That’s Oil, Folks!
Everyone said that the wildcatters of Midland had seen their last glory days, that the fields were dry, and that all the best new plays were offshore. But they didn’t count on an unorthodox drilling formula that would help unlock the hidden reserves of the Permian Basin—and give West Texas one more boom.
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One autumn morning in 1998, a soft-spoken, ruddy-faced petroleum engineer named Dennis Phelps walked out of his office at the Atlantic Richfield Company in downtown Midland and drove a company car, a four-door Chevrolet, to M. T. Boultinghouse 11-7, an oil well that had just been drilled amid some cactus and a few scraggly mesquite trees twenty miles south of the city’s airport. He parked several yards from the wellhead and stepped inside a small RV that was outfitted with some tables and chairs, a computer, and a coffeepot. Taped to one wall was a long sheet of paper that looked like nothing but a series of squiggly lines: a seismic well log.
The RV was owned by BJ Services, a Midland firm that the Atlantic Richfield Company had hired to fracture, or “frac,” the well, a technique that involves pumping a sand-filled, gel-like fluid down the well’s pipe at high pressure. In a normal frac operation, the fluid shoots out through holes that have been bored into the pipe at certain depths, causing the adjoining rock to fracture, much as a car windshield splits into dozens of tiny cracks when struck by a hammer. The sand braces the fractures, most of them no wider than pencil lead, sort of the way timber props open a coal mine’s shafts. Then, hopefully, the oil that has been trapped in the rock flows through the fractures back to the well, seeps through the holes in the pipe, and is pumped to the earth’s surface.
In the Permian Basin, every oil well had to be fracked. It had been at least sixty years since a West Texas oilman had punched a hole into the 74,000-square-mile ancient seabed, heard a rumbling in the earth, and stood back to watch a geyser of black crude shoot into the air. In fact, by 1998, the Permian’s oil fields had been so heavily drilled that it was considered to be on its last legs. Sure, there was oil to be recovered, but it was a mere trickle compared with the glory days of the forties and fifties, when the region had the richest oil fields in the world, credited with fueling much of the Allied effort during World War II. Back then, a good Permian Basin well started out at six hundred or more barrels a day before leveling off within a couple years to one to two hundred. In the nineties, a typical well started off at forty to seventy barrels a day, then settled down to just five to fifteen.
And almost all of these Permian wells were being drilled in what is known as the Spraberry Trend, a 1.7-million-acre layer of silt and sandstone about a mile and a half underground. It was considered to be about the only place left where oilmen could count on hitting oil. Spraberry oil wasn’t difficult to find: Geologists knew the rock formations by heart, and petroleum engineers knew exactly how to frac those wells and keep them going for fifty years or more. But as one oilman put it, drilling a Spraberry well was “like watching paint dry. You know where to drill, you drill, you eventually get your ten or so barrels of oil a day, and then you drill another one.”
In 1995 the Atlantic Richfield Company, or ARCO, which was headquartered in Los Angeles, had decided to drill about three hundred Spraberry wells. According to the gossip at Midland’s Petroleum Club, ARCO was preparing to put itself up for sale, and the more oil reserves it could show on its books, the higher its value as a company would be. That’s where Dennis Phelps came in. His bosses had let him know in no uncertain terms that his job was to make sure those new wells hit oil. Phelps got the message. If he started drilling dry holes, chances were that he’d be in the next wave of ARCO layoffs.
An ARCO employee since 1970, the 52-year-old Phelps was then just one more petroleum engineer working the Permian Basin. He dressed in inexpensive button-down shirts, khakis, and loafers, and he spent most of his time in a small, spare office studying such subjects as “relative perm value,” “in situ proppant,” and “residual fracture aperture.” In his notebook, he scribbled down ideas about polymer concentrations in frac fluids. The blackboard in his office had phrases on it like “surface tilt fracture mapping.” As opposed to the swashbuckling Jett Rink-like wildcatters who had made Texas famous, Phelps had the charisma of an accountant.
All petroleum engineers, however, have a bit of a romantic streak in them. They love to spend their idle moments trying to devise some new technique that will pull more oil out of the ground. Phelps was no different. For years he had been wondering if there was a better way to frac what was known as the Wolfcamp, a layer of rock—mostly packed limestone—that ran directly below the Spraberry. Every now and then, an ambitious oilman would drill a little ways into the Wolfcamp, maybe a few hundred feet, and bore holes into his pipe because his well logs suggested there was oil lurking nearby. If he was lucky, he’d get a hundred or so barrels. But because the Wolfcamp’s limestone had such little permeability, the fracs never worked: The frac fluid simply bounced off the rock. “As far as we were concerned, the Wolfcamp was nothing but damn sorry rock,” said legendary Midland oilman Clayton Williams, who started drilling in the Permian Basin in 1957. “If you were lucky, you’d get a teaser well, but without a good frac, the oil quickly would dry up.”
It just so happened that ARCO was using a rig for its new Spraberry project that drilled wells 10,000 feet deep, straight into the heart of the Wolfcamp. Phelps received permission from his bosses to try a few experiments. In one test, attempting to put cracks in the Wolfcamp, he sent the frac fluid at a much higher speed down a pipe that was five and a half inches in diameter instead of the usual four and a half. In another, he used a well pipe that had sixty holes bored into it, all a mere twenty feet apart from each other, near the bottom of the Wolfcamp. As soon as that frac was done, he blocked out those holes, bored sixty more in a higher zone of the Wolfcamp, and ordered another. Then he kept moving up the well, from one zone to the next, fracking the same way.
