USATODAY.com - Chevron CEO doesn't see oil crisis looming

Chevron CEO David O'Reilly, the head of the second-largest oil company in the USA, seems to have weathered a rough-and-tumble year with hardly a scar.
In the Gulf of Mexico, Hurricanes Rita and Katrina caused $1.4 billion in damage and lost production for Chevron (CVX). On the merger front, Chevron outlasted the China National Offshore Oil Corporation to buy Unocal for $18 billion.
What's more, all U.S. oil giants are battling intense competition from foreign energy firms. They're warding off criticism that they're the source of high oil and gas-pump prices. O'Reilly and other oil chieftains have been grilled by Congress on energy and antitrust issues.
Despite the obstacles, O'Reilly has guided Chevron's growth into a global titan since he was named CEO and chairman in 2000. Today, Chevron has 53,000 employees, $185 billion in revenue and a stock-market value of $130 billion
O'Reilly also has emerged as a high-profile diplomat for his industry. He's appeared on CNN's Larry King Live and other news shows, spoken at many energy conferences and used a Chevron national advertising campaign to urge people to study energy issues.
"Oil companies have an image problem," says O'Reilly. "We need to remind people of the quality of life that energy brings to them. We ought to treat energy as a valuable resource, not a necessary evil."
A native of Dublin, O'Reilly's interest in business took root during his Catholic-school youth when a teacher took O'Reilly and classmates on field trips to factories, a fertilizer plant, a newspaper and other Irish businesses.
During a recent interview in his modest office overlooking Chevron's headquarters in San Ramon, Calif., O'Reilly, 59, talked about business issues on his mind now.
On Congress considering a windfall oil-profits tax:
"I think it is a bad idea. Chevron is aggressively investing to develop new energy supplies to help ease the tight supply-and-demand relationship, which is contributing to higher prices. Between 2002 and 2006, we earned $36 billion, but we also spent $36 billion to develop new supplies.
"Increasing taxes on companies will not increase oil-and-gas production. In fact, a Congressional Research Service report on the WPT legislation introduced in the 1980s found that tax discouraged companies from producing up to 1.3 billion barrels of oil and actually contributed to the country increasing its dependency on foreign oil."
On predictions the world will run out of oil this century, leading to a global crisis and depression:
"The worst-case doomsday scenario is highly unlikely. The world has a lot of hydrocarbon resources. Coal is a plentiful resource in the United States, where we have more reserves than any other nation.
"People who think that peak oil will occur are just looking at conventional oil. You have to think beyond that. Think of all the other hydrocarbon sources, the oil sands in Canada, the natural gas. Think of all the remote areas of the world that have not yet been explored: the whole of eastern Siberia, the Arctic, the deeper (ocean) waters.
"So there's plenty of resources. The challenge is getting it converted economically into products that people can use."
On the bidding war with CNOOC to buy Unocal:
"We were surprised by CNOOC's late bid. We already had our Federal Trade Commission approval, and we were well along the way to almost completing the process. There was a lot of bilateral tensions going on between the U.S. and China that had nothing to do with (the merger proposals). ...
"The one point that I don't think has been fully resolved yet: Is it fair for a company that's government-owned to compete with a company that has to go to the public markets? It seems to me there ought to be some trade rule on that so there's a level playing field. ...
"We're still partners (with CNOOC). We have joint operations in China, in the Pearl River Basin. I have a lot of respect for them. I visited (CNOOC Chairman Fu Chengyu) in China last fall, and he was recently in the United States."
The post-merger integration of Unocal:
"The integration is essentially complete, except some of the back-office activities. It's already accretive to earnings, to cash flow.
"The cultures aren't that significantly different. These are global companies, but both are California-based. A lot of the processes are common, and the technical people are excellent on both sides. ...
"People think of oil companies as only oil wells and refineries, but it's getting alignment around objectives and getting people to work effectively together. That is the most important element of any merger."
Competing globally in the oil industry:
"To be competitive, you have to have size and capability and capital. ... We're a big company, the 11th-largest in the world by revenue. But we produce less than 2% of the world's oil and gas. So when people look at oil companies and say, 'Look at all those profits,' it's a very small piece of this gigantic pie. ...
"If you look at how the world is changing, the third-largest energy company (Gazprom) by stock-market capitalization is Russian.
"The last time I looked, they were about $200 billion, and we're about $130 billion. They're a big company."
U.S. dependence on domestic vs. foreign oil:
"There is a prevailing view among some politicians that somehow the United States can easily become energy independent. It's a wrong view. In fact, history tells us we're becoming more interdependent with others.
"We're importing more oil and gas. This is no different from exporting more wheat or corn or automobiles. This is a global business where goods and services move across borders. ...
"(U.S.) energy independence, while a laudable goal, is very impractical unless we change our policies.
"On the supply side, you might consider opening areas in the United States that are off-limits to exploration for oil and gas.
"You also might work more aggressively on the demand side by raising taxes on gasoline to help reduce the demand, or by making cars even more (fuel) efficient."
Wall Street criticism that Chevron doesn't invest enough in exploration and production:
"We're making big investments in a number of big oil field projects. In the Gulf of Mexico, we've got a couple of deepwater investments there. In Nigeria, a big deepwater development. In Angola, we just started a new one there. And we've got a massive gas field in Australia, the Gorgon project. ...
"The reality is we're investing in the opportunities that we have. We've invested every nickel we've earned back into the business.
"We earned $14.1 billion last year, and our budget (for exploration and production) is $14.8 billion this year. That's a lot of money."
Oil industry technology:
"We're a very technology-intensive business.
"One of the things we do well is subsurface imaging, which takes physical data and converts it into models of what we think is under the Earth's surface.
"Or the technology around directional drilling, the ability to communicate instantaneously by satellite from drilling operations in Angola to our labs. ...
"We also use remote cameras and robotics, which came out of the space program. You've got a guy sitting on an oil platform, and he's operating a device that's actually installing valves and making repairs on the seabed.
"We just drilled a well in the Gulf of Mexico that's 34,000 feet — the deepest well ever drilled. That's like flying in an airplane at cruising altitude and drilling to sea level."
His low-key style of managing a huge corporation:
"You can't micromanage a big organization, when you're in 180 countries and you've got thousands of people. ... You set guidelines and try to be clear about what's important. That's how big enterprises are successful.
"Many of our business units, if they were independent companies, would be in the Fortune 500.
"They make more than a billion dollars a year. So you put a lot of faith in the leaders of those business units."
"The most recent example was the hurricanes. Our refining-and-marketing business was literally the first line of defense.
"So our people responded by getting fuel to (the National Guard, emergency workers, local businesses) ... by rescuing people ... by taking care of 700 Chevron employees who lost their homes. ...
"Nobody came to San Ramon to get permission to do that. They just did what needed to be done."
Posted 6/13/2006 3:31 AM ET