New Oil: The Giddings Gamble
The Austin chalk is the most perverse, contrary, incorrigible oil field known to man. The big oil companies tried it and gave up. But one man learned the way to make the chalk yield its secrets—and its oil.
James says: Who is that on the cover of the February 1981 publication ? I think his name is David Perkins, anfriend of my brothers from younger years. IF that’s him where is he now ? (October 21st, 2009 at 4:22pm)
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Having studied Union Producing’s failure with the No. 1 City of Giddings, Alcorn knew he did not want to repeat past mistakes. He believed that by killing the flow in 1960 Union Producing had ruined its oil well. That conclusion was based partly on some obscure technical reasoning but also on a large measure of superstition. The wildcatters who tackled the treacherous Austin chalk had an old saying: “Never kill an Austin chalk well, ’cause it’ll never come back.”
Alcorn told Baros to leave everything the way it was. He realized that the valve and hose connection was not right for producing oil. It was probably even unsafe if left in place too long. The hose could come loose and then there would be oil spraying everywhere, making a gusher that would put the movies to shame. But that was a risk Alcorn was willing to take. He did not want to lose this well.
Boom or Bust
Like most other oilmen, Chuck Alcorn was still skeptical of the Austin chalk. But just in case he was onto something, Alcorn went to the Lee County Land and Abstract Company and bought 22,000 acres of leases in the area. Eventually, he also permitted a temporary shutdown of the No. 1 City. But instead of pumping mud down the hole, he used a special freezing process to stop the flow and give him time to remove the workover rig and install safer production equipment. But the nipple valve was still sticking up in the air. Too superstitious to try lowering it, Alcorn built a steel-stilt tower around the protruding pipe and connected the valve to the flow lines on the ground with a steel hose. The well looked like a football coach’s observation platform.
The No. 1 City of Giddings kept on producing its honey-colored oil at the rate of three hundred barrels a day right through the end of 1973 and on into 1975. In the meantime the OPEC nations announced their oil embargo and the first in a series of price hikes that tripled the world price of oil in eighteen months’ time. Although restrained by price controls, domestic crude prices rose from under $4 a barrel to $10 a barrel for so called new oil (oil discovered after 1972), which the No.1 City’s oil happened to be. Now wells that made as little as fifty barrels per day were becoming commercially viable; wells making a hundred barrels per day could be big revenue producers. The idea of hunting for oil in the U.S. suddenly became attractive again.
Despite the price increase and the continuing flow of the No. 1 City of Giddings, Alcorn’s discovery did not touch off an oil rush in Lee County. A small outfit called Hughes and Hughes Oil and Gas, led by a former Union Producing geologist who still had faith in the Giddings area, tried a few wells, but none were commercial producers. A couple of prominent independent operators, among them Robert Mosbacher of Houston and Clayton W. Williams of Midland, had acquired large wildcat lease blocks in the area after the earlier Austin chalk discoveries in South Texas, but they did not attempt to develop them. Even as Hughes and Hughes was having its problems in Central Texas, still another Austin chalk boom erupted with a discovery well in South Texas, then promptly fizzled out. Many investors lost their shirts. Only the oil field service companies, which provided the drilling equipment and the well stimulation treatments, came out ahead.
Since he was more of a completion and production man than a wildcatter, Alocorn did not see fit to explore the Giddings area himself. Instead, he turned to one of the hottest public oil companies in the history of the stock market, Houston Oil and Minerals Corporation (HO&M), which happened to be run by his college classmate Joe Walter. Alcorn transferred his 22,000 acres to HO&M on a “farm-out” agreement, which allowed him to obtain a substantial interest in any future production without having to put up any of the drilling costs; then he sat back to watch HO&M bring in the field. HO&M quickly drilled three wells around Giddings, but none turned out to be commercial producers.
With HO&M’s failure, the oil play in Lee County ground to a halt. The No. 1 City of Giddings kept producing steadily, but no one was able to find another well like it. Perhaps, as many people ever more strongly believed, the No. 1 City was just a freak, an isolated case of blind luck. Or perhaps, as only a very few diehards maintained, there was simply a secret to producing oil from the Austin chalk that no one had yet discovered.
The Magician
Ray Holifield had not been one of the Austin chalk’s original true believers. A wiry, bespectacled exploration geologist who chain-smoked menthol cigarettes, he had done his apprenticeship at a major oil company in New Orleans, then spent most of the early seventies as a consultant for Middle Eastern counties like Iran and Abu Dhabi. His specialty was searching for oil in fractured reservoirs.
