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Lunch With T. Boone Pickens

Two years ago, rapper Drake offered his 14 million Twitter followers some life advice. "The first million is the hardest," he tweeted. 

T. Boone Pickens replied moments later: "The first billion is a helluva lot harder."

I met Pickens for lunch at his office in Dallas with a group of colleagues this week. We sat in a conference room eating pasta talking about energy, business, life, and just how difficult that first billion was.

"I invited you because you've got a strange name," Pickens joked, referencing The Motley Fool. Tom Gardner, the Fool's co-founder and CEO, gave a quick company history, including the origin of our name -- a character from Shakespeare's play As You Like It.

Pickens nods along. "Are any of you all journalists?" he asks. We're investors, we tell him. "Journalists are weird, I'm not kidding you," he says. "And I would have said that if you told me you were all journalists."

"OK, let me tell you about my start. I can do it faster than you can," Pickens says. 

Thomas Boone Pickens graduated from Oklahoma State University in 1951. He worked at Phillips Petroleum for two years as a geologist. It was a tough time for the industry. "I was one of four out of 28 geologists who graduated from Oklahoma State who got a job as a geologist. The industry was on its ass. Just a sad, sad, story," he says. But Pickens excelled. In the mid-1950s, two business partners made him a deal. "These two guys said, 'You've found some oil, you got a good return, why don't you get bigger?'" he recalls. "I asked them how to get bigger. They said, 'We'll give you a $100,000 line of credit.'" Pickens and his partners split the company's equity 50/50, with a catch: "In three years, if I didn't have them off the line of credit, they could take everything," he says.  "I had to get them off the line of credit. And I got them off in less than a year. That was 1956." The oil company became known as Mesa Petroleum.

"I went along in this form for a while. Made some money," he tells us. "Then in 1964 we decided to go public. In 1969 we made an acquisition that was 20 times our size." He's referring to Hugoton Production Company. "When I told them I thought I could make the deal, they laughed at me. The guy slapped his leg and said, 'You're a dreamer.' But we did it. When [Mesa] sold out [in 1996], my net worth was $78 million. So that's the end of my story."

That isn't the end of his story, of course.

Pickens will be 86 years old next month, but he is more active – mentally and physically – than most people a half-century younger. "My workout is at 6:30 in the morning," he says. "Yesterday morning was squats. I did four sets of 25 with a 75-pound vest. And I don't have any knee problems. Today was back and arms. I was pulling down on a full stack, whatever that is. Tomorrow is lunges, three sets of 100 yards." As we shake our head in amazement, Pickens rolls up his pants and throws his leg on the table. "I've got a pretty good calf," he says, slapping his lower leg. He keeps it there for a good two minutes.

Jay Rosser, Pickens' chief of staff, adds: "Our personal trainer has a three-word job description: Keep Boone alive."

Soon after leaving Mesa in 1996, Pickens formed a hedge fund, BP Capital Management. There are hundreds of energy investment funds, but few are run by someone with 40 years of experience actually drilling for oil and gas. Experience has made him one of the greatest energy investors in history. "By the year 2000, I had a billion dollars," he mentions, nearly emotionless. He earned more than $1 billion in 2007 alone. After not qualifying for the Forbes list of billionaires this year, Pickens tweeted: "Don't worry. At $950 million, I'm doing fine ... Funny, my $1 billion charitable giving exceeds my net worth."

If the first billion was the hardest, the subsequent fortune wasn't easy, either. Pickens has an unquenchable thirst for risk. "I was always looking for a shot at the moon," he says. "I'm not even interested in singles or doubles. I go for the fence." That means big volatility. "One time this guy asked me how many times I've been broke. Well, I've been broke a bunch." 

Earlier in our lunch Pickens talked about how investors should learn from failure. "If you're smart, one time is enough to get your fingers smashed in the door," he says. "Don't hang around that door and you won't get your fingers smashed anymore." Tom Gardner asks Pickens if he's ever regretted decisions that made him broke, even if he learned from them and came out stronger. "Sure I did. I hated it," he says.

Pickens waves at his analysts sitting around the table. "They've all tried to get me out of bad deals," he says. "I did this wind deal that has to be one of my most stupid deals I've ever made. I had a chance to get out of it, and I didn't. I was still going for the fence."

A Pickens analyst at the table with us chimes in: "The great thing about Boone is, he's invariably right but often early. He was early on wind. Wind is now ripping it."

"But after I took a $200 million loss." Pickens adds. "It was an outrageous disaster."  

