(FORTUNE Magazine) – DESPITE all appearances, Marvin Davis is well on his way to proving that a savvy oilman can make a buck in Hollywood. The Denver wildcatter, who is bigger than William Howard Taft and reportedly richer than Croesus, bought half of Twentieth Century-Fox Film Corp. in mid-1981 and the rest last October. On the surface it looks like a terrible investment. Fox's annual report for its August 1984 fiscal year, released in late November, shows the company's third consecutive net loss--$90 million on sales of $754 million --and contains the startling admission that Fox is too broke to finance its operations. But in the big picture, that may not matter to Davis. Remarkably, by applying to the film business some of the characteristic techniques that enriched him in oil, he is well on his way to making another fortune from Fox. Like many independent oilmen, the 6-foot 4-inch, 300-pound Davis, 59, got rich by chancing other people's money instead of his own. A basic and expensive principle of the oil exploration business is that drilling plenty of holes increases your chance of hitting a gusher. Davis usually gets outside investors to cover all costs during the risky initial phases of the drilling ventures his privately held Davis Oil Co. sponsors. He shares expenses--and profits--only after oil is found. Davis has been working his Fox investment the same way. While outside observers have focused on the studio's faltering reported results, Davis has been quietly rearranging its underlying finances. From the start this shrewd, confident financier has concentrated his vast energies on reducing his capital at risk in Fox to maximize his returns once the hits start coming--and to minimize any loss in case they don't. Using techniques familiar to any student of leveraged buyouts, he has been taking cash out of Fox to pay down the debt he assumed when he took the company private. While waiting for profits, he undoubtedly finds his investment worthwhile for other reasons. ''Now he's Mr. Twentieth Century-Fox,'' says one top Hollywood executive. It's a status he seems to relish. ''As a Denver oilman he was nobody,'' contends a prominent Hollywood lawyer. ''Now he can get into any restaurant he wants.'' Davis is often sighted leading his entourage into Hollywood's toniest dining spots.

Davis at first assumed only half the risk of the Fox acquisition. The rest was taken by a man he has described under oath as his ''very good friend,'' Marc Rich, the fugitive commodities trader, one of whose corporations pleaded guilty last October to charges of fraud and tax evasion. Through a new entity called TCF Holdings Inc., Davis and Rich paid Fox's thousands of shareholders $725 million in cash, borrowing $550 million from a consortium of banks led by Continental Illinois. The partners put up $125 million in the form of loans to TCF and only $50 million as their entire equity investment. To further reduce his risk, Davis has since then been transferring the acquisition debt from TCF, where he and Rich guaranteed it, down to the operating company, where Fox assets provide the bank's only collateral. By last August the holding company had paid down its bank debt to $48 million and was not far from the next step of starting to repay the loans from Rich and Davis. In the meantime Fox had tripled its asset-backed debt to at least $463 million. In addition, Fox under Davis has raised $270 million by selling assets ranging from real estate to a Coca-Cola bottling company. Fox has also generated $210 million or so in cash flow since Davis took over. The apparent paradox of a money-losing company generating such ample piles of cash is largely explained by the miracle of accounting. The cash came from Fox operations, including an estimated $60-million share of revenues from George Lucas's Return of the Jedi; a successful videocassette joint venture with CBS (1984 pretax earnings: about $50 million); and the sale of rerun rights to the ever popular M*A*S*H TV show (an estimated $200 million so far). To protect that income from taxation, Davis relied on an entirely legal accounting maneuver for handling his purchase of Fox. IN ESSENCE this technique enables Fox gradually to write down $386 million, which represents the difference between the book value of its assets and the price Davis paid for the company. Unlike conventional amortizations of goodwill, these charges are attributable to specific assets and are tax deductible. As a result, Fox's pretax earnings evaporated long before the taxman arrived. On an operating basis, Fox was solidly profitable until late in fiscal 1984. Before that, accounting tactics were the sole source of the red ink that led some journalists to regard Davis's takeover of Fox as a $725-million belly flop. And there is reason to suspect that the $58-million operating