[Editor's note: A version of this story appears in the September 2005 edition of Oil and Gas Investor. Subscribe to the magazine here.]

As the chairman of BP Capital LP, a more than $2-billion hedge-fund outfit, investor and oilman T. Boone Pickens oversees 22 employees who are managing a lot of dollars.

So when we met with him in Dallas in July, it was no surprise that Pickens kept a watchful eye on his computer screen as his papillon, Murdock, wandered in and out of the office. Oil and gas markets have been interesting to watch this year-the previous day, oil had gone up 4%; two days later, it fell 4%.

But by all measures, Pickens' team has done all right. An investor who placed $1 million in BP Capital Commodity Fund at inception in 1999 has seen a return of $28 million.

Meanwhile, BP Capital Energy Equity Fund I, started in 2001 and closed in December 2004, returned 36.7% (before fees) in this year's first quarter. For all of 2004, it gained 62.6%; the year before, 141.6% (before fees). An initial investment of $1 million in Fund I was worth close to $3.6 million net of fees by March 2005.

BP Capital's new Energy Equity Fund II, started in February of this year, returned 24.2% net in the first quarter.

Of course, high oil and gas prices made this possible, but Pickens has been investing in commodity markets successfully his whole career, in addition to running an E&P company he founded in 1956 and sold in 1997. In May, he predicted oil would go to $50 a barrel before it fell to $30. Later in 2004, he said it would hit $60 before it would be $40. In speeches around the country, he has said he thinks Hubbert's peak-oil theory may be right.

At age 77, Pickens still finds work fun and fears if he retires, he'll lose his edge. He's as busy as most people half his age: he frequently speaks on oil, gas and natural gas-fueled vehicles. He works out with a trainer almost daily and logs his fitness progress. He is building a new house. In July, he married again.

Pickens was early on shareholder rights, when back in the 1980s he formed a shareholder advocacy group, a radical notion back then. Today, he is regarded as a business hero in Japan and still gets ink in Japanese magazines.

But he is perhaps best known for corporate-control contests with Unocal, Phillips Petroleum and Gulf Oil some 20 years ago, something he says was about investing and shareholder returns, but others viewed quite differently. He bought huge blocks of stock and tried to force improved performance from the companies-or merge them into his own E&P company, Mesa Petroleum, which he led for 40 years.

Later, gas-rich Mesa and oil-oriented Parker & Parsley united in a $1.6-billion deal in 1997 to form Pioneer Natural Resources, with 4.7 trillion cubic feet of gas reserves at the time.

Pickens was early on natural gas fundamentals, predicting a structural shift in supplies and prices 15 years ago. He's a founder and on the board of Clean Energy Fuels Corp., which promotes natural gas-fueled vehicles. Today he may turn out to be prescient on water rights in Texas too, thinking water will be one of the hottest commodities of the new century.

Investor: You started in the oil business in 1951 and here you are, still active, still getting a lot of press, still speaking out. What keeps you going?

Pickens: I like to work and I like to make money. But you have to stay current if you want to make money, so I read a lot, I communicate well and I'm surrounded by hard-working, intelligent people. I worked out this morning at 6:30. I keep a log and give myself points on how I work out, and I try to do more than 100 points a month. In June I did 120 and in May, 144.

I don't think I have a photographic memory. I do remember the doors I got my fingers mashed in, so I don't put my fingers in those doors again. But there are lots of guys I feel are smarter than me.

Investor: Carl Icahn is another investor from the 1980s in the news again. He made a run at Kerr-McGee and began accumulating stock. What did you make of that?

Pickens: I did not look at that deal. But Carl is going to shake it up and management's probably going to have to change. I always come from the side that shareholders own the company and managements are employees. I'm amazed when shareholders think they are smart enough to buy a stock but not to take the best offer on it later. But I think they are entitled to decide what happens-it is their money at risk.

It's funny to me when you hear talk of stakeholders-they talk of employees, people who do business with a company, towns and cities affected by the company, and shareholders come last. That's not the way I see it. Shareholders are the owners.

Investor: In 1985 you tried to buy Unocal. What do you think of China trying to buy it?

Pickens To me it was very simple-if Chevron wanted it they would have to bid more than the Chinese. It is not up to the government to step in front of the deal. Chevron did what most companies do-which is, when they get in trouble, they run to Washington. We don't have any problem with the Chinese buying our federal bonds. Nobody says anything about that. Unocal is so small in the world oil picture, it's a brouhaha over nothing.

