The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters (11 page)

On his third day at the new company, Bowker walked to a nearby break room to buy a can of Coca-Cola. There, he saw Bill Stevens, the company’s president. Bowker immediately got excited.

“Mr. Stevens, I just joined from Chevron,” Bowker said by way of introduction.

Stevens, the former Exxon executive, responded with some good-natured ribbing about how Exxon was a superior company to Chevron.

Bowker didn’t let the teasing douse his enthusiasm, telling his new boss that he was the new head geologist for the Barnett wells. “Mr. Stevens, I’m really looking forward to talking” to senior management about expanding in the Barnett, he continued. “I’m really excited—I have some ideas on how to improve” Mitchell’s drilling there.

Stevens stuck his hand in Bowker’s face. “Stop right there,” he said sharply. “We’ve got enough of that stuff already.”

Stevens told Bowker he was wasting his time focusing on the Barnett, Bowker recalls. There was no point drilling more wells there. You better find some other area to spend time on, he told the new hire.

Bowker walked back to his desk in a daze. He had thought Mitchell Energy was dedicated to figuring out how to make gas flow from shale. But here was the president of the company telling him that he had as little faith in the Barnett’s possibilities as senior executives at Chevron had. “I was hired to study the geology of the Barnett, and the president of the company tells me on my third day he doesn’t want me studying the geology of the Barnett,” he recalls. “And he wasn’t subtle.”

Bowker told his direct bosses about his run-in with Stevens. They told him Stevens had growing clout at the company, and confirmed that he didn’t believe in the Barnett’s possibilities or what they were doing there. But George Mitchell remained a fan of their efforts and he still owned 55 percent of the company. Just try to ignore Stevens, they told him.

“But he’s the president of the company,” Bowker responded, unconvinced.

Bowker had joined the five-man Barnett group that included Steinsberger. The team was thrilled to add Bowker. He had more technical training in unconventional gas drilling—and was more enthusiastic about the potential of shale—than anyone they had encountered. By hiring Bowker, they also could draw on all the work Chevron already had done on the Barnett.

Some weren’t quite prepared for how outspoken Kent Bowker was, however. Bowker was a serious geologist, but he usually came off as more cocky than confident. Some thought he had a chip on his shoulder or perhaps retained some anger at how Chevron had ignored his work. It was a disappointment he often shared with his new colleagues.

It took just a few days for Bowker to tell his coworkers that they were making a big mistake comparing the Barnett with Appalachian shale and using that as the basis for estimates they had made on how much gas was in the Barnett. Their approach was all wrong, Bowker said.

Chevron’s data suggested the Barnett held much more gas than Mitchell believed, Bowker said. Something must have gone wrong with Mitchell’s work, he told them. “You don’t have access to the science we had at Chevron.”

“So what, Bowker?” one of his new colleagues said to him.

“Don’t you get it?” Bowker asked. “There’s more gas than you think in the Barnett. . . . The prize is
bigger
.”

One of Mitchell’s scientists turned angry. “That’s all we need, some smart-ass from a major telling us how dumb we are,” he said.

Bowker said he wasn’t blaming the company’s analysis. Mitchell was relying on faulty data from GRI, the industry group, he explained. “We’re all scientists and engineers, let’s just look at the data,” he said.

The scientist wasn’t moved by the argument. All in all, it wasn’t an auspicious beginning to Bowker’s career at Mitchell Energy. “I just got there, I get yelled at by Stevens, and now I’m ruffling feathers and telling them they’re doing it all wrong,” he remembers.

It’s not unusual for geologists like Kent Bowker to be dismissed or humored within large energy companies. Geologists are optimists, the dreamers of the business. They
know
there’s oil or gas in a rock formation. It’s their job to figure out how much of it is there and tell everyone to go get it. Failure can be a good thing for a geologist; it means they’re aiming high and searching for a huge discovery.

Engineers are the realists of the oil patch, the ones less comfortable with ambiguity and failure. They’re charged with getting energy out of the ground. They don’t have much patience for geologists like Kent Bowker when they pound the table, convinced they’ve uncovered a huge gas reservoir. They’re even more unlikely to listen when they’ve been working on an area for a while and a newcomer comes in to tell them how badly they’ve been botching it.

Bowker tried to make his argument a bit less forcefully when he met in the office of his boss, Dan Steward, and Steward’s boss, John Hibbeler. Bowker said Chevron’s data, based on cutting-edge science, showed there was a heck of a lot more gas in the area Chevron controlled south of Fort Worth than Mitchell was saying was in their acreage north of Fort Worth. His point was that if Chevron was right that there was a ton of gas sitting in shale south of Fort Worth, then Mitchell was underestimating how much gas it was sitting on from very similar rock north of Fort Worth.

