Boone Pickens Briefing Book -...

BRIEFING BOOK

Data Information Knowledge WISDOM

T. BOONE PICKENS

Location: Forbes, New York, New York

About T. Boone Pickens ..................................................................... Debriefing Pickens ............................................................................

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Pickens in Forbes

"Blackstone Is A Complex Gal Who's Hard To Resist,” 09/09/09 …………………………………………………………… "It's A Good Ning," 08/21/09………………………................... “Terrible Twos Near For Natural Gas," 08/18/09……………… "What The Pickens Fiasco Means To Green", 07/08/09 ……

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The Pickens Interview …………………………………………………… 15

ABOUT T. BOONE PICKENS Intelligent Investing with Steve Forbes

T. Boone Pickens is the founder and chairman of BP Capital Management. His most recent book, The First Billion is the Hardest, was released last year.

In addition to oil and gas investments, Pickens, 81, is also the largest private holder of permitted groundwater rights in the U.S. through Mesa Water, Inc. Selling as much water as Mesa could pump would result in $165 million worth of water to Dallas each year. He recently delayed construction of a massive wind farm after the credit markets seized up last year and natural gas prices fell.

Pickens is stumping for the global energy plan called the "Pickens Plan," which is aimed at reducing U.S. dependency on foreign oil. He focuses on statistics that show America is currently importing 70% of its oil, up from 24% in 1970. Pickens highlights wind energy as a solution and proposes using wind turbines to harness breezes in the wind corridor that runs from West Texas to Canada.

Pickens is rated #334 on the Forbes List of World Billionaires and #341 on the Forbes List of Richest Americans with a net worth of approximately $2 billion, down from about $3 billion a year ago. Pickens earned his bachelor's degree in geology from Oklahoma A&M, now known as Oklahoma State University, in 1951.

DEBRIEFING PICKENS Intelligent Investing with Steve Forbes

Interview conducted by David Serchuk August 29, 2008

Forbes: Who is the greatest financial mind working today?

T. Boone Pickens: Have to say Warren Buffett. Just look at his record. He's the guy who's had remarkable success. You have to look at people like that, the smartest guys around. He's on everybody's list.

What is your bold prediction for the future?

The United States has got to solve its energy problem. We are importing almost 70% of our crude oil. Over half comes from countries not friendly to us. We can't continue spending about $475 billion a year for crude oil. If we address health care and education, but if we do not address oil, we won't have the money to address health care or education.

There is a solution to that, it has got to be solved very quickly. It's a $475 billion ticking bomb for the country. If we don't solve that problem we will come down dramatically in next 10 years. In 10 years if don't address problem we will have paid over $10 trillion for foreign oil. It will be a much different country if that isn't solved quickly.

What will be different?

If in 10 years we have not addressed the problem, we will be paying $300 dollars per barrel of oil. Ten years go by really fast.

It's not something I'm projecting. It's something actually going on right now. We're paying out $700 billion a year. That's four-and-a-half times the cost of the Iraqi war.

Why is water the new oil?

I didn't think it is. Let me tell you why. Going from Texas law, the surface water is owned by the state. The only water available as individuals owning it would be the ground water, below the surface. Ground water, we know where it is, it's shallow. It's not like drilling wildcats and finding oil. The water at the depth of where you would be looking for oil is saltwater. That's the only way we could compare ground water to oil; both are owned by land owners. Accumulations are much different. There really is no search for water in the state of Texas. Everyone knows where it is. The only question is the marketing of it.

How do you plan to sell a commodity, water, that ma ny people think should be free?

I don't know. That's a peculiar question, too. If I own it with another 200 ranchers, if someone thinks should be free should be free, well no. It will be sold for market value. I don't know of any free water anywhere.

People are used to opening the tap and not paying f or it.

All I can say is you do pay for it every month--you get a water bill. If you don't think that's paying for it, you're not very smart.

How do you plan to commoditize wind when so many ha ve failed?

Wind generates power, power goes in lines, the same as it would if generated by coal and natural gas. Fifty percent of our power is generated by coal, 29% by natural gas, 20% is nuclear. Wind fits in, would be paid for like any other power.

Texas is the largest producer of wind in U.S.; California is second. There are 4,000 megawatts in Sweetwater, Texas. The state is counting on 10,000 megawatts in the next 10 years. Our wind farm will be 4,000 megawatts; this would be a $10 billion wind farm. By 2016.

If oil prices fall sharply how would that affect yo ur push for wind?

Well, when I get committed to projects, I don't quit. We purchased $2 billion worth of equipment. I'm not too concerned with oil prices dropping. I don't think we'll see oil below $100 per barrel.

We purchased the turbines from GE. That was done about three months ago. We don't start receiving those until the middle of 2010.

You helped create the oil economy you are now criti cal of. Any second thoughts?

Why would I have second thoughts? I'm a geologist ... I worked for Phillips Petroleum, went on my own, and started my own company. It's been my whole career. In 1996, I ... got into the commodities business and the equities business, and have a couple of funds I manage. I haven't had any second thoughts.

