Morningstar

Strategic Changes Unlikely If Chevron CEO Departs

We expect the next CEO to keep the focus on dividend growth while restricting capital to high-return base reinvestment, Permian growth, and only select international major capital projects.

Securities In This Article
Chevron Corp
(CVX)

John Watson’s run as

There are three likely successors--Michael Wirth (vice chairman and executive vice president, midstream and development), Pierre Breber (executive vice president, downstream and chemicals), and James Johnson (executive vice president, upstream)--with Wirth reported as the most likely to take the post. We think this is reasonable, given his success running the downstream operations and appointment as vice chairman earlier this year, a role Watson held before his elevation to CEO.

We don't see anything nefarious in Watson’s departure as he's served nearly eight years, only slightly less than the tenure of his two predecessors. Furthermore, the company is entering a new era as it wraps up a multiyear investment phase with the completion of several large capital projects. The next phase will be focused on capital and cost discipline and measured growth in what is likely to be an environment of sustained lower oil prices.

Regardless of who takes the helm next, Chevron’s strategy is unlikely to change. We expect the next CEO to keep the focus on dividend growth while restricting capital to high-return base reinvestment, Permian growth, and only select international major capital projects. Despite its history of cost overruns in Australia, we continue to see Chevron’s management focused on cost and disciplined with capital while prioritizing shareholder returns and steady dividend growth. These priorities shouldn’t change with a new CEO, leaving our Exemplary stewardship rating intact. Our fair value estimate and narrow moat rating are also unchanged.

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About the Author

Allen Good, CFA

Director
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Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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