Boone Pickens uses fundamentals to make his decisions. He did tell me though, and I paraphrase, “It was hard to buy gas at $2 a gallon, but much easier to buy twice as much when it reached $3 a gallon.”
I am envious of the 50 years of experience that Pickens has in the energy markets to make his decisions. He does, however, make that big money off of big trends. And 2005 saw energy trends out of this world.
Boone Pickens is back
From Tuesday’s Globe and Mail
DALLAS — Boone Pickens may have seen brighter days — perhaps when he was winning renown as a corporate raider in the 1980s — but they couldn’t have been much better than his current run of good fortune. The legendary 78-year-old U.S. oilman believes he has finally achieved vindication, both for his role in shaking up entrenched oil company management 20 years ago and for his abiding faith that oil and gas markets would turn bullish again after the dismal 1990s.
His market conviction — backed by adroit trading in energy stocks and commodities — has in the past two years vaulted him into the ranks of America’s wealthiest people, as measured by Forbes magazine.
Once again, he is a sought-after commentator on world oil trends, and appeared last month on CBS’s newsmagazine 60 Minutes, touting Canadian oil sands development as part of the solution to the U.S.’s energy needs.
Mr. Pickens — he dropped his trademark “T. Boone” after his father died a decade ago — now runs BP Capital Management LP, an investment fund with $3-billion (U.S.) under management, and has a large stake in those oil sands through investments in Suncor Energy Inc. and Canadian Oil Sands Trust.
In the industry debate over the future of oil prices, Mr. Pickens is firmly in the camp that argues global production has essentially peaked at 85 million barrels a day and high prices are here to stay.
That’s bad news for an energy-thirsty nation described two weeks ago by President George W. Bush as “addicted to oil.” But for the investor, the stage is set for a long-term bull market, Mr. Pickens believes.
Take Calgary-based Suncor. He figures that, given its planned future output, its share price of $82.53 (Canadian) at close on Friday in Toronto represents a price of oil under $40 (U.S.).
“Well, if that’s the case, then there is more room to climb,” he said in an interview in his Dallas office. “I don’t think you are going to see $50 oil again.”
The native of Holdenville, Okla., was seen as an outsider when he burst on the national scene 25 years ago, making the cover of both Time and Fortune. He was the scrappy founder of a successful independent oil company from the Texas panhandle who dared to take on majors like Gulf Oil Corp. and Unocal Corp. through aborted takeover runs.
Now, the office of BP Capital in an upscale Dallas neighbourhood reeks of establishment. The walls of the outer office are adorned with signed photos of the two Bush presidents, Ronald Reagan, Margaret Thatcher and Arnold Schwarzenegger, with and without him in the shot. President George W. Bush, in a handwritten note under a presidential photo, wishes him a “Happy 75th and many more.”
Also prominent is his extensive collection of western-themed paintings and sculptures of artist G. Harvey, and a framed note from the artist thanking him for his patronage.
In an interview in his corner office, where a Bloomberg News computer screen tirelessly tracks commodity prices behind him, Mr. Pickens revels in his own recent success, but leavens that pride with gentle self-mockery.
His funds — which required a minimum $1-million (U.S.) investment — have been hugely successful. Mr. Pickens figures his own net worth doubled in 2004 alone; Forbes listed him at $1.5-billion in its 2005 issue on the 400 wealthiest Americans.
He has given away millions of dollars, including $2-million to the Hotchkiss Brain Institute in Calgary, which was endowed by his friend, Calgary Flames’ co-owner Harry Hotchkiss.
His equity fund returned 109 per cent last year, while someone who invested $1-million in his commodity fund in 1997 would have seen its value grow to more than $46-million.
But while he has out-performed the bull market, Mr. Pickens acknowledged that he also relies on it for his success.
The 1990s were “difficult,” he admitted. In 1995, he was ousted from Mesa Petroleum Inc., the company he had founded 40 years earlier, after depressed natural gas prices left the firm mired in debt and cash-poor.
“I used to say that my IQ swings with the price of gas,” he said. “At $3 gas, I’m a genius; and when it got to about $1, I’m a moron. And that’s a heck of a deal, that the price of a commodity grades your IQ.”
Now with natural gas trading at about $7.50 per million British thermal units, and crude oil at around $62 per barrel, he could qualify for Mensa.
Mr. Pickens said the new reality of high priced oil should help the U.S. reduce its reliance on imports, both by dampening demand and encouraging supply in places like Canada.
He said he’s confident that the U.S. can lessen its dependence on Middle East oil, as Mr. Bush urged, in part because the country is far less reliant on the region than Americans realize.
“I think we take the Canadians for granted — they’ve always been, for as long as I can remember, our No. 1 supplier of oil,” he said.
Saudi Arabia — whose oil minister said last week that prices should fall below $40 given current fundamentals — ranks third as a U.S. source, behind Canada and Mexico. Together, the three major Middle East exporters to the U.S. — Saudi Arabia, Iraq and Kuwait — accounted for only 20 per cent of U.S. imports in November, according the U.S. Energy Information Agency.
Mr. Pickens said he expects the Canadian oil sands will play a major role in the effort to replace supplies from politically unstable areas, though he acknowledged it is not clear how a free market system could manage that market transformation.
“The oil produced there is so important to both Canada and the United States — from time to time there will be environmental issues but other than that, I don’t see anything slowing it down.”