Chevron Taps Watson as CEO Successor

John Watson — a nearly three-decade veteran of Chevron — has been elected by the oil giant’s board as its next chairman and CEO.

Watson will succeed David O’Reilly, who held the top executive spot for a decade and plans to retire at the end of the year. O’Reilly was with Chevron for 41 years and was at the helm of the San Ramon, Calif.,-based company during a decade of substantial growth highlighted by mergers with Texaco in 2001 and Unocal in 2005.

More recently, O’Reilly oversaw the development of the Gorgon liquefied natural gas project off the coast of Western Australia. Chevron, which holds a 50 percent interest in Gorgon, approved earlier this month the final investment decision in the $37 billion venture.

Gorgon stands to provide a significant economic boost for Chevron and its two partners Exxon and Royal Dutch Shell, as well as Australia. The agreement with Australia – and its impact on future projects that involve carbon storage — is compelling as well.

The three companies agreed to invest in the Gorgon project only after Australia’s government assumed any long-term liability for potential damages incurred from carbon storage. The energy companies are liable for carbon storage during the project’s construction, operations and at 15 years after its closure. This means their liability ends around 2069.

Watson certainly is no outsider to Chevron, its culture or the company’s development under O’Reilly. Watson, for example, oversaw the Chevron-Texaco merger. He was hired as financial analyst in 1980 and quickly rose through company ranks, eventually as chief financial officer and in April 2009 as vice chairman of the board.

Still, he inherits a $27 billion lawsuit alleging environmental pollution committed by Texaco (before its merger with Chevron) in the Amazon region of Ecuador. And he will be heading an energy company in an era of climate change legislation that will likely have a cap-and-trade component.

The Senate introduced today its version of climate change legislation, which calls for stricter emissions reductions, greater use of carbon offsets and provides rewards for coal plants that switch to natural gas. Watson is a director of the American Petroleum Institute, which opposed climate change legislation passed by the House this summer.

Watson may not be able to predict the whole future. But he knows that fossil fuels — even with greater efforts to reduce carbon emissions — will be the dominant energy source for the world for sometime.

He said exactly that in a phone interview with the NYT today.

“The greatest advancements in living standards over the past century have been coincident with affordable energy. The energy mix will be different going forward, but we will definitely need more oil and gas and coal in the years to come.”

One side note: It will be interesting to see if Watson’s financial-focused background has an impact on Chevron’s business model. Again, Watson is not an outsider. He’s had an impact on the company and its decisions for years and it was widely understood he was being groomed for the top slot at Chevron.

But Watson is steering the ship now. His education and work history – economics degree, an MBA and financial positions within Chevron –tells a different story than O’Reilly, whose roots are in chemical engineering.