Billionaire oilman T. Boone Pickens passed away a few weeks ago, and this week's episode of Industry Focus: Energy dives deep into the legacy he left behind. Analysts Nick Sciple and Jason Hall talk about some of the many aspects of Pickens' life, from the culture shift he pioneered in investing to his philanthropy and clean energy initiatives and much more -- including Jason's personal experience with the man.
Also, the hosts check back in on the Saudi Arabian oil attacks -- two weeks later, how have things changed in the oil market? Tune in to learn what has and hasn't materialized, what investors need to know about the Saudi Aramco IPO, how to assess risks like this in the industry, and more.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Sept. 25, 2019.
Nick Sciple: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today is Thursday, Sept. 26. We're talking about energy markets and the legacy of T. Boone Pickens. I'm your host, Nick Sciple. Today I'm joined by Motley Fool contributor Jason Hall via Skype. How's it going, Jason?
Jason Hall: It's very good. In addition to my usual stuff for The Fool, I've spent the past couple months helping out with Millionacres. I know you've heard of and probably some of the other regular listeners to some of the other Industry Focus podcasts have probably heard about it, too. I've been working on reviewing all of these crowdfunding real estate websites. There's a ton of them out there. It's been a lot of fun, adding something a little bit different to my workflow.
Sciple: Real estate's an interesting market to invest in, a lot of interesting opportunities out there. You talked about the crowdfunding stuff, that's something that's really only opened up in the past couple years with the JOBS Act and that sort of thing. Really an interesting space for investors to get exposed to if they're interested in it.
What we're going to talk about today, though, is oil markets. That's where you spend most of your with The Fool. And, we're going to talk about T. Boone Pickens. As I'm sure a lot of our listeners are familiar with, a little over two weeks ago, T. Boone Pickens, billionaire energy executive, entrepreneur, also avid college football fan like Jason and I, passed away on September 11th. Jason, before he passed, a few years ago, you had the chance to go out and meet him. What was that experience like? What can you tell our listeners about T. Boone as a person and his contributions to the industry?
Hall: Interesting story. Some of you may have read some of the things I've written about Pickens in the past. I got the opportunity to meet Pickens basically by making him mad. I wrote an article, I think it was late 2013 or 2014. And the headline of the article, to paraphrase, was, "Boone Pickens is Dangerous for American Energy Companies." [laughs] Pickens was a voracious consumer of news, particularly anything that had his name in it. He wanted to see what was being said why it was being said. Super media savvy guy. I got a private message from him on Twitter. It was a little surprising, a little intimidating. I expected the guy was going to tear me apart. A day later, we had a phone conversation, and he was one of the most gregarious, easy to talk to people you could ever meet. That led to a face-to-face meeting. I flew to Dallas and spent a day in his hedge fund. Met him for breakfast beforehand. A really, really interesting character. Ended up going out to his ranch with a couple of editors for The Motley Fool. We did a long-form, hour of video interview conversation with him. It was really, really interesting to get the inside, seeing someone that successful for that long, get a feel for what makes them tick. It was a lot of fun. It really was.
Sciple: Just to give a little bit of his bio, really come from very humble origins. Born in 1928 in Holdenville, Oklahoma. Grew up in Amarillo, Texas. He's got a great story -- after his first year of college, he came home to his parents. They said he wasn't doing that well in school. And he said, "Hey, a fool with a plan can outsmart a genius without one every time. Your mother and I are afraid our son is the fool without a plan." That's not what you think of a guy who goes on to become a billionaire. But, he went on to what became Oklahoma State University, got a degree geology, went out to the oil fields as a roughneck, worked in refineries, did that sort of thing. And then, in 1957, he founded Mesa Petroleum, which would grow to become one of the largest, most important independent oil and gas businesses. Started out, like a lot of oil guys do, selling prospects, a wildcat driller, and then grew on from there.
But where his fame really began to grow was starting the late 1960s and moving over the next couple of decades through acquisitions and hostile takeovers. Can you talk a little bit, Jason, about his approach to those and how he became famous as a little bit of a corporate raider?
