The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters (20 page)

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B
y 1987, Hamm was forty-two years old and worth $16 million. For all his apparent success, though, he was dealing with family issues and deep insecurities. His single-minded focus on making Continental a bigger company began to impact his marriage. That year, he and Judy would divorce.

Soon, Hamm was dating Sue Ann Arnall, a petite and pretty thirty-one-year-old industry attorney and economist in Tulsa who reminded Hamm’s friends of former Olympic skater Dorothy Hamill. In April 1988, six months after Hamm’s divorce, Hamm married Arnall in a Las Vegas chapel. Hamm and Arnall would have two daughters.

Soon, Hamm began to look the part of an energy executive, not a small-town driller, friends recall. “She dressed him, polished him up, and whipped him into shape,” one friend says.

Hamm’s new marriage eventually would turn rocky. Eleven years after the wedding with Sue Ann, who held several senior jobs at Continental, he would file for divorce, according to state court records. The divorce petition was later withdrawn, according to the records, reported by Reuters.
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By the late 1980s, Hamm began to feel self-conscious about his speech, friends say. His parents were farmers, he came from a tiny town, and he hadn’t received formal education beyond high school. As such, Hamm hadn’t been taught proper pronunciation and his vocabulary was lacking. When he talked to members of his team or to small groups of people, he was persuasive, enthusiastic, and confident. But when he addressed larger groups or members of the industry, he stumbled and had trouble expressing his thoughts.

For a while, his issues didn’t matter very much. Hamm had cash coming in from his drilling business to finance his exploration, as well as money from his early wells. He didn’t have to appeal to investors for financing, like Aubrey McClendon and Tom Ward, who were selling Chesapeake debt and shares. But as Continental grew and Hamm came into contact with more business leaders in the city and around the state, his poor elocution and awkwardness in public stood out. Friends noticed that he avoided interviews or speeches and ducked industry media.

When Hamm met people for the first time, he often came across as a local yokel. In a 1991 lawsuit with Occidental Petroleum, the energy giant’s strategy was to put Hamm on the witness stand for three straight days and wait for him to stumble. In his testimony, he mumbled, stuttered, and used incorrect tenses, according to someone in the court. Occidental’s attorney even got Hamm to suggest that he had improperly backdated a contract with the energy company.

Hamm’s own attorney, Allan Devore, won the suit by convincing the jury that Occidental had taken advantage of an unsophisticated Oklahoma country boy, which is precisely how Hamm came across at the time.

“He just butchered the English language, it was hard to understand what he was trying to say,” recalls an old friend. “He acted tough, talked with an Okie accent, and used the wrong words. . . . He didn’t sound smart unless you really listened to him, and then you realized he was brilliant.”

Some friends said Hamm’s insecurities made him sensitive to perceived affronts and eager to fight if he felt he was wronged. They cited a series of squabbles with companies and individuals in the industry. At one point, Hamm was sure natural gas prices had been unfairly pushed down, so he levied pressure on state legislators to impose a statewide ceiling on natural gas production to help elevate prices.

“He was a bulldog, you didn’t want to get in a lawsuit with him,” says Roger Clement, Continental’s chief financial officer at the time. “He would have gambled away the company to get even with somebody.”

Hamm’s friends theorized that he got into fights to send a message that he wasn’t going to be taken advantage of, perhaps because he worried about being taken lightly due to his lack of pedigree and poise. “He was looked down upon, people thought he wasn’t smart or savvy because he wasn’t polished,” says Devore, Hamm’s friend and attorney. “That’s why he established a reputation of ‘Don’t screw me.’ He intended to be a big deal and needed to show people they couldn’t take advantage of him.”

Hamm was well aware of his glaring flaws and resolved to do something about them. Just as he taught himself how to find oil, he’d learn how to speak properly and with more confidence. He began taking classes at a local Dale Carnegie training center, where he worked on his speech and poise. He also worked on his leadership skills by reading books by management guru John Maxwell. Soon, his delivery and self-assurance improved. Even after finishing his courses, he returned to help with other Dale Carnegie classes and he required all of Continental’s middle managers to attend their own Dale Carnegie courses.

