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	T. BOONE PICKENS, JR. REMARKS SPECIAL SHAREHOLDERS' MEETING DECEMBER 9, 1982

I. (SLIDE 1 -MESA LOGO) THIS MORNING, I WOULD LIKE TO DISCUSS THE MESA OFFSHORE TRUST; OFFER.SOME OBSERVATIONS ABOUT THE STATE OF OUR INDUSTRY; AND, FINALLY, DISCUSS MESA'S OVERALL CORPORATE STRATEGY.

A. UNITS OF BENEFICIAL INTEREST IN THE MESA OFFSHORE TRUST WILL BE ISSUED ON DECEMBER 28 TO MESA SHAREHOLDERS OF RECORD AS OF DECEMBER 17.

1. THE UNITS WILL BE TRADED, SEPARATE AND APART FROM MESA COMMON STOCK AND MESA ROYALTY TRUST UNITS, ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL MOS BEGINNING DECEMBER 13 ON A WHEN-ISSUED BASIS.
2. THE TRUSTEE FOR THE TRUST IS THE TEXAS COMMERCE BANK IN HOUSTON.

B. (SLIDE 2-OFFSHORE MAP) FROM THIS SLIDE, YOU CAN SEE THE TEN OFFSHORE PROPERTIES FROM WHICH MESA IS CONVEYING NET OVERRIDING ROYALTY INTERESTS TO THE TRUST.

1. NET PROFITS ATTRIBUTABLE TO THE ROYALTY INTERESTS WILL BE COMPUTED ON AN AGGREGATE BASIS AND WILL CONSIST OF 90% OF THE EXCESS OF GROSS REVENUES FROM PRODUCTION OVER OPERATING COSTS, CAPITAL EXPENDITURES AND OTHER RELATED CHARGES.

a. MESA WILL CONTINUE TO OPERATE THE 10 OFFSHORE TRACTS AND TO OWN ITS WORKING INTERESTS SUBJECT TO THE ROYALTY.

2. ON THE TEN PROPERTIES, 32 SUCCESSFUL WELLS HAVE BEEN DRILLED, AND ONE WELL IS CURRENTLY DRILLING.

a. OF THESE 32 SUCCESSFUL WELLS, 28 HAVE BEEN COMPLETED FOR PRODUCTION.

b. SEVEN WELLS ON THREE OF THE TRACTS ARE CURRENTLY PRODUCING.

3. WE WILL BRIEFLY REVIEW THE CURRENT STATUS OF EACH OF THESE PROPERTIES, MOVING FROM WEST TO EAST.

a. MATAGORDA ISLAND 624 (MESA 32.5%; LEASE BONUS - $189 M)—A PLATFORM WAS INSTALLED IN LATE 1981 OVER A PREVIOUSLY DRILLED GAS DISCOVERY. THREE SUCCESSFUL GAS WELLS HAVE BEEN DRILLED FROM THE PLATFORM, AND DRILLING WILL CONTINUE. PRODUCTION SHOULD COMMENCE IN MID-1983.

b. (SLIDE 3 - BRAZOS A-39 DISCOVERY WELL) THIS IS A PHOTO OF THE DISCOVERY WELL ON BRAZOS A-39 (MESA 50%; LEASE BONUS - $84.5 MM) IN THE "BIG HUM" TREND. FOUR-WELL PLATFORMS HAVE BEEN INSTALLED ON A-39 AND A-7 TO GET WELLS ON PRODUCTION SOONER AND, BECAUSE OF HIGH PRESSURES, TO AVOID DRILLING AND PRODUCING AT THE SAME TIME. THESE ARE THE FIRST OF SEVERAL FOUR-WELL PLATFORMS TO BE INSTALLED. DEVELOPMENT AND EXPLORATORY DRILLING ON A-39 IS CONTINUING, AND INITIAL PRODUCTION IS EXPECTED IN EARLY 1984. EACH WELL SHOULD PRODUCE AT A DAILY RATE OF APPROXIMATELY 15-20 MILLION CUBIC FEET OF GAS.

