The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters (4 page)

It took about ten minutes before Mitchell and the other executives realized their lawyer had left, Gay recalls.

A way out of the jam was found in a pipeline being built by the Natural Gas Pipeline Company of America to take gas from North Texas through Oklahoma to the Texas Panhandle, where it would be transported to Chicago. The company agreed to a twenty-year contract to buy natural gas from George Mitchell’s company at thirteen cents per thousand cubic feet, a price slightly above the market price. (The deal would be renewed in 1977.)

The contract was a lifeline for Mitchell Energy, which over many years supplied 10 percent of Chicago’s natural gas needs. Mitchell’s company continued to refine its fracking techniques, succeeding in bigger fields and benefiting from a program financed by the Department of Energy that split the costs of some expensive frack jobs, with each chipping in $1 million.

Over the years, George Mitchell bought out almost all his minority partners. Many were eager to sell, worried about the company’s heavy debt load and cash flow issues. The strain affected Howard Kiatta, a Mitchell geologist, when he tried to buy a map one day in the 1960s.

“Just send me the invoice and we’ll pay it,” Kiatta told the salesperson.

“No, you work for George Mitchell & Associates. You send us the check first; if the check clears, then we’ll send you the map.”

“Why?”

“Because he doesn’t pay his bills.”

Mitchell felt the need to become involved in even the smallest decisions of the company, exasperating some employees. Jack Yovanovich, a senior vice president in Mitchell Energy’s land acquisition area, recalls it this way: “George would come around almost three or four times a week, sometimes twice a day, and always tried to control every bit of leasing. Now you think about this: You’re leasing lots that are less than, well, some of them, around one-tenth of an acre, some of them two-tenths, and George is coming around wanting to know what you’re doing here and how you’re doing it, why you’re doing this and why you’re doing that, and he was driving me and my guys crazy.”

One day, Yovanovich told his boss, “Look, George, you’ve got to leave us alone.” Mitchell agreed, after Yovanovich said he’d provide him with a weekly written report detailing what they were doing.

The company went public in 1972, providing the much-needed infusion of cash for newly named Mitchell Energy & Development, and George Mitchell was able to keep 70 percent of the voting stock. The 1973 Arab oil embargo sent energy prices flying and Mitchell’s shares also climbed.

By the late 1970s, Mitchell had turned more relaxed and there was a bit less yelling and screaming. The period proved a fruitful time for the natural gas industry, with prices spiking and revenue increases following.
*

By now, George Mitchell had ten children, a brood that became a matter of fascination and humor at his company. When Shaker Khayatt, a Mitchell Energy director, sat in Mitchell’s office one day, he noticed ten different children’s photos on the wall.

“George, that’s very interesting. I never thought of taking pictures of my children at different ages,” Khayatt said.

“What are you talking about?”

“Well, you have them young here and then about five years later.”

“Wake up, they’re all different,” he told Khayatt.
⁶

The growing family sometimes presented challenges for Mitchell. “When the family traveled together, even on short trips, the children would count off so that one wouldn’t be left behind in the confusion,” he recalls.

Mitchell, an Episcopalian, later confided that although he loved his kids, his wife, a devout Catholic, was the one spurring the family’s growth. After having three daughters and one son, “my wife kept saying she wanted one more girl,” he says. Instead, Cynthia Mitchell had six more boys. “Finally, we gave up,” he says.

As Mitchell loosened up, his employees developed a deep respect for him, partly due to the enthusiasm he brought to the job. At the company’s headquarters, he roamed the halls, popping into various colleagues’ offices, asking what employees were working on and how he could help. With gas prices higher, he was in a better mood, and his employees came to enjoy his surprise appearances in their offices.

Mitchell favored checkered pants and jackets that reminded some of the attire of a used-car salesman. He managed his company with an informality and dedication that inspired employees.

“George avoided all publicity,” says Clark, the senior executive. “He was just work, tennis, work, tennis, work, tennis.”
⁷

Mitchell evolved into an unusual energy baron. A few years earlier, he had met R. Buckminster Fuller, a futurist and an early environmental activist. Fuller believed human sustainability was in jeopardy and that societies needed to turn to renewable energy sources, including solar and wind power. Mitchell became convinced of the need to pursue alternative energy options in addition to fossil fuels.

