Boone Pickens Homepage Electronic Publishing Center| |
|
| Boone Pickens Homepage Electronic Publishing Center |
|
T. BOONE PICKENS, J R.
|
|
7:30 P.M.
(TIME: 8 MIN.)
[Handwritten addition: IMG Mark McMormick]
THANK YOU, HARLEY.
[Handwritten addition: MSA stockholder
Gulf stockholder]
(PERSONAL COMMENTS, HUMOR)
[Handwritten addition: 1928]
[Handwritten addition: Met Harley Nov 1957—great wife & family—officed together—always out traded me—so I got Harley on {Unreadable stricken text} my Board. {Stricken text: Peter Cutney} Great stories—don't have time—]
[Handwritten addition: 5th Est—Geo Keller—cultural tradition—]
[Handwritten addition: Billy Martin
John Madden—]
[Handwritten addition: I have talked to Rick—encourage this guy slip him a check for $1000 exel—]
AS HARLEY NOTED, MESA WAS QUITE ACTIVE IN CANADA FROM 1959 TO 1979.
[Handwritten addition: I lived here in 1967 & 1968] {Stricken text: AND WE WERE BASED HERE IN CALGARY.}
IN FACT, I {Stricken text: UNDERSTAND} [Handwritten addition: know] THAT A FEW OF OUR FORMER EMPLOYEES {Stricken text: MAY BE} [Handwritten addition: are] IN THE AUDIENCE TONIGHT. [Handwritten addition: And we appreciate your being here.]
I ALWAYS ENJOYED THIS PART OF THE COUNTRY AND THE PEOPLE WE WORKED WITH, SO IT IS NICE TO BE BACK.
[Handwritten addition: It is like coming home—]
WHEN WE CAME TO CANADA IN 1959 WE SAW A GOOD OPPORTUNITY, AND IT TURNED OUT TO BE A GREAT OPPORTUNITY.
BY 1975, WE WERE CANADA'S MOST ACTIVE OPERATOR.
JUST A FEW YEARS LATER, HOWEVER, WE MADE A DECISION TO SELL OUT OUR INTERESTS, PRIMARILY BECAUSE OF THE UNCERTAINTY OF THE GOVERNMENT'S ATTITUDE TOWARD THE PETROLEUM INDUSTRY[Handwritten addition: .] {Stricken text: AND THE TAX SITUATION.}
WE HAD JUST BEEN BURNED ON TAXES IN THE NORTH SEA, AND, IN FACT, SOLD OUT OF OUR POSITION THERE THE SAME YEAR—1979.
WE SOLD OUR CANADIAN INTERESTS IN 1979 FOR $600 MILLION, WHICH WASN'T BAD CONSIDERING THAT WE CAME IN WITH $35,000.
{Stricken text: THAT SAME AMOUNT} [Handwritten addition: $35,000] TODAY WOULD GET YOU A BUS TICKET {Stricken unreadable text}[Handwritten addition: from Ama to Cal] AND A WEEK IN THE CALGARY INN.
AS I SAID, WE ENJOYED OUR STAY IN CANADA, AND OUR DECISION TO LEAVE WAS BASED ON THE BELIEF THAT IT WOULD BE IN OUR BEST INTEREST TO FOCUS OUR OPERATIONS IN THE UNITED STATES, WHERE WE COULD BETTER PREDICT THE INDUSTRY'S FUTURE.
WE RETAINED, HOWEVER, A TERM ROYALTY ON THE PRODUCING PROPERTIES WE SOLD.
SO WE STILL HAVE AN INTEREST IN THE CANADIAN PETROLEUM BUSINESS.
I MIGHT ADD THAT MESA HAS NOW CONSOLIDATED ALL OF ITS OPERATIONS IN THE UNITED STATES.
WE SOLD OUR INTERESTS IN AUSTRALIA LAST FALL AFTER WE DISCOVERED THREE OIL FIELDS THERE.
