Chevron picks Watson for CEO

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NEW YORK/SAN FRANCISCO (Reuters) -- Chevron Corp's David O'Reilly will hand Vice Chairman John Watson the reins as the second-largest U.S. oil company brings several big projects online and navigates through a massive, potentially damaging lawsuit in Ecuador.

Watson, 52, becomes chairman and chief executive at the end of this year, Chevron (CVX, Fortune 500) said Wednesday. He has been at Chevron since 1980, in roles such as chief financial officer and head of exploration and production outside North America. He also led the integration of Texaco after the deal closed in 2001.

The California native, who currently oversees strategy and development, will take the helm at a time when oil majors face increasing competition from state-run oil companies for access to the largest untapped reserves. Two-thirds of the world's top 20 oil companies are backed by governments.

O'Reilly, a 62-year-old from Dublin, has worked for the San Ramon, California-based company for 41 years and served in the top two roles for the past decade.

A new CEO is just the latest change at the top of Chevron in the past year, which has seen a new chief financial officer take over and the appointment of a new chief in-house lawyer.

While O'Reilly made headlines in June by debating the head of the Sierra Club, an environmental group, his public profile was lower than that of many top executives.

"We really like that O'Reilly wasn't real outspoken and on a lot of different boards," said Alan Brochstein, senior energy analyst at Management CV, which rates executive teams.

"We sure hope Watson won't be either because quite frankly we think Chevron has had, over the long term, one of the higher returns for its shareholders," he added, noting that Watson had "major skin in the game" with $30 million of Chevron stock.

Watson faces a potential crisis from a $27 billion claim in a lawsuit in Ecuador, where indigenous people blame Texaco for polluting the areas where they live and damaging their health.

A ruling in the 16-year-old case had been due in the coming months, but that is now complicated by the judge's replacement amid allegations he was involved in a $3 million bribery plot.

The CEO change is a "mild positive" for Chevron shares by setting up a smooth transition, said James Halloran, consultant with Financial America Securities in Cleveland, Ohio.

But he said the road ahead looks tough since oil companies largely occupy a second tier after national oil companies.

"They can no longer show up at the doorstep of countries and get access to the oil," Halloran said.

In the face of this challenge, Chevron in January dropped its target for 3% compound annual production growth from 2005 to 2010, although in July it did bump up its 2009 output growth target to 5% from 4%.

O'Reilly will depart as a number of sizeable projects come online from Brazil to the Gulf of Mexico to Australia, where the $37 billion Gorgon gas project just got the green light.

"He's left him with a well-stocked pond," said Fadel Gheit, analyst at Oppenheimer & Co, who also identified access to new reserves as Watson's biggest challenge.

Chevron's board elected George Kirkland, 59, to succeed Watson as vice chairman. Kirkland will retain responsibility for Chevron's global oil and gas exploration and production.

Chevron shares were trading 0.8% lower at $70.32, in line with peers. Shares of larger rival Exxon Mobil Corp (XOM, Fortune 500) were down 0.7% at $68.61.