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REMARKS TO THE HUGOTON CHAMBER OF COMMERCE
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Thank you Jim (Begley)
[Handwritten addition: Introduce Bea.]
It’s great to be here and I appreciate this wonderful turnout.
[Handwritten addition: I’ll share with you my latest oil man story.]
Before I begin, I’d like to recognize the Mesa personnel who are here tonight. [Text stricken: All total] we have 120 Mesa employees and spouses [Text stricken: representing Mesa] [Handwritten addition: Here tonite].
— Paul Cain, president and COO
— Dennis Fagerstone, vice president of operations
— More than 30 other Amarillo employees also came up by bus early this morning to tour [Text stricken: the area] [Handwritten addition: our plant] and attend this banquet.
— We [Handwritten addition: also] have at least 34 employees from Ulysses with us [Handwritten addition: tonite].
So know that this is an important event for all of us at Mesa and we’re proud to be here.
— Kansas is very important to us, especially southwest Kansas
I want to leave plenty of time to hear your questions, so I’m going to keep my remarks short tonight.
— Dad’s remark — best speech ever
I [Text stricken: always] enjoy returning to [Text stricken: Hugoton] [Handwritten addition: this area]. It reminds me of my early days as a geologist. 1952 — Texoma — Guymon
[Handwritten addition: Hugoton — went for afternoon stayed a week]
We’ve been [Text stricken: in Hugoton] [Handwritten addition: here] a long time — 20 years [Text stricken: now] [Handwritten addition: but remember we came along 40 yrs after the field was [Text illegible: discovered]]
I commented in my book that the 1969 acquisition of the Hugoton Production Company was the most important deal Mesa ever made.
It’s still one of the most important areas in our operations, especially the infill drilling program.
We were one of the prime movers in getting Hugoton infilled.
— On January 5, 1987 Mesa began drilling the first Hugoton field [Text stricken: natural gas] infill well. It was [Text stricken: drilled] [Handwritten addition: spudded] in a frozen pasture three miles southwest of Ulysses.
[Handwritten addition: — This was the beginning of the second Hugoton field.]
[Text stricken: — Today, we are drilling the most infill wells]
By the end of last year, we had completed 172 infill welts, 104 of which were drilled in 1988.
[Handwritten addition: That is the most infill wells so far]
Mesa expects to drill an additional 250 infill wells by the end of 1990.
[Handwritten addition: Our budget for 1987-1992 which includes drilling and processing plant will exceed $100 mm.]
Mesa’s reserves in the Hugoton field total nearly 1.2 trillion cubic feet of [Text stricken: natural] gas and [Text stricken: almost] 18 million barrels of liquids.
— 80% of Mesa’s reserves are in the Hugoton field and the Panhandle of Texas, which is part of the same reservoir.
— These fields are expected to produce well beyond the year 2000.
[Handwritten addition: — In other words we are going to be around for a long time]
We’re the fourth largest operator in the [Text stricken: Hugoton] field
[Handwritten addition: AND]
— We supply full-time jobs for [Text stricken: more than 110] [Handwritten addition: well over 100] people, including permanent Mesa employees and contract support personnel.
[Text stricken: And, Mesa considers itself active in your civic affairs as well.
I think you can see our commitment and why it’s so vital to us.]
Now, I’d like to share what I think is the good news for Kansas.
[Text stricken: The reason is that the] [Handwritten addition: The] domestic energy industry’s future is natural gas, not oil, and southwest Kansas is long on gas.
Most domestic oil has been found and produced
— Like the El Dorado field near Wichita, its been depleted. [Handwritten addition: like so many of the Okla & Tex oil fields]
Natural gas is plentiful and clean. It’s a good replacement for imported oil
Once the gas deliverability bubble disappears, the industry will start growing again, and that’s good news for [Text stricken: Kansas.] [Handwritten addition: This area]
— The gas bubble is about to end.
— The balance of supply and demand should greatly enhance gas prices, which are currently trailing oil prices by a significant
margin.
The price [Text stricken: I see for spring 1989] [Handwritten addition: for spot gas today] is [Handwritten addition: only] $[Handwritten addition: 1.40] Mcf [Handwritten addition: But it will be] $[Handwritten addition: 3.00] Mcf [Text stricken: by mid-90s] [Handwritten addition: 2 years from now]
[Text stricken: Domestic exploration is no longer profitable
— $.59 return/$1, 1982-85.]
[Handwritten addition: The Hugoton will probably be infilled at least partially again in 7-10 yrs.]
[Text stricken: 4/3/89 Rig Count: 779 (up 13)
I don’t think you’ll see deep drilling until gas hits $5/Mcf with expectations of $10.]
A couple of things happened when times got tough in the energy business.
— Companies restructured. They became lean and more efficient. In order to survive, they [Text stricken: also] became more competitive.
Mesa was no exception. We restructured too.
We have strived to become the lowest-cost producer of [Text stricken: natural] gas in the U.S. by focusing on shallow, high-quality gas reserves.
[Text stricken: Mesa began its restructuring by transforming into a limited partnership in 1985.]
[Handwritten addition: A part of Mesa’s restructuring was to transform into a limited partnership that was in 1985]
Since [Text stricken: that time] [Handwritten addition: 1985], we’ve doubled our reserve base to an estimated 2.85 trillion cubic feet of natural gas. Mesa also has become the country’s 15th largest producer of [Text stricken: domestic] natural gas.
As most of you are aware, Mesa has added reserves through acquisition.
Our purchase of properties from Tenneco in December of last year added approximately 300 billion cubic feet to [Text stricken: Mesa’s] [Handwritten addition: our] Hugoton holdings.
Virtually all of the Hugoton properties acquired from Tenneco have been operated by Mesa since 1979.
Mesa has survived the downturn in the industry not only because of our restructuring efforts but also because of our philosophy of ownership.
We have 176,000 stockholders in the United States and abroad.
— I’m sure we have some [Handwritten addition: stockholders] here tonight.
By now, most of you know me as a shareholder advocate.
At Mesa, employees on all levels own stock. They not only think like an employee, they think like an owner. And, it makes a difference in performance.
[Handwritten addition: Story on Avondale shipyard — Tom — today]
A new era of shareholder rights has begun and before I conclude my remarks, I’d like to talk just a minute about it.
— Shareholders are forcing management accountability
— Re-establishing that shareholder are owners, managers are employees
— I am an employee of 176,000 stockholders
What we are seeing is a transformation of American corporations:
— The goal... size is meaningless, results are everything
Active shareholders are forcing restructuring, which is trimming corporate America’s fat and is providing vitality for the entire economy.
[Text stricken: Bea and I formed the United Shareholders Association in August ’86. We now have 58,000 members in all 50 states.
— upgrade shareholder awareness
— $1 mm in honorariums and another $1.3 mm from by book (Non-profit deal).]
I’m ready to conclude my formal remarks and hear what you have to say, but first let me add this.
[Handwritten addition: In conclusion]
I’ve talked a lot about [Text stricken: how successful] Mesa [Text stricken: is]. I’ve pointed out how well we’re doing because I know that is important to the livelihood of so many of you in this room.
Mesa has also been successful because of people like you. People who believe in us and what we’re doing.
I want to thank every one of you for taking your time to come out and hear what we have to say tonight.
[Handwritten addition: Thank you.]
[Handwritten addition: Questions]