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	REMARKS TO YOUNG PRESIDENT’S ORGANIZATION WESTERN AREA CONFERENCE “CROSSROADS FOR THE PETROLEUM INDUSTRY: RESTRUCTURING OR ‘BUSINESS AS USUAL?’” FEBRUARY 4, 1984

10:15 A.M.

(20 MIN.)

I. THANK YOU, HERB (MEE).
A. (PERSONAL COMMENTS, HUMOR)
B.
C.
D.

II. THIS IS AN EXCITING AND BUSY TIME FOR US AT MESA.
A. THERE ARE A LOT OF THINGS GOING ON IN OUR INDUSTRY BUT NOT MUCH DRILLING.
B. WE AND OUR CO-INVESTORS HAVE PURCHASED 22 MILLION SHARES, WHICH IS APPROXIMATELY 13.2% OF THE OUTSTANDING SHARES OF GULF, AND WE’VE INVESTED ABOUT $1 BILLION.
1. WE ARE COMMITTED TO REALIZING THE MAXIMUM VALUE FOR GULF SHARES, AND WE WILL PARTICIPATE IN THE GAINS WITH ALL GULF SHAREHOLDERS.
C. THE RESULTS IN THE RECENT PROXY CONTEST WERE PARTICULARLY ENCOURAGING BECAUSE ALMOST 50 PERCENT OF GULF SHAREHOLDERS REFUSED TO SUPPORT MANAGEMENT’S DEFENSIVE REINCORPORATION, INCLUDING MANY INSTITUTIONAL SHAREHOLDERS.
D. PLUS, WE WANTED TO GO TO DELAWARE (EXPLAIN).
E. THE SPECIAL MEETING ALSO GAVE US AN OPPORTUNITY TO MEET WITH AND EXPLAIN OUR VIEWS TO A LOT OF THE GULF SHAREHOLDERS.
F. THE PROXY CONTEST MADE IT CLEAR TO GULF MANAGEMENT THAT WE’RE SERIOUS AND THAT WE’RE GOING TO BE AROUND UNTIL THE JOB IS FINISHED.

I. BUT MESA-GULF ISN’T THE ONLY INDUSTRY NEWS LATELY.
A. MOST RECENTLY COASTAL MADE AN OFFER FOR 45% OF HOUSTON NATURAL GAS FOR $68, AND THEN HNG OFFERED $42 FOR COASTAL.
1. THERE’S A REAL SHOOT-OUT IN THE MAKING.
B. THEN ROYAL DUTCH SHELL MADE A TENDER OFFER FOR THE ADDITIONAL 30% OF SHELL OIL COMPANY IT DOESN’T ALREADY OWN.
C. AND WE STILL HAVE THE TEXACO-GETTY MERGER WORKING. . .AND MOBIL’S PROPOSAL TO SPIN OFF 2% OF ITS RESERVES IN A “PEANUT” ROYALTY TRUST.
D. THE BOTTOM LINE IN EACH OF THESE SITUATIONS IS WHAT’S BEST FOR THE STOCKHOLDERS.
1. IT LOOKS LIKE [Text stricken: SOME] [Handwritten addition: most] OF THESE DEALS HELP THE STOCKHOLDERS, AND THAT IS THE WAY IT SHOULD BE.
E. IT’S GOING TO HAVE TO BECOME THE STANDARD LINE THROUGHOUT THE OIL INDUSTRY [for the public owned co’s]. . .BECAUSE GROWING SHAREHOLDER AWARENESS IS ONE OF TWO REASONS THAT THE INDUSTRY IS SEEING SO MUCH ACTIVITY TODAY.
1. THE MOVEMENT IS LED IN MOST CASES BY LARGE STOCKHOLDERS, BUT THE SMALL ONES ARE CATCHING ON.

