Once-Stodgy Chevron Has Changed Its Image

A new attitude seems to pervade Chevron headquarters here, with executives sprinkling their speech with such unlikely words as lean, youthful , even aggressive . Since Chevron, the nation’s No. 2 oil company, swallowed Gulf Oil and doubled its size 18 months ago in America’s largest takeover ever, the giant has been shedding properties and changing its once-stodgy ways.

This new attitude was typified recently by Chevron’s chairman during a meeting with several hundred former Gulf employees in Houston. Asked whether Gulf’s large chemical plant there might escape the auction block, George M. Keller quipped: “Everything’s for sale, at a price, including my desk. I can work at a card table.”

Of course, no one expects Keller to give up his desk--or the oil-rich fields Chevron acquired when it paid $13.3 billion for Gulf. Nevertheless, Keller, an engineer by training, has emerged as quite a salesman of late, having raked in more than $3.5 billion from selling selected oil fields, gas stations, drilling rigs and real estate.

Just last week, Chevron disclosed that it is looking for a buyer for its refinery in Philadelphia and a network of 4,800 service stations in the Northeast. It also put up for sale a refinery and 275 service stations in Puerto Rico.

The consolidation of the two companies is already having a heavy impact on the company in other ways. Chevron now is involved in new businesses that it plans to keep--such as Gulf’s petrochemical business, which aroused the employees’ concern in Houston, and the coal-mining operations inherited from Gulf’s Pittsburgh & Midway Coal. Further, due to early retirements and the sales so far, Chevron will count 20,000 fewer employees in December than last January, a drop of 25%.

All of this is forging from old Chevron a distinctly more youthful company--certainly in terms of personnel: Before the merger, employees had worked an average of 17 years at Chevron; now the average is 12.

“It’s a new Chevron,” Keller declared recently.

This radical change must shock some veterans of the old Standard Oil Co. of California, a stable, fairly predictable company that rarely hired outsiders and maintained a relatively low profile. Some vestiges remain, however: Asked why consultants weren’t called in to help sort out the merger, a Chevron executive snapped, in vintage Socal style: “They mess things up. We can do it better ourselves.”

Many Chevron employees expect familiar ways to change with the influx of thousands of employees who cut their teeth at Gulf, a company with vastly different styles and structures. “I’m sure that will change,” acknowledges Kenneth T. Derr, the Chevron vice chairman who headed Chevron’s merger effort. “I guess there’s no way of knowing how much. We’ll have to come back in five years and find out.”

Chevron executives say the selling of assets to reduce the company’s $12-billion debt is indeed emotional for some--especially in a company accustomed to growing without looking back. “There’s always someone who considers a particular field his baby--the jewel in the company’s crown,” says Roger Lopez, the Chevron vice president who decided to sell the Belridge field near Bakersfield after a highly charged debate.

“We call it selling the children,” adds Allan V. Martini, the Chevron vice president who oversees domestic oil and gas production.

But there’s a more personal fallout, too, since Chevron has eliminated 10,500 jobs through the sales and another 6,000 through consolidations. By year’s end, several thousand additional jobs will disappear, especially in refining and marketing. Only half of those who worked for Gulf will remain with Chevron and many Chevron employees have new assignments.

Supervisors in New Jobs

Martini says he views the merger as “an excuse to shake it all up,” asking himself: “Do we have the right skills in the right place? Should we redo the whole thing?” A unit that explores for oil and develops new properties in the Western United States found out how the answers to such questions affected it; about 60% of its supervisors are in new jobs.

The job switching and arrival of 1,500 former Gulf workers at Chevron headquarters is causing some headaches--phone lists are outdated as soon as they are published and new extensions don’t work. One Chevron manager, booted from his office by a merger team, said he wandered from floor to floor in search of work space. Some 25,000 Gulf employees are attending classes around the country to learn how to do Chevron paperwork, or use the company’s phone system. Vice Chairman Derr confesses that the wave of new faces around headquarters seems “real strange” at Chevron, a company that rarely hires outsiders.

“It’s an unsettling time,” concedes Robert Davis, president of Chevron Chemical, which has two units up for sale. “I’m sure there is a good deal of stomach-twittering.”

But apart from the need to consolidate operations and redeploy personnel, Chevron must sell off some of what it acquired simply to reduce the enormous debt that the company assumed in buying Gulf--rescuing Gulf from corporate raider T. Boone Pickens Jr. Interest costs alone total $1 billion a year. “If they continue to prune and unify, they’ll emerge as a much stronger competitor,” says Malcolm L. Sagenkahn, a Newcastle-based independent consultant.

The post-merger moves are inspired as well by the new reality created by plentiful supplies of oil and relatively weak demand. Most of Chevron’s competitors have dumped a hodgepodge of money-losing businesses--including Exxon’s computer business, Phillips Petroleum’s resort hotel and Texaco’s minerals businesses.

Just about every major oil company has closed a refinery or two, and thousands of gas stations--built in the go-go 1960s when consumption surged by 10% yearly--have been converted into restaurants and other businesses, if not razed to make way for office buildings, or simply boarded up. Atlantic Richfield sold its entire East Coast business to concentrate on more profitable Western operations nearer Arco’s Los Angeles home.

Before gobbling up Gulf, Chevron had trimmed its network of gas stations by 8% since 1980, selectively dropping unprofitable outlets. That was minor surgery compared to cuts made by other companies: Shell dropped 28% of its service stations since 1980, Amoco dropped 26% and Exxon 13%. “It may seem a little late in the game for us to start doing it,”a Chevron marketing executive acknowledges.