(PAUSE)
MY TOPIC THIS EVENING IS THE RESTRUCTURING OF THE U.S. PETROLEUM INDUSTRY.
I KNOW THAT MANY OF YOU HAVE WATCHED THE CURRENT ACTIVITY IN THE U.S OIL INDUSTRY WITH A GREAT DEAL OF INTEREST, IN PART, BECAUSE OF THE OPERATIONS AMERICAN OIL COMPANIES HAVE IN CANADA.
AND ALSO, IN PART, BECAUSE OF THE ROLE CANADIANS HAVE PLAYED IN THESE ACTIVITIES.
[Handwritten addition: Hy,] SAM AND BILL BELZBERG WERE PART OF THE GULF INVESTORS GROUP AND PLAYED A KEY ROLE IN THE LARGEST CORPORATE ACQUISITION EVER—THE PURCHASE OF GULF CORPORATION BY SOCAL.
THERE HAS BEEN SOME CONCERN, I'M SURE, AS TO WHAT EFFECT THE RESTRUCTURING ACTIVITY WILL HAVE ON CANADIAN OPERATIONS AS THESE COMPANIES TRIM SOME ASSETS.
AND AS FAR AS THE LAST THREE MERGERS GO—TEXACO-GETTY, SOCAL-GULF, MOBIL-SUPERIOR—WE HAVE YET TO SEE ANY RESULTS.
I CAN'T, PERSONALLY, SEE THAT THERE WILL BE ANY DETRIMENTAL EFFECT.
THE OPERATIONS WILL CONTINUE AND IF DIVESTED, MAY COME UNDER CANADIAN CONTROL.
BUT I THINK IT'S IMPORTANT THAT WE EXAMINE THIS WHOLE RESTRUCTURING PROCESS CAREFULLY.
ONCE WE REALIZE EXACTLY WHAT IS OCCURRING, I THINK WE'LL ALL AGREE THAT IT IS EXTREMELY HEALTHY FOR THE INDUSTRY.
[Handwritten addition: And especially the independent oil co's.]
THE ENTIRE PROCESS IS OCCURRING BECAUSE OF ONE BASIC PROBLEM: RESERVE REPLACEMENT.
RESERVES OF OIL AND GAS REPRESENT A PETROLEUM COMPANY'S PRIMARY ASSET.
AND WHEN THAT RESERVE BASE IS PRODUCED AND NOT REPLACED, THE ASSET BASE IS BEING ERODED.
THAT IS PRECISELY WHAT IS HAPPENING AMONG THE MAJOR U.S. OIL COMPANIES.
THEY HAVE HUGE RESERVE BASES TO REPLACE, AND THE CHANCES FOR REPLACING THROUGH EXPLORATION ARE SLIM.
THE UNITED STATES JUST DOES NOT HAVE THAT MANY POTENTIALLY LARGE PROSPECTS LEFT—NOT {Stricken text: ON} THE MAGNITUDE THAT THE MAJORS NEED.
THE ONLY PLACE THEY ARE LIKELY TO MAKE SUCH BIG FINDS IS IN THE FRONTIER AREAS.
YET, THOSE VENTURES HAVE PROVED TO BE DISAPPOINTING[Handwritten addition: .] {Stricken text: IN A VERY EXPENSIVE WAY.}
TAKE THE MUKLUK PROSPECT, FOR EXAMPLE.
ELEVEN OIL COMPANIES PAID $1.6 BILLION FOR LEASES AND SPENT ANOTHER $140 MILLION TO DRILL THE WELL.
{Stricken text: BUT THE WELL WAS DRY.} [Handwritten addition: As you know it was a dry hole.]
THAT WAS A SOBERING EXPERIENCE FOR THE PARTNERS INVOLVED AND [Handwritten addition: also for] MANY OF US WHO WERE NOT IN THE DEAL. [Handwritten addition: A sad day for the U.S. & a sad day for the industry.]
MUKLUK WAS THE MOST PROMISING GEOLOGICAL STRUCTURE IN NORTH AMERICA, AND ITS FAILURE HIT THE INDUSTRY HARD.
