by Russell Gold
I owe an enormous debt to many people who over the years have shared their knowledge of the industry with me, so that I could understand the modern energy industry in all its glory and foibles. Countless petroleum engineers took time explaining the intricacies of how to find oil and gas, to drill a well, and to hydraulically fracture it. Their patience with my generalist’s understanding of science was a gift. Geologists provided informal seminars on the nature of hydrocarbon reservoirs and shale. Critics of fossil fuels also provided invaluable assistance to help me see the industry through their eyes. I hope that I repaid their time by accurately describing their work and views. All mistakes are mine.
Many oil companies regard reporters as pests to be managed. Marathon Oil was very generous to allow me to witness the fracking of the Irene Kovaloff. Thanks to the folks in the Dickinson field office for their willingness to throw their schedules to the wind.
My professional home during this time was the Wall Street Journal’s Texas bureau. I have been fortunate that the bureau has been peopled with a string of great editors and colleagues. I couldn’t begin to repay the support and guidance offered by Leslie Eaton. Before her, Jennifer Forsyth provided early encouragement. Karen Blumenthal, who suggested I try the energy beat back in 2002, deserves recognition and my sincere appreciation for teaching me, among other lessons, how to read a cash flow statement. Ben Casselman and Daniel Gilbert covered Chesapeake after me. Their reporting on and insights into the company were top-notch. Angel Gonzalez, who for years was our man in Houston, has been a valued coworker and friend. While never a Texan, Bhushan Bahree generously shared his sagacity derived from decades covering the world of oil. There are few editors as smart as Mike Williams, who served for a time as the paper’s energy czar.
Many thanks to the University of Texas for keeping its stacks open to the public, even those of us who married Aggies. I benefited tremendously from access to the collections of the Perry-Castañeda Library, the McKinney Engineering Library, the Walter Geology Library, and the Dolph Briscoe Center for American History. In addition, thanks to folks at the public libraries in Oklahoma City and Tulsa for their help, especially Sheri Perkins at the Tulsa City-County Library, who went above and beyond to find an old newspaper article I needed. Computers make so much information available, but sometimes nothing beats a well-maintained vertical file. Also deserving specific thanks are Mat Darby at the Briscoe Center and Rebecca Radford at the Kansas Geological Society & Library.
Many have earned my gratitude for their willingness to engage in meandering discussions of energy. At the top of this list is Professor Michael Webber of the University of Texas. Why he orders Mexican plates at a Brazilian restaurant is a mystery, but his deep understanding of energy isn’t.
To Elizabeth Gold, thanks for your sanity, wise counsel, funny stories, insights, observations, and vigilance keeping tabs on the Park Slope antifrack pamphleteers. For your main squeeze, Danny “Inspector” Felsenfeld, here’s another literary mention to add to your collection.
This book wouldn’t have been possible if David McCormick hadn’t seized upon my idea with gusto. Among his many contributions was steering it into the hands of Ben Loehnen, a most able editor.
Over the past couple years, I have told people this book began as a birthday present to myself. The present was permission to spend long hours alone, hashing out ideas, and writing drafts. I now realize that I didn’t give that present to myself. My wife and children were the gift givers. Their love, unstinting support, and encouragement were constant and appreciated in ways I can never fully express. The book is dedicated to them, but that doesn’t come close to repaying them. Thanks.
ABOUT THE AUTHOR
© JOEL SALCIDO
Russell Gold has reported on energy in The Wall Street Journal since 2002. His coverage of the Deepwater Horizon oil spill was honored with a Gerald Loeb Award and was a finalist for the Pulitzer Prize. He lives in Austin, Texas.
www.russellgold.net
Twitter:@russellgold
MEET THE AUTHORS, WATCH VIDEOS AND MORE AT
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authors.simonandschuster.com/Russell-Gold
Sources
Below are listed the primary sources, by chapter, I relied on to research and write this book.
Chapter 1: Just Add Water
Chesapeake reported, in its annual 10-K report filed in March 2013, that it held leases, either partial or whole, on 25.9 million acres. This is about 40,500 square miles. Kentucky covers 40,400 square miles. In 2012 the company reported expenditures of $21.6 billion.
