T. Boone Pickens Predicts $125/Barrel Oil

"My IQ is the gas price. At $3 I'm a genius. At $1.50 I'm a moron. Don't talk to me too fast; it's at $1.53 today."

T. Boone Pickens, 1999 from his online biography.

Here's the headline: T. Boone Pickens thinks oil prices are still going up. So who the heck is this guy and why should you care?

History Lessons

Geologist, corporate raider, philanthropist, oil and gas man, investor.

Born in Oklahoma, in 1928, Pickens graduated from Oklahoma State University as a geologist and went to work at Phillips Petroleum Co. in 1951. Three years later, Pickens started his own company, Petroleum Exploration Inc., and three years after that, Altair Oil & Gas Co. was formed. In 1964, these two companies merged to form Mesa Petroleum. By 1967, Pickens took Mesa Petroleum public on the American Stock Exchange. That's chapter one of the Pickens saga - he's an oil man through and through.

Pickens chose to grow his company through various acquisitions - generally managing the financial math to acquire businesses that were much larger than his, at least in the beginning. By the early 1980s, Mesa had grown to be one of the largest independent oil and gas companies in the world and a feared and fierce competitor.

Chapter two came in the 1980s. Pickens made a name for himself (and was called many) by attempting hostile takeovers of Gulf, Phillips and Unocal. While these attempts were unsuccessful in terms of actually taking over the companies, most were tremendously profitable for Pickens (and the shareholders of the target companies), as firms like Gulf were forced to find friendly partners - who still paid a lot more than Pickens paid accumulating his takeover shares.

In 1985, Pickens appeared on the cover of the March 4 edition of Time magazine, which is must-reading for anyone in the business of worrying about oil. The inside article, "High Times for T. Boone Pickens," is chock-full of Pickens lore, and contains what is likely his signature quote:

"It has become cheaper to look for oil on the floor of the New York Stock Exchange than in the ground."

To this day, just the mention of his name in certain circles will get CEOs looking over their shoulders.

Plays, Predictions & Performance

After that crazy time of mergers, acquisitions and corporate raiding, Pickens left Mesa in late 1996 and turned to the boring old business of investing in the oil companies he once sought to take over. In 1997, Pickens started BP Capital, a private investment firm investing in stocks of public energy companies and energy futures. Its first fund, the Energy Commodity Fund, was created to track energy markets through commodity trading. In the beginning, Pickens looked like he was losing his touch: Things didn't go so well and BP Capital lost money in 1997 and 1998.

In 2001, BP Capital created its Energy Equity Fund, which concentrated on energy stocks rather than commodities.

As a private company, it is difficult to find exact performance and holdings information on BP Capital. Any information has to be gleaned from various news stories and reports and from interviews Pickens gives. Here is a brief outline of the past six or so years.

In 2002, Pickens tried some takeover moves again, this time targeting first Penn Virginia and then Vintage Petroleum. BP Capital didn't have enough cash for the deal and his brief foray back to the heydays of corporate raiding were over.

In 2004, Pickens predicted oil would hit $50 when it had started the year in the thirties, and BP Capital Energy Commodity Fund gained 390% for the year. Its equity fund was up a measly 70% in comparison. He went on to predict $60 oil, stating, "I think we've seen $40 oil for the last time." Time would tell.

The numbers for 2005 are a bit confusing. BP Capital was definitely up, but whether it was 100% or 348% depends on where you look. (This Bloomberg article has BP Capital fund gains at 348% for 2005 and 79% for 2006.)

In 2006, as oil was sliding from its stratospheric $70 highs, Pickens put his line in the sand one more time:

There are plenty of dissenters to the view that oil prices are more likely to fall than rise. T. Boone Pickens, founder of BP Capital Management, has been one of the most prescient in the industry with his price predictions, and he's still bullish. "If you're ready to make a bet, I'll take $100 over $50, but you have to give me a year," he says.

Pickens was right a few years back when oil was in the thirties and he predicted it would soar to $50, and later when he predicted $60 and $70 oil. But he was a contrarian back then. Now he's one of the thundering herd predicting higher prices. It doesn't mean he's wrong. Yet he must be a little nervous having so much company in the bullish camp.

And yet, this article in November 2007 has BP Capital fund up 22%, which is lower than the S&P GSCI Index, which was up 32%.

In October 2007, Pickens predicted that oil would reach $100 within a year. In December 2007, he shortened the time frame of that prediction to within six months. On January 2, 2008, his prediction came true. It didn't stay there long; in fact, it wasn't until late February that the price closed above $100. But here we are, just as Pickens predicted, at $100-plus for a barrel for oil.

Clearly the guy has made the right calls more often than not - at least to the press. His latest near-term prediction? Over $125 a barrel.

Pickens' generalized winning streak hit a big speed bump this past year. In the beginning of the year, Pickens bet that oil prices would fall. As a result, BP Capital's Energy Equity Fund was down 14% in the first two months of the year. Pickens calls the bet a mistake on his part, one that he has corrected.

"The position is long, not short," he told reporters. "I covered the short position - it was a mistake on my part."

But despite getting the call wrong, it's worth noting that the S&P 500 Energy Index was also down, though only to the tune of 5%. During the same time period, Crude oil rose 6.1% and natural gas futures rose 25%.