But thus far, Phelps had had only marginal success—certainly not the kind that covered the high costs of his experiments. Still, on this morning at M. T. Boultinghouse 11-7, he was ready to try again. He pulled out a sheet of paper with a formula he had first written on his office blackboard: “50 percent pad followed by 0.5#/gal20/40 sand slurry and a tail-in up to 2#/gal for the last 5% of the treatment volume.”
When BJ employees reporting to work at the trailer read his notes, they stared at Phelps. The formula was for what is known as a slick-water frac, in which water is given a special friction reducer that allows it to be pumped at a much higher pressure. Slick-water fracs were hardly new in the oil fields, but petroleum engineers had rarely, if ever, tried them in the Wolfcamp, their assumption being that the water would simply bounce off the limestone and come right back up, flooding out the well. Now Phelps was asking BJ to use far more water than what went into a standard slick-water frac, as well as only a minimal amount of gel and sand. “Dennis,” said one BJ guy, shaking his head, “aren’t you worried that ARCO is going to fire your ass?”
Phelps shrugged. “I want to see what happens.”
“It’s your money,” said the BJ supervisor as he and the others left the RV. They mixed up the frac fluid according to Phelps’s recipe and shot it down the hole. Three hours later, when they were finished, they packed up their equipment and drove away. It would take a week for the results to come in.
Heading down the highway back to his office, Phelps passed by a tableau of rusty tanks and worn-out pump jacks that were barely moving. In the oil field service yards just outside Midland, the drilling rigs were racked and stacked and the gang trucks were parked in rows, covered in dust. When he reached downtown, the streets were practically empty. In late 1998 the price of U.S. crude was at a measly $12 a barrel, which meant that almost all the independent oilmen of West Texas had cut their operations to the bone. Considering how little oil they were getting from their Permian Basin wells, there was no way they could drill with prices so low. ARCO was one of the few companies doing anything of significance, and frankly, Phelps wasn’t sure how long that was going to last. Back at his desk, he stared out the window and wondered what he would say to his wife if he got fired.
One week later, the ARCO pumper at M. T. Boultinghouse 11-7 called Phelps from the well shack. “Dennis, I don’t quite know how to explain this,” he said, “but the well is coming in at three hundred barrels.”
“I’m sorry, what?” Phelps said quietly.
The pumper repeated the number. He paused. He then said that most of the oil coming up was not the brownish color found in the Spraberry formation but a golden green color. “That’s Wolfcamp oil,” the pumper said. “I can’t explain that either.”
Phelps was not an emotional man. He did not do such things as shake his fists triumphantly in the air. He simply called his wife and said, “Honey, I don’t think I’m out of a job.”
Within two days, the well was down to one hundred barrels, but there it stayed for two more weeks. Then, over the next three months, it slowly declined to seventy barrels. Three months later, it was at sixty. In modern-day Permian Basin terms, the well was a gusher.
Phelps supervised the frac of another well near M. T. Boultinghouse 11-7, and it came in at more than 150 barrels a day. Two more wells drilled on the same lease brought in similar returns. Phelps had a meeting with his bosses. What exactly had happened? Had he come up with a formula that worked in the Wolfcamp? Or had those Boultinghouse wells been drilled, purely by chance, into a rare Wolfcamp sweet spot? Maybe the wells were, in oilman’s lingo, nothing more than “hallelujah wells,” the kind that an oilman hits by sheer luck just once in a lifetime.
Phelps himself admitted that he was not “scientifically certain” what the success of the Boultinghouse wells meant. And it appeared that he would never know. In 1999 he learned that ARCO was indeed selling out—to British Petroleum. The word was that BP was planning to cancel ARCO’s drilling program and shut down its Midland office. Apparently, BP was far more interested in moving into oil-rich areas like the Gulf of Mexico than wasting its time in the aging Permian Basin, a mere crumb on its plate.
Disheartened, Phelps figured there was no chance he could persuade BP to give him another shot at the Wolfcamp. Besides, his wife was wanting to move back to East Texas, where they had grown up, so that she could care for her parents, who were ailing. He agreed to take early retirement, and they began packing up the house. He figured he would start a consulting business in Tyler, maybe get some work in Louisiana and Oklahoma.
Just before he left Midland, however, Phelps had a brief conversation about his Wolfcamp venture with Dennis Johnson, an old friend who had recently been named president of Henry Petroleum, a small independent company that drilled five to fifty Spraberry wells a year, depending on the price of oil. Phelps and Johnson had attended the same Sunday school class at Midland’s First Baptist Church. “Maybe there’s a way to get some oil out of the Wolfcamp, maybe not,” Phelps told Johnson with one of his shrugs. “It will always be one of those mysteries, I guess.”
He shook Johnson’s hand, said goodbye, and that seemed to be that.
People in Midland like to say that God felt such remorse about what he did to the land out there that he decided to give it oil. The city is located in the heart of a flat, desertlike landscape, with the closest body of water more than an hour’s drive away. When the wind blows hard, as it often does, the sand whips through the air and hits you in the face, sticking to your eyelids, clogging your throat, and working its way inside your clothes. Tumbleweeds roll down the highway. On especially hot afternoons, says one oilman, “you walk outside and think you’re going to burn to a crisp before you get to your car.”
