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T. Boone Pickens, the wildcatter “Oracle of Oil,” hedge fund founder and philanthropist who rewrote the playbook for corporate raiders, has died. He was 91.

He died Wednesday of natural causes.

Pickens had been in declining health, suffering from a series of strokes and a serious fall in 2017. In late 2017, he put his sprawling 100-square-mile Mesa Vista Ranch in the Texas Panhandle on the market for $250 million, and a few months later, he closed his energy hedge fund, BP Capital, to outside investors.

“I will sorely miss his friendship and his great wit. He was a stand-up guy from the old school. I wish there were more like him today,” said billionaire investor Carl Icahn. “He and I agreed on corporate governance … we shared the same values on shareholders’ rights.”

Pickens was known as a corporate raider in the 1980s, targeting Gulf Oil, Unocal and Phillips Petroleum, a company later targeted by Icahn. Icahn described Pickens’ Texas charm and wit. He recounted how Pickens told a major oil company CEO that his earnings were down for 10 years. Revenues were also down for 10 years, as was cash flow. Icahn remembers laughing, when Pickens said “Don’t you think that’s a trend?”

In a career that started with Phillips Petroleum, Pickens later pursued clean energy projects in wind power and natural gas.

He also was a big Republican political donor, backing George W. Bush in the Texas gubernatorial and presidential races. Guests at his ranch included Dick Cheney and Nancy Reagan.

Handout: Boone Pickens Mesa Vista Ranch Texas Boone Pickens quail hunting

Boone Pickens quail hunting on Mesa Vista Ranch. | Handout: Mesa Vista Ranch

He also donated more than $1 billion over the years, including hundreds of millions to his alma mater, Oklahoma State University, which named its renovated football stadium after him.

Thomas Boone Pickens Jr. was born May 22, 1928, in Holdenville, Oklahoma. His father was a “landman,” who sold oil and mineral rights. During World War II, his mother was in charge of rationing in her region as head of the local Office of Price Administration.

As a 12-year-old paperboy, Pickens started out with 28 customers, but by acquiring adjacent routes one at a time he quadrupled his business.

“That was my first introduction to expanding quickly by acquisition — a talent I would perfect in my later years,” he recalled on his website.

His family moved to Amarillo, Texas, where he attended high school. After graduating in 1951 from Oklahoma A&M (now Oklahoma State) with a degree in geology, Pickens started working at Phillips Petroleum.

He left three years later to drill wildcat wells, first founding Petroleum Exploration with $2,500 in cash and $100,000 in borrowed money for projects in the Texas Panhandle, and later establishing Altair Oil & Gas for exploration in western Canada. The companies became Mesa Petroleum, which Pickens took public in 1964 and became one of the largest independent oil and gas companies in the United States.

CNBC: T. Boone Pickens Chairman BP Capital Management

Boone Pickens, Chairman, BP Capital Management | Adam Jeffery | CNBC

“Pickens was one of thousands driving around the oil states, using public phone booths as their offices, hustling, looking at deals. Selling them, getting a crew together and a well drilled and, if lucky, hitting oil or gas, dreaming all the while of making it big, really big,” Daniel Yergin wrote in his Pulitzer Prize-winning book “The Prize: The Epic Quest for Oil, Money & Power.”

“Pickens got farther than most. He was smart and shrewd, with an ability to analyze and think through a problem, step by step.”

Corporate raider: ‘Big Oil was never the same’

Five years after creating Mesa, Pickens targeted Hugoton Production for a hostile takeover, seeing that the value of Hugoton’s extensive gas reserves in Kansas dwarfed its low stock price. Although Mesa was substantially smaller than Hugoton, Pickens gathered the support of its shareholders by promising greater returns and better management.

During the early 1980s, Pickens took his corporate raider talents to new levels, investing in chunks of undervalued oil companies, trying to take them over and making big profits even if the buyout failed. As described on his website:

“Pickens and his young band of hungry Mesa Petroleum managers grabbed hold of a monster and shook it like it’d never been jostled before. They rode that monster, and got thrown some, but Big Oil was never the same again.”

