The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters (40 page)

Obama didn’t seem very impressed, Hamm says. The president told Hamm that oil and gas would remain important for the next few years, but “we need to go on to green and alternative energy.”

Hamm’s frustration with the government grew. He began to detect growing delays for drilling permits. That year, Continental and other oil companies faced charges by the Justice Department for allegedly killing twenty-eight birds in the Bakken. In Continental’s case, the charges revolved around a single bird, a Say’s phoebe. The charges later were dropped, but it still irked Hamm.

“It’s not even a rare bird,” Hamm said, explaining his growing unhappiness. “There’re jillions of them.”
⁶

During his time with media and politicians, Hamm avoided publicizing some less impressive figures from his company. Continental spilled at least 200,000 gallons of oil in North Dakota between 2009 and the end of 2012, according to documents reviewed by ProPublica, more than any other company. Continental also was fined for poisoning two creeks with thousands of gallons of brine and crude, a reminder of the downside to surging energy production in the country.
⁷
(Continental notes that its rate of oil spilled—0.1 barrels per 1,000 barrels produced—is improving.)

•   •   •

B
y 2010, Williston, North Dakota, was attracting ambitious Americans from all over the country, and even entrepreneurs from around the world, hoping to get rich from the emerging oil boom. The city also was a magnet for those seeking to restart their lives and recover from the nation’s deep recession. Few were as eager to get to Williston as Elizabeth Irish.

Irish was the branch manager of a mortgage bank in Grants Pass, Oregon, a pretty town with about thirty-four thousand residents that’s an hour’s drive from both the Pacific Ocean and California’s Redwood National Park.

Irish married at nineteen and never went to college. Nevertheless, her career flourished. Articulate and outgoing, she made an annual salary of nearly $120,000 in the years leading up to 2008. That year, as she turned thirty-four years old, she had seven employees reporting to her and she seemed on the fast track at work.

Liz and her husband, Matthew, a truck driver, bought a home in a nearby town for $365,000 dollars. It featured fruit and magnolia trees and was across the street from the elementary school their two daughters attended.

Then the housing crisis hit.

As the local real estate market crumbled, Irish’s income evaporated. She made less than $40,000 in 2009. By the summer of 2010, she had earned less than $5,000 that entire year. Liz and her husband had neglected to build much of a nest egg and ran into trouble paying their bills. Soon they lost their home and faced thousands of dollars of additional bills.

“Everything I had done in my adult life was in real estate,” Liz says. The crisis “rocked my Pollyanna world . . . it was devastating.”

One day in 2010, while checking her Twitter feed, Liz clicked on a link to a
New York Times
article detailing North Dakota’s economic boom. Oil was flowing from the Bakken rock formation, located near the city of Williston in the western part of the state, the article said. The state’s unemployment rate was around 3 percent, and it was under 1 percent in Williston. Truck drivers were in such demand, since the average Bakken well required about two thousand truck trips to haul a million gallons of water for the fracking operation, that they were making over $100,000 a year.

Liz, who had been racking her brain for a new life plan, turned hopeful. She did a Google search with some obvious keywords, such as “North Dakota” and “trucking,” and got on the phone with a trucking company in Williston.

“Things are taking off, everything you heard is true,” the manager said. “Housing’s tough to find, though.”

Liz seized on the first part of the conversation, ignoring the last part.

“What do you think!?” she asked her husband. “It sounds crazy . . . but do you want to go?”

They enjoyed living near family members in Grants Pass, but local unemployment was about 10 percent and they didn’t seem to have much of a future.

“It can’t get any worse than here,” Matt said.

Liz posted her husband’s résumé online and it attracted immediate interest. Soon he was in his pickup truck on his way to Williston for a job interview.

Williston is at the heart of activity in the Bakken, but the city’s Walmart is the region’s true epicenter. Other than two busy strip clubs, and an Applebee’s with a line out the door, the Walmart is pretty much the most exciting place in town. With little competition in one of the fastest-growing markets in the nation, items fly off the shelves. Staffers—who make as much as twenty-two dollars an hour—sometimes don’t bother taking goods out of boxes. Instead, they just leave the boxes open for customers to dig through. Some evenings, aisles look like they’ve been looted.

Even the store’s parking lot has more drama than some small towns. As Matt pulled in from the twenty-two-hour drive from Oregon, he saw trucks, cars, and campers, all caked with a layer of grime from nearby oil fields or from the remnants of ripped-up local roads. Some of the campers remained in the Walmart lot for weeks or even months, according to local media reports, even though there were no water or sewer hookups. The lack of heat and electricity was a particular hardship during Williston’s brutally cold winters.

(A couple of years later, Walmart would expel the campers after women complained that they felt afraid to walk through the lot. There was just so much management could do to reduce the threat of danger, however. In the summer of 2013, a woman in the Walmart lot was shot in the leg.)

The parking lot was a jumble of Texans in cowboy hats, their jeans tucked into dirty boots; East Coast oil field roughnecks, some living out of their pickup trucks; and North Dakotan natives torn between resenting the newcomers and appreciating how they had transformed a city once known for little more than being the hometown of former basketball coaching legend Phil Jackson.