Midland probably would have remained nothing more than a desolate farming community if it had not been for the Santa Rita No. 1—named after the patron saint of the impossible—blowing in sixty miles away, on some acres owned by the University of Texas, in May 1923. By 1929, there were 36 oil companies with offices in Midland, most of them located in the glamorous new Petroleum Building, built downtown with marble floors and Gothic spires. (Midland’s sister city, Odessa, twenty miles to the west, became the center for the Permian Basin’s oil field service and supply industry.) When the first oil fields began to dry up, oilmen promptly drilled into deeper rock formations such as the Ellenburger or the Spraberry, which was first discovered in 1943 on Abner Spraberry’s ranch in Dawson County.
Midland was hardly immune to the boom-and-bust cycles of the industry. When the price of oil fell in the late sixties, dropping under $4 a barrel by 1970, as many as one quarter of the city’s independent oil companies went out of business. When oil skyrocketed in the late seventies, hitting $37 per barrel (equivalent to more than $95 today), Midland became one of the richest cities, per capita, in the country. Oilmen bought jets to fly themselves and their friends to San Francisco or New York for dinner. They hired designers in Dallas to decorate their second, or third, vacation homes. There was so much money in town that Rolls-Royce went so far as to open a dealership near the airport.
In 1982 eight Midland oilmen—larger-than-life characters such as Carlton Beal (a polo-playing former college professor), Fred M. Allison Jr. (who rented a Concorde to ring in three New Years on the same night), John L. Cox (known as the King of the Spraberry), and Clayton Williams (whose office, the size of a small ballroom, was chock-full of animal heads and lion and bear rugs from his hunting trips)—were included in the very first Forbes 400 list of richest Americans, an amazing statistic considering that the city’s population was only 70,000.
But then the Saudis ramped up oil production from 6 million barrels per day to more than 9 million barrels, the price of oil plummeted, and the city came close to collapse. On October 14, 1983, Midland’s First National Bank, which had been handing out loans to oilmen like toasters, shut its doors—the second-largest independent bank failure in the country. The Rolls-Royce dealership also closed (it became a tortilla factory), and there were so many oil companies, including one run by a young George W. Bush, that went out of business or halted their operations that Midland’s downtown buildings were said to be see-through. The cost of a membership in the 40,000-square-foot Petroleum Club, with its Gone With the Wind—style staircase winding up from the lobby to the dining rooms, dipped to $50 a year, but even then, said the manager, you could shoot a cannon through the place and not hit anyone. “What do you call a geologist in Midland?” went one of the jokes going around town in the mid-eighties. “Hey, waiter!”
Although people prayed openly for a reversal of fortune (“Please God, Just Give Me One More Oil Boom. I Promise Not to Blow It Next Time,” read one popular bumper sticker), there was no more boom. The wilier oil patch veterans, of course, still figured out a way to make money. Autry Stephens, a reticent, bespectacled former appraisal engineer of oil properties for the First National Bank, locked up as much cheap Spraberry acreage as he could and drilled so many wells that his leases looked like pincushions (the Mad Driller, some people admiringly called him). And there was always a handful of young starry-eyed oilmen arriving in Midland, determined to find the mother lode where others had hit dry holes.
One of those young men, David Arrington, an exuberant, sandy-haired former high school cheerleader from Dallas, had applied for a job at 27 oil companies during his senior year at Texas Tech University. They all turned him down, largely because he openly admitted in his interviews that he had taken only two college courses about the oil business: “Oil and Gas Law” and “Oil and Gas Accounting.” Undeterred, he arrived in Midland in 1984—the exact worst time for an oilman—got a job as a rookie landman for a tiny oil company, spent his spare time in Midland’s Subsurface Library researching prospects, found some promising acreage near Kermit, knocked on doors in Midland until he met an investor willing to back his venture, and then hired a company to drill a well. When it surprisingly hit oil, in 1985, he stood by the well, leaped into the air, and did the Herkie, the classic cheerleader move, stretching out his arms and legs in different directions while he shouted, “Yeehaw!”
Arrington soon became Midland’s boy wonder, popping one well after another, a couple of them hallelujah wells drilled horizontally into some of the Basin’s deepest reservoirs, a risky operation that few others were willing to try. But he seemed to be a lucky exception. Throughout the nineties, Midland’s independents plodded along, many of them getting by just on the oil coming up from the wells they had already drilled. By 1998, most of the majors had given up on the Permian, shutting their Midland offices. In 1999, when the price of crude fell again, a mere 43 rigs were working the area.
Even Arrington decided to sell most of his Permian properties, for $25 million, and use his profits to drill horizontally for gas in the Barnett Shale, an area west of Fort Worth. He was one of the first to say that that’s where big money was to be made, and he was right: He eventually sold part of his Barnett Shale production to Chesapeake Energy for $290 million and another part to XTO for $450 million. He used his money to buy antique cars and a huge number of Ansel Adams photographs (he became the largest private collector in the country). He hired an architect to design the biggest house in Midland, reportedly 10,000 square feet, with a 42-foot-tall indoor slide for his kids that started on the fourth floor and wound down to a coat closet on the first floor. Although he didn’t drink or cuss or chase women, Arrington was, in his own way, as flamboyant an oilman as Midland had ever seen. Every year on Easter morning, he put on a bunny suit and drove around Midland in his red 1964 Mustang, passing out candy to his friends’ children.