I feel oil peaked. It peaked in the U.S. at 10 million barrels a day, now we're producing 5 million. It's still a good industry to work in. I've worked in it continually for over 50 years. I don't have any second thoughts about anything.

What's the biggest investment mistake you ever made ?

Oh, gosh. I made so many of them. That leaves me at a loss.

One of the worst?

When I was 12-years-old, I made a contract with my grandmother. She had six houses for rent. I said I would cut 'em for 10 cents a lawn, one time a week. That summer it rained three days; the sun came out four days--the grass grew fast. Halfway through the summer, she said, "You made bad deal." She said, " will help you now." I thought she was going to raise the 10 cents. She said she will have the lawn mower sharpened.

That had more impact than anything. I never forgot it. Anytime I made an offer on a deal, I gave it a lot more thought than I gave that one.

How much to clear the lawn now?

I don't have any idea! I know it's not 10 cents.

What is the No. 1 investment book you would recomme nd to a person trying to learn the investment business?

Probably would tell you it's my book. The First Billion Is The Hardest.

If you could get corporate executives to change one behavior, what would it be?

Be sure that management thinks like shareholders, instead of owners.

PICKENS IN FORBES Intelligent Investing with Steve Forbes

Managing Money

Blackstone Is A Complex Gal Who's Hard To Resist Martin T. Sosnoff, 09.09.09, 11:15 AM EDT

You won't learn much about it from its financial st atements, nor is its valuation particularly meager, but I just had to buy some Blackstone.

Analyzing Blackstone is not exactly like making love in the primary position. There are just too many

moving parts.

When you cut through all the fancy terminology, alternative investment houses do nothing more than

buy companies with 5% to 20% down, and then five years or so later, recycle back into the public

market what they owned and, hopefully, managed shrewdly and frugally.

The cost of carrying deal debt on what you paid for the property is a pivotal variable determining

prospective capital gains and incentive fees.

More than 25 years ago, the leveraged buyout was the jousting ground of gutsy entrepreneurs like

Rupert Murdoch, Ted Turner, the McCaw brothers, Nelson Peltz, et al. Mike Milken at Drexel Burnham

backed them by underwriting high-yield debentures. These honchos took their broker's "highly

confident" letter to banking syndicates who supplied a major traunch of capital to complete the

transaction.

Preceding LBOs in the '70s and early '80s was the greenmail period, with Saul Steinberg, Boone

Pickens and Carl Icahn as its leading practitioners armed with hostile tender offers. LBOs as practiced

by Blackstone and others currently are all friendly deals, wherein incumbent management negotiates

back-end incentive compensation if they stay on.

Blackstone Capital Partners was born with perfect, lucky timing. Pete Peterson and Steve Schwarzman

raised almost $800 million just days before Black Monday in 1987. The name Blackstone was a

derivative the principals carved out to embrace both their names. Schwarz is German for black and

Peter, Petros, means stone in Greek. Why not?

So Blackstone started off not exactly as a corner luncheonette. Peterson, now a retired billionaire, and

Schwarzman, its headman, were seasoned dealmakers, top investment bankers. Peterson was a

precocious headman at Bell & Howell and later a major player in the Nixon administration's trade

negotiations with the Soviets and the Japanese.

Together, this team built a broadly based alternative investment house that currently holds $25 billion in

uncommitted capital, and outstanding fee-earning assets approaching $100 billion. The $100 billion is

mostly high-powered money with 20% of the profits, if earned, on its turnover.

Blackstone's clients embrace the world of brim-full endowment funds, $100 billion-and-up state and

municipal pension funds, as well as super wealthy individuals and foundations. Do investors know or

care that they have a hand in changing the face of capitalism here? Probably not.

Polite investors pressing capital into commodity investment pools impact these volatile markets where

speculative funds account for a sizable part of the open interest in oil, copper, corn and soybeans, even

gold. Commodity inflation incubates everywhere and is a serious variable that can destabilize worldwide

GDP metrics and spikes interest rates.

Ironically, Blackstone's institutional investors made Peterson and Schwarzman so rich that the Obama

administration is deliberating changes in the tax code that would turn general partners' capital gains into

ordinary income. This is in addition to raising capital gains tax rates for everyone, a strong possibility by

2011. In his day, John D. Rockefeller paid a 90% tax rate. I'll settle for 50% in perpetuity.

Conceptually, I want to like Blackstone as an investment, but it is purely a macro-driven impulse.

There's no bank capital available today for LBO players, but this could change in a year or two. Already

the bad paper from old deals that was trading as low as 50 cents on the dollar has rallied into the $70s

and $80s. As this inventory is worked off the books of banks, and when the country approaches

normalized growth, the setting turns sunny.

Deals closed in 2006 and 2007 are still shaky because they were done at excessive multiples of

EBITDA and heady capitalization rates on commercial real estate. The recession compressed coverage

of fixed charges for deal houses. Not as bad as what went on during the late '80s when coverage was

little more than 1x EBITDA, but still skimpy. Today Toys "R" Us and Hilton aren't yet out of the woods.

