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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Still, in 1995 demand was low—Mitchell had just lost a major customer—and so were prices. A young engineer suggested that the company cut costs by using water instead of gel to frac the shale. A great many people inside the company grumbled again, but the water frac produced about 15 percent more gas than the gel mixture. Mitchell also realized that it could frac wells two or three times; old wells thought to be played out could be brought back to life. “You have to do some things on faith and understand them later,” Steward said.
Around this time, George Mitchell, in his eighties and already a billionaire, started thinking about selling his company. The best way to make the company attractive for sale was to drill more wells and increase production, which it did. Oklahoma-based Devon looked at purchasing Mitchell around 2000 but turned up its nose at the Barnett experiment. By the time it took another look, Barnett gas production had increased 55 percent, and it ended up buying Mitchell in 2002 for $3 billion. Devon subsequently stepped up work in the Barnett, experimenting for the first time in the Fort Worth Basin with horizontal drilling. Instead of simply going vertically into the shale, drill pipe could now be pushed down and then gradually curved to traverse the shale itself, allowing four times as much gas to flow as in older, vertical wells. There were risks—drilling close to fault lines had been profitable in the Austin Chalk but problematic in the Barnett—but they paled in comparison with the advantages. As it happened, gas prices started a steep climb that coincided nicely with Devon’s acquisition: from $2 per billion cubic feet in 2003 to around $6 today.
It was about this time that someone approached Keith Spickelmier with an oil-and-gas deal in the Barnett. Needing advice, Spickelmier contacted Wright, a fellow investor in previous deals. The two got beat on that particular enterprise, but Spickelmier asked himself: Why buy into someone else’s deal when they could do their own? Soon, he and Wright invested about $500,000 of their own money and, thanks to investors like Sid Bass and Wellington Investments, had a $22 million stake. By then, interest in the Barnett had increased substantially. “We could have raised a multiple of what we got,” Spickelmier told me.
Soon after, Knowles teamed with the company and found that leasing mineral rights in the Barnett had become much dicier. “One day I’m trying to convince people that they have minerals that can be exploited and produce gas,” he told me. “They don’t believe me. The next day they’re media-savvy. They all have minerals and they’re all sitting on a gold mine.” Larger companies were holding town hall meetings just to introduce themselves to landowners; at the end of their presentations, they even had paperwork ready, should locals get the urge to lease on the spot. Knowles decided to move away from the Barnett’s crowded core, in Denton, Tarrant, and Wise counties, south toward more speculative areas in Johnson, Hill, and Ellis counties and then farther south, into Erath, Hamilton, and Comanche counties. The great Barnett land rush was on: Unproven land that Westside wanted to lease for $25 an acre was going for $300. No one wanted to look like the guy who’d leased cheap. Knowles would offer $200 an acre only to be told that offers for $300 were already on the table. All Knowles could do was wait to see who was bluffing. “Well, send your offer over,” they’d say if he started to withdraw. “We’ll take a look at it.”
As of last September, 3,700 Barnett wells were pumping about 1.1 billion cubic feet of gas, worth about $6.6 million a day, with a believed 26.2 trillion more cubic feet to exploit, enough gas to heat the entire U.S. for a year. This explains why there are now wells under Fort Worth’s Gateway Park and Woodhaven Country Club and why players in the gas business don’t like to hear about wind power: “This Barnett is marvelous,” Steward said. “It’s a story I love talking about. It happened at exactly the time it had to happen.”
Spickelmier, of course, kept his exuberance in check. Westside’s Lucille Pruitt #1 came on line in October 2004, and in December the company filed its first annual report with the Securities and Exchange Commission. It was even more carefully drafted than usual, due to the post-Enron Sarbanes-Oxley Act, which makes all CEOs prison-bound for any criminal activity discovered within their companies: “There can be no assurance that sales of our oil and gas production will ever generate significant revenues,” the 10K said, “[or] that we will ever generate positive cash flow from our operations or that (if ever attained) we will be able to sustain profitability in any future period.”
I WOULDN’T HAVE EXPECTED Manhattan to make Spickelmier nervous, but it seemed to. The occasion was the Independent Petroleum Association of America’s Oil and Gas Investment Symposium last April, and Wright and Spickelmier were there on a lobbying mission, hoping to persuade stockholders to hang on to their shares, analysts to assess the company favorably, and fund managers to invest in Westside on behalf of their clients. Perception is everything on Wall Street, and Westside had to look like a winner in order to grow. “This is our chance to tell our story,” Spickelmier told me, striding through the lobby of the Sheraton, clutching his briefcase. “To get the word out.” Unfortunately, Westside’s competitors had come to New York for the same reasons, bearing glossy brochures about their Barnett successes; executives from Denver-based Infinity Inc., a small company much like Westside, had even been asked to give a presentation, which had to have been annoying. “We’re not gonna issue press releases just because we woke up this morning,” Spickelmier told me. “If we build value, all that will take care of itself. Value will be reflected in the price of our stock or the private market. Our job isn’t to run the stock up; it’s to manage the business.”
No one on the seller side of the crowd looked like my idea of an oilman, much less a Texan—no boots, no backslapping, no belly laughs. Everyone resembled Spickelmier and Wright, who wore elegant, conservative suits and slightly clenched jaws. Some things haven’t changed since the humiliating oil bust: Gas may be a commodity now, traded like pork bellies and hedged to reduce risk in all sorts of novel ways, but the money—from initial financing to fund managing—still resides largely on Wall Street, so Texans, who sold their own banks in the early eighties, are still drawn here, hat in hand.
Traipsing upstairs into a reserved conference room with a sunny view of the middle floors of several Manhattan office buildings, Wright and Spickelmier prepared for what was, essentially, an oil-and-gas version of the movie Groundhog Day: Over and over, all day long, they would describe the Barnett and their business there. It became clear in the first few meetings that the “dumb money” didn’t seem to be so dumb anymore. As the manager of one fund said to me of the Barnett: “All the easy money has been made. Now you have to know what you’re doing.” The men—and they were all men and, except for one, all white—who paid calls on Westside were as vague and noncommittal as Spickelmier had been to John Olson. Casually dressed—they had the money, after all—they had the calm, secure air of people paid to know when to hold and when to fold. It wasn’t long before Wright and Spickelmier took off their jackets.
Their pitch was good enough: They had close to 60,000 acres under lease; they had one well producing and were drilling a second; they had no debt; they had money in the bank and a prestigious if small board of directors; and, of course, the Barnett was enjoying a reputation as a sure thing, thanks to better seismic studies, horizontal drilling, and the ability to frac and refrac the rock. “The Barnett is the gift that keeps on giving,” Wright said, more than once.
But the money managers had questions that showed they had done some homework: Drilling equipment was now hard to get. Did Westside have access? “The capital might be easier to get than the rigs,” someone joked. How much land, in general, was still available for lease? “Chesapeake [a very large, very successful competitor] will own the whole state of Texas before this is over,” one manager cracked. Spickelmier and Wright didn’t think the jokes were funny. How much would Westside pay to get the acreage it wanted, when some of the big companies were paying $8,000 an acre?
Spickelmier took a deep breath. “Five hundred dollars an acre for the right parcel,” he said.
Finally, a shaggy-haired, expensively dressed older man from Santa Barbara seemed more than politely interested. How much had their first well produced, he wanted to know. Wright gave him the number.
“Production will go up?” he asked hopefully.
“If not, you will not see me around here next year,” Wright answered.
Silence descended, and the man got up to go. He nodded, smiled, and shook hands encouragingly. “It’s a good story,” he said.
Wright grinned. Spickelmier beamed. And just like that, everything new was old again.
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