Full of Energy

By Jeffrey Ressner

From commuters to futures traders, everyone wants to know about the price of gasoline. But the man who runs one of the world's largest purveyors of black gold has a lot of other things on his mind too. Dave O'Reilly, CEO of ChevronTexaco, chatted with TIME correspondent Jeffrey Ressner about the environment, alternative energy, global unrest and, yes, the price of gas.

TIME: ChevronTexaco recently announced the biggest profits in its history, driven largely by the sharp rise in gas prices. Should folks who aren't shareholders be happy about that?

DAVE O'REILLY: I hope that people would be happy. When you see high profits from a California-based company, the media is usually complimentary. They say, "Look what Intel did!", or whatever. So why isn't it a good thing for us to have strong profits when we provide so much employment, pay so much in taxes, and we're a positive force in the community?

TIME: But don't people ask you every day why the price of gasoline has got so high?

O'REILLY: In historic terms, it really isn't. It's about two-thirds of what it was in 1981, when adjusted for inflation. The price of everything has gone up, and I'd argue [that] the price of gasoline is actually a good value. In 1981 dollars, adjusted for inflation, a gallon would cost $2.84.

TIME: Crude is about $50 per bbl. Where do you see oil prices heading the rest of winter and into summer?

O'REILLY: We're about finished with winter. Typically, the early part of the year in the second quarter is the lowest-demand time. Absent some disruption in the world, I expect crude prices to moderate a little bit in the next few months. But you've got to put qualifiers around that. We're notoriously bad predictors.

TIME: An OPEC production cut in March could further reduce U.S. inventories. What's the least painful way for us to deal with that?

O'REILLY: Conservation. It sounds trite, but it's clear the balance between supply and demand has become much tighter. Prices are higher, so there's an added incentive to be energy efficient. Make sure your automobile is properly serviced, and don't overaccelerate or overbrake. That can save 5% to 10%. At home, become more aware of thermostat and light settings.

TIME: How has the war in Iraq affected oil prices?

O'REILLY: It adds an element of uncertainty to supply. Even the prospect of disruption makes buyers uneasy and leads to price volatility.

TIME: Is instability in the Middle East a threat to ChevronTexaco's bottom line?

O'REILLY: We have a very diverse geography. Most of our company's oil comes from the U.S., Central Asia, Kazakhstan, Indonesia, Australia, Africa and Latin America. Net production in the Middle East is only 150,000 barrels a day out of the 2.5 million barrels we produce.

TIME: What is the biggest single factor affecting your business?

O'REILLY: Surging demand in Asia--specifically, China and India--which has caused the world capacity to be fully utilized. These developing economies are growing rapidly and require energy to grow. There's little spare capacity.

TIME: A new book called The Bottomless Well claims we're actually drowning in oil and other natural resources, that we just need new techniques to coax them from the earth. Do you agree?

O'REILLY: I certainly agree. We're doing things today to find oil and gas in ways we could have only dreamt of 15 or 20 years ago. We're drilling wells in 10,000 feet of water now. We can model what we believe are our reserves thousands of feet beneath the earth's surface. Technology will allow us to have greater access to energy sources and improve the supply situation--but the demand is also growing rapidly.

TIME: The Securities and Exchange Commission's new standards call for a "snapshot oil price" to be used at year-end to account for reserves. What does that mean for your company?

O'REILLY: The SEC makes the rules. We follow them ... Don't confuse the SEC's definition of reserves, which is somewhat arbitrary, and all the oil and gas available in the world [that] hasn't yet been developed. New technology will allow us to access reserves not currently "proven" by SEC standards.

TIME: ConocoPhillips recently pulled out of Arctic Power, an industry group that has been lobbying to get the U.S. government to approve drilling in the Arctic National Wildlife Refuge. Your thoughts?

O'REILLY: I don't know why they withdrew. We support opening up the Arctic National Wildlife Refuge. Currently, Alaska is only producing a million barrels a day. It used to produce 2 million barrels a day. We're talking about developing less than 1% of the wildlife refuge. Alaska's citizens are very supportive. We think it's good for their economy as well as for the energy security of the United States.

TIME: BP has publicly promoted itself as an environmentally aware energy company. Where is ChevronTexaco in that story?

O'REILLY: The public image is in the eye of the beholder. We provide reliable, affordable energy in an environmentally sound way, and that's what we're about ... We're working hard to better understand the practical applications of alternative energy sources. We started a new project in Chino, California, to provide hydrogen for automobiles. We're expanding the use of wind to generate electricity for our facilities. We're testing solar power with photovoltaic technology in Bakersfield, California, and we also have a battery company for hybrid automobiles ... There's nothing we do in the world that doesn't have some environmental consequence--even farming. But we can do it better, and we must.

TIME: Last month more than 140 countries enacted the Kyoto Protocol, but obviously not the U.S. ChevronTexaco is the second largest U.S. oil-and-gas company. How would it affect your company financially if we signed on?

O'REILLY: We're operating in most of the countries that signed, so we're already complying with Kyoto in those areas. Just because the U.S. has opted not to participate doesn't mean it doesn't affect us. It's something we've been planning for. The important thing to ask is what it would mean for the economy of the United States if we were signatories. If it were to be applied in the U.S., our company would certainly comply. Since it would apply to everybody, it wouldn't be a competitive disadvantage.

TIME: What keeps you awake at night?

O'REILLY: I sleep well at night. I feel good about how our employees operate, and it's reassuring to have great people in an organization.