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T. BOONE PICKENS, JR.

REMARKS UNIVERSITY OF KANSAS SCHOOL OF BUSINESS EXECUTIVE LECTURE SERIES LAWRENCE, KANSAS
NOVEMBER 16, 1982

[HANDWRITTEN ADDITION: DRAFT]

BRIEFING INFORMATION

SCHEDULE

10:45 am INFORMAL MEETING WITH FACULTY AND GRADUATE STUDENTS

11:45 am LUNCH WITH SMALL REPRESENTATION OF FACULTY AND STUDENTS

1:30 pm EXECUTIVE LECTURE

2:20 pm
RECEPTION WITH STUDENTS AND FACULTY SPONSORED BY THE GRADUATE BUSINESS COUNCIL

2:15 pm DEPART FOR AIRPORT

THE LECTURE SERIES/AUDIENCE

THE OBJECTIVE OF THE EXECUTIVE LECTURE SERIES IS TO EXPOSE MASTERS STUDENTS TO THE THINKING, MANAGERIAL EXPERIENCES AND ACTIVITIES OF A NUMBER OF INDIVIDUALS REPRESENTING A WIDE VARIETY OF FIELDS AND INDUSTRIES. APPROXIMATELY 120-150 STUDENTS AND FACULTY ARE EXPECTED TO ATTEND. APPROXIMATELY ONE-THIRD OF THE AUDIENCE IS EXPECTED TO BE UNDERGRADUATE STUDENTS.

PHIL WOOD, EXECUTIVE IN RESIDENCE AND FORMER EXECUTIVE VICE PRESIDENT OF CITIES SERVICE, MAY INTRODUCE YOU.

JOHN TOLLEFSON IS THE DEAN OF THE SCHOOL OF BUSINESS AND PARKER LESSIG IS THE ASSOCIATE DEAN.

MEMBERS OF THE PRESS REPRESENTING THE JOURNAL WORLD OF LAWRENCE AND KANSAS CITY STAR MAY BE IN ATTENDANCE.

TOPIC

PARKER LESSIG SUGGESTS THAT YOUR COMMENTS ADDRESS THE CITIES SERVICE ACQUISITION ATTEMPT AND AN OUTLOOK FOR THE INDUSTRY. [HANDWRITTEN ADDITION: EXCELLENT]

LECTURE OUTLINE - HIGHLIGHTS

I. INTRODUCTION

A. ADDRESS TWO TOPICS (1) OUTLOOK FOR INDUSTRY, AND (2) MESA-CITIES SERVICE ACQUISITION ATTEMPT.

II. THE INDUSTRY IS CHALLENGING

A. 31 YEARS

B. NINE-YEAR INDUSTRY BOOM HAS ENDED

C. MOST NEWS HAS BEEN NEGATIVE

  1. OVERSUPPLY OF CRUDE
  2. SOFT MARKET FOR GAS
  3. SEISMIC AND DRILLING ACTIVITY
  4. EARNINGS AND PROFITS

D. EARLY SIGNS OF POSSIBLE RECOVERY

  1. INTEREST RATES
  2. INFLATION
  3. DRILLING COSTS
  4. GENERAL ECONOMIC RECOVERY
  5. COLD WINTER AND INVENTORIES ARE LOW

E. ANOTHER IMPORTANT FACTOR TO CONSIDER—DRILLING ACTIVITY HAS DROPPED 50% THIS YEAR.

F. INDUSTRY WILL RECOVER—BUT IT WILL BE SLOW.

G. SHAKEOUT WILL CONTINUE.

III. MAJOR CHANGES ARE IMMINENT FOR THE INDUSTRY—THE CATALYSTS BEING (1) THE IMPORTANCE OF OPTIMUM SIZE AND (2)AWARENESS OF SHAREHOLDERS.

A. HE OPTIMUM SIZE OF AN OIL AND GAS EXPLORATION COMPANY IS A SIZE IN WHICH PERSONNEL AND CASH FLOW ARE BALANCED IN SUCH A MANNER THAT ALLOWS THE COMPANY TO INCREASE ITS RESERVES ANNUALLY IN THE MOST ECONOMIC MEANS POSSIBLE THROUGH EXPLORATION SUCCESS AND/OR ACQUISITION.

