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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Tightholer or not, Holifield could not completely suppress the news about his clients’ big strikes in the Giddings area. Oil people talk. Landmen, tool pushers, roughnecks, and completion men all love to brag about hitting a good well. Fortunately for Windsor and U.S. Resources, the ingrained skepticism oilmen had for the Austin chalk kept most of those who heard about the play on the sidelines. But even as Irv Deal and Max Williams were bringing in their first wells under Ray Holifield’s direction, another small but very shrewd independent operator managed to get in on the play, too.
The Humble Man
Pat Holloway did not pretend to be humble. Tall, blue-eyed, and fortyish, with strawberry-blond hair that tended to rise in wisps from the top of his head, Holloway had been a high achiever all his life. Born in Brownwood and schooled at both Texas Country Day School (now St. Mark’s School of Texas) in Dallas and R. L. Paschal High School in Fort Worth, he had done two years of undergraduate work at Yale. Then he had returned to Texas to enter an accelerated undergraduate and law school program at UT that enabled him to get his degrees in fewer than the standard seven years. After law school he had gone into private practice as an oil and gas attorney.
Holloway had the oil business in his blood. His grandmother had been the manager of Gulf Oil’s operations in a five-state area back in the early 1900s. His father had been an oil and gas attorney. Thus Holloway thought he had a certain feel for the oil game. In representing oil companies and drilling funds throughout the sixties and early seventies, Holloway seldom hesitated to express his opinions about his clients’ oil ventures. Finally, one day in 1975, Holloway’s best friend, Frank West, started teasing him about his outspokenness. “You keep making nonlegal decisions,” West said, “and it’s ruining my business. Why don’t you go into the oil business for yourself?”
Holloway decided to do just that. Resigning from his law practice, he took some of the money he had accumulated and built a large house in North Dallas as a hedge against both inflation and failure. The house was also the site of his first office as an oil and gas operator. With his wife, Robbie, as his secretary, Holloway began raising his own drilling funds. He christened his new enterprise Humble Exploration Company. The name, Holloway claims, had nothing to do with Exxon, the former Humble Oil & Refining Company. Rather, as Holloway later explained in a letter to Exxon, it was arrived at “one evening over drinks” when Holloway and his partner, Bill Browning, “after temporarily exhausting the subject of women,” turned to consider their recent decision to go into the oil business. “We decided that it would be advisable not only to adopt an attitude of humility but also, as an added safeguard, to remind ourselves daily of the desirability of that particular attribute by reference thereto in our corporate charter.”
Holloway and Browning originally aimed Humble Exploration at the big oil play in the Williston Basin of Montana and the Dakotas, and despite some hard going at first, found production in six Western states and Louisiana. But it did not take long for Holloway to get interested in the Austin chalk. In the summer of 1976 Irv Deal came to Holloway and offered him a chance to get in on the M&K well, which was due to be drilled that fall. Although Holloway rejected Deal’s offer, he did go to Hoilfield to find out what was going on.
“I can’t talk to you about it,” Holifield said, wary of getting caught between conflicting interests.
Holloway did not press the matter, but he kept his eye on what was happening around Giddings. In September 1976 Browning died unexpectedly, leaving Holloway with practically a one-man operation. When Windsor/U.S. brought in the M&K well in October, Holloway decided to get into the play after all. At the time it looked like most of the prime acreage in and around Giddings had already been leased up. Noticing that seismic crews were suddenly showing up in Giddings, Holloway surmised that Holifield, Deal, and Williams were “up to something,” and decided to lease up the only available acreage remaining, which was the land around the railroad tracks that ran through the town in four directions. Then he went back to Holifield and started bugging him for help.
Holifield finally relented. “Look,” he told the persistent Holloway, “I can’t work for you around the city of Giddings because that’s where my clients have their acreage. But you know that the trend runs from Mexico to Louisiana. The leases may be just as good out in the country.”
Taking the hint, Holloway began looking around for leases outside Giddings. He was in the Lee County Courthouse searching through records one day when a fat, crew-cut German American farm boy in his late twenties approached him with a question.
“Is it true that there’s going to be an oil boom here, mister?” he asked.
“Yeah,” Holloway answered.
“Well,” offered the young man, “if you teach me how to run these records I’ll work for you for free.”