The history of the Farm comes from several talks with my parents, Barbara and Steve Gold, as well as records in the Sullivan County courthouse in Laporte, Pennsylvania. The earliest prominent reference to a “Shale Gas Revolution” is a 230-page research report written in part by Chris Theal and issued by Tristone Capital Global on October 6, 2008. Details on George Mitchell and Mitchell Energy are included in the sources for chapter 5. More information about Oklahoma City in the 1980s oil boom and bust can be found in Mark Singer’s wonderful book Funny Money. I assembled information on the Matt 2H well from many sources, including the Susquehanna River Basin Commission, the Pennsylvania Department of Environmental Protection, and FracFocus Chemical Disclosure Registry (www.fracfocus.org). I tried, unsuccessfully, to track down the electrical inspector who refused to issue a connection permit through the Sullivan County Rural Electric Cooperative.
Figuring out how many wells are fracked annually isn’t as easy as it would seem. I relied on Richard Spears of Spears & Associates, publisher of the annual and authoritative Oilfield Market Report.
The best source of data on national energy consumption on a per-capita basis is the World Bank’s calculation of fossil fuel energy use. I relied on its “World Development Indicators: Energy Production and Use” table, which can be found here: http://wdi.worldbank.org/table/3.6#. (Last accessed August 2013.) US per-capita consumption of fossil fuel is about 10 percent greater than Canada. Other nations with higher per-capita fossil fuel consumption are major oil producers, such as Qatar and Kuwait, and use the large amounts of fuel to power export-oriented industries. The International Energy Agency’s World Energy Outlook 2012 is the source of the claim that by 2020 the United States may become the world’s largest oil producer and for the relative carbon emissions of coal, natural gas, and crude oil.
The section on global shale deposits and how shale was formed was aided greatly by numerous conversations and email exchanges with: Julio Friedmann, the chief energy technologist at Lawrence Livermore National Laboratory; Scott Tinker, director of the Bureau of Economic Geology at the University of Texas; Juergen Schieber, “mudman” and “shale detective,” and, more conventionally, a geology professor at Indiana University; James Coleman, a research scientist at the United States Geological Survey; and Ray Levey, director of the Energy & Geoscience Institute at the University of Utah. I consulted several geology papers and found work by Gregory Ulmishek and Richard M. Pollastro particularly helpful. In addition, Clint Oswald and his colleagues at Wall Street research firm Sanford C. Bernstein have published many great notes on global shale deposits, including “Oil Shale—Forget About the Bakken, Wait for the Bazhenov” in 2012.
Birol, Fatih. World Energy Outlook 2012. Paris: IEA Publications, 2012.
Deutch, John. “The Good News About Gas: The Natural Gas Revolution and Its Consequences.” Foreign Affairs 90, no. 1 (January–February 2011): 82.
Gibson, Arrell Morgan. Oklahoma: A History of Five Centuries. 2nd ed. Norman: University of Oklahoma Press, 1981.
Medlock III, Kenneth B., Amy Myers Jaffe, and Peter R. Hartley. Shale Gas and U.S. National Security. Houston: James A. Baker III Institute for Public Policy, Rice University, 2011.
Sinclair, Upton. Oil!: A Novel. New York: Penguin Books, 2007.
Singer, Mark. Funny Money. New York: Knopf, 1985.
Chapter 2: Ottis Grimes
I relied on several sources for the h
istory of Burkburnett, Texas. These included three books, cited below, as well as an oral history of Walter Cline in the University of Texas’s Dolph Briscoe Center for American History, Pioneers in Texas Oil archive, and the Handbook of Texas Online (http://www.tshaonline.org/handbook/online/articles/heb14) entry on Burkburnett, last accessed October 2013.
Details about Ottis Grimes came from court decisions in the case. The 78th District Court in Wichita Falls, Texas, was kind enough to pull the original case file and send me a copy. This is the source of the “commonly sustained” quote. Another particularly helpful source was the Court of Civil Appeals (Fort Worth, Texas) decision in Grimes v. Goodman Drilling Co., et al. (no. 9213), issued June 14, 1919, and cited in the Southwestern Reporter, vol. 216 (St. Paul: West, 1920), 202–4. The Barney Fudge quote is from an interview with the author. For a modern example of homeowners without mineral rights fighting oil companies, see the Ruggiero v. Aruba Petroleum lawsuit, 271st Judicial Court (Wise County, Texas).