“You guys are either drilling in the wrong spot or your experiments are wrong,” Bowker said. “And I don’t think you’re drilling in the wrong spot.”

It was as close to subtlety as Kent Bowker gets. And it seemed to work. Steward and Hibbeler proved more open to Bowker’s argument. They realized that if there was in fact much more gas in the Barnett than they had previously assumed, the company was getting much less out of it than it realized. They’d have to find a better way to drill in the area.

“It was ‘holy moly,’ there’s a huge amount of gas trapped in these rocks,” Bowker recalls. “Not just some gas, but a world-class amount of gas.”

If he was right, and if they ever discovered how to extract gas from shale, the Mitchell executives knew the Barnett could be a game changer for the company even for the country.

The analysis “changed many of our previous concepts in the Barnett,” according to Steward, the senior Mitchell executive.

Bowker’s work suggested that shale and other similar rock formations all over the country also might hold huge amounts of energy. He was given the green light to spend millions of dollars to do scientific work to prove that there was a lot more gas in the Barnett.

Other parts of the company were scraping for new cash, however. With natural gas prices still low, Mitchell fired employees, the latest in a series of painful layoffs. Remaining employees were on edge. The company now employed just about eight hundred people, down from thirteen hundred in just three years. But it still insisted on spending money on the Barnett. Some at Mitchell Energy thought their colleagues were throwing good money after bad and that all the wasted money might doom the company.

“I never got the feeling that other folks in the company resented us,” Bowker recalls. “The attitude was more one of derision.”

Mitchell and his men still weren’t sure how
much
gas was in the shale. And at that point, Nick Steinsberger had only proved that the new, slick-water fracking fluid could save the company money, not that it could unlock much natural gas.

Steinsberger knew he had to figure out a way to get large quantities of gas out of the ground at a reasonable cost or they all were in trouble.

N
ick Steinsberger sat in his Fort Worth office, anxious and impatient.

It was August 1997 and Steinsberger felt the heat, but it had nothing to do with the intense Texas summer. He was watching daily results from dozens of wells Mitchell Energy had drilled in the Barnett area. He was most focused on three of them—the ones they had fracked with his radical, water-based mixture. The wells had been middling performers from the start, though, disappointing Steinsberger and his bosses.

The pressure had ratcheted up on Steinsberger. He watched the wells closely, hoping for some good news.

In late 1997, he noticed something strange. The wells that had relied on the gel substance used by Mitchell Energy and everyone in the industry to fracture rock showed a sharp decline in how much natural gas they had produced. That was to be expected after an initial surge of gas. But the wells fracked with Steinsberger’s new, slick-water fluid were producing gas at more or less the same steady levels, without much of a decline.

The gas coming out of Steinsberger’s wells wasn’t that much, really. But each day that he checked, over several weeks, he saw little drop-off in the wells’ production, surprising him. Most of his colleagues dismissed the results, and rivals at other companies still scoffed. But Steinsberger thought there was a slight chance they were on to something.

“They fooled us,” Steinsberger recalls, referring to the wells that relied on his new watery fracking fluid. “They started slowly, but they kept on going.”

The results were enough to get his boss, Mark Whitley, to approve trying Steinsberger’s fluid on a few more wells. By then, Steinsberger had tweaked his methods, using more horsepower to pump the liquid. That seemed to create more fractures in the rock. He and his colleagues also learned to start with small amounts of sand and add a bit more as they fracked a well.

Steinsberger kept a close eye on the new wells during the spring and early summer of 1998, unwilling to give up on them. Each morning, workers in the field sent him a reading of the wells’ production. When he couldn’t wait for the next morning’s reading, Steinsberger sometimes called a pumper or foreman on-site at one of the wells for a fresh afternoon reading. Sometimes he drove thirty miles to a well to see the results himself. He was like a father pacing in a hospital waiting room, awaiting the birth of a first child.

One day, while Steinsberger was examining results from a well called S.H. Griffin No. 3, he was taken aback. From the start, this well was special; it managed to produce nearly one and a half million cubic feet a day, making it among the best performers of the three hundred wells Mitchell had drilled in the Barnett. Steinsberger and his colleagues had waited for the well’s production to decline, as it had in other wells. After ninety days, though, the Griffin well kept churning out natural gas at the same remarkable pace. No Barnett well had
ever
produced even one million cubic feet of gas after ninety days, and this one was doing much more.

“It was unheard of,” Steinsberger says.

Steinsberger kept his excitement in check, worried the results might tail off. He tried to distract himself with other work. When he checked back after another thirty days, though, his eyes grew wide: The Griffin well was still at it, producing huge amounts of natural gas, like an ever-flowing river.