Hall: This is probably his most important legacy that almost nobody really knows about anymore, especially younger generations. This is 40 years ago that he started establishing this legacy. One of the things that he found he really had issue with was that, at the time, management and these other independent oil companies essentially acted like they owned the company, even though most of them had very little, if any, actual stake and shares in the company. He tells a famous story about a conversation he had with a board member who was a large shareholder of one of these companies. When Pickens approached him about establishing a dividend, essentially, the guy's response was, "Why in the blank would we want to give a bunch of money to people we don't even know?" I think that was the general underlying idea back then from boards. Within management, they had substantial salaries and cash benefits, but they had very little stake to the company itself.
Pickens was an early leader -- he founded the United shareholder Association, which essentially pushed for more accountability, also pushed for management to have more aligned interests, including ownership, of stock of the companies that they were running on behalf of the actual owners, you and me, the shareholders, versus pretending they were owners of companies that the assets were owned by others. That was a big thing that he was involved in.
He was kind of like the early activist investor. He was a corporate raider, is what he was generally called, because he led some pretty serious buyouts of companies that were much larger than his Mesa was at the time. He was pretty successful in doing that. There's a flip side. The other side of that coin is that he was also accused of at times front running a little bit. He or his associates would take a stake in a company, and then they'd let rumors float out that Pickens was going to swoop in and buy them out. And the share price would shoot up. And they'd just sell and take the profit, even though there was never really any serious intent to buy the company. Those were allegations. He was never taken to trial or anything like that for doing anything illegal. But there was a lot of rumor that he used that as a way to make a make a quick buck on his reputation.
Sciple: To even have that opportunity, you have to have a strong reputation of creating that value. That's something that he had a strong history of over time, built a reputation. Today, activist shareholding is something that's come to be expected. We see these stakes taken all the time, and we see management -- even with small stakes today -- being very responsive to activist pressure. In the past -- I read one story about, Pickens was taking an activist stake in a Japanese firm. Owned 26% of the stock and couldn't get them to put him on the board. How quickly things have changed over the past couple of decades. The responsiveness to shareholder pressure.
Hall: You hear names like Carl Icahn. These are household names for investors today, very well known, popular, considered activist investors. There's dozens of them now.
Sciple: Yep. He stuck with Mesa for most of his career. In 1996, he was forced out of the company. Formed his own independent investment for BP Capital, Boone Pickens Capital, which became one of the most successful hedge funds in oil and gas commodities and energy dependent equities. He described this transition as half time in his life. He also, in that time, moved to make some significant investments in American energy independence, natural gas, and wind energy, which we'll talk a little bit about on the back half of the show. And, in 2006, he formed the T. Boone Pickens Foundation, where he donated billions of dollars to charity.
As Jason and I mentioned, T. Boone Pickens had a significant reputation as a corporate raider, moving into acquisitions. Later in his life, he really started to ramp up his philanthropic impact. In 2010, when Warren Buffett and Bill Gates went public with their Giving Pledge, T. Boone Pickens had already signed onto that. Before he passed away, he'd given away a significant portion of his wealth. Had several record-setting donations. He gave a $165 million gift to Oklahoma State University, his alma mater, in 2005, which was the single largest gift for athletics and NCAA history. Also has the largest donation to the American Red Cross in the history of that organization. When you look at the philanthropic legacy of T. Boone, what stands out to you, Jason?
Hall: The obvious one that people see is, Oklahoma State University's football stadium's called Boone Pickens Stadium. People immediately say, "This is just a big booster who threw a ton of money at their football program." That's true, he did; but that's not all he did. He gave close to $700 million to Oklahoma State. More than half of that went to academic causes. That's huge. This is someone who had a college education that he directly benefited from. He understood the value of that. A lot of the money that he has given pays for scholarships for underprivileged kids to be able to afford to go to college. Again, this is somebody who came from humble roots. He gets the idea of a leg up versus a handout. I think he lived that in the way that he gave his money in those causes.
