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	REMARKS FOR THE MESA LIMITED PARTNERSHIP ANNUAL MEETING AMARILLO TX MAY 16, 1989

Welcome to the third annual meeting of Mesa Limited Partnership. Mesa’s first annual meeting was in 1965.

I appreciate your attendance here today — some of you have come a long way to attend.

The first part of the meeting will cover the formal business.

While votes are being counted, I’ll comment on Mesa and our view of the future.

Finally I will open up the meeting for questions.

Before we start, I’d like to make some introductions.

Mesa’s advisory committee members are
—Jerry Walsh
—Wales Madden
—Bob Stillwell

Others on the stage include
—Paul Cain, President & Chief operating officer
—Robert Thomas, Acting General Counsel and Parliamentarian of today’s meeting
—Leonard Hruzek, Controller and Secretary of the meeting

In the audience we have the following Mesa officers and consultants:
—Sidney Tassin, Consultant
—Shell Boudreaux, Vice President - Exploration & Acquisitions
—Dennis Fagerstone, Vice President - Operations
—Claude Jenkins, Vice President - Marketing
—Mark Womble, Vice President & Treasurer

And, I’d like to introduce my wife, Bea.

Representing Arthur Andersen, Mesa’s independent auditors, is Tom Bauer from the Houston office.

Representing Peat-Marwick, Mesa’s independent election judges, is Frank Marrs of the Amarillo office.

Today’s meeting will be conducted under rules of parliamentary procedure generally in accordance with Roberts Rules of Order.

Any procedural questions will be answered by Robert Thomas, our parliamentarian.

This meeting has been called for the following purposes:
—To elect three members of the Advisory Committee of the Partnership.
—To ratify the appointment of Arthur Andersen & Co. as the Partnership’s independent public accountants for 1989.
—To consider and vote upon a proposal by a unitholder calling for publication of the Partnership’s political contributions.

And we are here to act on any other business matters that may properly come before the meeting.

According to our ownership list there were an aggregate of 166,965,868 common and preference units held by limited partners and entitled to vote at the meeting.

Each unit is entitled to one vote.

A majority of the issued and outstanding units held by limited partners represents a quorum for all matters to be considered at this meeting.

Will the secretary please advise if a quorum is present.

We will now proceed with the formal session of the meeting.

Vote results will not be announced until a discussion period on the issues have been held.

Robert Thomas will now explain the procedures to be followed during the formal session of today’s meeting.

If there is no further business, that concludes the formal discussion of the issues before today’s meeting.

Will those who have not turned in their proxies, please do so at this time by passing them to the aisle where they will be collected by Peat-Marwick.

Also, anyone wishing to change their vote may do so at this time.

Peat-Marwick will now tabulate the votes brought in today. As you know Mesa is one of the few companies in Corporate America with confidential proxy voting and was the first to have it. Before too many years, stockholders will demand it.

So, while the final votes are being counted, I’d like to review Mesa’s results for 1988 and talk about the future.

Mesa is very easy to understand. Both our assets and philosophy have been in place for over 30 years.

At year-end 1988 Mesa had:
—100 million barrels of oil and natural gas liquids
—2.25 TCF natural gas
—2.85 TCF equivalent, 80% natural gas
—15th largest producer of domestic natural gas

80% of total reserves are associated with our two primary areas of interest:
—Hugoton - the largest gas field in U.S.
—Panhandle field located just north of Amarillo.

The key to Mesa is the concentration of high quality, long life, low cost gas production.

In addition to our presently proved reserves of 2.8 Tcf, we have great opportunities to add to reserves by further development on our properties.

In total, Mesa has more than 800 development locations to which incremental reserves have not been assigned.

Let me explain further about the 800 development locations. We are not wildcatting. These are the same type of wells on which we have had better than a 95% success rate in each of the last three years.

Reserves for these wells are not yet booked; with the exception of the infill program, these locations will be drilled after the market turns for natural gas.

1988 was another lean year for the industry. Oil averaged $14.50 per barrel. Mesa’s overall gas price was about $1.80.

The most significant achievement for Mesa in 1988 was the purchase of the Tenneco Mid-continent division.
—The purchase closed in December 1988.
—We bought the Tenneco Division for $700 million and promptly sold a portion for $110 million.