Underneath Pickens' bullishness on the price of oil is a single, primary fact which he has long held. He believes that the world is simply unable to reliably produce more than 85 million barrels per day, and that global demand has been over that ceiling for a while.

This is one of his main reasons behind his prediction that oil prices will continue to rise, justifying his long position on oil. He doesn't seem to use the phrase, but he's not just an oil man, he's a peak oil man.

That somewhat hidden belief explains his interest in alternative energy - an area he's long been an advocate for and investor in - specifically coal and liquid natural gas. In 1997, he started Pickens Fuel Corp., which changed its name to Clean Energy in 2001. It's involved in providing vehicular natural gas to various large customers throughout North America. He is also interested in wind energy, and is putting his money where his mouth is, investing in a large wind farm in Texas.

Pickens may be pushing 80, but it would be wrong to dismiss him. He's forgotten more about the oil business than most of us will ever learn.

Comments

[Ames Tiedeman]

I am short oil by being long DUG and short USO and OIL. My short positions was launched on April 22nd. I see Oil pulling back to 95-100.
125 is months away. We correct first. Pickens may have just whip sawed himself.

[Alan von Altendorf]

Well, no. Watch supply decline in Venezuela, delay and shortfalls in Brazil, Khazakstan, Russia, Arabia. Pickens has it exactly right. We have a global surplus of natural gas, not oil.

[2-cents]

Shorting is a mud game, period!

[Jack Yetiv]

I doubt OPEC will let oil go to $95. Saudi Arabia made it clear they do not plan to get much less for oil than it is trading at now. If they lower their production 1 million barrells per day, what happens to oil price?

2 million barrells per day?

Jack Yetiv

[Shahab]

IF Oil reaches over US$ 125.00, Pickens would say he predicts Oil to be over US$ 150.00. I dont buy it. I think Commodity bubble should have its burst some time this year.

[pockyclips 2020]

You got two oil guys running the show (Bush/Cheney). They will be living off oil profits after January 2009. Oil prices are not going down below $100/barrel, even if we have to start another war to maintain that support level. Syria or Iran, you pick'em, Pickens!

I agree, there's greater growth and less downside risk in natural gas.

[Jimbo]

Pockyclips needs to examine the ingredients in his Koolaid. Bush and Cheney have about as much influence on the current energy market as I do.Putin, Chavez and others, including Nancy Pelosi, are the ones to watch.

[oil genius]

You are a bunch of cookoos, oil is going to $123 a barrel soon. In three months. Economic deteriation, opec holding, summer coming. You are fools for shorting oil today.

[kurt walter]

If Bush and Cheney really controlled oil prices, like I hear many morons say over and over, why would they allow oil prices to go so high and piss off the dumb public that likes to bellyache whenever they have pain? Do you really think they want the public to vote for socialist democrats that want to try to control everything using as much taxpayer money as possible?

[paultaut]

WTI production has peaked...That grade will continue rise until we start using a basket of grades like the Opec producers do to price Oil...It doesn't matter whether the dollar goes up or down, WTI production can only increase if Nigeria gets back up to 1 1/2 to 2 million per day but you will still pay a premium for it and Oil contracts are currently quoted as WTI.

WTI may increase to $125 next week if the UK problem persists for a few more days and Bush doesn't tap the oil reserve.

Meanwhile oil demand will start to increase soon, the Olympics soon after and the Hurricane season at the same time...can't take a train or drive to China. # yrs in a row without a hurricane in the Gulf anyone?

A spike above 140 is possible this year.

Higher... if Nuc. facilities in Iran are taken out...Opec' spare capacity is entirely heavy/sour...increasin... that won't help...

A worldwide recession is the ticket.

[oil baron]

Maximum worldwide oil production is just about 87mmbopd. By 2012 worldwide oil consumption will approach 91mmbopd. This will drive oil well above $150 By 2030 worldwide consumption will approach 130mmbopd with production severely lagging. Eventually oil will surpass $200. I'm long and loving it. No way we will ever see oil under $100.

[righand1951]

He was shorting oil a few months ago......
My My....is everyone waking up to the fact that we really are in a demand cycle and the rapidly developing "3rd world guys" (Ch-In,etc)who were never major consumers have eaten up all the surplus that used to control the price?
Add that to the fact that most OECD (Non-OPEC) countries energy production are in rapid decline...the only new oil of any significance is Angola....Wow...go figure $100 oil! Headed to $150 by eoy...

[JREwing]

Damn right!

[blu]

We may see $125/bbl this week. Refinery strike in Scotland is shutting off 700,000 bbl/day....
Higher prices are inevitable as peak oil has arrived.
Just pray for some international reasoning...so we don't fall into catastrophic energy wars.
Simmons "Twylight in the Desert" is an excellent read. Pickens likes Simmons theory.

[maher]

Pickens is a pale walking skeleton disguised as a live person.
Don't listen to him!

ames and Crossing- I agree with both of you!

Yes, shorter term, the US Dollar will gain strength and may likely drive oil price down but only until such time as Iran war starts in earnest.

Right now the Iran war factor is the 'force majeur' behind high oil price, US Dollar takes second seat to that.

And believe it or not, the potential for an all out conflict with Iran is increasing by the day.

"It's Iran , stupid!"