Many longtime members of Midland’s oil crowd rolled their eyes. The bunny suit-wearing Arrington had become one of the richest oilmen in Midland—and he wasn’t even drilling in the Permian Basin. The fact was, however, that their world had changed. Every energy analyst around was declaring that the once-fabled exploration era in the Permian was over: All that was left for the oilmen to do was squeeze out the last drops from the Permian’s slowly dying fields. The New York Times went so far as to proclaim that “the new breed” of wildcatters in Texas were high-tech entrepreneurs like Austin’s Michael Dell. Meanwhile, enrollment in petroleum engineering programs at the state’s universities cratered. At high school graduations, sons of Midland oilmen swore to one another that they were never coming back to do what their fathers did. Roughnecks who had spent their lives working the fields packed up and moved to the cities, their possessions strapped to the roofs of their cars or trailing behind them in overloaded U-Hauls. “It’s like we’re living in Death Valley,” one oilman said. “The basin has become Death Valley.”
Then, in late 2000, Dennis Johnson at Henry Petroleum got a phone call from Dennis Phelps.
After catching up on the activities at First Baptist, Phelps told Johnson that his East Texas consulting business was not working out. He’d love to come back to work in the Permian, he said, at least part-time, maybe a couple weeks a month. Johnson hired his old friend at $500 a day as a consulting engineer and put him on a rather humdrum water flood project in the far southwest corner of the basin, which involved injecting water into an almost depleted field to see what leftover oil might come out.
By pure coincidence, less than two years after Phelps arrived, Henry Petroleum was approached by another independent oil company to see if it would be interested in drilling fourteen Spraberry wells on a former ARCO lease south of Midland. The company, which had obtained the right to drill on the lease, was having some financial trouble, and it was looking for someone to take over the project. After learning of the proposal, Johnson realized that the lease was only two to three miles southeast of the Boultinghouse wells, where Phelps had done his experiments. He made the deal to drill, then arranged a meeting between Phelps and Henry’s top staffers, who listened politely to the engineer explain his old idea about using a slick-water frac in the Wolfcamp.
Because Phelps spoke so quietly—friends say they have never once heard him raise his voice—the Henry staffers occasionally had to ask him to repeat himself. “Six to eight stimulations in the Wolfcamp alone, is that what you said, Dennis?” “What was that again about the amount of sand?” Henry Petroleum took pride in being a Christian-based company—when Henry men went out to lunch, they bowed their heads and prayed before taking a bite—and it was probably because they were good Christians that they didn’t laugh out loud in front of Phelps. “My first response was, ‘That’s just crazy,’” Mike LaMonica, Henry’s operations manager, later said. “A slick-water frac working in the Wolfcamp? I thought, ‘Someone’s going to have to hit me over the head with a two-by-four to get me to buy into this.’”
Nevertheless, the idea that Henry Petroleum could replicate the Boultinghouse wells was just too tempting, and Johnson ordered his men to give Phelps’s technique a try. They had mild success: The fourteen wells, drilled into the Wolfcamp, came in better than if they had gone only into the Spraberry. But they weren’t comparable to the Boultinghouse wells. By all indications, Phelps’s initial triumph in the Wolfcamp was one of those inexplicable anomalies in the oil fields. Phelps returned to his water flood project, and once again, that seemed to be that.
There was one Henry Petroleum employee, however, who couldn’t stop thinking about the Boultinghouse wells. Dave Feavel, Henry’s exploration manager and chief geologist, was a fifty-year-old Colorado native who in 1974 had graduated from the Colorado School of the Mines and then migrated to the Permian Basin. Like Phelps, he didn’t have a glamorous job. He spent most of his days reviewing rock samples, reading dry geological journals, studying the tectonics of underground rock formations, and crunching geophysical numbers on his computer to the edge of infinity. Around Midland, he was regarded as just another geologist, one who made an average salary—a little over $100,000 a year—and who played golf on the weekends on a public course.
Feavel arranged to see the Boultinghouse well logs, which were by then public record, obtainable from the Austin office of the Texas Railroad Commission. Feavel perused the squiggly lines—essentially an image of the rock layers cut by a drill bit—and noticed a section of limestone encased in black shale, maybe 1,500 feet thick and about the size of a 130-story building: a very thick cut of Wolfcamp. Like all geologists who study the Permian Basin, Feavel knew that the Wolfcamp was once as flat as a pancake. But 300 or so million years ago, as mountains and smaller basins were formed within the Permian, part of the Wolfcamp was broken up. Piles of massive Wolfcamp boulders, some of them the size of city blocks, started rolling off the shelves of the newly formed basins. The smaller boulders rolled to the middle of the basins, while the larger ones, unable to roll as far, stopped right where the slopes leveled out. As millions more years passed, all the Wolfcamp boulders, which geologists for some reason like to call “slump blocks” and “debris flows,” disappeared, buried by layers and layers of younger rocks.
Sitting in his office at Henry Petroleum, Feavel kept staring at the logs’ squiggly lines. Suddenly he stood up, walked to his bookshelf, and pulled out an obscure textbook with a turquoise cover titled Petroleum Geology of the Permian Basin, written in the sixties by a little-known Midland geologist named Floyd Wright and not published until 1979, three years after Wright’s death. For several minutes, Feavel studied a map in the book labeled “Paleogeographic Map During Late Pennsylvanian Time.” He then flipped through some old West Texas Geological Society Bulletins until he found Volume 26, from the year 1987, which contained a map titled “The Wolfcamp Leonard Slope Play.”