B. GOAL OF MANAGEMENT.

C. MANAGERS OF DEPLETABLE ASSETS.

D. INCUMBENT TO INCREASE RESERVES ANNUALLY.

E. MANY COMPANIES ARE LIQUIDATING.

F. OUR BUSINESS IS SIMPLE: WE MUST PROTECT AND ENHANCE THE RESERVE BASE AND THERE ARE ONLY TWO WAYS THIS CAN BE ACCOMPLISHED—EITHER BY EXPLORATION SUCCESS OR BY ACQUISITION.

G. INCREASING RESERVES IS NOT ENOUGH BY ITSELF—MUST INCREASE THEM PROFITABLY.

H. FINDING COSTS—ACQUISITION COSTS.

I. KNOWING THE IMPORTANCE OF OPTIMUM SIZE AND DOING SOMETHING ABOUT IT ARE TWO DIFFERENT THINGS.

J. MANAGEMENTS MUST BE WILLING TO MAKE DECISIONS TO ADJUST SIZE.

K. OPTIMUM SIZE ADJUSTMENTS MAY INCREASE SIZE OR MAY DOWN SIZE THE COMPANY.

L. DOWN SIZING IS A TOUGH DECISION FOR MOST MANAGEMENTS.

M. MESA ADJUSTMENTS.

  1. INCREASING SIZE—1964-1978 EXPLORATION SUCCESSES AND ACQUISITIONS.
  2. SINCE 1979—ADJUSTMENTS TO DOWN SIZE.
  3. MESA HAS INCREASED RESERVES CONSISTENTLY FOR EIGHTEEN YEARS.

N. SECOND CATALYST FOR CHANGE IS STOCKHOLDERS.

O. PERIOD OF AWARENESS.

P. AWARE OF DEPLETABLE ASSETS.

Q. VOCAL IN CRITICISM.

R. STOCK OPTIONS—DECISIONS TO PERPETUATE JOBS.

IV. MESA-CITIES SERVICE ACQUISITION ATTEMPT.

A. AGGIE-OLD LION; PICKENS—REGIONAL GEOLOGIST FOR SOUTHWEST KANSAS.

B. MESA IS "ACQUISITION MINDED."

  1. 1964—PEI AND ALTAIR [HANDWRITTEN ADDITION: MSA—COMBINATION (PZL: 63)]
  2. 1965—STANDARD GILSONITE COMPANY
  3. 1969—HUGOTON
  4. 1970—SOUTHLAND ROYALTY
  5. 1973—PUBCO
  6. 1976—GENERAL AMERICAN
  7. 1982—CITIES SERVICE

C. INTEREST IN CITIES SERVICE BEGAN IN 1976.

  1. ASSETS
  2. POOR MANAGEMENT

D. PHIL WOOD QUOTE IN NEW YORK TIMES.

E. 1980-1981—ACCUMULATED STOCK.

  1. HURT, SCOTT, RODINO
  2. 13D—NUWEST (70), MESA (5%)

F. CITIES ACTIONS—CALLING PARTNERS AND FILING LAWSUITS.

G. MESA NEEDED PARTNERS.

H. BANKERS MEETING—JUNE 1 DATE REVEALED.

I. MESA COULDN'T MAKE JUNE 1 DATE, BUT "NO ONE TOLD CITIES."

J. MAY 27—DISMEMBERMENT NEWS RELEASE BY CITIES.

K. MAY 28—$17 TENDER OFFER

  1. SURPRISE
  2. STARTED THE METER RUNNING

L. MESA HAD GOOD DEFENSE STRATEGY (SUPER MAJORITY AND STAGGERED BOARD) BUT NO PARTNERS.

M. MAY 31—MEMORIAL DAY—BEAR HUG

N. CS CALLS TO PROSPECTIVE PARTNERS

O. FLOM/DOME-CONOCO/LAUNCHED ON JUNE 7

P. MESA STRATEGIES TO SOLVE TIMING PROBLEM

  1. DELAWARE CASE
  2. 10% OFFER

Q. JUNE 17—CS STOCK TOOK OFF INDICATING WHITE KNIGHT.

R. WASSERSTEIN STRATEGY

  1. GULF/FIRST BOSTON CONNECTION
  2. SELL OUT CS AND THEN GO AFTER MESA
  3. AMENDED CONTRACT WITH CS ON JUNE 14
  4. DIRECTORS OF CS WARNED OF MESA AND REALIZATION OF STOCK SWAY
  5. ENTER WHITE KNIGHT