c. (SLIDE 4 - OFFSHORE MAP) BRAZOS A-7 (MESA 50%; LEASE BONUS - $40.5 MM)—ALSO LOCATED IN THE "BIG HUM" TREND, A FOUR-WELL PLATFORM HAS BEEN INSTALLED ON THIS BLOCK, AND ONE WELL HAS BEEN COMPLETED AND TESTED. DEVELOPMENT DRILLING IS CONTINUING, AND INITIAL PRODUCTION FROM THIS PLATFORM IS EXPECTED IN MID-1984. EACH WELL WILL PRODUCE AT A DAILY RATE OF APPROXIMATELY 10 MILLION CUBIC FEET OF GAS.

d. HIGH ISLAND 567 (MESA 50%; LEASE BONUS - $589 M)—A PLATFORM WAS INSTALLED IN LATE 1980, AND SEVEN SUCCESSFUL GAS WELLS WERE COMPLETED DURING 1981 AND 1982. THESE WELLS ARE EXPECTED TO PRODUCE AT THE COMBINED DAILY RATE OF 25 MILLION CUBIC FEET OF GAS, WITH INITIAL PRODUCTION TO BEGIN IN THE SECOND HALF OF 1983. NO ADDITIONAL DRILLING IS CURRENTY PLANNED.

e. VERMILION 381 (MESA 80%; LEASE BONUS - $34.4 MM)—A PLATFORM WAS INSTALLED IN 1981 AFTER AN EXPLORATORY WELL ENCOUNTERED GAS IN 1980. FOUR DEVELOPMENT WELLS HAVE BEEN DRILLED AND COMPLETED. A FIFTH WELL IS CURRENTLY BEING DRILLED. PRODUCTION SHOULD BEGIN IN EARLY 1983. ADDITIONAL DRILLING IS PLANNED.

f. SOUTH MARSH ISLAND 155 (LEASE BONUS - $4.8 MM) AND 156 (LEASE BONUS - $10.7 MM) (MESA 70%)—A PLATFORM WAS INSTALLED ON BLOCK 155 IN 1980 TO DEVELOP OIL AND GAS RESERVES ON BOTH TRACTS. TWO SUCCESSFUL WELLS HAVE BEEN DRILLED ON BLOCK 155 AND THREE ON BLOCK 156. ADDITIONAL DRILLING IS PLANNED ON BOTH TRACTS. PRODUCTION IS EXPECTED TO COMMENCE FROM BOTH TRACTS IN EARLY 1983.

g. SOUTH PELTO 12 (MESA 37.8%; LEASE BONUS - $573 M)—PRODUCTION FROM TWO SUCCESSFUL GAS WELLS COMMENCED IN AUGUST 1982 AND ARE CURRENTLY PRODUCING AT A COMBINED DAILY RATE OF 11.3 MILLION CUBIC FEET OF GAS. (THIS RATE A RESULT OF PIPELINE CURTAILMENT. CAPABLE OF 1 4 MM.) CONTINGENT UPON PARTNER APPROVALS, ANOTHER DEVELOPMENT WELL WILL BE DRILLED IN 1983.

h. (SLIDE 5 - PLATFORM ON WEST DELTA 61) THIS IS A PHOTO OF THE PLATFORM INSTALLED ONWEST DELTA 61 (LEASE BONUS - $1.1 MM) IN 1977 WHICH SERVES BOTH WEST DELTA 61 AND 62 (LEASE BONUS - $16.7 MM) (MESA 100%). FOUR WELLS ARE CURRENTLY PRODUCING FROM BLOCK 61 AND ONE WELL FROM BLOCK 62 AT A COMBINED DAILY RATE OF 9.5 MILLION CUBIC FEET OF GAS. (THIS RATE DUE TO PIPELINE CURTAILMENT. CAPABLE OF 13 MM.) ADDITIONAL DRILLING IS EXPECTED ON BOTH TRACTS.