Blackstone went public at $31 a share, a hot deal in 2007, sprinted to $38 but plummeted to $3.55 at

the market's nadir this past March. Along with the financial sector, it's rallied since then and now ticks

around $12. Fortress, another alternative house, traced a comparable comet's trajectory, from the $30s,

basing at a buck, now $4 and change. In a bear market nobody wanted to cotton to ambiguity and

Blackstone was and is nothing but ambiguous.

Normally, a stock's price varies inversely with the thickness of its research file, but it doesn't work here.

For example, Coca-Cola is followed by at least 50 senior security analysts whose earnings projections,

derived from management guidance, rarely deviates quarterly more than a penny a share. Go and try to

make money with that construct.

Curiously, the files on Blackstone and its brethren are minimal. There are platoons of analysts following

banks, insurance underwriters, brokers and money managers, but few of them essay any in-depth

analysis of what Blackstone is made of. I just read a 100-page report on State Street and a 50-page job

on Bank of America , both well reasoned, cutting to the heart of pivotal variables in each case.

For Blackstone, there is no such term paper. Yes, there are a few two-page music sheets but they're

worthless nonsense. It's not as if Blackstone doesn't issue detailed quarterly reports or eschews

quarterly conference calls with analysts. The problem is that Blackstone talks in a different language

that they've constructed, and it obfuscates what's going on. To find its balance sheet, I had to pull the

10-Q filing with the Securities and Exchange Commission.

Blackstone is a complicated machine. Its investments are harvested periodically over a span of years.

Unless management spells out the cash-flow coverage of each deal in inventory, there is no way that

you can calculate the level of future incentive fees or possible bankruptcies comparable with Cerberus'

highly visible flame-outs in Chrysler and GMAC.

The nomenclature employed in Blackstone's recent quarterly report is foreign and pretentious,

precluding a sharp penciled fix on near-term and long-term earning power. Net income is economic net

income, and fee-related earnings are net fee-related earnings. I'm a free cash-flow man, but

Blackstone's cash flow is adjusted cash flow from operations. Even dividends aren't dividends. They're

a quarterly priority distribution likely to end at year-end. Then we get into abstruse lines like GAAP net

loss attributable to the Blackstone Group . I'll grant that Blackstone offers some sense as to trend and

direction, but that's it.

Stepping back, comparing Blackstone with Berkshire Hathaway gives us a rounded picture.

Blackstone, for me, is primarily a merchant banker mostly employing other people's money. This is an

episodic business plan comparable with a movie studio making one film after another with unpredictable

results.

Berkshire Hathaway doesn't use much leverage and marries for life most of its investments in

companies and stocks. There is no fee-based profit center. Warren Buffett's investors are his

shareholders who participate equally in his successes. Book value is over $73,000 and the stock sells

at 1.4x book. Berkshire retains its earnings for reinvestment and the reinvestment rate is high these

past 40 years.

Blackstone pays out most of its earnings to management. Book value is under $2 a share, and a third is

goodwill. The stock ticks at 6x book, affording no protection if operations turn sour.

I'm not sure who the next decade belongs to. Contrast Blackstone with durable empire builders like

Commodore Vanderbilt in railroads, or Andrew Carnegie in steel, John D. Rockefeller in oil--all

monolithic players who obsessed about their business day in, day out.

I'd like to see Blackstone take its $25 billion in fallow capital and carve out more than a niche in an

industry ripe for a roll-up and consolidation.

Having said all of this, I bought myself a block of Blackstone, rationalizing my gambit as symptomatic of

a perennial quest to align myself with neurotic over achievers, like what you'd find at a medical teaching

hospital. I dumped my stock into the same hole I dug for Bank of America, Goldman Sachs , Capital

One, Allstate , State Street and MetLife . Then I put back the sign that read Bull Market Goods, "dig up

in 2011."

Blackstone is best described by active gerunds like leveraging, grasping and encompassing. Last week

in the Piazza San Marco where there were plenty of free tables, the countess and I ordered Bellinis.

Venice is not my Venice of 50 years ago. Il conto came to 50 euros, including an 11 euro line for the

café's music. The quartet played just three numbers and then took 10.

Blackstone is pricey like Venice. You pay a lot for the music.

The Social Web

It's A Good Ning Evan Hessel, 08.21.09, 06:45 PM EDT

Social networking site Ning is sidling up to old-me dia outfits like Martha Stewart to build online meeting places.

LOS ANGELES -- Ask Gina Bianchini about the future of traditional media on the Web and she'll point

you to a recent experiment by the home-and-garden-focused publishing giant Martha Stewart Living

Omnimedia .

Working with Bianchini's social networking outfit, Ning, Martha Stewart developed an online meeting

place for female entrepreneurs on the Ning network called "Dreamers into Doers." Women can post tips

about running a small business, share videos about their companies and meet other women grappling

with the challenges of building a company from scratch while raising families.

Martha Stewart Living asked Bianchini's crew to help them build the network after realizing articles on

its main Web site about female entrepreneurs attracted significant interest from advertisers and

readers. By operating a small biz-focused mini-Facebook, Martha Stewart's editors and producers can

keep up with the specific issues that a narrow segment of its readers care about and create new

content targeted for them, Bianchini says.