One of my other favorite things that I admire about Pickens is, tons of very wealthy people have signed the Giving Pledge and haven't given a single dime. And they say that when they die, they will. Pickens had given away more than twice what his net worth was when he died. He gave away a tremendous amount of money while he was alive. And he made it clear, "If I'm dead, I'm not really going to be able to see what my money did." He enjoyed seeing people benefit from the gifts that he gave. One of his famous Boone-isms was, his two favorite things was to make money and give it away. And he that, he really he really did. That's something very, very admirable.
Sciple: Particularly, you look at someone who achieved that level of wealth, the philanthropic gifts that come from that wealth are something that really can pay dividends to folks on and on and on, in addition to your lifetime, which is really significant impact on folks.
Another significant impact that Boone Pickens has had is advocacy for wind energy in the U.S. and for U.S. energy independence. Can you talk a little bit about the efforts that he made there to advance those causes?
Hall: I think history is going to always look back on Pickens as the wildcatter, the oil baron. And that's fair, that's where he made the vast majority of his wealth. That's what he spent the vast majority of the six decades he was in the energy industry involved in. But when we got into the 2006, 2007 time period, there was a lot of talk of peak oil. At that point, we hadn't really developed the technologies to access shale cost effectively. Imported oil was steadily becoming a bigger and bigger portion of U.S. energy needs. Pickens kicked off something called the Pickens Plan, I think it was in 2008. Its main goal was for the United States to be truly energy independent, and mainly to free it from its heavy dependence on oil from OPEC, led by Saudi Arabia. He never considered Saudi Arabia to really be a true ally for the United States. Essentially, we got the oil, and they got our military defense, and billions and billions and billions of U.S. were paid to import that oil into the U.S. He saw the value in the Midwestern corridor or the United States in terms of wind. It's been commonly called "the Saudi Arabia of wind." We have enormous, very productive wind resources in the Midwestern United States.
The irony here is, Pickens, as was typical for him, didn't just talk it he backed it. He'd tell anybody that would listen to him that he lost his you-know-what on his bets on wind energy. He says he lost about $200 million, which is a substantial amount of money. But he would just as quickly tell you he wasn't wrong, he was just early. If you look at what's happened in wind energy, not just in the U.S., but around the world, in Japan and Europe and other places, wind energy has been, over the past decade, the fastest-growing source of alternative energy, taking share primarily away from coal, which is fantastic. It's wonderful. It's cleaner, it's domestically produced. The jobs in that industry are technically skilled jobs that pay a lot of money. There's a lot of things to like about it. Pickens just didn't make any money in it. He was a huge advocate for it.
Over the past probably six or seven years, you saw his advocacy evolve a little bit to also include natural gas, something he had been involved in for a long time, in particular as a transportation fuel. One of the byproducts of shale fracking is a tremendous amount of natural gas reserves that we've been able to access in the U.S. A decade ago, there was real concern that we would have to start importing natural gas at very, very high expense. That's no longer even remotely on the radar. Natural gas, the idea for transportation is, it's substantially cleaner than gasoline and diesel in terms of the carbon emissions; it doesn't have the particulates that cause acid rain, that cause respiratory problems, especially in urban areas. There's a lot to like about it. A company he founded in the late 90s, Clean Energy Fuels, has emerged over the past few years as a really viable leader in alternative fuels, not just with traditional drilling a hole and pulling methane out of the ground, but also biomethane. It sells a brand called Redeem. Biomethane comes from landfills, cattle farming, dairy farming. Essentially, they're capturing this methane that's a really, really powerful greenhouse gas if we just let it come out of these sites as it would, by using it as a transportation fuel, it reduces the environmental impact something like 70% or 80% versus using diesel in those same vehicles. And it's cheaper, too. So, this is another part of his legacy that he was an early advocate for.
I think it'll probably go under the radar because he's such a dominant figure in the U.S. oil and gas industry. His advocacy for renewable, cleaner domestic things, I don't think, is going to have as big of a public legacy. But I think, behind his shareholder advocacy, this could be by far the most important thing that he put his money and his energy into when we look back in 10 or 20 years.