4. SLIDE 6 - OFFSHORE MAP) UNLIKE THE DEVELOPED, PRODUCING PROPERTIES CONVEYED TO THE MESA ROYALTY TRUST IN 1979, THE MESA OFFSHORE TRUST PROPERTIES HAVE NOT BEEN FULLY DEVELOPED AND WILL REQUIRE SUBSTANTIAL EXPENDITURES FOR FURTHER EXPLORATION AND DEVELOPMENT.

a. MESA HAS ALREADY INVESTED ALMOST ONE-HALF BILLION DOLLARS ($474 MILLION), INCLUDING LEASEHOLD BONUSES OF ALMOST $200 MILLION, IN THESE PROPERTIES.)

5. EXPENDITURES WILL EXCEED THE REVENUES FROM THE ROYALTY PROPERTIES DURING 1983; THEREFORE, NO DISTRIBUTIONS ARE EXPECTED IN 1983, AND LITTLE, IF ANY, IN 1984.

a. WE BELIEVE, HOWEVER, THAT THERE IS EXCELLENT POTENTIAL IN THESE PROPERTIES FOR OUR SHAREHOLDERS, AS EVIDENCED BY OUR 1983 CAPITAL BUDGET WHICH INCLUDES $85 MILLION EARMARKED FOR THESE PROPERTIES.

6. BEFORE LEAVING THIS SLIDE, I WANT TO POINT OUT THAT IN ADDITION TO THE 10 OFFSHORE TRACTS DEDICATED TO THE TRUST, MESA HAS INTERESTS IN 62 FEDERAL AND 60 STATE TRACTS OF WHICH 61 ARE UNDEVELOPED.

C. (SLIDE 7-MESA LOGO) THE MESA OFFSHORE TRUST IS ANOTHER STEP IN MESA'S CONTINUING PHILOSOPHY OF PROTECTING AND ENHANCING OUR SHAREHOLDERS' INTEREST.

II. BEFORE TURNING TO MESA'S CORPORATE STRATEGY AND FUTURE PLANS, I WANT TO BRIEFLY COMMENT ABOUT THE PETROLEUM INDUSTRY.

A. WE HAVEN'T HEARD MUCH GOOD NEWS ABOUT OUR INDUSTRY THIS YEAR.

1. THERE HAS BEEN A WORLDWIDE EXCESS SUPPLY OF CRUDE OIL RESULTING IN DECREASED PRICES.
2. THE MARKET FOR NATURAL GAS HAS BEEN POOR.
3. SEISMIC AND DRILLING ACTIVITY HAS PLUNGED.
4. REVENUES AND PROFITS HAVE DECLINED BECAUSE OF THE WINDFALL PROFITS TAX, HIGH INTEREST RATES, DECREASED PIPELINE TAKES AND THE DECREASE IN PRICES DUE TO OVERSUPPLY.

B. THE BOOM IS OVER FOR THE INDUSTRY.

C. BUT, THIS TOUGH PERIOD IS NOTHING NEW—OF THE 31 YEARS I'VE BEEN IN THE OIL AND GAS INDUSTRY, THERE HAVE BEEN VERY FEW YEARS WHICH WERE EASY.

D. WE HAVE SEEN SHAKEOUT PERIODS BEFORE—AND, WE ARE NOW IN ANOTHER PERIOD OF ADJUSTING. HE SURVIVORS WILL BE THE STRONGER MANAGEMENTS WHICH ARE MORE LIKELY TO BE SUCCESSFUL.

1. THE OIL BUSINESS IS HIGHLY TECHNICAL.
2. DURING BOOM TIMES, WHEN MONEY WAS PLENTIFUL AND DRILLING WAS SKYROCKETING, MANY WHO HAD NO QUALIFICATIONS GOT INTO THE BUSINESS. THEY ARE THE FIRST WHO WILL FALL BY THE WAYSIDE.
3. THIS SHAKEOUT IS ALSO EXPOSING MANAGEMENTS WHO, LULLED BY RECORD EARNINGS DUE TO TWELVE-FOLD INCREASE IN PRICES ORCHESTRATED BY OPEC, HAVE FAILED TO EMPHASIZE EFFICIENCY AND PRODUCTIVITY IN THEIR OPERATIONS.

