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.
(Page 3 of 4)
Spickelmier wanted a company that was lean and mean and flew under the radar. Westside’s office space, for instance, is well located between the posh St. Regis Hotel and the Galleria and offers a perfect, Oz-like view of downtown. But the company’s lobby is really just a bend in a hallway decorated with two chairs and a few dog-eared copies of Oil & Gas Journal. The conference room is similarly appointed, with brashly colored seismic maps of the Barnett stuck to a whiteboard with magnets. Spickelmier has no pictures of himself with (a) Ronald Reagan, (b) “41,” or (c) “43,” a decorating tic once de rigueur among local oilmen, and there aren’t a lot of co-workers around to distract him: Spickelmier is chairman of the board; Wright is president, CFO, and CEO. A controller and a very laid-back office manager work on salary, and a small corps of land men work on contract. That’s it. Spickelmier touts his skinny staff as more evidence of his caution and, not coincidentally, his success: Westside spent its money on leases rather than payroll and now has about 63,000 acres in twelve counties under its control. (Big players, by comparison, have hundreds of thousands.) There are plenty of remaining risks, however: skyrocketing lease prices, for instance, and the scarcity of drilling equipment and drill pipe. Every day that a producer can’t move his gas to market—or get a new well completed—is a wasted one.
Westside is nearing completion on that second, less cautious well and is a minority partner in two more. (The right well can make about $10 million over its life; Oklahoma-based Devon Energy, a big Barnett player, now has about 1,900 wells, with plans for many more.) Westside’s budget for 2005 is a sensible $19 million, most of which will go to drilling and leasing. The stock price hit $5.50 a share last March but has recently hovered around $3.50—although, as Spickelmier optimistically pointed out, it has doubled in value since opening in December 2004 at around $2.
Spickelmier is aware that more than money is at stake: His reputation, which he has honed vigilantly for the past twenty or so years, is on the line. “The risk here is you’re in an industry that has had a lot of shady characters,” he explained. “It’s refreshing to Wall Street and investors not to have a lifetime oil-and-gas guy, not to think we’re a bunch of yahoos in Houston. Enron did not help in that respect. We are not promoters, period, end of story.”
Even so, Spickelmier has the right psychic credentials for success inside the Harris County line. In the small Nebraska town where he grew up, his father managed a feed mill, but Keith was an entrepreneur from the beginning; he had a paper route, a house-painting business, a lawn-mowing business, a snow-shoveling business, and he sold night crawlers. “I’ve always loved starting things and seeing them work,” he told me. And then, near the end of college, at the University of Nebraska at Kearney, he had a fateful epiphany while scraping snow off his windshield. “I didn’t want to be in the cold anymore,” he said. And so he moved to Houston, at the exact time when the oil boom was disintegrating. When he wasn’t in classes at the University of Houston law school, he sometimes jogged through River Oaks, like a lot of young men who hoped to be rich one day.
He set himself on a course that would make that a reality. He joined Sheinfeld, Maley, and Kay as a bankruptcy lawyer (what else did you do in Houston in 1986?) and became one of its youngest partners in record time. Selling assets for former SMU football stars reinforced his natural conservatism, but he also put his friendly, open nature to work for himself, first as a Houston partner at the prestigious Washington law and lobbying firm of Verner Lipfert (he had Lloyd Bentsen, Bob Dole, and Ann Richards as colleagues) and then as an attorney of counsel with Haynes and Boone, where, in tune with the times, he shifted into raising capital for a major client, a cable TV operation.
In 2002 Spickelmier became engaged to Sara Paschall Dodd, from an old River Oaks family. Soon he was a regular in the society columns. “Beth and Jess Moore threw [a] dinner party that included their houseguests Sara Dodd and Keith Spickelmier . . . ,” Chronicle society columnist Shelby Hodge wrote that year. “All eyes were on Dodd’s left hand, where she wore a major rock confirming her recent engagement to Spickelmier.”