IV. ALL SHAREHOLDERS ARE BECOMING MORE AWARE THAT THEY, NOT MANAGEMENT, ARE THE TRUE OWNERS OF THE COMPANY.
A. AND IT’S NOT CONFINED SIMPLY TO THE OIL INDUSTRY.
B. MANAGEMENTS IN MANY COMPANIES ARE BEGINNING TO HEAR FROM SHAREHOLDERS WHO DON’T FEEL THAT THEIR INTERESTS AND MANAGEMENT’S INTERESTS COINCIDE.
C. ONE OF THE BIGGEST REASONS FOR THIS DIFFERENCE IN INTERESTS IS THAT MOST MANAGEMENTS ARE NOT SUBSTANTIAL SHAREHOLDERS—AND, APPARENTLY, DON’T WANT TO BE.
1. AT GULF FOR INSTANCE, THE TOP 3 OFFICERS IN THE COMPANY OWN LESS THAN ONE-TENTH OF 1% OF THE OUTSTANDING SHARES.
2. JAMES LEE, THE CHAIRMAN AND CEO OF GULF, OWNS ONLY 21,000 SHARES OF GULF STOCK, AND HE’S BEEN WITH GULF FOR 42 YEARS—THE LAST 20 OF WHICH HE’S BEEN IN A MANAGERIAL OR EXECUTIVE POSITION.
3. HE TOLD ME THE OTHER DAY THAT HIS WIFE OWNED 6,000 AND THAT I SHOULD MENTION HER OWNERSHIP.
4. BUT HE DIDN’T EVEN HAVE THAT MUCH STOCK UNTIL I STARTED MAKING SPEECHES ABOUT HIS OWNERSHIP.
5. HE INCREASED HIS HOLDINGS BY 29% THROUGH EXERCISING AN OPTION JUST TWO DAYS AFTER WE ANNOUNCED OUR INVESTMENT. [Handwritten addition: & his lack of ownership.]
6. LEE OWNS LESS STOCK THAN ANY OTHER CEO OF A MAJOR OIL COMPANY.
7. OUT OF THE 6 LARGEST OIL COMPANIES, LEE RANKS 6TH IN OWNERSHIP BUT FIRST IN LONGEVITY.
8. OBVIOUSLY, HE HASN’T INVESTED HIS OWN MONEY IN GULF, SO HOW COULD HIS PERSONAL INTERESTS COINCIDE WITH THE SHAREHOLDERS’?
D. UNFORTUNATELY, SUCH “CARETAKER” MANAGEMENTS ARE OFTEN MORE INTERESTED IN JOB SECURITY, PERKS AND POWER THAN WITH SHAREHOLDER VALUES.
1. THEIR DECISIONS REFLECT THEIR OWN INTERESTS—NOT THE SHAREHOLDERS’.
2. THEY BEGIN TO BELIEVE THAT THEY—-RATHER THAN THE STOCKHOLDERS—OWN THE COMPANY.
3. THIS KIND OF ARROGANCE IS BECOMING INCREASINGLY UNACCEPTABLE TO SHAREHOLDERS.
E. SHAREHOLDERS IN THE PETROLEUM INDUSTRY ARE CATCHING ON FASTER THAN OTHERS BECAUSE. . .ONE. . .OIL AND GAS ASSETS HAVE IDENTIFIABLE VALUES WHICH SHAREHOLDERS CAN SEE ARE SUBSTANTIALLY HIGHER THAN THE STOCK PRICE.
1. THE APPRAISED VALUE IS OFTEN OVER TWICE THE MARKET PRICE.
2. AND. . .TWO. . .THOSE ASSETS ARE BEING DEPLETED. [Handwritten addition: Most of the large oil co’s are actually taxing the dividend with oil & gas production that is not being replaced.]
3. SHAREHOLDERS ARE BEGINNING TO GET THE PICTURE. . .AND THEY DON’T LIKE WHAT THEY SEE.
F. AND BELIEVE ME, THIS AWARENESS IS ONLY GOING TO GROW.
G. THE INSTITUTIONAL HOLDERS [Text stricken: WILL PROBABLY] [Handwritten addition: should] LEAD THE WAY DUE TO THEIR FIDUCIARY RESPONSIBILITIES AND THEIR RESEARCH CAPABILITIES. [Handwritten addition: This is after some activist kicks the deal off.]