S. JUNE 18—GULF WENT FOR CS AND WASSERSTEIN WAS READY TO COMPLETE THE DOUBLE PLAY WITH MESA.

T. CONVERSATION WITH JIMMY LEE

  1. "MAY HAVE PAID TOO MUCH"
  2. DECIDED TO TAKE MONEY AND GO TO THE SIDELINE

U. WATERMELON

V. CHANGES NEEDED IN LAWS TO PERMIT STOCKHOLDERS OPPORTUNITY TO DECIDE ON ACQUISITION OFFERS.

V. QUESTIONS

T. BOONE PICKENS, JR., REMARKS: UNIVERSITY OF KANSAS EXECUTIVE LECTURE SERIES

I. INTRODUCTION

A. THANK YOU FOR YOUR KIND INTRODUCTION.

B. (PERSONAL COMMENTS)
1.
2.
3.

C. I WILL ADDRESS TWO TOPICS TODAY: (1) THE OUTLOOK FOR THE OIL AND GAS INDUSTRY AND (2) A BRIEF REVIEW OF THE MESA-CITIES SERVICE ACQUISITION ATTEMPTS.

D. I WILL THEN BE PLEASED TO ANSWER YOUR QUESTIONS.

II. MANY OF YOU HERE TODAY MAY BE CONSIDERING CAREERS IN THE OIL AND GAS BUSINESS. IF SO, YOU ARE PROBABLY ALREADY AWARE THAT IT IS A TOUGH AND CHALLENGING INDUSTRY, BUT ONE IN WHICH YOU MAY RECEIVE GREAT SATISFACTION AND REWARD.

A. I'VE BEEN IN THE OIL AND GAS BUSINESS FOR 31 YEARS. I CAN PROBABLY COUNT ON ONE HAND THE NUMBER OF YEARS WE HAVE "LINED 'UM UP AND RUN OVER 'UM."

B. WE'RE GOING THROUGH A TOUGH PERIOD AGAIN. THE INDUSTRY BOOM, WHICH STARTED IN 1973 WITH THE OIL EMBARGO, AND WAS SPURRED BY A TWELVE-FOLD INCREASE IN PRICES ORCHESTRATED BY OPEC, CAME TO AN ABRUPT HALT THIS YEAR. CONSEQUENTLY, MOST NEWS ABOUT THE INDUSTRY HAS BEEN NEGATIVE THIS YEAR.

  1. THERE HAS BEEN AN OVERSUPPLY OF CRUDE OIL AND THE SUBSEQUENT DROP AND STABILIZATION OF PRICES.
  2. THE MARKET FOR NATURAL GAS HAS BEEN SOFT.
  3. SEISMIC AND DRILLING ACTIVITY HAS PLUNGED.
  4. DOWN, PRIMARILY DUE TO HIGH FINDING COSTS.

D. BUT, WE ARE BEGINNING TO SEE SOME EARLY SIGNS OF A POSSIBLE RECOVERY.

  1. INTEREST RATES HAVE DROPPED.
  2. INFLATION HAS BEEN CURBED.
  3. DRILLING COSTS ARE DOWN 20%-30%.
  4. WE SEE SIGNS THAT THE GENERAL ECONOMY MAY BE RECOVERING. HISTORICALLY, DEMAND FOR OUR PRODUCTS INCREASES IN A HEALTHY ECONOMY.
  5. ANOTHER POSITIVE INDICATOR FOR PRODUCT DEMAND IS THAT A COLD WINTER IS EXPECTED AND INVENTORIES ARE LOW.

E. ANOTHER FACTOR THAT SHOULD ALSO BE CONSIDERED IN THE ANALYSIS IS THAT DRILLING ACTIVITY HAS DROPPED BY ALMOST 50% THIS YEAR IN THE U.S.—IT'S ONLY A MATTER OF TIME BEFORE DEMAND INCREASES...AND WITH IT ANOTHER POSSIBLE PRICE HIKE BY OPEC. [HANDWRITTEN ADDITION: 1984 PRESIDENTIAL ELECTION—CHANGE IN ADMIN IN '85. RIPPING OFF PUBLIC AS RESULT IF 1985 RECOVERY]

