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Ali Moshiri: Chevron's Asset Manager

The downturn has the supermajor's man in Latin America and Africa taking a fresh look at his portfolio – shale is up, deep water is down

RUNNING Chevron’s business in Latin America and Africa isn’t for the faint of heart. Over decades the company has successfully chased new reserves in parts of the world where others feared to tread, overwhelmed by tectonic political shifts and economic crises. Chevron was the only supermajor to stick out Hugo Chavez’s oil nationalisations in Venezuela. It grabbed a prime slice of Argentina’s Vaca Muerta shale by being first to move in after YPF’s nationalisation. In Colombia, it has produced through years of violent insurrection. It withstood Nigeria’s toxic oil politics and repeated pipeline attacks. Throw a crushing price collapse into the mix and it might be enough for some to consider a new line of work.

But Ali Moshiri, Chevron’s boss in Latin America and Africa, takes it all in stride. This isn’t the first downturn Moshiri has been through in his nearly 40 years at the company, and he is convinced the industry will regain its poise.

"The market is in the process of rebalancing itself. Our business is no different than any other commodity business – it is driven by supply and demand," Moshiri told Petroleum Economist during an interview in his serene executive suite overlooking downtown Houston. "I’m convinced that in the end you’ll see a rebalancing, and whether it’s in a year from now, two years from now, or three years from now its going to be driven by the demand side." Put another way, it is Chinese, Indian and American motorists that will revive the oil price, not Opec ministers.

“The market is in the process of rebalancing itself. Our business is no different than any other commodity business – it is driven by supply and demand”

In the meantime, the rise of US shale and the decline in prices has shaken up the market and forced Chevron to look afresh at its portfolio, Moshiri says. His job these days isn’t so much chasing new growth frontiers as making the most out of what he has, and waiting for the turn. That means making hard choices over where to spend in a portfolio that includes Argentine shale, Venezuelan heavy oil and deep-water projects in Brazil and West Africa – "asset classes", in Moshiri’s words.

"Our business was very much impacted from the supply side when US production rose significantly. But at the same time it is the reality that the resource is there, it’s going to be monetised, it’s going to be part of the market system and we’re going to see the asset classes shift," Moshiri says.

A feel for realism

The winners and losers from the shift? Moshiri and Chevron see a bright future for nimbler shale projects, while resource-intensive deep-water megaprojects will fall down the totem pole.

"Certain assets will be delayed for development, certain assets will be accelerated. Some people are under the impression that with the lower oil price, unconventionals will be hurt. In reality, it could be the other way around because unconventionals could be much more efficient than anything else," says Moshiri.

In March, Chevron’s chief executive John Watson said that by the middle of the next decade as much as 25% of Chevron’s production could come from shale and tight oil activity. If all goes to plan, a chunk of that will be produced from Vaca Muerta. Moshiri’s biggest bet in recent years has been on Argentina’s energy renaissance. That bet didn’t always look safe. The 2012 deal with YPF was controversial: Repsol was still in a heated dispute with the government over the nationalisation of its stake in YPF, and the Spanish firm sued Chevron. At the same time foreign investors had long complained that the government’s energy policies made it all but impossible to make money.

Today, the Argentine gamble looks like it is starting to pay off. YPF has been run much better than most had thought it would be, and the nationalisation controversies have subsided. Argentina’s new president, Mauricio Macri, has put in place a set of foreign-investor-friendly policies and is bringing Argentina back to market. The broader environment gives more comfort to firms hoping to get in on the shale industry.

Moshiri has ambitious aims for Argentine shale. "Vaca Muerta is in the earliest stage of creating the environment that eventually becomes competitive with the Permian and other areas in the US. They are about 10 years ahead of us in Vaca Muerta. However, we’re taking all the lessons from our other operations and trying to make that time much shorter." The company drilled 156 mostly vertical wells in the region in 2015 – still a fraction of the thousands of shale wells drilled in the US – and is just starting to sink more horizontal wells as it learns more about the geology.

Knowing markets

The real breakthrough, Moshiri says, will come when more companies start drilling in there. "One of the advantages you see in the US is you not only learn what from what you do but you learn from offset operators. We don’t have any offset operators in Argentina. The nearest operators are us in the US."

While Chevron presses ahead in Argentine shale, the downturn is stunting development in places like Brazil, where the company is pondering the future of costly deep-water projects. "One of the challenges Brazil has is that all the resource base is in the deep water," Moshiri says. "If I have to build a platform and all the facilities with this price environment for $8bn, I have to take that number and see where I can invest it to get a better return for shareholders."

Those kind of tactical decisions have to fit in with a broader strategy that keeps in mind the longer-term picture, a decade or two down the road. That means not letting the market ruptures spoil hard-won relationships throughout the regions – ties that are especially important in resource-rich countries that have become more politically and economically volatile with the oil-price crash.

"We know the fact that oil prices dropped from $80 to $30 has a negative impact on the countries, we understand that. And they understand that going from $80 to $30 our capital investment portfolio is going to be different"

That means some give and take to find a new balance in the relationships. "We know the fact that oil prices dropped from $80 to $30 has a negative impact on the countries, we understand that. And they understand that going from $80 to $30 our capital investment portfolio is going to be different," Moshiri says. "People feel like our area is a little difficult – the national oil companies and governments recognise that more than many people would expect."

Moshiri points to Venezuela as a country that has started to find a new path forward. Cash-strapped state oil firm PdV is keen to boost output as fast as possible from its Orinoco heavy oil projects and has worked with Chevron and other foreign companies on a new development model. Rather than invest billions of dollars upfront in expensive new heavy oil upgrading facilities, the companies are importing light oil to blend with new heavy oil barrels, creating an exportable product at a much lower cost. Although progress has been slowed by the downturn and Venezuela’s economic crisis, it was a big step forward for the long-stalled Orinoco projects.

"We worked closely with PdV and through this collaboration we decided that there’s a time you’ve got to build the upgraders and there’s a time that you’ve got to buy the diluent and move the blended oil through the system. In the current environment, it is unnecessary to even consider building the upgraders," Moshiri says.

What about his regions’ notoriously difficult resource politics? Moshiri takes Chevron where the oil is and tries to separate the politics. "Business is business; politics is politics," is how Moshiri sums up his view on the issue. It clearly isn’t that simple in areas where oil and politics so often mix, but it is a guiding principal for Moshiri.

Keeping an eye on the future also means pouncing when opportunities are too good to pass up – no matter the oil price. Moshiri isn’t ready to say whether Chevron will take part in Mexico’s inaugural deep-water round in December, but all signs point in that direction.

The Chevron executive enthuses about the job Mexico’s oil reformers have done in opening the industry to the outside world. He calls the country "a great success" and says it’s difficult to find "a big hole" in the reform process. Still, the country remains an unknown for the American major. "Mexico was closed to us for over 40 years. Even though it’s our neighbouring country, you’d think we’d have a lot of data, but for us Mexico really is a frontier country." But it’s less unknown than it was just a year ago and the company is one of two dozen that have moved ahead in the pre-bidding process.

Now it is just a question of what the subterranean data reveal. "We’ve selected our partners, we’re very far into this process and we’re hopeful that the geology helps us to make a final decision. In Mexico, it’s all about geology. If the geology works and our assessment works then definitely we’ll see a decision from our side," says Moshiri.



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