Meanwhile, in West Texas . . .
The Tall City’s oilmen are smiling again. When they aren’t laughing all the way to the bank.
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It was around one in the afternoon on a Wednesday in August, and another bustling lunch hour at the Petroleum Club, in Midland, was under way. “I don’t come here as much as most people,” Jason Hoisager told me as he walked up the marble staircase. “Maybe twice a week.” Hoisager is a dimple-cheeked up-and-comer. He was riding the high from having recently hit a 1,200-barrel-a-day well, which, based on current prices, will make $10 million by next fall. One of his partners on the deal was Rich Masterson, a mellow geologist with wiry, shoulder-length gray hair. The two men, wearing button-down shirts and slacks, were meeting another Petroleum Club member, local oilman David Arrington, for lunch. Arrington, who lives in one of the biggest houses in town, is best known for drilling acreage in the Barnett Shale before most of his associates would even consider it, then selling those interests, in 2006 and 2007, for $855 million.
“I love the Petroleum Club because people forget about you really quickly in Midland if you’re not seen all the time,” Hoisager said. “There’s so much going on, and you get caught up in the deals, and you’re goin’ and goin’. At the Petroleum Club, you can work out a deal walking from one table to another.”
Hoisager, Masterson, and Arrington headed for the buffet in a spacious room with a parquet floor, a three-foot-tall floral arrangement, and wood-paneled walls. For an oilman, the buffet room is a kind of hallowed ground. The biggest names in modern-day wildcatting have mingled here—and still do. At one of the larger, round tables, you can often find old-timers playing liar’s poker to decide who will pay the bill.
Fifteen years ago, when the price of oil had plunged to below $15 a barrel and drilling had come to a halt, only a dribble of intractable dreamers would wander into this room for lunch each afternoon. These days, the nine-hundred-member club is often so besieged at peak hours that you have to linger in the hallway until a table becomes available. The crowd is due, in large part, to the spectacular mother lode of oil and gas that stands to be retrieved from the shale rock of the Permian Basin using the newish technologies of fracking and horizontal drilling. Taken together, the big Permian fields—the Wolfcamp A, B, and C; the Spraberry; the Wolfberry; the Dean; the Bone Spring; the Upper Cline; and others—likely have more deposits than Kuwait. There are only two other oil plays in the country as significant as the Permian: the Bakken Shale, in North Dakota, and the Eagle Ford Shale, in South Texas. Both are well-known and each is estimated to contain about 20 to 24 billion barrels of oil equivalent (a measure of oil, gas, and condensate). The Permian, which is still heating up, could outperform them considerably. Some people—like Masterson, who considers himself conservative in his estimates—believe it contains a whopping 50 to 70 billion barrels. “I think we’ve got the largest resource play in the U.S.,” Hoisager said.
Which is to say, there is an ungodly amount of money to be made in West Texas. But first, the oilmen had to eat. They loaded their plates with fried chicken, chicken-fried steak, mashed potatoes, steamed squash and broccoli, and onion rings and took seats at a table by the window, where iced tea awaited them in tall, sweaty glasses. The rapidly unfolding boom was affecting nearly every aspect of Midland life, they said as they tucked into their food. Midland now ranked second in the country in per capita income. Restaurants were constantly struggling to hire more waitstaff. Hotel rates had skyrocketed to more than $200 a night. Man camps had popped up. Housing prices were so steep the city had difficulty attracting teachers, police officers, and nurses. Traffic—almost nonexistent during the bust—was causing an average of one fatality a week. Building construction was going gangbusters, with one developer proposing a triumphal structure called the Energy Tower, which, if built, would stand 58 stories, more than twice the height of the tallest building in the Tall City.
Midland had experienced this sort of thing before, of course, with the initial oil boom in the twenties, kicked off by the famous Santa Rita No. 1; the postwar boom of the fifties, which tapped the Spraberry Trend, still one of the largest oil fields in the country; and the madcap spree of the seventies, fueled by the OPEC embargo and resulting energy crisis. But many locals thought they’d seen the last of the big booms, that all the oil that was easy to get out of the ground had already been pumped. Then along came fracking and horizontal drilling and the other high-tech tricks for extracting hard-to-reach deposits. One new technique is multilateral drilling. Recently, Hoisager and Masterson had experimented with it, taking a poor-performing horizontal well and drilling into a second zone above the initial lateral one. The results, so far, were impressive. Arrington quizzed them about the project. He was thinking of trying something similar with one of his own prospects, in the Delaware Basin, and was scheduled to meet with an oil-field services company after lunch to discuss the move. Multilateral drilling was still new to the area, and the strategies were in the early stage. “Not only can you go horizontal in one zone,” Arrington explained to me, “there might be seven zones. I might have seven oil fields on top of each other. And I’ve got eleven sections. The oil in the ground in those eleven sections could be worth between two and five billion dollars. One deal. And it’s all mine. That would be the biggest thing I have done.” If his valuation sounded overly optimistic, he conceded, that was because he was an oilman, and inherently Panglossian—any number he quoted should be cut in half (to a paltry billion dollars or so).
