Chevron's Wirth: Investors Warm to Transition Story

Calls to end fossil fuel development are loud and quick to capture headlines. But Chevron CEO Mike Wirth sees investors warming to a role for oil and natural gas companies in the energy transition, given still-robust demand for hydrocarbons and myriad solutions needed to decarbonize the global economy.

“I would say there’s … a gradual process of recognition that our industry will be part of meeting these [energy transition] challenges, which is a little bit contrary to the narrative you sometimes hear,” Wirth told Energy Intelligence in an exclusive interview.

Investor Pariah?

2021 has been a heated year for the oil and gas sector.

The International Energy Agency’s Net Zero by 2050 report in particular has created a firestorm for the industry, as fossil fuel critics have incorrectly brandished it as proof that all new oil and gas development must stop, regardless of whether or not alternatives are up to sufficient scale.

A mounting number of large institutional investors have meanwhile pledged to align their portfolios to net-zero ambitions, raising questions over whether continued investments in oil and gas can be compatible with those targets — and how they should balance those ambitions with concerns of potential supply shortfalls in the medium term.

Wirth says the jury is out on what exactly net-zero investing means.

“I think that’s still very much a work in progress,” he says. “I think it’s not entirely clear for an asset manager what it means to have a net-zero aligned portfolio.”

That said, his conversations with investors mulling these questions suggest that investing in oil and gas companies is not inherently off the table.

“I wouldn’t say it’s translated into specific asks as much as the general discussion that we’ve been having, which is: How will you sustain higher returns in a lower-carbon future? How will you create the capability and options to accelerate in some of these lower-carbon businesses, if and when they begin to take off?” he explained.

At the end of the day, Wirth says, investor demands come down to delivering “distributions, financial strength, and investment in the future.”

Chevron seeks to tick those boxes by “striking a balance” between meeting still-strong global demand for conventional energy as well as its rising needs for lower-carbon alternatives — an approach Wirth argues is resonating.

Specifically, the US major will grow its oil and gas output through at least mid-decade, while also accelerating its spending in biofuels, renewable natural gas, carbon capture and storage, and hydrogen to diversify its energy mix over time. The oil and gas it supplies will also carry a lower carbon footprint as it works toward achieving net-zero upstream operations by 2050.

Returns, and Delivery, Matter

Wirth noted in formal remarks to the World Petroleum Congress in Houston that the recent climate talks in Glasgow demonstrated that the energy transition will take on many forms and be defined in many ways, even as countries increasingly embrace the same goal.

“In the same way, industries and individual companies are taking a variety of approaches toward a lower-carbon future, addressing different needs, making different investments, exploring different technologies, [and] advancing different solutions,” he said.

That realization is what is opening the door for companies like Chevron to take a different strategic path than, say, the European majors, which are pursuing significant growth in renewable electricity alongside a long-term wind-down of oil and gas.

Wirth insists that investor acceptance for myriad approaches comes down to returns. Here, he argues Chevron’s areas of focus stand to deliver more compelling returns — north of 10% — than solar and wind.

Wirth tells Energy Intelligence that Chevron — which favors owning a piece of the entire value chain in its low-carbon ventures, and integrated developments more broadly — has closely evaluated the dual conventional oil and gas and renewable electricity investments that have recently popped up in places like Iraq and Libya. However, it has not found these returns competitive with its other opportunities.

That said, the Chevron boss knows investors will need to see it deliver those higher returns to have confidence in its strategic approach.

Wirth says his company will spend the coming months putting meat on the bones of its recently accelerated low-carbon investment plans, with specific projects and concrete deliverables detailed in 2022.

Note: A full transcript of Energy Intelligence's interview with Mike Wirth will be featured in Petroleum Intelligence Weekly later this week.