T. Boone Pickens: I'll Tell You a Story -- Everybody's Dead

T. Boone Pickens has outlived most of his contemporaries, and at 86 isn't slowing down. 

In the video below, Pickens tells Motley Fool contributor Jason Hall a story to demonstrate how management at oil companies has become more shareholder focused in recent years. He also talks about how oil companies could do even better, using Big Oil behemoth ExxonMobil  (NYSE: XOM  ) to demonstrate a key point: management works for shareholders, and should focus on increasing the share price and paying excess capital back through dividends. 

For more, watch the video, or read the transcript below. 

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Jason Hall: Often, it just boiled down to, as you said, managements that weren't particularly focused on what was best for the actual shareholders.

T. Boone Pickens: Well, I'll tell you a story -- everybody's dead.

Fred Hartley was the CEO of Unocal. Fred was a very difficult personality. I knew him well. I was on the API Executive Committee with him for a period of time, and he was a pain in the ass to work with. That's the way you describe him -- nobody would argue with you if you said that about Fred.

Fred ran Unocal. Unocal was the Union Oil Company of California. They changed the name to Unocal, but it was founded by the Doheny family in California, and Bill Doheny was the "last of the Mohicans." He was on the Unocal Board.

Bill and I played golf together, were friends, belonged to a club together in California out at Palm Springs. Bill told me, "Fred's very hard to deal with." He said, "Last month, I said to Fred in front of the Board of Directors, that we have the lowest dividend of our peer companies."

Well, now, Doheny is the biggest shareholder on the Board. He said, "Would we consider raising our dividend?"

He said, "Fred, very hostile, looked at me and he said, 'Goddamn, Bill. Why in the hell would we want to give a bunch of people we don't even know, a lot of money?'"

I think that was the attitude of a lot of CEOs.

Hall: Very, very prevalent at that time.

Pickens: I think oil companies today should give greater dividends.

Hall: Yes. One oil company that I think does a great job -- Rex Tillerson at ExxonMobil -- I think they do a pretty good job of returning value to shareholders through share repurchases and a pretty consistent dividend.

Pickens: Tell me about how share repurchase helps the price of your stock.

Hall: I think there are good share repurchases and there are bad share repurchases.

Pickens: Tell me about that.

Hall: It's just like investing in a company, yourself. If you buy a stock that's overvalued, you're not making a wise investment. If a company is able to execute a good share repurchase program over time ... I guess what it boils down to is ...

Pickens: You mean if they're buying it cheap?

Hall: If they're buying it cheap, yes.

Pickens: Okay, well just a second. You're buying it cheap from your shareholders.

Hall: Right.

Pickens: I think you should make the price -- if I look at Exxon or any company, saying it's worth two or three times what it's selling for -- so now I'm buying stock back from my shareholders, cheap. Well, get the price of it up.

Hall: So, you're not a fan of share repurchases, by companies.

Pickens: Why do I want to take advantage of my shareholders, and buy the stock back, cheap?

Hall: Right.

Pickens: If I want to buy it back, buy it at market value. You're working for the shareholders. You're not trying to figure out how to buy the stock back from them cheap -- take advantage of them because you know more than they do?

Hall: Fair enough!

Pickens: I know this game, but to me, the way you move the price of your stock up is increase your dividend. Exxon's dividend is probably 2.2%.

Hall: Roughly.

Pickens: Okay, 2.2% is not much of a yield for a company that makes as much money as they do.

Hall: That's true.

Pickens: I looked at Exxon -- and I don't think this is the case today -- but several years ago I looked at it, and Exxon had $70 billion EBITDA. They had $35 billion CAPEX, and they had a $7.5 billion dividend, which left them $30 billion.

Hall: A lot of cash.

Pickens: And they did share buyback. Well, to me, why don't you take another $7.5 billion, double your dividend from 2.5 to 5%?

Hall: And there's still a lot of capital left over, after that.

Pickens: But watch what happens to the price of your stock. Exxon has finally worked up to $100 a share.

Warren Buffett bought nearly 9 million shares of this company
T. Boone Pickens isn't the only super-investor with his eyes on the American Energy Boom. Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock.

 


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  • Report this Comment On June 22, 2014, at 6:26 PM, stockdissector wrote:

    Interesting face time with an interesting person Jason!

  • Report this Comment On June 23, 2014, at 8:28 AM, Evanbobh88888 wrote:

    Pickens mentions Hartley because Unocal returned 12% p.a. to the shareholders for over 50 years before Boone tried to get him to break-up or sell the company. Pickens lost, but he took $4 bn out of the company and they could no longer fund the bigger projects and returns dropped to 3% p.a. until they sold to Chevron 15 years later. That's the problem with running a company (or your own finances) with insufficient cash. You cannot grow or sustain downturns. Watch the next 10 years as Hess, Conoco, Marathon, sell out during the next downturn. Of course...that's what Boone likes to see anyway.

  • Report this Comment On June 23, 2014, at 8:03 PM, TMFVelvetHammer wrote:

    <<Pickens lost, but he took $4 bn out of the company and they could no longer fund the bigger projects and returns dropped to 3% p.a. until they sold to Chevron 15 years later.>>

    If I follow you correctly, I don't think you're right about this. Mesa Energy (Pickens' company) did sell its interest, but that's not "taking money out" of Unocal, since it was just selling its shares to other investors. Unocal didn't actually pay anyone anything, and its business performance after Mesa's selling out following the failed takeover attempt, would have had nothing to do with Mesa or Pickens.

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