E. I'M OPTIMISTIC ABOUT THE FUTURE OF THE INDUSTRY—BUT I'M ALSO REALISTIC—WE WILL HAVE A RECOVERY—BUT IT WILL BE SLOW.

F. CONSIDER SOME OF THE POSITIVE FACTORS AT WORK IN THE MARKETPLACE.

1. INTEREST RATES AND INFLATION ARE DROPPING.
2. COMBINED WITH THE REDUCTION IN DRILLING COSTS (COSTS OF DRILLING ARE 20%-30% BELOW WHAT THEY WERE AT THIS TIME LAST YEAR)—WE SHOULD BEGIN TO SEE A REDUCTION IN FINDING COSTS.
3. A COLD WINTER IS FORECAST.
4. AND, INVENTORIES ARE LOW.

G. ANOTHER FACTOR WE SHOULD CONSIDER IN THE ANALYSIS IS THAT DRILLING IN THE U.S. HAS DROPPED BY ALMOST 1/2 THIS YEAR—IT'S ONLY A MATTER OF TIME BEFORE DEMAND INCREASES.

H. THE OIL AND GAS INDUSTRY IS A VITAL PART OF OUR NATIONAL ECONOMY AND WILL REMAIN AMONG THE STRONGEST ECONOMIC ENTITIES IN OUR COUNTRY DESPITE THIS TOUGH PERIOD. THEREFORE, I AM OPTIMISTIC ABOUT THE OUTLOOK FOR THE DOMESTIC INDUSTRY.

III. NOW, LET'S TURN TO MESA'S GOALS AND CORPORATE STRATEGY.

A. THE OVERRIDING GOAL OF MANAGEMENT IS TO PROTECT AND EXPAND THE ASSETS OF THE COMPANY AND THE VALUE OF THEIR SHAREHOLDERS' INTERESTS.

B. OUR PLAN FOR ACHIEVING THIS GOAL IS REALLY QUITE SIMPLE—TO INCREASE RESERVES THROUGH EXPLORATION OR ACQUISITION. THEN, MANAGEMENT HAS TO DECIDE WHETHER IT CAN CONTINUE TO REPLACE RESERVES OR IF IT SHOULD MAKE NECESSARY ADJUSTMENTS TO ENHANCE THE SHAREHOLDERS' INVESTMENT.

C. TO ACHIEVE RESULTS FOR OUR SHAREHOLDERS, OUR PLAN EMPHASIZES THE IMPORTANCE OF RESERVE ENHANCEMENT.

1. OIL AND GAS COMPANIES, WHETHER LARGE OR SMALL, ARE MANAGERS OF DEPLETABLE ASSETS—THEIR RESERVES OF OIL AND GAS.
2. THEREFORE, IT IS INCUMBENT UPON COMPANIES TO INCREASE THEIR RESERVES TO ENSURE THE MAINTENANCE AND GROWTH OF THEIR ASSETS AND SHAREHOLDERS' INVESTMENT.
3. SOME COMPANIES, HOWEVER, MISLED BY RISING OIL PRICES AND RECORD EARNINGS, HAVE BEEN LIQUIDATING FOR YEARS; THEY SIMPLY HAVE NOT BEEN ABLE TO INCREASE THEIR RESERVES. AFTER PAYING CORPORATE AND WINDFALL PROFIT TAXES, THEIR DIVIDEND CHECK MERELY REPRESENTS A RETURN OF CAPITAL.

D. THE KEY TO MANAGING OUR PLAN IS TO KEEP OUR COMPANY AT ITS OPTIMUM SIZE.

E. HOW DO YOU ACHIEVE OPTIMUM SIZE? BY BALANCING RESERVE BASE AND CASH FLOW WITH YOUR PERSONNEL TO ACHIEVE ECONOMIC INCREASES OF RESERVES THROUGH EXPLORATION AND ACQUISITION.

