Interview with T. Boone Pickens

I had the opportunity to sit down with T. Boone Pickens at the Milken Conference in Los Angeles. Mr. Pickens made his fame as head of Mesa, an oil and gas exploration firm. Mesa attempted hostile takeovers of Gulf, Philips, Unocal, and several other companies. After he sold Mesa, Pickens started a hedge fund, BP. He has given millions to Oklahoma State and different political organizations.

In the late 90s, the fund was down 90% at one point in time. The fund bet on the price of natural gas, which subsequently tanked. At its nadir, the price was about $2 per thousand cubic feet. In January 2000, the fund had $4.3 million in equity. At the end of the year, it ended up $255 million! Pickens made his first billion when he was 70 years old. He will be 80 next month.

When asked how high the price of oil will get, he said that it will go until supply kills demand. Pickens always gets back to the fact that the world is producing 85 million barrels of oil a day. The U.S. spends $600 billion on importing oil a year. We use almost ¼ of all the oil and only have 5% of the world population. The cost of the Iraq War is $150 billion a year. We are sending our wealth to foreign countries.

He then took out a piece of paper and drew a pie chart. The U.S. gets 50% of its energy from coal, 20% from nuclear, 22% natural gas, and the rest is from other sources. One thousand cubic feet of natural gas is equal to eight gallons of gasoline, so at $3 a gallon (must be the price in Texas), that equals $24. This is part of his bull case for the price of natural gas. The U.S has an abundance of natural gas. Later that day, he spoke to an audience of about 300. When asked about ethanol, he said that it was an ugly baby but it belonged to us. What he meant was that it’s far from perfect but better than buying from hostile countries.

He said that if were shopping for a car today, he would buy something that got good gas mileage. Pickens said that an SUV is a horrible piece of equipment. It’s great to drive around in but costs too much. Pickens also pointed out that the U.S. has 750 cars per 1,000 and the Chinese have 40.

When asked about Canadian Oil sands, he said he had $500 million invested in this segment. He has been there ten years. I pointed out that he has probably made five times on his investment and he agreed. He owns Canadian Oil Sands (CNQ) and Suncor (SU). I then asked him if he was worried about the fact that the Canadian government is going to raise taxes. He said that governments always tax profitable businesses. Chesapeake Energy (CHK) and SandRidge (SD) were two explorers that he mentioned.

Too listen to this 35 minute interview, go to www.stockroyalty.com. Pickens explains oil, natural gas, how the U.S. is going to fix this problem, and how he is going to profit off it. He even hints at a big announcement that is forthcoming.

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