The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters (39 page)

“I didn’t know anything about the oil business,” Butler acknowledges.

After each setback, Butler was forced to sell some land or cattle to raise cash to keep the business going. But he also resorted to borrowing millions of dollars to maintain his operation, he says, turning to banks and sometimes a local Chevrolet dealer. It got harder as he aged. At one point, he was down to a thousand dollars in the bank.

Butler worked seven days a week into his eighties. He desperately needed a new truck, but he couldn’t afford it. Butler and his wife, who years earlier had traveled the nation, hadn’t taken a vacation in thirty-seven years.

“We scraped by,” Butler says, especially when drought conditions sent the price of hay and feed climbing. “We were barely making our payments” on the debt.

By 2010, Butler was eighty-four years old and worried about the future. His middle-aged sons were hard workers, but Butler didn’t know if they could handle running a business that owed several million dollars. “I lay awake thinking about what the boys would do,” he says. “I didn’t think they could handle the pressure I was dealing with.”

Vera Butler had a nervous breakdown at one point and several times had to call an ambulance to come to her aid. She began taking a low-grade Xanax pill every night to help with the strain.

“I’m a worrier,” she says. “We owed on everything.”

One day in 2010, Butler was on the phone in his tiny, ragged office, a deer with huge antlers mounted on the wall above him, when a visitor knocked on the door. He said he represented the giant oil company ConocoPhillips and he wanted to lease some of Butler’s land to drill oil wells on his property.

“What would you give me?” Butler asked, as the man sat on a torn couch that once resembled the color yellow.

“I’ll give you fifty dollars an acre for a two-year lease,” the ConocoPhillips landman replied.

“Lemme tell you something, this land is worth more than that,” Butler said indignantly. “I’ll lease it for one hundred dollars.”

Butler had no idea what his land was worth at the time, but that sounded like a good, round number to ask for. “I just knew one hundred dollars would help,” he explains.

The ConocoPhillips man got up to walk away and find another landowner willing to take his deal. Butler didn’t flinch. About five minutes later, after it was obvious Butler wasn’t going to buckle, the landman came back and told Butler he had a deal. They sat down at the desk and Butler agreed to lease two thousand acres for an up-front payment of $100 for each acre, or a total of $200,000. The contract called for Butler also to receive a cut of future revenue from the wells.

On the outside, Butler played it cool with the ConocoPhillips man. Inside, he was shaking. After the landman left, he picked up the phone to tell his wife what had happened.

“It was shocking,” he says. “I thought the world was coming to an end.”

Within an hour, two of Butler’s neighbors came by, one of whom also had been approached by the landman. “Did you really lease your land for a hundred dollars an acre?” one neighbor asked. “You think that’s a good price?”

“Well, it was good for me,” Butler told him.

Later, when Butler handed Vera the $200,000 check, she laid it on their table at home and they both stared at it in disbelief. Butler eventually leased the rest of his five thousand acres to other oil companies.

It turned out he was sitting on choice pockets of oil, resulting in hefty checks when drilling began. In the first year of oil production from his property, Butler cashed checks for over $1 million, from just one well on his property. In 2012, he received about $3 million. Finally he was able to pay back the money he owed local banks, sending registered letters with checks in increments of $500,000 until his debt was clear. Soon Vera noticed her stress easing.

“I’m okay since we paid off our debts,” she says.

In early 2013, Butler estimated that his acreage was worth more than $40 million, not including the checks he already had cashed and the million dollars he had in the bank.

“I don’t owe a crying dime, for the first time in my life,” he says. “It’s too good to be true.”

Unlike the Beverly Hillbillies, Butler and his family didn’t use their newfound wealth to move to California or anywhere else. Butler spent some of the windfall to buy back land he had been forced to sell after he had been taken advantage of, righting an earlier wrong, in his view.

He encouraged his sons to spend at least some of the cash on their own families. “It’s all right to blow your money on some things, Uncle Sam’s gonna get it anyway,” he told one of his sons. “But God damn, don’t blow it all, it won’t last forever.”