The Rex Tillerson quote is from a transcript of his meeting with the Wall Street Journal editorial board that was provided to me by Exxon and used by permission. A partial quote first appeared in an article I cowrote that appeared in the December 3, 2012, edition of the Wall Street Journal: “Global Gas Push Stalls—Firms Hit Hurdles Trying to Replicate U.S. Success Abroad.”
The quote from Shell’s Peter Voser was in an October 2012 interview with the author. John Tintera’s reflections on his tenure at the Texas Railroad Commission are from a panel discussion convened by the Alaska Oil & Gas Congress and quoted in a September 22, 2013, post by Starr Spencer in Platts’s The Barrel blog. The Emily Krafjack quotes are from an interview with the author, as is the “industry has done a great job of figuring out how to crack the code” quote from Mark Boling. The data on job growth is from Stephen P. A. Brown and Mine K. Yücel’s The Shale Gas and Tight Oil Boom: U.S. States’ Economic Gains and Vulnerabilities, a Council on Foreign Relations report from October 2013. The sausage quote was cited in a Charleston Gazette article from March 22, 2012, “Gas Drilling Needs to Improve, Chesapeake Official Says,” by Ken Ward Jr.
I referred to studies in Pennsylvania, conducted near my parents’ property, that looked at the potential for fracking to create pathways for briny water and chemicals to migrate upward into shallow aquifers. These are the Warner and Osborn papers cited below. The “unlikely” quote is from the 2011 paper and was repeated in the 2012 Warner paper. The use and problems of sewage plants to clean up flowback water is from the 2013 Warner paper, cited below, and correspondence with coauthor Robert Jackson.
The Ernest Moniz quote is from his July 2011 testimony before the Senate Energy and Natural Resources Committee and also from a speech he gave, which I attended, in December 2012 at the University of Texas. The Energy Information Administration provided information about Texas and North Dakota crude oil production.
Data on Nigerian oil imports to the United States comes from the US Energy Information Administration’s “U.S. Imports by Country of Origin.” The IEA also provides statistics on the nation’s output since 1980. I derived the value of its oil output from these data.
There have been several studies examining how renewable and gas generation can coexist. The study I relied on is titled “Partnering Natural Gas and Renewables in ERCOT,” carried out by the Brattle Group for the Texas Clean Energy Coalition and was published in June 2013. While a bit technical, it is the most thorough examination of how the power grid currently mixes various generation sources.
A basic overview of the fracking process can be found in two Society of Petroleum Engineers papers by George E. King, who was also generous with his time. The same can be said for Stanford University professor Mark Zoback, who has also given several lectures on fracking that are available online. The quote in this chapter is from a symposium on October 5, 2011.
The rapid growth of shale gas production comes from The Shale Revolution, an extensive research report for investors from Credit Suisse and issued on December 13, 2012. It uses cubic meters, which I converted to cubic feet using a 1:35 ratio. I calculated wind’s contributions to US power generation using the Energy Information Administration’s Electric Power Monthly data, comparing trailing twelve-month data from July 2013 to annual data from 2003.
The nonprofit online news operation ProPublica has tracked spending by state regulators. Its February 2013 report on the subject, “State Oil and Gas Regulators Still Spread Thin,” has useful data on the topic. It can be found at www.propublica.org/article/update-state-oil-and-gas-regulators-still-spread-thin. (Last accessed August 2013.)
Graf, Edwin A. “Reasonable Use—Determination Whether a Land Use by a Mineral Lessee is Reasonably Necessary Requires Consideration of Alternate Methods of Development Available to a Lessee and a Surface Owner.” Texas Law Review 50 (April 1972): 806–813.
House, Boyce. Oil boom: The Story of Spindletop, Burkburnett, Mexia, Smackover, Desdemona, and Ranger. Caldwell, ID: Caxton Printers, 1941.
King, George E. “Thirty Years of Gas Shale Fracturing: What Have We Learned?” Paper presented at SPE Annual Technical Conference and Exhibition, Florence, Italy, September 19–22, 2010.
———. “Hydraulic Fracturing 101: What Every Representative, Environmentalist, Regulator, Reporter, Investor, University Researcher, Neighbor and Engineer Should Know About Estimating Frac Risk and Improving Frac Performance in Unconventional Gas and Oil Wells.” Paper presented at SPE Hydraulic Fracturing Technology Conference, the Woodlands, Texas, February 6–8, 2012.