Maybe so. But Pickens is the rare investor who can handle disaster with composure. That's one of the keys to his success. 

As another Pickens analyst explains: "In this business, and probably in all business, the idea of getting too high and too low is destructive. Your judgment gets clouded and your decision-making ability gets affected. And Mr. Pickens is the best I've ever seen at being able to keep an even keel on really good days and really bad days. We've had days in here where, I won't give you the numbers, but ..."

Pickens interrupts: "Give them the numbers! See if it makes them sick, too."

"There's been really, really big days, both up and down," his analyst says. "We've had plenty of nine-figure days. High nine-figure days. But you give Mr. Pickens the number and it's pretty much the same reaction either way: It's 'Well, alright," he says, acting out a shoulder shrug. "There's no yelling and screaming. It's not about whose fault it is. It's just looking forward."

Looking forward today means focusing on America's energy boom that, in the past five years, has sent domestic oil production surging 57% to the highest level in a decade. Pickens and his team still think opportunities in American energy abound.

"I speak to college students a lot," Pickens says. "Ten years ago I could not say, to geologists or petroleum engineers, that you've chosen the right career. Because I wasn't sure they had." He remembers the start of his career, when finding a good energy job was difficult for the smartest engineers. "Today, it's easy: You are in the right business, because this business is going to grow."

It's growing because innovation in the oil and gas industry is blossoming at a rate Pickens hasn't seen in decades. "When I got out of school, that year, American geologists and geophysicists had probably been responsible for 90% of all the oil found in the world," Pickens explains. "Today, I think we're kind of back at the same point again. I think that we have been that good, the industry has been that good, in this country."

He reiterates that this is an American trend. "There are two or three reasons for that. One, we're the best. Two" -- he waves his hand at everyone in the room – "do you know what freehold minerals are?" No one does. "We are the only country in the world that, below the surface, the minerals [are owned by] the surface owners," he explains. That's what freehold minerals are. "It makes a great deal of difference. Of five million wells that have been drilled in the world today, over half of them have been drilled in the United States. That's because freehold minerals have pushed innovation in that direction."

Pickens isn't fond of investing outside the United States. There are too many political hurdles. He recalls one experience: "One time I found an oilfield off of Africa. I sent my guy over there and told him to find out of this contract is still in order. He went over there and the minister of energy said 'Nah, this isn't worth the paper it's written on.' ... But the minister said it would all be fine if we come back with a briefcase with $400,000 cash in it. I said, pardon me, but you can kiss a fat man's ass."

"That's when I decided that foreign countries are not the place I want to find oil. They're not going to let you make a lot of money."

The good news is that there's plenty of oil and gas in the United States. "America is still the best place to look for oil and gas. We have more gas than any other place in the world. We're Number One," Pickens says. "With Canada, we have more oil than any place else in the world – Saudi Arabia or anywhere else you want to go."

"The United States should make a deal with Canada and Mexico to provide the market for them. Put them together and you don't need to take any oil from the Middle East. But we don't have the leadership in Washington that understands how powerful we are and what an unbelievable combination the three countries could be. I mean, it can rebuild economies, even in Mexico. You'll even have people in the United States go back to Mexico. We'll be short of roughnecks in West Texas because all those Mexican roughnecks will go back home. Is that good? I don't care. But it's a fact."

A Pickens analyst adds: "There's an infinite amount of gas in the country. Infinite. So it's just a question of what price you need to get it out economically. LNG is a pretty big deal starting next year. And shortly after that we see the green shoots from the trucking side." This is one of the biggest trends they see occurring over the next decade: The conversion of trucks from diesel to natural gas.

"Moving goods is a commodity business," the analyst says. "When one piece of it moves it forces the rest of the puzzle to adjust. When you look at the adjustments taking place incrementally right now, and you factor in the increase in demand for gas around the world, by the end of this commodity cycle we believe gas is the winner.

Pickens jumps in: "I was with the CEO of Burlington Northern last week. He says they're going to natural gas. If the rail goes, they all have to go – trucking, everything."

"That will be the story written 10 years from now," his analyst says. "But it's happening. It's playing out right now. We're on the cusp of something major happening."

Near the end of the lunch, Pickens reflects on his career. "I just wonder, and I think about this often, you know, I'm 86. Am I going to be here at 90? Ninety five? Probably not."