F. BUT DON'T MISUNDERSTAND ME. I EXPECT THE INDUSTRY TO RECOVER BUT IT WILL BE A SLOW, GRADUAL RECOVERY. [HANDWRITTEN ADDITION: PERHAPS 1985] {STRICKEN TEXT: THE SHAKEOUT PERIOD WILL CONTINUE. MABY WHO RUSHED INTO THE INDUSTRY DURING BOOM TIMES WILL FALL BY THE WAYSIDE. JOINING THEM WILL BE MANAGEMENTS WHO HAVE NOT OPERATED EFFICIENATLY. ULTIMATELY, THIS SHAKEOUT WILL STREGNTHEN THE INDUSRTY.}

III. IF YOU WILL BE ENTERING THE OIL AND GAS INDUSTRY DURING THIS DECADE, YOU WILL BE ENTERING AN INDUSTRY THAT WILL BE UNDERGOING MANY CHANGES. I WOULD LIKE TO BRIEFLY DISCUSS TWO CATALYSTS FOR THESE CHANGES: (1) OPTIMUM SIZE AND (2) STOCKHOLDER AWARENESS.

A. WHAT DO I MEAN BY OPTIMUM SIZE? THE OPTIMUM SIZE OF AN OIL AND GAS EXPLORATION COMPANY IS A SIZE IN WHICH PERSONNEL AND CASH FLOW ARE BALANCED IN SUCH A MANNER THAT ALLOWS THE COMPANY TO INCREASE ITS RESERVES ANNUALLY IN THE MOST ECONOMICAL {STRICKEN TEXT:WAY} [HANDWRITTEN ADDITION: MEANS] POSSIBLE THROUGH EXPLORATION SUCCESS AND/OR ACQUISITION.

B. THE OVERRIDING GOAL OF MANAGEMENT IS TO PROTECT AND EXPAND THE ASSETS OF THE COMPANY AND THE VALUE OF SHAREHOLDERS' INTERESTS.

C. OIL AND GAS COMPANIES, WHETHER LARGE OR SMALL, ARE MANAGERS OF DEPLETABLE ASSETS...THE RESERVES OF OIL AND GAS. [HANDWRITTEN ADDITION: WHEN OPEN THE VALUE- YOU START DEPLETING THE ASSET. WHEN TURN ON PRODUCITION—YOU START DEPLETING]

D. TO ENSURE THE MAINTENANCE AND GROWTH OF THESE ASSETS, IT IS INCUMBENT UPON MANAGEMENTS TO ANNUALLY INCREASE THEIR RESERVES. [HANDWRITTEN ADDITION: HUNTING CAMP COMMENT TO OTHER OIL EXECUTIVES—"IF NOT GOING TO RUN BUDGET LARGE ENOUGH TO REPL. RESERVES, YOU SHOULD PUT IT IN THE ANN. REPORT." PUT ONE NAME INTENSE IN—UNLESS WE'RE BUSIER THAN HELL."]

E. MANY COMPANIES IN OUR INDUSTRY, HOWEVER, HAVE BEEN LIQUIDATING FOR YEARS—THEY SIMPLY HAVE NOT BEEN ABLE TO INCREASE THEIR RESERVES. AFTER PAYING CORPORATE AND WINDFALL PROFITS TAXES, THEIR DIVIDEND CHECK TO SHAREHOLDERS IS ACTUALLY A RETURN OF CAPITAL. [HANDWRITTEN ADDITION: TENNECI STUDY. NO CO—51% ONLY 1 REPL. ONE ONLY REPL 10%]

F. OUR BUSINESS IS REALLY QUITE SIMPLE: WE MUST PROTECT AND ENHANCE THE RESERVE BASE AND THERE ARE ONLY TWO WAYS IN WHICH THIS CAN BE ACCOMPLISHED—EITHER BY EXPLORATION SUCCESS OR BY ACQUISITION.

G. FOR A COMPANY TO INCREASE ITS RESERVES IS NOT ENOUGH BY ITSELF—RESERVES MUST BE INCREASED PROFITABLY.

H. AS LONG AS FINDING COSTS RANGE FROM' $8-$41 [HANDWRITTEN ADDITION: $15/BARREL] PER BARREL, AS REPORTED BY A RECENT TENNECO STUDY, AND ACQUISITION COSTS PER BARREL RANGE FROM $3-$6 PER BARREL MANAGEMENTS MUST CONSIDER ALTERNATIVES TO EXPLORATION TO ACHIEVE OPTIMUM SIZE.

