Dave O’Reilly loves oil. It is why he became a chemical engineer. He doesn’t know how exactly this love came about – he wasn’t influenced by any American westerns featuring Texas wild-catters that populated the fledgling Irish television network RTE in the 60s. And he didn’t get it from his father who worked as a buyer in the men’s department at Arnotts store in Dublin, or his mother who migrated from Co. Kerry to Dublin in the late 1930s to join the civil service – one of the few job options for Irish women of that era. The closest he came to any kind of engineering was when as a youngster he used to visit his uncle who worked for the aluminum factory in Nenagh, Co. Tipperary, on his way southwest to his mother’s family in Kerry on summer holidays.
But from an early age O’Reilly wanted to be an oilman, and he has lived his dream.
It was serendipitous that the first time Chevron recruited in Ireland, O’Reilly was graduating from University College Dublin. He left for the Chevron plant in California soon after. Forty years later, he is still with the company. He started with Chevron Research as a process engineer and, after stepping in as a manager during a strike in 1973, a series of positions with increasing responsibility followed. He was named general manager of Chevron’s refinery at El Segundo, California, in 1986. In 1991 he was elected a vice president of Chevron Corp., and by 1994, he was president of Chevron Products Co., responsible for the company’s U.S. refining and marketing operations.In 1998 O’Reilly was named a vice chairman of the board of Chevron Corp., and in 2002, as CEO he oversaw the Chevron/Texaco merger. In fact, he received the Petroleum Executive of the Year Award for 2004 – chosen by his peers in the industry “for his strong leadership of Chevron during and after its merger with Texaco and the company’s robust financial and operational performance.”
O’Reilly is the longest-reigning CEO of an oil company, and, to the best of my knowledge, the highest-ranking Irish-born CEO in the United States.
He is one of the few, if not the only oil executive that you will see on television – or interviewed in Fortune magazine. The oil companies tend to be maligned in the press, and O’Reilly is committed to informing the public of the situation from his perspective.
Our interview took place in Chevron’s headquarters near San Ramon, an area that’s pretty much all industrial park. Chevron Way leads to the low-lying office buildings fronted by a huge fountain. Once inside, the atmosphere is strictly corporate. I’m handed a Visitor Safety Information leaflet and Map for Chevron Park, and I’m vetted by media relations man Lloyd Avram who sits in on the interview and gives me a three-minute warning when my time is drawing to a close.
I find O’Reilly to be by turns affable and intimidating. One gets the impression that he doesn’t suffer fools gladly, and I’m no expert on the oil business. He is most animated and relaxed when talking about Ireland – he has a brother, two sisters and extended family there and he gets back often. He also brightens when he’s talking about Chevron’s community-building schemes.
I was working my nerve up to ask him about a lawsuit, currently in the courts in San Francisco, over Chevron’s response to a 1998 protest at its Nigerian subsibary’s off-shore platform, when I got that three-minute warning. Instead we talked about the award that O’Reilly would receive on the morrow – the Woodrow Wilson Award for Corporate Citizenship, which is given to those executives who “by their examples and their business practices, have shown a deep concern for the common good beyond the bottom line.”
Do you go back to Ireland often? A couple times a year. I have a brother and two sisters, nephews, cousins, uncles, aunts – still a lot of relatives there. So we’re usually there a couple times a year. Mostly it’s to visit the Dublin area. My parents’ generation grew up in different parts of Ireland, but they were part of the labor migration from the rural parts of Ireland to Dublin. My mother grew up in Rathmore, County Kerry, and ended up in Dublin because she went into the civil service in the late 30’s and stayed there until she married my father in 1945 at the end of the war. He was from County Meath and worked in Arnotts [department store] for his whole career – 40 something years. He was the manager and buyer for the menswear section.
Was education something that your parents emphasized? Yes. They both knew the value of education. And the education I received was top notch. I went to Blackrock in Dublin, and then from there to UCD [University College Dublin]. The chemical engineering department was really small. Between all three years – second, third, and fourth year – there were 40 students. So you get a lot of close attention in an environment like that.
Was it a normal thing for Chevron to recruit in Ireland? I don’t think they had ever done that before. They were interviewing in the U.K., so they decided they would include Dublin on the interview schedule. So it was not a routine thing at all. But it was a happy coincidence. [Chuckles]. I wouldn’t be here, I would be somewhere else.
Chemical engineering at that time was also a bit outside the norm for an Irish student. There were very few of us. Most engineering students were in civil, mechanical, and electrical. But I wanted to be in the oil industry.