F. WHILE SOME COMPANIES' PRIMARY GOAL IS TO GET BIGGER, WE STRESS THE IMPORTANCE OF OPTIMUM SIZE.

G. BUT, KNOWING ABOUT OPTIMUM SIZE AND DOING SOMETHING ABOUT IT ARE TWO DIFFERENT THINGS.

H. WHICH BRINGS ME TO ANOTHER IMPORTANT INGREDIENT OF THE MESA PLAN—WE BELIEVE AN ADVANTAGE GOES TO THE MANAGEMENT THAT KNOWS ITS ASSETS WELL, THAT CAN ANALYZE ACCURATELY AND THAT IS WILLING TO MAKE ADJUSTMENTS.

IV. LET'S NOW EXAMINE THE MESA RECORD, KEEPING IN MIND OUR BASIC GOAL: TO MAINTAIN OPTIMUM SIZE.

A. (SLIDE 8 - INVERTED TRIANGLE) THIS SLIDE DEPICTS A SERIES OF ADJUSTMENTS MADE BY MESA IN RECENT YEARS.

1. MOST OF YOU ARE VERY FAMILIAR WITH OUR HISTORY—SO, I WILL NOT GIVE YOU A DETAILED EXPLANATION OF EACH OF THESE TRANSACTIONS.
2. IN JUNE 1979, WE SOLD OUR INTERESTS IN PROPERTIES OFF THE COAST OF SCOTLAND WHEN IT BECAME OBVIOUS THAT TAXATION AND REGULATION OF THE NORTH SEA OPERATIONS BY THE UNITED KINGDOM WOULD SERIOUSLY AFFECT OUR PROFITS.
3. IN OCTOBER 1979, AGAIN FOR REASONS OF GOVERNMENT REGULATION AND INVOLVEMENT, WE SOLD OUR CANADIAN PROPERTIES.
4. FROM THESE TWO TRANSACTIONS, WE REALIZED A PRE-TAX GAIN OF $345 MILLION.
5. ALSO IN 1979, IN NOVEMBER, WE DISTRIBUTED ABOUT ONE-HALF OF OUR OIL AND GAS RESERVES TO THE MESA ROYALTY TRUST FOR THE BENEFIT OF OUR SHAREHOLDERS. INCIDENTALLY, THE IRS HAS RECENTLY CONCLUDED THAT ROYALTY INCOME ATTRIBUTABLE TO THE TRUST WILL NOT BE TAXABLE TO MESA. THIS CLEARED THE LAST TAX HURDLE. THE IRS EARLIER RULED THAT THE TRUST WAS NONTAXABLE.
6. IN OCTOBER 1980, THE MTS LIMITED PARTNERSHIP WAS FORMED IN WHICH MESA, AS OPERATOR, CONTRIBUTED 1.9 MILLION ACRES, REPRESENTING SUBSTANTIALLY ALL OF ITS UNDEVELOPED OIL AND GAS LEASES OTHER THAN IN THE OUTER CONTINENTAL SHELF, FOR ITS 65% INTEREST. TEXACO INC. AND SEQUOIA PETROLEUM INC. CONTRIBUTED $250 MILLION FOR THEIR 25% and 10% INTERESTS, RESPECTIVELY.
7. OUR MOST RECENT TRANSACTION IS THE FORMATION OF THE MESA OFFSHORE TRUST.

B. (SLIDE 9 - NET PROVED EQUIVALENT GAS RESERVES) I MENTIONED EARLIER THE IMPORTANCE WE PLACE ON RESERVE ENHANCEMENT IN OUR-STRATEGIC PLAN.