This was a unique purchase for Mesa.
—60% of the reserves were in the Hugoton field.
—These were properties that Mesa had operated since 1979 and we already owned a one-half interest in them.
—In addition to the presently proved reserves, we also picked up about 160 development locations in the deal.

One effect of the Tenneco purchase is that we incurred more debt and in the MLP structure, we have tried to avoid high debt levels.

Top priority for 1989 is to reduce debt through asset sales of up to $300 million, which would represent about 10% of our reserves.
—We will probably sell $100 million more of Tenneco properties and up to $200 million of other properties.

There’s a saying in the business that the good properties get better, marginal properties get worse.
—Throughout our history, we have bought and sold properties constantly upgrading the quality of our core holdings.

We know our assets well, and we work them very hard to get the most value out of them.

We operate with a lean, but very capable group of employees.

We have 2.85 Tcf and only 650 employees.
—Over 4 Bcf of gas and $4 million in assets per employee.
—Maxus, by comparison, has barely one Bcf and less than $1 million in assets per employee

We have the best management group at Mesa that we have ever had.
—Led by Paul Cain, who is the president and chief operating officer. I introduced some of our other key people earlier.
—Mesa’s management structure has only a couple of layers—we get more work done that way.

As you all know, Mesa made the decision earlier this year to reduce the common unit distribution from $2.00 to $1.50 per year.
—Many of you remember that when the Partnership was formed in 1985, we indicated that the distribution would be in the range of $1.50 to $2.00 per year for 5 years.
—Lots of changes have occurred since 1985; Mesa’s average gas price has fallen by over 30% from $2.68 per MCF in 1985 to $1.79 per MCF in 1988.
—This was a tough decision to make, but one that was in the best interest for the long-term.
—It will enable us to conserve about $40 million annually and to maintain our financial flexibility.

Now I’ll give you my current views on oil and gas prices and the future of our industry:
—We’ve had a very strong move on crude oil since last fall, from $12 to $20 per barrel.
—OPEC and non-OPEC are finally getting their acts together.
—We have had a weak winter on gas prices.
—But, the gas “bubble” is clearly diminishing. The drilling rig count is at 40-year lows; only 771 rigs were drilling last week, compared to 935 a year ago, and 4,500 rigs at the peak in 1981.
—Only 40% of annual production is being replaced on an industry-wide basis.
—The demand for natural gas has increased 6% in each of the last 2 years.
—As the gas market approaches equilibrium, prices become very sensitive to demand.
—In early February, during the Arctic cold snap, we saw $3.50+/Mcf.
—So as the market balances, you’re going to see a strong move in prices.
—Gas will trade at parity with crude oil for the first time.

This concept of parity between oil and gas deserves special attention.
—The economic value of a barrel of oil or of a thousand cubic feet of gas is the energy that it can generate. On a Btu basis, it takes about 6 Mcf of gas to produce the same energy as one barrel of oil.
—So, a thousand cubic feet of gas should sell for about 1/6 of what a barrel of oil sells for.
—But that’s not the case. Right now, with crude oil at $20 a barrel and gas at $1.40 an Mcf, you have a price ratio of about 13 to 1, more than twice the energy equivalent ratio of 6 to 1.
—If you go to energy parity, $18 crude oil will mean $3.00 gas.
—And you can add 10-15% for gas being a premium fuel.
—Parity will occur in 1 to 3 years, and the premium should be added soon after parity.

Mesa’s units represent one of the best investments available today — consider that:
—At $11 a unit, the market is valuing our proved reserves at $1.10 per MCFE.
—Based on potential additions made possible by higher oil and gas prices and the eventual drilling of over 800 development locations, the market is paying less than $1.00 per MCFE.
—Annual distribution of $1.50 represents a tax-deferred yield of 13.6%.
—The bonus is Mesa’s demonstrated ability to make money outside of the oil and gas business. We made $42 million in the first quarter of 1989 — something we get no credit for in the price of our stock.

Mesa’s units continue to represent one of the best long-term plays on the future of natural gas.

In conclusion, it’s really a simple story:
—We’re the 15th largest holder of natural gas in the U.S.
—Our reserves are located in shallow, quality fields, which have a long production profile.

We strongly believe that the value of natural gas will be upgraded.
—Whether it’s 1989, 1990, or 1991.
—We’ve been around for over 30 years, and we’ll be there when the turn comes.

That concludes my remarks about Mesa.