The Improbable Story Behind America's Fracking Billionaires

by Gary Sernovitz | November 1, 2013

photo credit: Bloomberg/Getty Images

Headlines cheered recently as the United States surpassed Russia as the world’s largest producer of oil and natural gas. It was like the leader board of the 1976 Olympics—and strange. After all, the direction and fate of American oil and gas production had been clear for 23 years: straight decline, with an ever tightening noose around our neck. Most know of the sharp reversal of that decline; less know how it happened. Who did it? The oil and gas didn’t leap from the ground on its own in patriotic enthusiasm. Wall Street Journal reporter Gregory Zuckerman’s fast-paced, densely interesting The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters is the first book to tell the stories of the obstinate, ravenous, methodical, sometimes rascally oil executives of the recent boom. By focusing on people instead of trends, it gets to the heart of why the United States is once again the largest supplier of oil and gas in the world.

I’ve worked in the oil business for nearly two decades, on the finance side. It has long puzzled me why no one has written a book about Zuckerman’s subjects, fascinating studies of American possibility. The first part of The Frackers is largely about the refusal of George Mitchell, the son of a Greek immigrant goatherd, to give up on his quest to drill economic gas wells in the Barnett Shale, near Forth Worth. His company spent 17 years adapting, usually with little success, two technologies: drilling wells directionally and then horizontally; and “fracking,” a now nearly 70-year-old process to pump water, sand, and additives into tight reservoirs to break up the rock and allow hydrocarbons to flow. Mitchell’s ultimate breakthrough, in 1998, came from changing the recipe of those additives. The cause: one of the company’s vendors accidentally applied the wrong mix. The oil business is science. But, as Zuckerman documents well, it’s also a lot of trial and error and a bit of luck.

Mitchell’s company’s drilling formula made shale gas wells profitable, especially during the 2002 to 2008 climb in prices. (The resulting glut of natural gas then led to a collapse of prices. The same thing may still happen in oil.) The bulk of The Frackers is about what Zuckerman calls “the race”: the rush to improve on drilling and fracking techniques and apply them to gas and eventually oil reservoirs around the country. Zuckerman’s most moving portrait is of Harold Hamm, the thirteenth child of hard luck farmers who got by on sharecropping, cotton picking, and federal aid. Hamm got his first pair of new shoes at five. He never went to college. He was an ordinary millionaire ten years ago. He is now worth $12.4 billion, the 33rd richest person in the world. In cross-cut, sharply told scenes, Zuckerman follows Hamm and others as they send swarms of landmen to lease tens of millions of acres in ever more improbable places (North Dakota, northeastern Pennsylvania) and seek ways to finance that drilling. Not every acre worked or worked right away. Hamm’s position in North Dakota was considered marginal as late as 2009. (There are many parts of The Frackers where readers in the oil business will be desperate for a time machine to unmiss all the deals we missed.)

Did Zuckerman’s subjects deserve their billions? Most successful people, I’ve found, believe that their success is a direct function of the universe being fair. But were Hamm, Mitchell, and the others the best oil men out there? It’s not clear. In books about Wall Street bingo, like Zuckerman’s on hedge fund manager John Paulson, causation is simple: contrarian intelligence makes people rich. But the contrarian heroes in The Frackers wrestle both with markets and with ornery rock miles beneath the surface. That physical reality often brings heartbreak. Zuckerman sprinkles his book with the unfortunate twins of the boom, such as Robert Hauptfuhrer, whose company made key advances in horizontal drilling but who, like Moses, did not enter the promised land.

The Frackers becomes a dizzying study of the serendipity of success. There was an improvised quality to many of the frackers’ corporate moves, in Zuckerman’s telling. They were often reacting to desperate straits of their own making, or barreling ahead out of blind competitiveness. Many of the frackersseemed to be hedgehogs, with core personality traits that finally coincided with a time when those traits brought rewards. Hamm and Mitchell shared a countrified mystical faith in their own triumph that closed their ears to other’s highly rational doubt. Aubrey McClendon, the most famous of the frackers, seems pure appetite (for real estate, rare wine, vintage maps, oil and gas leases). The insatiable leasing of land was the right strategy in an era when new drilling techniques were adding hundreds of billions—if not trillions—of dollars to the value of that land. McClendon and his former partner Tom Ward are the most compromised of Zuckerman’s subjects. Although the company they founded was, a few years ago, the largest gas producer in the country, their behavior still shocks with its muddying of corporate and personal business, greed for bonuses (whether or not their shareholders were doing well), and frenzied wheeling and dealing that made their companies more fragile in the end. Both were eventually deposed. So are they bad men? Zuckerman, a classic reporter, never tips his hand. He presents sympathetic facts. The moral drama swells.

Only Mark Papa, a relatively minor character in The Frackers, seemed to have built his company’s success on foresight, science, and prudent strategy. But even Papa, like the rest of the book’s protagonists, ran oil companies that, 20 years ago, were considered small-time and a bit of a joke. To the Houston-centric oil community, it was mind-bending that companies based in Oklahoma (like Hamm’s and McClendon’s) were the leaders in the boom. It’s as if Twitter were founded in Fresno. Equally inexplicable has been that they succeeded from drilling low permeability, junky reservoirs. Zuckerman captures well how ExxonMobil and the other smart money had abandoned that bad rock for big offshore projects and foreign basins. He could have taken it further: the boom seems a classic case of Clayton Christensen’s innovator’s dilemma, where larger, “smarter” companies cede low parts of the market to smaller competitors, who out of pluck, luck, and technology’s advance, eventually dethrone the market leaders.

That irony gives The Frackers much of its good humor. The “outrageous” of the book’s subtitle goes beyond the greed (and spending) of some of his subjects to the improbability of what happened. China, with more shale rock than the United States, chokes itself on coal as it looks enviously at gas wells south of Pittsburgh. No other country, except Canada on a smaller scale, has repeated what has happened here. Yes, U.S. reservoirs are well suited to the new drilling techniques. Other factors are driving the boom’s breakneck speed: private ownership of mineral rights; huge infrastructure of oilfield services companies and pipelines; access to large amounts of capital in open markets. And, despite a Tedcruzian sense of presidential persecution by many in the oil industry, the boom has happened largely unimpeded politically.

But the largest reason it happened here is because of the frackers. Saul Bellow’s Augie March sings that “I go at things as I have taught myself, free-style.” There is that same rollicking Americanness in The Frackers, the book and the histories. Every country has stubborn optimists, gamblers, scientists, and engineers—the essential parts of an oil executive—but few probably have so many of them, or a business culture that sees risk as part of the fun. The Frackers does not deal in any great depth with the political or environmental consequences of the boom, both liberating and terrifying. That needs more study. But it is a pioneering work. For in looking for interesting stories, Zuckerman doesn’t just humanize the boom but reveals the most essential ingredient in it: an American culture that, even in the shadow of the global recession, never stopped reminding Americans that trying to make a buck is a heck of a ride—perhaps the essential ride of our journey.

Gary Sernovitz is a writer and novelist whose work has recently appeared in The New York Times, n+1, and other publications.  He is also a managing director at an energy-focused private equity firm.

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