Sciple: On both of these trends, it seems to be that he was -- like you said, he's not wrong; he's early. He was early to the progression toward these types of fuels. As we've seen, natural gas is becoming more and more important part of our energy mix. I think that's only going to continue going forward.
One other area where Mesa seemed to be on the forefront, their fitness program became a model for corporate America. T. Boone was famous for his active lifestyle. You had a note about, when you met him, you even saw him engaging in some of that. Can you talk about that a little bit?
Hall: Up into his late 80s, he had daily activity. Fortunately because of his wealth, he was able to afford a personal trainer that went wherever he was. I saw him with my own eyes, 87 years old, wearing a 40 pound weighted vest, doing squats and lunges for 20 minutes, doing his reps, then dropped the vest and hopped on the treadmill for half an hour. [laughs] It was a little intimidating. Like, I get the point, Boone, I need to step up my game a little bit.
He was active his entire life. He was a short man, only maybe 5'9 when I met him. I'm sure he was a little bit taller when he was younger. But, he played basketball. He had a small basketball scholarship to help pay for part of his college. This was somebody who was athletic and who stayed physically active his entire life. I have no doubt that played a big role on him being able to live the active lifestyle. When I met him, he was still flying in his private jet. He would fly. Every week, he would go somewhere for a speech. If Clean Energy was opening a fueling station, he would always go there for the ribbon cutting of the fueling station. He was incredibly, incredibly physically active. That's why he was able to be so active for so long into his life. I think that's a model, it's a reminder that wealth is great, and investing for a profit is fantastic, but if you don't take care of your physical form, it's hard to enjoy it.
Sciple: Yeah. He had some line where he said, "I want to feel good for my entire life. I'm going to do the things that I need to do that." One of my favorite stories that I read about when I was preparing for this podcast talked about his favorite golf story. The last round of golf you ever played, April 18, 2007. He was a member of Augusta National, played there about 100 times during his career. In that particular golf game, he eagled number 11. Went and told Arnold Palmer about that. Asked him if he'd ever eagled number 11 in Augusta. He said he hadn't. Then he called it a day for his golfing career after that one. He said, "We're never going to do any better than that going forward." So relatable to me, as someone who really struggles at golf, and whenever I get a good shot, I just want to cherish that. That's so relatable to me.
Last thing before we move on to a different topic. When you think about T. Boone Pickens and the impact he had on investing and oil markets, for folks who aren't familiar with him, what do you think it will be one lesson from his life that you will take moving forward, that you will incorporate into what you do?
Hall: It's threefold for me. His famous quote, "A fool with a plan can be a genius without a plan any day," it's so true. If you're just casting about without a real plan or strategy, your success is going to be entirely based on luck. If you have a real plan that you stick to, and you evolve that plan as reality dictates you need to, your chances of being successful are going to be far, far greater. They really are. His tenacity -- this is a man that was so successful at Mesa for what he did, and then he got forced out of his own company. And he started all over and he made billions after that. This is someone who knew what failure looked like, and still put his plan together, worked his plan, and made it a success. That's his legacy for me, and something that anybody of any walk of life can use as a model to be more successful.
Sciple: There's one other thing I wanted to ask you about. We talked a little bit about some of the controversy surrounding Pickens, from the corporate raider reputation and being an activist investor, allegations of front running, those sorts of things. There's also been some controversy around him when it came to some of his political positions, and those sorts of things. How should we think about that when we look at T. Boone's model as someone to look to as an example? How do you think about that, just looking at his legacy?
Hall: There's a few things here. Number one, it's a reminder that we're all human. We're whole people. Pickens was certainly no exception to that. Incredibly controversial, very conservative. He was involved in some things that, frankly, I think are kind of black box. He was very heavily involved in the swift boaters for truth, which essentially were some slurs against John Kerry during his presidential campaign against his military record, which essentially came out as being unfounded stories. Pickens, honestly, he went to his grave never really owning up to being wrong on that. He backed President Donald Trump, which some people certainly don't -- again, another very controversial person. That's a very binary reaction to that, depending on your support for President Trump.