But he scoffs at the idea of slowing down. "I've always done what I've wanted to do. Somebody asked me one time, they said, 'Why don't you retire?' I was 75. I said, 'Tell me what you do you in retirement.' He said I could go to the club, golf every day, play gin rummy – you know, do what you've always wanted to do. I told him, 'I'm doing exactly what I've always wanted to do.' I must have been retired all my life."

Tom Gardner asks if aging has changed his investment time horizon.

Pickens ponders this for a second, then points to map on the wall. "We've got a deal in the Marcellus. It'll be producing gas for 100 years." Point taken. 

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics. 


Read/Post Comments (14) | Recommend This Article (90)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 10, 2014, at 7:01 PM, miteycasey wrote:

    He's been early on a lot of things.

    1) Wind

    2) natural gas cars

  • Report this Comment On April 10, 2014, at 7:30 PM, Pancakes22 wrote:

    haha, love it!

    Picken's is a good guy, he's obviously got his own personal interests at stake, but I do belive he really is a good guy.

  • Report this Comment On April 10, 2014, at 10:41 PM, Pancakes22 wrote:

    Whatever Oscar

    id live to see you even try to do even 1% of what that guy has done.

  • Report this Comment On April 11, 2014, at 10:21 AM, Mathman6577 wrote:

    Gas is the future (not solar or wind or nuclear).

  • Report this Comment On April 11, 2014, at 10:08 PM, sanjac20 wrote:

    I would have liked to have heard Boone's advice on naturak gas exoorts and Cheniere Energy (LNG) in particular.

    If he did comment on it (and LNG) during your meeting kindly enlighten us here at the Fool.

    Personally, I feel LNG represents a gold mine...and the Russian/Ukraine example illustrates just how valuable nat gas exports are internationally. Boone's mentioning the Marcellus Shale formation lasting for another 100 years does indicate how positive he is about that massive commodity. Nat gas producers, pipeline operators and exporting facilities look like runaway winners all.

  • Report this Comment On April 11, 2014, at 10:39 PM, CromulentBrad wrote:

    He sounds as lively & genuine as you'd expect from a guy with a name like T. Boone Pickens.

    Morgan, now that I've stopped dreaming of being a rock star or football player, you might have the best job in America.

    Until now, I've only had a superficial knowledge of Mr. Pickens. Thanks for a great interview and introducing me to one of the great characters in American investing history.


  • Report this Comment On April 12, 2014, at 12:49 AM, colleran wrote:

    I put Pickens with most successful investors. Lucky

  • Report this Comment On April 12, 2014, at 6:55 AM, Ragingmoose wrote:

    Wondurfull ! T. Boone Pickens has cool water in the veins. I'm 65 and hoped to retire at 75. Now I change my mind. I'll retired at 95.

  • Report this Comment On April 12, 2014, at 8:29 AM, gkirkmf wrote:

    From the Article:

    Quote: A Pickens analyst adds: "There's an infinite amount of gas in the country. Infinite. So it's just a question of what price you need to get it out economically.

    Got news for this analyst... the only thing on this earth that is infinite is bulls**t...

  • Report this Comment On April 12, 2014, at 3:19 PM, Mega wrote:

    "When [Mesa] sold out [in 1996], my net worth was $78 million."

    "By the year 2000, I had a billion dollars."

    So $78M to $1B in 4 years? Not quite believable.

    I think the $1B actually refers to assets under management, not net worth.

    I'd like to see a breakdown of how much of his fortune comes from charging ultra high investment fees versus actual investment returns. Of course that's not specific to him but common to many hedge fund managers.

  • Report this Comment On April 12, 2014, at 3:36 PM, Mega wrote:

    According to Barron's, BP Capital funds have done terribly over the past 5 years, down 70%.

    (Although I think this is probably incorrect - more likely they are down 70% from 2008-2013, with the data not updated yet for 2009-2014. It's well known that their performance in 2008 was abysmal.)

  • Report this Comment On April 13, 2014, at 2:55 PM, MNDLBRT wrote:

    Most people have a lot of privilege & help to get where Boone is. Pretty much anyone you can name. Buffett is about as close to a self made man as you can get.

  • Report this Comment On April 13, 2014, at 2:55 PM, MNDLBRT wrote:

    Sorry, Pickens. Buffet had much priveledge, but still is a good guy.

  • Report this Comment On April 13, 2014, at 3:53 PM, watson14 wrote:

    I think Ol T Boone is Swift Boating us a bit.

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Morgan Housel

Economics and finance columnist for Analyst, Motley Fool One.

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