Chairman and chief executive officer, ChevronTexaco Corporation
Nationality: Irish (became naturalized American citizen in 1973).
Born: January 1947, in Dublin, Ireland.
Education: University College, Dublin, BS (chemical engineering), 1968.
Family: Son of a menswear buyer for department store and a homemaker (first names unknown); married Joan Gariepy (a nurse), 1970; children: two.
Career: Chevron Research Company, 1968–1971, process engineer; 1971–1975, process engineer, operating assistant, and supervisor; Chevron Corporation, 1976–1979, adviser, Foreign Operations Staff; Chevron Chemical Company, 1979–1980, planning manager, Fertilizer Division; Chevron Chemical Company, 1980–1983, manager of agricultural chemicals plant; 1983–1985, manager of Salt Lake City refinery; 1985–1986, manager of manufacturing, Olefins Division; 1986–1989, general manager of El Segundo Refinery; 1989–1991, senior vice president; Chevron Corporation, 1991–1994, vice president, strategic planning and quality; Caltex Petroleum Corporation, 1992–1994, director; Chevron Products Company, 1994–1998, president; Chevron Corporation, 1998–2000, vice chairman; 2000–2001, chairman and CEO; ChevronTexaco Corporation, 2000–, chairman and CEO.
Awards: Named 2001 Executive of the Year by San Francisco Business Times , 2002; Secretary of State's Award for Corporate Excellence, U.S. Department of State, 2003.
Address: ChevronTexaco Corporation, 6001 Bollinger Canyon Road, San Ramon, California 94583; http://www.chevrontexaco.com.
■ Less than a year after taking office as the new chairman and chief executive officer (CEO) of Chevron Corporation, David J. O'Reilly in late 2000 engineered his company's merger with Texaco Inc. The merger created the second-largest integrated
U.S. oil company, a far-flung international enterprise with in terests in more than 180 countries. O'Reilly, who took over the reins of the newly created ChevronTexaco Corporation as chairman and CEO, presided over one of the world's most competitive energy companies. In addition to its primary concentration in oil and gas, including exploration, production, refining, marketing, and transportation, ChevronTexaco was heavily involved in energy generation and the manufacturing and marketing of chemicals. The company, second only to ExxonMobil in the United States, in early 2004 boasted world wide reserves of nearly 13 billion barrels of oil and gas equivalent and daily production of approximately 2.5 million barrels.
Despite the pressures of worldwide economic recession and the resultant softening of oil prices in the early 2000s, O'Reilly managed to steer the newly created ChevronTexaco to creditable financial performance. However, after the company's bottom line took a big hit in 2002 from $3.3 billion in special charges, higher pension expenses, and weak margins for refining and marketing, O'Reilly laid out his strategy for turning things around. That strategy focused on four key areas of the company's operations: (1) operational excellence, that is, running of operations safely, reliably, efficiently, and with sound environmental stewardship; (2) lowering of the company's cost structure; (3) maintaining a highly focused capital spending program, directing outlays to projects that could best deliver long-term value; and (4) actively managing the corporate portfolio to develop strongly competitive businesses with solid growth potential, low cost structures, and an ability to generate robust returns.
O'Reilly, the son of a department-store menswear buyer and a homemaker, was born in Dublin, Ireland. He attended Willow Park School and its senior counterpart, Blackrock College, in the Irish capital. While at Blackrock, O'Reilly took up the sport of running. To build himself up to compete as a middle-distance runner on his school track team, he lugged sacks of flour up and down a flight of stairs, urged on by his coach, who was also involved in the bakery business. He credits another of his teachers at Blackrock—Mr. Fleming—with first awakening his interest in business. "I will always remember [Fleming], because he took the class to see different businesses in action," O'Reilly told the San Francisco Chronicle in 2003. "We went to canneries. We went to fertilizer parties. We went to a brewery—a Guinness brewery." In the end, after viewing all sorts of businesses, O'Reilly found himself particularly drawn to the chemicals and petroleum businesses. After completing his secondary education, he enrolled in a chemical engineering program at University College, Dublin (UCD), part of the National University of Ireland.