The farm boy’s name was Bennie Jaehne. In addition to being a local boy born and bred, Jaehne had run a welding shop in Giddings and was the hay cutter for many of the farmers in Lee County. He knew where everybody lived and who owned which tracts of land. And that, as Pat Holloway soon recognized, made Bennie Jaehne a natural landman. After some instruction from Holloway, Jaehne started tracing the heirs and owners of property around Giddings and leasing their land for Humble.
Holloway, who had still not drilled his first well around Giddings, soon became embroiled in a battle with the operators who were drilling wells in the area. The controversy centered around a Texas Railroad Commission field rules hearing in February 1977. At that time, the active operators —— Windsor, U.S. Resources, Chuck Alcorn, and HO&M —— were drilling under field rules requiring wells to be spaced 40 acres apart. Fearing that continuing to space their wells so close together would cause them to drain each other’s reservoirs, they were applying for rules that would require wells to be spaced 160 acres apart. Holloway, whose holdings consisted primarily of about 20 acres of in-town leases, saw a 160-acre spacing rule as a potential death blow, because it would not permit him to drill enough wells to develop his own leases profitably.
Holloway hired noted Dallas landman Sam King and launched a counteroffensive. The first move was the formation of an ad hoc group called the Lee County Royalty Owners Association. Taking out an advertisement in the Giddings Times & News, King portrayed the request for 160-acre spacing as a “conspiracy” by the “major oil companies” to deprive Lee County landowners of their rightful revenues. (The ad did not mention that the companies that wanted the rule change were really small independent operators like Windsor and U.S. Resources.) When the day of the Railroad Commission hearing arrived, Holloway and King hired a bus to transport a group of local citizens to Austin and provided each passenger with a fried chicken lunch.
The show of popular sentiment proved decisive. After listening to the arguments, the Railroad Commission issued a compromise ruling that allowed eighty-acre spacing with an option for forty-acre spacing. Holloway’s political organizing effort had saved the day for Humble Exploration, but it did nothing to endear him to the other operators in the area. To many, Pat Holloway became known as the bogeyman of the Giddings oil play.
With the furor over the field rules hearing still fresh in everyone’s mind, Holloway began going after the acreage he really wanted —— leases outside Giddings. The first block he acquired was a 3500-acre package of wildcat leases located about ten miles northeast of Giddings toward Dime Box. Holloway got the leases on a farm-out agreement from Houston oil operator Robert Mosbacher. Then, with Holifield’s help, Holloway persuaded Columbia Gas System, an East Coast utility company that was beginning an onshore oil exploration program, and Mary Kay Cosmetics of Dallas to put up a little more than $1 million to drill two wells in the Austin chalk.
Swap Feat
About this same time HO&M, which was now playing off the success of the Windsor/U.S. wells, drilled a well within the city limits of Giddings. As the drill bit reached total depth, the well “took a kick”—oil talk for a sudden uncontrolled flowing of oil and gas—which threatened to cause a blowout. The HO&M crew immediately closed the blowout preventers. Four days later HO&M ran a log and sent the results to the Houston office. Then HO&M’s landmen began competing with Humble Exploration for leases inside the city. As lease prices escalated from $50 to $75 to $100 per lot, Holloway started to buy tracts on the perimeter of the city, attempting, as he put it, “to head ‘em off at the pass.” Yet he still didn’t know exactly why HO&M was so interested in in-town leases. Soon HO&M sent a junior landman to Holloway with an offer to buy his in-town leases. Holloway resisted. The HO&M emissary finally burst out in frustration, “You don’t understand. I’ve got instructions to get you out of Giddings.”
Holloway knew HO&M had made lots of money elsewhere in Texas by drilling in the Wilcox sand, a layer just above the Austin chalk. Remembering that HO&M had not logged its most recent well within Giddings until four days after the well had come in, Holloway suddenly realized what was going on. While the well had been capped, gas from the Austin chalk layer had seeped up into the Wilcox layer. HO&M must have thought that Giddings was sitting on top of a billion-dollar gas field —— in the Wilcox sand, not the Austin chalk.
Holloway saw a chance to turn HO&M’s error to his own advantage. Since HO&M was so eager to acquire in-town leases, he proposed a trade: his 20 acres of in-town lots for 2500 acres that HO&M owned outside the city. HO&M gladly agreed. The deal brought Humble’s total lease stake in the Giddings area to about 6000 acres.
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