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

FROM THE DESK OF ALLAN CECIL MESA PETROLEUM CO.

December 6, 1982

To: T. B. Pickens, Jr.
J. F. Boros
J. R. Bush
S. L. Tassin

Attached is a revised copy of Boone's speech which we will review tomorrow, Tuesday, at 2 p.m. in the 5th floor conference room.

AVC
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Attachment

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 beginning December 13 on a when-issued basis under the symbol MOS.
2. The Trustee for the Trust is the Texas Commerce Bank {Stricken text: National Association} 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, 31 successful wells have been drilled and five wells are currently drilling.

a. Of these 31 successful wells, 24 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%)--A platform was installed in late 1981 over a previously drilled gas discovery. Two successful gas wells have been drilled, [Handwritten addition: from platform] and exploratory and development drilling will continue. Production should commence in mid-1983.

b. (SLIDE 3 - A-39 DISCOVERY WELL) This is a photo of the discovery well on Brazos A-39 (Mesa 50%). A four-well platform has been installed on this tract located in the "Big hum" trend. Development and exploratory drilling is continuing, and initial production is expected in early 1984.

c. (SLIDE 4 - OFFSHORE MAP) Brazos A-7 (Mesa 50%)—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 late 1983.

d. High Island 567 (Mesa 50%)—A platform was installed in late 1980, and.seven successful gas wells were completed during 1981 and 1982. Production from these wells is expected to begin in the second half of 1983. No additional drilling is currently planned.

e. Vermilion 381 (Mesa 80%)—A platform was installed in 1981 after an exploratory well encountered gas in 1980. Four development wells have been drilled and are being completed. Production should begin in early 1983. Additional drilling is planned.

f. South Marsh Island 155 and 156 (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%)--Production from two successful gas wells commenced in August 1982. Contingent upon partner approvals, another development well will be drilled in 1983.

h. (SLICE 5 - PLATFORM ON WEST DELTA 61) This is a photo of the platform installed onWest Delta 61 in 1977 which serves both West Delta 61 and 62 (Mesa 100%). Four wells are currently producing from block 61, and one well is producing from block 62. Additional drilling is expected on both tracts. [Handwritten addition: Ratio]

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 {Stricken text: the} [Handwritten addition: substantial] expenditures {Stricken text: of substantial amounts} 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 {Stricken text: substantially} exceed the revenues from the royalty properties during 1983; therefore, no distributions are expected in 1983, and {Stricken text: few} [Handwritten addition: 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 {Stricken text: contains} [Handwritten addition: 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.

{Stricken text: a. We are not getting out of the business of finding oil and gas!}

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 an excess [Handwritten addition: world] supply of crude oil resulting in the drop and [Handwritten addition: eventual] stabilization of prices.
2. The market for natural gas has been {Stricken text: soft} [Handwritten addition: poor]
3. Seismic and drilling activity has plunged.
4. Revenues and profits have declined—{Stricken text: primarily because of high finding costs,} [Handwritten addition: taxes], high interest rates 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 few years in which {Stricken text: we "lined 'um up and ran over 'um."}

D. We have seen shakeout periods before—and, I'm convinced that this shakeout we're now experiencing will ultimately strengthen the industry.

1. This {Stricken text: business} is a highly technical {Stricken text: business}
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. {Stricken text: and with it, another price hike by OPEC.} [Handwritten addition: WSI]

{Stricken text: H. Yes, I do believe we are on the road} to recovery in the industry—{Stricken text: it will perhaps it will be a prolonged journey with a few detours—but} [Handwritten addition: and], I believe the oil and gas industry will remain among the strongest economic entities in our country. [Handwritten addition: therefore I'm enthusiastic]

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 {Stricken text: their} shareholders' interests.

B. Our plan for achieving this goal is really quite simple—to increase reserves through exploration or [Handwritten addition: make] acquisition until we decide to reduce size by spinning off assets directly to the shareholders.