THE RESULT WAS THAT THE MAJORS BEGAN LOOKING FOR A MORE RELIABLE WAY OF REPLACING—ACQUISITION.
GEORGE KELLER, CEO OF SOCAL, HAD SAID IN 1981 THAT HIS COMPANY WOULD NOT MAKE AN ACQUISITION.
BUT AFTER THE MUKLUK FAILURE, SOCAL LOOKED AT GETTY AND EVENTUALLY BOUGHT GULF.
I THINK MANY OF THE OTHER MAJORS WENT THROUGH THE SAME THOUGHT PROCESS.
AND I SEE NOTHING WRONG WITH IT.
I AGREE THAT THE BIG FINDS WILL UNDOUBTEDLY BE MADE IN THE FRONTIER AREAS, AND I HAVE NO QUARREL WITH FRONTIER DRILLING—IF, AND I UNDERLINE IF, IT IS THE BEST INVESTMENT FOR THE SHAREHOLDERS' DOLLAR.
THAT'S WHAT IT ALL COMES DOWN TO — THE SHAREHOLDERS.
WHEN A COMPANY DOESN'T REPLACE, IT IS THE SHAREHOLDERS' ASSET BASE THAT IS BEING ERODED, THEIR INVESTMENT THAT IS LOSING VALUE.
GULF CORPORATION IS AN EXAMPLE OF A COMPANY THAT WAS GOING TO THE FRONTIER TO REPLACE RESERVES BUT REALLY HAD NO BUSINESS BEING THERE.
GULF'S SUCCESS RECORD IN THE FRONTIER WAS DISMAL.
YET, THEY CONTINUED TO CLING TO THE BELIEF THAT THE FRONTIER WAS THEIR ONLY HOPE—INSTEAD OF LOOKING FOR OTHER ALTERNATIVES TO REPLACE AND ENHANCE VALUES.
GULF'S RESERVE BASE HAD BEEN DECLINING FOR 12 STRAIGHT YEARS.
IN THE LAST 5 YEARS, THEY HAD ONLY REPLACED 43 PERCENT OF THEIR PRODUCTION.
THEY HAD LOST THE EQUIVALENT OF 634 MILLION BARRELS OF OIL FROM THEIR RESERVE BASE—OR, IN TERMS OF DOLLARS, $6.3 BILLION.
THAT KIND OF STOCKHOLDER LOSS HAD TO BE HALTED.
SIMILAR SITUATIONS ARE OCCURRING THROUGHOUT THE PETROLEUM INDUSTRY.
THE STOCK MARKET RECOGNIZES THE RESERVE REPLACEMENT PROBLEM OF THESE COMPANIES AND, AS A RESULT, PLACES A LOWER VALUE ON THEM.
HERE ARE SOME EXAMPLES:
EXXON — 52% [Handwritten addition: OF APPRAISED VALUE — JSH —]
MOBIL — 30%
TEXACO — 31%
SOCAL — 35%
UNOCAL — 41%
STANDARD OF INDIANA — 52%
ARCO — 36%
[Handwritten addition: Exxon & ST. IND — Big buying programs.]
THE SHAREHOLDERS OF THESE COMPANIES ARE TRAPPED UNLESS THEY CAN CONVINCE MANAGEMENT TO DO SOMETHING TO ENHANCE VALUE.
AND THERE'S THE REAL PROBLEM — GETTING MANAGEMENT TO DO SOMETHING BEFORE IT'S TOO LATE.
MOST OF THE MANAGEMENTS AREN'T CONCERNED ABOUT THE URGENCY OF THE SITUATION BECAUSE THEY AREN'T SHAREHOLDERS, THEMSELVES.
AND GULF OIL IS A PRIME EXAMPLE OF THAT SAME ATTITUDE.
AS I SAID EARLIER, THEIR [Handwritten addition: Domestic] RESERVE BASE HAD BEEN DECLINING FOR 12 STRAIGHT YEARS.
