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| Boone Pickens Homepage Electronic Publishing Center |
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REMARKS TO LOUISIANA ASSOCIATION
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(TIME: 20 MIN.)
A. IT’S A PLEASURE TO BE IN NEW ORLEANS TODAY.
B. WE’VE PROVIDED SOME INFORMATION ON MESA IN PACKETS THAT YOU’LL FIND ON THE TABLES OUTSIDE THIS ROOM.
C. ONE OF THE ITEMS YOU’LL FIND IN THE PACKET IS A FORTUNE MAGAZINE THAT CONTAINS A STORY ABOUT [Text stricken: ME] [Handwritten addition: the Gulf deal.]
D. WHEN THE STORY CAME OUT, WE WANTED A FEW EXTRA COPIES.
E. SO WE ORDERED 100.
F. BUT THERE WAS A MIX-UP SOMEWHERE, AND WE ENDED UP WITH 100,000.
G. IT WASN’T REALLY A BAD DEAL, BUT STORAGE IS A REAL PROBLEM.
H. SO YOU’LL BE DOING [Text stricken: US] [Handwritten addition: me] A FAVOR IF YOU’LL TAKE SOME OF THESE OFF OF OUR HANDS.
A. I AM SURE THAT MOST OF YOU HAVE TAKEN GREAT INTEREST AND MAYBE EVEN CONCERN IN THE RECENT EVENTS OCCURRING WITHIN THE INDUSTRY AND IN CONGRESS.
B. WHAT WE’RE WITNESSING IS A RESTRUCTURING OF THE PETROLEUM INDUSTRY. . .A PROCESS THAT BEGAN, ALBEIT SLOWLY, OVER THE LAST FEW YEARS AND HAS NOW GATHERED ENOUGH STEAM TO GAIN THE ATTENTION OF THE GENERAL PUBLIC AND CONGRESS.
C. CRITICS OF RESTRUCTURING ARE WORRIED ABOUT SEVERAL THINGS. . .
1. FIRST WILL IT HARM THE CONSUMER. . .
2. SECOND, WILL IT HARM THE NATION’S CREDIT MARKETS. . .
3. AND THIRD, WILL IT HARM THE NATION’S ENERGY SECURITY?
D. I’D LIKE TO ADDRESS ALL THOSE POINTS [Text stricken: BECAUSE, FRANKLY, I DON’T SEE ANY HARM AT ALL COMING FROM RESTRUCTURING.]
E. [Text stricken: ON THE CONTRARY, I ONLY SEE GOOD COMING FROM IT.]
A. THE PRICE OF GASOLINE IS DETERMINED BY THE PRICE OF OIL.
B. AND OIL PRICES ARE DETERMINED BY OPEC. . .NOT BY [Text stricken: MAJOR] [Handwritten addition: U.S.] OIL COMPANIES.
C. THERE’S NO WAY THAT A FEW ACQUISITIONS IN THE DOMESTIC OIL INDUSTRY CAN CHANGE THAT.
D. TOO MUCH CONCENTRATION IN DOWNSTREAM OPERATIONS IS UNLIKELY. TOO.
E. THE PETROLEUM INDUSTRY IS ONE OF THE MOST FRAGMENTED IN THE UNITED STATES.
[Handwritten addition: Ex.-Gulf (#3) & Socal (#6)]
[Handwritten addition: Refining & Marketing 10.1%]
[Handwritten addition: Domestic Reserves 5.8%]
A. AFTER ALL, THIS PROCESS IS OCCURRING BECAUSE THE INDUSTRY NEEDS TO BE MORE EFFICIENT.
B. CONSOLIDATION AND STREAMLINING OF OPERATIONS—ESPECIALLY ON THE DOWNSTREAM SIDE—SHOULD LEAD TO COST-EFFICIENCY.
C. INEFFICIENCIES ARE ALWAYS DIGESTED SOMEWHERE ALONG THE LINE AND ARE ULTIMATELY PAID FOR BY THE CONSUMER.
A. IF YOU’VE NOTICED, THE BANKS HAVE BEEN STANDING IN LINE TO LOAN MONEY TO SOCAL, MOBIL AND TEXACO.
B. THERE’S JUST NO SHORTAGE OF CREDIT AVAILABLE.
C. THE SECURITIES AND EXCHANGE COMMISSION ADVISORY COMMITTEE ON TENDER OFFERS RECENTLY PUBLISHED A REPORT THAT DISCREDITS THE THEORY THAT MERGERS DRAIN THE NATION’S RESOURCES AND RESULT IN A SHORTAGE OF BANK CREDIT.