“It took me three or four days to understand what he was talking about,” recalls Mitchell, who hosted Fuller at various conferences. “He made me believe we were really going to have trouble keeping up with society.”

By the 1970s, Mitchell was reading the work of Dennis Meadows, a scientist who recommended ways to slow global growth to reduce the impact a growing population was having on finite resources. He also became an advocate for sustainable energy technologies and food sources.

Focused on preventing urban decay from taking place in Houston and elsewhere, Mitchell visited troubled neighborhoods around the country, such as Brooklyn’s Bedford-Stuyvesant and the Watts area in Los Angeles. “All of our cities are in trouble,” he said in an interview at the time. “The concentration of the disadvantaged and the flight to the suburbs of the middle-class whites—that’s destroying all our cities.”

Mitchell Energy purchased fifteen thousand acres of land twenty-seven miles north of downtown Houston and began building a planned city that would embrace his evolving views on the environment and sustainability. He spent evenings at home with his kids, playing with an elaborate electrical train set and designing forests for his new city.
⁸

The company’s bankers were dead set against his project, however, viewing it as a distraction and likely money loser. They refused to lend $10 million to get it going. Mitchell persevered, siphoning enough cash from his company to begin building The Woodlands, a mixed-income development.

Mitchell planted tall trees, built flowing waterways, and banned billboards in his new city. He decided that pine trees would blend with waterways and residents would be discouraged from cutting their grass, to create a natural look.

The Woodlands opened in 1974 and became the company’s headquarters, though some investors and bankers continued to grumble about it. Mitchell himself grew frustrated when he tried to introduce wild turkeys to the development and one of his employees couldn’t resist shooting and killing one of the birds.

•   •   •

B
y the late 1970s, George Mitchell had much bigger problems than real estate and wild turkeys. His key Wise County field was beginning to run dry and his experts warned that the company had about ten years left before a severe decline in gas production would begin.

Mitchell Energy had committed to delivering one hundred million cubic feet of gas daily to the pipeline feeding Chicago. Mitchell couldn’t see how his company could continue to meet its obligations, or where its future source of gas would come from, and he didn’t know what to do.

“You could see it fading,” he says. “I knew our gas stream was getting weaker. In a few more years I knew we’d be in trouble.”

As oil and gas prices weakened and Texas real estate stumbled in the mid-1980s, pressure grew. It didn’t help that demand for natural gas was lagging behind coal and nuclear power.

Mitchell and his men had spent years hunting the country for new sources of gas, in anticipation of their key field running dry. The efforts had largely met with abject failure, however. In the 1970s, Mitchell’s team had explored a sandstone formation called the Clinton that extends through Ohio, New York, and Pennsylvania. Huge amounts of gas could be found in the region and it had close access to the energy-hungry East Coast, exciting Mitchell executives.

But the natural gas, called deep-basin gas, was below the level of most reservoirs and was tightly packed, making it a challenge to tap. While the Mitchell crew was experienced with fracking, their efforts were a waste of time.

“We nursed and piddled along in that area over a period of time and nothing really ever developed of any great consequence,” recalls Jack Yovanovich, Mitchell’s land-buying pro.

A promising spot in the Rockies turned into just as much of a disappointment. Mitchell chased other areas, from Whittier, California, to New Mexico, only to retreat back to Texas each and every time.

Mitchell was still searching for a way out of his quandary in 1981 when he read a research paper one of his veteran geologists, Jim Henry, had submitted to a geological publication. Mitchell was such a control freak that he demanded to see every paper submitted by employees to any periodical, so he got an early peek at Henry’s research. The paper described a thick rock called shale that was found deep below Mitchell Energy’s acreage in Wise County.