Investor For years when you ran Mesa, your thesis was always that natural gas prices would someday soar. You built the company on that premise and it eventually did you in when gas prices didn't materialize and you had so much debt.

Pickens: I think my timing was wrong. (Laughs.) But you know...things work out for the best. Since I've turned 70, I have paid 85% of all the income taxes I've paid in my career-and I wasn't a dog taxpayer before.

I guess my worst call at Mesa was when we continued to make distributions to shareholders every quarter-but if we hadn't done that I wouldn't be where I am today. The distribution was $1.2 billion and that was what our debt was. It was unique-you really could have distributed only half that money and still had a good company. But, it's not like I drilled a dry hole with it.

Investor: At BP Capital, you're investing in commodities and equities. Which do you prefer?

Pickens: When I go into our meetings, the equity fund people are there and the commodity people are too. It's the best team I've ever had-it's void of any selfish behavior and is a group where each one likes the other and they work closely. It's all run by a committee and I'm the chair of it. It seems like we come together and decide most of the time. If it does require a final call, I make it.

We are long term in a lot of our positions-we are not traders. We have positions of as much as 10 years out.

Investor: Are you still bullish after the big run-up we've seen?

Pickens: I think the most exciting period we might all experience will be in the fourth quarter of this year. I made the $50 call early and the $60 call. I'm not afraid to make another call-I do think oil will go up. But there are so many factors that affect deliverability of oil-I don't want to predict events. That's really difficult.

On natural gas, you're in decline now in the U.S. and you shouldn't be using gas for power generation-you need to go over to nuclear and coal. We do have positions in coal, heating oil, gasoline, but they are minor compared with oil and gas.

Since we left Mesa in 1996, we have managed an equity fund and two commodity funds. I don't retain anything in Pioneer. We've made in excess of $3.5 billion from everything-with my personal amounts in it, $4 billion. It's an unbelievable number, a surprise even to me. We started with less than $100 million.

We were gutsy enough to take advantage of the right time and the right place, and to believe in our analysis. We have computer models but that's not the centerpiece-it's more of a gut thing.

Investor: Is this sweet revenge for you?

Pickens: Oh no. I don't think like that. I want everybody in the industry to do well. I don't want anybody to get a dry hole. But you can't call 'em every time-when you are wrong, you bow your head.

Investor: What kinds of stocks do you favor?

Pickens: I like Suncor; it's my No. 1 pick. I like EOG Resources, Quicksilver, Canadian Oil Sands Trust. The oil sands are a tremendous play-that started when I lived in Calgary in 1966-68. Then I went back to Texas. I should have stayed up there-the opportunities in Canada were better, especially 40 years ago. We have two people who go up there often to check on things. We have one of the best records up there for hedge funds.

Investor: Are you still doing any E&P? Do you miss it?

Pickens: We have two rigs running now, so we still take some deals. One rig is in the Cotton Valley and the other is in the Barnett Shale. And we're a partner in Vaquero Energy Partners.

But the E&P business is a tough business. The unusual thing now is most E&P companies have plenty of cash but not enough places to drill. As for missing E&P, I left Mesa in 1996. I never missed the job, but I missed the people.

Investor: Do you think hedge funds should be regulated?

Pickens: Sarbanes-Oxley was overkill, a waste of money. And who is it that gets stuck paying for it? Shareholders. There are already laws in place for corporate governance. I don't think you need more laws-you can't make people honest. Yes, we are a registered hedge fund. Probably hedge funds should be registered.

Investor: What kind of advice do you give?

Pickens: I think you make your own luck. Keep driving until you hear the glass break. Then you stop. We go short the market sometimes too. When we've lost, I come in and the guys' faces are so long. I said, 'Good Lord, it would take two barbers to shave you guys, your faces are so long.'

I tell students [at Oklahoma State University, his alma mater where he lectures] to work long and hard and don't worry about it. Know what you can do, get educated and prepared, and go for the moon.

Investor: Which do you like doing best-investing in oil and gas, the new water industry, natural gas vehicles, your ranch?

Pickens: All of it-I've never had so many projects as I do now. My secretary of 20 years said to me just the other day, "Your calendar is busier than I can ever recall, even from back in the 80s."

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