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O'Malley, Thomas D. 1942–

Thomas D. O'Malley
1942

Chairman and chief executive officer, Premcor

Nationality: American.

Born: 1942.

Education: Manhattan College, BA, 1963.

Family: Son of a customs inspector and a nurse; married Mary Alice Lucey; children: four.

Career: Philipp Brothers, 19631966, mailroom employee; 19661975, commodities trader, Europe; Salomon, 19751986, performed various executive roles at Salomon Inc. and its predecessor companies, Philbro/Salomon and Philipp Brothers, including vice chairman of Salomon, chief executive of the oil-trading division, chairman of Phibro Energy, and membership on the parent company's board of directors and executive committee; Argus Resources, 19861988, chairman and chief executive officer; Comfed Bancorp (a holding of Arugs), chairman, 19881989; Tosco Corporation, 19891990, president; 19901993, chairman and chief executive officer; 19931997, president, chairman, and chief executive officer; 19972001, chairman and chief executive officer; Phillips Petroleum, vice chairman, 20012002; Premcor, 2002, chairman and chief executive officer.

Address: Premcor, 8182 Maryland Avenue, St. Louis, Missouri 63105; www.premcor.com.

Thomas O'Malley built a fortune as a commodities trader and created the modern, independent refining industry. But he did so without a pedigree. O'Malley's toughness served him well in the refinery business. After transforming Tosco into one of the most successful trading firms in the industry and the largest independent refinery in the United States, O'Malley took Premcor public in 2002 and began work on a strategy to turn around the debt-laden firm through a series of earnings-boosting acquisitions. Revered by Wall Street investors for his Midas touch in the oil industry, his work at Premcor was widely watched.

A WORKING-CLASS BACKGROUND

O'Malley was raised in New York City. "I did not grow up with a silver spoon in my mouth," he said. "I grew up with a stickball bat in my hand." He paid for college by driving a taxi on weekends and a school bus for a private school on weekdays. "I drove the rich kids for four years," he said (New York Times, February 11, 2001).

After college, a friend's uncle helped him get a job working in the mailroom of Philipp Brothers, a commodities-trading company. From there he quickly landed a job trading, in which he dealt with "just about every commodity the company handled" (New York Times, December 1, 1988). After 10 years in the company's European operations, he successfully ran the company's energy business, a stint that formed the foundation for his climb up the executive ranks. He described how all the crucial executive skills he learned came from his earliest jobs as follows: "Do everything right. Make no mistakes. Pay attention to cost, cost, cost. Constantly review the commercial viability of something. See if you could buy something cheaper, and sell it for more" (New York Times, February 11, 2001).

In 1981 Philipp Brothers engineered a merger with Salomon, the investment-banking firm, and O'Malley served as vice chairman and chief executive of the Salomon's oil-trading division. O'Malley left Salomon in 1986 and founded Argus Investment. The 1987 stock-market crash allowed him and his Argus partners to buy 26 percent of Tosco Corporation, a large independent refinery on the West Coast that also held a stake in Comfed Bancorp, a Massachusetts savings and loan firm. When Tosco's chairman announced his retirement, O'Malley stepped in as chairman and chief executive officer (CEO). He also later became chairman of Comfed.

THE MIDAS TOUCH

O'Malley was chairman and CEO of Tosco from January 1990 to January 2001. With 2000 sales of $24.5 billion, Tosco was the leading independent U.S. oil refining and marketing company, ahead of Ultramar Diamond Shamrock and Sunoco. Tosco operated more than 4,500 service stations and convenience stores throughout the United States under the BP, 76, Exxon, and Mobil brands.

At Tosco, O'Malley perfected an acquisitions strategy that involved buying refineries at a fraction of their replacement cost, increasing operating efficiencies, cutting costs, and consistently generating the highest return on capital of all of the independent U.S. refineries. Also while at Tosco, O'Malley forged his reputation for being tough. When Tosco bought Unocal's refining and marketing business in 1997, employees at a Unocal refinery in Trainer, Pennsylvania, were dismissed. Accused of bullying unions for concessions, O'Malley refuted the charges vigorously. "The Trainer plant was losing money. Playing hardball is not going to make everybody happy, and sometimes you just have to" (New York Times, February 11, 2001).

A RESPONSIBLE EXECUTIVE

In February 1999 an accident at a Tosco refinery in Avon, California, killed four workers and injured one. As a result, Tosco paid criminal fines and made donations that totaled $2 million. In an unusual step for O'Malley, indeed any chief executive, he appeared at a public meeting near the refinery shortly after the accident. He said: "I went out there and apologized and accepted responsibility. It was the most difficult experience in my life and one that I absolutely will never forget" (New York Times, February 11, 2001). In early 2001, after building Tosco into the largest independent refinery in the United States, he sold it to Phillips Petroleum for $7.36 billion and became a vice chairman of Phillips. Under his watch, Tosco was one of the most successful trading firms in the industry and a favorite of Wall Street investors.