D. THE REPORT, WHICH IS SUPPORTED BY FEDERAL RESERVE BOARD CHAIRMAN, PAUL VOLCKER, SAYS THAT MERGERS DO NOT DISTORT THE CREDIT MARKETS. . .DIVERT INVESTMENT. . .OR DEPLETE THE CONSUMER’S ABILITY TO OBTAIN CREDIT.
E. THE COMMITTEE SAID, INSTEAD, THAT MERGER TRANSACTIONS BASICALLY INVOLVE A TRANSFER OF EXISTING ASSETS.
F. MONEY SIMPLY FLOWS FROM ONE SET OF HANDS INTO ANOTHER.
G. IN RECENT TESTIMONY BEFORE THE SENATE JUDICIARY COMMITTEE, DR. LEIF OLSEN. . .WHO IS CHAIRMAN OF THE ECONOMIC POLICY COMMITTEE AT CITIBANK. . .SAID THAT EVEN THOUGH A TRANSACTION OF SEVERAL BILLION DOLLARS SEEMS ENORMOUS, IT IS ACTUALLY NOT SIGNIFICANT IN COMPARISON TO THE TOTAL FUNDS AVAILABLE IN THE CAPITAL MARKET.
H. DR, OLSEN STATED THAT IN 1983, EQUITY TRANSACTIONS WERE IN EXCESS OF 30 TRILLION GROSS DOLLARS.
I. GROSS BANK LENDING AND INVESTING WAS MORE THAN $4 TRILLION.
J. AND BECAUSE THE TREND TODAY IS TO INVOLVE OVERSEAS CAPITAL SOURCES, THERE IS LITTLE IMPACT ON THE DOMESTIC MONEY SUPPLY[Handwritten addition: .] [Text stricken: FOR MANY MONTHS.]
K. [Text stricken: SO. . .AS I SAID JUST A FEW MOMENTS AGO. . .THERE IS NO UNDERSUPPLY OF CREDIT.]
A. IT’S AS IF PEOPLE THINK THIS MONEY WILL SIMPLY DISAPPEAR.
B. FIRST OF ALL, THE U.S. TREASURY WILL TAKE ABOUT A $2 BILLION BITE IN THE FORM OF TAX REVENUES.
C. AND WHAT BETTER WAY TO INCREASE TAX REVENUES.
D. GULF SHAREHOLDERS WILL MAKE MONEY, AND THE FEDERAL GOVERNMENT WILL COLLECT TAXES.
E. THAT’S THE WAY THE FREE ENTERPRISE SYSTEM IS SUPPOSED TO WORK.
F. HALF OF THE MONEY IN THE SOCAL-GULF DEAL IS COMING FROM FOREIGN BANKS.
1. BUT BECAUSE 95% OF GULF’S SHAREHOLDERS ARE IN THE U.S., 95% OF THAT MONEY WILL [Handwritten addition: be] POURED INTO THE U.S. ECONOMY.
G. THERE MAY BE A FEW INDIVIDUALS WHO WILL TAKE THEIR CASH AND STUFF IT [Text stricken: UNDER] [Handwritten addition: in] THE MATTRESS.
H. BUT THE MAJORITY WILL TAKE THAT MONEY AND PLACE IT IN SAVINGS ACCOUNTS.
I. SOME MAY REINVEST IN THE OIL AND GAS INDUSTRY.
J. MANY WILL MAKE SOME LONG-AWAITED PURCHASES. . .LIKE A NEW CAR OR BOAT. . .OR MAYBE EVEN A DOWNPAYMENT ON A HOME.
K. THE MONEY FLOWING FROM THE CREDIT MARKET INTO THE HANDS OF PETROLEUM COMPANY STOCKHOLDERS WILL GO DIRECTLY INTO THE ECONOMY.