Rock layers below the surface are stacked on top of one another like pancakes; shale is one of the deepest pancakes in the ground. The layer in Texas was called the Barnett Shale, a name originating in the early twentieth century. That’s when geologists mapping the area noticed solid, black, organic-rich rock in an outcrop near a stream. They gave it a name inspired by the nearby Barnett Spring, itself named for John W. Barnett, a farmer in Texas’s San Saba County. Most of the shale formation was a mile or more below the surface, and it ran under much of North Texas, even below the city of Fort Worth.

Mitchell’s employees had drilled through the Barnett Shale every once in a while, on their way to even deeper sedimentary rock formations. When they passed a drill bit through this shale, they often noticed gas “shows,” or tantalizing indications that this rock likely held substantial amounts of natural gas. The gas “kicks” from the rock were promising signs, but Mitchell and his men usually ignored them, as others had. It just seemed too hard to extract gas from this tight rock so far below the surface.

Drillers had long deemed it fruitless to target other shale layers around the country, even when they seemed to hold gas. Indeed, in 1976, the Department of Energy’s Eastern Gas Shales Project had determined that a substantial amount of gas was held in shale in Appalachian, Illinois, and Michigan basins. The study focused some attention on this rock, but it was considered too expensive to try to produce gas from it.

Those sedimentary layers were in the eastern part of the country and nowhere near Texas. So the project was of limited help to the Mitchell team. By 1980, drillers saw the Barnett Shale formation as little more than a marker indicating that another, more attractive layer called the Mississippian might be close by. There didn’t seem much more reason to pay attention to this shale rock.

Jim Henry’s paper was one of the first to detail the Barnett rock formation and to demonstrate that it might be full of oil and gas that actually might be extracted. Henry was proud of his paper, which effectively took the Barnett area off the industry’s back burner. Even he didn’t jump up and down at his results or tell his bosses to actually start drilling in the area, however.

“I made reference to hydrocarbons in the Barnett,” Henry says, “but I was not advocating that anyone run out and drill these expensive wells.”

Mitchell, desperate to find a new source of gas, was excited despite Henry’s caution. If Mitchell somehow could tap this shale layer that his company already was sitting on, he figured he might finally have an answer to all his problems.

Drilling deep in the Texas fields was no more than a hunch, the best option he could come up with. Mitchell Energy already had invested a lot of money to build infrastructure to gather and process natural gas in the area. And the company held about 400,000 acres in Wise County. It made sense to at least see if this rock deep in the ground might produce gas, Mitchell decided.

“I thought maybe it would work in the Barnett because there are a lot of large faults, and a lot of movement in the earth’s crust, and I thought that could lead to gas,” he says. “We had a better chance of getting gas there than anywhere else at the time.”

Mitchell was newly enthused about shale. But this rock—and its tantalizing potential—wasn’t any kind of big secret in the energy patch. Most experts scoffed at drilling in shale, seeing it as the fool’s gold of the energy business, a waste of time compared with much more promising types of rock below the surface.

Although oil and gas is said to lie in “reservoirs,” petroleum deposits don’t accumulate in anything resembling a subterranean pool. They’re trapped within beds of various rock, hiding in the pore spaces within the rock. That helps explain the derivation of the word “petroleum”—from the Latin word
petra,
for rock, and
oleum,
for oil. For decades, drillers focused on the oil and gas in various layers of rock closest to the surface. By the 1980s, though, it had become harder to find large deposits of energy in those nearby layers. That’s why George Mitchell became intrigued about the idea of going farther down, into shale.

Like other forms of petroleum, oil and natural gas in shale formed from the accumulated remains and excrement of plankton, algae, and other organisms that lived in large bodies of water, hundreds of millions of years ago. That origin explains why the term “fossil fuel” became popularized.

Over time, the organic-rich matter accumulated in various layers of sediment and was compacted and solidified, with new layers on top of it, just like a layer cake.

As the organic material was subjected to the intense heat and pressure found below the surface, it sometimes turned into oil; other times, when there was more heat deep in the ground and therefore more cooking, it became tiny bubbles of odorless natural gas. With more heat and time, some organic material turned into coal. The heating process also sent a lot of that oil and gas migrating upward toward the surface, like fat rising to the top of broth, until it was trapped in a higher rock formation with a seal preventing it from rising any farther.