CAN SUCCESS BE REPLICATED?

O'Malley resigned from Phillips in 2002 and two weeks later agreed to become chairman and chief executive officer of Premcor, a privately owned refinery based in St. Louis. He immediately began replicating the low-cost business model he perfected at Tosco. In April 2002 he announced a layoff involving one-third of the 273 employees at Tosco's administrative offices in St. Louis and the relocation of the company's commercial division to executive offices in Greenwich, Connecticut.

Premcor was formerly known as Clark USA, a St. Louis company that in 1997 was the seventh-largest direct operator of gasoline and convenience stores in the United States, with 800 retail outlets in 10 midwestern states. That year, the company's revenue exceeded $4 billion. In 1997 the Blackstone Group bought a 65 percent controlling stake in Clark USA from the Trizec Hahn Corporation for about $135 million. Although Blackstone identified a solidly discounted deal, it lacked experience in energy and oil investing. Said one analyst, "Although Blackstone made a timely investment, they lack the oil market trading savvy that it takes to maximize the return on these assets. With Mr. O'Malley on board, Wall Street will look for him to turn them into the next Tosco" (IPO Reporter, April 22, 2002).

It proved to be a tough challenge. The company lacked the diversity of assets that O'Malley built at Tosco, which was a top refinery and retailer on the East and West Coasts, as well as a significant force in Gulf Coast refining. Premcor was also highly leveraged and laden with debt. At the end of the third quarter of 2001, the company had long-term debt of $1.53 billion against total assets of $2.59 billion. There were also concerns about whether the company could generate enough capital to upgrade its assets to comply with U.S. environmental regulations. In 2000 Clark officially changed its name to Premcor, an acronym for "premier corporation."

THE O'MALLEY LEGEND

Despite the challenges, O'Malley's mere presence in the company provided an instant lift. Premcor was on the verge of an initial public offering (IPO) when he accepted the position, and investors expected his presence to automatically increase the worth of the offering. Said Tom Kloza, publisher of Opis, an oil-trade newspaper based in Rockville, Maryland: "He is to oil refining what Bill Parcells is to football coaching. He has [a lot of respect] on Wall Street with very good money connections. The union people might not like him because he cuts costs at refineries, but among investors, he's the gold standard" (St. Louis Business Journal, February 8, 2002).

Indeed, the spring 2002 IPO was a resounding success. Thanks to strong demand for the stock issue, Premcor increased the size of its IPO from 15 million to 18 million shares, and it priced the offering at $24 per sharethe peak of its expected range. The company raised $432 million from the IPO, which accounted for about 36.4 percent of the company's 53.35 million outstanding shares. The stock closed at $27.80 on May 3, 2002, giving Premcor a market capitalization of more than $1.4 billion. Said John S. Herold analyst Louis Gagliardi, "The market obviously took a liking to this one. It was oversubscribed and the shares made a nice gain on the first day. I think O'Malley had a lot to do with that. His name is carrying a lot of cachet" (International Petroleum Finance, May 6, 2002).

TRUE TO FORM

After the IPO was completed, the industry waited for O'Malley to lead the company through a series of acquisitions, much as he did with Tosco. In December 2002 he made his first move, acquiring the Williams Companies' Memphis refinery for $455 million. In January 2004 Premcor bought the assets of a Delaware City refinery from the Shell-Saudi Motiva Enterprises joint venture, paying about $900 million. The refinery had performed poorly for Motiva. The success of the acquisition, which boosted Premcor's total refining capacity by 30 percent and gave it access to the northeast U.S. market, depended on O'Malley's ability to manage the plan better than its former owners. O'Malley called the facility "the most technologically complex refinery on the East Coast." Delaware had a primary advantage over other East Coast refineries because of its high production rates. O'Malley expected the refinery to generate $112 million in net earnings for 2004, adding: "We're confident in stating that this refinery acquisition will be immediately and significantly accretive to Premcor's aftertax earnings per share and cash flow" (Octane Week, January 19, 2004). As of 2004 Premcor comprised four refineries with the potential of processing 790,000 barrels of crude oil per day.

See also entry on Premcor Inc. in International Directory of Company Histories.

sources for further information

Cuff, Daniel, "Comfed Bancorp Chief Heads Investor Group," New York Times, December 1, 1988.

"Investors Gobble Up Tasty Premcor IPO," International Petroleum Finance, May 6, 2002.

"'Midas-Touch' O'Malley Leads Premcor," St. Louis Business Journal, February 8, 2002, p. 1.

O'Connor, Colleen Marie, "Premcor Prays For JetBlue Kind Of Success," IPO Reporter, April 22, 2002.

Wakin, Daniel J., "From Black Monday to Black Gold," New York Times, February 11, 2001.

Tim Halpern

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