1. MANAGING THE COMPANY'S RESERVES IS OUR GREATEST CHALLENGE—TO KEEP THEM AT A SIZE WHICH OUR PERSONNEL, USING AVAILABLE RESOURCES, CAN PROTECT AND ENHANCE.
2. SINCE 1964, MESA HAS CONSISTENTLY INCREASED ITS RESERVES.
3. THIS SLIDE ILLUSTRATES THE HISTORY OF OUR RESERVE BASE AND GRAPHICALLY DEMONSTRATES THE IMPACT OF OUR ADJUSTMENTS TO CONTROL SIZE.
4. YOU CAN SEE HOW WE HAVE INCREASED OUR RESERVES THROUGH EXPLORATION SUCCESSES AND ACQUISITIONS, HIGHLIGHTED BY THE HUGOTON MERGER IN 1970 AND PUBCO ACQUISITION IN 1973.
5. ADJUSTMENTS MADE TO SHRINK THE SIZE OF OUR RESERVE BASE ARE THE ADJUSTMENTS I HAVE PREVIOUSLY MENTIONED: IN 1979, THE SALE OF U.K. AND CANADIAN PROPERTIES; FORMATION OF THE MTS PARTNERSHIP IN 1980; THE FORMATION OF THE MESA ROYALTY TRUST; AND IN 1982, THE CREATION OF THE MESA OFFSHORE TRUST.

C. I WOULD LIKE TO CONCLUDE MY REVIEW OF OUR PROGRESS IN FULFILLING THE COMPANY'S PLAN BY EXAMINING THE MOST IMPORTANT MEASUREMENT—HAS THE MESA STOCKHOLDER MADE MONEY?

1. (SLIDE 11 - GROWTH OF 1,000 SHARES) THIS SLIDE ILLUSTRATES THE GROWTH OF A $10,000 INVESTMENT IN 1,000 SHARES OF MESA MADE IN 1964 AND HOW IT HAS BEEN IMPACTED BY THE ADJUSTMENTS AND TRANSACTIONS PREVIOUSLY DISCUSSED.
2. SINCE 1964, OUR HYPOTHETICAL "INVESTOR" HAS RECEIVED THREE 10% STOCK DIVIDENDS (1967, 1968 AND 1972), THREE TWO-FOR-ONE STOCK SPLITS (1973, 1980 AND 1981), A DISTRIBUTION OF THE MESA ROYALTY TRUST (1979), AND THE DISTRIBUTION THIS MONTH OF THE MESA OFFSHORE TRUST.
3. THE ORIGINAL 1,000 SHARES HAS GROWN TO APPROXIMATELY 24,000 SHARES AND UNITS (MSA = 10,650; MTR = 2,660; MOS = 10,650).
4. THE VALUE OF THE INVESTMENT HAS GROWN FROM $10,000 TO OVER $200,000.

V. (SLIDE 12 - MESA LOGO) THE RESULTS THAT I HAVE OUTLINED TODAY DEMONSTRATE A GOOD TRACK RECORD—OUR SHAREHOLDERS HAVE MADE MONEY. OUR PLAN TO ACHIEVE OPTIMUM SIZE THROUGH RESERVE ENHANCEMENT BY EXPLORATION OR ACQUISITION OR SPINOFF HAS BEEN SUCCESSFUL.

A. BECAUSE WE ARE WILLING TO MAKE ADJUSTMENTS TO MAINTAIN OPTIMUM SIZE, WE HAVE ESTABLISHED A SOUND RECORD ON THE THINGS WE CAN CONTROL—PERSONNEL—EXPLORATION-ACQUISITIONS.

B. (SLIDE 13 - OIL AND GAS EXPENDITURES) IN 1983, WE WILL IMPROVE OUR BALANCE SHEET BY REDUCING EXPENDITURES AND BRINGING BUDGET AND CASH FLOW MORE IN LINE.

C. (SLIDE 14 - U.S. MAP) IN 1983, WE EXPECT TO MAINTAIN A GOOD ACREAGE POSITION IN THE MAJOR BASINS IN THE UNITED STATES AND CONTINUE TO BE SUCCESSFUL IN EXPLORATION.