An honors student throughout his four years at UCD, O'Reilly was also active in student affairs. After taking his final exams in 1968, his senior year at UCD, he gathered financial support for and edited the first volume of what was called the Journal of the Chemical Engineering Student Society . The UCD professor John Kelly, introducing O'Reilly at a 2002 ceremony during which he received an honorary doctorate degree from UCD, observed that, sadly, there was never another volume. Although student unrest swept colleges around the world in 1968, O'Reilly wrote in his introduction to the journal that UCD had not yet been touched by student rebellion against academic authority. He questioned, however, how much longer Irish students could bear the deteriorating educational system. He went on to single out the overemphasis on pure academics and high staff-student ratios as among the biggest problems at Ireland's postsecondary institutions. As Kelly pointed out, not long after O'Reilly left Dublin for a career in the United States, his alma mater underwent the so-called Gentle Revolution of UCD.
During O'Reilly's final year at UCD, a recruiter from the Chevron Oil Company visited the Dublin Campus. After interviewing a number of job candidates, Chevron promised jobs to O'Reilly and two of his classmates—Brian O'Connell and Brendan Sheehan. O'Reilly began his career with Chevron in the fall of 1968, working as a process engineer for Chevron Research Company in Richmond, California. Although his Irish classmates worked for Chevron for a few years and then returned to their homeland to pursue their careers, O'Reilly decided to stay in the United States.
One factor in O'Reilly's decision very likely was his marriage in 1970 to Vermont-born Joan Gariepy. O'Reilly and Gariepy met in 1969 at San Francisco International Airport when Joan flew in from her hometown of Burlington to move in with her sister and look for a nursing job in the Bay Area. O'Reilly went to the airport with his roommates, one of whom was dating Joan's sister. Of that first encounter, recounted by Nancy Boas in an article for Encore , a quarterly newsletter for ChevronTexaco retirees, Joan recalled, "I got off the plane, and there was David. He seemed like a nice guy" (January–March, 2000). O'Reilly was immediately smitten. Within a month the two were dating. They were engaged two months after their first meeting and eventually married and had two daughters.
From his earliest days with Chevron, working in the company's research center in Richmond, O'Reilly quietly rebelled against the oil industry's hierarchical approach to personnel relations. He was quickly singled out as a new-style manager for both his good sense of humor and his total lack of status consciousness.
After roughly three years with Chevron Research in Richmond, O'Reilly moved to a research facility in Perth Amboy, New Jersey. Over the next five years in New Jersey, he was promoted from process engineer to operating assistant and, finally, to supervisor. It was during this period, in 1973, that O'Reilly became a naturalized U.S. citizen. In 1976 he was named an adviser in Chevron Corporation's Foreign Operations Staff, in which position he remained until 1979, when he was appointed planning manager for Chevron Chemical Company's Fertilizer Division. A year later O'Reilly took over as manager of Chevron Chemical's agricultural chemicals plant in Richmond, California. Beginning in 1983 he served for two years as manager of the company's Salt Lake City refinery.
During the late 1970s and 1980s O'Reilly established his unique management style. Shortly after taking over as manager of Chevron's agricultural chemicals plant in Richmond, O'Reilly found himself confronted with a strike. To learn more about the grievances of the plant's workers, he went directly to the picketing workers, introduced himself, and inquired, "What's up, lads?" Security guards at the Richmond plant also vividly recall the new manager arriving for work on a number of occasions in a battered 15-year-old Cadillac he had bought from a friend.
From Salt Lake City, O'Reilly moved in 1985 to Houston, where he took over as manager of manufacturing of Chevron Chemical's Olefins Division. A year later he was named general manager of the company's refinery in El Segundo, California. In El Segundo, O'Reilly revolutionized the operation's dress code by handing down an edict directing managers to "lose the ties," the wearing of which distinguished those in the ranks of management from workers. In 1989 Chevron Chemical named O'Reilly senior vice president, a post he held until 1991, when Chevron Corporation pulled him back to headquarters to serve as a corporate vice president with responsibility for strategic planning and quality.
