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	REMARKS TO SMITH BARNEY FORUM LOS ANGELES, CALIFORNIA

4:30 P.M.

(TIME: 15 MIN.)

THANK YOU, OTIS (HEALY). I MAY BE NAMED ARB OF THE YEAR IN 1984.
A. IT’S A PLEASURE TO BE IN LOS ANGELES TODAY.
B. I’D LIKE TO INTRODUCE MY WIFE, BEA, WHO IS USUALLY WITH ME AND WHO SOME OF YOU KNOW.
C. I’D ALSO LIKE TO RECOGNIZE JOHN APPLEBY FOR DOING SUCH A FINE JOB IN PUTTING THIS PROGRAM TOGETHER.
D. MY FRIEND, BARRY DAMSON, IS ALWAYS A WELCOME SIGHT. HE SEEMS TO BE STIRRING UP THINGS IN THE INDUSTRY.
1. HOW DO YOU HAVE TIME TO BE OUT MAKING SPEECHES, BARRY?
E. WE ALWAYS LIKE TO PASS OUT SOMETHING CURRENT AT MEETINGS SUCH AS THIS—LIKE WE JUST MADE A DEAL AND A HOT RELEASE!
1. I DON’T HAVE MUCH TODAY. OUR ’83 ANNUAL IS NOT OUT YET AND WE HAVE NO RELEASE.
2. WE HAVE ONLY A SMALL BOOKLET ON THE COMPANY, BUT IT IS NEW, AND WE HAVE A CARTOON YOU MAY FIND AMUSING FROM BEN SARGENT AT THE AUSTIN AMERICAN STATESMAN.

II. YOU KNOW, THIS CALIFORNIA WEATHER SURE BEATS PITTSBURGH. GOSH, EVEN AMARILLO BEATS PITTSBURGH.
A. AS YOU CAN IMAGINE, WE’VE SPENT QUITE A BIT OF TIME THERE AND IN NEW YORK DURING THE LAST FIVE MONTHS.
B. IN SOME WAYS IT SEEMS LESS THAN THAT. . .AND IN OTHER WAYS IT SEEMS LONGER.
C. ON FEBRUARY 23, MESA AND THE OTHER MEMBERS OF THE GULF INVESTORS GROUP COMMENCED A CASH TENDER OFFER AT $65 A SHARE FOR UP TO 13.5 MILLION SHARES OF GULF COMMON STOCK.
D. THE OFFER AND THE PRORATION PERIOD WILL EXPIRE AT MIDNIGHT ON WEDNESDAY, MARCH 21, UNLESS EXTENDED.
E. THE GULF INVESTORS GROUP CURRENTLY HOLDS 21.7 MILLION GULF SHARES, OR 13.2 PERCENT OF THE TOTAL OUTSTANDING.
F. WE HAVE FINALLY CONVINCED THE GULF MANAGEMENT THAT WE ARE THEIR LARGEST STOCKHOLDER.
1. WE DON’T HAVE MUCH TROUBLE GETTING THEM ON THE PHONE.
G. WE REALLY HAVE COME A LONG WAY IN THIS DEAL.
H. REMEMBER, JIMMY LEE, ON DECEMBER 2, SAID HE DIDN’T CONSIDER PICKENS’ GROUP TO BE STOCKHOLDERS BECAUSE THEY BORROWED THE MONEY.
I. IF AN ADDITIONAL 13.5 MILLION SHARES ARE TENDERED THROUGH OUR OFFER, THE GROUP WILL OWN 35.2 MILLION SHARES, OR 21.3 PERCENT OF THE OUTSTANDING STOCK.
J. I PROMISE THAT IF OUR OFFER IS THE ONLY ONE, WE WILL HAVE SEVERAL TIMES MORE THAN THE 13.5 MILLION SHARES TENDERED.
K. OUR PURPOSE IN THIS OFFER IS TO INCREASE THE GROUP’S EQUITY INTEREST IN GULF AND, AS A RESULT ENHANCE OUR ABILITY TO GAIN CONTROL OF THE COMPANY.
L. OUR CURRENT INTENTION IS TO PROPOSE A SLATE OF DIRECTORS AT GULF’S ANNUAL MEETING IN MAY.
M. GULF HAS NARROWED OUR OPTIONS, ONE BY ONE, AND HAS WORKED DIRECTLY AGAINST OUR ULTIMATE GOAL OF MAXIMIZING VALUE FOR GULF SHAREHOLDERS.
N. THEY HAVE FORCED US INTO TAKING AGGRESSIVE ACTION TO REACH THAT GOAL.