When a ConocoPhillips representative told Butler that the wells on his property were proving so prolific that the oil could keep pumping for another forty years, Butler turned wistful. “The only thing wrong is it came forty years too late,” he replied. “I’m too old now, I don’t know what to do with the money.”

Butler does have one extravagance in mind. One day, he hopes to hire a driver to take him to see Wyoming.

“That would be my treat,” he says.

•   •   •

I
n early 2010, a young director named Josh Fox debuted a film called
Gasland,
documenting his cross-country trip to visit individuals living near drilling sites in Colorado, Wyoming, and Texas. Fox said his family had been offered $100,000 to lease their land in rural Pennsylvania and he was out to see if hydraulic fracturing was safe.

The film told horror stories of individuals and animals allegedly harmed by drilling. Fox’s interviewees said methane from nearby gas drilling had invaded their water. In the most eye-catching scenes of the film, a homeowner turned on a faucet in his kitchen, held a match under the running water, and watched it catch fire, in what seemed like sure evidence of the perils of gas drilling.

Fox’s film said fracking would endanger the Delaware River watershed, threatening New York City’s main water source. That created nervousness among members of the city’s media elite, most of whom hadn’t been paying much attention to shale production.

Most scientists considered
Gasland
an effective polemic rather than an accurate depiction of the risks of fracking. Drilling for oil and gas is a messy, noisy, dirty business and it made sense that some local residents would resent the impact on communities. Some noted that methane—a colorless gas that’s generally considered nontoxic unless it’s in super-high quantities—occurs naturally in shallow bedrock and has been known to naturally seep into water wells and springs around the country. That potentially helped explain the flaming faucets, the scientists said.

The energy industry wasn’t sure how to respond to the film. Range Resources, the company that discovered the Marcellus Shale, began sharing the names of the chemicals it was using to frack certain wells, but most drillers remained reluctant to share the details of their liquid concoctions. Some industry executives put out white papers, trying to demonstrate that the movie’s arguments weren’t based on science. But who wants to read a white paper from Big Oil when you can watch a film that inflames? And while the oil industry is notorious for exerting influence on politics and the media, most of the smaller companies behind the shale revolution had relatively little experience dealing with the public. In April 2010, when an oil rig in the Gulf of Mexico operated by oil giant BP began spewing oil, leading to the biggest spill in history, it sowed more suspicion of drillers.
Gasland
would gain an Academy Award nomination and help shape popular opinion about fracking.

•   •   •

A
t that point, concern was rising that the chemicals used in the fracking process were harming residents and animals near gas wells in Pennsylvania and elsewhere. The industry insisted the liquid wasn’t especially dangerous, but drillers wouldn’t say what exactly was in their concoctions, arguing that the details were a trade secret. That only added to the growing fears.

It still wasn’t clear why the wells in Dimock were having problems. But there were enough verifiable examples of spills involving fracking chemicals, such as one by Chesapeake and drilling company Schlumberger that killed nineteen cows in Louisiana, to cause nervousness.

In late February, McClendon went to Cambridge, Massachusetts, to speak to students and faculty at Harvard University about how natural gas was “fueling America’s clean energy future.” As he answered questions from the crowd, a young woman screamed out, “Drilling is killing people in Pennsylvania!”

“Really?” McClendon shot back. “How many people have been killed in Pennsylvania?”

“You’re really going to ask me that?” the woman said.

Another woman said arsenic, benzene, and other dangerous chemicals were found in water near gas wells, though they weren’t Chesapeake’s.

McClendon grew uncomfortable by the unexpected pushback, but he didn’t back down. He said one million Americans—or one in three hundred of the entire country—already had signed lease contracts with Chesapeake. They were clearly in favor of hydraulic fracturing and weren’t being harmed, he said.

A segment of the crowd didn’t seem won over by McClendon. As he prepared to leave the stage, a student called out, “You suck!” Another yelled, “Frack you!”

•   •   •

C
rude was surging from the Bakken in North Dakota and Montana in 2010. That year, the formation pumped 225,000 barrels a day, with Harold Hamm’s company, Continental Resources, responsible for about 10 percent of the output. Five years earlier, just three thousand barrels a day were coming from the Bakken.