I think the big point is that it's really easy when we start reading about people, learning about people, especially in today's highly politicized environment, to find that somebody believed a certain political thing and consider just dismissing everything else about them, and paint them into either the good or evil camp. I think that's a big mistake to do that with somebody like Pickens, who was so incredibly successful. There are always things that you can learn from someone else's success and from their failures, to try to apply to your own life to do better, whatever it may be. For me, I vehemently disagreed with Pickens on a lot of his political positions. So I think the takeaway there is, despite those things, he's someone that I still had tremendous respect for. He had a profound impact on me as an investor and as someone who understands and analyzes the energy industry. That's far more important to me than any disagreements I had over him from a political perspective.
Sciple: Right. If you ever find someone you agree with completely, it's hard to learn from someone like that, either.
Hall: You're probably falling into a trap, right? As an investor, one of the first things I do when I fall in love with the company is, I immediately find everything I can from people that disagree. You'll always be able to find a reason why you're going to be right. When you start looking for the reasons that you could be wrong, that's when you start learning and avoiding making big mistakes that you could have maybe avoided.
Sciple: Yeah. That's of particular value for folks. Anybody with the success like Pickens has had, who has come from humble backgrounds to extreme success, there are lessons to be learned for everyone. You're not going to agree on 100% of things with anybody, but we can learn from just about anyone.
One other story that I'd be remiss if we didn't spend a minute or two talking about is the recent attacks on Saudi Arabia's oil infrastructure and what it means for investors. When the story first came out, we expected to see 5% of global production be offline for an indeterminate period of time. But very quickly thereafter, we heard from Saudi Arabia's oil ministers that it's not going to be as significant of an impact as expected. So far from the news we've seen available, what has been your reaction? How should folks be thinking about the Saudi Arabia attack?
Hall: You go back two weeks ago, this was gigantic. The potential implications were huge. Something like 5% of the world's oil supplies were paused, somebody just pressed the pause button on this massive supply of oil when Saudi Aramco had to shut down this facility. It's the largest oil processing facility in the world, and they had to shut down one of their major oil production facilities. Oil shot up like 15% the Monday after the attack. It was one of the biggest single-day oil price spikes ever. Let's give some context. Oil going up 15% in one day, that's like the entire stock market going up 30% in one day. It's giant, it's huge. It's just a giant number.
But I kept tempering where I was looking at it with, sure, there's this risk that it's going to be a protracted outage of a massive portion of global supplies. The other part of it, too, is that you can't just take light sweet oil from Texas and stick it in a refinery that's been running sour crude from a Saudi oil field. The chemical compositions of the oil affects the refinery. So, those are implications that were deeper that the market was looking at.
At any rate, the thing that I kept tempering my concerns about this was, Saudi Arabia's entire economy runs on oil. They've made investments to grow other parts of it, but oil pays the bills. You can't expect that Saudi Arabia wouldn't throw every resource it had at getting production back online, getting the oil flowing back through that facility. Essentially, that's what's happened. Two weeks removed and that that facility is very close to being back at producing the same level of oil that it was handling before the attacks. There's still work to do. But as a result, oil prices have fallen about 7% from the peak that Monday after the attacks. They're still up about 4% to 6%. But today, as of this recording, they're down again about 1%. West Texas crude has fallen far more than Brent crude. The market realized this wasn't necessarily this this big boon -- pardon the pun there -- for shale producers to all of a sudden to cash in and sell a whole bunch more oil at 15% higher prices.
It's a reminder that if you want to invest in any oil or gas company, you need to understand the fundamentals of that business. What's their breakeven point? How much are they having to spend in capital to grow or maintain their production? That's cash flows that they can't return to you as dividends. It's just a reminder, don't buy on the uncertainty of something that you don't have the information to make an informed long-term decision on.
