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.
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.
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.
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.)
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.”
Something interesting to share?
Join NrgEdge and create your own NrgBuzz today
Headline crude prices for the week beginning 23 March 2020 – Brent: US$27/b; WTI: US$23/b
Headlines of the week
Crude oil prices have fallen significantly since the beginning of 2020, largely driven by the economic contraction caused by the 2019 novel coronavirus disease (COVID19) and a sudden increase in crude oil supply following the suspension of agreed production cuts among the Organization of the Petroleum Exporting Countries (OPEC) and partner countries. With falling demand and increasing supply, the front-month price of the U.S. benchmark crude oil West Texas Intermediate (WTI) fell from a year-to-date high closing price of $63.27 per barrel (b) on January 6 to a year-to-date low of $20.37/b on March 18 (Figure 1), the lowest nominal crude oil price since February 2002.
WTI crude oil prices have also fallen significantly along the futures curve, which charts monthly price settlements for WTI crude oil delivery over the next several years. For example, the WTI price for December 2020 delivery declined from $56.90/b on January 2, 2020, to $32.21/b as of March 24. In addition to the sharp price decline, the shape of the futures curve has shifted from backwardation—when near-term futures prices are higher than longer-dated ones—to contango, when near-term futures prices are lower than longer-dated ones. The WTI 1st-13th spread (the difference between the WTI price in the nearest month and the price for WTI 13 months away) settled at -$10.34/b on March 18, the lowest since February 2016, exhibiting high contango. The shift from backwardation to contango reflects the significant increase in petroleum inventories. In its March 2020 Short-Term Energy Outlook (STEO), released on March 11, 2020, the U.S. Energy Information Administration (EIA) forecast that Organization for Economic Cooperation and Development (OECD) commercial petroleum inventories will rise to 2.9 billion barrels in March, an increase of 20 million barrels over the previous month and 68 million barrels over March 2019 (Figure 2). Since the release of the March STEO, changes in various oil market and macroeconomic indicators suggest that inventory builds are likely to be even greater than EIA’s March forecast.
Significant price volatility has accompanied both price declines and price increases. Since 1999, 69% of the time, daily WTI crude oil prices increased or decreased by less than 2% relative to the previous trading day. Daily oil price changes during March 2020 have exceeded 2% 13 times (76% of the month’s traded days) as of March 24. For example, the 10.1% decline on March 6 after the OPEC meeting was larger than 99.8% of the daily percentage price decreases since 1999. The 24.6% decline on March 9 and the 24.4% decline on March 18 were the largest and second largest percent declines, respectively, since at least 1999 (Figure 3).
On March 10, a series of government announcements indicated that emergency fiscal and monetary policy were likely to be forthcoming in various countries, which contributed to a 10.4% increase in the WTI price, the 12th-largest daily increase since 1999. During other highly volatile time periods, such as the 2008 financial crisis, both large price increases and decreases occurred in quick succession. During the 2008 financial crisis, the largest single-day increase—a 17.8% rise on September 22, 2008—was followed the next day by the largest single-day decrease, a 12.0% fall on September 23, 2008.
Market price volatility during the first quarter of 2020 has not been limited to oil markets (Figure 4). The recent volatility in oil markets has also coincided with increased volatility in equity markets because the products refined from crude oil are used in many parts of the economy and because the COVID-19-related economic slowdown affects a broad array of economic activities. This can be measured through implied volatility—an estimate of a security’s expected range of near-term price changes—which can be calculated using price movements of financial options and measured by the VIX index for the Standard and Poor’s (S&P) 500 index and the OVX index for WTI prices. Implied volatility for both the S&P 500 index and WTI are higher than the levels seen during the 2008 financial crisis, which peaked on November 20, 2008, at 80.9 and on December 11, 2008, at 100.4, respectively, compared with 61.7 for the VIX and 170.9 for the OVX as of March 24.
Comparing implied volatility for the S&P 500 index with WTI’s suggests that although recent volatility is not limited to oil markets, oil markets are likely more volatile than equity markets at this point. The oil market’s relative volatility is not, however, in and of itself unusual. Oil markets are almost always more volatile than equity markets because crude oil demand is price inelastic—whereby price changes have relatively little effect on the quantity of crude oil demanded—and because of the relative diversity of the companies constituting the S&P 500 index. But recent oil market volatility is still historically high, even in comparison to the volatility of the larger equity market. As denoted by the red line in the bottom of Figure 4, the difference between the OVX and VIX reached an all-time high of 124.1 on March 23, compared with an average difference of 16.8 between May 2007 (the date the OVX was launched) and March 24, 2020.
