ChevronTexaco Chief No Stranger to Risk

David J. O’Reilly, ChevronTexaco Corp.’s chief executive, is known in oil circles as being open to taking risks.

That was evident in 2001, when he engineered Chevron Corp.’s $35-billion purchase of Texaco Inc. The fusion of two giants jelled slowly and hobbled the combined company’s profitability for the next two years.

Then there was ChevronTexaco’s disastrous investment in Dynegy Inc., a troubled energy trading firm, which required ChevronTexaco to take a huge write-off in 2002.

But San Ramon, Calif.-based ChevronTexaco got back on track last year, earning $13.3 billion, the most in its 125-year history. And the Irish-born O’Reilly, who has spent his entire career at the company, is taking another gamble.

ChevronTexaco agreed Monday to pay about $16.4 billion in stock and cash for Unocal Corp., an exploration and production company based in El Segundo.

If oil prices fall substantially in the years ahead, ChevronTexaco could find that it overpaid for Unocal, whose stock price soared 75% in the 12 months before it agreed to be purchased.

“It is a clear risk,” said Seth Kleinman, an analyst with PFC Energy, a consulting firm in Washington, though ChevronTexaco “mitigated that a bit by agreeing to buy Unocal mostly with stock” rather than cash.

Wall Street has been wary of the deal so far. For the second straight day, stocks of both companies fell. Unocal fell $1.36 to $58.24 a share, and ChevronTexaco dropped $1.27 to $55.71, both on the New York Stock Exchange.

Investors shouldn’t worry, according to O’Reilly. The idea, as he explains it, is for ChevronTexaco, with its deeper pockets and technical know-how, to exploit Unocal’s developing oil and natural-gas fields in the Asia Pacific region and the Gulf of Mexico, where ChevronTexaco also is active.

ChevronTexaco and other major oil companies are under escalating pressure to find more crude, even as the number of promising fields is dwindling. Global supplies are straining to meet ever-growing demand, pushing oil prices into record territory, which is helping fuel the oil companies’ record profits.

The Unocal deal would immediately boost ChevronTexaco’s proven reserves by 15%, to the equivalent of 13 billion barrels of oil.

Unocal also would add to ChevronTexaco’s stable of exploratory properties that O’Reilly hopes will swell those reserves even more in the years ahead.

“This just augments our pipeline” of developing projects, he said.

O’Reilly, 58, has ChevronTexaco scouring far and wide for pockets of oil and gas. It has drilled some of the deepest wells on record, in the Gulf of Mexico. The company is bidding for development rights in Libya and Pakistan. ChevronTexaco is involved in extracting oil from sands in Canada and harvesting natural gas off the coast of Australia.

If antitrust regulators and shareholders don’t object, the acquisition will be completed within several months. Then O’Reilly will face the challenge of quickly mixing Unocal into ChevronTexaco.

“We expect a rapid and smooth integrationbecause this is not as complicated as the Texaco merger, where we had assets all over the world” involved not only in exploration and production but also refining and marketing, O’Reilly said.

He defended the Texaco deal, saying that management had predicted in 2001 “that it would be 2003 or 2004 before the financial results would clearly be delivered, and they have.”

Matthew Simmons, chairman of Simmons & Co., a Houston investment bank, said that he had doubts about the wisdom of buying Unocal at what could be the top of the market. But Simmons applauded O’Reilly for his willingness to assume he doesn’t have all the answers.

Case in point: Simmons was startled to get an invitation from O’Reilly last year to discuss the depletion of world oil supplies. “I was surprised” because “most big oil companies think they already understand the issue,” he said. “The fact that O’Reilly gave me two hours to do it showed a lot of openness on his part.”

ChevronTexaco watchers say the 6-foot-2-inch O’Reilly, who earned a salary and other compensation last year that totaled nearly $10 million, is a savvy, smart, engaging and approachable executive. Indeed, the deal with Texaco was credited in part to O’Reilly’s chemistry with Texaco CEO Peter I. Bijur; a 1999 attempt to combine the two companies fell apart when Bijur clashed with O’Reilly’s predecessor, Kenneth Derr.

With no trace of an Irish accent, O’Reilly one moment will speak in the vernacular of the oil business -- tossing out terms like “upstream profitability” and “legacy properties” -- then rave about a new drilling technology with the less-than-scientific “it would blow your mind.”

He’s known as a populist at ChevronTexaco. Visitors to his office are sometimes greeted by an O’Reilly with sleeves rolled up. Employees at the company’s El Segundo refinery, which O’Reilly ran in the late 1980s, still remember how he banned neckties after his arrival.

“I was trying to break down barriers between management and the rest of the organization,” O’Reilly said of the gesture. “I consider myself to be a keeper of the culture here ... and ensuring it values people and their contributions.”

Some observers have attributed O’Reilly’s manner to his modest upbringing in Dublin, where his father bought men’s clothes for a department store and his mother stayed home to care for the family.

The younger O’Reilly was a competitive runner in high school, where he first became intrigued with the process of finding and producing oil.

“I was very interested in math and chemistry and found the oil business very exciting,” O’Reilly recalled.

After getting a chemical engineering degree from University College Dublin, he joined Chevron as an engineer. He rose to become head of Chevron’s U.S. refining and marketing arm in 1994, became chief executive in early 2000 and retained the top job after the Texaco merger.

“I never felt the need to look anywhere else,” he said.

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David J. O’Reilly

Position: Chairman and chief executive, ChevronTexaco

Age: 58

Hometown: Dublin, Ireland

Education: Bachelor of science, chemical engineering, University College Dublin, 1968

Career highlights

1989: Named senior vice president and chief operating officer of Chevron Chemical.

1991: Elected vice president of Chevron.

1994: Elected president of Chevron Products.

1998: Named vice chairman of Chevron.

2000: Named chairman and chief executive of Chevron.

2001: Continued as top officer after merger with Texaco.

Sources: ChevronTexaco, Times research