Some found other reasons to snicker about Hamm. Around 1995, he was in the cockpit of his single-engine airplane in a hangar in Enid when the engine wouldn’t start. He climbed a ladder to try to get the propeller moving, a friend says, hoping it would engage the starter, when the plane suddenly rolled off. Hamm barely got out of the way before it began careening down the runway, crashing into a hangar in violent fashion, tearing the hangar’s door off. For years, friends tweaked Hamm about the episode, and some in Oklahoma City spoke about it behind his back. Hamm was sensitive about the incident, which elicited one more lawsuit from him, this time against the plane’s manufacturer. He won that suit, a friend says, like many of his disputes.

For all his remaining insecurities, Hamm was one of the few in the business with the confidence to risk serious money exploring new formations. His dreams remained grand, despite the industry’s shakeout. He told colleagues he wanted to focus on high-risk, high-return plays, like a quarterback favoring long, dangerous passes rather than safe completions.

Hamm began to attract geologists and engineers who also dreamed of big, historic finds. One of these men was Jack Stark.

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J
ack Stark would have been excused if he felt a dark cloud was following him as he drove to Enid in 1992 for a job interview with Hamm. A soft-spoken native of Norwalk, Ohio, Stark had attended Bowling Green State University, hoping to follow in the footsteps of his childhood idol, Jacques Cousteau, the underwater researcher. It didn’t take long for him to realize that the school, in a landlocked part of Ohio, probably wasn’t the best place to learn oceanography. Stark, who had also been fascinated with fossils, rocks, and earth, started taking geology courses. He found he enjoyed them and decided to make geology a career.

After becoming the first in his family to graduate from college, Stark worked for a Denver-based subsidiary of Phelps Dodge that was mining uranium, a fuel for nuclear power. The company funded Stark’s graduate degree and his career seemed on strong early footing. As he took his dog with him to work in the foothills outside Denver, he thought he had found the perfect job, especially when he received high early marks from his boss.

A partial meltdown of a nuclear reactor at Three Mile Island in 1979 put a quick halt to the nation’s growing interest in nuclear power and uranium, however. Stark switched to a different Phelps Dodge subsidiary searching for gold in Arizona, a move that seemed fortuitous as gold prices soared. But gold collapsed in 1981, forcing Stark again to look for a job.

Stark began to work for an energy company and received another promotion. But oil prices weakened during the 1980s and exploration slowed. Stark’s bad luck began to feel familiar. “It was like I was stepping on stones, walking across a stream” while trying not to fall in, he remembers glumly.

Stark remained in the energy business, despite the tough times, and found work at various oil companies. He didn’t always enjoy it, though. They might have been big, but the companies usually seemed too timid to put much effort into exploring oil and gas deposits in the United States. They were more focused on selling assets and shutting offices.

In the spring of 1992, as Stark drove to Continental’s office in Enid to interview for a geologist manager position to replace Rex Olson, who had died of an aneurysm, he became concerned. All he seemed to see on the side of the road was vacant buildings and empty homes. The state, still struggling to recover from the energy downturn and the Penn Square Bank fiasco, looked a mess.

Enid hadn’t exactly covered itself in glory over the years. One story attributed the city’s origin to a flub by early settlers after the state’s land run. Some of them set up a wagon, began cooking food, and hoisted a sign reading “dine,” hoping to start an eating establishment. But the sign got turned around somehow, so it read “enid.” The name stuck, according to this local legend.

As he drove, Stark became convinced that even if he got the job, his wife, who had grown up in a suburb of Columbus, Ohio, and was waiting in their home in Houston to hear about the interview, likely would veto a move to the state.

“Reality started to hit that this was small-town America,” Stark recalls. “And it looked depressed.”

When Stark reached Enid, which at the time had a population of about forty-five thousand, he noted that the city seemed to be holding up better than the towns he had passed along the way. But he was still concerned as he sat down for the first time with Hamm.

A few minutes with Hamm changed Stark’s view. Hamm was revved up, talking about expanding his exploration and how he was embracing new production methods. He appeared genuine in his determination to get on the national map.