After accumulating more than 5% of Cities Service stock over the years, Pickens led Mesa’s attempt in 1982 to acquire the much larger oil company. Cities Service counterattacked by trying to acquire Mesa. A wild bidding war ensued, with Occidental Petroleum eventually winning Cities Service for $4 billion. Pickens still reaped $30 million in profit on his shares.

Later, Pickens made similar, but failed, attempts with Phillips Petroleum, Unocal and Gulf Oil. Gulf, one of the “Seven Sister” oil giants, defended itself by turning to Chevron as its “white knight.” Chevron wound up swallowing Gulf for $13.2 billion, but Pickens netted $404 million for Mesa shareholders for their Gulf stake.

Some accused Pickens of being a “greenmailer,” in which an investor purchased large amounts of a company, then launched a takeover to run up the price before bailing out. But Pickens rejected that label. “I never greenmailed anybody,” he said in an interview on his website.

But there was no arguing that Pickens’ takeover tactics made him a bundle. They also landed him on the cover of Time magazine. There he was in 1985, sitting behind a pile of poker chips — blue chips — and holding a hand of cards decorated by oil derricks.

ONE TIME USE: T. Boone Pickens on TIME cover

Source: Birney Lettick

He was Gordon Gekko before ‘Wall Street,’ and his influence was profound,” The New York Times’ David Gelles wrote in a January 2018 profile, referring to the villain in Oliver Stone’s 1987 movie.

As a corporate raider, Pickens was a leader of the budding “shareholders rights” movement. He founded the United Shareholders Association in 1986 to pressure corporate leaders “to give the companies back to the owners, which are the shareholders.”

“I have always believed that maintaining the status quo inevitably leads to failure,” Pickens wrote in a September 2017 column for Forbes. “Back then, the notion that shareholders own the companies and managements were employees was foreign to big oil companies that would rather operate like empires. I was hell-bent on shaking things up. I was a disrupter before disrupters were cool.”

‘Halftime’ at age 68

In 1996, at age 68, Pickens sold Mesa, but rather than retire, he started a new business, BP Capital Management, a hedge fund focusing on the energy industry. (BP stands for his name, not British Petroleum.)

Premium: T. Boone Pickens, founder and chief executive officer of BP Capital LLC

T. Boone Pickens, founder and chief executive officer of BP Capital LLC. | Andrew Harrer | Bloomberg | Getty Images

“For most people, that would have been the end. For me, it was halftime,” he wrote in the Forbes column.

The hedge fund managed billions of dollars for investors until Pickens closed it in January 2018 because of his declining health.

A year after starting the hedge fund, he formed Pickens Fuel Corp. in 1997, promoting natural gas as an alternative to gasoline. In 2007, he spent $100 million of his own money to launch the Pickens Plan, a campaign with the goal of declaring U.S. energy independence.

The same year, the oilman announced plans to build the world’s largest wind farm — 4,000 megawatts — in the Texas Panhandle, but subsequent low natural gas prices helped to derail the plans. He turned his focus to getting Congress to offer incentives for conversion of trucks from diesel to compressed natural gas.

“I’m all American,” Pickens said. “Any energy in America beats importing.”

‘Yes, I’m for Donald Trump’

During Bush’s 2004 re-election campaign, Pickens helped finance the “Swift Boat Veterans for Truth” campaign that questioned John Kerry’s Vietnam War record and helped undermine the Democrat’s presidential bid.

He backed Republican Rudy Giuliani in 2008 and Donald Trump in 2016.

“Yes, I’m for Donald Trump,” Pickens declared in May 2016. “I’m tired of having politicians as president of the U.S. Let’s try something different.”

He supported Trump’s withdrawal from the Paris climate accord and his attempts to restrict visitors from predominantly Muslim countries from entering the United States.

I’d cut off the Muslims from coming into the United States until we can vet these people,” he said. “Cut them off until we can figure out who they are.”