V. GROWING SHAREHOLDER AWARENESS IS ONLY ONE-HALF OF THE REASON THAT WE’RE SEEING SUCH ACTIVITY IN THE PETROLEUM INDUSTRY.
A. THE OTHER FACTOR IS [Text stricken: THAT] THE U.S. PETROLEUM INDUSTRY IS HAVING AN EXTREMELY DIFFICULT TIME REPLACING RESERVES.
B. PETROLEUM COMPANIES MANAGE DEPLETABLE ASSETS—THEIR RESERVES OF OIL AND GAS.
C. IF THEY CONTINUALLY DEPLETE THOSE RESERVES WITHOUT REPLACING THEM, THEY’RE SIMPLY LIQUIDATING THE COMPANY—TO THE DETRIMENT OF THE SHAREHOLDER.
D. THIS HAS BEEN GOING ON FOR YEARS.
1. THE INDUSTRY’S DOMESTIC OIL AND GAS RESERVES HAVE BEEN STEADILY DECLINING SINCE 1970.
2. IN 1982, THE INDUSTRY ONLY REPLACED 47% OF THE CRUDE OIL IT PRODUCED.
3. AND [Text stricken: MY GUESS IS] [Handwritten addition: I am confident] THAT 1983’s REPLACEMENT WILL BE SUBSTANTIALLY LESS THAN [Text stricken: THAT.] [Handwritten addition: 1982.]
E. MESA HAS CONSISTENTLY REPLACED RESERVES THROUGHOUT ITS HISTORY, BUT THAT HAS NOT BEEN THE CASE FOR MANY OTHER COMPANIES IN THE INDUSTRY.
F. AND WITH OIL PRICES STABILIZED, THE POOR PERFORMERS—THE NON-REPLACERS—HAVE BECOME VERY PROMINENT.
1. DECLINING [Handwritten addition: reserves] PRODUCTION IS NO LONGER BEING COVERED UP BY RISING PRICES.
G. TAKE A LOOK AT THE REPLACEMENT PERCENTAGES OF SOME OF THIS COUNTRY’S LARGEST OIL COMPANIES.
H. I’M GOING TO GIVE YOU TWO SETS OF FIGURES—FIRST A FIVE-YEAR AVERAGE AND THEN THE REPLACEMENT FOR 1982, ALONE:

[Handwritten addition: Here are losers for you.] DOMESTIC RESERVES FROM 1978—1982 1982 1. SHELL—91% 94% 2. STANDARD (INDIANA)—63% 69% 3. MOBIL—49% 37% 4. STANDARD OF CALIFORNIA—61% 48% 5. PHILLIPS—35% 58% 6. GETTY—37% 33% 7. TEXACO—34% 36% 8. MESA—114% 120% (THESE NUMBERS DO NOT INCLUDE REVISIONS.)

AND FINALLY, GULF.
1. THEIR AVERAGE REPLACEMENT OVER THE LAST 5 YEARS IS ONLY 43%, AND FOR 1982 [Text stricken: IS] [Handwritten addition: was] 51%.
2. LET’S PUT THAT REPLACEMENT PERCENTAGE INTO TERMS THAT [Text stricken: MEAN MORE TO] [Handwritten addition: our] SHAREHOLDERS. [Handwritten addition: understand.]
3. WITH ONLY 43% REPLACEMENT OVER THE LAST FIVE YEARS, THE [Handwritten addition: Gulf] SHAREHOLDERS HAVE SUFFERED A 630-MILLION-BARREL OIL EQUIVALENT DECLINE IN U.S. RESERVES.
4. AT $10 PER BARREL. . .WHICH IS A FAIR ASSESSMENT OF WHAT THOSE RESERVES ARE WORTH. . .THAT’S A STOCKHOLDER LOSS OF $6.3 BILLION. [Handwritten addition: If you put it in market price it is 3 times that amount.]
8. EVEN WITH 60% REPLACEMENT IN 1983 AND 80% REPLACEMENT IN 1984, THAT’S STILL A DECREASE OF 100 MILLION BARRELS EQUIVALENT OVER THAT TWO-YEAR PERIOD [Text stricken: THAT] THE STOCKHOLDER [Text stricken: SUFFERS.] [Handwritten addition: loses again.]
9. USING THE SAME VALUE FOR OIL IN THE GROUND THAT WE USED EARLIER, THAT’S ANOTHER $1 BILLION LOSS FOR STOCKHOLDERS—AND NO LOSS FOR MANAGEMENT. [Handwritten addition: probably another raise.]

