Boone: The man with a big plan


Legendary oilman T. Boone Pickens has spent a lifetime in energy: as a geologist, founder of energy firm Mesa Petroleum and as a trader. Throughout the years he has courted controversy and picked fights as well as supported numerous philanthropic causes. His bold attempts to take over major energy firms in the 1980s changed not only the nature of how energy firms operated, but the entire culture of Wall Street itself.

He has expressed a fondness for the big deal and bold moves but his most recent venture, while bold, is not too controversial. In fact, it makes a lot of sense. In 2008, Pickens decided to get out of partisan politics (he had been a large Republican donor) and dedicate all his efforts to promoting a solution to America’s growing dependence on foreign oil, which he calls a major security issue. The Pickens Plan, among other things, calls for the transition of all federal government vehicles and over-the-road 18-wheel trucks to natural gas power. Legislation based on his plan could become law by the time you read this.

Futures Magazine: After running an energy firm for 40 years you embarked on a new career as a fund manager, and a decade later you changed your focus once again, creating a plan to lead America towards energy independence. Why is this so important?

T. Boone Pickens: It is a security issue for the country. We are importing 13 million barrels of oil a day, 5 million of it from OPEC, and if you look back at what President Obama said during his acceptance speech in Denver in July of 2008, he said in 10 years we will not import any oil from the Mideast, that was the same response to the question in the fourth debate that Bob Schieffer asked, I had lunch with him the week before and he asked me what I would ask him on energy and he asked that question and Obama responded verbatim to his response at the nomination speech. [He probably came to the same conclusion that I did]. Money that you are using for Mideast oil, some of it is getting to the [the people we are fighting in the Middle East]. You are supporting both sides of the war. I see it the same, I don’t understand why he hasn’t moved, he is two years in and he has no plan for energy. He made that promise two years ago and he has eight year to fulfill that promise. It has to be done with the American people and take politics out of it. You and I both would be willing if he came to the American people and said we have to get off of Mideast oil and you, Dan, and you, Boone, need to get on a domestic fuel in the next eight years, that would be an unbelievable opportunity if he went that way to educate the American people on energy. Today the American people do not understand energy. If you had to go to a domestic fuel, you and your family would get together, a study would be made, there would be a lot of conversation and you would decide to go with the battery or the hybrid or something but it would be American and that is what he should sell.

FM: The cost of crude oil has remained relatively high despite record inventories and a global recession. Why is this?

Boone: You had a global recession, but Asia is clearly in a recovery and demand is strong there, not so strong here. I still think that oil has peaked at 85 million barrels a day. Saudis have told you that they want $85 per barrel and whatever they want, they can get. If you think it is a free market you are kidding yourself. The market is controlled by the Saudis and whatever they want the price to be, well that is what we will have to pay.

FM: The OPEC benchmark used to be $22-$28 back in 2003.

Boone: That was a long time ago. They’re going to move it up. If we don’t get on our own resources in America, you are going to look at 10 years from now importing 75% of your oil instead of 67% and the increase has to come from OPEC. We are getting a lot of oil from Canada (and other countries) but if you are going to need more oil you are going to have to go to OPEC. If that is the case, in 10 years you will be paying $300 per barrel for oil.

FM: Some analysts say crude oil is no longer simply a commodity but a mechanism to manage global economic risk, similar to how some view gold. Do you share this point of view?

Boone: Inventories are out of place with demand. The demand is in Asia and people still view crude oil and crude oil markets in the United States. Are we important? Of course we are, but there is a great amount of demand away from us. Those inventories are in Cushing (Okla.) that is not where the demand is.

There are many users of oil and it is used for different reasons, some of the ones you just mentioned probably are the case. I am not ready to say that oil prices are controlled by people that want to use it for other reasons than the normal use of oil.

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About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board