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	T. BOONE PICKENS, JR. REMARKS HOUSTON ASSOCIATION OF PETROLEUM LANDMEN MANAGEMENT NIGHT WESTIN GALLERIA HOTEL HOUSTON, TEXAS NOVEMBER 9, 1982

BRIEFING INFORMATION

AGENDA

HAPL HAS ADVISED THE MEDIA AND PRESS THAT YOU WILL BE AVAILABLE AT 5:15 PM IN THE WESTCHESTER ROOM FOR A PRESS CONFERENCE AND/OR INTERVIEWS. MEMBERS OF THE PRESS AND MEDIA THAT HAVE BEEN INVITED TO ATTEND INCLUDE:

LAUREL BRUBAKER	HOUSTON BUSINESS JOURNAL
RICHARD WHEATLEY	OIL & GAS JOURNAL
NANCY SMITH	PETROLEUM INFORMATION
ROBERT SCOTT	WORLD OIL
GENE WILBURN	OIL DAILY
SAM FLETCHER	HOUSTON POST
JIM PIEROBON	HOUSTON CHRONICLE
CATHY CANDIS	KHOU CHANNEL 11
BILL GOODMAN	KPRC CHANNEL 2
HARRIET HOLLIS	KTRK CHANNEL 13

A RECEPTION WILL BEGIN AT 5:30 PM. DINNER WILL BE SERVED AT 6:30 PM. YOUR SPEECH SHOULD BEGIN AT APPROXIMATELY 7:30 PM. HAPL IS EXPECTING A 30-35 MINUTE SPEECH FOLLOWED BY A QUESTION AND ANSWER PERIOD.

THE AUDIENCE

THIS IS THE ANNUAL MANAGEMENT NIGHT DINNER, IN WHICH PETROLEUM LANDMEN OF HOUSTON HONOR TOP MANAGEMENT. OVER 750 RESERVATIONS HAVE BEEN RECEIVED FROM HAPL MEMBERS, REPRESENTING OVER 100 COMPANIES. THIS IS THE LARGEST ATTENDANCE THEY HAVE EVER HAD FOR SUCH AN EVENT. SEVERAL OTHER CEO'S ARE EXPECTED TO ATTEND.

BEA WILL BE SEATED AT THE HEAD TABLE WITH YOU. HAPL IS ALSO EXPECTING MIKE AND CINDY TO BE THEIR GUESTS.

HAPL OUTLINE - HIGHLIGHTS

I. INTRODUCTION

A. I WILL ADDRESS THE TOPIC—"AN OUTLOOK FOR THE OIL AND GAS INDUSTRY"—BY FIRST BRIEFLY ASSESSING WHERE WE ARE TODAY AND PROJECTING WHAT I BELIEVE WILL BE THE DIFFERENCE BETWEEN SUCCESS AND FAILURE FOR OIL AND GAS COMPANIES IN THE FUTURE.

B. I WILL THEN BE PLEASED TO ANSWER QUESTIONS.

II. CURRENT STATE OF THE INDUSTRY.

A. 1982—END OF BOOM ERA.

B. BOOM TIME MENTALITY REIGNED DURING THE NINE-YEAR PERIOD.

C. PROBLEMS WERE MASKED BY RECORD EARNINGS AND PROJECTS.

D. WITH THE DROP IN PRICES, PROBLEMS SURFACED.

E. MOST NEWS THIS YEAR HAS BEEN NEGATIVE.

F. A TOUGH PERIOD FOR THE INDUSTRY IS NOTHING NEW.

G. RECOVERY WILL BE SLOW.

H. POSITIVE FACTORS IN THE MARKETPLACE.

I. DRILLING HAS DROPPED BY 2—ONLY A MATTER OF TIME BEFORE DEMAND INCREASES.

J. BEING FORCED TO TAKE A CLOSE LOOK AT OURSELVES.

K. AS RESULT OF SELF-EXAMINATION, MANY CHANGES WILL OCCUR IN THE INDUSTRY.

L. DURING THE SHAKEOUT, MANY WILL FALL BY THE WAYSIDE.

M. "WHICH MANAGEMENTS WILL BE THE MOST SUCCESSFUL IN THE CHANGING BUSINESS ENVIRONMENT?"

III. "THE MANAGEMENTS THAT CAN DETERMINE AND MAINTAIN OPTIMUM SIZE."

A. ACHIEVE OPTIMUM SIZE BY BALANCING RESERVE BASE AND CASH FLOW WITH PERSONNEL TO ACHIEVE ECONOMIC INCREASES OF RESERVES THROUGH EXPLORATION AND ACQUISITION.