VI. GULF’S SOLUTION TO THE DEPLETION PROBLEM HAS BEEN TO BUY BACK THEIR OWN STOCK, RAISE THE DIVIDEND AND SHIFT THEIR EXPLORATION EFFORTS FROM THE MATURE PRODUCING AREAS OF THE UNITED STATES TO THE “RISKY AND EXPENSIVE” FRONTIER.
A. HOW LONG CAN A COMPANY CONTINUE TO RAISE ITS DIVIDEND AND DEPLETE ITS RESERVE BASE[Text stricken: .] [Handwritten addition: at the same time?]
B. AND HOW LONG CAN A COMPANY CONTINUE TO DRILL IN THE FRONTIER WHEN ITS RECORD FOR SUCCESS IS LOOKING POORER ALL THE TIME?
1. GULF WAS PART OF THE MUKLUK WELL IN THE ALASKAN FRONTIER WHICH HAS BEEN LABELED THE MOST EXPENSIVE DRY HOLE IN HISTORY.
2. AND GULF IS THE OPERATOR FOR THE CROSS ISLAND WELL IN THE BEAUFORT SEA. WHICH ALSO WAS A DRY HOLE.
3. GULF ANNOUNCED THIS WEEK THAT [Handwritten addition: (quote)] [Handwritten addition: "]THE [Handwritten addition: original shaft in Cross Isl.] WOULD BE PLUGGED AT 12,500 FEET AND “AN ANGLED SHAFT DRILLED TO A POINT ABOUT 1,500 FEET FROM THE ORIGINAL BOTTOM OF THE WELL.” [Handwritten addition: No wonder they can’t find anything. They think they are in the mining business.]
4. THE PURPOSE [Handwritten addition: for this] IS TO TRY TO ENCOUNTER THE PRIMARY OBJECTIVE IN A MORE DESIRABLE STRUCTURAL POSITION.
5. I ANNOUNCED THAT THE CROSS ISLAND WELL WAS A DRY HOLE IN HOUSTON ON JANUARY 24. [Handwritten addition: After the co. had been aware of the results for a week—I thought it was time to tell the stockholders—made co. madder then hell.]
6. GULF [Text stricken: HAS] [Handwritten addition: wasn’t going to tell stockholders but did] ACKNOWLEDGE[Text stricken: D] A CHARGE IN THE 4TH QUARTER OF $22 MILLION [Text stricken: BUT HAS NOT YET DECLARED THE WELL DRY.] [Handwritten addition: for dry hole cost—they didn’t think the stockholder would read the report—they may be surprised, we are helping the stockholders to catch on.]
7. THE PLUG-BACK AND DIRECTIONAL HOLE WILL BE EXPENSIVE AND [Text stricken: NOT IN] [Handwritten addition: it will not be in] THE BEST INTEREST OF STOCKHOLDERS.
8. I AM AFRAID THAT WHAT THEY ARE DOING IN THIS LATEST ESCAPADE WITH THE STOCKHOLDERS’ MONEY—-REMEMBER, MANAGEMENT OWNS VERY LITTLE STOCK—IS TO TRY TO PROVE ME WRONG. [Handwritten addition: I have been very critical of their affairs.]
9. I WILL ACCEPT THE CHALLENGE AND SAY THIS WELL WILL HAVE NO MORE CHANCE THAN THE FIRST ONE AND WILL BE DRY AT A WASTE OF $20 TO $30 MILLION.
C. NOT ONLY IS GULF TAKING HUGE RISKS WITH THE SHAREHOLDERS’ MONEY BY DRILLING IN THE FRONTIER, BUT THEY’RE ALSO DOING IT IN THE MOST INEFFICIENT WAY.
1. THEIR 2% INTEREST IN MUKLUK COST THEM OVER $60 MILLION BECAUSE THEY BOUGHT IN AFTER THE ORIGINAL PURCHASE.
2. THE COST SHOULD HAVE BEEN $32 MILLION.
3. AND AT CROSS ISLAND, THEY PAID UNUSUAL PROMOTION TO AN INDUSTRY PARTNER—l00% OF THE WELL COST FOR A 50% INTEREST. [Handwritten addition: Oh, by the way, they can’t go on production for [Text illegible: yrs.]]