Aside from Republican politics, Pickens was a benefactor of numerous organizations, including the University of Texas Southwestern Medical Center in Dallas and the M.D. Anderson Cancer Center in Houston ($50 million each in 2007). His $165 million donation to his OSU’s athletic department helped fund the stadium renovation. The school named the complex Boone Pickens Stadium to thank him for what it said was the largest single donation ever to any university athletic department.

On Valentine’s Day 2014, the 85-year-old Pickens married Toni Brinker, widow of Dallas restaurateur Norman Brinker, in a small ceremony in the Mesa Vista family chapel. His four previous marriages ended in divorce. She survives him, as do three daughters and two sons from previous marriages.

Days after Pickens suffered “a Texas-sized fall” in July 2017, he wrote a LinkedIn post titled “Accepting (or Embracing) Mortality.”

“Now, don’t for a minute think I’m being morbid,” he wrote. “Truth is, when you’re in the oil business like I’ve been all my life, you drill your fair share of dry holes, but you never lose your optimism. There’s a story I tell about the geologist who fell off a 10-story building. When he blew past the fifth floor he thought to himself, ‘So far so good.’ That’s the way to approach life. Be the eternal optimist who is excited to see what the next decade will bring.”

Oracle of Oil T Boone Pickens billionaire philanthropist death
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Libya & OPEC’s Quota

The constant domestic fighting in Libya – a civil war, to call a spade a spade, has taken a toll on the once-prolific oil production in the North African country. After nearly a decade of turmoil, it appears now that the violent clash between the UN-recognised government in Tripoli and the upstart insurgent Libyan National Army (LNA) forces could be ameliorating into something less destructive with the announcement of a pact between the two sides that would to some normalisation of oil production and exports.

A quick recap. Since the 2011 uprising that ended the rule of dictator Muammar Gaddafi, Libya has been in a state of perpetual turmoil. Led by General Khalifa Haftar and the remnants of loyalists that fought under Gaddafi’s full-green flag, the Libyan National Army stands in direct opposition to the UN-backed Government of National Accord (GNA) that was formed in 2015. Caught between the two sides are the Libyan people and Libya’s oilfields. Access to key oilfields and key port facilities has changed hands constantly over the past few years, resulting in a start-stop rhythm that has sapped productivity and, more than once, forced Libya’s National Oil Corporation (NOC) to issue force majeure on its exports. Libya’s largest producing field, El Sharara, has had to stop production because of Haftar’s militia aggression no fewer than four times in the past four years. At one point, all seven of Libya’s oil ports – including Zawiyah (350 kb/d), Es Sider (360 kb/d) and Ras Lanuf (230 kb/d) were blockaded as pipelines ran dry. For a country that used to produce an average of 1.2 mmb/d of crude oil, currently output stands at only 80,000 b/d and exports considerably less. Gaddafi might have been an abhorrent strongman, but political stability can have its pros.

This mutually-destructive impasse, economically, at least might be lifted, at least partially, if the GNA and LNA follow through with their agreement to let Libyan oil flow again. The deal, brokered in Moscow between the warlord Haftar and Vice President of the Libyan Presidential Council Ahmed Maiteeq calls for the ‘unrestrained’ resumption of crude oil production that has been at a near standstill since January 2020. The caveat because there always is one, is that Haftar demanded that oil revenues be ‘distributed fairly’ in order to lift the blockade he has initiated across most of the country’s upstream infrastructure.

Shortly after the announcement of the deal, the NOC announced that it would kick off restarting oil production and exports, lifting an 8-month force majeure situation, but only at ‘secure terminals and facilities’. ‘Secure’ in this cases means facilities and fields where NOC has full control, but will exclude areas and assets that the LNA rebels still have control. That’s a significant limitation, since the LNA, which includes support from local tribal groups and Russian mercenaries still controls key oilfields and terminals. But it is also a softening from the NOC, which had previously stated that it would only return to operations when all rebels had left all facilities, citing safety of its staff.