L. FROM THE GULF-SOCAL DEAL ALONE. . .THAT WILL BE $13.2 BILLION.
M. THEN YOU HAVE MOBIL-SUPERIOR. . .[Text stricken: VALUED] AT $5.7 BILLION.
N. AND EARLIER, WE HAD TEXACO-GETTY. . .WHICH AMOUNTED TO $10 BILLION.
[Handwritten addition: Great for the U.S. economy and if the majors want to owe a lot of money I think that is great also—may start looking more like some of “us” independents—]
O. WHEN [Text stricken: CONGRESSMEN] [Handwritten addition: Senators] ASKED ME HOW I JUSTIFIED THEIR VOTING AGAINST THIS RECENT LEGISLATION. I ANSWERED THEM IN THIS WAY.
1. THE GULF-SOCAL DEAL WILL POUR $13 BILLION INTO THE ECONOMY.
2. $6.5 BILLION IS PROFIT THAT WILL GO TO SHAREHOLDERS.
3. AND $2 BILLION WILL GO TO THE GOVERNMENT IN TAXES.
4. LEAVE THE ANTI-TRUST ISSUE TO THE FTC BECAUSE THERE ARE PLENTY OF LAWS ON THE BOOKS TO HANDLE ANY ANTI-TRUST PROBLEMS.
A. I DON’T KNOW HOW MANY TIMES I’VE HEARD PEOPLE SAY THAT [Text stricken: THESE] [Handwritten addition: mergers and] ACQUISITIONS WILL [Text stricken: TAKE AWAY MONEY] [Handwritten addition: dry up funds] THAT COULD BE USED FOR [Text stricken: DRILLING.] [Handwritten addition: exploration.]
B. THAT SIMPLY IS NOT THE CASE.
C. BUT TO UNDERSTAND WHY, IT’S IMPORTANT TO LOOK AT THE WHOLE PICTURE. . .AT WHY RESTRUCTURING IS HAPPENING IN THE FIRST PLACE.
D. AND UNFORTUNATELY MOST PEOPLE—INCLUDING MANY OF OUR CONGRESSIONAL LEADERS—DON’T REALLY UNDERSTAND THE INDUSTRY’S PROBLEMS.
A. PETROLEUM COMPANIES MANAGE DEPLETABLE ASSETS—THEIR RESERVES OF OIL AND GAS.
B. IF THEY DON’T REPLACE THE RESERVES THAT ARE BEING PRODUCED, THEN THE SHAREHOLDERS’ ASSETS ARE BEING DEPLETED.
C. FOR YEARS NOW, THE INDUSTRY HAS NOT BEEN DOING A GOOD JOB OF REPLACING RESERVES.
D. SINCE 1970, U.S. RESERVES OF OIL AND NATURAL GAS ON AN INDUSTRY-WIDE BASIS HAVE BEEN STEADILY DECLINING.
[Handwritten addition: The majors have had a much more difficult time with replacement than the independents.]
E. IN FACT, THE INDUSTRY’S DOMESTIC RESERVE LIFE INDEX IS NOW LESS THAN 10 YEARS. [Handwritten addition: The only industry in America with that problem.]
F. THE DECLINING RESERVE PROBLEM, OBVIOUSLY, IS A LONG-STANDING ONE.
G. BUT DURING THE 1970s, WHEN OIL PRICES WERE STEADILY RISING, THE RESERVE DEPLETION PROBLEM WASN’T AS APPARENT BECAUSE THE FOCUS WAS ON THE INCOME STATEMENT—HIGHER CRUDE PRICES MADE EVERYTHING SEEM OKAY.