"You want to program to the things that your audience loves and how they identify themselves,"

Bianchini says. "That's the way for traditional media to counterprogram social networks that are already

strong in the market."

Founded in 2004 by Bianchini and Marc Andreessen, the father of Netscape Communications and a

Web software pioneer, Ning is literally a network of social networks--a collection of tools that let people

or companies build their own social network around hyper-specific topics: nontraditional weddings,

professional cricket in India, the Twilight series of vampire books, you name it. Think of it as a way to

"brew your own" Facebook.

Unlike some of its high-profile social networking brethren such as Google and Twitter, Ning hasn't

clicked quite enough to become a verb. That said, the site boasts about 30 million registered users.

Many have posted profiles, notes and pictures about their professional interests, hobbies and cultural

obsessions. Among Ning's myriad of networks: A community devoted to the music of rapper 50 Cent, a

group pushing billionaire energy mogul T. Boone Pickens' plans to invest in wind energy and a Web

forum for bureaucrats toiling for the federal government. Fans have created 1.4 million networks;

215,000 are currently active.

Ning uses Google's AdSense to sell ads on some networks; it also sells "premium" services (including

extra storage and the right to strip off the ads) for rates that vary between $5 and $55 a month. Virtual

tschotskes beckon: Instead of selling generic virtual "gifts" like Facebook does, later this autumn

Bianchini aims to give users the ability to design their own virtual presents and sell those (vampire love-

bites, anyone?). In such a case, Ning might share the revenue with the developers.

One key: opening up the site's application programming interfaces (APIs) to outside developers.

Currently Ning offers users 14 features. But once developers get hold of the code and start building

their own programs, the functions available on the site will likely balloon. That means users will be able

to set up storefronts, create gifts--and share revenues with the mother ship.

For now, Bianchini is coy about revealing any revenue numbers. (Bianchini scored nicely on Sand Hill

Road in fundraising for the company--investors have put in about $119 million.) But Bianchini is upbeat

about the growth patterns she sees--the rate of active Ning networks is growing faster than the total

number of Ning networks. Her translation: more and more people are staying involved.

Even as Bianchini remains committed to helping individuals and small groups build audiences around

their own quirky interests and passions, her team has recently put more effort into pitching Ning's

network-building capabilities to traditional media companies like print publishers and television

networks. In her mind, adding social tools could do wonders for old media outfits struggling to rebuild

their audiences online, where the digital arms of newspapers and magazines compete with attention-

sapping new media ventures like Facebook and YouTube.

Many publishers already offer special sections of content targeted to narrow groups of readers--think

WSJ.com's Law Blog or Wired's Geek Dad site. By using Ning to build a social network around those

topics, publishers could help readers meet new people that share their same interests, Bianchini

contends. New personal connections would lead to more time spent on the site, which would mean

more advertising revenue for the publishers, Bianchini says. In a bow to the importance of branding,

sites can also opt to have a URL that doesn't include the "Ning" name--for a modest fee, of course.

Attaching to respected media properties like Martha Stewart will also help Ning compete for eyeballs

with Facebook, which currently boasts eight times the number of users.

Bianchini has some competition there: Facebook has lately been strengthening its connections to

publishers. Its Connect product, launched last December, helps members move information from their

profiles onto third-party sites such as Washingtonpost.com and the Huffington Post.

Bianchini sees plenty of opportunity. Facebook, she says, helps people connect with folks they already

know from their offline lives. By building social networks into sections of online media properties, Ning

aims to help Web readers connect with new friends in the same place they go to read about their

passions.

So far, Ning has only announced the Martha Stewart network, but with a pitch like that, more media

partners can't be far behind.

Energy

Terrible Twos Near For Natural Gas Jesse Bogan, 08.18.09, 04:30 PM EDT

With the price falling to $3.10 per thousand cubic feet and demand weak, the only remedy for producers may be to shut wells.

HOUSTON -- How low could natural gas go? On Tuesday, it was trading just above $3 per thousand

cubic feet, the lowest level since 2002.

"We are sort of right on that knife edge, if you will, as to which way are we going to fall," says Kenneth

Medlock, an energy fellow at the Baker Institute at Rice University. "Are we going to stay at $3-plus or

go down into the twos? Right now, we are leaning toward the twos."

Last summer, natural gas spiked to record levels near $13.70 per thousand cubic feet. It was a bugle

call for drillers. Now with prices in the dumps, the number of drilling rigs in the lower 48 states has been

cut in half, but production has been steady.

"Not until you start shutting in wells that are part of a long-term drilling program will you really see

significant reductions in supply," Medlock says. "That has not been real significant yet."

Shut-ins have been reported by Chevron , a relatively small producer of natural gas in the U.S., and

EnCana . U.S. production leaders XTO Energy , BP, Anadarko Petroleum and Chesapeake Energy

haven't said they are going to hit the brakes in 2009. (Devon Energy will, yet its production has

swelled.) Oklahoma City-based Chesapeake, whose production jumped 18% in 2008 to the equivalent

of 2.3 billion cubic feet a day, projects increases of 4% to 5% in 2009 and 7% to 8% in 2010.

