The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters (7 page)

A group of entrepreneurs in the United States and Canada soon became intrigued by the idea of using this flammable oil to illuminate, as well as to lubricate moving parts in automobiles and ships. They quickly realized that they would need a larger supply of it, and that they’d have to go belowground, rather than just skim the supply that made an appearance close to the surface.

To find oil, some of these entrepreneurs began adapting drilling methods used for many years to extract salt from areas below the surface. Boring for salt had been developed more than fifteen hundred years earlier in China, where wells went down as deep as three thousand feet. Drilling derricks later were used in Europe and elsewhere, also in search of salt.

In 1859, Edwin L. Drake drilled a well at a depth of less than seventy feet near natural oil seepages in the tiny town of Titusville, Pennsylvania, becoming the first to drill for oil in the United States. At the time, the drillers described what they were doing as “boring as for salt water,” or just “boring.” They may have used a dull name to describe it, but these early pioneers drilled the world’s first commercial oil wells, though holes of several hundred feet were considered very deep in those early days.
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In the North Texas area where George Mitchell and his team later focused, early drilling was aimed at finding water, not oil or natural gas. Texas had few natural lakes and limited water sources, forcing early settlers to drill into the ground to keep burgeoning communities alive. Drilling devices and other innovations, such as rotary drilling, were employed in the state in the late nineteenth century, also in the search for water. When oil was struck it often was more of an annoyance than a cause for celebration. That all changed early in the twentieth century, when a series of remarkable oil discoveries shook the country, including the famed Spindletop gusher in 1901, and a growing need for fuel for automobiles and ships made it a more precious commodity.

As fields were discovered in Pennsylvania, Texas, Oklahoma, California, and elsewhere in the United States and around the world, the drilling methods employed were relatively simple—drill bits were sent vertically into the ground aiming for pools, or accumulations, of oil or gas trapped in small spaces in various “reservoir” rock. Poke a hole in and suck it out, just like with a giant straw.

That kind of drilling—straight down into the ground—sometimes led to gushers, and huge profits, of course. More frequently, this vertical drilling led to “dry holes,” or wells with little or no oil or gas in them, as well as costly losses. Science was used to improve the odds of success, so drilling deep down in the ground in the hopes of hitting pockets of energy wasn’t quite random. But vertical drilling too often was something of a hit-or-miss proposition, with exasperating dry holes regularly resulting.

“With traditional drilling it’s like a door-to-door salesman, most people say no and then you get a yes once in a while,” explains Jerry Box, who was a Sun Oil exploration executive. “There are emotionally really sharp peaks and really low valleys—the ups are damn exciting, but you have to have an emotional state to deal with it. If you can’t deal with it, you don’t belong.”

Part of the problem with traditional vertical drilling is that among the numerous sedimentary layers under the ground brimming with oil and gas are those, like shale, that are very long and very narrow. They go on for miles and miles, but their “payzones,” or the section with enough oil or gas to make it worthwhile to drill, are relatively thin. Traditional vertical drilling means penetrating only small parts of these wide horizontal energy deposits.

To get at other parts of these narrow reservoirs, multiple wells had to be drilled nearby, at additional expense. Even those couldn’t always capture all of the horizontal oil and gas formations. With these wells, it was like playing a game of Battleship and only hitting parts of a huge ship, or missing the ship entirely.

By the 1970s, producers were realizing that there was less oil and gas to be found in the United States. American oil production peaked in 1970 at 9.6 million barrels a day and began dropping steadily. The challenges put pressure on drilling pros to come up with a better method, one that might reach those long, narrow reservoirs.

To access more oil and gas, some companies attempted to drill diagonally, by turning a drill bit on an angle of some kind. This kind of “slanted” drilling was a necessity for companies operating from a central platform in offshore waters, though some tried it onshore as well. In 1990, Iraq accused Kuwait of using a type of diagonal drilling to steal its oil, a pretext used by Saddam Hussein to launch a war against Kuwait. Diagonal drilling wasn’t a perfect solution, however, because it didn’t capture enough of those narrow oil and gas slices.