By 2010, Continental had figured out how to drill four wells from a single drilling “pad,” an approach that allowed the company to simultaneously tap oil from the Bakken formation as well as from layers of the Three Forks formation below it, another technological innovation that pushed crude production higher.

Oil prices rose throughout 2010, moving from seventy-nine dollars a barrel to over ninety by the end of the year, helping Continental shares move from forty-three dollars at the beginning of 2010 to almost fifty-nine by the end of the year.

Hamm tried not to look at his company’s stock price. He knew his shares were climbing and he was becoming a multibillionaire. But he barely mentioned the surge to colleagues. He had a feeling they were about to deliver some big news to Wall Street and didn’t want them distracted.

“I wanted them to look at production,” he says.

Hamm and Continental boosted their acreage in the Bakken to 856,000 net acres by the end of 2010. In September 2010, when Hamm appeared on cable business network CNBC for the first time, he spoke of how much oil was being discovered in the Bakken. The show’s hosts seemed a bit skeptical, though.

“What’s the time horizon to get this stuff out of the ground,” asked Andrew Ross Sorkin, the CNBC personality and
New York Times
financial columnist. “When is this actually going to work?”

At that point, major newspapers, such as the
Wall Street Journal,
the
New York Times,
and the
Washington Post
had given scant details about what was going on in the region, let alone pointed out Continental’s progress.

Jack Stark, Harold Hamm’s senior exploration executive at Continental, knew his speech had a chance to change perceptions of the company. In February 2011, Stark traveled to Houston to give a speech at the North America Prospect Expo, a big industry conference. He carried a new estimate for how much crude Continental’s team thought was in the Bakken.

He knew Continental’s newest wells were pumping one thousand barrels a day, as the company embraced multistaged fracking. The Three Forks formation was looking even more promising, and Continental was adding drilling rigs.

“Areas that weren’t that good all of a sudden were commercial,” Stark says.

Still, Stark was nervous. He had never spoken to an audience of over a thousand people and he knew many in the crowd would be skeptical of the figures he was about to present.

Before the crowd of industry experts, Stark said his company had a new figure for how much oil could be recovered from the Bakken: twenty-four billion barrels. He couldn’t judge the reaction of most of the crowd. Lights were fixed so strongly on him that he couldn’t see beyond the front row. But in that row, Stark saw heads shaking and even some looks of derision.

At that point, the entire country was said to be sitting on just about 19 billion barrels and the government was saying there were up to 4.3 billion barrels in the Bakken. And here was Stark saying several rock layers in North Dakota and Montana alone held 20 billion barrels of recoverable crude and the natural gas equivalent of 4 billion barrels of oil. That was almost twice as big as the oil reserve in Prudhoe Bay, Alaska.

“They seemed over the top, even to me,” Stark acknowledges. “I had a hard time with it.”

There’s nothing energy veterans hate more than promoters with pie-in-the-sky estimates of how much crude they are going to find, Stark knew. “I know it’s a big number,” he told the audience, trying to address their doubts. “In reality, the field is that big.”

The next day, CNBC’s Jim Cramer featured the news on his show, helping build excitement for Continental’s shares. Soon they were racing past seventy dollars.

Hamm began speaking more frequently to media outlets and government officials about how the nation was moving toward energy independence. He hoped North Dakota officials would speed up the construction of infrastructure in the Bakken region, so he could get even more oil there. Hamm wanted to head off higher taxes on oil producers and possible restrictions on fracking, another reason he embraced the public spotlight.

But he also believed the country’s oil fields weren’t getting enough respect, even after all the progress his company was making. “We can be the Saudi Arabia of oil and natural gas in the twenty-first century,” he told several media outlets.

It burned Hamm up that few believed him. In the fall of 2011, he was invited to the White House for a dinner for Bill Gates, Warren Buffett, and others who, like him, had promised to give the bulk of their wealth to charity as part of the Giving Pledge. When it was Hamm’s turn to talk to President Obama, Hamm said there was a “revolution” going on in the oil and gas industry, one that could help the nation replace the crude it was getting from OPEC.