Again, unusual. Had you been watching American westerns of Texas oilmen on Irish TV? [Laughs] No, no, no. I just got interested and chemical engineering was a path to that. I also had an offer from G.E. [General Electric] but I was much more interested in oil, and the oil business from a business, technical and geopolitical standpoint – all three of them. The oil industry is right at the intersection of those three things.
There were no jobs, or very few, for chemical engineers in Ireland in 1968. So I came to work for Chevron – in the research part of the company in Richmond, California.
What was that like? It was a really disruptive time. Martin Luther King and Robert F. Kennedy were assassinated. You had riots at the Democratic Convention in Chicago. There were a lot of protests and disruptions. In Berkeley there was tear gas, up and down University Avenue. It was a very tumultuous time, but there was plenty of work to do.
I was in Richmond at a research plant, which is still there right next to a refinery. There were three of us that came from UCD at the time. We kind of hung around together, but eventually we went our own way. They went back to Ireland.
And you met a nice American girl? Yes. I married her in 1970 and we’re still married. We have two daughters, two sons-in-law and two granddaughters.
How does the recent oil crisis compare to the crisis in 1973 and the oil embargo? That was a lot worse. When you don’t have oil, and you have lines at gas stations as you had in ’73 to ’75 – when there’s actually a cutoff in supply for geopolitical reasons, and people have to line up on alternate days, that’s a very, very distressing thing. But since ’79, we haven’t had an incident like that. And the reason we haven’t had it is we have had an auto-regulated market. It’s an open market so that the market can respond through the price making. And sometimes that means we pay more, but it regulates the demand, and sometimes it means we pay less. When that supply comes to compensate for the high price, it attracts supply, and you get the benefits of the marketplace working. So the marketplace has been a much better arbitrator of supply than a regulatory system that was very disruptive — that caused lines to be created in ’73 and again in ’79.
Do you think the oil companies get a bad rap? I think that our leaders, our political leaders, tend to resort to rhetoric when gasoline prices get high like they did a few months ago because of certain events that are outside the control of the industry. You know, we had a global run-up in crude oil prices, and all sorts of commodities, not just oil. Steel, iron ore, corn, you name it. All those things went up. That’s a global inflation push.
And to blame us for something like that, to vilify us for high prices that we had no control over, doesn’t seem fair. And particularly when we all know that commodities go through a cycle and you don’t hear anybody sympathizing when we’re at the low end of the cycle, and we have been in the past and we will be in the future.
There will be times when the price of a commodity goes low, so you have a cyclical business, and ups and downs. Gasoline prices fluctuate. But when you go to buy, say, a bar of soap, or a candy bar in a store, it doesn’t fluctuate. But it very slowly goes steadily up every year.
I think you’re the only chief of an oil company that’s been on Charlie Rose. Charlie Rose and Larry King. The reason I go on shows like that is to help with energy literacy, because a lot of people don’t understand where it [energy] comes from, how much has been used, where the vulnerabilities are, what the opportunities are, and so you’ve got to talk to the public. Otherwise, nobody knows. And I think it’s very important that you communicate.
So do you see the incoming administration helping? I think both candidates were short on energy policy, for different reasons. I think the McCain campaign, and I say campaign because it’s hard to know what the candidates themselves actually thought. But the McCain campaign, I think, underestimated the power of energy efficiency and conservation and was very supply oriented. The Obama campaign on the other hand was very energy efficiency oriented. They were very short on the supply side. In my view, they’re both wrong. You need both. You need to work on energy efficiency, and conservation, and use energy wisely.
You know, at a low, we’re using 120,000 gallons of oil a second. But we also have to find it and supply it. We still need it. We still need lights, we still need electricity, you still need to drive your car, there are a lot of things we need to do. So I think both [candidates] were short in my view. What will we get out of a new administration? I don’t know.
Have you ever been invited to talk to the people who set the policies? Well, no, . . . but what we do with incoming administrations is, we send a letter. We send it to all the committees, both sides of the aisle, Democrats, Republicans, the whole lot. And we’ll do that again. And then, if they want to talk about it, we’re there to talk about it.
And your message is? One – work on energy efficiency. It takes leadership and let’s make sure we don’t lose sight of the fact that we have to be a more energy efficient nation. Congress took some steps last year to improve the energy efficiency of cars, vehicles, and appliances over the next decade. And it’s very important that that continues. So, energy efficiency is the first message.
