The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters (5 page)

Industry members had long called shale a “source rock” because it was understood to be the layer of rock that was the source of most of those oil and gas deposits found closer to the surface. Just as food is cooked in a kitchen and brought out to a dining room, oil and gas spent thousands of years “cooking” in these shale layers before it slowly made its way to reservoirs closer to the surface.

A lot of the oil and gas remained trapped in these layers, though. Indeed, there were few geologists who hadn’t yearned to go straight to these layers of dense, often black rock to tap it for all its remaining energy deposits. Just as a hungry teenager would rather storm the kitchen than wait patiently at the dinner table, operators would have preferred to go straight to the shale than wait for its oil and gas to rise closer to the surface.

Fervor for this rock usually led to bitter disappointment, however. The first commercial natural gas well in the United States was in a shale formation in Fredonia, New York, in the early nineteenth century. But energy companies quickly moved away from this rock. It just didn’t seem possible to easily extract oil or gas from shale.

Sure, shale had a lot of pores, allowing it to store oil and gas. But the rock was too tight and compressed. In other words, there weren’t enough connections between those pores. Trapped oil and gas didn’t seem to have necessary pathways for it to flow to a “wellbore,” or a hole drilled into the ground to create a well.

Much of the oil and gas in shale eventually makes its way to shallower rock formations near the surface through natural fractures in the rock. But because shale is so compressed, this process can take millions of years. Geologists knew oil and gas remained in shale formations around the country and around the world, but it seemed much too expensive to try to go get it. The rock had such low permeability that it just didn’t seem worth the time, cost, and effort. Whatever oil or gas shale held, it sure didn’t seem to want to give it up.

“In the field the stance was that it wasn’t economical, the formation wasn’t viable and couldn’t make enough gas,” says Jay Ewing, an engineer who worked for a rival of Mitchell Energy in the early 1980s.
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Complicating matters, shale layers were just too far down—as much as two miles below the surface—adding to the difficulty and cost. Besides, it also wasn’t clear how
much
oil and gas remained in shale, since so much of it had already flowed up to the surface. Most experts were dubious that there was enough pore space in shale to contain very much oil and gas.

“It was foreign to everyone’s thinking that there could be that much gas in this rock,” says Dan Steward, a Mitchell geologist. “We were all taught that there weren’t enough holes.”

Despite the broad skepticism about this rock, Mitchell told his team to go ahead and hydraulically fracture the Barnett Shale layer. Their goal was to connect pore spaces and try to create pathways for the gas to flow. The fracking involved pumping thousands of gallons of water and other substances into the rock to create small cracks to help the gas flow to the surface. It was a bit like keeping a thumb on a hose to amplify water pressure and create an impact, in the hope of creating pathways for the gas to escape.

Some of Mitchell’s troops resisted this method of stimulating the rock, which they didn’t think could work. Mitchell listened and acknowledged the doubts, but he pushed forward.

“Let’s fracture it anyway,” he told them.

Mitchell was determined to be the first to extract serious amounts of natural gas from shale and to do it before his existing fields ran out of gas, scoring a potentially historic windfall and shocking the industry in the process. He knew that if he was successful, the country itself might have a new way of discovering much needed energy resources.

In 1981, Mitchell Energy drilled its first well in the Barnett Shale in Wise County, the C.W. Slay No. 1. The results were good, though not remarkable. Most major oil companies weren’t focused on the area and didn’t notice or even care what Mitchell was doing.

Through the 1980s, Mitchell and his company weathered the ups and downs of a difficult industry, still trying to coax meaningful amounts of gas from the Barnett Shale. Profits fell to a meager $8.4 million in 1986 and rival independent energy companies went belly up. Mitchell trimmed expenses and reduced its budget for exploration in the Barnett. Only one area of the region was showing respectable production, and many of the company’s engineers and geologists grew pessimistic.

By 1992, it was clear that the Barnett would have to replace Mitchell’s natural gas reserves or they’d simply run out of gas. Mitchell pushed his men to make progress. They had tried what they called “massive fracks,” costly attempts at fracturing rock relying on a technique the government had helped develop. This approach to getting gas to flow from the Barnett layer—pumping large volumes of fluid and sand down a wellbore to crack the shale and give it more permeability—had worked elsewhere in the state. They also used a “gelled water” formula that included one million gallons of fluid and nearly three million pounds of sand, to prop the cracks open and allow the gas to escape. It was as if the Mitchell team was giving the earth a massive enema.