The early 1990s saw the collapse of the Soviet Union and its subsequent breakup into independent republics, one of which was Kazakhstan. As Chevron's point man for strategic planning, O'Reilly initiated negotiations for a promising, but high-risk venture in Kazakhstan. These talks culminated in Chevron's purchase of a 50 percent interest in the super-deep, giant Tengiz oil field near the Caspian Sea that had estimated reserves of six billion to nine billion barrels but was far from any existing pipeline. With its 50 percent interest in the newly formed Tengizchevroil (TCO) joint venture, Chevron in 1993 became the first Western oil company to operate in Kazakhstan. TCO began to develop the Tengiz and Karachaganak oil fields, both of which had been discovered in 1979. In 1997 Texaco separately purchased a 20 percent stake in the Karachaganak oil field. A major problem remained regarding how to get the oil to market. After the merger of Chevron and Texaco, the newly combined company, along with 10 private and public partners, in 2001 opened the $2.6 billion Caspian Pipeline Consortium (CPC) pipeline from the Tengiz field to the Black Sea port of Novorossiysk. Two years later a separate 395-mile pipeline linking the Karachaganak field to the main CPC pipeline went into operation.
In March 1992 O'Reilly was named a director of Caltex Petroleum Corporation, a 50-50 joint venture of Chevron and Texaco with refining and marketing operations in the Eastern Hemisphere. He continued to sit on the Caltex board as well as to serve as Chevron's vice president of strategic planning and quality until September 1994, when he was named president of Chevron Products Company, responsible for Chevron's U.S. refining and marketing operations. In his new post O'Reilly began to emerge as a force to be reckoned with in the petroleum industry. Struggling just to break even when O'Reilly assumed its presidency in 1994, the company, under his direction, steadily increased its profitability. In November 1998 O'Reilly moved another step up the corporate ladder at Chevron when he was named vice chairman of Chevron Corporation. It was widely reported at the time of O'Reilly's appointment as vice chairman that he had been selected by Chevron's chairman, Kenneth Derr, to be groomed as his successor following Derr's planned retirement at the end of 1999.
Under Derr, Chevron was first caught up in the merger craze sweeping the global oil industry in the spring of 1999. Only months earlier, in December 1998, Exxon Corporation announced plans to buy Mobil Corporation, and British Petroleum Company of London purchased Chicago-based Amoco Corporation. In April 1999 the newly merged BP Amoco agreed to acquire Atlantic-Richfield Company of Los Angeles. In early May 1999 Chevron began negotiations on a possible merger, but the talks were short-lived. On June 2, 1999, the two companies announced that negotiations had broken off, reportedly because Texaco was dissatisfied with Chevron's offer of $70 per share, hoping for at least $80. Derr defended Chevron's offer as competitive and said his company would look elsewhere for a merger partner.
On January 1, 2000, O'Reilly took over as chairman and CEO of Chevron, succeeding Derr, who had retired at the end of 1999. It soon became apparent that Chevron's interest in Texaco was still very much alive. The intervening months since Texaco's rejection of Chevron's 1999 offer had not been particularly kind to the oil company, based in White Plains, New York. Its stock had languished, underperforming the industry average, and by mid-2000 it was willing to talk again with Chevron. According to several oil industry insiders, the new round of merger negotiations was given further impetus by better chemistry between Texaco's chairman, Peter Bijur, and O'Reilly than had existed between Bijur and Derr. On October 16, 2000, the two companies announced that they had reached an agreement to merge. Under the provisions of that agreement, Texaco shareholders received 0.77 share of Chevron's common stock for every share of Texaco common they held. This amounted to just under $65 per share, lower than the offer Texaco had found unacceptable in mid-1999.
In announcing the merger plan, O'Reilly said the combined company would create a significantly stronger U.S.-based energy producer that would be better able to contribute to U.S. energy needs. "That's good news for the country because the United States will have an additional top-tier energy company better positioned to compete effectively with the international majors," he added, according to a company press release (October 16, 2000). Both O'Reilly and Texaco's Bijur said the merged company would be stronger in a number of key respects, thanks to lower costs, a leadership upstream competitive position as well as a world downstream platform, strength and scale in chemicals operations, broad technology portfolio, and superior organizational capability.
Under the terms of the merger agreement, O'Reilly became the chairman and CEO of ChevronTexaco, while Bijur was to serve as vice chairman. However, in February 2001, before the merger was finalized, Bijur retired as Texaco's chairman and CEO and was succeeded by Glenn F. Tilton. When the ChevronTexaco merger took effect in October 2001, Tilton became the new company's vice chairman but served less than a year before leaving in September 2002 to become the chairman, president, and CEO of UAL Corporation, the parent company of United Airlines.