Markets currently appear to expect continued and increasing market volatility, and, by extension, increasing uncertainty in the pricing of crude oil. Oil’s current level of implied volatility—a forward-looking measure for the next 30 days—is also high relative to its historical, or realized, volatility. Historical volatility can influence the market’s expectations for future price uncertainty, which contributes to higher implied volatility. Some of this difference is a structural part of the market, and implied volatility typically exceeds historical volatility as sellers of options demand a volatility risk premium to compensate them for the risk of holding a volatile security. But as the yellow line in Figure 4 shows, the current implied volatility of WTI prices is still higher than normal. The difference between implied and historical volatility reached an all-time high of 44.7 on March 20, compared with an average difference of 2.3 between 2007 and March 2020. This trend could suggest that options (prices for which increase with volatility) are relatively expensive and, by extension, that demand for financial instruments to limit oil price exposure are relatively elevated.
Increased price correlation among several asset classes also suggests that similar economic factors are driving prices in a variety of markets. For example, both the correlation between changes in the price of WTI and changes in the S&P 500 and the correlation between WTI and other non-energy commodities (as measured by the S&P Commodity Index (GSCI)) increased significantly in March. Typically, when correlations between WTI and other asset classes increase, it suggests that expectations of future economic growth—rather than issues specific to crude oil markets— tend to be the primary drivers of price formation. In this case, price declines for oil, equities, and non-energy commodities all indicate that concerns over global economic growth are likely the primary force driving price formation (Figure 5).
U.S. average regular gasoline and diesel prices fall
The U.S. average regular gasoline retail price fell nearly 13 cents from the previous week to $2.12 per gallon on March 23, 50 cents lower than a year ago. The Midwest price fell more than 16 cents to $1.87 per gallon, the West Coast price fell nearly 15 cents to $2.88 per gallon, the East Coast and Gulf Coast prices each fell nearly 11 cents to $2.08 per gallon and $1.86 per gallon, respectively, and the Rocky Mountain price declined more than 8 cents to $2.24 per gallon.
The U.S. average diesel fuel price fell more than 7 cents from the previous week to $2.66 per gallon on March 23, 42 cents lower than a year ago. The Midwest price fell more than 9 cents to $2.50 per gallon, the West Coast price fell more than 7 cents to $3.25 per gallon, the East Coast and Gulf Coast prices each fell nearly 7 cents to $2.72 per gallon and $2.44 per gallon, respectively, and the Rocky Mountain price fell more than 6 cents to $2.68 per gallon.
Propane/propylene inventories decline
U.S. propane/propylene stocks decreased by 1.8 million barrels last week to 64.9 million barrels as of March 20, 2020, 15.5 million barrels (31.3%) greater than the five-year (2015-19) average inventory levels for this same time of year. Gulf Coast inventories decreased by 1.3 million barrels, East Coast inventories decreased by 0.3 million barrels, and Rocky Mountain/West Coast inventories decrease by 0.2 million barrels. Midwest inventories increased by 0.1 million barrels. Propylene non-fuel-use inventories represented 8.5% of total propane/propylene inventories.
Residential heating fuel prices decrease
As of March 23, 2020, residential heating oil prices averaged $2.45 per gallon, almost 15 cents per gallon below last week’s price and nearly 77 cents per gallon lower than last year’s price at this time. Wholesale heating oil prices averaged more than $1.11 per gallon, almost 14 cents per gallon below last week’s price and 98 cents per gallon lower than a year ago.
Residential propane prices averaged more than $1.91 per gallon, nearly 2 cents per gallon below last week’s price and almost 49 cents per gallon below last year’s price. Wholesale propane prices averaged more than $0.42 per gallon, more than 7 cents per gallon lower than last week’s price and almost 36 cents per gallon below last year’s price.
Headline crude prices for the week beginning 16 March 2020 – Brent: US$30/b; WTI: US$28/b
Headlines of the week