VII. BEFORE I GO ANY FURTHER, LET ME SAY THAT THERE’S NOTHING WRONG WITH DRILLING IN THE FRONTIER IF — AND I UNDERLINE IF — IT IS ECONOMICAL. [Handwritten addition: sound.]
A. BUT WITH TODAY’S FINDING COSTS AND OIL AT $29 A BARREL, THE FRONTIER HAS FEW ECONOMICAL PROSPECTS.

(PAUSE)

VIll. SO YOU’VE GOT TWO FACTORS WORKING TODAY IN THE OIL INDUSTRY WHICH ARE CAUSING A FLURRY OF ACTIVITY TO RESTRUCTURE.
A. ONE, SHAREHOLDERS ARE BEGINNING TO UNDERSTAND THAT THEIR INVESTMENTS AREN’T BEING WELL MANAGED. . .AND TWO, THE INDUSTRY HAS REACHED A POINT WHERE “BUSINESS AS USUAL” JUST WON’T SOLVE THE RESERVE REPLACEMENT PROBLEM.
B. MY ENTIRE 33-YEAR CAREER HAS BEEN SPENT IN THE OIL AND GAS INDUSTRY.
1. IT IS A GREAT INDUSTRY; HOWEVER, IT IS NOT WITHOUT SERIOUS PROBLEMS.
C. WE LET THE SOARING OIL PRICES OF THE 70s COVER UP A LOT OF THOSE PROBLEMS, INCLUDING RISING FINDING COSTS AND CONTINUED RESERVE DEPLETION—THESE WERE SOMEHOW SWEPT UNDER THE RUG.
D. DRILLING ACTIVITY HIT AN ALL-TIME HIGH IN LATE 1981, BUT WE STILL DIDN’T REPLACE RESERVES AS AN INDUSTRY.
E. RISING PRICES PROVIDED A LOT OF CASH, BUT THERE WEREN’T THAT MANY GOOD EXPLORATION PROSPECTS AVAILABLE.
1. THEREFORE, MANY OF THE MAJOR OIL COMPANIES DIVERSIFIED INTO MARGINALLY AND SOMETIMES OUTRIGHT UNPROFITABLE NON-ENERGY BUSINESSES, RANGING FROM NEWSPAPERS TO OFFICE EQUIPMENT.
2. THIS DID NOTHING TO HELP SHAREHOLDERS AND ALSO INCREASED PUBLIC CRITICISM OF THE INDUSTRY.
F. MANY OF THE MAJOR OIL COMPANIES ARE STILL GUILTY.
1. THEY’RE UP TO THEIR NECKS IN CASH, YET THEY’RE NOT GIVING THEIR SHAREHOLDERS A FAIR RETURN ON THEIR INVESTMENT.
G. HOWEVER WHEN SHAREHOLDERS LIKE THE GULF INVESTORS GROUP (EXPLAIN) PROPOSE WAYS TO ENHANCE SHAREHOLDER VALUES SUCH AS A ROYALTY TRUST THE RESPONSE FROM MANAGEMENT IS THAT THEY NEED ALL THE CASH FLOW FOR EXPLORATION IN THE NIGH=COST FRONTIER AREAS.
1. WOULD LEE PUT HIS OWN MONEY INTO A BEAUFORT SEA WILDCAT?
2. I WOULDN’T.
H. IN ADDITION, THEY WRAP THEMSELVES IN THE FLAG BY SAYING FRONTIER EXPLORATION IS NECESSARY FOR U.S. ENERGY INDEPENDENCE.
1. WELL, WHERE WAS THIS PATRIOTISM WHEN THE MAJORS LEFT THE U.S. FOR CHEAPER FOREIGN OIL IN THE 1950s?
2. THEY CAME HOME IN THE 1970s—NOT BECAUSE THEY WERE CONCERNED WITH U.S. ENERGY SECURITY AND DEVELOPING A STRONG DOMESTIC ENERGY INDUSTRY, BUT BECAUSE THEY WERE KICKED OUT OF THE FOREIGN COUNTRIES THEY’D GONE INTO.
3. WHEN THEY RETURNED, THEY FOUND THEMSELVES FACING STIFF COMPETITION FROM THE INDEPENDENT 0IL COMPANIES.
4. THE INDEPENDENTS WERE MORE EFFICIENT AND THE MAJORS FRANKLY COULDN’T COMPETE.
5. INDEPENDENT OIL COMPANIES DRILL OVER 80% OF THE WELLS IN THIS COUNTRY.
6. THEY TAKE THE REAL RISKS, AND THEY’RE THE MOST INNOVATIVE SEGMENT OF THE INDUSTRY.
7. REMEMBER—IN MOST CASES, INDEPENDENTS HAVE THEIR OWN MONEY AT STAKE—AND THAT MAKES A DIFFERENCE.

