Richard Branson, Oil Tycoon?

Confounded by today's prices, the billionaire (and airline owner) explains why he's trying to get into exploration and refining

Billionaire entrepreneur Sir Richard Branson isn't the type to sit on his tropical island in the Caribbean and merely fume about lethargic politicians. He's the maverick founder of Britain's Virgin Group, an empire of 200 companies in industries as diverse as air and rail travel, mobile phones, finance, insurance, beverages, hotel, Internet, and modeling ventures, spanning 30 countries. He has spent the past week lobbying the Canadian government to speed up number portability for mobile phones and pushing his solution to high oil prices because, he says, the politicians won't. His answer: build a $2 billion oil refinery and take Virgin into the field of oil exploration.

Branson spoke with BusinessWeek Senior Writer Diane Brady about his plans for Virgin Oil. Edited excerpts of their recent conversation follow:

What does the Virgin brand bring to oil refining? You wouldn't call it a business built on buzz.

It's not an obvious thing for Virgin to do as we're normally a consumer-oriented brand (see BW Online, 8/26/05, "Branson: I Love to Try Everything"). Having said that, the world is short of up to 20 oil refineries, and the oil companies are not investing in new ones.... If Virgin can tackle the problem of a lack of refining capacity, there might be some consumer recognition for that.

We like to think of ourselves as a consumer's champion, but the benefit here is indirect.... If governments want to make a real difference to oil prices, they should give soft loans to companies to set up oil refineries.

So this is a sourcing strategy?

As far as the refinery is concerned, the goal is obviously to make money.... We're also pursuing setting up an oil-exploration company. I think I have something to bring to that business in that we have numerous contacts in Africa and other countries. I can pick up the phone to pretty well anybody in the world and get through.

We're setting up the national airline for Nigeria. We're taking over the second-largest mobile-phone company there, too. So we could have a leg up in getting oil fields on board.

How long would it take to build a refinery, and where would you put it?

There are one or two that are quite a long way along on planning commissions. Four years would be realistic for building something from scratch. We're looking at Europe and Africa. The U.S. is certainly not unattractive if you could find a state that would be happy to have it. We're certainly sounding out various states.

I've had letters from the head of Newfoundland, saying we would love to have you come here. We've had letters from governments in North Africa, supporting the idea. In an ideal world, it's good to have a refinery near the market that uses the most fuel and that's America.

You've said you'll put in $100 million yourself. Do you have other partners yet?

We've had detailed talks with other airlines, and we're arranging to meet with other companies. If we can get a program of refineries going, the tiniest change in fuel prices will pay for any investment.... If we had to invest more, we would invest more. That's just the kind of figure we need to put up to attract other investors.

How far along are you on the oil-exploration front, and what's the investment there?

We've identified our principal partner, and we're drawing up contracts. The likely chief executive will be African. At the moment, though, it's a bit premature to discuss it. In three or four months, we should have a chief executive and be out there prospecting.

When did you decide to go into the oil business?

I've always liked the name Virgin Oil.

You could have gone into olive oil. It would be cheaper.

One day, I bet you (Virgin Olive Oil) will be there, but we'll see. Virgin Oil came up in the last few months, when prices went through the roof. A lot of people hedge products, but hedging only works if oil prices go up and down. So my thought was: Let's hedge in the very business that is damaging us so much.

What if oil prices collapse?

If they do, our oil exploration won't go so well, but we'll be compensated by the profits we get from our various airlines. If they go the other way, the oil-exploration and -refinery business will be fine. It's quite a good hedge. We would almost rather damage the oil price and see it come down. It will take more than ourselves to have an effect on the marketplace.

You might not find a lot of U.S. airline partners as so many seem to be teetering on bankruptcy. Is the market here just suffering from excess capacity?

Quality brands never go bankrupt. You won't see JetBlue (JBLU ) go bankrupt, or Southwest (LUV ). The American airline industry, unlike almost any other American industry, has never taken quality on board.... The public cares, but airlines act like they don't.

The second thing is the old system of Chapter 1l -- airlines never really go bust. They screw their creditors. They screw their shareholders. You don't get rid of the dead wood. The inefficient airline lives on. In England, you're either alive or you're dead. And, when you're dead, young, efficient new airlines can rise up.

How many hospitals could have been built with the money that has been shoveled into inefficient airlines? How many oil refineries? Probably as many as we need.

Edited by Beth Belton

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