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	T. BOONE PICKENS, JR. REMARKS HARVARD BUSINESS SCHOOL CLUB OF DALLAS/FT. WORTH SEPTEMBER 23, 1982

IT IS INDEED A PLEASURE FOR ME TO BE HERE TODAY TO SHARE WITH YOU MY PERSPECTIVE OF THE OIL AND GAS INDUSTRY.

I HAVE BEEN IN THE EXPLORATION AND PRODUCTION BUSINESS FOR 31 YEARS, AND I CAN SUMMARIZE THIS EXPERIENCE IN FIVE WORDS: "IT HAS SELDOM BEEN EASY." FOR THE FIRST TWENTY YEARS OF THIS PERIOD, WE SAW A STEADY DECLINE IN THE NUMBER OF DOMESTIC WELLS DRILLED, DUE PRIMARILY TO A WORLD-WIDE OVERSUPPLY CAUSING FLAT OIL PRICES. THIS DOWNWARD TREND WAS REVERSED, HOWEVER, IN 1973, WHEN WAR BETWEEN ISRAEL AND ARAB NATIONS ERUPTED AND AN EMBARGO WAS PLACED ON CRUDE OIL SUPPLIES TO THE U.S.

THE LATTER PART OF THE '70'S WERE GOOD YEARS. AS THE DECADE OF THE '80'S WAS USHERED IN, WE WERE EXPERIENCING A BOOM IN THE INDUSTRY. DRILLING ACTIVITY WAS SKYROCKETING. EVERYONE WAS GETTING INTO THE BUSINESS. REVENUES AND PROFITS FOR OIL AND GAS COMPANIES REACHED NEW HIGHS IN 1980 AND 1981, AND EVERYTHING LOOKED GREAT. BUT, THEN CAME 1982.

BECAUSE OF THE NEW HIGHS RECORDED IN THE INDUSTRY DURING 1980 AND 1981, MANY IN THE INDUSTRY OVERLOOKED CERTAIN CONDITIONS THAT WERE LEADING TO TROUBLE. WE EXPERIENCED UNREASONABLY HIGH FINDING COSTS, CAUSED IN LARGE PART BY HEAVY PRESSURE ON EQUIPMENT AND INEXPERIENCED PERSONNEL. WE WERE ALL CAUGHT IN THE TRAP OF A BOOM TIME. PROSPECTS WERE BEING DRILLED THAT SHOULD HAVE BEEN TURNED DOWN, BUT MONEY WAS AVAILABLE AND BOOM TIME PSYCHOLOGY WAS PREVALENT. HIGH INTEREST RATES AND AN OVERSUPPLY OF NATURAL GAS AND CRUDE OIL ALSO CONTRIBUTED TO DIFFICULTIES IN THE INDUSTRY.

BOOM TIME IS OVER, AT LEAST FOR A WHILE. DRILLING ACTIVITY HAS DECLINED SHARPLY. THE RIG COUNT HAS DROPPED FROM A HIGH WATER MARK OF 4,530 IN DECEMBER 1981 TO THE CURRENT LEVEL OF 2,466, AND THERE IS STILL NO BOTTOM IN SIGHT.

MANAGEMENTS ARE NOW TAKING ACTION TO OFFSET THE NEGATIVE CONDITIONS THAT EXIST. CAPITAL BUDGETS FOR EXPLORATION ARE BEING SLASHED. COMPANIES ARE TIGHTENING UP ON PERSONNEL, INSTITUTING HIRING. FREEZES, ENCOURAGING EARLY RETIREMENT AND, UNFORTUNATELY, RELEASING EMPLOYEES. CUTBACKS AND POSTPONEMENTS OF PROJECTS DEALING WITH ALTERNATIVE ENERGY SOURCES ARE BECOMING COMMONPLACE. MANAGEMENTS ARE NOW BEING FORCED TO BE MORE FINANCIALLY INNOVATIVE DUE TO REDUCED CASH FLOWS.

AS A RESULT, THE INDUSTRY IS BEING FORCED TO TAKE A GOOD, HARD LOOK AT ITSELF. IN MY OPINION, THE NET RESULT OF ALL OF THIS WILL BE A STRENGTHENING OF THE INDUSTRY.

WELL, WHAT'S THE OUTLOOK FOR 1983 AND BEYOND? EARLIER I SUMMARIZED MY 31 YEARS OF EXPERIENCE IN FIVE WORDS. I CAN SUMMARIZE THE IMMEDIATE OUTLOOK FOR THE INDUSTRY IN FIVE WORDS ALSO: "ABOUT THE SAME AS '82."