As he studied the maps, Feavel felt what he would later describe as “a bright light turning on inside my head.” He theorized that the Boultinghouse wells had been drilled into some of the bigger slump blocks of Wolfcamp that lined the western shelf of the Midland Basin, one of the two main basins that make up the Permian Basin. That particular shelf was about one hundred miles long and ten miles wide, running from the town of Rankin, up through Midland-Odessa, and on north to the town of Andrews. Few of the Spraberry oilmen had ever tried to drill there. They called it a no-man’s-land, because it tended to produce far more water than oil.
Feavel, however, wondered if the reason Phelps’s fracs had worked in that very location was because there was still an infinitesimal bit of space, or porosity, in some of those bigger slump blocks, as opposed to the smaller blocks of more compressed limestone in the middle of the basin. Maybe, he speculated, Phelps’s fracs on the Boultinghouse wells had hit an oil-bearing “pay zone,” never before discovered, that ran somewhere through that 1,500-foot cut of the Wolfcamp.
Feavel started doing the numbers on his computer. If such a pay zone ran all the way through the western shelf of the Midland Basin, it was possible that tens of millions of barrels of oil—maybe hundreds of millions—could be recovered. Nearly trembling with excitement, he walked straight into Johnson’s office and let loose. Henry Petroleum, he said, should lease up all the acreage it could find over the western shelf and start drilling.
Johnson had grown up in the Permian Basin oil patch, working as a roustabout and a roughneck in the fields of Hockley County before heading off to Texas A&M University for a petroleum engineering degree. In 1980, three years after arriving in Midland, he had landed a job with Henry Petroleum and worked his way up. Now fifty, he was a pleasant-looking, balding man, known for being one of the better racquetball players at Midland’s YMCA. He was also regarded as one of the city’s more conservative oilmen. Over the years, he had seen what had happened to companies that had gotten carried away in the Permian, piling on the debt, then losing everything—and he often said he wasn’t going to let the same thing happen to Henry Petroleum.
Still, after listening to Feavel, Johnson decided to have a talk with the founder and chairman of the company, Jim Henry. The suspender-wearing Henry looked like Jimmy Stewart and acted like him too, patting his employees softly on the back when he saw them in the hallway, telling them what a good job they were doing for him. Like Johnson, Henry wasn’t much of an oil patch gambler: He had made his money on Spraberry wells, and now in his late sixties, he was happy to stick with Spraberry wells until the day he died. Predictably, he wasn’t at all inclined to bet the company on a geologist’s theory.
But he did agree with Johnson’s suggestions that some staffers dig around to find out what other oil companies had been doing near the Boultinghouse wells. They soon learned that a handful of independents—including two run by former ARCO employees who obviously knew about Phelps’s early experiments—had tried their own Wolfcamp wells. But, like Henry Petroleum, they had drilled on leases east of the Boultinghouse wells, and there was no way of telling how closely they had followed Phelps’s formula.
Then, one of Johnson’s landmen discovered that BP, after buying ARCO, had also tried a minor Wolfcamp program: It had drilled five wells in the Sweetie Peck field, slightly southwest of the Boultinghouse wells and directly over the shelf of Wolfcamp that Feavel had identified on the maps. BP’s wells had been miserable, bringing in only thirty barrels each before declining. BP executives had quickly shut everything down and left the Permian for what they thought would be greener pastures—or, more specifically, bluer waters, namely the offshore wells in the Gulf of Mexico.
And so, for the third time, that seemed to be that. But one night, Johnson found himself lying in bed, staring at the ceiling. He too couldn’t stop thinking about those Boultinghouse wells. He also couldn’t fathom why BP hadn’t been able to drill at least one decent well right next door. Something had to have gone wrong, he said to himself. There had to be a way to get those results again.
A few days later, Johnson told his senior landman to ask BP if it would be interested in offering a farm-out on the Sweetie Peck field. BP executives said they would be more than happy to let Henry Petroleum drill in return for a 5 percent override on any of the oil it found. There’s just one thing, Johnson’s landman added. Before we sign the contract, we’d like to see your reports on how you drilled and fracked your five Sweetie Peck wells. Sure, why not, said the BP executives.
When Phelps read the reports, which BP shipped to Midland from its Houston office, he started chuckling. BP had indeed gone into the Wolfcamp, but its engineers hadn’t used Phelps’s technique. Foolishly, they had stuck to the conventional, gelled sand frac.
Phelps believed that BP had recovered only 30 percent of what could have come out of the wells. When he told Johnson about BP’s blunder, Johnson immediately ordered his drilling team to spud, or drill, five wells on Sweetie Peck as close as possible to the BP wells. He also had more acreage leased up on land just south of Sweetie Peck, on the Chickadee field, and had five wells spudded there. Suddenly, the conservative Johnson wasn’t acting very conservative anymore.
Henry Petroleum’s drilling team went all the way through the Wolfcamp in both the Sweetie Peck and Chickadee fields. They set pipe and ran casing. BJ Services was then brought out to do Phelps’s fracs (with some modifications by Henry engineers), sending up to 2,800 gallons of water a minute down each well at 5,000 pounds of pressure. As many as twelve areas of the Wolfcamp were targeted, all in hopes that one might be the pay zone. In July 2003, the first of Henry’s Sweetie Peck wells, Caitlin 2801, came in at 120 barrels a day. (All Henry wells are named after female relatives of employees.) The other four—Jamie 4001, Britain 3101, Dorcas 3201, and Jamie 4002—produced between 120 and 150 barrels.