C. To achieve results for our shareholders, our plan emphasizes {Stricken text: two important elements} reserve enhancement {Stricken text: and personnel}

1. Oil and gas companies, {Stricken text: both} [Handwritten addition: whether] large and 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 [Handwritten addition: able to] increase{ing} their reserves {Stricken text: annually}. After paying corporate and windfall profit taxes, their dividend check merely represents a return of capital.

{Stricken text: D. The second essential element of our plan is personnel.}

1. {Stricken text: We strive to attract and keep highly technical and experienced personnel.}
2. {stricken text: We offer an attractive compensation package, including excellent benefits, as incentives to ensure high performance.} [Handwritten addition: transition]

E. The key to managing our plan is to keep our Company at its optimum size.

F. What do I mean by optimum size? A size that enables your personnel to annually increase the reserves of the company.

G. To some [Handwritten addition: companies] success means {Stricken text: bigness.} [Handwritten addition: becoming large]

H. But, we equate success with {Stricken text: maintaining} [Handwritten addition: achieving] optimum size—a size that may increase or decrease depending upon economic and business factors.

I. But, knowing about optimum size and doing something about it are two different things.

J. Which brings me to another important ingredient of the Mesa plan--we believe an advantage goes to the mangement that knows its asse s well, that can analyze accurately, that is willing [Handwritten addition: and able] to make adjustments to achieve optimum size {Stricken text: and who are decision makers}

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, {Stricken text: to achieve optimum size}

1. Most of you are very familiar with our history—*so, I will not give you a detailed explanation of each of these optimum size adjustments.
2. In June 1979, we sold our interests in properties off the coast of Scotland when it became obvious to our management that taxation and regulation of the North Sea operations by the United Kingdom would seriously affect our {Stricken text: operating margin} [Handwritten addition: profit]
3. In October 1979, again for reasons of government regulation and involvement, we sold our Canadian properties. {Stricken text: retaining a 12.5% gross overriding royalty on 1.2 million net undeveloped acres.}
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 concluded that royalty income attributable to the Trust will not be taxable to Mesa. This cleared the last [Handwritten addition: tax] hurdle.
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 optimum size adjustment 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 reserve base is our greatest challenge—to keep it at the size that fits our people and resources.
2. Since 1964, Mesa has consistently increased its reserves.
3. This slide illustrates the history of our reserve base {stricken text: and graphically demonstrates the impact of our adjustments to maintain optimum size.
4. You can see how we have increased our reserves {Stricken text: base} through exploration success[es] 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 and the formation of Mesa Royalty Trust; [Handwritten addition: 1980 mts partnership] and in 1982, the creation of Mesa Offshore Trust.

{Stricken text: C. SLIDE 10 - EMPLOYEES PER $1 MILLION ASSETS} {Stricken text: I also mentioned earlier the importance of personnel—having the right team properly motivated and in quanities that operate in the most productive manner to help ensure optimum size.}

1. {Stricken text: This slide illustrates my point.}
2. You will note our steady improvement in the ratio of employees to assets. In a period when national productivity has been declining, Mesa continues to lower the ratio of employees necessary to handle its assets.
3. In 1974, it took 11.5 employees to manage $1 million in assets while in 1982 it takes less than one employee. While Mesa's total number of employees has increased, its assets have increased at a much faster rate
   
   a. Dedication of Mesa Employees, many of whom are here today, has enabled the company to accomplish this.

D. 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 {Stricken text: our} [Handwritten addition: the] adjustments {Stricken text: to maintain optimum size.} [Handwritten addition: and transactions that I have previously discussed.]
2. Since 1964, our [Handwritten addition: 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 24,000 shares and units (MSA = 10,648; MTR = 2,662; MOST = 10,648.
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 to come 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 ins market prices for deregulated gas, some-curtailments in takes of gas, the exercise of "market out" and other contractual relief provision 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.