering said earlier this month in response to questions about the company’s performance.

Wirth was not available to comment and Chevron declined to make board members available for comment.

The biggest shadow over the company remains its dispute with Hess partners’ Exxon and CNOOC Ltd HK over their Guyana offshore holdings, which contain the world’s largest oil discovery in almost two decades. The deal originally was to close in the first half of this year, but a decision in the arbitration case might not be issued until the third quarter of next year.

The deal closing would give Chevron a 30% stake in Guyana’s surging oil output, which last year delivered Hess a $1.88bn net profit. The stake would provide Chevron with long-lived oil production from a country with fewer geopolitical risks than its Venezuela or Kazakhstan operations, the latter of which accounts for nearly 20% of Chevron’s easily tapped oil reserves.

The Kazakh Tengizchevroil oil project, in which Exxon holds a 25% stake, is nearly three years behind an initial mid-2022 start-up and has exceeded its original $37bn budget by more than $10bn.

“If the (operational) issues continue or if the deal were to eventually fall apart, we could see further underperformance,” said Biraj Borkhataria, an analyst at RBC Capital.

Guyana, located on South America’s Atlantic coast, could help improve the quality of the company’s portfolio in Latin America, where it keeps a limited presence in Brazil, Argentina and smaller countries. The region, excluding Venezuela, has provided less than 2% of its global output for the past decade.

US lawmakers and Venezuelan opposition leaders and activists have called for tighter restrictions on the company’s dealings in Venezuela.

Tax and royalties paid to the repressive Nicolas Maduro administration have propped up the government, they say. The July presidential election claimed by Maduro has been condemned as fraudulent by the US.

If Chevron’s licence to operate in Venezuela were terminated or amended, which analysts say could happen if former president Donald Trump returns to office and restores his campaign against Maduro, the company could lose its right to export about 220 000 barrels of oil a day.

Cape Times