H. NOW THAT OIL PRICES HAVE STABILIZED AT $29 A BARREL, RESERVE DEPLETION IS QUICKLY COMING INTO FOCUS.
A. THERE’S STILL OIL YET TO BE DISCOVERED IN THE U.S. AND EVEN MORE GAS — BUT IT WILL BE EXPENSIVE.
B. TODAY, THE INDUSTRY IS HAVING TROUBLE FINDING OIL AND GAS AT A PRICE THAT MAKES IT ECONOMICAL TO BUDGET LARGE CAPITAL EXPENDITURES. [Handwritten addition: for exploration.]
C. THERE’S PLENTY OF CASH FLOW IN THE INDUSTRY TO DRILL ALL THE ECONOMICALLY [Text stricken: AND TECHNICALLY] FEASIBLE PROSPECTS THAT EXIST.
D. AND IF OUR CONGRESSMEN ARE WORRIED ABOUT THE MAJORS BORROWING TOO HEAVILY AND DECREASING THEIR EXPLORATION EFFORTS, LET ME REMIND THEM THAT THE INDEPENDENTS ARE READY TO JUMP IN AND FILL THE VACUUM.
1. WE DRILL 80% OF THE WELLS ANYWAY.
2. AND WE DO A MUCH BETTER JOB OF FINDING OIL. [Handwritten addition: than the majors.]
E. BUT IT DOESN’T MAKE SENSE TO DRILL WITHOUT REGARD TO THE FINDING COST.
F. THE INDUSTRY CAN’T AFFORD TO PUT MORE MONEY INTO DRILLING AT THIS POINT BECAUSE IT ISN’T ECONOMICALLY FEASIBLE TO DO SO.
G. THE DOCUMENTATION FOR THAT IS IN THE RIG COUNT.
H. THERE ARE LESS THAN HALF AS MANY RIGS DRILLING CURRENTLY (2.206) AS THERE WERE IN LATE 1981 (4.531).
A. SENATOR JOHNSTON STATED THAT THE $29 BILLION INVOLVED IN THE LATEST OIL COMPANY MERGERS WOULD ONLY. . .QUOTE. . .“MAKE OIL COMPANIES BIGGER. . .INSTEAD OF FINDING MORE OIL.”
B. HE SEEMS TO BELIEVE THAT SOCAL, TEXACO AND MOBIL SHOULD TAKE THE MONEY THEY ARE USING TO ACQUIRE RESERVES AND, INSTEAD, USE IT FOR EXPLORATION.
C. GEORGE KELLER. . .CHAIRMAN OF SOCAL. . .RESPONDED TO THAT IDEA WTIH THIS STATEMENT.
1. HE SAID. . .QUOTE. . .“YOU CAN’T BORROW THAT KIND OF MONEY FOR THAT KIND OF CRAPSHOOT.”
[Handwritten addition: Isn’t that just like an engineer talking about exploration.]
D. SENATOR JOHNSTON’S SUGGESTION WOULD SIMPLY NOT BE FINANCIALLY FEASIBLE—TO STOCKHOLDERS OR TO THIS NATION’S CONSUMERS—BECAUSE IT WOULD NOT FIND OIL ECONOMICALLY IF IT IS TO BE SOLD AT $29 A BARREL.
E. THAT KIND OF THINKING IS ONE MORE EXAMPLE OF THAT AGE-OLD CONGRESSIONAL MENTALITY: LET’S THROW MONEY AT A PROBLEM AND HOPE
IT WORKS.
[Handwritten addition: By the way—2 wks ago before the Senate Judiciary Com. Keller said the combined E & P budgets for Socal-Gulf would not be reduced.]
F. WHILE SOME CONGRESSIONAL LEADERS PROFESS GREAT CONCERN OVER OUR NATION’S ENERGY SUPPLIES, THEY ARE NOT INFORMED [Text stricken: ENOUGH ABOUT] [Handwritten addition: on] THE ECONOMICS OF FINDING [Text stricken: THOSE SUPPLIES] [Handwritten addition: oil & gas reserves] TO MAKE INTELLIGENT DECISIONS.
G. CURRENTLY, THEY SEE [Text stricken: LARGE DOLLARS BEING SPENT] [Handwritten addition: transactions involving large amounts of money] AND THEY IMMEDIATELY THINK THAT SOMETHING MUST BE WRONG.