In other words, he was a rich man still intent on proving himself. He was always well scrubbed and well appointed, a self-made man moving with a very fast crowd—jetting to hobnob with wealthy, influential friends in New York and Los Angeles, hitting the links near his home in Colorado, making the scene with his wife at charity balls for the Houston Museum of Fine Arts, the Contemporary Arts Museum, and the Menil Collection. But building a company is very different from raising capital, especially in the post-Enron age, when a wrong turn—or a wrong turn by one of your executives—can send you directly to jail. The fact that Spickelmier had married into the social stratosphere and had limited experience in the energy business meant that the rungs on his particular ladder had been extended while he was still climbing and that people would watch to see whether he would fall. Hence the Barnett, which looked like a sensible, rational, safe way to make a lot of money.
THE BARNETT’S REPUTATION as a sure thing is relatively new. Dan Steward, a 57-year-old geologist who is part of a team credited with discovering it, told me, “Three to four things had to come together for the enormous find to make its way to the surface and into the homes of Americans. All these circumstances came together at the right time, and to me, this was one of God’s miracles.” Steward now works for Dallas-based Republic Energy, but he commutes from his home in the Woodlands, the development created by his former employer and Barnett pioneer, George Mitchell. Maybe because he was a rock guy and not a money guy, Steward talked about the Barnett the way someone talks about the only person he’s ever really loved. Unlike Spickelmier, who was drawn to the Barnett’s lack of ambiguity, Steward was drawn to its mysteries. “We didn’t understand the Barnett,” he said, still a little breathless about it. “The Barnett was so unconventional you couldn’t get your arms around it.”
What created the Barnett boom was a profound change in the gas business. It was for many years the stepchild of the oil industry, an enterprise whose price was federally regulated, in which people bought their gas from the guy who took them to the best golf course or on the best hunting trip. (Gas guys were boring and careful; oil guys were wild and crazy.) It wasn’t until deregulation—a small round of applause, here, for Ronald Reagan, Ken Lay, and others who pushed for change—that gas became a commodity bought, sold, and traded like anything else and subject to wild fluctuations in price caused by gluts, shortages, heat waves in Boston, and cold snaps in Atlanta. At the same time, oil became more expensive, scarcer, and more dangerous to acquire—Angola and Nigeria are just a couple of places competing with the Middle East for extreme drilling—so gas’s application as an alternative fuel increased. In turn, it became subject to the same economic cycles as oil: Natural gas became ever more expensive and harder to find, and so, like old oil fields, old, abandoned, or cantankerous gas fields in the U.S. started looking better and better. Because gas is still tricky to transport, a world market remains in its nascency, which has kept the industry small in comparison with the oil business.
Nevertheless, Mitchell Energy, a Houston-based oil company, was exploring for gas in the Barnett twenty years ago. Mitchell then had wells covering seven North Texas counties—the company wasn’t particularly beloved, either for the deals it made or for its lack of environmental concern—and even had a processing plant in the area. Mitchell also had a big customer demanding more gas for its operations; with tax breaks from the federal government, the company tried drilling approaches that were working well in the Austin Chalk formation in Central Texas. They didn’t work particularly well in the Barnett. The company also tried injecting a mixture of gelled water and sand into the shale that lurked more than a mile beneath the surface to fracture the stone and release the gas. Mitchell got more gas out of the hard rock that way but nothing to write home about. “A brick on a house is more porous than the Barnett,” Steward said. The wells were designated “S&R,” for “science and research,” while the company looked for profitable production elsewhere. Still, it would prove lucky for Spickelmier that Mitchell persisted. The company had the infrastructure and the financial muscle to keep going, albeit slowly.
As exploration and experimentation continued, with improvements in seismic technology, Mitchell engineers suspected that there was a lot more gas below the surface than they had initially thought—maybe, in fact, three times as much. Not everyone at Mitchell agreed. “During this period, people in the company were saying, ‘You are wasting our time and wasting our resources in the Barnett,’” Steward said. But by 1986 a find in Wise County was producing at rates Mitchell believed could be commercial, and it began leasing even more land.
My Library