(PAUSE)

II. THE PAST FIVE MONTHS HAVE BEEN BUSY ONES AT MESA.
A. BUT THEY’VE BEEN BUSY FOR OTHERS IN THE INDUSTRY. AS WELL.
B. AND ALL THIS HARD WORK AND ACTIVITY ISN’T FOR NAUGHT.
C. WHAT HAS HAPPENED IN THE LAST FEW MONTHS WILL PROBABLY BE REMEMBERED AS A KEY TURNING POINT FOR THE INDUSTRY.
D. A DYNAMIC AND ESSENTIAL PROCESS TO RESTRUCTURE THE PETROLEUM INDUSTRY HAS BEGUN.
E. AND DESPITE SOME OF THE COMMENTS YOU’VE PROBABLY HEARD FROM A FEW MEMBERS OF THE INDUSTRY THAT THIS PROCESS MAY ENDANGER THE NATION’S ENERGY FUTURE. . .I BELIEVE THAT IT WILL, INSTEAD, MAKE OUR ENERGY FUTURE MORE SECURE.

IV. LOOK AT WHAT HAS HAPPENED TO THE INDUSTRY.
A. ITS CURRENT PROBLEMS WERE BUILT ON THE GREAT EXPECTATIONS OF THE LAST DECADE.
B. AFTER THE ARAB EMBARGO OF 1973, THE INDUSTRY EXPECTED THAT OIL AND GAS PRICES WOULD CONTINUE TO INCREASE.
C. FINDING COSTS WERE EXPECTED TO RISE, TOO, BUT MANY BELIEVED THAT THE INCREASE IN OIL PRICES WOULD MASK HIGHER FINDING COSTS AND RESERVE DEPLETION.
D. WHEN OPEC HALTED THOSE PRICE INCREASES, THE INDUSTRY’S PROBLEMS SURFACED.

V. IT’S A SITUATION THAT’S VERY IMPORTANT—AND CONFUSING—TO CONSUMERS.
A. THEY REALIZE THAT THE LARGER OIL COMPANIES HAVE A GREAT DEAL OF CASH FLOW.
B. AND TO THEM, THAT MEANS COMPANIES SHOULD HAVE THE CAPITAL NECESSARY TO FIND A LOT OF OIL AND GAS.
C. BUT IT DOESN’T WORK THAT WAY.
D. THERE’S MORE CASH AVAILABLE THAN GOOD DRILLING PROSPECTS.
E. SO THE CASH FLOW IS OFTEN USED FOR DIVERSIFICATION AND MARGINALLY PROFITABLE OPERATIONS.
F. FOR OIL COMPANY SHAREHOLDERS, THE SITUATION IS EVEN MORE CONFUSING—AND OUTRIGHT IRRITATING.
G. NOT ONLY ARE THEIR ASSETS—THE RESERVES OF OIL AND GAS—BEING DEPLETED AND NOT REPLACED. . .BUT THEY, TOO, SEE THAT EXCESS CASH FLOW IS BEING WASTED AND NOT BENEFITING SHAREHOLDERS.
H. YET, WE STILL HAVE MAJOR OIL COMPANY CEO’s SAYING NO CHANGES ARE NEEDED.
I. IN THE FEBRUARY 20 ISSUE OF THE OIL AND GAS JOURNAL, BILL TAVOULAREAS. . .THE PRESIDENT OF MOBIL. . .SAID. . .QUOTE. . .“I WOULD TAKE DIVERSIFICATION OVER LIQUIDATION ANY DAY.”
J. BUT WHAT ABOUT THE STOCKHOLDERS? THEY MAY PREFER THAT MANAGEMENTS WHO CAN’T REPLACE THEIR DOMESTIC RESERVES PASS SHAREHOLDERS SOME PART OF THE CASH FLOW BEFORE THE RESERVES ARE DEPLETED.
K. IN OTHER WORDS, IF WE ARE GOING TO LIQUIDATE, THEN LET’S DO IT UNDER THE MOST EFFICIENT METHOD AVAILABLE.
L. AS TO DIVERSIFICATION, DOES “TAV” REMEMBER MARCOR?

