Chevron CEO says Texas shale is forcing cutbacks across energy

Bloomberg

For Mike Wirth, the future of Big Oil lies at home, under the dusty fields of West Texas.
As he celebrates his first year as chief executive of Chevron Corp., Wirth sees the Permian Basin as a plentiful source of high-quality crude for years to come, but that’s not all. The low break-even costs to pump in the Permian are forcing Chevron to be more efficient everywhere, Wirth said, from the deepwater platforms in the Gulf of Mexico to its liquefied natural gas plants.
In a time of transition, where everyone from politicians to shareholder activists is bashing Big Oil, shale’s success is forging a new reality, Wirth said: Lower your costs, or die.
Shale “has forced us to get smarter about how we do everything else,” Wirth said in an interview in Houston. The cost of Gulf of Mexico projects is at “levels we would never have imagined a decade ago,” he added. Chevron isn’t becoming more efficient “because we were dumb then and we’re smart now. We’re doing it because we have to.”
If not, he said, the alternative is to put money into the Permian.
As Wirth prepares to present his new strategy to investors in early March, his message is one of never-ending belt-tightening, always preparing for even lower energy prices and strong competition. It’s a lesson than came from his days rising through the oil refining ranks at Chevron: bad margins one year could turn even worse the next.
High Prices
“Let’s not bet on high prices,” Wirth said, sitting in a conference room in the company’s Houston offices, with pictures of old Chevron retail logos on the wood-paneled wall behind him. “You make your own margin. Some of that comes through innovation and cost discipline.
That’s a philosophy I bring to by current role and a belief that just because prices go back up, we shouldn’t accept the fact that costs have to go up.”
It’s a popular theme with shareholders in the energy industry who saw many companies spending billions in mega-projects that never deliver the expected returns. In Chevron’s case, investors endured half-a-decade of intense capital spending on developments in the Gulf of Mexico and enormous LNG projects in Australia, only for the oil price to crater in 2014.
Famously, at one Australian venture, Gorgon, costs swelled by almost half to $54 billion.
“Everybody was investing in these kinds of things,” Wirth said. But “it’s unlikely we’d see that confluence of events come together again. I certainly don’t see that in the forseeable future.”
Chevron’s stock has outperformed US rival Exxon over the past three years but lags European major Royal Dutch Shell Plc.