Some producers have hedges at higher prices and aren't being hurt as badly by the low spot price. For

example, Chesapeake has 90% of its production sold for the rest of 2009 at an average price of $7.65;

21% of its production in 2010 is sold at an average price of $8.88. Some companies need to keep

producing to hold onto costly leases in the shale plays.

Meanwhile, inventories of natural gas in the U.S., one of the strongest indicators of where prices will go,

climbed above 3 trillion cubic feet in late July, a record level. Demand has been weak due to the

recession and a relatively cool summer. There has been no threat so far this hurricane season to

production in the Gulf of Mexico, which accounts for about 15% of domestic supply. In other bearish

news, energy investment firm Pritchard Capital Partners said in a note to investors Tuesday that it was

"somewhat concerned" that full storage in Canada could result in more natural gas flowing south into

the U.S. market over the next couple of months.

All this supply supports the claims of billionaire T. Boone Pickens and others who have argued for more

use of natural gas because there is an abundance at home compared to oil. And when it's burned, be it

at a power generation plant or inside a water heater, natural gas releases about half has much carbon

dioxide as coal, and a fourth less than oil.

Supply has been boosted by the pricey development of unconventional shale plays like the Haynesville

in East Texas and Northwest Louisiana, where hydraulic fracturing has changed the playing field.

Drillers use millions of gallons of water, sand and some chemicals to fracture the shale and release the

gas trapped inside. New shale plays, which tend to have impressive initial production rates, seem to

have been popping up all over the past few years.

"The good news is that gas is increasing its footprint in power generation markets, but the bad news is,

of course, that price is too low for steady development of all the shale plays," says Rick Smead, a

director at Navigant Consulting in Houston. "Although development in Haynesville is going forward

pretty rapidly, most of the other major shale plays have slowed down quite a bit."

He says to have a "healthy supply," the price needs to be higher than $3.11, the spot price on Tuesday

at Henry Hub in Louisiana. "How much higher, there are a lot of opinions."

Waqar Syed, vice president of institutional research at Tristrone Capital in Denver, said depressed

natural gas prices should be a "short-term phenomena." He expects the market to go sideways or

slightly down in the next couple months, but as lower production catches up with the fall in drilling rigs,

some exploration and production companies will start trying to get ahead of the "meaningful rebound"

that he expects in the second half of 2010.

Power Transmission

What The Pickens Fiasco Means To Green Andy Stone, 07.08.09, 12:09 PM EDT

The White House would be wise to learn the lessons of T. Boone Pickens' wind-power failure.

On Tuesday, Texas oilman and energy security proselyte T. Boone Pickens announced that he will

delay, and likely permanently scuttle, plans for a 687 turbine wind project in the Texas panhandle.

The demise of the project, which was supposed to be the largest in the world at a rated generating

capacity of 1,000 megawatts, came when Pickens discovered he couldn't raise money to build

transmission lines to carry wind energy from his remote 200,000 acres to big cities that would consume

the power.

Pickens had obviously hoped to become the poster child for wind. Instead, his Texas experiment is now

a cautionary tale on the critical role of transmission to wind development. He's stuck with $2 billion

worth of General Electric turbines, which he hopes to move to smaller projects throughout the Midwest

and Canada. He's also decided to wait for the government to build transmission to carry wind power in

Texas.

Transmission is a critical and often overlooked component to making green energy work, particularly

because wind and solar resources are often located in rural areas far from major transmission

backbones.

A year ago the Department of Energy released a roadmap by which the U.S. would generate 20% of its

electricity from wind by the year 2030. The critical bottleneck in the plan would be transmission. DOE

said a nationwide network of high-voltage power lines would suffice to get all that wind energy to

market, but the plan would cost at least $60 billion.

In the drive to stimulate green energy, President Obama will need to keep the need for transmission

front and center.

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THE PICKENS INTERVIEW Intelligent Investing with Steve Forbes

Steve: New Pickens Plan Billionaire T. Boone Pickens is back with a new energy plan -- the size of Texas! As you may recall, the legendary oil man came to the townhouse as a guest on "Intelligent Investing" a year ago. Back then, it was all about the "Pickens Plan" -- an ambitious effort to install massive wind farms along the Great Plains corridor. Today -- Boone is still waiting for those windmills to be delivered, but everything else has changed. He says wind farming's simply not profitable in this environment, so the original Pickens Plan has been shunted aside. But America's most determined entrepreneur has focused his personal energy in a different arena. In just a moment, we welcome T. Boone Pickens back to Intelligent Investing. Where's The Money Steve Forbes: Well, Boone, good to talk with you again. Certainly a lot has happened since we last spoke. T. Boone Pickens: And we always enjoy visiting. Forbes: Well, you have a lot of astute observations. But, on the energy front, talking about the president, and the stimulus bill, they had some money for modernizing the electricity grid. That was one of the big things that has forced you to put aside your plans for that big wind project in Texas. Is there enough money? It's hard to believe this administration wouldn't commit enough money to anything. Pickens: There are several things that happened. You know, the economy flopped and, but you're going to have to do it. And, you know, it's in the climate bill. You know, the bill that's passed the House by five votes. And that bill has the grid in it. And there's money in it. And also there are three things in there, real interest to me. One is the wind and the solar. And then you've got the grid, and then you've got the greenback. So there's money there to accomplish all this. That bill has not passed the Senate, as you well know, and it'll be addressed, I supposed, after the health care is, something's decided there.

