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T. Boone Pickens Is Down, But He Swears He Isn't Out

T. Boone Pickens Is Down, But He Swears He Isn't Out

His swashbuckling raids on Gulf Oil, Cities Service, and Phillips Petroleum have faded into the history of the get-rich 1980s. His oil and gas company, Mesa Limited Partnership, is saddled with debt and huge losses. A controversial investment in a Japanese auto-parts company hasn't delivered any profits. Does his losing streak worry T. Boone Pickens Jr.? Says the irrepressible oilman: "I play pretty good with my back against the wall."

Pickens is currently scrambling to close several deals that he hopes can give him breathing room. Most immediately, there's a private debt placement managed by Salomon Brothers Inc. Pickens hopes to raise $616 million to pay down Mesa's $900 million in bank debt, much of which matures over the next five years. CIGNA Corp. is taking the lead with a $125 million investment. The new debt would relieve some of the tension over looming principal repayments: A lot of it would not come due for 15 years. But exchanging debt won't solve Pickens' hefty debt-service costs, which totaled about $160 million last year. The move simply "gives Mesa a longer leash on which to hang itself," says Timothy J. Curro of UBS Securities Inc. Analysts figure that cash flow from operations barely covers interest costs--a precarious position when the gas business is bad.

NO DEAL. Mesa claims it can cut the interest burden by about one-fifth with the pending sale of 11% of its 2.6 trillion cubic feet of gas reserves. Mesa expects to garner $275 million from two buyers. The company could also use part of that money to buy back some of its $600 million in junk bonds at a discount, says energy analyst Jack N. Aydin at McDonald & Co. in Cleveland.

Lately, though, Pickens has had a lame record in raising money. Early last year, he tried to attract up to $400 million by selling stock in Mesa's interest in the Hugoton gas field in Kansas only to watch the deal fizzle when gas prices plunged. In December, a $350 million sale of reserves to Seagull Energy Corp. fell through when Seagull couldn't complete the financing.

His biggest problem remains the price of gas, which since 1985 has slumped nearly 40%, to $1.62 per thousand cubic feet last year, as supplies outstripped demand. Mesa is expected to post a loss of $100 million for 1990, following $63 million in red ink in 1989. And the outlook isn't much brighter this year. "I never believed we would see gas sell at such a huge discount to crude oil," says Pickens, who doesn't look for a strong turnaround until 1995. That caution is in distinct contrast to his excessive optimism when he took on debt to buy Tenneco Inc.'s oil and gas properties for $715 million in 1988. Then, when cash flow couldn't support Mesa's stock dividends, he borrowed to fund the payouts. Last year, he finally suspended dividends, saving $250 million.

With a parade of bad news like that, no wonder the stock market has reacted coolly to Pickens' latest debt-reduction efforts. Mesa's shares, at 2 1/2, are trading near record lows (chart).

Mesa's woes are more than embarrassing for Pickens. The value of his 4.5% Mesa stake has plunged. He's out $12 million in annual dividends, and he receives no salary until common dividends resume. Since 1986, Pickens figures his net worth has fallen 50%, to $54 million.

Some believe Pickens' financial slide prompted his acrimonious and widely publicized adventure in Japan, where he hoped in vain to score a profit. After acquiring a 26.4% stake in Koito Manufacturing Co., a major supplier to Toyota Motor Corp., Pickens unsuccessfully demanded representation on the company's board, claiming the system shuts out foreign investors. He wanted higher dividends and access to company books, but Koito resisted. His position was undermined in December when, under a new Japanese law, he had to disclose that his stake was financed by Kitaro Watanabe, a Japanese speculator who Koito says had tried to greenmail it. Pickens stalwartly says he will keep fighting.

HAPPY RANCHER. If these setbacks have fazed the 62-year-old oilman, it doesn't show. He still spends time at his 2B Ranch north of Amarillo, Tex., named for Boone and his wife, Bea. "He's just his same old self, very optimistic," says Randal B. McDonald, a friend and former Pennzoil Co. president. "But he may be whistling past the graveyard."

Pickens, however, does have an ace in the hole that could probably solve his problems: his still-vast gas reserves. He says unloading even half of them could wipe out all his debt. Pickens, though, believes he would cheat shareholders out of a golden return by doing that. He says he can muddle through until gas prices turn around. Then, he may be back to his old roistering behavior. He even talks of running for governor of Texas in 1994. For Pickens, tomorrow is always brighter than today.