IX. WE’VE COME TO A POINT WHERE THE TOTAL INDUSTRY MUST BE INNOVATIVE.
A. I BELIEVE IN FREE ENTERPRISE, AND I SEE THE RESTRUCTURING PROCESS AS THE FREE ENTERPRISE SYSTEM WORKING AT ITS BEST.
B. IT’S A LOT BETTER TO HAVE THOSE WITHIN THE INDUSTRY—THE PEOPLE WHO KNOW THIS BUSINESS—DETERMINING WHAT KINDS OF CHANGES SHOULD BE MADE. . .RATHER THAN HAVING GOVERNMENT MAKE DECISIONS FOR US.

X. RESTRUCTURING IS GOING TO TAKE SEVERAL FORMS—SOME OF WHICH HAVEN’T EVEN BEEN DEVELOPED, YET.
A. BUT I BELIEVE THAT ONE OF THE TOOLS THE INDUSTRY WILL USE IS THE ROYALTY TRUST CONCEPT.
B. WITH A ROYALTY TRUST A COMPANY CAN MAXIMIZE VALUES FOR ITS SHAREHOLDERS AND HAVE A MUCH BETTER OPPORTUNITY TO REVERSE ITS RESERVE DEPLETION TREND.
C. IN [Text stricken: MANY] [Handwritten addition: most] CASES, THERE IS NO HOPE OF MANAGEMENT GETTING THE COMPANY’S STOCK ANYWHERE CLOSE TO APPRAISED VALUE UNLESS THEY DOWNSIZE THE RESERVE BASE.
D. YET, GULF’S BOARD OF DIRECTORS REJECTED OUR FORMAL PROPOSAL OF SUCH A TRUST WITHOUT EVEN OFFERING TO DISCUSS THE MATTER WITH US. . .RATHER ARROGANT TREATMENT OF THE COMPANY’S LARGEST SHAREHOLDER.
1. IT NOW LOOKS LIKE [Text stricken: THE GULF MANAGEMENT] [Handwritten addition: they] WILL RECONSIDER AND DISCUSS THE PROPOSAL WITH US IN THE NEAR FUTURE.
E. THIS IS A SUBJECT OF GREAT IMPORTANCE; NOT ONLY TO GULF SHAREHOLDERS BUT TO OTHERS IN THE INDUSTRY TO THE PUBLIC AND TO CONGRESS.
F. GULF HAS BEEN ASKED TO DEBATE THE ISSUE ON FOUR DIFFERENT OCCASIONS BUT THEY HAVE ALWAYS REFUSED EVEN THOUGH IT WOULD BE FAIR FOR ALL CONCERNED TO HEAR BOTH SIDES OF THE STORY.
1. (HARVARD, LBJ SCHOOL, NEW YORK SOCIETY OF SECURITY ANALYSTS & CNN)
G. WE KNOW THAT THE ROYALTY TRUST CONCEPT HAS A GROWING NUMBER OF PROPONENTS.
H. RECENTLY, THE TORTORELLO CORPORATION, A NEW YORK PUBLIC OPINION FIRM, SURVEYED 100 SECURITY ANALYSTS SPECIALIZING IN THE PETROLEUM INDUSTRY.
1. THE FULL RESULTS OF THEIR SURVEY WILL BE RELEASED NEXT WEEK, BUT I’D LIKE TO GIVE YOU SOME OF THE HIGHLIGHTS.
2. WHEN ASKED WHETHER DISTRIBUTION OF A ROYALTY TRUST WOULD BE GOOD FOR STOCKHOLDERS, 82% SAID THAT IT WOULD.
(82% WOULD BENEFIT; 3% WOULD NOT BENEFIT; 5% DON’T KNOW ENOUGH; 10% NOT SURE)
3. BY A MARGIN BETTER THAN TWO TO ONE, SECURITY ANALYSTS PERCEIVED THAT THE ROYALTY TRUST CONCEPT WOULD HAVE A POSITIVE — RATHER THAN NEGATIVE — EFFECT ON THE OIL AND GAS INDUSTRY.
(48% POSITIVE; 21% NEGATIVE; 31% NO EFFECT OR NOT SURE)
4. AND 51% FELT THAT MAJOR OIL COMPANIES SHOULD DISTRIBUTE ROYALTY TRUSTS.
(51% YES; 32% N0; 17% NOT SURE)
5. SIGNIFICANTLY MORE ANALYSTS FELT THAT A COMPANY’S COMMON STOCK WOULD BE MORE ATTRACTIVE AFTER THE DISTRIBUTION OF A ROYALTY TRUST THAN THOSE WHO FELT IT WOULD BE LESS ATTRACTIVE.
(46% MORE ATTRACTIVE; 28% LESS ATTRACTIVE; 21% SAME ATTRACTIVENESS; 5% NOT SURE)