Then, down at the Chickadee lease, came another one of those phone calls. The foreman at the Beverly No. 1 well (named after one of Jim Henry’s daughters) called Henry operations manager LaMonica and shouted, “We’ve got oil flowing hard up the casing! It’s flowing at 2,800 gallons an hour and it’s making a roar.”
LaMonica did some quick calculations in his head, leaped to his feet, and told the foreman to choke back the well. If the well kept flowing, it was going to bring in 1,000 barrels on its first day, a stunning number, which LaMonica eventually would have to report to the Railroad Commission. He did not have to be told that at this point, the key was to keep the play “tight holed,” oilman’s lingo for guarding a secret. If word got out that a well in Upton County had brought in that much oil—and it was beautiful, sweet-smelling light crude—the rush would be on.
Johnson called a meeting with Henry Petroleum employees and advised them not to say a word about the company’s new drilling program—not even to their closest friends and family. He told the Henry geologists and engineers to keep their maps and well logs locked in their desk drawers, to be taken out only when needed. Besides Henry’s seven staff landmen, seven other freelance landmen were hired to pore over deed records in county courthouses, hunt down the names of the landowners living in the area that Feavel and other Henry geologists had mapped out as the best place to drill, and then persuade them to lease their mineral rights in return for 25 percent of all oil and gas revenue from their land. “Remember, you ride for the brand,” Johnson had told the freelancers when he asked them not to leak what they were doing.
The landmen quickly leased up 75,000 acres at the bargain basement price of $150 to $250 an acre. (Mineral rights were that cheap because most of the acreage, owned by ranchers and farmers, had never produced any oil or gas.) In addition to the two rigs in the Sweetie Peck, five rigs began running in the Chickadee field. The results were flabbergasting. The average Spraberry well for Henry Petroleum tended to produce between 10,000 and 12,000 barrels of oil in its first year. Henry engineers figured that each of the new “Wolfberry” wells—so named because the oil came partly from the Wolfcamp, partly from the Spraberry—were on track to produce between 20,000 and 40,000 barrels in the first year.
As required, Henry Petroleum filed monthly production reports with the Railroad Commission about its drilling activity. Such reports are often studied by scouts for other oil companies, but because Henry took its time—from eight to eighteen months—to bring many of its wells to full stream, no one could tell exactly what the company was up to. What’s more, Henry only had to report its production on a lease-by-lease basis—and with so many wells being drilled, there was no way of telling how much oil was coming in from a fully operating well. Nor did Railroad Commission rules require Henry to delineate how much oil it was getting from the Spraberry and how much from the Wolfcamp.
As a result, just about every oilman in Midland assumed that Johnson was running another routine Spraberry operation—everyone, that is, except for one oilman in his mid-forties named Earl Michie. Michie had grown up in Midland, a middle-class kid whose parents had died when he was a teenager. He had used his little bit of inheritance to pay his way through the petroleum engineering program at the University of Texas, and during his junior year, he had taped to his dorm wall a 1981 TEXAS MONTHLY cover about the state’s last big oil boom, which took place in the Austin Chalk, in Central Texas. “That’s what I’m busting my ass for, to get in on something like that,” he had said to his friends.
When Michie graduated, he worked for a tiny independent company in the town of Monahans before coming back to Midland in the mid-nineties. He and a partner, a geologist, established a company, Terrace Petroleum, which was nothing more than a one-room office with space enough for two desks. Their first contract was with ARCO, which had them drill some of its Spraberry wells on the cheap.
During that time, Michie got to watch Phelps try some of his early frac experiments, and later, he drilled some of his own wells into the Wolfcamp. Because he had little access to capital, and because he had had an untimely split with his partner, Michie wasn’t able to drill many Wolfcamp wells, but he knew there was oil to be found. And when he heard that Phelps was consulting at Henry Petroleum and that Henry was leasing acreage in places other companies had ignored, he rolled the dice. He sold what land he had to Autry Stephens, the Mad Driller, who was happy to buy just about anything, and he followed Henry’s wells, leasing acreage in Upton County. Michie was about to become a very wealthy man.
One evening in 2005 at the Petroleum Club, an oilman took a sip of whiskey and asked another oilman why Henry Petroleum was picking up acreage where no one had ever found oil. The word was that Henry had leased 200,000 acres over ten counties. What the heck were they doing out there?
By then, several of Midland’s oilmen knew Johnson was having his crews drill into the Wolfcamp. They also knew that he was using some version of a slick-water frac. Still, they were hesitant to try it themselves. They figured that even if the fracs worked initially, surely they wouldn’t sustain enough new production over the long haul.
Yet by early 2006, Henry Petroleum’s reports to the Railroad Commission showed more and more oil coming out of its wells. The reports were soon being faxed and e-mailed all over Midland. And suddenly everyone connected the dots: Henry must have found a new pay zone.
