The Mildcatters
Unlike their daredevil counterparts of old, today’s energy entrepreneurs want a sure thing— or, at least, a surer thing. Which is why they’re betting on gas, not oil.
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He got out of the car and walked over to some parched land near his property line. “Over here—Dynegy,” Spickelmier said, pointing to the area where the giant energy company would soon build a pipeline to Westside’s wellhead.
A shareholder who had reached Spickelmier on his cell phone just as we were passing Denton had requested a photo, so Spickelmier posed obligingly in shirtsleeves in front of the tanks, and again in front of the well, grinning into the sun before a stubby collection of valves and tubing. It reminded me of a famous photo of the late wildcatter Michael Halbouty waltzing with his second wife in an East Texas oil field, he in a tuxedo, she in an evening gown. But this wasn’t Gusherville: Spickelmier was having fun, but not too much. That’s the way Houston is these days.
There survives here a deep if unspoken longing for a return to the collective dementia of the late seventies and early eighties, as well as the awesome intellectual overconfidence of Enron’s heyday, when the company’s motto went from “The World’s Best Energy Company” to “The World’s Best Company.” But no one is eager to repeat the pain and embarrassment that followed these expeditions into madness. This may be one reason why oil now hovers at around $50 a barrel and gas is trading at $6.50 per million British thermal units—up from $12 and $2, respectively, in 2000—but few people are gloating about it, at least not in public. Yes, there are a few signs of a return to really happy times: Squillionaire Jim Flores’s mansion on River Oaks Boulevard is now virtually three times the size it was when it belonged to Oscar Wyatt and his predecessor, that wildcatter of wildcatters, Hugh Roy Cullen. (That Wyatt’s sometime partner David Chalmers was recently indicted in the Oil for Food scandal is somehow reassuring—it’s evidence that the old freewheeling mentality is still around.) Tony Vallone reopened his eponymous boom-era restaurant, still shockingly expensive and still featuring social Siberia, this time in front of a violently swinging kitchen door. And yes, after a magnanimous attempt to draw the outsourced with a downscaled Galleria IV, the city’s most beloved shopping mall once again hosts stores for the super-status-conscious (Louis Vuitton now keeps company with Versace, Carolina Herrera with Ralph Lauren). It’s tempting to take these new signs as evidence that our natural optimism has been rewarded, past failures forgotten, and that, as that apocryphal bumper sticker promised, we are more than ready to receive the next oil boom, having sworn not to mess things up this time.
But this is, as the Chronicle noted, a much quieter boom, a contradiction in terms that makes perfect sense in Houston. For the first time in the city’s history, there is real debate about America’s dependence on foreign oil and the future of Houston as an energy capital. Michael Zilkha, the city’s edgiest energy entrepreneur, has been vocal about the shortsightedness of the current administration’s energy policy. Venture capitalist Matt Simmons’s Web site offers a compendium of doomsday speeches, including “An Energy Tsunami Ahead” and “Twilight in the Desert: The Coming Saudi Oil Shock.” Rice University energy scholar Amy Jaffe falls in the middle, between futurists like Zilkha (a proponent of wind power) and local oilmen who, she says, are mired in old ways. Jaffe doesn’t believe that we are running out of oil, but neither does she believe that Houston can afford to bet on foreign oil to the exclusion of new technologies. “People are horribly risk-averse, so no one is willing to take a flier on anything,” Jaffe said. “The companies have record profits, but all they’re doing is buying back their own stock and paying dividends. They went to the Caspian because it seemed like a no-risk play. Their so-called safe bet has broken the bank.” Despite their advertising, the majors are not innovating or developing new technologies with any great passion; instead, they are merging to boost profits (ExxonMobil, ChevronTexaco) and coddling shareholders. To Jaffe, the city that prides itself on innovation is falling behind. “There’s a train blowing a whistle, and we’re not even on the platform,” she insisted.
Spickelmier, however, is a traditionalist, which means he understands that the energy business is cyclical. “Remember 1973?” he asked me. “The gas lines? The world was running out of oil?” It wasn’t true. High prices encouraged more exploration and, in turn, more production, which caused gluts, which dropped prices, which discouraged exploration, which caused shortages, which raised prices, and so on. Now, for instance, is the moment in the cycle when it is a good time to be in the energy business. The Barnett Shale makes the point: Back in the eighties, it was largely ignored. Few saw the potential for gas then, and no one had the technology to get deeply embedded gas out of the ground profitably anyway. And why bother, when it was cheap and plentiful elsewhere?
Then, of course, the world changed. Oil wasn’t so plentiful anymore, and people started looking at gas as a replacement fuel. “In the U.S., we’re moving everything to natural gas,” Jaffe said, adding that a return to coal is also on the horizon. In the past decade, 90 percent of all the power stations in the U.S. were built to run on natural gas; gas is also critical to the manufacture of fertilizers, like ammonia. Gas is cleaner than coal and, at this moment, cheaper than oil. Jaffe told me that as more uses have been found for gas, and as more companies have joined the business, prices have risen by as much as a third. Growth in China and India, for instance, will be generated with natural gas, while places like Qatar, with enormous gas reserves, will grow in influence. As a world market for gas increases, so too will issues of access. “It’s not going to be any more stable than oil,” Jaffe said.
But for an ambitious gas man in the U.S. like Spickelmier, opportunities abound, especially with the help of his partner, Jimmy Wright, a dryly humorous 45-year-old with more than 25 years in the business. To them, drilling for gas in the Barnett Shale, which could cost about $2.5 million per well, made a lot more sense than drilling off the coast of Africa, where a well might cost $20 million. “It’s lower risk,” Wright explained. To Wright, an unconventional gas play like the Barnett would evolve into a “blue-collar, grind-it-out investment for your portfolio. It’s not glamorous, but it provides the opportunity to create a cash-flow stream, and it doesn’t go away overnight. We focused on the Barnett because you know what you’ve got and you know what it’s gonna give you. It’s a chance to build a long-term company.”
Or, as Jaffe put it, “All these wildcatters and independents you see—these people are all drilling for gas now. The oil part of their business is shrinking. If you’re a little guy, the play is to do gas.”
Low risk, steady returns: What happened to the wildcatters who took fliers? “People are much more measured in what they’re doing now,” Spickelmier said of his colleagues in Houston. “Much more…” He trailed off, knitting his brow, searching for just the right word.
“Rational?” I asked.
“Rational,” he answered.
WHEN I FIRST SUGGESTED to Spickelmier that he embodied a new sort of energy executive, he responded, appropriately, with concern. “You have to do whatever you can to try to spice me up,” he joked. “I’m kind of a boring personality.” Wright told me essentially the same thing. “I personally don’t have a life. This is my total deal,” he added, “this” being Westside. It’s hard to imagine Michael Halbouty or Oscar Wyatt being so reticent; Ken Lay might have been, but you might have suspected that he didn’t really mean it. Successful Houston oilmen (who wants to be called a “gas man”?) now strive to be tasteful, quiet, and understated, sort of like Academy awards presenters, who for the same reason are also not as exciting as they used to be. Where’s Glenn McCarthy or Silver Dollar Jim West when you need him?
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