In 1976, William K. Overby Jr. and Joseph Pasini III, engineers working for a research arm of the Department of Energy, were searching for a method of drilling for methane gas in underground layers of coal. They achieved enough success to patent a method in which they started a drill bit “at a slant rather than directly vertically,” according to the patent application, gradually curving it until it was at “a horizontal position.” (The Department of Energy later provided funding for a number of experimental horizontal gas wells.)

This method, which came to be called horizontal drilling, a variation on diagonal drilling, was perfected through years of trial and error, usually with little fanfare in the industry, let alone among the general public. Consumers generally don’t like to think about where the gasoline for their cars comes from, or the source of the natural gas that heats their homes, especially if it’s a bit messy.

Nonetheless, the progress being made by the drilling tinkerers held immense promise. By sending a drill bit straight down as much as a few thousand feet, snaking it until it lay flat, and then boring horizontally, a larger area of a reservoir, or multiple deposits of oil and gas, finally had the potential to be unlocked.

When the consultant visited Sun’s office in 1984, Kenneth Bowdon and the rest of the Sun team had a hunch that the nation’s narrow, thin reserves finally might be within reach. Unlike George Mitchell’s crew, the Sun group didn’t have a lot of experience fracturing rock. They had no clue how to break up the dense limestone in the Austin Chalk. But they figured they didn’t need to because the rock already had natural fractures that trapped oil in long, narrow slices. Drilling sideways seemed a perfect way of draining all the oil from these rock layers.

In 1986, Bowdon and Sun’s exploration unit began using horizontal drilling in five wells in the Austin Chalk area. The results were immediate and stunning: a month’s worth of oil in just three days, or 150 barrels an hour. Soon, a plume of smoke rose above the well, as oil escaped and was burned with the well’s gas. The smoke rose so high in the sky—a full four hundred feet in the air—that it sparked calls to fire departments in four cities. When fire trucks reached Sun’s drilling site, some trucks coming from as far as seventy miles away, sheepish Sun executives had to tell the alarmed men they had a surge of production, not a dangerous fire, on their hands.

This is amazing,
Bowdon thought.

Then it dawned on Bowdon that their good luck might actually do harm to the company. It was the same conclusion that the rival production guys had come to when they met their own instant oil.

Craig Bourgeois, Bowdon’s boss, ran to find one of the senior drilling specialists. “Don’t tell anyone about this,” Bourgeois told him. “Don’t leave the site and make sure the guys don’t go into town.”

They knew they had a small window of opportunity. The terms of Sun’s drilling permits meant the company had to share its monthly production results with the state, figures that were disseminated publicly. But they didn’t have to reveal their results for 120 days. That provided enough time to do some serious leasing of nearby acreage without driving prices higher.

They didn’t want rival companies to find out how much oil they were producing, and how quickly it was gushing. So Bourgeois ordered the drilling to slow. Roughnecks operating the rigs were told to sleep in their nearby trailers for a month, lest they go home and tell friends about the surging production. It wasn’t easy to keep the secret—someone had built a stand on the edge of the property to spy on what the Sun guys were up to—so they tried to act as casually as possible.

Operating quietly, Sun began acquiring hundreds of thousands of unexplored acres in the Pearsall field, paying just about forty dollars an acre. When the company revealed the results of its early horizontal drilling, Wall Street investors cheered. Sun was getting over two thousand barrels a day from these new wells, some of the company’s most productive wells on record. It was clear that horizontal drilling would be their ticket to glory and a way to boost the nation’s propects.

Sun decided to spin off its exploration and production unit in 1988 as a separate company, while holding on to Sunoco’s refining and marketing business. Hauptfuhrer was given the job of running the new entity. It was named Oryx Energy Co., for a type of large antelope with long, straight horns found in Africa and Asia. Rivals teased executives at the new company that the name sounded like a vacuum cleaner; Hauptfuhrer countered that it suggested “aggressiveness and pride.”

“An oryx is one of the few animals that lions won’t eat,” he said. “And we knew there were a lot of lions out there.”