VI. THAT GIVES US A PRETTY GOOD IDEA WHY THERE IS SO MUCH MERGER, ACQUISITION AND OTHER ACTIVITY IN THE INDUSTRY RIGHT NOW.
A. THE INDUSTRY’S POOR PERFORMANCE IS BEGINNING TO STAND OUT. . .AND SHAREHOLDERS ARE BEGINNING TO SPEAK OUT AGAINST MANAGEMENTS WHO AREN’T GIVING THEM A FAIR RETURN ON THEIR INVESTMENT.
B. I SHOULD ALSO NOTE THAT SHAREHOLDER DISCONTENT GOES FAR DEEPER THAN CONCERN WITH POOR INDUSTRY PERFORMANCE.
C. THEY ARE DISCOVERING THAT MANAGEMENTS WHO OWN LITTLE STOCK DON’T MAKE SHAREHOLDERS’ INTERESTS A TOP PRIORITY.
D. IF MANAGERS AREN’T SHAREHOLDERS, THEN THEIR ACTIONS WON’T REFLECT THE STOCKHOLDERS’ INTERESTS.
E. A BASIC PART OF MESA’S BUSINESS PHILOSOPHY IS THAT MANAGEMENT SHOULD HAVE MEANINGFUL OWNERSHIP IN THE COMPANY.
F. WE ALSO BELIEVE THAT EACH EMPLOYEE SHOULD HAVE THE OPPORTUNITY TO BECOME A STOCKHOLDER.
G. IN THAT WAY, EVERY PART OF OUR BUSINESS IS GEARED TOWARD ONE GOAL—MAXIMIZING THE VALUE OF THE SHAREHOLDERS’ INTERESTS.
H. AND IT WORKS BECAUSE EACH MANAGER AND EMPLOYEE GAINS WHEN THE SHAREHOLDER GAINS.
I. I GIVE A 1 1/2 HOUR ORIENTATION TO NEW EMPLOYEES WHICH FOCUSES ON ONE THOUGHT—THE SHAREHOLDER IS NUMBER ONE.

VII. SHAREHOLDER DISCONTENT IS EVIDENT IN MANY INDUSTRIES, NOT JUST THE PETROLEUM INDUSTRY.
A. BUT IT BECOMES MORE APPARENT IN THE OIL INDUSTRY DUE TO THE NATURE OF OUR ASSETS.
B. OIL AND GAS RESERVES HAVE IDENTIFIABLE VALUES, AND CURRENTLY THE MARKET VALUES ARE OFTEN MUCH LESS THAN THE APPRAISED VALUES.
1. IN SOME CASES, THE APPRAISED VALUE IS OVER TWICE THE MARKET VALUE.
C. SHAREHOLDERS REALIZE THIS AND MANY ARE ALSO BEGINNING TO REALIZE THAT MOST MANAGEMENTS AREN’T DOING ENOUGH TO BRING MARKET VALUES UP.
D. TO ILLUSTRATE MY POINT, LET ME GIVE YOU COMPARISONS PREPARED BY JOHN S. HEROLD ON FIVE DIFFERENT COMPANIES:

MARKET PRICE APPRAISED VALUE 1. EXXON $38 $78 2. MOBIL $31 $89 3. SOCAL $37 $84 4. TEXACO $45 $101 5. UNOCAL $38 $80 (PAUSE)

VIII. THE RESTRUCTURING PROCESS THAT HAS BEGUN MARKS A FUNDAMENTAL AND IMPORTANT CHANGE FOR THE INDUSTRY IN TERMS OF HOW IT OPERATES AND TREATS ITS SHAREHOLDERS.
A. WE HAVE TO MAKE CHANGES IN THE WAY WE DO BUSINESS OR, FRANKLY, THE OIL INDUSTRY WON’T BE IN BUSINESS LONG.
1. REMEMBER, THE INDUSTRY’S RESERVE LIFE INDEX IS LESS THAN 10 YEARS.
B. THERE’S BEEN MUCH DISCUSSION THAT MERGER AND ACQUISITION ACTIVITY WILL RESULT IN TOO LITTLE COMPETITION.
C. I DON’T AGREE.
D. THERE’S PLENTY OF ROOM FOR STREAMLINING AND MAKING COMPANIES MORE EFFICIENT.
E. I’VE SAID IT BEFORE AND I’LL SAY IT AGAIN: WE CAN’T AFFORD TO BE WASTEFUL IN THE SEARCH FOR ENERGY.
F. THAT DOESN’T MEAN THAT WE SHUT DOWN DRILLING ACTIVITY ALTOGETHER AND PULL OUT OF FRONTIER AREAS COMPLETELY.
G. WHAT IT DOES MEAN IS THAT WE SHOULD SCRUTINIZE EVERY DRILLING PROSPECT AND IF THE ECONOMICS AREN’T THERE. . .DON’T DRILL IT.
H. EVENTUALLY, THE ECONOMICS WILL MAKE THAT PROSPECT VIABLE.
I. SOMEBODY HAS TO PAY FOR UNECONOMIC WELLS, AND THAT SOMEBODY IS THE CONSUMER.
1. INEFFICIENCY WILL HAVE TO BE DIGESTED AT SOME POINT.
J. THE OIL THAT ISN’T FOUND TODAY ISN’T GOING ANYWHERE.
K. IT WILL BE THERE WHEN THE ECONOMICS JUSTIFY ITS DEVELOPMENT.
L. IN THE MEANTIME, WE SHOULD CONCENTRATE ONLY ON THE MOST TECHNICALLY AND ECONOMICALLY FEASIBLE PROJECTS.

