James Osborne – Houston Chronicle – 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 oil business, 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 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 of 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 you’re 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 allows 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 as wind 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 windmills 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.