Landmen for other companies began scrambling to lease whatever acreage was still available atop the Midland Basin’s western shelf. Those who couldn’t find anything there went to other shelves. Midland’s mayor, Wes Perry, who owned an oil company, leased four thousand acres right between Midland and Odessa, land that had never been drilled. Other oilmen leased inside Midland’s city limits itself, drilling some wells a few hundred yards from their own neighborhoods. Sitting in a musty windowless conference room in his downtown suite of offices, the walls of which were decorated with almost hilariously cheap black and white prints of cowboys, horses, and oil wells, Autry Stephens, now in his late sixties, went on a rampage, purchasing more than 100,000 acres of leases to drill Wolfberry wells. And despite the fact that he had hearing aids in both ears and walked slightly stooped, Clayton Williams, who was in his seventies, was acting like a kid again himself, eventually moving seven of his rigs into the Permian Basin to drill in more than three hundred locations.
Other companies from outside Midland arrived to drill Wolfberry wells: Denver-based Berry Petroleum, Oklahoma City-based Devon Energy, Houston-based Apache Corporation, and at least a dozen more. Some were so determined to get into the play that they gladly bought up other oilmen’s acreage at premium prices. Concho Resources, a publicly held Midland exploration company, paid Michie’s company, Terrace Petroleum, and his partners a stunning $225 million for a portion of his acreage and production; it also paid Henry Petroleum an even more stunning $560 million for all of its assets. Scott Sheffield, the chairman and CEO of Pioneer Natural Resources, one of the country’s most profitable exploration firms, also wanted in. Pioneer had actually started in Midland in the early sixties as a Spraberry operator—it was then known as Parker & Parsley Petroleum Company—but by the late eighties, it had halted almost its entire Permian drilling program, and in the late nineties it merged with Mesa Inc., moved its headquarters to the Dallas suburb of Irving, and began drilling in other parts of the country, in Canada and Argentina, and in the Gulf of Mexico. Now Sheffield was selling his Gulf operation for $1.3 billion and using much of that money to return to the Permian, where the company was still sitting on 900,000 acres. By 2012, he announced, Pioneer would be drilling one thousand Wolfberry wells a year.
The truth is that the Wolfberry play would never have happened unless oil prices had taken off, jumping from $38 a barrel in 2004 to $50 a barrel in 2005 to $64 by mid-2007. And this time around, the price rise wasn’t set off by an OPEC-imposed production cap but by a higher worldwide demand for oil. As long as the price stayed somewhere close to $70, an oilman could drill and frac a Wolfberry well for a cost of about $1.6 million, recoup his investment within three years (assuming the well came in at more than one hundred barrels a day), and then rake in the profits for years to come. Even if a well quickly declined to just twenty barrels a day, at $70 a barrel, that was still $1,400 in daily income. Skim off the taxes, the operating costs, and the royalty payments to the leaseholder, and an oilman would pocket $700 from that one well every single day of the week for the next thirty years. All he had to do was drill enough of those suckers, and he’d be sitting pretty.
Because Jim Henry had stuck to his conservative business philosophy, refusing to bet his whole company on the Wolfberry, he had brought in a Midland-based partner, Pure Resources, to pay for 75 percent of the cost of new wells in return for 75 percent of the profit. If he had simply taken out bank loans to fund his Wolfberry project, Henry would have been able to pay back the loans with ease and become one of Texas’s biggest billionaires, putting Midland back on the Forbes 400 list for the first time in fourteen years. Nevertheless, he seemed perfectly happy with his 25 percent, telling people he was “blessed.” What’s more, he cheerfully gave his blessing to Feavel, LaMonica, and the company’s attorney, Doug Robison, when they decided to start a Wolfberry exploration company, ExL Petroleum. He also wished Johnson a fond farewell when he opened his own company, Summit Petroleum.
Not all the oilmen who launched Wolfberry drilling programs met with resounding success. Some couldn’t find the best pay zones in their leases. Others didn’t get the frac formula just right for the particular area they were drilling. (Because the nature of the limestone varied, a frac job that worked on one lease didn’t necessarily get the same results on another.) Nevertheless, by 2008, so many companies were doing so well that people in Midland once again began using the b-word. Beyond anyone’s expectations, the Permian Basin was seeing another oil boom.
Today people in Midland are still shaking their heads in disbelief. Although the recession in late 2008 dropped oil prices to a low of $35 a barrel in February 2009, forcing many oilmen to lay down their rigs, the other, long-feared b-word—bust—never happened. By January of this year, oil prices had returned to $70 a barrel, and everyone was right back at work. At last count, 73 companies are drilling Wolfberry wells in the Permian Basin, using more than 230 rigs to punch holes into the earth as fast as they can. From a distance, the rigs look like miniature Eiffel Towers rising up in the mesquite-choked fields. Pump jacks are going full speed, their horse heads rising and falling. At the oil field service yards, welding torches sparkle day and night as new equipment is built.
It is estimated that oil companies have so far spent more than $7 billion drilling Wolfberry wells. Johnson, whose new company is swamped with business—much of it from other oilmen who want a partner with Wolfberry expertise—believes the Wolfberry play will eventually produce two billion barrels of additional oil from the Permian that no one believed was possible just a decade ago. Pioneer Natural Resources thinks it alone has proven reserves of 500 million barrels. (In 2000, when it was calculating only its Spraberry oil, it figured it had 212 million barrels.)
True, these figures are a drop in the bucket compared with the 40 billion barrels that can be recovered in the Gulf of Mexico. It would take 600 Wolfberry wells producing 100 barrels a day, for instance, to equal the 60,000 barrels a day that were reportedly leaking from the one BP Gulf well that blew out in late April. But after such a catastrophic offshore oil spill—the worst in American history—and with the Obama administration now pushing for a moratorium on deep-
water drilling, finding oil in the continental U.S. has become sexier than ever. “Sometimes I wonder if BP wishes it was still out here with us,” one Midland oilman said. “Compared to what they’re going through, we look like the guys in the white hats, which doesn’t happen very often in our business.”