With the Gulf purchase, Chevron suddenly found itself transformed into the nation’s leading marketer of jet fuel, diesel fuel and asphalt and second to Shell in gasoline sales.

Gasoline Sales Climbed

In 1984, Chevron’s gasoline sales climbed 10%, an impressive accomplishment in a sluggish market, but those gains didn’t produce profits; Chevron lost $43 million in domestic marketing and refining last year.

Keller clearly isn’t impressed by the company’s new heft, saying, “I’d rather be the most profitable.”

Willis J. Price, the Chevron vice president who oversees domestic refining and marketing, says “a significant percentage” of the company’s 20,800 gas stations should be sold.

Besides the Northeastern and Puerto Rican packages, Chevron is likely to sell stations scattered through 26 states in the Southwest and West. But, at the same time, it plans to invest $500 million in stations located in metropolitan areas--a strategy successfully pursued by Shell and, more recently, Arco.

Nor will the remaining stations be look-alikes: Some will include convenience stores, others car washes or repair bays, and still others nothing but gas pumps. Chevron’s marketing approach, Price acknowledges, is “trying to be all things to all people,” a theme stressed in the company current radio and television ads.

Some analysts who applaud Chevron’s intent to shrink its retail network nonetheless wonder about its marketing approach. Comments one Los Angeles-based consultant: “Their pump prices aren’t low enough to appeal to customers looking for bargains, and they don’t emphasize service the way Union does. Chevron’s image isn’t clear.”

The 1984 sale to Sohio of 5,660 former Gulf stations in the Southeast, ordered by the Federal Trade Commission as a condition of its approval of the Chevron-Gulf merger, adds yet another wrinkle.

Under the sale terms, Sohio may use Gulf’s name and trademark. Chevron, meanwhile, has no plans to convert the Gulf stations it owns. This, says Price, creates a “complication” for holders of Gulf credit cards who travel from, say, Chevron-Gulf territory in east Texas to Louisiana, which is Sohio-Gulf territory.

Processing Gulf Cards

Chevron is processing all Gulf credit cards now, but it plans to end the practice soon and issue its own Chevron-Gulf credit card, valid only at Chevron and Chevron-Gulf stations. Price worries that some Gulf customers may unwittingly toss out the new credit cards bearing the unfamiliar Chevron shield. “It’s going to be quite a public-relations problem,” he predicts.

The problems faced by Chevron’s marketing unit has renewed, in the words of one executive, “a lively and ongoing debate” over Chevron’s future in gasoline retailing.

The company must now buy two-thirds of the crude oil it needs to produce the gasoline to supply its filling stations. In a depressed crude-oil market that’s not so bad, but if prices were to rise it could be disastrous.

Martini contends that Chevron can find profitable markets for its crude without turning it into gasoline, but he doesn’t recommend closing every gas station. Some, he says, should be kept “as an insurance policy” against an inability to sell crude oil.

To Keller, on the other hand, the question of balance is a consideration “of the third order.” But, he adds, somewhat ominously, “Each must justify their existence as a separate business.”

It is in crude-oil production that the differences between Chevron’s centralized management and Gulf’s relatively free-wheeling style are clearest. Gulf field managers were encouraged to make decisions and often acted without consulting headquarters--a practice that surprised Chevron executives, more accustomed to tight controls.

Chevron executives were also shocked to find that Gulf field managers were free to spend sums as large as $40 million without approval from headquarters. “It sort of blew us away to find out that (Chevron President)Jack Grey didn’t have as much spending authority as a Gulf field manager in London,” says Martini of Chevron.

Organized by Geography

The differences extend to corporate structure as well. Chevron is organized by geography, with exploration and production crews working together in assigned regions. Gulf, by contrast, “ is much more decentralized,” says its former chairman, James E. Lee, now a Chevron director.

The company kept its exploration and production crews separate, organized by function. Gulf also had several ipendent exploration crews that took on costly, high-risk projects. Cut loose from the organization, these crews were free to test unusual rock formations or new drilling equipment, but also, Martini says, duplicated at greater cost work performed by other Gulf crews.

“I was stunned,” he says. Chevron disbanded the independent crews and folded Gulf’s others into the existing Chevron organization, where new projects are subject to initial screening by a top-level executive committee.

Chevron executives argue that their system is actually freer than Gulf’s because it forces top executives and middle managers to talk to one another. It’s true that Chevron’s structure resembles the classic corporate pyramid, says Martini, but he insists that’s only on paper. “In reality, all kinds of dotted lines run all over the place.”

CHEVRON’S ROAD TO A NEW LOOK March, 1984--Acquires Gulf Oil for $13.3 billion. April, 1984--Sells European facilities, gets $700 million. May, 1984--Shareholders OK name change. September, 1984--Sells Louisiana refinery and 5,660 Southeast Gulf stations for $690 million; spins off Gulf’s international-trade unit. October, 1984--FTC approves merger. November, 1984--Announces plans to layoff or transfer 5,800 Gulf employees and offer early retirements. January, 1985--Sells Gulf’s interest in two pipelines for $148 million. April, 1985--Sells offshore drilling unit for $190 million. May, 1985--Sells Gulf’s 52-year-old Art Deco-style headquarters in Pittsburgh, intends to sell Utah oil fields. July, 1985--Announces intent to sell Ortho consumer products and agricultural chemical division. August, 1985--Announces intent to sell New Jersey refineries, 4,800 Eastern stations and oil fields near Bakersfield, Calif. Sells Gulf-Canada for $1.8 billion. September, 1985--Plans to sell Puerto Rico interests.