Chevron’s hot air over gas costs

Poor management on site is to blame for Chevron's massive cost overruns, not the Australian economy.

Australia to the US board of Chevron: “Please do not invest in more Australian LNG schemes until you change the culture of your Australian management”.

Chevron management mistakes were the main reason for its WA LNG construction cost blowouts although, to be fair, the impact of those mistakes was multiplied by government and union actions.

In addition, many other large Australian miners made similar industrial relations mistakes in the boom but the effects were not as disastrous as those made by Chevron which saw huge blowouts its in its construction costs.

Again from me to the US Chevron board: “Chevron is a wonderful world company that can make a major contribution to Australia. We will welcome your investment but first you must confess and rectify your own mistakes and, until you do, complaints by Chevron about Australia cannot be taken seriously”.

Last year I set out where Chevron went wrong in two commentaries (Miners must fess up on IR dirt December 5, 2012) and (Unmasking the Gorgon cost monster December 6, 2012)

Chevron US directors need to study the implications of those commentaries before allowing their Australian management to make wild accusations about our nation.

In essence, instead of rolling up its sleeves and negotiating industrial relations agreements for its construction contracts in a proper manner, Chevron Australia left large chunks of the negotiation to the WA Chamber of Commerce. The local chamber did its best and Chevron weren’t the only mineral companies to delegate that vital role in the boom. But in Australia industrial relations and union deals must be the responsibility of the CEO personally. Chevron signed agreements that gave unions far too much power and made it certain they would face cost over runs.

Then Chevron also chose to put their facility on an island so that it came into the ambit of one of our most militant union groups, the Maritime Union.

When you have an agreement that gives some militant unions immense power and you then add labour shortages, plus Canberra’s new industrial relations laws, you have a lethal cocktail. Those who knowingly drink those cocktails must understand what will happen to them. While Australia has some deep problems which should be recognised, Chevron’s Australian management must first take the blame and not try and shift it all to the nation.

We are seeing private equity groups in Queensland desperately trying to get control of mines that have been shut because of bad managers signing bad industrial relations deals (A potential clean slate for coal mining, June 19). Under the current federal laws, managers who know how can slash the operating costs of the mothballed mines 30 to 40 per cent and are able reopen them and reinvigorate the nearby towns. The same applies to LNG construction. The Australian mining industry has deep management problems – something large miners from BHP down are now starting to recognise. It is not all unions and government, although they have been part of the problem.

Like all enterprises, big mineral companies simply need good managers and there are plenty of them down under. And so I repeat to Chevron US directors – “recognise the beam in your own eye before attacking the nation”.