{STRICKEN TEXT: I. FOR MANAGEMENTS TO KNOW THE IMPORTANCE OF OPTIMUM SIZE AND FOR THEM TO DO SOMETHING ABOUT IT ARE TWO DIFFERENT THINGS, HOWEVER.} [HANDWRITTEN ADDITION: GOT AHEAD ON CS DEAL]

{STRICKEN TEXT: J. MANAGEMENTS WHO KNOW THEIR ASSETS WELL, WHO CAN ANALYZE ACCURATELY AND WHO ARE WILLING TO MAKE DECISIONS WILL BE THOSE WHO CAN MAKE THE NECESSARY ADJUSTMENTS TO ACHIEVE OPTIMUM SIZE.}

K. OPTIMUM SIZE ADJUSTMENTS ARE NOT ONLY ADJUSTMENTS THAT WILL INCREASE RESERVE BASE—BUT THEY ARE ALSO ADJUSTMENTS THAT MAY DOWN SIZE A COMPANY.

L. BELIEVE ME, MAKING THE DECISION TO DOWN SIZE IN ORDER TO ACHIEVE OPTIMUM SIZE IS A REAL CHALLENGE AND TEST FOR MANAGEMENTS. [HANDWRITTEN ADDITION: '79—TELEPHONE CALLS—"HAVE YOU LOST GUESS MIND"—WORKED HARD TO BLD CO—NOW YOUR SHRINKING THE SIZE]

{STRICKEN TEXT: M. I WILL USE MESA AS AN EXAMPLE TO HELP ILLUSTRATE THE TYPES OF ADJUSTMENTS THAT MAY BE NECESSARY TO MAINTAIN OPTIMUM SIZE.}

  1. {STRICKEN TEXT: THROUGH EXPLORATION SUCCESS AND ACQUISITIONS, MESA'S RESERVE BASE GREW SIGNIFICANTLY FROM 1969 THROUGH 1978.}
  2. {STRICKEN TEXT: BEGINNING IN 1979, WE BEGAN MAKING SEVERAL ADJUSTMENTS TO DOWN SIZE. WE SOLD OUR PROPERTIES IN THE U.K. AND CANADA AND SPUN OFF ABOUT ONE-HALF OUR RESERVES TO THE MESA ROYALTY TRUST. THIS YEAR, WE HAVE PROPOSED THE FORMATION OF A SECOND TRUST—THE MESA OFFSHORE TRUST—FROM TEN TRACTS OFFSHORE LOUISIANA AND TEXAS.}
  3. {STRICKEN TEXT: INCIDENTALLY, I MIGHT ADD THAT MESA HAS CONSISTENTLY INCREASED ITS RESERVES FOR EIGHTEEN YEARS.}

N. I MENTIONED EARLIER THAT I FORESEE TWO CATALYSTS FOR CHANGE—THE SECOND BEING STOCKHOLDERS.

O. I BELIEVE WE ARE ENTERING A PERIOD OF AWARENESS AMONG STOCKHOLDERS.

P. THE INVESTING PUBLIC IS BECOMING MORE AWARE THAT OIL AND GAS COMPANIES ARE MANAGERS OF DEPLETABLE ASSETS AND THAT RESERVES MUST BE INCREASED TO PROTECT AND ENHANCE THEIR INVESTMENT.

Q. STOCKHOLDERS WILL BECOME VOCAL IN THEIR CRITICISM OF MANAGEMENTS WHO DO NOT STRIVE TO ACHIEVE OPTIMUM SIZE. [HANDWRITTEN ADDITION: LIKE VOTING IN ELECTION REG VOTE WON'T COUNT. ONE THING THAT CAN BRING MANAGEMENT OVER TO LOOKING AT THINGS.]

R. THEY WILL BEGIN TO INSIST THAT MANAGEMENTS BE GIVEN MEANINGFUL STOCK OPTIONS TO HELP ENSURE THAT THEIR DECISIONS WILL REFLECT THE BEST INTERESTS OF THEIR STOCKHOLDERS—RATHER THAN PERPETUATE THEIR JOBS.