YET, DIVIDENDS HAD BEEN INCREASING FOR 10 YEARS AND SALARIES HAD BEEN GOING UP FOR 8 {Stricken text: YEARS} [Handwritten addition: OUT OF 10 YRS.]
IF NOTHING HAD BEEN DONE AT GULF OIL, THE COMPANY WOULD NOT HAVE BEEN ABLE TO PAY ITS $3 DIVIDEND IN 1989.
BUT DID ANYONE KNOW EXCEPT MANAGEMENT?
OF COURSE NOT.
AND WERE THEY CONCERNED?
{Stricken text: NO.} [Handwritten addition: APPARENTLY NOT]
AND THE REASON IS THAT THEY WEREN'T SUBSTANTIAL SHAREHOLDERS.
(LEE — 21,000 SHARES
42
YEARS WITH COMPANY)
WHEN MANAGEMENT OWNS SIGNIFICANT STOCK IN THE COMPANY AND THEIR PERSONAL MONEY IS AT RISK THEY BECOME MUCH MORE AWARE OF THE STOCKHOLDERS' INTERESTS.
GULF OIL CORPORATION IS JUST ONE EXAMPLE OF A SITUATION THAT IS WIDESPREAD IN CORPORATE AMERICA — MANAGEMENT HAS LOST SIGHT OF THE SHAREHOLDER.
BUT IT APPEARS THAT THE U.S. PETROLEUM INDUSTRY MAY BE TURNING THINGS AROUND.
WITHIN THIS ONE INDUSTRY, WE ARE SEEING A REBIRTH OF THE FREE ENTERPRISE SYSTEM'S BASIC PRINCIPLES.
SHAREHOLDERS ARE THE CORNERSTONE OF THE FREE ENTERPRISE SYSTEM.
WITHOUT THEIR INVESTED DOLLARS, BUSINESS WOULD NOT EXIST.
AND THAT'S WHY THE SHAREHOLDER ACTIVISM PRESENT IN THE OIL INDUSTRY IS SO IMPORTANT TO THE RESTRUCTURING PROCESS.
SHAREHOLDERS ARE BEGINNING TO CHALLENGE THESE MANAGEMENTS TO GIVE THEM BETTER VALUE.
ALL OF THE THREE MOST RECENT MERGERS —
TEXACO-GETTY, SOCAL-GULF AND
MOBIL-SUPERIOR — HAD THAT ONE BASIC ELEMENT IN COMMON. [Handwritten addition: A LARGE STOCKHOLDER THAT CAUSED SOMETHING
TO HAPPEN.]
I THINK {Stricken text: IT'S} [Handwritten addition: ALL OF THIS IS] A VERY HEALTHY SITUATION AND ONE WHICH COULD HAVE POTENTIALLY GREAT IMPACT ON U.S. AND CANADIAN CORPORATIONS.
AS YOU WELL KNOW, OUR CAPITAL MARKETS ARE CLOSELY LINKED AND THEIR CONTINUED HEALTH DEPENDS ON THE CONFIDENCE OF INVESTORS IN BEING ABLE TO PROFIT.
THE SAME IS TRUE OF THE CANADIAN AND U.S. PETROLEUM INDUSTRIES.
[Handwritten addition: IN CONCLUSION—]
{Stricken text: WE'RE} [Handwritten addition: The industry is] FACED WITH {Stricken text: A TOUGH SET OF} [Handwritten addition: SOME TOUGH] PROBLEMS...
— STABLE OIL PRICES,
[Handwritten addition: AND]
—A GAS SURPLUS,
[Handwritten addition: Plus]
— AND HIGH FINDING COSTS.
[Handwritten addition: ON THE OTHER HAND WE HAVE TREMENDOUS VALUES IN OUR RESERVES OF OIL & GAS]
BUT WE CAN'T LOSE SIGHT OF OUR PRIMARY DUTY—RETURNING VALUE TO OUR SHAREHOLDERS.