Landrum, Jeff. Reflections of a Boomtown: A Photographic Essay of the Burkburnett Oil Boom. Burkburnett, TX: Self-published, 1982.
Osborn, Stephen G., Avner Vengosh, Nathaniel R. Warner, and Robert B. Jackson. “Methane Contamination of Drinking Water Accompanying Gas-Well Drilling and Hydraulic Fracturing.” Proceedings of the National Academy of Sciences of the United States of America 108, no. 20 (May 17, 2011): 8172–76.
Vallon, Dick. Burkburnett: It’s Only the Beginning. Virginia Beach, VA: Donning Co. Publishers, 2007.
Warner, Nathaniel R., Robert B. Jackson, Thomas H. Darrah et al. “Geo—chemical Evidence for Possible Natural Migration of Marcellus Formation Brine to Shallow Aquifers in Pennsylvania.” Proceedings of the National Academy of Sciences of the United States of America 109, no. 30 (July 24, 2012): 11961–66.
———. “Reply to Engelder: Potential for Fluid Migration from the Marcellus Formation Remains Possible.” Proceedings of the National Academy of Sciences of the United States of America 109, no. 52 (December 26, 2012): E3626.
Warner, Nathaniel R., Cidney A. Christie, Robert B. Jackson, and Avner Vengosh. “Impacts of Shale Gas Wastewater Disposal on Water Quality in Western Pennsylvania. Environmental Science & Technology. Published online September 2013.
Chapter 3: Everyone Comes for the Money
Marathon Oil, and in particular, Pat Tschacher and John Porretto, made it possible for me to visit the Irene Kovaloff well. Additionally, Lance Langford at Statoil and Bud Brigham helped me understand what the Bakken was all about. Travis Kelly, of Target Logistics, gave me a tour of one of his company’s man camps and is also the source of the claim that it will soon house one of every one hundred North Dakotans.
The Bill Klesse quote comes from an interview with the author on August 20, 2012. Details of North Dakota oil production come from both the EIA and the Director’s Cut, a monthly publication of data from Lynn Helms, director of the Oil and Gas Division at the North Dakota Department of Mineral Resources. In an August 2010 presentation, the department estimated that there would be twenty thousand Bakken wells. By late 2012, it was estimating forty-five thousand, according to a conversation with Alison Ritter, a department spokeswoman. Further information on global and US oil production, and import and export levels, comes from both the IEA and EIA, in particular the EIA’s data files with the following source keys: MCRNTUS2, MCRFPUS2 and MCRIMXX2.
I have talked to the estimabl
e Phil Verleger, an energy economist with few peers, for several years, and he was helpful in thinking about the Bakken and its potential impact. The quote in the chapter comes from a conversation and first appeared in a November 17, 2011, Wall Street Journal article. He was also a source of my thinking about a long-term link between rising oil prices and economic contraction. In addition, University of California, San Diego, professor James D. Hamilton has written about this.
The quote from Dave Lesar about the “strategic guar reserve” came from a Halliburton conference call with investors on July 23, 2012. The Denver Business Journal reported on John Hickenlooper and Lesar drinking frack fluid on March 8, 2012, in a posting on its website titled “Are you drinking the Kool-Aid about fracking fluid?” His testimony to the US Senate Committee on Energy and Natural Resources was on February 12, 2013.
Quotes from Energy Secretary Chu are from a speech at the CERAWeek conference in March 2010, seen by the author. A video of the speech was provided to me by IHS, the parent company of industry consultant CERA. Rex Tillerson talked to the author about his wife’s present in a meeting several years ago at the Wall Street Journal. His quote about the hearse he expects to take him to his funeral come from a Financial Times article on June 27, 2007, “Exxon Chief Sceptical of Plans to Scale Up Biofuels Production,” by Ed Crooks and Fiona Harvey.
Details about the Olson 10-15H well come from a report by Neset Consulting Service that I found in the North Dakota Industrial Commission, Oil and Gas Division, records in Bismarck, North Dakota. Details about Brigham Exploration’s dire financials come from Bud Brigham and are reported in the 10-K filed by the company on March 13, 2009.
I determined average wages by using state US Bureau of Labor Statistics data and was guided by Michael Ziesch, manager of the Labor Market Information Center of Job Service North Dakota.