B. GOAL OF MANAGEMENT—PROTECT AND EXPAND ASSETS AND VALUE OF SHAREHOLDERS' INTERESTS.

C. OIL COMPANIES ARE MANAGERS OF DEPLETABLE ASSETS.

D. MUST INCREASE RESERVES ANNUALLY.

E. MANY COMPANIES ARE LIQUIDATING.

F. RESERVES INCREASED BY EXPLORATION SUCCESS OR ACQUISITION.

G. TENNECO STUDY

1. 1978-1981—U.S. FOUND 0.58 BARRELS FOR EACH PRODUCED.
2. ONE OF 20 COMPANIES STUDIED HAD A DRILLING RESERVE REPLACEMENT RATIO OF 1.00 OR BETTER. THE AVERAGE WAS 0.41.
3. AVERAGE INCREASED TO 0.56 WHEN INCLUDED ACQUISITION, IMPROVED RECOVERY AND REVISIONS.
4. COMPANIES WITH ACQUISITIONS AND RESERVE REVISIONS HAD HIGHER RANKING THAN THOSE WHO RELIED ONLY ON DRILLING.

H. MORGAN STANLEY STUDY OF EIGHTEEN INDEPENDENTS.

I. MUST INCREASE RESERVES PROFITABLY.

J. TENNECO STUDY REPORTED AVERAGE FINDING COSTS FOR 20 COMPANIES TO BE $11.25 FROM 1978-1981. IN 1981, AVERAGE COSTS WERE $15.31, RANGING FROM LOW OF $8.64 TO A HIGH OF $41.34.

K. ACQUISITIONS ARE ATTRACTIVE BECAUSE OF HIGH FINDING COSTS.

L. KNOWING ABOUT OPTIMUM SIZE AND DOING SOMETHING ABOUT IT ARE TWO DIFFERENT THINGS.

M. WILLINGNESS AND ABILITY TO MAKE ADJUSTMENTS.

N. KNOW ASSETS, ANALYZE ACCURATELY AND MAKE DECISIONS.

O. DECISIONS TO SHRINK SIZE IS A CHALLENGE FOR MANAGEMENTS.

P. ILLUSTRATIONS OF ADJUSTMENTS TO ACHIEVE OPTIMUM SIZE.

1. INCREASES—EXPLORATION SUCCESS AND ACQUISITIONS OF HUGOTON AND PUBCO.
2. ADJUSTMENTS TO SHRINK SIZE INCLUDE SELLING PROPERTIES IN U.K. AND CANADA, CREATION OF MESA ROYALTY TRUST AND PROPOSED FORMATION OF MESA OFFSHORE TRUST.

Q. IMPACT OF ADJUSTMENTS ON SHAREHOLDERS.

1. HYPOTHETICAL INVESTMENT OF $10,000 IN 1964 FOR 1,000 SHARES OF MESA.
2. SHARES GROWN TO 24,000 SHARES AND UNITS.
3. VALUE GROWN TO $228,266.

R. ADJUSTMENTS HAVE PROVEN BENEFICIAL TO STOCKHOLDERS.

IV. ANOTHER CHANGE COMING FOR THE INDUSTRY.

A. AGE OF AWARENESS.

B. IMPORTANCE OF INCREASING RESERVES.

C. INVESTORS WILL BE VOCAL.

D. ATTITUDES OF SOME CEO'S.

E. MEANINGFUL STOCK OPTIONS.

F. DECISIONS TO PERPETUATE JOBS.

V. CONCLUSION

A. INDUSTRY IS IN TOUGH PERIOD.

1. PERIOD OF OPPORTUNITY.
2. ANALYZE AND ADJUST.

B. WILL SEE MORE RESTRUCTURING IN THE INDUSTRY TO ACHIEVE OPTIMUM SIZE.

C. SUCCESS WILL MEAN ACHIEVING OPTIMUM SIZE RATHER THAN LARGENESS.

D. STOCKHOLDERS WILL CRITICIZE MANAGEMENTS WHO DO NOT ACHIEVE OPTIMUM SIZE.

E. OPTIMISTIC ABOUT OUTLOOK FOR THE INDUSTRY.

1. SHAKEOUT WILL STRENGTHEN THE INDUSTRY.
2. WILL REMAIN AMONG THE STRONGEST ECONOMIC ENTITIES IN THE U.S.

VI. QUESTIONS.