[HANDWRITTEN ADDITION: BE SURE MGT LOOKS AT THINGS FROM STANDPT OF SH.] [HANDWRITTEN ADDITION: SAN DIEGO—DAVID NORD(?)—AS STKHOLDER BEING DILUTED LIKE SELLING HOMES—REAL EST. PERSON GET 6%—IF YOU TAKE ONLY 1% OF STOCK IN HANDS OF MGT YOU HIRE GET RETURN]

IV. THE DISCUSSION OF OPTIMUM SIZE AND STOCKHOLDER INTEREST IS A GOOD TRANSITION TO THE SUBJECT OF THE MESA-CITIES SERVICE ACQUISITION ATTEMPT!

A. AGGIE - OLD LION; PICKENS—REGIONAL GEOLOGIST FOR SOUTHWEST KANSAS.

B. MESA, SINCE ITS INCEPTION IN 1964, WITH $2 MILLION IN ASSETS, HAS ALWAYS BEEN "ACQUISITION-MINDED."

  1. IN 1964, WITH FORMATION OF MESA, ITS PREDECESSOR COMPANIES, PEI AND ALTAIR,{STRICKEN TEXT: WERE ACQUIRED} [HANDWRITTEN ADDITION: PUSHING OF INTERESTS—NOT ACQUISITION] [HANDWRITTEN ADDITION: IDEA CAME FROM PENZOIL OF 1963]
  2. 1969—HUGOTON [HANDWRITTEN ADDITION: PRODUCT LO] MERGER [HANDWRITTEN ADDITION: 10 TIMES OUR SIZE. MSA SUPPLIES MOST OF GAS THAT GOES TO KANSAS PEN AND LIGHT]
  3. 1970—SOUTHLAND ROYALTY ATTEMPT I
  4. 1973—PUBCO ACQUISITION
  5. {STRICKEN TEXT: 1976—CENTRAL AMERICAN ATTEMPT} [HANDWRITTEN ADDITION: 1977—ASTEC & SMITHLAND REG GET ASTEC]
  6. 1982—CITIES SERVICE ATTEMPT

C. WHY DID WE START LOOKING AT CITIES IN 1976? [HANDWRITTEN ADDITION: THE LARGER THE CO—THE CHEAPER THE ACQ OF THEIR ASSET BASE]

  1. ASSETS—89% OF VALUE OF CS ASSETS WAS IN RESERVES.
  2. MANAGEMENT—LACKLUSTRE PERFORMANCE AND NOT INTERESTED IN SHAREHOLDERS.

[HANDWRITTEN ADDITION: D. THIS WAS NOT JUST OUT OPINION—I WOULD LIKE TO READ YOU A QUOTE FROM THE JUNE 11 ISSUE OF THE NEW YORK TIMES:] [HANDWRITTEN ADDITION: "I WOULD HAVE TO AGREE THAT SOME OF THE CRITICISM IS WARRENTED," SAID PHILIP WOOD, WHO WAS CHIEF FINANCIAL OFFICER AT CITIES SERVICE UNTIL HE LEFT THE COMPANY LAST DECEMBER..."THEY ARE VERY NICE PEOPLE," HE SAID OF CITIES, "BUT I WOULD HAVE TROUBLE SAYING THAT THE MANAGEMENT WAS BRILLIANT."]

E. 1980-1981—MESA STARTED ACCUMULATING CITIES SERVICE STOCK.

  1. SENT CITIES A COPY OF HART, SCOTT, RODINO REPORT. [HANDWRITTEN ADDITION: WAS CONFIDENTIAL REPORT—DIDN'T HAVE TO INFORM CS.]
  2. 13D'S WERE FILED BY NUWEST (7%) AND MESA (5%) IN 1981. [HANDWRITTEN ADDITION: MORE PRETTY WELL COMMITTED]

F. CS STARTED CALLING PROSPECTIVE PARTNERS OF MESA AND STARTED FILING LAWSUITS IN 1981.

  1. GOT RID OF FREEPORT MCMORAN AND LOUISIANA LAND. [HANDWRITTEN ADDITION: WE'LL TAKE YOU OVER—THEY MOVE KNOCKING OFF OUT PASTURES]
  2. NO CONNECTION WITH NUWEST.