This is unbelievable,
Steinsberger thought.

He began telling colleagues about the wonder well. It was a flow of natural gas the likes of which they’d never before seen. Finally, the Mitchell team had justification and reward for the hard work they’d put into drilling in shale.

“This was the aha moment for us, it was our best well ever in the Barnett, and it was a slick-water frack,” Steinsberger recalls. “And it was my baby!”

The Mitchell crew began to see extraordinary results from other wells relying on Steinsberger’s fracking fluid. He and his bosses came to a startling conclusion: Their slick-water concoction wasn’t just cheaper than the chemical-and-gel fluid they had been using. It somehow was more effective as well.

All the water pouring into this rock didn’t make the clay swell after all, despite the warnings of the experts. That was because there wasn’t as much clay in the Barnett Shale as there was in other types of shale. Instead of swelling when the high-pressure liquid hit it, this brittle shale shattered like glass, allowing gas to flow.

The gel used in their old formula had gummed up fractures in the rock, preventing natural gas from flowing. But the water-based liquid seemed to go out in every direction in the rock, creating complex mini-networks of cracks, each enabling gas to flow to the surface. Steinsberger and his colleagues even got gas from natural fractures in the shale, and from the Upper Barnett, a layer of rock above where they were drilling.

They had discovered the right fluid to fracture rock, the secret sauce for drilling in shale. And it had come about by happenstance, when too much water got into their earlier mix and they were just trying to save some money.

By September 1998, Mitchell’s engineers had switched to relying on Steinsberger’s slick-water method to fracture rock for all their wells, dropping gel-fracks entirely. They decided to increase their activity, drilling a well every two weeks, to take advantage of their discovery.

George Mitchell received his own daily reports about the wells, and he too saw the startling amounts of gas suddenly being produced. “You get excited, you think it’s working,” he says.

Sitting in his office in The Woodlands, Mitchell tried to contain his enthusiasm, though, worried the results wouldn’t pan out. Other executives also didn’t get too worked up. That year, a book of interviews with company executives was published,
How Mitchell Energy & Development Corp. Got Its Start and How It Grew,
written by Joseph Kutchin. It had one mention of what they were working on, a throwaway line by George Mitchell simply describing the Barnett’s location.

There was good reason George Mitchell and others were so subdued. In late 1998, shares of Mitchell Energy fell below ten dollars, down by over half in just a year and by over 60 percent from the summer George Mitchell eagerly showed off The Woodlands to two reporters. The company had piled on so much debt to afford all its spending that lenders wouldn’t offer more. Skepticism abounded about the company’s efforts to tap shale. Gas was being produced from the Barnett, but it wasn’t a lot, and it wasn’t making them any money. When Stevens and Todd Mitchell argued that the company needed to rein in its spending on the Barnett, few at the company’s 1998 board meeting disagreed.

Elsewhere, financial markets were rocked by a debt default by Russia, an economic slowdown seemed possible, and natural gas prices appeared likely to stay low for the foreseeable future.

George Mitchell was dealing with mounting personal problems, though his employees didn’t realize it. Over the years, he and his family had resisted selling his company’s shares. To finance big-ticket items, such as his investments in Galveston and various pledges to a group of charities, Mitchell had used shares of his company as collateral to borrow millions of dollars from a group of ten banks.

Now, as Mitchell Energy shares fell and the collateral dropped in value, banks levied pressure on George Mitchell to pay the loans back or add new collateral. He didn’t have the means, though. The family met and decided to reduce its spending, to try to deal with the sudden cash crunch. Mitchell was on the verge of foreclosure from the banks.

“It was a serious time for the family, we had to get our act together,” Todd Mitchell says. “We were hustling.”

George and Todd set up meetings with various charities, including the Houston Symphony, to say that the family needed more time to make good on its pledges. “We don’t have a choice,” Todd told them apologetically.

By not meeting their pledges, the Mitchells had violated the contractual terms of their agreements with the charities. Now they risked being sued by the charities, a move that would surely draw ugly publicity.

“It was embarrassing, I had to go and talk to people and say our circumstances had changed,” Todd Mitchell recalls. “We didn’t have an option.”

Cynthia Mitchell, who had grown up poor, saw the growing strain on her husband. Each night, when George came home from work, he seemed tense. Cynthia began to go to extremes, cutting back on her spending. One day she stopped writing checks to help pay for her grandchild’s college education. Todd, who ran the family’s finances, drove right away to his parents’ home to assure his mother that she could still spend some money despite their new restrictions.

“Mom, it doesn’t mean you can’t help your granddaughter go to college,” he told his mother.