ACTIVITY AND GROWTH IN 1983 WILL REMAIN RELATIVELY FLAT, OR POSSIBLY DECLINE FURTHER. I DO NOT THINK WE HAVE BOTTOMED OUT YET. THE PREVAILING MANAGERIAL THEMES WILL BE GREATER EFFICIENCY AND PRODUCTIVITY. THE DIVERSIFICATION WITHIN THE INDUSTRY OF THE PAST DECADE INTO FERTILIZERS, MINERALS, COAL, AND RETAIL CHAINS WILL BE REVERSED.

I BELIEVE WE WILL SEE MORE COMPANIES SELLING OFF ASSETS OR SPINNING OFF ASSETS INTO TRUSTS SIMILAR TO THE ROYALTY TRUST THAT MESA PIONEERED IN 1979. MANAGEMENTS WILL ALSO CONSIDER MORE SERIOUSLY THE ECONOMIC ADVANTAGES OF PURCHASING RESERVES.

DRILLING ACTIVITY WILL BE SUPPORTED IN THE IMMEDIATE FUTURE FOR THE FOLLOWING REASONS
1) EXPIRING LEASES ON GOOD DRILLABLE PROSPECTS WILL BE PROTECTED;
2) OIL PROPERTIES THAT ARE WORTHY OF THE INVESTMENT WILL BE DEVELOPED; AND
3) GAS PROSPECTS WILL BE PURSUED IN AREAS WHERE THERE ALREADY EXISTS A MARKET.

ANOTHER FACTOR INFLUENCING THE INDUSTRY'S RECOVERY IS OUR RELIANCE ON FOREIGN SOURCES OF ENERGY. WE IMPORT 35% OF OUR NATION'S CRUDE OIL. I STILL CAN'T BELIEVE WE HAVEN'T DONE ANYTHING ABOUT THIS. BEING IN THE VICE GRIP OF OPEC IS NO FUN. THE LONG-TERM SOLUTION TO OUR PROBLEM IS FOR OUR NATION TO BECOME ENERGY INDEPENDENT.

THIS DISCUSSION OF OUR DEPENDENCE ON OPEC BRINGS ME TO A SUBJECT THAT I BELIEVE IS A MUST FOR AMERICA—A NATIONAL ENERGY PLAN. THERE HAS BEEN A LOT OF TALK IN WASHINGTON ABOUT AN ENERGY PLAN, BUT THERE HAS BEEN LITTLE OR NO ACTION. GOVERNOR CLEMENTS TOOK THE INITIATIVE RECENTLY TO DRAFT A NATIONAL ENERGY POLICY AND PRESENTED IT TO THE SOUTHERN GOVERNOR'S CONFERENCE. WHATEVER POLICY IS EVENTUALLY ADOPTED, IT SHOULD RECOGNIZE THAT THE FREE MARKET SHOULD PLAY THE PREEMINENT ROLE IN SOLVING THE ENERGY PROBLEM—NOT GOVERNMENT INTERVENTION.

FROM THIS POLICY SHOULD COME SOME SPECIFIC PROGRAMS, SUCH AS
(1) DEREGULATION OF THE PRICE OF NATURAL GAS;
(2) REPEAL OF THE FUEL USE ACT;
(3) INCREASED USE OF COAL; AND
(4) A MORE CONSISTENT REGULATORY ENVIRONMENT FOR NUCLEAR ENERGY.

I AM OPTIMISTIC THAT THE REAGAN ADMINISTRATION WILL IN TIME ADDRESS THIS ISSUE IN A MEANINGFUL WAY.

IN CONCLUSION, I BELIEVE THAT THE OIL AND GAS INDUSTRY WILL UNDERGO REVOLUTIONARY CHANGES. THE INDUSTRY WILL GO THROUGH A SHAKEOUT PERIOD AND ONLY THE FIT WILL SURVIVE. SURVIVING MANAGEMENTS WILL BE THOSE (1) WHO RECOGNIZE THAT THE DEFINITION OF A STRONG OIL AND GAS COMPANY WILL BE ONE THAT INCREASES ITS RESERVES ANNUALLY; (2) WHO RECOGNIZE WHEN IT IS BETTER TO ABANDON THE PURSUIT OF RESERVES ,AT UNECONOMIC EXPLORATIXN AND DEVELOPMENT COSTS AND PURSUE THE ACQUISITION TRAIL; AND (3) WHO RECOGNIZE THAT THE OBJECTIVE OF MANAGEMENT IS NOT JOB PERPETUATION OR GROWTH FOR GROWTH'S SAKE, BUT THE BEST RETURN FOR THE STOCKHOLDER—THAT IS WHAT WE ARE PAID TO DO.

OUR INDUSTRY'S GROWTH WILL NOT BE AS DRAMATIC AS IN RECENT YEARS, BUT I AM CONFIDENT OUR INDUSTRY WILL REMAIN AMONG THE STRONGEST ECONOMIC ENTITIES IN THE UNITED STATES.

THANK YOU.