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The Honolulu Advertiser

Posted on: Sunday, May 13, 2001

Chevron loathe to 'waste time' in achieving merger

Bloomberg News Service

San Francisco — After 30 years with Chevron Corp., David O'Reilly became chairman and chief executive of the oil company in January 2000. He indicated his management style would be "focused and impatient."

Less than a year later, O'Reilly, 54, said he would purchase Texaco Inc. in a transaction now valued at $43.6 billion, doubling the size of Chevron and creating the fifth-biggest publicly traded oil company. The merger is awaiting antitrust approval six months after it was announced in October.

Chevron, which reported first-quarter net income of $1.6 billion recently, is anxious to get the transaction completed, analysts said. To win approval before the year is out, O'Reilly must reach an agreement to unravel a U.S. refining alliance that Texaco has with the Royal Dutch/Shell Group.

"He was a team player, and he was eager," said Fadel Gheit, an analyst with Fahnestock & Co. "Now he's a team captain, and he wants to score, he wants to win, and he doesn't want to waste time."

Federal regulators aren't going to make it easy for O'Reilly.

After letting Exxon merge with Mobil, and British Petroleum Plc buy both Amoco Corp. and the Atlantic Richfield Co. in the past three years, members of the Federal Trade Commission are concerned there are too few competitors in the U.S. oil industry.

That's a sticking point because in 1998, Texaco pooled its U.S. refineries and service stations with those owned by Shell Group, the second-largest investor-owned oil company, and Saudi Refining Co., a company own by Saudi Arabia. The alliance is the largest seller of gasoline in the United States and has annual revenue of more than $69 billion.

Both companies have acknowledged the FTC will want the alliance dissolved before the Texaco buyout. Leaving it intact would give Chevron control more than 40 percent of gasoline sales on the West Coast, possibly letting it manipulate a market where prices traditionally have been the highest in the nation.

Texaco is in negotiations to sell stakes in the two joint ventures that make up the alliance to Shell, but no agreement has been reached. Chevron also may face questions from U.S. regulators concerning a chemicals venture with Phillips Petroleum Co., analysts say.

"If Mr. O'Reilly pulls this off and it's settled and it's implemented, it will be an accomplishment that no one else in the industry has ever done," said Amy Jaffe, senior energy adviser at the Baker Institute for Public Policy. "The guy must be a master of multitasking."

To please investors, O'Reilly also must make good on pledges he made in April 2000 to make Chevron No. 1 among its competitors in shareholder return within five years, and to maintain earnings growth of 15 percent a year.

With the help of high oil and natural-gas prices, he has succeeded in meeting one of those goals. Chevron's earnings almost doubled in 2000. Nevertheless, the company's share price has is little changed from two years ago.

O'Reilly has pulled off tough jobs since he was recruited to Chevron in 1968, straight from university in his native Ireland.

His first top management job was as president of Chevron Products Co., the oil company's refining arm, which he took over in 1994. His assignment was to improve profitability in a low- margin business where many competitors were losing money.

A penny-pincher with a head for numbers, O'Reilly is credited with taking the unit from 1995 operating profits of $75 million to $633 million in 1998.

ABN Amro analyst Eugene Nowak believes O'Reilly can perform the same magic as chairman, whittling away costs and saving in excess of the $1.2 billion the company already has said will come from the merger.

If the Texaco buyout is completed, O'Reilly will head a company with 53,000 employees and annual revenue of $96.6 billion. It will be the fifth-largest publicly traded oil company behind Exxon Mobil Corp., Shell, BP Amoco Plc and Total Fina Elf.

O'Reilly was able to negotiate the massive acquisition when his predecessor couldn't. Former Chairman Kenneth Derr clashed with Texaco Chairman Peter Bijur, and talks collapsed in June 1999. Five months later, with Texaco's stock price down and Bijur in trouble with his board, talks progressed quickly.

Though Bijur was initially going to be vice chairman of the new ChevronTexaco Inc., he resigned as Texaco's chief executive in February. The Wall Street Journal later reported Bijur left because of concern among board members that he was indifferent toward employees and the merger, and had had a romantic relationship with a subordinate.

Investors say they have high hopes for O'Reilly.

"The reputation as a cost cutter is a good characteristic when you're merging two major companies, at least one of which (Texaco) may not have been run as efficiently as it could have been," said Tim Ghriskey, senior portfolio manager at Dreyfus Corp., which owns 1.4 million shares of Chevron and 200,000 shares of Texaco.