I. IT’S CLEAR THAT ANALYSTS ARE RECEPTIVE TO THE ROYALTY TRUST CONCEPT, AND I BELIEVE SHAREHOLDERS ARE, TOO.

(PAUSE)

XI. THE INDUSTRY MUST CONSIDER NEW IDEAS FOR RESTRUCTURING, SUCH AS ROYALTY TRUSTS, IF IT IS TO PROSPER. . .AND BE IN A POSITION TO ENSURE A SECURE ENERGY FUTURE FOR THIS COUNTRY.
A. WE CANNOT—LIKE BIG GOVERNMENT HAS DONE SO MANY TIMES—SIMPLY THROW MONEY AT A PROBLEM AND MAKE PEOPLE THINK THAT WE HAVE A SOLUTION.
1. IN THE LAST 5 YEARS, GULF HAS SPENT $15.6 BILLION, AND ONLY 40% OF THAT WENT TO U.S. OIL AND GAS.
2. THE $15.6 BILLION OF TOTAL EXPENDITURES REPRESENTS $95 INVESTED PER SHARE IN THE LAST 5 YEARS; YET, SHAREHOLDERS HAVE ONLY REALIZED AN $11 INCREASE IN THE VALUE OF THEIR STOCK.
3. THEY HAD MOVED FROM $26 TO $37 (5 YEARS) AND THEN ALONG CAME GIG.
4. IN THE LAST 5 MONTHS, [Text stricken: THEY’VE] [Handwritten addition: Gulf has] GONE FROM $37 TO $57, AND IT DIDN’T COST THE STOCKHOLDERS A DIME—IT’S JUST THE REALIZATION THAT SOMEBODY IS SERIOUS AND TRYING VERY HARD TO MOVE THE MARKET PRICE CLOSER TO APPRAISED VALUE.
5. AND REMEMBER; APPRAISED VALUE IN THIS CASE IS $114 PER SHARE.

XII. THIS KIND OF MISMANAGEMENT MUST BE REDIRECTED.
A. OUR INDUSTRY MUST BE MORE EFFICIENT AND RESPONSIVE TO ITS SHAREHOLDERS.
B. [Handwritten addition: And] WE CAN’T AFFORD TO BE WASTEFUL IN OUR SEARCH FOR ENERGY.
1. THESE PROJECTS HAVE TO MAKE ECONOMIC SENSE.
C. WE’VE PLAYED BY BIG OIL’S RULES FOR 40 YEARS.
D. IT’S TIME TO MAKE SOME INNOVATIVE CHANGES IF OUR INDUSTRY IS TO THRIVE AGAIN.
E. AND THAT WILL REQUIRE LEADERSHIP FROM PEOPLE WITHIN THE INDUSTRY WHO AREN’T AFRAID TO DO WHAT’S NECESSARY.