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But the bill that I'm most focused on is on HR 1835, which is the one where you're going to focus on six and a half million 18 wheelers, is what we have in the United States. That's, the way they identify those is class five through eight, six and a half million. But I would like to see it mandated that we -- Forbes: They go to natural gas? Pickens: Yes, on purchases. We don't, they don't have to do anything with a diesel till they're getting ready to get a new one. The new truck will be on a domestic fuel, and the only domestic fuel we have, that will move an 18 wheeler, is natural gas. Let me tell you what that does for us, Steve. If that was, how quick could this be accomplished? Seven years. You could clean up all six and a half million. They could be over to natural gas. What would that do for this country? That would cut OPEC's production to the United States, our imports from them, would cut from five million to two and a half million. So you would cut that in half. I'd like -- Forbes: Five million barrels to two and a half million barrels a day. Pickens: I'd love to have that card and play it. And then, we'll see what happens to the price of oil. Forbes: Now, first on the grid, on wind farming, the stimulus bill had about, what, $11 billion for modernizing the grid? People say it's going to be $60 to $80 billion. What are these three other bills that you mentioned, or provisions, do in terms of real financing for modernizing the grid? Pickens: [HR] 1835 doesn't have anything for the grid. Forbes: No, no, but I mean the bills and the cap and trade, and some of these other -- Pickens: Cap and trade is in that climate bill that you're -- Forbes: Right. Pickens: -- talking about. And cap in trade, you know. Forbes: No, but I mean in terms of what, do they have monies for electricity grids and that? Pickens: That's one that there is money in there, in the climate bill. But all of that can be financed, you know, by private funds. You just give a return that you can live with, and it can be accomplished. But I was going to tell you, one of the reasons that wind is all at once kind of dropped, as the profile has, because wind is priced off the margin, and the margin is natural gas.

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And natural gas, we have such an oversupply of it, that natural gas is $4.00 in Mcf. You've got to have $7.00 to make the wind work. So, when natural gas moves back up, which it will, then the wind will come back in where you can get a 16 to 20% rate of return. Natural Gas Prices Forbes: Now, going on natural gas, you look at the price of that, and even the current price of oil, and it's a huge disparity. Is it we don't have storage for natural gas? What, why did it collapse like that? Pickens: It collapsed because you have too much. We're probably oversupplied today, four to five billion cubic feet of gas a day. So, you know, that's going to make it a lot cheaper, as you well, you're the economist, that long supply, cheap, short supply, very expensive. But we've got all the storage filled, it's pretty well filled. You know, we fill until the end of October. And it looks like we've got cold weather coming in here in the next six to 13 day forecast. So you could, in October, this could maybe be the first time we haven't injected gas, but we've drawn gas. If that's the case, you'll start to see natural gas move up. And natural gas will be $6.00 to $7.00 next year, is where you'll be, and you'll have oil, $80.00 to $85.00. Forbes: So, if we get natural gas at $6.00 to $7.00, do you think there'll be a private investment for the electricity grid to move your wind power? Pickens: I think so. I think you're going to see projects developed. But they're going to pass something this year on the, what they call climate. But I'm not so sure that they don't disconnect from cap in trade in the Senate. Because cap in trade is not popular, as you well know, and it's just a tax, is what it is. And to get it passed out of the House, had to do some real trading to accomplish that. And so it's going to be tough in the Senate. But I envision that what could very well happen is they cut cap in trade loose, and then let wind, solar, the grid and the greenback go and maybe attach to that, the Natural Gas Act, which is HR 1835. Now, in the Senate, that same bill is Senate Bill 1408, and the beauty of that is, the sponsor of that is the majority leader, Harry Reid. So, that's strong. And then he has Menendez from New Jersey on it and also Hatch from Utah. So, it's got great sponsorship. Forbes: Well, Ridge, from Nevada, so, what, you think that's a good bet? Pickens: That's a good bet. What To Do With Turbines? Forbes: Well, talking about, before we get to the conversion of the 18 wheelers to natural gas, on the wind farm, what are you doing in the meantime, with all those turbines from GE that you've got coming in the next year or two?