Mitchell’s crew got some gas to flow in, but it was an expensive undertaking and the results weren’t especially promising. “We couldn’t figure out how to make it work,” he says.
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The cost added up to more than $35 million, a huge sum for the company. “We kept trying, trying, trying.”

Mitchell and his staff weren’t getting anywhere. But word of his enthusiasm for the Barnett, and of his promising early tests, began to trickle out. The news piqued the interest of Sanford Dvorin, among the most unlikely wildcatters to risk it all trying to strike it rich in Texas.

•   •   •

G
rowing up in the Weequahic section of Newark, New Jersey, Dvorin was neighbors with future famed novelist Philip Roth. Dvorin didn’t know much about the energy business. Yet from an early age the Jewish child of a meatpacker became excited by the idea of making a fortune in the oil patch.

“All I knew about oil was that it was huge and everyone needed it,” Dvorin later told Ann Zimmerman of the
Dallas Observer
. “It seemed easier than the packing-house business. Boy, was I mistaken.”
¹¹

A wildcatter is an independent operator who searches for oil or natural gas in areas that can be miles from the closest producing well. These men—and they almost always are men—are equal parts gamblers, salesmen, and geologists. Supremely confident, wildcatters drum up financing from banks or investors by describing how they will tap a gusher in a spot others have dismissed, ignored, or misunderstood. They repeat the pitch, no matter how poor their chances of success, until they have the funds to acquire acreage, drill a well, and wait for oil and gas to flow.

Wildcatters are responsible for discovering the majority of the nation’s oil and gas. By the 1980s, huge gushers were becoming much less frequent in the United States and most of the biggest energy players had moved on to foreign locales. But the allure of the big strike, and the mystique of the wildcatter able to tap a lucrative well that the Goliaths of the industry had missed, captured Dvorin just as it had George Mitchell and countless risk takers before them.

Dvorin didn’t know anyone in the energy world, nor did he have the first idea how to get started. He received a degree in engineering and moved to Texas in the late 1950s with his brother to be closer to the cattle market, not oil or gas wells. The brothers settled in Dallas and built the largest beef-boning operation in the state, Big D Packing. When his financial backers withdrew their support, Dvorin moved to Tyler, Texas, in 1968 and found himself surrounded by oil and gas workers. He was inspired to follow his childhood dream.

Now’s the time,
he thought.

For a while, things went well. Dvorin, heavyset and confident, put together oil and gas deals in north-central Texas and made enough money to raise a son and daughter with his new wife in Plano, an upscale bedroom community outside Dallas. In 1976, while searching for new drilling prospects in a local oil industry library, Dvorin decided to examine the history of drilling in the Dallas County area.

Most energy companies ignore urban areas, for the obvious reason that it’s harder to obtain municipal approvals and persuade homeowners to lease land in more congested areas. George Mitchell once had considered drilling in the Dallas County area, but quickly reconsidered. The hesitance by larger competitors made Dvorin think there just might be some overlooked oil right there in suburbia.

There wasn’t much in the Dallas database, but Dvorin found a well that was widely known among some early Barnett workers; it had been drilled two decades earlier by a company that later became part of the giant Mobil. The file didn’t give details of where the well was. And all the Barnett activity was in Wise and Denton counties, where Mitchell was drilling, about fifteen miles away.

But Dvorin figured out that the well was under land that by then was across the road from Dallas/Fort Worth International Airport. “I had a feeling where it was,” he recalls. The surface terrain near the airport “looked oily,” he says.

Information related to the well suggested evidence of natural gas, Dvorin thought. But the well had been plugged, probably because the original driller didn’t think the Barnett rock would produce very much, if anything. If experts were skeptical about Mitchell’s prospects in the Barnett, they were even more dubious about this other area of shale.

“The Barnett was taboo,” Dvorin recalls. “This was a rank wildcat well.”