H. IF THEY WERE AS CONCERNED ABOUT GOVERNMENT SPENDING AS THEY ARE ABOUT SPENDING IN THE OIL INDUSTRY, PERHAPS OUR FEDERAL DEFICIT WOULDN’T HAVE BEEN $195.4 BILLION IN 1983.
A. NOT ONLY IS HE [Text stricken: PROBING] [Handwritten addition: questioning] THE MERGER ACTIVITY, BUT HE’S ALSO BEGUN TO SPECULATE’ON MESA’S BUSINESS.
B. YESTERDAY’S NEW YORK TIMES INDIRECTLY QUOTED SENATOR JOHNSTON AS SAYING THAT. . .AND I’M QUOTING FROM THE PUBLICATION HERE.
. .“HE HAD HEARD MR. PICKENS MIGHT SOON BEGIN A BID FOR THE ENSTAR CORPORATION, A HOUSTON-BASED OIL AND GAS COMPANY.”
[Handwritten addition: These kinds of quotes are highly inflamatory to market activity.]
C. THE PUBLICATION WENT ON TO SAY THAT THERE WAS NO INDICATION IN THE FINANCIAL MARKETS THAT I WAS CONTEMPLATING SUCH A MOVE.
[Handwritten addition: As a matter of fact—we are not.]
D. SINCE THE SENATOR FEELS HE CAN SPECULATE ON MY BUSINESS, I’LL SPECULATE A LITTLE ON HIS BUSINESS.
[Text stricken: E. I CAN’T BELIEVE THAT THERE IS ANYTHING LESS THAN A POLITICAL MOTIVE BEHIND HIS PROPOSED LEGISLATION AGAINST SHAREHOLDERS
AND THE FREE ENTERPRISE SYSTEM.]
[Handwritten addition: He’s sending the oil industry a signal.
The message is that he’s leaving us.—the industry.
In case you missed it, the message came in the form of a bill he co-authored with anti-oil Senator Howard Metzenbaum.
I can’t believe that there is anything less than a political motive behind his proposed legislation against the oil industry,
shareholders and the free enterprise system.]
F. IT APPEARS TO BE A [Text stricken: TOTALLY] POLITICAL MOVE TO PLACE HIMSELF ON ANYONE’S DEMOCRATIC TICKET AS A VICE PRESIDENTIAL CANDIDATE IN 1984.
G. WHAT OTHER REASON WOULD A SENATOR FROM AN OIL-PRODUCING STATE TEAM UP WITH [Handwritten addition: a] KNOWN ANTI-OIL POLITICIAN[Handwritten addition: ?]
H. THAT’S PRETTY ROUGH TREATMENT FOR AN INDUSTRY THAT HAS DONE AS MUCH AS THIS ONE HAS FOR THE STATE OF LOUISIANA AND SENATOR JOHNSTON.
[Text stricken: I. I ASK YOU. WHAT IS SENATOR JOHNSTON UP TO?]
(PAUSE)
A. ECONOMICS IS WHAT HAS BROUGHT DRILLING ACTIVITY DOWN.
B. RESTRUCTURING IS SIMPLY THE FREE ENTERPRISE SYSTEM AT WORK IN THE OIL INDUSTRY.
C. THE INDUSTRY IS TRYING TO GET BACK ON ITS FEET.
D. AND IF CONGRESS WILL JUST LEAVE US ALONE, WE WILL MAKE IT.
E. MARKETS AND FINDING COSTS FOR OIL AND GAS HAVE CHANGED SIGNIFICANTLY FROM WHAT THEY WERE 10 YEARS AGO.
F. AND THIS INDUSTRY IS STRUGGLING TO MAKE ADJUSTMENTS SO THAT IT CAN OPERATE PROFITABLY IN THIS NEW ENVIRONMENT.
G. THE DECISIONS ON THE ACQUISITIONS SHOULD BE LEFT TO THE PEOPLE WHO OWN COMPANIES—THE SHAREHOLDERS.
H. THE SHAREHOLDERS ARE THE ONES WHO HAVE TAKEN THE RISK BY PUTTING UP THEIR MONEY, AND UNDER THE FREE ENTERPRISE SYSTEM, THEY EXPECT TO MAKE A PROFIT.
