Wirth speaks with IHS Markit vice chairman, Daniel Yergin for the CERAWeek Conversations series – available at www.ceraweek.com/conversations
Mike Wirth, chairman of the board and CEO of Chevron discusses the operational challenges of the COVID-19 era, the roots of the virus-induced shock to oil prices and how petroleum-based and petrochemical products are on the front lines against the virus in the latest edition of the CERAWeek Conversations series.
In a conversation with Daniel Yergin, vice chairman, IHS Markit (NYSE: INFO), Wirth talks about preparing Chevron to weather an economic downturn, greater diversity in the strategies of international energy majors and early signs of demand returning to markets.
The complete video is available at: www.ceraweek.com/conversations
(Edited slightly for brevity only)
On the main operational obstacles posed by COVID-19:
“The biggest challenge for us—and I think this is true for others in our industry that have workforces that rotate to locations and remote and distant geographies—the travel restrictions that governments have imposed make it very difficult to bring people to work or away from work on their normal schedules. We might have people that would normally be 28 days on, 28 off who haven't been able to leave their work location or haven't been able to bring in the next crew to rotate in. We're working very carefully to try to be sure that we're doing all we can to enable that, so people get the rest that they need and get away from work.”
On energy as an essential industry amidst the COVID-19 pandemic:
“Energy has been, pretty clearly, deemed essential because the supply chains that support everyday life, and especially support the health and medical industry, require energy to function. And I think the industry has a lot to be very proud of that we've been able to continue to meet those needs even as demand has come off and markets now are pretty well-supplied. But if you didn't have the essential products and services that enable the response, the situation would be even worse. So I think our industry, as it always does during times of crisis—be they natural disasters, conflicts, different unforeseen events—the men and women of our industry step up and perform in a way that should make everyone proud.”
On the critical role that petroleum and petrochemical-derived products are playing to fight COVID-19:
“Gloves, gowns, masks, face shields—and if you go into an emergency room and intensive care unit or a hospital—the medical supplies and medical equipment are manufactured from materials derived from petrochemical products. They’re packaged in them, they’re kept sanitary and sterile by these products. So our industry is ubiquitous and essential, particularly in terms of the things that are absolutely necessary for health professionals to respond with.”
Views on the developments building up to the oil market shock:
“I think the margin and price environment had reflected a pretty well-supplied market. As the demand dropped off dramatically—and then of course we had the breakdown in the relationship between Saudi Arabian and Russia in the OPEC+ meeting—it's created a market that's tremendously oversupplied and demand has dropped at a rate and in a magnitude we've never really seen in modern times.”
On preparing the company to weather a market downturn:
“We've been in a long economic expansion and I think most people expected some sort of a recession here in the upcoming period of time. We were positioned with a very strong balance sheet, low levels of debt, with a very flexible capital budget which we've intentionally reshaped from one that a decade ago was heavily dependent on long-cycle projects—very expensive projects that you have very little flexibility once you sanction the project—to one that now is dominated by shorter cycle projects where we do have flexibility.
“We’ve been trying to take our cost structure down, invest in the assets that have a lower cost of supply so that we could be prepared for a down cycle and to be strong enough to withstand even a prolonged period of time of tough market conditions.”
Where Chevron is reducing production vs. completely shutting it down:
“Right now, we're shutting in some of the OPEC, OPEC+ oil countries as a result of government actions and then North America primarily due to economics and logistics.
“Broadly speaking, I would say more of what we're doing is curtailing than actually shutting in. You can restrict flow from your wells without actually shutting them down completely. And of course, each reservoir is different, wells are different. The technical issues, the logistics, financial issues, and economic issues can vary, but broadly speaking, we've taken some complete shutdowns. In general if you can keep production flowing, you can mitigate some of the risks of a hard shutdown or restart which can be solved with people, with money and with technology.”
On the current state of oil storage:
“It’s fully spoken for, if not fully utilized. It's pretty hard to get your hands on storage right now. It's pretty well-committed. And of course, those who hold the storage they've got some options. They can make it available to others, they can hold it for the future, depending on their view of the market, but access to storage is pretty tough right now.”
On the slow, but visible signs of energy demand resuming:
“There’s a lot of interest in OPEC+ actions, a lot of interest in curtailment or cuts out of producers. But the real question is: when and how does demand return? Certainly, it would appear that the market has found a bottom. Most of the data you look at from anywhere in the world would suggest we're not seeing demand erode even further right now. And in some places, we're beginning to see signs that demand is coming back—a little bit of it. It's still well off from where it was prior to the crisis.”
On the disparities that have emerged between the strategies of international energy majors:
“There was a period of time when the strategies across the industry looked very much alike and I don't think we see that anymore. I think we've seen some very distinct choices being made by different companies and positioning, whether it's upstream or downstream-weighted, oil and gas-weighted, conventional energy versus energy transition-weighted.
“There are a series of choices that companies have made and trajectories they began to put their companies on that don't all follow along the same path the way it once did and I think that creates some very interesting choices for investors as they look at what kind of exposure they want.”
How COVID-19 has accelerated the ongoing digital and operational transformations in the industry:
“We were already, like so many others, embarking upon a digital journey to begin to take decades of legacy technology platforms and take advantage of the cloud, of mobility, of artificial intelligence and some of the things you can do with big data now. I think this only accelerates that journey as we really see the value of it and people become more confident in these technologies.
“And of course, we've all had to be much more flexible in terms of how we work. this. I don't think everybody will always work from home. But I also think that the traditional model where everybody always comes to the same place, where people get on planes to go to meetings – they might be able to do using other technologies. I think there will be changes that every company in every industry will have to sort through.”
Watch the complete video at: www.ceraweek.com/conversations
About CERAWeek Conversations:
CERAWeek Conversations features original interviews and discussion with energy industry leaders, government officials and policymakers, leaders from the technology, financial and industrial communities – and energy technology innovators.
The series is produced by the team responsible for the world’s preeminent energy conference, CERAWeek by IHS Markit.
New installments will be added weekly at www.ceraweek.com/conversations.
Recent segments also include:
Leadership Dialogue with Hon. Shri Dharmendra Pradhan – India’s minister of petroleum and natural gas and minister of steel interviewed by IHS Markit vice chairman Daniel Yergin.
Competing Today, Innovating for Tomorrow – Mark Little, chairman and CEO, Suncor interviewed by Carlos Pascual, senior vice president, global energy, IHS Markit
Leadership Dialogue with Chris Crane – Exelon president and CEO interviewed by Lawrence Makovich, vice president and senior advisor, energy, IHS Markit
DOE National Labs: Super Computing Against COVID – Hon. Paul Dabbar, undersecretary for science, U.S. Department of Energy and Thomas Zacharia, director, Oak Ridge National Laboratory share innovations that can help us get closer to the pandemic’s end.
Energy Innovation is a Marathon Not a Sprint – Barbara Burger, president, Chevron Technology Ventures, Vijay Swarup, vice president of research and development, ExxonMobil and Robert Armstrong, director, MIT Energy Initiative
- Leadership Dialogue with Lord John Browne – Lord John Browne, executive chairman, LI and former group chief executive, BP interviewed by IHS Markit chairman and CEO Lance Uggla.
A complete video library is available at www.ceraweek.com/conversations.
About IHS Markit (www.ihsmarkit.com)
IHS Markit (NYSE: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth.
IHS Markit is a registered trademark of IHS Markit Ltd. and/or its affiliates. All other company and product names may be trademarks of their respective owners © 2020 IHS Markit Ltd. All rights reserved.
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