“I really want to be a bigger company,” Hamm told Stark.

Hamm’s enthusiasm got Stark pumped up. He drove home and sold his wife on all the advantages of living in Enid, which he called “one of the last
Leave It to Beaver
towns where everyone knows each other.”

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B
y 1993, Hamm and his team were dealing with a new problem. Major oil and gas companies had exited the state, but more independent operators—led by McClendon and Ward at Chesapeake—were targeting Oklahoma, making it more expensive for Continental to compete for land.

The company still was making money, but Hamm yearned for something grander. He wanted that ancient wealth he had dreamed of as a kid. It would some kind of historic discovery to put him on the map, a strike so large it would win him both fame and fortune, much like the celebrated wildcatters he had studied.

Hamm ran a relatively small company and had limited formal education in energy exploration, but some of the most successful wildcatters had backgrounds at least as unusual. Throughout modern times, mysterious gas had flowed from shale below the rustic western New York village of Fredonia, delighting local children by occasionally catching fire. But it took William Aaron Hart, a gunsmith with limited education who moved to town with just a rifle and a pack, to drill the first commercial natural gas well in 1825.
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“Colonel” Edwin L. Drake, a retired and near-penniless train conductor who had earned his distinctive nickname despite lacking any military experience, was the first to drill for oil in the United States in Titusville, Pennsylvania, in 1859.

Four decades later, Patillo Higgins, a one-armed mechanic, lumber merchant, and self-taught geologist with a violent and troubled past, became a Christian and took his Baptist Sunday school class for an outing near a hill in Beaumont, Texas. There, Higgins came across a half dozen springs bubbling with gas. He became convinced he had stumbled onto an oil field, even though experts scoffed. In 1901, Higgins and Captain Anthony Lucas, an ex-hand of the Austrian navy, tapped a geyser of oil that would fill eighty thousand barrels a day at the hill—called Spindletop—a discovery that ushered in the modern age of oil.

Hamm knew that some of the nation’s largest fortunes had been created by wildcatters. Many, such as Haroldson Lafayette Hunt Jr., who was the inspiration for the J. R. Ewing character on the television show
Dallas,
were showmen with a flair for the dramatic. At thirty-two, Hunt, who went by H.L., is said to have turned his last $100 into a $10,000 windfall thanks to a successful run of five-card stud. Hunt used his winnings to buy up oil rights, eventually controlling the huge East Texas Oil Field. He became one of the world’s richest men, building a fortune amounting to $5 billion. Hunt also managed to find time to sire fifteen children while juggling two wives and separate families in different cities for over a decade.
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In many ways, the wildcat profession is quintessentially American. It takes a heavy dose of self-assurance and comfort with risk to bet on what might or might not be far below the surface, well out of sight, as well as an unbridled optimism that Americans seem to have in abundance.

At the same time, U.S. homeowners usually own the land under their property, unlike citizens in most other countries. As a result, wildcatters can directly negotiate with landowners to buy their drilling rights, rather than go through government officials. The word “wildcat” itself comes from an early-nineteenth-century American slang for a risky business venture.

For all the acclaim and fortune bestowed on wildcatters, these individuals also have suffered among the most costly and embarrassing failures in business life. One experienced wildcatter around the turn of the twentieth century named Charles Lewis Woods earned the unfortunate nickname of “Dry Hole Charlie” for hitting a string of unproductive wells. Charlie’s luck seemed to change when a project in California’s San Joaquin Valley turned into a massive gusher in 1910, producing 125,000 barrels of oil on its very first day. After eighteen months, however, the oil stopped flowing and Dry Hole Charlie returned to drilling dry holes.
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During the 1960s, wildcatters were only successful in one of ten wells, according to the American Oil and Gas Historical Society. It soon became even tougher keeping up with multinationals sporting deep pockets and huge staffs. The plunge in oil prices in the 1980s crippled wildcatters in Texas, Oklahoma, and elsewhere and many went out of business. By the 1990s, most of the biggest exploration and production companies had left the country to people like Hamm. It seemed a booby prize. Here you go, guys, the country’s all yours. See if you can find anything.