Hoisager finished his onion rings and looked around the room. “We had our first big investor meeting in one of the smaller rooms downstairs,” he said. “When I started out, I didn’t even know what I didn’t know.”
Arrington, who’d moved to Midland from Lubbock in 1984, in the middle of the bust, nodded soberly in sympathy. “We all do that,” he said. Masterson laughed in agreement.
“When I closed the deal for $855 million,” Arrington said, “my wife was just totally unaffected. That was the biggest day I’d ever had in my life, and I come home, and I said, ‘I got the deal done.’ She says, ‘Great!’ She says, ‘Dinner is on the table. Would you pass the potatoes?’ ” The other men burst out in loud guffaws. “That was it! We just had dinner, watched some TV, petted the dog, and then it was bedtime.” The men shook their heads. “She was proud of me,” Arrington clarified. Then he smiled and repeated, “ ‘Oh, that’s great, honey. Pass the potatoes.’ ”
“You know, my wife will say something a week after a big deal like, ‘So what was it that you did?’ ” Hoisager said.
“ ‘Yeah, what was that?’ ” Arrington said, scratching his head.
“Just drilled a twelve-hundred-barrel-a-day well!” Hoisager said laughing. “Give me some credit here.”
Despite having a few secrets that they would not share with one another, they stressed how much they had to gain from disclosing their discoveries and sharing new reports. “What we’ve talked about today is hundreds of millions of dollars’ worth of information,” Arrington said.
Many of the practices are not yet standardized. “Some of this is only months old,” Masterson said.
“Three years ago, we didn’t know anything about multilateral drilling,” Arrington said. “In 2003, when I was sitting in a trailer doing microseismic technology on our first well at the Barnett Shale, you would think the lightbulb would have gone off and I could have figured all this stuff out. I didn’t have a clue.”
“You get a theory,” Hoisager said, “then you drill another well, and it’s another data point. And then you say, ‘Well, that theory’s garbage,’ and you come up with a new theory. You do this for ten or twelve years, and finally something starts to stick for multiple wells.”
“It’s not for the faint of heart,” Arrington said.
Hoisager thought about this for a moment. “I can’t imagine selling,” he said. “You have all this grief to make something work, and what’s it really worth?”
Arrington was familiar with this sentiment, and he leaned in to give some fatherly advice. “What if, two years ago, God told you”—he cupped his hands around his mouth to convey the voice of God, albeit with a thick accent and nasal tone—“ ‘Jason, I want you to work real hard for six years, as hard as you can, and I’m going to give ya’ ”—he paused for a second to think, then shrugged—“ ‘two hundred million dollars.’ You’d say, ‘I’m in!’ Right? So now you get to where you’re offered money, and you hesitate?”
He leaned in and whispered in a soft, high voice: “You’ve only worked six years to do this, and you’re going to make all this money! Name me one person that you know or that you can think of who has worked six years and made that kind of money.” He touched his thumb to his fingers on his right hand and looked through the hole he’d created. “Zero!”
Hoisager and Masterson finished their iced teas while Arrington got up and walked across the room to chat with someone he recognized. After a short period, Hoisager looked up. “The politician has got him!” he said. Arrington had been buttonholed by a railroad commissioner candidate, and Hoisager and Masterson tried to repress their smiles as they looked on.
Before Arrington made it back to the table, he was interrupted by another diner, a landman who’d already heard rumors about Hoisager and Masterson’s new well. Arrington walked back to the table and reported delightedly, “He said, ‘They made a twelve-hundred-barrel-a-day well?!’ ” Hoisager and Masterson seemed flattered that their accomplishment was becoming known, and Arrington took them over for introductions.
“Rich, I’ve met you a zillion times,” the landman said, offering his hand.
“Yep,” Masterson replied, smiling and nodding.
Then Arrington introduced Hoisager to the landman, who gave him a firm handshake and said, “So I hear you’re doing good?”