Still making easy money in oil
Fortune's Andy Serwer drills down to find out how one veteran of the crude biz plans to reap his next windfall.
By Andy Serwer, Fortune editor-at-large

(Fortune Magazine) -- You know about catch-and-release fishing, right? A guy with plenty to eat goes out in a boat, reels a few in, and throws 'em back. Sustenance is not the issue: It's all about sport.

Understand that concept, and you can begin to comprehend why Tom O'Malley, 65, a man who has made a fortune several times on Wall Street and in the oil biz, has forsaken retirement and is at it again. "Besides," he says, "my wife doesn't want me around the house."

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Between one-liners, the straight-shooting O'Malley made a clear point recently when he spoke to me by phone from Zug, Switzerland: The oil boom is far from over. Based on his decades-long tenure wheeling and dealing in the energy and commodities businesses, we should listen carefully.

O'Malley was raised on Staten Island and says he graduated near the bottom of his class at Manhattan College and once worked as a New York City cabbie.

But he became an oil trader and rose to vice chairman at Salomon Brothers, running its PhiBro trading business. He got the job as CEO of Tosco in 1990 and built it into the nation's largest independent refiner before selling it to Phillips - now part of ConocoPhillips (Charts) - for $7 billion in 2001.

In that deal O'Malley pocketed a "couple hundred" million dollars. His next stop was at Premcor - the old Clark Exploration - where he was tapped by Blackstone Group to be CEO in 2002.

Three years later O'Malley had turned that ugly-duckling company into a swan, first taking it public and then selling it to Valero (Charts) for $6.9 billion. There O'Malley took home another "couple hundred" million.

And get this: In each case he took a big chunk of his compensation in the acquirer's stock. Since those deals, ConocoPhillips and Valero have risen 177% and 22%, respectively. That works.

O'Malley's latest incarnation is as CEO of a European oil company called Petroplus. Carlyle Group, Riverstone (a private-equity group specializing in energy deals), and the company's two founders took Petroplus private last year for a reported $670 million and hired O'Malley this May.

Petroplus is a midsized independent refiner that O'Malley plans to enlarge through acquisitions, take public (maybe later this year), and then, perhaps, deal. Already the straw is stirring the drink.

"Europe, particularly 'old Europe,' as Donald Rumsfeld calls it, is ripe for consolidation much like the U.S. was several years ago," he says. "We just closed on a deal to buy a Belgian refinery in Antwerp, and in early July we announced we will buy an Exxon refinery in Ingolstadt, Germany."

With the Exxon deal, Petroplus will have five refineries with a total capacity of more than 450,000 barrels a day. That's far from huge - Exxon's (Charts) facility in Baytown, Texas, alone can do 557,000 barrels - but the scale across the pond isn't quite as big. And he isn't done yet. "There's more to buy," he says. "We hope to do Ebitda of more than $500 million in '07. Twice that would be a good size."

Oil's continued rise

O'Malley's aggressive game plan reflects his take on the prices of oil and gasoline: They will remain high. He believes it's more likely the cost of a barrel of oil will rise than fall.

"The price of crude isn't going to drop by $20," O'Malley says. "Right now consumption is growing faster than capacity. I look at the public statements of the Saudis because they have excess capacity, and they say they want oil prices high."

As for the price of a gallon of gasoline in the U.S., "$3 is an embedded number," he says. "In my great state of Connecticut we're paying close to $3.50." O'Malley says not to expect any relief at least for the balance of the decade.

This is not idle chitchat. "I'm walking the talk," O'Malley says. "I'm a large shareholder in ConocoPhillips. I own a lot of Valero, and I have serious money in Petroplus too."

But, he says, he isn't doing it for the financial reward at this point. "Anything I make from here on in - and a lot of what I made before - I'm going to do what Warren Buffett did," he tells me, referring to Buffett's recent decision to begin turning over his fortune to charity.

At this point in O'Malley's career, building up Petroplus is more about accepting a challenge and proving himself right than anything else. The way O'Malley sees it, making money in oil refining these days is like shooting fish in a barrel.

Andy Serwer shares his market insights every other day in Street Life. Top of page