In the summer of 1975 Holifield joined the Dallas consulting firm of La Rue, Moore & Schafer. He was accustomed to making about $20,000 a year. He had a wife and three children to support, and he was not a snappy dresser or a high liver. According to those who knew him at the time, he literally had holes in his shoes. But Ray Holifield was now ready to cash in on what he had learned over the years. His intention was to get in on some of the big wildcat plays such as the ones going on in southern Louisiana and the Rockies; he had no desire to mess with the Austin chalk. He hailed from Missouri, the “show me” state, and what he had heard of the Austin chalk booms that turned into busts did not excite him.
In the fall of 1975 Holifield met two Dallas oil promoters, Irv Deal and Max Williams. A short, blond man in his late forties, Deal was a real estate wheeler dealer who had fallen on hard times in the real estate slump of the early seventies and was now trying to make it in the oil business with a company called Windsor Energy. Williams was a stocky, balding former SMU basketball star, as well as the former coach and general manager of the short-lived Dallas Chaparrals pro basketball team. A native of West Texas, Williams was also the son of a Humble Oil field worker; he had grown up in what he termed “a Humble Oil camp.” But like Deal, Williams had no real experience as a full-fledged oil operator. Prior to organizing his U.S. Resources oil exploration company in 1975, he too had been in Dallas real estate.
Although they had sizable real estate operations, both Deal and Williams ran basically one-man shows in the oil business, with only a secretary and occasionally a consultant to help them. They operated by selling “a third for a quarter”—oil industry parlance for the standard practice of selling one-quarter interests in their deals for one third of the cost, so that the promoter wound up with a “free” one-quarter interest for himself. Their annual drilling budgets were about $1.5 to $2 million, and they raised most of their money from people who were not typical oil business investors.
Deal and Williams had lately been partners in several oil well ventures. Though neophytes, they knew enough to be aware of the old dictum that there are really only two kinds of geologists — those who find oil and those who don’t. They had heard from a friend that La Rue, Moore & Schafer had an oil-finding geologist. That geologist was Ray Holifield.
Deal and Williams tried to get Ray Holifield excited about the Austin chalk. Like most other oilmen, they could not boast of pleasant experiences with the chalk themselves. Windsor Energy and U.S. Resources had recently drilled about five wells together in South Texas near the Frio County town of Pearsall. Although they had found oil, all five wells had followed the typical Austin chalk pattern of coming in strong and drying up quickly. But Deal and Williams had heard several people mention that there was an Austin chalk well up around Giddings that was still going strong after two years. The two men begged Ray Holifield to check out the story and see if it was true. Reluctantly, he agreed.
The Texas Railroad Commission report Holifield received on the No. 1 City of Giddings nearly knocked him out of his chair. It showed daily oil production of 300 barrels for a cumulative total of more than 200,000 barrels. At the current price for new oil of about $10 a barrel, that rate translated into $2 million in gross income in two years. Suddenly Holifield started to think that maybe the Austin chalk deserved another chance after all. He studied the entire Austin chalk trend and concluded that Giddings looked like the best place to start drilling.
Close Encounters
With Holifield as their guide, Windsor and U.S. picked their first Lee County location in the summer of 1976. The well was called the M&K No. 1. Its name came from the two property owners whose land made up the lease block: H.T. Moore, a black shoe repairman then in his late seventies, and James Krchnak, a traveling paint salesman of Czech descent. Still lacking any overall theory of the Austin chalk, Holifield was going by one of the oldest and most frequently used geological concepts — “closeology.” As the term implied, the idea was that Windsor/U.S. was most likely to find oil by drilling as clse as possible to a producing well. The M&K No. 1 was spudded in approximately 2500 feet to the east of the No. 1 City, which put it just off Highway 77 at the edge of the city limits.
The second reason for picking the M&K location was money. Both Windsor and U.S. were raising their drilling funds on a deal-by-deal basis. The cost of drilling an Austin chalk well was about $320,000, a god chunk of each company’s annual budget. They were able to drill the M&K lease on a farm-out agreement from the firm of Hughes and Hughes. Although this agreement provided Hughes and Hughes with a 30 per cent interest in any future production, it enabled Windsor/U.S. to acquire the lease with very little money up front.
Holifield, Deal, and Williams then benefited from a wildcatter’s most valuable asset: good, old-fashioned luck. On October 7, 1976, exactly three years to the day after Chuck Alcorn revived the No. 1 City of Giddings, the M&K well struck honey-colored oil and plenty of it. The initial potential of the well was gauged at 467 barrels per day.
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