D. (SLIDE 15 - MESA LOGO) WE WILL CONTINUE STRIVING TO MAKE MONEY FOR OUR SHAREHOLDERS, A COMMITMENT WHICH HAS PRODUCED AN ENERGY INVESTMENT PORTFOLIO CONSISTING OF:

1. MESA COMMON - FOR INVESTORS INTERESTED IN CAPITAL GROWTH IN A STANDARD OPERATING COMPANY AND WHO KNOW THEY WILL SHARE IN FUTURE SUCCESS OF THE COMPANY.
2. MESA ROYALTY TRUST - FOR INVESTORS WANTING LONG-TERM, HIGH INCOME FROM OIL AND GAS PROPERTIES.
3. MESA OFFSHORE TRUST - FOR INVESTORS WHO ARE INTERESTED IN EXPLORATORY POTENTIAL.

XI. RETURN TO SCRIPT TWO QUESTIONS FROM THE FLOOR:

1. MARK WOMBLE: WHY WAS MESA OFFSHORE TRUST FORMED NOW RATHER THAN WAITING UNTIL THERE IS FURTHER DEVELOPMENT OF THE PROPERTIES AND SOME DISTRIBUTION AVAILABLE FOR UNITHOLDERS? ANSWER: BECAUSE MESA WILL HAVE NEGATIVE TAX EARNINGS AND PROFITS THIS YEAR, THE DISTRIBUTION WILL NOT BE TAXABLE AS A DIVIDEND. WHILE IN FUTURE YEARS, MESA IS LIKELY TO HAVE TAX EARNINGS AND PROFITS WHICH WOULD CREATE A TAXABLE DISTRIBUTION. THE CLOSER YOU GET TO DISTRIBUTION OF INCOME TO UNITHOLDERS, THE HIGHER THE VALUE THAT WILL BE PLACED ON THE UNITS WHEN THEY WERE DISTRIBUTED WHICH WOULD RESULT IN A HIGHER TAX. WITH THE RECENT FAVORABLE TAX RULING ON THE MESA ROYALTY TRUST IN HAND, THERE WOULD SEEM TO BE NO LIABILITY IN FORMING THE MESA OFFSHORE TRUST NOW.

2. RICK PARIS: CAN YOU COMMENT ON THE CURRENT GAS BUBBLE AND HOW IT RELATES TO THE MESA OFFSHORE TRUST? ANSWER: THE CURRENT SURPLUS OF NATURAL GAS HAS RESULTED IN SUBSTANTIAL DECLINES IN MARKET PRICES FOR DEREGULATED GAS, SOME CURTAILMENTS IN TAKES OF GAS, THE EXERCISE OF "MARKET OUT" AND OTHER CONTRACTUAL RELIEF PROVISIONS AND OTHER DELAYS IN MARKETING PRODUCTION. NO ONE CAN PREDICT WITH CERTAINTY THE DURATION OF THE SURPLUS, ONLY THAT IT IS TEMPORARY AND COULD BE QUICKLY CHANGED BY SUCH FACTORS AS A REDUCTION IN INVENTORIES DUE TO COLD WEATHER OR AN INTERRUPTION IN MID-EAST CRUDE OIL SUPPLIES. HOWEVER, MESA HOLDS GAS PURCHASE CONTRACTS WITH "TAKE OR PAY" PROVISIONS FOR EXISTING PRODUCTION ON SOUTH PELTO 12 AND WEST DELTA 61 AND 62. MESA HAS ALSO ENTERED INTO LONG-TERM GAS CONTRACTS, BUT HAS NOT COMMENCED DELIVERIES, ON FIVE OTHER ROYALTY PROPERTIES. MESA HAS NOT YET NEGOTIATED A CONTRACT FOR THE SALE OF GAS FROM BRAZOS A-7 OR A-39. HOWEVER, THE COMPANY IS CONFIDENT THAT IT WILL BE ABLE TO SELL THIS GAS.