IX. I MIGHT ADD ONE NOTE OF CAUTION TO THE MERGER/ACQUISITION SCENARIO.
A. IN MOST CASES, A MERGER OR ACQUISITION SIGNIFICANTLY INCREASES THE SIZE OF THE ACQUIRING COMPANY’S RESERVE BASE.
B. AND IF THAT COMPANY HAD TROUBLE REPLACING ITS OWN RESERVES BEFORE, IT WILL, WITHOUT A DOUBT, HAVE AN EVEN TOUGHER JOB MAINTAINING A LARGER RESERVE BASE.
C. PARTICIPANTS IN THE MERGER/ACQUISITION GAME MUST BE PREPARED TO TAKE STEPS TO MAKE THE NEW ENTITY AN EFFICIENTLY- MANAGED OPERATION.
D. THAT MAY MEAN MAKING SOME TOUGH DECISIONS TO TRIM MARGINALLY PROFITABLE OPERATIONS OR DOWNSIZE THE RESERVE BASE TO A MORE MANAGEABLE LEVEL.
E. BUT REMEMBER. WHAT IS BEST FOR STOCKHOLDERS SHOULD BE THE ORDER OF THE DAY.

X. A ROYALTY TRUST IS ONE WAY TO DOWNSIZE WITHOUT AFFECTING PERSONNEL OR DOWNSTREAM OPERATIONS—AND, BY THE WAY, IT’S A NICE PLUS FOR THE OWNERS, TOO.
A. ROYALTY TRUSTS HAVE REALLY GOTTEN THE THIRD DEGREE LATELY.
B. SOME PEOPLE HAVE COMPLETELY THROWN THE BOOK AT THEM, INCLUDING JAMES LEE, CHAIRMAN OF GULF.
C. IN A RECENT OIL AND GAS JOURNAL ARTICLE, HE LINKED THE CONCEPT OF CREATING A ROYALTY TRUST TO THE. . .QUOTE. . .“SAME DO-NOTHING ATTITUDE WE SAW IN THE LATE 1960s AND EARLY 1970s.”
D. THEN HE GAVE THE WHOLE ATTITUDE A CAUSE-EFFECT RELATIONSHIP WITH ANYTHING FROM GASOLINE LINES. . .TO UNEMPLOYMENT. . .TO WORLDWIDE RECESSION.
E. WHEN DID ANYBODY SEE AN INNOVATIVE IDEA COME OUT OF A MAJOR OIL COMPANY?
F. ANOTHER POINT MADE BY AN INDUSTRY COLLEAGUE WAS THAT THE ROYALTY TRUST, IF USED ON A WIDE SCALE, WOULD. . .QUOTE. . .“MEAN THAT NOBODY WOULD BE DRILLING. . .AND THAT DRILLING WOULD DECLINE BY 50%.”
G. THAT WAS MIKE HALBOUTY.
H. HE ALSO SAID THAT WHEN HE HEARD A STATEMENT FROM. . .QUOTE. . .“THE INDIVIDUAL WHO IS THE LEADING PROPONENT OF ROYALTY TRUSTS THAT THE COSTLY FRONTIERS SHOULD NOT BE EXPLORED, THUS LEAVING MORE MONEY IN THE TRUSTS TO BE DOLED OUT TO STOCKHOLDERS, THE SHOCK OF THIS PROPOSAL HIT ME LIKE A BOLT OF LIGHTNING.”
1. THE ARROGANCE OF THAT STATEMENT MAKES ME GLAD MIKE ISN’T CEO OF A PUBLICLY OWNED COMPANY.
I. HE SAID HE COULD. . .QUOTE. . .“REMAIN SILENT NO LONGER. AND THE NEXT DAY, I PUBLICLY DENOUNCED ROYALTY TRUSTS, THUS BECOMING THE FIRST TO DO SO”. . .END QUOTE.
1. MY ONLY COMMENT, MIKE, IS THAT I DON’T THINK YOU UNDERSTAND THAT THE STOCKHOLDER MUST ALWAYS BE CONSIDERED FIRST.
J. WE HAVE TRIED TO DEBATE JAMES LEE OR ANYBODY AT GULF ON THE ROYALTY TRUST ISSUE.
K. PRIVATELY, THEY SAID THEY WERE THE INCUMBENT AND DIDN’T NEED TO DEBATE. WELL, MR. LEE, MAYBE YOU SHOULD HAVE GIVEN IT A TRY.
L. MANY OF THE MAJOR OIL COMPANIES HAVE MORE CASH FLOW THAN GOOD DRILLING PROSPECTS.
M. A ROYALTY TRUST WOULD PUT CASH FLOW MORE IN LINE WITH THEIR PROSPECT INVENTORY.
N. THE EXCESS CASH FLOW WOULD BE CHANNELED DIRECTLY TO SHAREHOLDERS—THE OWNERS OF THE COMPANY.
O. WHAT COULD MORE HEALTHY?
P. JUST A COMMENT ABOUT THE GETTY, SHELL AND PROBABLY THE GULF DEAL. STOCKHOLDERS ARE GOING TO WALK OFF WITH ABOUT $30 BILLION.
1. THAT’S NOT TOO SHABBY. EVEN SO, THE SHAREHOLDER, OR OWNER, IS OFTEN THE FORGOTTEN PERSON IN CORPORATE AMERICA
2. HOPEFULLY THIS IS CHANGING.

