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Mesa
Petroleum, also known as Mesa Limited Partnership, the nation's largest
independent producer of domestic oil and gas and one of its largest gas
producers, is a publicly held corporation with headquarters in Dallas and
offices in Amarillo, Fort Worth, and Las Colinas. (Independent operators
are distinguished from major oil companies primarily by their smaller size
and lack of vertical integration.) It was founded by Thomas Boone Pickens,
the son of a land man, a person whose job is to find landowners willing to
lease mineral rights and then sell their leases to oil companies. Pickens
was born on May 22, 1928, in Holdenville, Oklahoma, moved to Amarillo
while in high school, attended Texas A&M for a year, and received his
geology degree from Oklahoma A&M in 1951. After working as a roughneck and
in a refinery, he became a geologist for Phillips Petroleum, but
difficulties in dealing with company bureaucracy forced him to resign in
1954 and start out on his own. For two years Pickens was self-employed in
well-site and consulting work. He founded the company that became Mesa
Petroleum in 1956, when he entered into a partnership known as Petroleum
Exploration, Incorporated, with Eugene McCartt and John O'Brien, his
wife's uncle. McCartt and O'Brien owned quarter interests and supplied a
line of credit that enabled work on bigger ventures, while Pickens owned
the remaining half and served as president. In its early deals, PEI made
money by selling prospects it had discovered and retaining a "back-in
interest" or percentage of the profits made by the well in its first few
years. Eventually, the firm attracted a group of Amarillo investors who
allowed it to drill its own wells, and in 1958 PEI discovered eight gas
and one oil well in sixteen tries. In 1959, with the help of PEI
investors, Pickens formed Altair Oil and Gas Company to explore for oil in
Canada, once again serving as president and major stockholder. In 1960 the
company acquired a Utah mining company, Standard Gilsonite, and in 1962
PEI drilled ninety-eight successful wells and made more than $750,000 in
profits. Company employees increased from two to twenty-three, and
investors to nearly 300.
In 1963, when McCartt wished to sell his share in the company, Pickens and
PEI lacked sufficient money to buy him out. PEI signed a three year note
with McCartt to pay him for his interest in the company. McCartt
threatened to take over the company when it almost defaulted on its
payments, a situation avoided in 1964 when Pickens led the company in an
initial public offering to raise capital. At the same time, Pickens
renamed the company Mesa Petroleum for "the picturesque, table-topped
lands that rise out of the Texas Panhandle." In this process, Mesa
combined the properties of Altair and PEI, and acquired 239 stockholders
from the two original firms. In its first year, Mesa produced revenues of
$1.5 million and a net income of $435,310. The company grew steadily, and
by 1968 had revenues of $6.2 million, profits of $1.4 million, and stock
traded on the American Stock Exchange.
Mesa's fame initially developed from its acquisitions. In early 1968,
Pickens targeted the Hugoton Production Company of Garden City, Kansas,
for a possible merger. Hugoton owned a substantial portion of the Hugoton
gas field in southwestern Kansas, then the nation's largest gas field.
When the Hugoton management rebuffed Pickens's offer, Mesa introduced a
hostile tender offer that would give Hugoton shareholders 1.8 shares of
Mesa's common stock for every share of Hugoton's. Because Pickens was not
yet forty years old and his company was the smaller of the two, Hugoton's
management and board of directors failed to take him seriously. In 1969,
however, Mesa acquired nearly one-third of Hugoton's shares, and in April
stockholders of both companies approved the merger. Hugoton assets gave
Mesa the leverage it needed to expand its business and complete bigger
deals. Shortly after completing the Hugoton deal, Pickens diversified with
the purchase of the Swisher County Cattle Company and the Harmon and Toles
Grain Company, a cattle-feeding operation in Hutchinson County, Texas. He
also acquired Randall County Feed Yard, and began to increase the capacity
in its yards. Within three years, Mesa was the second largest cattle
feeder in the country, with the capacity to feed more than 160,000 cattle.
By 1973 the firm also owned more than 150,000 head of cattle. Cash flow
from cattle operations enabled Mesa get into offshore exploration, but the
cattle industry experienced a downturn in 1973. Despite Pickens's efforts
to hedge his cattle, the diversification effort ultimately failed and Mesa
sold its cattle operations at a substantial loss.