Midland oilmen seem determined to keep it that way. Although some have bought private jets and others have bought million-dollar weekend homes at Horseshoe Bay or swank condos at the Ritz-Carlton Tower in Dallas, they haven’t gotten wildly carried away like oilmen of the past. This time around, no Rolls-Royce dealership has arrived. None of the oilmen’s wives are wearing gold necklaces with diamond-studded pendants shaped like drill bits. “We’re playing this boom with great caution,” said Mayor Perry. He paused and looked out the window of his twelfth-floor office. “But I have to admit, it looks real. There’s so much traffic downtown that it’s hard to find a place to park. The good thing is that no one’s all that worried about getting parking tickets. They know a lot of our cops have gone off to get jobs in the oil fields.”
In fact, there has been such a need for oil field workers that wages for some entry-level jobs have jumped to between $15 and $20 an hour. Restaurant dishwashers, prison guards, maids, and even teachers have headed for the oil fields. At one point, Keith Dial, the manager of Midland’s most prestigious hotel, the downtown Hilton, had to scrub toilets in the guest rooms because he couldn’t retain enough housekeepers on staff. A new Cracker Barrel, unable to find employees, had to delay its opening for months, finally hiring a company that imported Eastern Europeans to fill the jobs. The flood of oil field workers into Midland and Odessa has led to a surge in mobile home sales. In the blue-collar neighborhoods, aboveground pools now glimmer in the backyards and new F-150 pickup trucks sit in the driveways.
And for the first time in three decades, a steady stream of young geologists and engineers is moving to the city. (The larger independents are offering college graduates with petroleum engineering degrees a $100,000 salary with a $20,000 signing bonus to work in their Midland offices.) There’s now a Midland Chapter of Young Professionals in Energy, a social organization that has seen its membership rise from twenty in 2007 to five hundred today. And yes, some of those members are sons of Midland oilmen who once swore they would never return. “I was living in Spain, trading commodities, married to a beautiful Spanish girl I had met on the beach, and suddenly it just hit me,” says Bryan Sheffield, the 32-year-old son of Pioneer’s Scott Sheffield. “I told her we had to move back to Midland because I just had to see what I could do.”
Even some women have arrived to make their mark. In 2007 Leah Thomas Rudnicki, a 34-year-old attorney, gave up a promising career at Houston’s Akin Gump and moved to Midland with her husband, also a lawyer, so she could work at her family’s oil and gas company, Trey Resources, where she’s executive vice president and general counsel. Sitting one afternoon in her office, wearing heels and a stylish black-and-white dress, she finished a phone call with a landman, swiveled around in her chair, and chatted happily about her life. “All day long, it’s the oil business,” she said. “Then on Monday night, I have a Bible study, Tuesday night is Junior League, Wednesday night is home with the family, Thursday night is the kids’ swim lessons, and Friday night is dinner at the country club with other young families we know. I’m more active here than I ever was in Houston.”
What’s also happening is that the higher price of oil, combined with new fracking and drilling technology, is opening up other plays in the Permian Basin. Remember David Arrington, Midland’s onetime boy wonder? This year he’s back, drilling $5 million wells in Ward County that go down 12,000 feet and then out horizontally 4,000 feet. He’s using a technique he developed in the Barnett Shale that he hopes will get him 1,000 barrels of oil a day and level out to 100 to 200 barrels over the next year. Irrepressible as ever, he’s bought a four-story bank building downtown for his new headquarters, with every office containing a pricey Ansel Adams photograph. He’s also had a sign made to be put on the roof of his building that reads, “DIZ MUZ B D PLAZ.” “I want everyone to know that Midland is still a place of hopes and dreams,” he told a visitor one afternoon. Then, while his visitor looked on in open-mouthed awe, Arrington, who is 49, leaped into the air, stretched out his arms and legs in a perfect Herkie move, and shouted, “Yipeeeeeeee yeeeee haaaaaw!”
One morning a few months ago, Dennis Phelps, the man who got the whole thing started, walked unnoticed into the Main Street Diner, a hangout for the oil crowd just south of downtown, took a seat in a back booth, and ordered the $5.09 special: eggs, bacon, and grits. The great irony of this story is that Phelps has never made a dime off the Wolfberry play. When he first came to Henry Petroleum, he made it clear he wanted only a daily consulting fee so that he could go to East Texas whenever he wanted to be with his wife—and that’s exactly what he got.
“It doesn’t bother me,” he said with his usual shrug when asked if he regretted not getting rich like just about everyone he once worked with. “All that is hindsight. God is taking care of me, not some oil wells.”
Phelps, who is 64, still drives out to the Permian every few weeks. Like so many others who have spent their lives working in the Midland oil business, he just can’t let go. He’s now a part-time consulting engineer for one of the city’s most famous oilmen, Don Evans—yes, that Don Evans, former Secretary of Commerce and close friend of George W. Bush’s. “I come into my office, study logs, stare at charts, and do everything that I’ve always done,” Phelps said. When pressed about what exactly he’s up to, he said, “Oh, you can write down that I’m studying another idea.”
Then he put down his fork and smiled. “I guess you can also write down that it’s a pretty good idea.”