XI. BEYOND THAT, I THINK WE NEED TO GIVE THE PEOPLE IN THIS INDUSTRY A LITTLE CREDIT.
A. THIS INDUSTRY IS COMPOSED OF TOUGH, RISK-TAKING PEOPLE WHO AREN’T ABOUT TO LET THE BUSINESS DIE ON THE VINE.
B. THIS COUNTRY NEEDS OIL AND GAS. THERE WILL ALWAYS BE PLENTY OF VENTURE CAPITAL AROUND FOR ALL THE WORTHWILE PROSPECTS.
C. ONE ECONOMIST AT MIT BELIEVES THAT EXPLORATION BUDGETS ARE A SEPARATE ISSUE, ENTIRELY.
D. IN THE FEBRUARY 22 ISSUE OF THE DALLAS MORNING NEWS, MIT ECONOMIST MORRIS ADELMAN SAID THAT IF OIL COMPANIES HAVE GOOD EXPLORATION PROSPECTS, THEY WILL DRILL THEM REGARDLESS. . .
E. AND I AGREE WITH HIM.

XII. I’D LIKE TO ALSO POINT OUT THAT I DO NOT BELIEVE THAT EVERY COMPANY IN THE INDUSTRY IS A CANDIDATE FOR A ROYALTY TRUST.
A. IF A COMPANY IS REPLACING ITS RESERVES AND GIVING ITS SHAREHOLDERS A FAIR RETURN ON THEIR INVESTMENT, THEN IT MAY NOT NEED TO CONSIDER A VALUE ENHANCEMENT VEHICLE SUCH AS A ROYALTY TRUST.
B. AND WE HAVE COMPANIES THAT ARE DOING A GOOD JOB IN THAT RESPECT—A FEW OF THE MAJORS AND A NUMBER OF THE INDEPENDENTS.

XIII. REGARDLESS OF HOW AN INDIVIDUAL COMPANY IS DOING, I THINK ALL MANAGEMENTS IN THIS INDUSTRY MUST CONSIDER NEW IDEAS FOR THE WAY OUR BUSINESS IS RUN.
A. MARKETS FOR OIL AND GAS HAVE PERMANENTLY CHANGED FROM WHAT THEY WERE A DECADE AGO.
B. YET. MANY IN THE INDUSTRY ARE STILL TRYING TO DO BUSINESS IN THE SAME WAY.
C. WE’VE GOT TO CHANGE WITH THE TIMES.
D. ALTHOUGH THAT MAY SOUND FRIGHTENING TO A FEW, IT SHOULDN’T BOTHER MOST INDUSTRY EXECUTIVES.
E. WE MUST RISE TO THE CHALLENGE AND MAKE THE OIL AND GAS BUSINESS MORE ACCOUNTABLE TO ITS SHAREHOLDERS AND TO THE CONSUMERS.