Family members noticed out-of-character behavior by Cynthia. The behavior confused them and saddened them. Later, Cynthia would be diagnosed with Alzheimer’s disease. At that point, though, all George knew was that something disturbing was happening to his wife, and it added to his strain.

Mitchell retreated to his office in Houston, infrequently visiting the company’s headquarters, which remained in The Woodlands. He was seventy-nine and dealing with a personal ailment of his own. He had been diagnosed with prostate cancer and was undergoing a brutal regimen of treatment, even as his wife struggled in the enveloping fog of her Alzheimer’s disease.

In the Barnett, the team had discovered the perfect way to fracture and get natural gas from shale, succeeding where countless engineers and others had failed. Extracting gas from this über-difficult rock was the most important advance in decades in the energy industry. Few investors, rivals, and industry experts cared very much, though. Almost no one had noticed the breakthrough. Most didn’t think there was that much gas in the Barnett anyway. It seemed like a lot of wasted time.

•   •   •

K
ent Bowker knew he had a chance to change the way most people viewed Mitchell Energy’s efforts in the Barnett. He just had to convince his own company’s senior executives first.

It was the late spring of 1999, and Bowker, after a year of hard work, finally thought he had proved that the Barnett held huge amounts of gas. He had shared his results with his senior managers, who said they had relayed them to George Mitchell. Bowker doubted his bosses fully understood his research, though, or could properly explain its significance.

“I felt like the only person in the country who knew how much gas was in the shale,” he says.

When Bowker was invited to present his research to George Mitchell and other senior executives at Mitchell’s headquarters in The Woodlands, he knew he had his chance to show the world how much natural gas was hidden in the Barnett.

As he walked through the entrance of Mitchell Energy’s office, he was energized. He had his presentation down cold. At Chevron he had been taught how to make high-level presentations to top energy executives, giving him added confidence.

If Bowker could prove to the executives that the Barnett held huge amounts of gas, Mitchell Energy could devote more resources to find it all, changing the company’s history, Bowker thought. Perhaps he could even get the industry, Wall Street, and the world to take notice. If his presentation went awry, though, Bowker knew they’d miss a historic opportunity, just like Chevron had.

It wasn’t going to be easy. Bowker knew that some of the executives he was about to face remained skeptical about the work in the Barnett. A colleague who knew that Mitchell had a short attention span and wasn’t a very good listener had given Bowker one last piece of advice: “Keep it short or you’ll lose George.”

Bowker joined a group of men as they walked down a long hallway to Mitchell Energy’s fifth-floor conference room. Everyone was dressed a little better than usual, some wearing ties and jackets. Soon, fifteen executives had crowded around a long oak conference table. Technical staff members also joined the meeting. Nick Steinsberger and Dan Steward were there, as was an outside expert who had been hired to double-check Bowker’s work.

During his career, Bowker had been in the conference rooms of a few energy companies. He had told friends that those with art on their walls were companies that cared more about balance-sheet maneuvering than finding new oil or gas deposits. They were the fakers of the business, he had said.

As he looked around the room at Mitchell Energy, Bowker saw dozens of maps on pushpin walls.

That’s a good sign,
he thought.

George Mitchell walked in from an adjoining room. He was with his son Todd, who wore a backpack on his shoulder, like a true geologist. Bowker’s sprits climbed still further; he figured Todd Mitchell must have been invited because his father expected to hear some big news.

Todd’s a scientist, he’ll understand this!
Bowker thought.

The odds were more stacked against Bowker than he realized. Todd Mitchell had spent years as a behind-the-scenes naysayer about the Barnett. And he hadn’t been invited to the meeting by George Mitchell. Rather, the invite had come from Bill Stevens, the company’s president, of all people. Stevens wanted another skeptic at the table to counteract any potential enthusiasm by George Mitchell about whatever Bowker was about to say.

“My father has a tendency to ignore obstacles,” Todd Mitchell says. “Bill wanted me to understand what was going on. . . . Stevens saw me as someone who could communicate with my father.”

Bowker began his presentation by showing why earlier tests of the Barnett had relied on improper pressures, among other mistakes. He focused his attention on George Mitchell, who was sitting at the middle of the table wearing a sports jacket that looked at least a decade old. Bowker tried to ignore Stevens, who was wearing a stylish suit and sitting to Mitchell’s right.

Bowker cited his research to explain why there likely was much more gas in each ton of the Barnett Shale than previously estimated. All the company had to do was apply Nick Steinsberger’s new fracking liquid to their Barnett acreage and they could tap a true gusher of gas. Mitchell Energy had a unique, even historic opportunity to get much, much more out of the ground, Bowker argued.