loss Fox finally suffered in fiscal 1984 also exaggerates the difficulties Fox is experiencing. During fiscal 1984 the company's revenues declined less than 2%; unusual fourth-quarter write-offs of film values were largely responsible for the loss. And write-offs, of course, reduce cash flow not at all. The write-offs do reveal that Davis's financial wizardry has not yet produced the smasheroo films and TV shows--the gushers--on which his whole strategy depends. Rather belatedly, Davis addressed that problem in September 1984 by luring Barry Diller, 42, to Fox as chairman and chief executive. Regarded as one of the top studio bosses, this exacting and thoughtful man was formerly chief of Paramount Pictures, the industry-leading Gulf & Western subsidiary that released such huge hits as Indiana Jones and the Temple of Doom and Terms of Endearment. With its underlying finances coming under control and Diller aboard, Fox was beginning to look like an attractive business proposition by last October. That is when Rich's settlement with the U.S. government allowed Davis to buy his partner's half of TCF for the fire-sale price of $116 million. In a simultaneous three-way transaction, Rich paid $150 million in fines; the government voided a court order that had previously blocked the sale of Rich's TCF shares; and Davis bought the shares. Hollywood rumor has it that Kirk Kerkorian, 67, half-owner of rival MGM/UA Entertainment Co., had previously offered Rich about $400 million for his TCF stock. If so, it is not surprising that Davis interrupted his grand financial plan of reducing his capital at risk in order to snatch up those holdings for less than a third as much. But why would Rich sell for so little? He's not saying. Before the settlement was reached, the government had required--and received--a demonstration by Davis that the $116-million price was fair. One possible benefit of those apparently painful fiscal 1984 write-offs is that they help justify that price.

Although he retains at least four professional publicists, Davis rarely speaks to the press and refused FORTUNE's requests for interviews. According to Henry Kissinger, a Fox director until last November, Davis is about to withdraw even further from public scrutiny. Because Fox has $80 million of publicly held bonds outstanding from its pre-Davis days, the private company is required to file detailed financial reports with the SEC. Kissinger assumes Davis will retire the obligations early in the new year. In his personal life Davis is anything but invisible. He hobnobs with the likes of Cary Grant and former Fox director Gerald Ford, helps his wife, Barbara, raise millions for diabetes research with Denver's star-studded Carousel Ball, commutes back and forth from Denver in a Gulfstream III jet, owns four luxurious homes--at least one protected by guards and snarling dogs --and once reportedly shocked Denver society by hiring local blacks to pose on cotton bales eating watermelon for an Old South theme party at his home. The inner Davis is, in the words of former Fox production chief Sherry Lansing, 40, ''a wonderful, wonderful, wonderful man.'' He is said to be profoundly attached to his wife and their five children--one of whom, John, 30, sits on the Fox board and is winning respect as a production executive. Even Davis detractors admit the man is gifted with sensitivity and warmth. He expresses his generosity through crushing bear hugs and unsolicited personal advice as well as invitations to participate in his business ventures. His many friends say he loves to laugh, especially at himself, and is an effective comic in the colorful, Yiddish-spiced vernacular of his New York youth. Davis was born to a middle-class family in Newark, New Jersey. His father, Jack, a British immigrant who owned a women's dress company, soon moved the family to Central Park West in Manhattan and sent Marvin to the prestigious Horace Mann day school. To quote the yearbook: ''Always willing to argue a point, Marv the Suave was wont to drive poor Mr. Blake to tears in English class. His 'But sir,' was the signal for monsieur to reach for the aspirin.'' The young Davis, much thinner then, was also noted for his good looks: ''He was like a cross between Elvis Presley and Victor Mature,'' says one longtime acquaintance. Adds Jack Spitzer, his 85-year-old uncle, ''He had a lot of girls around.'' Even so, Davis was by all accounts a hardworking and exceptionally obedient son. Before he graduated from New York University he spent summers learning his father's business. By the late Forties that meant oil as well as ladies' ready-to-wear, since Jack had begun promoting drilling deals to acquaintances in the rag trade. One man who later bought interests in a score of dry holes from Jack remembers him as ''a very good salesman, very