Chevron’s CEO: The price of oil

Love it or hate it, argues David O’Reilly in an interview with Fortune’s Geoff Colvin, the world is going to run on oil for several more decades.

(Fortune Magazine) — Oil companies are blamed (unjustly) for high gas prices, loathed for profiting from them, and criticized for their environmental record. So it’s no wonder that most industry CEOs have made themselves scarce. Chevron’s David O’Reilly is the exception. He regularly talks to reporters and appears on television to answer questions about Chevron and the industry.

O’Reilly, 60, joined Chevron 39 years ago after graduating from college in his native Dublin; he has been CEO for almost eight years, making him Big Oil’s longest-serving chief. His record is strong. Chevron’s market cap has increased by $100 billion on his watch, and its proven reserves have almost doubled.


O’Reilly sat down with Fortune’s Geoff Colvin to talk about high oil prices, the future of alternative energy, the role of China and India, the presidential election, and much else. Here are edited excerpts.

Five years ago, oil was $25 a barrel. Recently it peaked at $96.70. What’s the explanation?

Demand for oil has caught up with supply. It’s very hard to justify any specific price, but we believe that prices will stay high because of growth in the developing world. In India you’ve seen almost 9% annual growth for five years. You’ve seen the impact of the population, the number of people who are driving cars, the amount of energy they’re using to drive their industries, the improvement in quality of life. We’re seeing that around the developing world, and that’s what’s driving oil prices.

Prices have been near record levels, yet Chevron just reported much lower quarterly profits – $3.7 billion compared with $5 billion last year. How can that be?

Let me do the math for a minute. At $90 a barrel, the cost of crude in a gallon of gasoline is about $2.25. In most states the federal and state taxes are 60 or 70 cents a gallon, so now you’re up to at least $2.80 a gallon. Because the U.S. happened to be very well supplied with gasoline, that was the price it was selling for nationwide in most of the third quarter. Add the cost of transportation, refining, distributing, marketing – you’re not going to make any money at that price. That’s why our U.S. refining and marketing business did not make money in the last quarter.

Fortune