On November 19, 2001, a little over a month after the merger of Chevron and Texaco was completed, O'Reilly laid out in detail for security analysts his short-term goals for the new company. He reaffirmed the company's commitment to achieving $1.2 billion in synergies by mid-2002 at the latest. For the longer term, O'Reilly was even more ambitious, promising that by March 2003 recurring synergies would be running at an annual rate of $1.8 billion. He told analysts that he expected a bigger increase in synergies than originally predicted from ChevronTexaco's downstream sector. O'Reilly said in a company press release that "even without overlap we've found considerably more synergies by integrating on a global basis businesses that were previously operated regionally" (November 19, 2001). He said that the company had also set ambitious goals for improving its return on capital employed, projecting growth of 2 to 3 percent in the 2003–2004 timeframe, with even bigger gains expected in the years beyond that period. O'Reilly also predicted that the company's production of oil and gas would expand at an annual rate of 2.5 to 3 percent in the five-year period from 2002 through 2006.
In its first full year of operations, ChevronTexaco in 2002 posted a profit of only $1.1 billion, down sharply from net income of $3.9 billion in 2001. Much of the decline could be attributed to special charges absorbed by the company to cover merger costs and losses connected with the collapse of Dynegy, in which ChevronTexaco held a 26.5 percent stake. Nevertheless, O'Reilly made clear that he considered the company's performance unacceptable and vowed to turn things around. He delivered on that promise a year later, when the company posted net earnings of $7.2 billion for 2003. In announcing the dramatic rise in earnings, O'Reilly noted on January 30, 2004, that the company had also made significant strides in advancing its longer-term objectives, singling out Chevron-Texaco's formation of two new business units. He said that one of the units would concentrate on commercializing the company's extensive worldwide gas resources while the other would focus on identifying and developing major investment opportunities around the world.
Interviewed by the San Francisco Chronicle in December 2003, O'Reilly was asked to evaluate the merger of Chevron and Texaco, a little more than two years after it was completed. "Very successful," he replied, citing the merged company's total stockholder return (stock appreciation plus dividends reinvested), compared with that of other major oil companies, in the period from October 16, 2000, when the merger was announced, through November 19, 2003. The numbers for all companies were down, because the stock market had been higher in the fall of 2000, but ChevronTexaco had declined less than 1 percent, compared with declines of 4.7 percent for BP, 5.4 percent for ExxonMobil, and 7.5 percent for Royal Dutch/Shell. In its 2001 profile of O'Reilly, San Francisco Business Times observed that his personal secret to success in the oil business "isn't getting the most out of the ground. It's getting the most out of people."
In addition to his responsibilities with ChevronTexaco, O'Reilly was active in both industry and civic affairs. A longtime member of the American Petroleum Institute, he served as the organization's chairman in 2003. He was also a member of the National Petroleum Council, the World Economic Forum's International Business Council, Business Roundtable, Business Council, American Society of Corporate Executives, and the JPMorgan International Council. On the civic side, O'Reilly sat on the boards of the San Francisco Symphony, Leon H. Sullivan Foundation, and Bay Area Council.
See also entry on ChevronTexaco Corporation in International Directory of Company Histories .
Banerjee, Neela, and Mary Williams Walsh, "1 New Oil Company, 2 Corporate Cultures," New York Times , October 17, 2000.
Boas, Nancy, "An Irish Original," Encore , January–March, 2000, http://www.chevrontexacoretirees.org/archive/Q12000/0001encore07a.html .
Calvey, Mark, "Executive of the Year 2001: ChevronTexaco CEO David O'Reilly Runs Well-Oiled Machine," San Francisco Business Times , December 28, 2001.
"Chevron and Texaco Agree to $100 Billion Merger Creating Top-Tier Integrated Energy Company," PR Newswire , October 16, 2000. Also available at http://www.chevrontexaco.com/news/archive/chevron_press/2000/2000-10-16.asp .
"ChevronTexaco Establishes Financial and Operational Goals to Achieve Industry-Leading Performance and Top Shareholder Return," company press release, PR Newswire , November 19, 2001.
Ivanovich, David, "Texaco-Chevron Deal Took More Than a Year to Complete," Houston Chronicle , October 17, 2000.
"On the Record with Dave O'Reilly," San Francisco Chronicle , December 21, 2003.
Rocks, David, "In Business This Week: Texaco-Chevron: Undone Deal," BusinessWeek , June 14, 1999.
Stein, George, "Oil Giants Talk Merger: Chevron, Texaco Mull Big-League Deal," Los Angeles Daily News , May 8, 1999.