persuasive.'' In 1960 Jack made his only son a partner in Davis Oil. Over time Marvin made a mountain out of this molehill. Absorbing as much geology as he needed to keep decision-making directly under his control, he soon started out-promoting and out-drilling most of the competition. Along with plenty of dry holes, Davis turned up producing wells that made him rich. With the 13-fold rise in oil prices that began in 1973, the value of his holdings catapulted Davis suddenly to the ranks of the world's wealthiest men. His compulsion for privacy makes his precise net worth impossible to know, but he was probably a billionaire. If so, the more recent drop in oil prices has most likely shorn him of that status. Davis's financial problem of the moment, Fox's critical shortage of cash, stems from the massive cash transfers to TCF plus a long string of cinematic dry holes. But Fox isn't about to go bust. While Fox's balance sheet looks like something the cat dragged in--debt is more than five times equity--the company is still rich in assets it doesn't need for the movie business. Fox is considering the sale of properties owned by its joint venture in videocassettes and by another that owns real estate, including California's Pebble Beach golf resort. Fox might also issue bonds or preferred stock --presumably in a private placement. Another alternative is more borrowing from banks. ''They've had a very happy bank group,'' says James Parsons, who oversees Bank of America's share of the Fox loans and is untroubled by the company's performance in 1984. ''Fox is stronger now than three years ago,'' he says. THE BANKER may well be right, although it isn't clear whether Fox's health is attributable to the hands-on, entrepreneurial, and frequently autocratic business style Davis imported from Denver. A rapid-fire decision-maker who soon increased his time spent at the studio from one day a week to three or four, Davis is deeply immersed in all major Fox deals. He intermittently pays attention to lesser matters, such as reading scripts. ''He doesn't not interfere with anything,'' says one Fox alumnus. When he does interfere, weak men quail. ''Marvin's physical presence gives him tremendous authority. You have to be very strong to stand up to him,'' says a film executive who has negotiated with him. ''He's a nice guy, but he's not a nice guy in business. Marvin's a killer.'' As at Davis Oil, he depends heavily on a small coterie of loyal associates. Among them is adviser Gerald Gray, 55, longtime chief financial officer of Davis Oil. Another is Burton I. ''Buddy'' Monasch, 57, formerly a New York lawyer known for his creative divorce work on behalf of such clients as financier Saul Steinberg. At Fox he acts as Davis's chief negotiator. Less influential was Alan Hirschfield, 49, who held the title--but not the authority--of chief executive before Diller arrived. Under Hirschfield a succession of film production heads, Sherry Lansing among them, managed to produce an average of only six pictures a year, none of them blockbusters. In TV, by contrast, Fox has made respectable efforts to locate a gusher. At one point in the 1983-84 season the studio was producing an impressive eight regular network series. Unfortunately most of these shows have since been yanked off the air. The profit in TV production comes from the sale of rerun rights to long-running programs, and under Davis Fox has introduced only one thus far: The Fall Guy, starring Lee Majors. Diller is Davis's answer to these ills. To cure them Diller will need, and probably get, much more power than his predecessor. Davis surely realizes by now that he needs help. And Diller's friends believe he signed on only after winning a contractual guarantee that he would enjoy the autonomy his title --chief executive--implies. MERELY by signing on, Diller has begun to benefit Fox. Superagent Sam Cohn of International Creative Management, who had avoided dealings with Fox for years, says that under Diller the company is an ''instant contender'' for the favor of the directors, writers, and stars on whom all studios depend. Even so, Diller's impact on the Fox income statement may be negligible until pictures he is developing begin arriving in theaters some 18 months from now. By the time Diller releases the blockbusters everyone expects of him, Davis may well have pulled enough cash from Fox to pay back his loans to TCF, reducing his personal capital at risk to the comfortable vicinity of $50 million. With 100% of the company's equity in his hands, he'd be sitting very pretty indeed. And even if Diller washes out, his boss may still end up making a handsome buck from Hollywood through the business he knows best. Davis has already been enthusiastically flogging drilling deals to Star Wars director George Lucas and other newfound West Coast friends.