Sciple: Interesting context coming out of that. Folks were saying shale was going to ramp up. But, listen, there's already takeaway constraints. We're already taking as much as we can away from the Permian and these places. Even if you wanted to bring shale online, there's just not enough takeaway capacity to bring it to market.
Hall: That's true. It's going to be six months before there's much additional capacity. There's already wells that are ready to produce that they can't bring online because, like you said, there's no takeaway capacity.
Sciple: Did it surprise you, the relative ease with which this attack took place? Does that merit to us pricing in a little bit more risk for these sorts of things moving forward?
Hall: Honestly, I can't consider myself enough of an expert on military tactics or that sort of thing to really give an informed opinion about it. It is a little surprising, but it's not stunning, because Iran and Saudi Arabia are mortal enemies. From that perspective, it's not surprising. But it's also not surprising that the Saudis were able to get production back up as quickly as they did, because it's so important. I don't think you can overstate how important to that country it is to get that production back online.
Sciple: In particular, one last thing we'll mention on this is, Saudi Arabia has been preparing to IPO its Aramco state-owned oil company. There'd been some rumors that it's going to be delayed, but they're going to be pushing forward with that. In the context of this recent supply disruption and what this IPO means for the country, any high-level thoughts on that Aramco IPO, and what we should be paying attention to there?
Hall: First thing, they're still seeking a $2 trillion valuation. There's lots of camps. If you ask any executive of any oil company in the world, "Would you spend $2 trillion to buy access to all the oil in Saudi Arabia?" they would say yes before you even finished asking the question. Of course it's worth that. But then you start attaching hooks to it. It's a state-controlled company. The reality is, I think investors need to understand that your interest as a shareholder will never be aligned with the majority shareholder, and that creates risk. There could be a nice potential for a modest income stock, depending on how they structure it. I think dividends is probably the only thing that would make it worthwhile. But there's nothing about it that to me looks like it should be attractive for retail investors. I just think there's very limited upside, and I think the downside risks are too great to make it a worthwhile investment. Full stop, I think it's that simple.
Sciple: Yeah, it's one of those where political risk is so significant with a company like this. But from the perspective of Saudi Arabia, it gives them access to a hundred billion plus in capital they can invest in modernizing their economy, which has been something they've touted as something they really want to do going forward. It makes sense from the perspective of the country. But as an investor, I don't think it's something I'd be interested in owning shares of.
Any last thoughts on what investors should be paying attention to in the broader oil market before we close out the show?
Hall: The past few weeks are another reminder that it's very volatile. There are so many different triggers that can affect it. If you want to make money investing in oil and gas, I think you have to go back to looking at your vertically integrated supermajors. Shell is one that I still like because it has levers. Oil prices fall, and that can affect its production business. It can be good for its refining operations. I think there's still some great midstream companies out there. ONEOK, ticker OKE, I still like. Kinder Morgan continues to look better and better. They have these predictable cash flows from these long-term takeaway contracts, these tollbooth businesses, as they describe them.
For me, it's a reminder that it's really worth taking a hard look away from oil and gas, and start really considering, if you haven't, really look at alternative energy producers like TerraForm Power, Brookfield Energy Partners, Pattern Energy, some of these other companies. I think that's a lot more of the future of energy. It's a great way to start adding some diversity that's also energy without all of the crazy risks that come along with oil and gas.
Sciple: For listeners interested in any of those companies, we've done a number of podcasts on those in the past, and I'm sure we'll have Jason on to do more of those going forward.
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Jason, thanks as always for coming on the show, sharing some of your personal experience with T. Boone Pickens and the state of the energy markets today. If folks want to check out Millionacres and the work Jason's doing over there, please do check that out. Thanks for coming on!
Hall: I appreciate it. It's always fun to be on with you, Nick. Oh, and, Go Dawgs.
Sciple: [laughs] Roll Tide, Jason. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for his work behind the glass! For Jason Hall, I'm Nick Sciple, thanks for listening and Fool on!