Richard Waters, Financial Times West Coast managing editor, interviewed David O’Reilly, CEO of Chevron. This is a transcript of the interview, which you may watch here.

Financial Times: Mr. O’Reilly, thank you for coming.

David O’Reilly: You’re very welcome. Nice to be here.

FT: When you bought Unocal two years ago, you were criticised in some places for paying a very high price. Since then the oil price has gone up considerably. How do you feel now about the value of energy assets. Are you still a buyer?

DO: Well, we were certainly a buyer a couple of years ago because, as you point out, Unocal, even though we were criticised at the time, in retrospect it turned out to be a very good deal. I do think assets today are pricier and we would be cautious about acquisitions in the current environment.

FT: Your comments over the last couple of years suggest that you’ve changed your views since you became CEO about the long-term supply issues in this industry, that actually supply constraints will become fairly acute in the future.

DO: I think in the long-term I see a tighter supply/demand picture and it’s based on our observations of what’s occurred in the last few years. That’s been reinforced in the last few months by the National Petroleum Council study which was issued in the middle of July. The bottom-line message from that study is that the accumulating risks that’s growing energy demand, needs will be met and, in fact, their top recommendation to the US government from a policy perspective was to moderate demand growth by a greater focus on efficiency.

FT: The IEA suggested that long-term investment in the energy industry well behind the world’s needs over the next quarter of a century, perhaps 20 per cent behind needs. Is that too alarmist?

DO: I don’t view it as alarmist. I view it as realist. It’s a realistic assessment, given the capabilities of the total supply chain today.

FT: Do you have adequate access to reserves, particularly given that so much of the world’s resources are in the hands of nationally owned oil companies?

DO: We currently do. That picture actually hasn’t changed very much over the last 20 years or so. So I feel pretty comfortable about the next decade or so, based on our own portfolio. But I think it’s a legitimate question long-term, that this is an area that we’re going to have to work at expanding the opportunity set and one of the ways, of course, that we are working to expand that opportunity set is by advance technology which allows us to get access to resources and reserves that we were not capable of accessing in the past.

FT: When you look around the world now, where the next resources might open up, are there any particular countries and areas that you have your sights on? What about, for instance, Iraq?

DO: We are obviously interested in expanding in areas where technology brings us first. I mean getting into deeper water, getting into the Arctic areas, the more challenging areas that are open to investment but have these technological barriers. So, that’s an area of focus for the company. As to Iraq, we are interested in investing in Iraq but Iraq has to have two prerequisites met. The first is it has to pass an oil and petroleum law. So, there is a set of laws and regulations that will govern how one makes investments there and, secondly, there has to be security and neither of those are in place yet.

FT: When you compete for resources now globally, you’re coming up more often against China and other foreign governments themselves pursuing resources. How is that changing the equation for you?

DO: Historically we’ve always gone through periods of time when we’ve had new competition and if you look back at the emergence of Chinese companies, for example, or Indian companies, into the global economy, it’s not that much different than European companies that made the transition from state-run to commercial enterprises that began to invest in the global economy 10 or 20 or 30 years ago.

FT: Can a nationally owned company take bigger risks? For instance, if China can go into Sudan or Somalia, these presumably are places that are more difficult for you to enter.

DO: Yes. Clearly there are places in the world where we can do business that others can’t but I don’t view that as a competitive disadvantage. The vast majority of the globe is still open to investment and I think we can compete very well.

FT: When you were competing with the Chinese for Unocal, what did you do to influence the debate in Washington?

DO: Our main message to Washington, and at anyone who would listen, is this question of a level playing field. For a company that has the backing of the treasury of their country, is that a fair level playing field when they’re competing for an opportunity in the private sector in an open market in the United States? So, our issue had nothing to do with China, it was any government-backed company.

FT: Nonetheless, when the Chinese backed off from that deal, they said it was because the political risk was too high for them. They didn’t want to cause a row in the United States. So, would it be fair to say that you benefited from the political situation?

DO: There were a lot of broader political issues between the US and China at that time, independent of this transaction, that I think made it difficult but those were separate from the arguments that we were making.

FT: You rely on access to foreign markets yourself. Is there any sense in which the outcome of the Unocal situation hampered you or could hamper you in the future?

DO: No, I don’t think so. I think we made it very clear that this was not about any one country or any one company. In fact, in this case CNOOC are our partners in China itself and we still have ongoing partnership with offshore production together in the South China and in Bohai Bay.

