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WSJ: Chevron is in a period of incredible profitability, with earnings of $18.69 billion in 2007. What do you say to consumers who are paying $100 every time they pull into a gas station to fill up their pickup trucks?
Mr. O'Reilly: The price of crude is not determined by drivers in Texas. It is determined by the total demand for energy globally. Oil production in this country has been in decline, and we're importing more and more oil. And we're competing for that oil with the people who are importing it into other countries to satisfy their needs. That's what's impacting the price at the pump today.
WSJ: Chevron is a major producer of crude oil, as well. Don't you have any control over the prices?
Mr. O'Reilly: Absolutely not. Our crude-oil production is about 1.5 million barrels a day, out of 88 million barrels a day globally. So we produce 2% of the total global supply. In reality, even though we're a very big company, we're a very, very small producer.
WSJ: In a 2005 speech, you said, "The time we could count on cheap oil and even cheaper natural gas is clearly ending." That day, oil cost $47 a barrel. Today it's close to $120. Any other predictions?
Mr. O'Reilly: Do I see the market going up significantly from where it is today? No, probably not. You are seeing the impact of the higher prices on demand. For example, here in the U.S., we've seen gasoline demand drop somewhat in the first quarter of the year. People are using gasoline more efficiently. Big trucks are selling much more slowly. Smaller, more efficient automobiles are selling [better]. The market is telling us that behavior change is required and I think we're starting to see it, but we need to see more of it.
WSJ: What do you think is the likely range for oil prices?
Mr. O'Reilly: I can't predict what the price is going to be. You would have to tell me what the economic situation in the world is going to be a year from now. I don't think it is going to get back to those relatively low levels we experienced in the late '90s and early 2000s.
WSJ: Ever?
Mr. O'Reilly: No.
WSJ: You've talked about people needing to conserve energy. What kind of car do you drive?
Mr. O'Reilly: I drive a Cadillac STS, and it's more efficient than the last car I was driving, which was an Escalade. I'm not driving in a Prius, if that's what you're asking.
WSJ: Gasoline use in the U.S. is down. Do you see signs of that happening elsewhere?
Mr. O'Reilly: No. I was in Turkey a couple of months ago. The price of gasoline is almost $11 a gallon. They're selling a record number of automobiles. Traffic is backed up all over Istanbul.
WSJ: At a meeting this month of the world's finance ministers, India's finance minister said: "When millions of people are going hungry, it's a crime against humanity that food should be diverted to biofuels." Turkey's finance minister called it "appalling." Are they right?
Mr. O'Reilly: They have a point. Just like oil, the demand for food is growing...It is impossible for us to conclude that somehow biofuels are not having an impact on the food-supply situation when 30% of the U.S. corn crop is going to biofuels.
WSJ: Is it morally justified to continue using so much agricultural production for transportation fuel?
Mr. O'Reilly: Well, I'm not going to make moral judgments about this. We're on the way to doubling or more than doubling ethanol production and consumption in our automobiles today, and it is by law that this is required. I think it ought to be revisited by people who know more about the food-supply situation. I know a lot about oil and gas. I'm not an expert on food.
WSJ: What is Chevron's role in developing alternative fuels?
Mr. O'Reilly: Since we're so heavily into the transportation-fuel business, I think our role is to try to come up with a nonfood source of biofuels that can make a meaningful contribution at [commercial] scale, because if it isn't at scale, it isn't going to make a significant difference.
WSJ: How close are you?
Mr. O'Reilly: It's years off yet.
WSJ: When you hear politicians talk about oil independence, what's your reaction?
Mr. O'Reilly: Unrealistic.
WSJ: Won't ever happen?
Mr. O'Reilly: No. Not in the time frame they talk about. We are actually going steadily in the opposite direction. We are not incentivizing investment in oil-and-gas exploration in this country. We are turning down coal-fired power plants because of concerns about the environment. We are slow to renew the use of nuclear power, so we are digging ourselves into a deeper hole here, in my view.
WSJ: Many people would argue that turning down coal plants because of environmental concerns is the right decision, that we should be using fossil fuels such as natural gas which have less carbon, less pollutants.
Mr.O'Reilly: We can't have our cake and eat it. If you don't want coal and you want gas, then you'd better open up acreage to look for it...
WSJ: In a few months, we'll have a new U.S. president. What energy-policy changes do you think will be imperative in the new administration?
O'Reilly: We've got to look at opening up OCS -- the outer continental shelf -- to oil-and-gas exploration. We can explore for and produce oil off [the coast of] Norway, Denmark, the Netherlands, the U.K., but we can't off 85% of the United States outer continental shelf. Why is that?
WSJ: What's the future of the Iraqi oil industry, and what is Chevron's role?
O'Reilly: Iraq has large oil-and-gas potential. We would be interested in developing a long-term relationship there, but on two conditions. One is obviously security. The second one is an oil-and-gas hydrocarbon law so that investments there are made with some sort of statutory, regulatory certainty. Neither of those two conditions exists today.
WSJ: What lessons have you learned during your eight years leading Chevron through a period of phenomenal change in the commodity markets?
O'Reilly: It's a long-term business, and you make investments for the long term. You have to be resilient and tough and committed and stay with your plans. Don't get down too much when you're going through bad times, but don't get too exuberant when you're going through good times because neither of those are representative of the long term.
WSJ: Chevron started off 129 years ago as Standard Oil of California in Pico Canyon. Have you seen the movie, "There Will Be Blood?"
O'Reilly: I have not. I just don't get time to see movies.
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