“The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters” by Gregory Zuckerman (Portfolio Hardcover, 416 pages, Nov. 5)
The rise of shale oil and natural gas in the past decade gets top billing in “The Frackers,” but it's the personalities who end up shining.
Oklahoma energy executives and visionaries Harold Hamm, Aubrey McClendon and Tom Ward feature prominently in Gregory Zuckerman's book. Its subtitle, “The Outrageous Inside Story of the New Billionaire Wildcatters,” might be marketing bluster, but it's an accurate description of how those men, and others before them, fought the conventional wisdom that oil and gas exploration in the United States was waning.
The book traces the shale boom to George P. Mitchell, whose company pioneered the use of hydraulic fracturing to unlock natural gas from the Barnett Shale in North Texas. Mitchell's persistence paid off, but much of the credit also goes to advancements in horizontal drilling technology and computing power, which allowed oil and gas companies to better pinpoint the “pay zones” in rock formations.
Zuckerman, whose last book, “The Greatest Trade Ever,” detailed hedge fund manager John Paulson's huge bet just before the subprime mortgage market collapsed, is a writer at The Wall Street Journal. In “The Frackers,” he focuses on the larger-than-life personalities so frequently found in the oil patch. But Zuckerman also takes the time to tease out the stories of a few of the more humble people caught up in the new energy boom.
Among them are Elizabeth Irish and her husband, Matt, who moved from picturesque Oregon to an oftentimes freezing Williston, N.D., for jobs as the city became the Bakken's newest boom town. It's also nice to hear about William “Buck” Butler, the hardworking rancher in South Texas who seems bewildered that his land is suddenly worth millions. The 87-year-old's one regret: “The only thing wrong is it came forty years too late. I'm too old now, I don't know what to do with the money.” Butler's story is a good counterpoint to the excesses of some of the executives profiled in “The Frackers.”
Zuckerman doesn't shy away from listing those appetites and side interests. Mitchell spends more than $600 million of his company's money to develop The Woodlands, a planned community on the north side of Houston. After Chesapeake Energy Corp. takes off, co-founder and CEO McClendon spends lavishly on wines, antique maps and houses in Bermuda, Hawaii and Michigan. Ward, just as driven but more low-key than his gregarious Chesapeake co-founder, also used his personal fortune to buy houses, land and cattle. Both men dabble in commodity trading after forming their own hedge fund.
McClendon and Ward also donate millions to universities, nonprofits and religious institutions. They were part of the ownership group that brought the NBA to Oklahoma City. As McClendon saw it, the Thunder was an integral part of attracting — and keeping — employees. “You can't attract first-rate employees, especially young ones, if your city is a dud,” McClendon said.
At its heart, though, “The Frackers” is about respect. The independent companies at the forefront of the shale boom — Mitchell Energy & Development Corp., Continental Resources Inc., Chesapeake, EOG Resources Inc. and others — weren't taken seriously by the majors like ExxonMobil Corp. and Chevron Corp., which had left the United States to focus on international oil and gas fields.
Much of Chesapeake's success came from its early and aggressive use of landmen, described by Zuckerman as the Rodney Dangerfields of the oil patch, to secure the best acreage in promising shale plays. When it was late to the game, Chesapeake paid top dollar for the best land or acquired rivals, piling on more and more debt. That strategy would come back to bite the company when natural gas prices fell.
Continental's Hamm, the son of Oklahoma sharecroppers, feels spurned by ExxonMobil's CEO when he tries to rally industry support for a campaign to promote domestic drilling. He also feels dismissed by President Barack Obama at a dinner honoring philanthropists when he tries to explain the fossil fuel boom, an action that led Hamm to throw his support — and money — behind Republican Mitt Romney's presidential campaign in 2012.
Hamm, who is reaping the rewards of Continental's persistence in unlocking shale oil in North Dakota's Bakken formation, keeps a wary eye on his fellow energy executives who focus on natural gas. But he remains convinced oil will be the key to America's energy future.
The book's most sympathetic portrayal is of Charif Souki, a Lebanese immigrant whose drive to build giant liquefied natural gas terminals for import — and later export — is almost comical. Souki got his start in the energy business brokering deals between Wall Street investment banks and wealthy oil barons across the Middle East. He soon tired of that, moving to Aspen, Colo., and later Los Angeles, to run restaurants and clubs. Souki, the founder of Cheniere Energy Inc., frequently faces derision from big investors and even some of his own board members over his grand plans for natural gas.
Zuckerman goes behind the scenes in boardrooms, hotel bars and restaurants to document some of the deals being made and the internal company discussions of where to deploy scarce capital. His explanation of the complicated geology behind the hottest oil and natural gas shale plays is straightforward and not overly technical.
Ward, after getting burned out from Chesapeake's rapid expansion, sits out a few months but can't wait to get back into the industry with his own company, SandRidge Energy Inc. Neither Ward nor McClendon can escape the fallout from the financial meltdown in 2008. Zuckerman describes in detail how both men faced margin calls from their bankers and how they managed to rebound, McClendon with the help of a friendly board and Ward by reaching out to fellow Oklahoman and wealthy patron George Kaiser.
“The Frackers” shows how McClendon and Ward ultimately lost their companies this year after battles with activist investors. The fallout from those boardroom skirmishes is still being felt, most acutely by Chesapeake's layoff of more than 900 employees in the last few months.
Still, readers will be interested to hear about McClendon's plans for a racetrack and golf course in the Oklahoma City suburb of Arcadia, an idea that was nixed when estimates reached $200 million. Oklahomans might also be surprised that Devon Energy Corp. isn't mentioned much at all, except for a few passages about its $3.5 billion deal to buy Mitchell Energy in 2001 and Devon's technological accomplishments in the Barnett Shale in North Texas.
“The Frackers” tacks on a curious afterword that explores some of the environmental controversy over the rapid development of oil and gas in the United States and around the world. While brief mentions of the environmental pushback in places like Pennsylvania and New York are made in other parts of the book, the afterword feels a little forced. “The Frackers” also lacks an index, which would have been helpful to keep track of the many companies named in its pages. A “cast of characters” at the front of the book is a nice addition.
Despite those minor detractions, “The Frackers” is an engaging overview of the last 20 years as domestic energy production went from an understudy to top billing in the American economy. As Zuckerman concludes, “For all the criticism the country has fielded for losing its edge in innovation, surging American energy production is a reminder of the deep pools of ingenuity, risk taking and entrepreneurship that remain in the country.”