Mesa's next attempt at diversification linked it with a company closer to
its line of business and with sizable oilfield reserves. Its offer to
Southland Royalty Company of Fort Worth was terminated after the Southland
management waged a successful legal battle against Mesa. In 1970, Mesa
acquired Pubco Petroleum, based in Albuquerque, New Mexico, as well as
undeveloped acreage and personnel that produced an aggressive rate of
growth. In 1972 Mesa reported $92 million in revenues, $15 million in
profits, and $189 million in assets. In 1976 the company discovered the
largest field in its history in the North Sea. The Beatrice Field, named
for Pickens's wife, netted the company a $31.2 million profit before Mesa
sold it to the British National Oil Company, established by the British
Labor Party. Faced with government requirements that BNOC participate in
local finds made by non-British exploration companies, Mesa decided it was
easier to sell than have BNOC as an unwelcome partner. Between 1973 and
1981, Mesa grew into one of the largest independent oil companies in the
world, with assets of more than $2 billion. In 1980 reserves totaled more
than twenty-five million barrels of oil and natural gas liquids and, by
the end of the decade, almost 2.5 trillion cubic feet of gas. In 1979,
facing a new Canadian tax policy, Pickens sold Altair Oil and Gas and
founded the Mesa Royalty Trust to restructure the firm by spinning off a
large portion of its reserves to shareholders. Mesa distributed trust
units on the New York Stock Exchange equal to the number of shares each
stockholder had in Mesa common stock. Stockholders received 90 percent of
the profits from assets directly, while Mesa retained a working interest
to manage the properties. In 1984 the Tax Reform Act dissolved such
trusts.
Pickens also succeeded in oil futures, but it was his repeated attempts to
take over companies much larger than his own that led to his and the
company's greatest fame. By the 1980s he came to believe that acquiring
other companies had become more profitable than oil exploration and
production. His skill lay in an ability to identify undervalued companies
and make a profit when outside parties and the markets recognized their
value. In the spring of 1982, Mesa made an offer for Cities Service
Company of Tulsa, Oklahoma, a company more than twenty times the size of
Mesa. Cities Service responded to Mesa's tender offer with a tender offer
of its own for Mesa. Cities Service enlisted Gulf Oil as a "white knight,"
a company agreeable to management that could defend the targeted company,
to help in their defense. Mesa eventually lost the battle, but sold the
stock it owned in Cities Service back to the company for a $30 million
profit. In the 1980s, Mesa attempted several other takeovers. It was
outbid by Phillips Petroleum in a 1983 offer for General American Oil, a
Dallas independent, but succeeded in acquiring a 5 percent portion of
shares outstanding in Gulf Oil, the sixth largest oil company in the
United States. Later that summer Pickens and a group of investors acquired
additional stock to bring Mesa's total interest to 11 percent. Pickens
then launched a proxy fight with Gulf for control of a company he viewed
as poorly managed. Gulf's management offered Pickens a "greenmail"
premium, an amount paid by a target company to repurchase its stock from a
corporate raider, but he refused. Eventually, Socal Oil merged with Gulf
in the largest merger in corporate history to date, and Pickens and his
investors profited $760 million before taxes by tendering their shares to
Socal. Mesa also attempted to buy Phillips Petroleum and Unocal, but did
not acquire either.
In late 1985, after a friendly merger with Pioneer, a large Amarillo
independent oil and gas company, Pickens reorganized his company as the
Mesa Limited Partnership, then the largest independent oil company in the
world. The same year, he founded the Boone Company, a joint venture
between Drew Craig, Sidney Tassin, David Batchelder, and Pickens, to deal
separately from the Mesa Limited Partnership. In the late 1980s and early
1990s, Pickens attempted takeovers of Newmont Mining, a New York-based
firm, Diamond Shamrock, and Koito Mfg., Ltd., a Japanese auto-parts
manufacturer, making substantial gains in the process. After a dispute
with the Amarillo City Council, Mesa moved its headquarters from Amarillo
to Dallas in 1989, and in 1991 restructured itself from a limited
partnership to a corporation. In that year the company also sold
significant assets to Seagull Energy of Houston. Mesa employed
approximately 300 people in 1993.
T. Boone Pickens has been at the center of controversies surrounding Mesa.
Called an "entrepreneurial populist," a corporate raider, and a
greenmailer, he is accused of buying and breaking up companies and putting
people out of jobs. In 1986 he started and funded a nonprofit organization
called the United Shareholders Association to fund a newspaper informing
shareholders of corporate abuses, and in 1987 he defended his position in
a best-selling book entitled Boone. Pickens, for whom the West Texas A&M
University business school is named, has served as the university's
chairman of the board and supported other Texas universities.