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Pickens: Now, why would you bring that subject up? Forbes: Maybe I'm going to buy one. Pickens: We made a great foo-faw when we bought them, didn't we? The world's biggest wind farm. Actually, a wind farm has just been announced, finished, completed at Roscoe, Texas. Which is about the same size as the one that we were going to build. Which is 1,000 megawatts. And it requires 657 turbines. Those are the ones that I put under contract. But what you say, when am I going to do something with them? I don't start receiving them til the first quarter of 2011, thank God. So, between now all right, I've got, my garage isn't big enough to put those turbines in. So, the, I'm going to, before first quarter of 2011, I will, you know, I'm parceling them out on different projects, because I can't get going on the one I was going to build, which is in Gray County, Pampa, Texas, up in the far north panhandle of Texas because we don't have, we didn't get the transmission didn't get into place. When we made that announcement, I thought that I had eminent domain, and could build that transmission down to, and connect to Ercot, which is 250 miles southeast of my wind farm. But we found out we did not have eminent domain. Some legislation had been passed in the prior session of the Texas Legislature, and we thought we had it, but we didn't. So that meant that was cut off, and we won't have transmission to us until 2013. So, now I've got to scramble, and put those turbines out on other projects. Forbes: Has that been resolved, in terms of the right of way? Do you need federal push on that? Or can the legislature fix that? Pickens: That's a state, you know, those right of ways are state issues, until the Congress acts and puts it under maybe FERC. Then they can get something done. But the, you know, it's state-by-state now. And they've got to sweep that out of the way, and get it. If you look at, there's been about 12,000 miles in the last 10 years of natural gas pipeline built. And that FERC gave the authority to put those lines in. Then you've got, if you look at the high voltage lines in the last 10 years, it's been 1,000 miles. So, it's 12 to one, when you have the citing authority with FERC for the natural gas pipelines, and high voltage is from one state to another state. And you can imagine the complications of those type negotiation. Forbes: And is there any prospect in any of the legislation to, in effect, FERC the transmission lines? Pickens: That's in that, that's in the climate bill. Forbes: Climate? Yeah. Pickens: I think that's where they'll accomplish that.

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Let's Get Started Forbes: Now, on the natural gas, people say, "Gee, that's a great idea." But how do make it happen in the sense that we're, the infrastructure, how do we get the infrastructure? Pickens: The infrastructure will be somewhat easy. Because you're going to target the six and a half million 18 wheelers. Not your car. But Gulf has six and a half million. And it's obviously a huge target if you could displace natural gas and two and a half million barrels of oil, which would be huge and somewhat easy to accomplish. Now, the infrastructure, as those vehicles are ordered, they're going to, for instance, you could do a large truck stop operation. And Pilot has 520 truck stops. And if something like that could be accomplished, then you've got it, the deal's done. Because you can put those in the driveways of a truck stop at a cost of $1.5 million per unit, pumps, storage and everything else, for $1.5 million. So if, you know, you're talking about somewhat insignificant cost. Forbes: So, if you announced the applied date's certain, the conversion has to start, that gives plenty of time for these truck stops to put in the facilities? Pickens: Oh sure. Because the trucks aren't sitting out there, ready to be purchased. You've got to place those orders and start to receive trucks in maybe three to six months. And you could do a lot by then. Forbes: So, when do you think that process will start? Next year? Year after? Pickens: I think you're going to, I think you're going to get the legislation passed this year. And I think, you know, you'll get going 2010, early, that it'll all start coming together. Price of Oil Forbes: You've obviously been in the oil business. What in the world is going on with the volatility of the price? $147, $30, $68, $70. What, is this hedge funds, speculators, or something else at work? Pickens: No, but you know, you've got to have speculators in a commodity market to be able to offset the person hedging. Somebody has to take a risk someplace in here. Forbes: But do we have new a new round of speculators from the hedge funds and the others or -- Pickens: Well, go back to the fourth quarter of last year, when everything started to come apart. Well, at that point, you know, there's all the oil that the world can produce is 85 million barrels a day. That's it. And it declines at about seven or 8% a year. So, to get back to 85 million, you have to put back in six or seven million barrels of oil, that's got to be

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found and put on production. So it's hard to stay at 85, but we do, so 85 was the production, that was the supply for the fourth quarter of last year. At the same time, you were starting to project, you remember, all the economies around the world were doing good, and they were projecting 87 million barrels a day was going to be demand. Well, 85 won't cover 87. And everybody saw those projections, believed them, did not realize that we were coming to a screeching halt, and consequently, the price ran up, because you had people that believed that the price had to go up. The only way you can kill demand, I'm getting over in your area now, and correct me when I go wrong, you usually do, and I appreciate it. But the only way, if supply's capped, the only way you can kill demand is with price. So, the price went up, I think around $120 a barrel, that then you saw demand starting to change, but momentum, at that point, sent it on up to $147. Now, I spoke to the Senate Democratic Caucus at lunch a month ago, and at that meeting, they were convinced that speculators were running the price of all this up. And they said something about an imbalance of the market. I said, "One thing you've got to know on a commodity, it's if there's a buyer, there's a seller, or there's no transaction made. There has to be a counterpart to every transaction on the deal." So they said, "Well, how could the speculator ran it up to $147, they got out and dumped it on," I said, "On?" They said, "Well, on somebody. Who was it they dumped it on? They … " And I said, "Well, the only people they could've dumped it on at $147 was another speculator." And they said, "Well how, why would another speculator come in at $147?" I said, "Because they thought it was going go to $200, is the reason." That's just the way the market operates. So they said, "You don't think they ran it up and stuck somebody with it?" I said, "No, I the don't think they ran it up," I said, "They thought it was going to go up, demand looked like it was greater than supply, everything fit together, it was rolling, and it ran away from itself. Demand was starting to cease or slow down at $120, but it takes a few days for that to happen. And when it did happen, it collapsed, and you're down to $35.00 a barrel." And so I didn't find anything unusual about what was going on. Forbes: So where does it go now? Pickens: It's going back up. It's going to go back up. You're going, it'll be $75.00 by the end of the year, be $85.00 by the end of next year. Global Demand Forbes: And you think, again, with the global demand, the imbalances are going to start to creep in again? Pickens: I think that you're going to, once you have the global economy picking up, well, demand is going to go up. And you work off of 85 million, and when it starts to get above 85 million, it's going to get very, very expensive. China Sees The Problem