If the deal moves forward, it would certainly be an improvement to the major economic crisis faced by Libya, where cash flow has dried up and basic utilities face severe cutbacks. But it is still an ‘if’. Many within the GNA sphere are critical of the deal struck by Maiteeq, claiming that it did not involve the consultation or input of his allies. The current GNA leader, Prime Minister Fayyaz al Sarraj is also stepping down at the end of October, ushering in another political sea change that could affect the deal. Haftar is a mercurial beast, so predictions are difficult, but what is certain is that depriving a country of its chief moneymaker is a recipe for disaster on all sides. Which is why the deal will probably go ahead.

Which is bad news for the OPEC+ club. Because of its precarious situation, Libya has been exempt for the current OPEC+ supply deal. Even the best case scenarios within OPEC+ had factored out Libya, given the severe uncertainty of the situation there. But if the deal goes through and holds, it could potentially add a significant amount of restored crude supply to global markets at a time when OPEC+ itself is struggling to manage the quotas within its own, from recalcitrant members like Iraq to surprising flouters like the UAE.

Mathematically at least, the ceiling for restored Libyan production is likely in the 300-400,000 b/d range, given that Haftar is still in control of the main fields and ports. That does not seem like much, but it will give cause for dissent within OPEC on the exemption of Libya from the supply deal. Libya will resist being roped into the supply deal, and it has justification to do so. But freeing those Libyan volumes into a world market that is already suffering from oversupply and weak prices will be undermining in nature. The equation has changed, and the Libyan situation can no longer be taken for granted.

Market Outlook:

  •  Crude price trading range: Brent – US$41-43/b, WTI – US$39-41/b
  • While a resurgence in Covid-19 cases globally is undermining faith that the ongoing oil demand recovery will continue unabated, crude markets have been buoyed by a show of force by Saudi Arabia and US supply disruptions from Tropical Storm Sally
  • In a week when Iraq’s OPEC+ commitments seem even more distant with signs of its crude exports rising and key Saudi ally the UAE admitting it had ‘pumped too much recently’, the Saudi Energy Minister issued a force condemnation on breaking quotas
  • On the demand side, the IEA revised its forecast for oil demand in 2020 to an annual decline of 8.4 mmb/d, up from 8.1 mmb/d in August, citing Covid resurgences
  • In a possible preview of the future, BP issued a report stating that the ‘relentless growth of oil demand is over’, offering its own vision of future energy requirements that splits the oil world into the pro-clean lobby led by Europeans and the prevailing oil/gas orthodoxy that remains in place across North America and the rest of the world

END OF ARTICLE

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September, 22 2020
Average U.S. construction costs for solar and wind generation continue to fall

According to 2018 data from the U.S. Energy Information Administration (EIA) for newly constructed utility-scale electric generators in the United States, annual capacity-weighted average construction costs for solar photovoltaic systems and onshore wind turbines have continued to decrease. Natural gas generator costs also decreased slightly in 2018.

From 2013 to 2018, costs for solar fell 50%, costs for wind fell 27%, and costs for natural gas fell 13%. Together, these three generation technologies accounted for more than 98% of total capacity added to the electricity grid in the United States in 2018. Investment in U.S. electric-generating capacity in 2018 increased by 9.3% from 2017, driven by natural gas capacity additions.

Solar
The average construction cost for solar photovoltaic generators is higher than wind and natural gas generators on a dollar-per-kilowatt basis, although the gap is narrowing as the cost of solar falls rapidly. From 2017 to 2018, the average construction cost of solar in the United States fell 21% to $1,848 per kilowatt (kW). The decrease was driven by falling costs for crystalline silicon fixed-tilt panels, which were at their lowest average construction cost of $1,767 per kW in 2018.

