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	ENTREPRENEURSHIP FROM AN OIL AND GAS PERSPECTIVE KEYNOTE ADDRESS BY T. BOONE PICKENS, JR., PRESIDENT, MESA PETROLEUM CO. UNIVERSITY OF TEXAS GRADUATE SCHOOL OF BUSINESS CONFERENCE "SMALL BUSINESS AND THE ENTREPRENEURIAL SPIRIT" MARCH 26, 1982

I am extremely pleased to have been invited to speak to you this evening. The University of Texas Graduate School of Business is to be commended for making this conference possible. Nothing is more important to our future than the perpetuation of the entrepreneurial spirit.

I want to spend a few minutes this evening discussing the free enterprise concept, particularly as it relates to an oil and gas company.

America's economic growth was attained primarily because of adherence to the free-enterprise system. The basic strength of that system is the entrepreneurial spirit—a willingness to achieve greatness. Individuals and companies in America have been, willing to invest their time and money in a free market for the opportunity to earn a profit, unencumbered by government interference. Indeed, this was a basic precept in our nation from its early founding until modern times.

However, beginning with the "New Deal," America lost some of its willingness to take risks as government assumed the role of "provider." The result has been a decline in productivity, which, in the final analysis, is the most crucial aspect of a successful economy.

One key to productivity is capital investment. In recent years, however, investment has been stifled by increasing government regulation and the government's own requirement for capital. Government regulation is estimated to cost industry over $100 billion annually.

Government intervention in the free market has been particularly devastating in the field of energy. The United States lost its self-sufficiency in energy because of government regulation and price controls which hindered the search for new oil and gas reserves. In addition, the government singled out the oil and gas industry as a source of income when it imposed the so-called "windfall profits tax" which robs the industry of needed capital for exploration.

There is much discussion about the possible deregulation of gas, something which Mesa believes is vital. However, if this deregulation does, in fact, take place, 53% of any income derived would go to the government, even without "windfall profits tax." Let me ask—how many barrels of oil or cubic feet of gas has the government found lately?

Fortunately, the entrepreneurs in the nation's petroleum industry, though perhaps fewer in numbers, did not lose their faith in the free-enterprise system. This factor, coupled with decontrol of crude oil pricing by President Reagan, has resulted in increased crude oil supplies and decreased world prices.

Nationally, President Reagan is emphasizing free enterprise; in Texas, Governor Clements has brought a free-enterprise/effective statehouse in America. Hopefully, the Congress will heed this leadership and reduce government interference in the free-enterprise system.

The concept of entrepreneurship can also be applied successfully within the framework of private and publicly held business of all sizes. Mesa Petroleum Co. has achieved unusual growth during its 18 years' existence. The paramount reason for the Company's success is its underlying management philosophy which embraces the very essence of the free-enterprise concept. I would like to share some of the details of this philosophy with you.

We believe that management's primary responsibility is to enhance the investment of shareholders. This requires that both management and employees be totally dedicated to making the shareholder "No. 1." In small, private business, this same concept can be applied to its customers. Too often, the forgotten stockholder in a company "puts up his money and takes his chances." It is the stockholder who is willing to make investments and take risks who is the backbone our free enterprise system. Our Company recognizes this.

However, many in Congress look at business with an evil eye. They have created a government syndrome on corporations. This is unfortunate, because government is overlooking the fact that the "owners" of these "bad corporations" are millions of citizens in our society who believe in the free-enterprise system.

Mesa's orientation to shareholders starts with its people. They are tremendously dedicated as a result of being properly motivated with basic entrepreneurial concepts. This can be done most effectively by giving all employees a "cut of the pie" (everyone likes to make money; it is a very strong motivational tool) and by creating a team concept with everyone working toward a common goal.

Over 95% of Mesa's employees are also stockholders. This is achieved through a stock purchase plan in which Mesa matches dollar-for-dollar the employee's contribution which can equal 6% of his salary. Also, each employee participates in a noncontributory profit-sharing plan which has been invested heavily in Mesa common stock and is currently invested primarily in Mesa Royalty Trust. Since its inception through December 31, 1981, the plan has averaged 23% annual gain on investment. From 1964 through 1981, Mesa contributed $10 million to the plan, and employees made $6 million. In 1980, 26% of the Company's employees made more from their profit-sharing trust than they did on salary. Mesa's key personnel are also holders of stock options. As a result, the Company's management looks at situations very much like stockholders and not like professional managers perpetuating their jobs.

Another important factor in motivating employees is leadership. I think I have been successful in instilling entrepreneurial instincts or nurturing them in most of Mesa's personnel. They are willing to take risks. They assess risks well and can make decisions quickly which has a great deal to do with success.

Good communications are also vital if employee motivation is to be channeled toward a common goal. Mesa's management constantly strives for better communications which has produced a highly motivated, cohesive team working toward the same goals. As a result of these motivational methods, Mesa enjoys extremely high productivity from its employees. Mesa is historically a leading company among the Fortune 1000 in the ratio of assets to employees. The Company currently has assets of approximately $2 billion and 900 employees.

We have a small group, working hard. There are no warm bodies at Mesa; everyone is a,contributor. Our personnel are given responsibility and the authority to get the job done. Fewer people with more authority increases productivity and enables the Company to react more quickly to opportunities than the competition. Also, fewer and more productive employees enable the Company to pay higher salaries and provide better benefits.

Again, basic to all of Mesa's management philosophy is the free enterprise oriented concept of putting the shareholder's interest first. Too often, Company managements are more concerned with their own preservation than enhancing their shareholders's investments. These managements are generally not good risk takers, and their companies suffer from a lack of productivity. Companies with that attitude do not command a reasonable P/E ratio, because shareholders lack confidence in their ability to "make things happen."

Perhaps mesa's "shareholders-first" policy is best illustrated by the results themselves. The Company was a leader in establishing the Royalty Trust concept as a means of ensuring that shareholders receive the full value of their assets. The Royalty Trust grants each shareholder a direct ownership interest in producing properties, providing a direct income stream which forces the stock market'to recognize the value of the underlying assets.

This "shareholder-first" policy is also reflected by the results of a hypothetical shareholder's investment in the Company's common stock. A $10,000 investment in 1964 would have grown to $284,000 as of December 31, an approximate 2,742% increase or 21% compound annual rate of growth.

Managements of many large corporations are now deciding to institute an entrepreneur-type management. More and more, they are realizing that many smaller companies are better managed and more efficient.

In conclusion, the free-enterprise system is what makes our country great. As long as the private sector is allowed to take chances in an environment free from government interference, everyone wins. Stockholders earn a return on their investments; industry grows, creating job opportunities for our citizens; and a healthy economy produces tax income to finance services offered by the government.

The financial successes generated by the free-enterprise system also encourage volunteerism and social responsibility so vital to our country's well being. Those who have been successful in business have a responsibility to provide personal and economic, leadership to help society meet its humanitarian, educational and cultural obligations. It is particularly important for graduates of universities, such as the University of Texas, to participate in the financing of the school's operations. This support will help perpetuate the free-enterprise system that has been so good to our country and the people of the world.

Thank you.