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Forbes: What do you see the Chinese doing? Pickens: That is one that is incredible to me, thank you for the question. I have become totally focused on what they're doing. They have made deals with Russia, Venezuelans, they've made deals with Kuwait, they've made deals with Brazil, Ecuador. They have 10 different countries that they have done deals with. Why? They're arranging for their natural resource, in this case, oil. They are making plans to cover what they have to have. They now have purchased or loaned money to get oil around the world of about six billion barrels. They make a deal a week. They make little deals, big deals, all kinds of deals. They put out almost $200 billion to accomplish this. They are going to have their oil. They see what we don't see. They have a plan, we have no plan. But they are in a game that we don't, we can't play in. They're in a game where they have a team, we don't have a team. No team, you can't play. No schedule for somebody that doesn't have a team. So we can't get in the game as it now stands. Meaning, if we're going to get in the game that they're in, which is state-owned oil companies playing that game. Porta Vesa, Saudi Aramco, the Chinese state-owned, there are three Chinese companies. And they're all in that game. And we're not, we have no team so we can't play. Forbes: The Chinese version of Boone Pickens is able to get things done over there. Pickens: They're going to get it done, because they are importing. They're concerned about their imports. Forbes: Sure. Pickens: They're using about 8.1 million barrels a day. We're using 21 million barrels a day. And we're importing 13 million barrels. They're importing four million barrels. And they, at that point, they see the problem and they're doing something. We never saw the problem. We never saw the problem. They see it much, much earlier than we should've seen it. And we should've seen it years ago. Forbes: Now, our, as you told the Saudis, our big trump card is natural gas. So you see a good supply both offshore and from shale? Pickens: Primarily the shale is where you're going to have it. We're going to, we're not finished in the Gulf of Mexico. There have been some interesting things there, in the last three years that could mean we have substantially more gas than we thought we had three years ago. But the shale, primarily, is where we are. And we've got supply of over 100 years at the present rate of production. What can we do if we start moving it into transportation fuel? It'll give us 25 years. And, but in 25 years, you should be able to figure it out, a battery that will work. A battery today won't move an

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18 wheeler. And you can't run it on ethanol, 18 wheeler won't work on ethanol. And so, you have one resource that will do it. But focus on the big stuff and put the resource into that, and cut our dependency, and when you do, it's going to put you in a, I promise you, this is a global game changer, is what I'm talking about. Once we get on our resource, that's when we quit sitting in the back of the room as a pitiful consumer and we now move to the table, where the producers sit. And now we can negotiate. We have nothing to negotiate until we become a producer, and everybody understands that we can start to cut our dependency. Water Sale Forbes: Question in another area, quick one, water. Where do you see that flowing, you might say? Pickens: You need the water. But know this, we've always got the ocean. And you can desal the salt water and use it. It's expensive, but it works. They do it in the Mideast, and if you have to have it, that's the way to go. Forbes: You still buying water rights? Pickens: You know, I haven't in the last three or four months, but I think I probably own more ground water rights than anybody in the country. But I don't have a buyer for it yet. Am I anxious? I'd like to have a buyer. Am I frantic? No. But I'd like to make a deal for the water. Forbes: Is that, again, a matter of eminent domain and being able to move the stuff? Pickens: You're going to have to move it, of course, and my natural market for it is the Dallas Metroplex, or San Antonio. Both of them, we have ongoing conversations with both of them. But is it going to solve their problem? No, it's only 200,000 acre feet of water a year. And let me put that in proper context, just that Dallas Metroplex uses 1.4 million acre feet of water. So if you put that 200 feet in there, you would be only have one eighth of what they need. But it is a safe, terrorist-proof water that it's not impacted by drought. The water's been in place millions of years, and so it'll be there until, you know, for many years, 100 years. Oklahoma State Football Forbes: Oklahoma State football. What's going to happen this year? Pickens: If we can play injury-free, we'll be very, very formidable. We're not injury-free. So, how are we now? It's going to be a tough season. It's a conference of strong teams. And so, I don't know, I'm very, still hopeful but not nearly as confident as I was a month ago.

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Forbes: Sounds like a more treacherous field than energy. Pickens: It could be. It could very well be. Forbes: Boone, thank you very much. Pickens: Sure.

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