I. UNFORTUNATELY, I BELIEVE THAT TOO MANY PEOPLE—INCLUDING MANY [Text stricken: OF OUR] [Handwritten addition: professional managers and] CONGRESSIONAL LEADERS—DON’T CONSIDER SHAREHOLDERS THE OWNERS OF THE COMPANY.
J. INSTEAD, THEY THINK THAT A HANDFUL OF MANAGERS ARE THE OWNERS.
K. THAT IS A FUNDAMENTAL MISCONCEPTION ABOUT THE WAY PUBLICLY-OWNED BUSINESSES OPERATE.
L. SHAREHOLDERS OWN THE COMPANY, AND THEY ARE ORDINARY PEOPLE FROM ALL WALKS OF LIFE.
1. THEY’RE CLERICAL EMPLOYEES, TEACHERS, REFINERY WORKERS, PROFESSIONAL PEOPLE. . .OR THEIR SHARES [Text stricken: ARE] [Handwritten addition: may be] HELD IN PENSION FUNDS AND RETIREMENT PLANS.
A. AND THE IMPACT OF THAT WOULD BE IMMENSE.
B. THERE ARE 42 MILLION STOCKHOLDERS IN THE UNITED STATES ACCORDING TO A 1983 NEW YORK STOCK EXCHANGE SURVEY.
C. THAT’S ONE OUT OF EVERY SIX AMERICANS.
D. AND IF WE ASSUME THAT MOST OF THOSE SHAREHOLDERS HAVE A SPOUSE, YOU’RE TALKING ABOUT 80 MILLION PEOPLE WHO ARE DIRECTLY IMPACTED BY LEGISLATION AIMED AT STOCKHOLDERS.
E. IF OUR NATIONAL LEADERS ARE GOING TO CONSIDER LEGISLATION AGAINST STOCKHOLDERS, THEN WE MAY AS WELL BEGIN PUTTING A WARNING SIGN ON STOCK CERTIFICATES.
F. IT WOULD BE SOMETHING LIKE THE CAUTION LABEL ON A CIGARETTE PACKAGE.
G. WARNING: IF YOU BUY THIS STOCK, BEWARE THAT IT MAY BE HAZARDOUS TO YOUR FINANCIAL HEALTH BECAUSE IF YOU STAND TO MAKE MONEY ON IT, THE GOVERNMENT MAY SAY THAT YOU CAN’T— YOU MAY BE KILLED FINANCIALLY.
H. IF WE ARE GOING TO HAVE LEGISLATION, THEN WHY NOT PROPOSE SOMETHING THAT WOULD PROTECT STOCKHOLDERS FROM MANAGEMENT?
A. [Text stricken: AT THE SAME TIME,] I’M VERY CONCERNED ABOUT THE INDUSTRY.
B. RESTRUCTURING IN THIS INDUSTRY IS ABSOLUTELY NECESSARY AND VERY URGENT.
C. AND CURRENT ACTIVITY—WHETHER IT BE MERGERS, ACQUISITIONS OR THE FORMATION OF ROYALTY TRUSTS—IS SIMPLY THE FREE ENTERPRISE SYSTEM WORKING TO IMPROVE EFFICIENCY IN THE INDUSTRY AND GIVE SHAREHOLDERS A BETTER RETURN ON THEIR INVESTMENT.
D. THE FREE ENTERPRISE SYSTEM IS WHAT MAKES AMERICA GREAT, AND IF WE ALLOW RESTRUCTURING TO TAKE PLACE UNDER THE SYSTEM—AS IT SHOULD—WE’LL SEE THAT EVERYONE WILL BENEFIT. . .SHAREHOLDERS, CONSUMERS, GOVERNMENT AND THE NATION.
E. THANK YOU.
F. I’LL BE PLEASED TO ANSWER ANY QUESTIONS YOU MAY HAVE.