Oryx immediately assumed the mantle of the nation’s largest independent oil producer, or one that searched for oil and sold it to others but didn’t transport it or sell it to retail customers. Bob Hauptfuhrer and several experienced executives helmed the new company. They held the clear lead in harnessing the exciting method of horizontal drilling that some in the business were beginning to get enthused about. Hauptfuhrer’s company seemed likely to lead a rebirth of American oil and gas production.

“There really wasn’t anyone else doing it at the time,” recalls Jerry Box, the exploration executive.

Box began hearing accolades when he met with investors in New York, Boston, and elsewhere, giving him more encouragement. “Hell, we had come up with something that other people were imitating,” he says. “It was a big deal.”

Horizontal drilling was hugely expensive. A single well cost more than $2 million, compared with about $350,000 for a vertical well. But the Oryx team managed to bring its costs down to $650,000 a well, making horizontal drilling worth the added expense since so much more oil was gushing out of the ground. They also improved how far their drills could bore horizontally through the rock, going as far as four thousand feet laterally, allowing Oryx to tap still more oil.

By 1989, the average well in the Pearsall field was producing thirteen hundred barrels of oil a day of initial production, more than double the results just a few years earlier. The oil would slow as the wells matured, and then level off, but so much poured out in the first year that the company was on a roll. Some wells did even better, with initial production of more than three thousand barrels a day and over two million cubic feet of natural gas.

Oryx’s success helped touch off a burst of leasing activity in the Austin Chalk area as rivals raced to emulate the company, prompting an analyst at investment banking firm Petrie Parkman & Co. to proclaim that the Austin Chalk area “may be the hottest land play in the lower 48 states.”
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At one point, activity got so heated in “the Chalk” that Dilley, a town of about three thousand in the region, was overrun with prospectors “touting drilling prospects sketched out on their hands,” according to an article at the time in
Explorer,
a trade publication.
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The really crazy thing was that it was Oryx leading the pack, not bigger companies like Exxon, Mobil, and Amoco. Those companies had been focused on finding huge pools of oil abroad, not on improving drilling methods and squeezing out more from fields in the United States. Those “major” oil companies had been convinced that “elephant” fields in the United States were extinct. Now some were trying to figure out how to get involved in the Austin Chalk region.

Back in Houston, George Mitchell took notice of what was happening in the area. Mitchell Energy poured about $40 million into the Chalk region, one more spot that might save the company. But Mitchell got to the region a bit too late and ended up withdrawing in failure, another costly blunder.

By 1990, the energy industry was more convinced of the benefits of horizontal drilling. Few were as optimistic as Hauptfuhrer and his engineers, though. “We believe there are ten to fifteen, maybe as many as twenty other geological formations in this country that might lend themselves to horizontal drilling,” Hauptfuhrer said at the beginning of the decade. “The experience on the cost side has been so good.”
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Oryx pushed into natural gas exploration, viewing it as the energy of the future because it was more environmentally friendly than oil, coal, and nuclear energy.

On the surface, Oryx seemed to be firing on all cylinders. But within the company, there remained resentment about Hauptfuhrer. Some of his personal quirks also raised eyebrows. When Hauptfuhrer went to industry functions, employees noticed that he often looked disheveled, wearing badly wrinkled dress shirts that sometimes fell out of his pants. He favored dark suits with brown shoes, his socks drooping to reveal too much leg. Some employees rolled their eyes at their boss’s “high-water trousers,” which also showed an uncomfortable amount of leg. He tended to give data-driven, deliberate speeches that had some rolling their eyes.

“He was so unpolished you couldn’t imagine why he was the one selected” to lead the company, a Sun veteran says.

Despite his upbringing, Hauptfuhrer often demonstrated a surprising lack of etiquette. On a buffet line with a colleague at the prestigious Dallas Petroleum Club, among the city’s most exclusive private clubs, Hauptfuhrer once stuffed dinner rolls into his pockets, as if he was worried about the source of his next meal, an employee recalls.