The second message is energy supply. And our message isn’t just about oil and gas. Obviously, oil and gas are included, but it’s about oil, gas, nuclear, coal, wind, you know, solar and other renewables – all of them. And the importance of having a balanced approach to energy supply. So it’s working on both. Those will be the key messages to the incoming administration.
What is Chevron doing in terms of investing in alternative energy? We’re the biggest renewable energy producer of any major oil company – geo-thermal in the Philippines and Indonesia. We’re the biggest geothermal producer in the world. It’s using hot steam from volcanic deposits. Either you inject water down and make steam out of it, or you actually find pockets of steam. Produce it through a well, like you would oil, and use the steam to drive and generate electricity. You need to have a kind of volcanic rock.
Is it more difficult as more and more countries are nationalizing their oil resources? No, no. I think there’s that perception, but the reality is, there’s more opportunity today than there has been for most of my career in the oil industry, because for my first 15 years – from the late sixties to the middle part of the eighties – most of everything we were involved in was nationalized. We lost it. It was taken away. And we had to go find oil and gas in places that were not nationalized. What happened in the last 15 or 20 years is, most of the areas that were nationalized, many of them have opened up. So there’s a lot more opportunity today than there has been for a long time. You know, I hear a lot about this.
I guess the public is confused. There’s the perception that the war in Iraq is about oil. Yeah, and in those countries that you’re talking about, it is primarily the governments that run the oil industry. Where we’re operating, it’s not. The places we operate have been growing and are places that truly are open. And some of them weren’t even available to us before. Central Asia was all part of the former Soviet Union. That’s open now. We’re operating in Venezuela.
I thought Venezuela had now nationalized its oil. No. They did not nationalize it. A lot of people think that, but that’s not the case. There are still private investors in Venezuela. We’ve found enormous vast resources in Australia. We’re big in Thailand, and all of the southern part of Asia. We’re expanding in China. I was just there last week. We’re developing a big gas field in Central China – that wasn’t available even five years ago. So this idea that somehow the opportunities are less than they were is not right. It’s looking through the wrong end of the telescope.
What about the fact that our domestic oil production is down? Now that’s a problem. U.S. oil production, over the last 20 years, has dropped by about four million barrels a day. So we’ve gone from about nine million barrels a day of production to five. In the meantime, our consumption has gone up by four million barrels a day. So we’re consuming about 18 or 19, close to 20 million barrels a day. We’re only producing five. We’re importing the rest.
And one of the reasons for it is a lot of the areas that we would like to look for it are off limits. So, yes, that is a valid point that you’re making. That’s reality. And, we’re becoming more dependent on oil imports and it’s not a good policy.
Part of the election debate was about opening Alaska to exploration. Alaska, the off-shore, and other on-shore areas where access is limited – 85 percent of the coastline of the United States is off limits to oil and gas. Now, the moratorium was actually lifted in September because Congress did not choose to extend it. So now it [exploration] is potentially open again. But before we can [explore], there still has to be a process by the Department of Interior to actually identify and award leases, and a filing process so that people can bid on the leases and then do the exploration work, and if they find something then produce the oil. There are a lot of steps that have to be taken to move forward from where we are. But at least the moratorium has been lifted.
There was also talk about taxing oil companies’ profits. What we would like to do is invest more. And to do that, you need to create the opportunity for investors. And adding taxes on an industry that’s already highly taxed – we’re already much more highly taxed than any other business, and paying much higher taxes as a percent of our income than other business. So increasing taxes further just takes away money that could be used for investing. And we’ve done this before. We had what were called profit taxes in the early eighties. Congress went back and studied the impact of those windfall [profit] taxes, and what it found out was that it accelerated the decline in oil and gas production in the U.S. It made us even more dependent on imports. So it had exactly the wrong impact. We want to be a country where we’re less dependent on foreign oil and more independent — able to produce more of our own energy here in the United States.
So taxing more is the wrong answer. Opening up more opportunity for investment has the advantage of not only producing more energy domestically, but it also creates jobs, when you think about it. You go down to the Gulf of Mexico and look at where we’re producing oil and gas today and look at all the high-quality jobs that we’ve created. There are well-paid engineers, we’ve got mechanics, operators, we’ve got a whole supply chain of people that are involved in our business — tens of thousands of people that are employed for Chevron alone in that area. There are 1.8 million people employed in the industry in the United States directly, and another four million indirectly.