Crystalline silicon fixed-tilt panels—which accounted for more than one-third of the solar capacity added in the United States in 2018, at 1.7 gigawatts (GW)—had the second-highest share of solar capacity additions by technology. Crystalline silicon axis-based tracking panels had the highest share, with 2.0 GW (41% of total solar capacity additions) of added generating capacity at an average cost of $1,834 per kW.

average construction costs for solar photovoltaic electricity generators

Source: U.S. Energy Information Administration, Electric Generator Construction Costs and Annual Electric Generator Inventory

Wind
Total U.S. wind capacity additions increased 18% from 2017 to 2018 as the average construction cost for wind turbines dropped 16% to $1,382 per kW. All wind farm size classes had lower average construction costs in 2018. The largest decreases were at wind farms with 1 megawatt (MW) to 25 MW of capacity; construction costs at these farms decreased by 22.6% to $1,790 per kW.

average construction costs for wind farms

Source: U.S. Energy Information Administration, Electric Generator Construction Costs and Annual Electric Generator Inventory

Natural gas
Compared with other generation technologies, natural gas technologies received the highest U.S. investment in 2018, accounting for 46% of total capacity additions for all energy sources. Growth in natural gas electric-generating capacity was led by significant additions in new capacity from combined-cycle facilities, which almost doubled the previous year’s additions for that technology. Combined-cycle technology construction costs dropped by 4% in 2018 to $858 per kW.

average construction costs for natural gas-fired electricity generators

Source: U.S. Energy Information Administration, Electric Generator Construction Costs and Annual Electric Generator Inventory

September, 17 2020
Fossil fuels account for the largest share of U.S. energy production and consumption

Fossil fuels, or energy sources formed in the Earth’s crust from decayed organic material, including petroleum, natural gas, and coal, continue to account for the largest share of energy production and consumption in the United States. In 2019, 80% of domestic energy production was from fossil fuels, and 80% of domestic energy consumption originated from fossil fuels.

The U.S. Energy Information Administration (EIA) publishes the U.S. total energy flow diagram to visualize U.S. energy from primary energy supply (production and imports) to disposition (consumption, exports, and net stock additions). In this diagram, losses that take place when primary energy sources are converted into electricity are allocated proportionally to the end-use sectors. The result is a visualization that associates the primary energy consumed to generate electricity with the end-use sectors of the retail electricity sales customers, even though the amount of electric energy end users directly consumed was significantly less.

U.S. primary energy production by source

Source: U.S. Energy Information Administration, Monthly Energy Review

The share of U.S. total energy production from fossil fuels peaked in 1966 at 93%. Total fossil fuel production has continued to rise, but production has also risen for non-fossil fuel sources such as nuclear power and renewables. As a result, fossil fuels have accounted for about 80% of U.S. energy production in the past decade.

Since 2008, U.S. production of crude oil, dry natural gas, and natural gas plant liquids (NGPL) has increased by 15 quadrillion British thermal units (quads), 14 quads, and 4 quads, respectively. These increases have more than offset decreasing coal production, which has fallen 10 quads since its peak in 2008.

U.S. primary energy overview and net imports share of consumption

Source: U.S. Energy Information Administration, Monthly Energy Review

In 2019, U.S. energy production exceeded energy consumption for the first time since 1957, and U.S. energy exports exceeded energy imports for the first time since 1952. U.S. energy net imports as a share of consumption peaked in 2005 at 30%. Although energy net imports fell below zero in 2019, many regions of the United States still import significant amounts of energy.

Most U.S. energy trade is from petroleum (crude oil and petroleum products), which accounted for 69% of energy exports and 86% of energy imports in 2019. Much of the imported crude oil is processed by U.S. refineries and is then exported as petroleum products. Petroleum products accounted for 42% of total U.S. energy exports in 2019.

U.S. primary energy consumption by source

Source: U.S. Energy Information Administration, Monthly Energy Review

The share of U.S. total energy consumption that originated from fossil fuels has fallen from its peak of 94% in 1966 to 80% in 2019. The total amount of fossil fuels consumed in the United States has also fallen from its peak of 86 quads in 2007. Since then, coal consumption has decreased by 11 quads. In 2019, renewable energy consumption in the United States surpassed coal consumption for the first time. The decrease in coal consumption, along with a 3-quad decrease in petroleum consumption, more than offset an 8-quad increase in natural gas consumption.

EIA previously published articles explaining the energy flows of petroleum, natural gas, coal, and electricity. More information about total energy consumption, production, trade, and emissions is available in EIA’s Monthly Energy Review.

Principal contributor: Bill Sanchez

September, 15 2020