G. MESA HAD A SMALL BALANCE SHEET AND HAD TO TALK TO A LOT OF BANKERS AND PROSPECTIVE PARTNERS.

H. BANKERS MEETING—$1 [HANDWRITTEN ADDITION: $1.2] BILLION CREDIT LINE—JUNE 1 DATE REVEALED. [HANDWRITTEN ADDITION: BANKERS KIND OF GREEDY GROUP]

I. CS WAS TOLD OF JUNE 1 DATE; BUT MESA COULD NOT PUT PARTNERS TOGETHER—"NO ONE TOLD CS."

J. MAY 27—CS NEWS RELEASE ABOUT MESA DISMEMBERING COMPANY.

K. MAY 28—CS ANNOUNCED $17 TENDER OFFER.

  1. THIS WAS A SURPRISE.
  2. STARTED THE METER RUNNING.

L. EVEN THOUGH MESA HAD GOOD DEFENSE STRATEGY—SUPER MAJORITY AND STAGGERED BOARD—MESA HAD NOT FINALIZED ITS FINANCING AND HAD TO DO SOMETHING.

M. MAY 31—MEMORIAL DAY—CALL TO WAIDELICH WITH THE $50 BEAR HUG OFFER AND FILED IT ON JUNE 1. [HANDWRITTEN ADDITION: FRIENDLY $50 OFFER COULDN'T MAKE IT TO SHAREHOLDERS BECAUSE WE DIDN'T HAVE THE PARTNERS]

N. CS CALLS TO PROSPECTIVE PARTNERS

  1. SCORCHED EARTH.
  2. {STRICKEN TEXT: SOUTLAND ROYALTY—IRONY OF DISMEMBERMENT STATEMENT.} [HANDWRITTEN ADDITION: ALWAYS 3 LOW FLOM, LIPTON, FLEISHER IN ALL DEALS.]

O. JOE FLOM SUGGESTED DOME-CONOCO STRATEGY AND WE WERE ABLE TO LAUNCH OUR DEAL—$45 FOR 15% ON JUNE 7. [HANDWRITTEN ADDITION: RAISED $600 MILLION OFF OUT BALANCE SHEET.]

1. SEARCH FOR PARTNERS CONTINUED—OXY A GOOD POSSIBILITY.

P. MESA HAD TWO POSSIBLE STRATEGIES TO AFFECT OUR TIME PROBLEM: [HANDWRITTEN ADDITION: HOW SIDETRACK THEIR OFFER—SHARK REPELLANT—SUPER MAJORITY & STAGGERED BD.]

  1. DELAWARE CASE TO ENJOIN CS OFFER.
  2. 10% OFFER FOR MESA. [HANDWRITTEN ADDITION: BUFFALO BID]

Q. ON JUNE 17, CS STOCK TOOK OFF [HANDWRITTEN ADDITION: TRADING STOPPED] WE KNEW THEN THAT THEY WERE GOING FOR A WHITE KNIGHT.

R. WASSERSTEIN STRATEGY [HANDWRITTEN ADDITION: SISTER CP,[ANIES—FOUNDED BY]

  1. GULF AND FIRST BOSTON—MELLON COMPANIES
  2. SELL CS OUT AND THEN GO AFTER MESA—A DOUBLE PLAY.
  3. JUNE 14—AMENDED CONTRACT WITH CS.
  4. WARNING TO CS DIRECTORS THAT MESA COULD WIN. CS DIRECTORS REALIZED THE POTENTIAL SWAY IN THEIR STOCK—FROM $45 TO $20. [HANDWRITTEN ADDITION: PHOTO FINISH ALONG CAME GULF—KNOCKED OFF BUFFALO BID & SHARK REPELLANT]
  5. ENTER—WHITE KNIGHT.

S. JUNE 18—WASSERSTEIN SOLD CS TO HIS OTHER CUSTOMER, GULF, THEN MADE A PLAY FOR MESA.

T. CONVERSATION WITH JIMMY LEE

  1. "MAY HAVE PAID TOO MUCH." [HANDWRITTEN ADDITION: THOUGHT IT WOULD BE A FRAGILE DEAL]
  2. DECIDED TO TAKE OUR MONEY FRIDAY INSTEAD OF WAITING UNTIL MONDAY AND GO TO THE SIDELINE.

U. WATERMELON.

V. NEED TO CHANGE SOME OF THE RULES—STOCKHOLDER NEEDS A CHANCE TO CONSIDER OFFER.

V. THANK YOU. NOW, I'LL BE PLEASED TO ANSWER YOUR QUESTIONS.