That’s six million jobs. And most of those jobs are very high-quality jobs, with good pay, good benefits, funded pension plans – not like the mess that you see in Wall Street or in some of these other places. So this is an industry that a country needs to be proud of and recognize the value that it creates. Not just the value for shareholders, but the employment we create, the energy we supply, it’s a good thing. [The oil industry] shouldn’t be vilified like it has been because it’s convenient to do so.
Ireland has potential reserves of 10 billion barrels of oil in the North Atlantic, but they are difficult to develop. Would Chevron be interested in taking on the challenge? Well, we are exploring in the North [Sea], and they’re producing oil in the North [Sea]. We have nothing currently in the coastal area off Ireland.
It’s a possibility? Yes. It’s all possible. We’re a big operation, you know. North America obviously, Central Asia, Latin America, Asian Pacific, Africa –
How did growing up on the small island of Ireland affect your worldview? One thing about growing up in a small place is it makes you completely aware of what’s going on in the world because you have no choice. I’ll always remember the night of the Cuban Missile Crisis – I’ll never forget that. Just sitting there wondering if these two countries start shooting rockets at each other, if we could see the rockets from here in Dublin as they’re coming. [Chuckles]. I’ll always remember that. You have to be very aware of what’s going on. Right now, in the last six months, all anyone’s been talking about in Ireland have been two things – house prices, which are going down, and the [American] election.
What would your advice be toward the Irish now that they are facing a downturn in the economy? They have gone through 20 years of almost incredible economic growth. What brought about that growth? It was open markets, it was labor flexibility, and it was investment in education. There were a lot of things that were fundamental to that growth. I think it would be a big mistake to say, “Well now, we need to do something completely different.”
The cause of the setbacks in Ireland has been too much focus and too much money chasing into real estate. That’s the issue. Property values got inflated. That needs to be corrected. And that could be helped by better lending practices, just like it could be corrected here [in the States]. They’re going to have to live through that transition. But it should tell everybody how important it is to continue to diversify the economy so that it’s not so property value focused. But a lot of things have been done right, and they shouldn’t lose sight of that.
What is Poland doing today? It’s doing what Ireland did 20 years ago. And so, what has to happen, Ireland has to continue to move up the scale of [higher value] work. A lot of the lower value work has already moved away. It’s no longer a country for call centers and all that sort of stuff. It’s higher value and you can only do that if you have a competent, well-trained, and flexible workforce. And keeping the corporate taxes low to be competitive so that Ireland is an attractive place to invest.
Any advice for President-elect Obama? I think getting the economy right is probably the number one priority for Obama. Getting energy right is an important issue too. And it’s not a short-term issue. You have to have policies that are sensible, and then stick with them for a long term because, you know, changing the energy system in any meaningful way isn’t gonna happen overnight. It takes decades.
The investments that we make are not for just next year, they are investments for the long haul. So, we have to take a long-term view, and I think that the incoming administration and the Congress are going to have to take a long-term view. If they try to manage this by making short-term changes back and forth every year or two, we’ll never get there.
One of your catch phrases is “getting results the right way.” Can you explain? That’s really what Chevron is about. We’re a business organization, so our primary role is to invest, employ, produce goods, make money so that the investors in our business garner a reasonable return. However, one of the things we want to do is add value to the communities in which we operate. And in some places, it’s almost essential to do that so that you have a sound base from which to draw employees, suppliers, or whatever.
In Angola, AIDS transmission from mother to child was a big issue. With our involvement in the health care system, there hasn’t been a case of that in the last two years. The blood bank has gone from being 10 percent contaminated to minute levels of contamination. In another part of Angola, we’ve helped reinvigorate the central highlands that had been gutted by civil war in 2001. Angola’s got tremendous agricultural potential and it had been absolutely decimated. By working with World Vision and USAID, we were able to reengage two million people out of a population of 13 million back into the agricultural sector.
In Indonesia we just opened up a big Polytechnic Institute in a province that had been decimated by the tsunami. We’ve trained thousands of people. We had already built an institution in Pekanbaru. Why do we do that? Well, these people are going to be employed by our company, by our suppliers and our business partners. So it’s good for our business, but it’s a tremendous benefit to the local community. I’m very proud of our organization. I can’t even keep track of all the things that they do, but we’ve had some very great successes in community engagement. I’m getting this award [the Woodrow Wilson Award], but certainly the company’s getting it more. I just happen to be in the lucky position of being the leader of the company.