FT: Is nationalism a bigger threat for you overseas now than it has been in the past? We’ve seen a number of countries such as Venezuela, for instance.

DO: No. I don’t think nationalism is as severe today as it was, for example, in the 70s in the rise of OPEC years. I think we’ve now got to a position where, yes, the pendulum has swung back a little bit in the nationalism direction compared to where it was, for example, in the 90s but I don’t think we’ve gone back to where we were in the 70s.

FT: You’ve talked about technology as a competitive advantage of yours and yet research and development is a very small part of your overall spending. Can an oil major and integrated company like yours keep up in the technology race?

DO: Yes, I think we can. There are two groupings of technology. There’s the technology that we invent and develop ourselves around geophysics, around geology, around processing, around drilling that are unique and we guard technologies and those capabilities very highly. They’re very unique. But also we’re a tremendously intensive user of technology and enhancer of technology. For example, we manipulate massive amounts of geophysical data today. We’re using the advancements that have been made in information and communications technology to great advantage in our business. So, I think there’s a misperception that somehow this is an old industry but it’s anything but.

FT: Your headquarters here are on the edge of Silicon Valley. Silicon Valley at the moment is having an investment boom in energy, alternative energy particularly, and across the water there, in the valley, they like to say that the oil companies are dinosaurs and that you can’t keep up with their spending in this area. What’s your reaction to that?

DO: I disagree with it. I mean, these are the same people who told us that we were part of the old economy in 1999 and the old economy has come back to smile. This is a world that is going to need energy. All these computers, all these processors, all these servers are consuming massive amounts of energy today and without us and without our capabilities and without our ingenuity and our people, they would be in trouble. So, I don’t fear competition from Silicon Valley, I encourage it. They declared us dead ten years ago and we’re still strong and surviving and growing and I imagine ten years from now, or 20 years from now, we’ll still be around.

FT: California has advanced measures to control greenhouse gases. You’ve been on record saying that it really will take international cooperation to have any real impact. What do you think the prospects are for any meaningful action on the international level?

DO: I think it’s very important that all the major emitters participate in carbon management and agree on how they’re going to do that in a general way and then commit to doing it. So, by the major emitters we would have to include not just the European Union, which is already, of course, an active participant in carbon emissions, but Japan, which is also an active participant, the United States, China and some of the other major developing emitters. These would all have to be part of some sort of collective dialogue and framework on how to approach this, if it’s going to be meaningful, because all of the projections show that when you combine the United States and China, that that is going to be more than half of the carbon emissions over the next 25 years. So, it’s hard to see how we can get to carbon management without both of those countries participating.

FT: So, are you proposing action on a bilateral front initially, on a number of fronts rather across many countries?

DO: I think it makes more sense to have a multilateral approach.

FT: Given how difficult that is, is that an excuse for inaction?

DO: No, I don’t think so. I think there’s going to have to be action and I believe that there’s a recognition in the US that this is an appropriate way to approach it.

FT: There’s a public perception that the energy companies have been late to recognise the reality of greenhouse gas omissions and their impact on climate change. Is that a fair perception and what are you doing to change that?

DO: I don’t think it’s necessarily a fair perception and, frankly, I’m not working too hard to change it. What I’m working to is to do something about it and demonstrate it. We’ve got to be able to supply energy. The public expects that of us. They also expect us to do it in an environmentally sound way and the proof of the pudding is when you do it, not when you talk about it.

FT: Thank you very much.

DO: You’re welcome.

FT: And now David O’Reilly places his bets on long/short. Are you ready for long/short?

DO: I am.

FT: Oil at $100 a barrel within five years?

DO: Short.

FT: Within ten years?

DO: Long.

FT: Hugo Chavez?

DO: Short.

FT: Cellulosic ethanol?

DO: Long.

FT: A cap and trade system for carbon emissions?

DO: Long.

FT: Schwarzenegger for President?

DO Short. You know why, of course. He can’t run.

FT: Gazprom?

DO: Long.

FT: Tax incentives for corn production?

DO: Short.

FT: Beijing Olympics?

DO: Long.

FT: Higher US gas taxes?

DO: Short.

FT: Nouri al-Maliki?

DO: Long.

FT: Construction of new nuclear facilities in the US?

DO: Long.

FT: And since I know you follow rugby, the Irish rugby team’s chances in the World Cup next month?

DO: Long.

FT: Thank you very much, Mr. O’Reilly.

DO: You’re welcome.

FT: That was David O’Reilly of Chevron. Next week, Rick Wagoner of GM reviews the new on video for’s View from the Top.

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