For nearly a decade, Dvorin didn’t do anything with his research. Then, in 1985, while he was drilling northwest of Fort Worth searching for a layer of rock called the Mississippian reef, he drilled through the Barnett Shale formation. The “mud logger,” a technician Dvorin had hired to monitor and record information brought to the surface, noted tremendous indications of gas and oil, much like those George Mitchell’s crew had detected from the Barnett a few years earlier.

The logger ignored the findings, aware of the frustrating history of this rock. Dvorin was intrigued when he heard the results, though. He remembered the Dallas County well he had tracked down. And he heard rumors that George Mitchell was drilling in other Barnett Shale sediment near Fort Worth.

Dvorin sent his gas tests to researchers at Mitchell Energy’s headquarters, hoping they’d take a look and maybe confirm that they in fact were drilling in shale. He reached one of Mitchell’s petroleum engineers on the phone and casually asked how their Barnett Shale test was doing, acting as if Mitchell’s interest in the Barnett was common knowledge in the business.

“The jury’s still out,” the engineer told Dvorin, inadvertently confirming that Mitchell had interest in the Barnett Shale layer.

The conversation buoyed Dvorin. He spent the next eight years testing various spots in the Barnett area, learning about the region. He didn’t have enough cash to drill by himself in a proper way, so he tried to persuade other operators to partner with him.

Dvorin couldn’t entice any companies, however, and an energy crash left him fighting to save his business, distracting him from the Barnett. He sold off all his production and his savings dwindled.

“For years, just years, it was, ‘Do I buy clothes for the kids, or a new shirt for me?’ Those kinds of decisions,” Dvorin told the
Dallas Observer
. “Every day I gave my wife, Patty, a reason to run off.”

Dvorin survived the downturn, as did his marriage, and he was back exploring the Barnett by the early 1990s. He focused on drilling spots near that original Mobil gas well in Dallas County, figuring that if he could make a well a success, transporting the gas would be easier if the well already was near a transmission line connected to a city.

One day, he got a call from an industry executive suggesting he hire an engineer who had opened his own practice. “There’s someone in my office who you should meet,” the industry member said. “He’s a kook like you about the Barnett.”

It was Jim Henry, the researcher whose study on the Barnett originally helped get George Mitchell excited about the region. He had left Mitchell Energy and now was on his own. Henry and Dvorin began working together, searching for productive wells in the area.

Dvorin desperately needed to raise new cash to make it work, however. In the fall of 1994, he pulled out a Dallas County Yellow Pages, went down the list of every outfit connected to the oil and gas industry, and sent them a letter, one that sounded as outlandish and unlikely as any get-rich-quick scheme.

“History is about to be made and you can be part of it!” Dvorin wrote.

The letter invited the lucky recipients to participate in the first commercially viable natural gas wells in Dallas County. Anyone with a shred of understanding of the energy business immediately threw the letter in the closest receptacle. Who drills under Dallas? If there was a real opportunity there, it sure as heck wouldn’t be found in the morning mail, they all knew.

A few people wrote him back, just to tell Dvorin he was out of his mind. Michael Hart, a Dallas-based petroleum engineer with more than forty years of experience, told Dvorin, “Dallas is not worth a flip,” he recalls.

“That was one of the mild ones,” Dvorin says. “I got a lot of hate mail.”

Dvorin was an oil and gas promoter, an archetype of the energy field. He truly believed he was offering a once-in-a-lifetime opportunity and couldn’t understand why others didn’t see it the same way. But his unbridled zeal turned off some would-be investors.

They had good reason to be wary. The energy industry has long attracted charismatic salesmen spinning compelling stories. It takes charm to persuade investors to open their wallets to finance activity below the earth’s surface and far out of sight. Dvorin’s North Texas location was a notorious place where oil and gas promoters had spent years fleecing gullible investors. The region already had gained an unattractive nickname: “promoter’s paradise.” They flocked to the region because it wasn’t hard for a wildcatter to bus a group of doctors and dentists from nearby Dallas and elicit a round of oohs and ahhs by lighting a flare and demonstrating some early production. Wily wildcatters would make sure to cash investors’ checks before production from the wells died out. Dvorin was a true believer and wasn’t out to rip anyone off, but potential investors had reason for suspicion.