Williston was about the last place one could have predicted a wave of immigrants. The weather is horrible, with below-zero winters full of heavy snow and biting wind, along with hot and humid summers. There’s no sports team and hardly any culture. It doesn’t even have Mount Rushmore—that’s the
other
Dakota.

Until the oil boom, North Dakota had been the only state to see its population shrink since the 1930s. At one point, state leaders considered dropping the “North” from the name and simply calling it “Dakota,” hoping it might make the state seem a tad warmer and more attractive.

That became unnecessary when oil began to surge from nearby wells. By 2010, the city’s population had more than doubled in a decade, according to most estimates, though no one was entirely sure of the accurate count since so many temporary workers were in town. The city grew so quickly that visitors relying on GPS systems got a laugh from locals; new streets were being built so quickly that navigation systems were virtually useless.

In many ways, Williston’s transformation mirrored the growth of other oil boomtowns, including those that mushroomed in western Pennsylvania in the years after Edwin Drake drilled the country’s first oil well in 1859. In nine months, for example, a family farm grew into a town of fifteen thousand called Pithole, though it essentially vanished by the end of the 1880s after more productive wells were found elsewhere. In
The Big Rich,
author Bryan Burrough describes how sleepy East Texas hamlets were overrun in the 1930s after oil was discovered: “When the hotels filled, the townspeople rented out rooms; when all the rooms were let, the newcomers threw up tents; when they ran out of tents, men slept in the open fields.”

Among those flocking to Williston by 2010 were veterans of the Iraq and Afghanistan wars. They were particularly coveted hires because some were used to adverse conditions, were comfortable handling the military-grade explosives used in fracking operations, and had experience working as part of a team in the field. Entrepreneurs from all over the world also came, including Japanese businessmen hoping to start restaurants and others investing in new hotels. Las Vegas chiropractor Stephen Alexander had so many patients relocate to North Dakota that he too headed for the Bakken, investing $200,000 in a fifty-seven-foot recreational vehicle with a digital X-ray machine, an examination room, and other technology.
⁸

Some of those flocking to the city weren’t particularly picky about what jobs they might find. Marquita Wright, a thirty-five-year-old from Minnesota who had earned a college degree in interior design, came to Williston to interview for four very different positions: Walmart staffer, liquor store cashier, mail carrier, and exotic dancer—where she had the opportunity to make more than $1,000 a night.

“Williston’s a little gold mine because there are no malls, so you start saving right away,” Wright says.

As for Matt, he was hired on the spot in the Walmart parking lot to haul water to fracking operations. “This can’t be real, right?” he asked Liz when he called from the Walmart. “This is a movie.”

Most husbands head to the Bakken on their own, sending money to their families and visiting when they can. That’s why there’s an estimated two men for every woman in the city (and also why Las Vegas prostitutes began commuting for lucrative weekend work).

Liz and her husband didn’t want to live apart, however, and she was eager for a new adventure. In the summer of 2010, she and Matt took the cash from their previous year’s tax refunds, packed up their daughters, two dachshunds, and some belongings, and drove to North Dakota to begin a new life.

•   •   •

C
harif Souki kept telling his investors that he was working on a plan. He wouldn’t say what it was, though.

Shares of Cheniere Energy traded for about three dollars in late 2009 and early 2010, and most investors wrote the company off. Cheniere had spent billions on a plan to import natural gas to the United States. Now the country was swimming in gas. In 2010, 4.86 trillion cubic feet would be produced from shale formations, more than double the 2.25 trillion cubic feet in 2008.

Cheniere still was receiving revenue from Total and Chevron as part of its earlier import agreement, so Souki’s company wasn’t in imminent danger of bankruptcy. But it was burning through $50 million a year and still faced a billion dollars of debt due in 2012.

Board meetings turned contentious as investors became exasperated. The Blackstone Group’s GSO fund and John Paulson’s hedge fund, Paulson & Co., each maintained big positions in Cheniere. They weren’t pleased with what was going on.

“Charif, you need a plan,” Dwight Scott, a GSO executive on Cheniere’s board, told Souki during one meeting.

“I’m working on a bunch of plans,” Souki told him.

“Like what?” Scott asked.

Souki said he couldn’t share the details just yet. That response didn’t thrill the board members, including John Deutch, the former director of the CIA, who asked Souki his own set of tough questions.

At one point, Blackstone and Paulson offered to wipe out some of Cheniere’s debt in exchange for control of the company, but Souki refused the deal. Like a fighter on the ropes, he didn’t want to give up. He could have quit and moved on to something else. But he was rope-a-doping, hoping for a way out of his jam.

“We’ll come up with something, I’ll figure something out” if importing gas doesn’t work out, Souki told the board. “Something good will happen.”

“He didn’t really have a plan besides trying to sell the company, that was our problem with Charif,” says a big investor.

The Blackstone executives on Cheniere’s board of directors, including Jason New, began hearing criticism of their continued support for Souki and the company. When New met with pension funds and other Blackstone clients, they relayed word that other hedge funds were calling Cheniere the best “short” in the market, or the most likely candidate for a hard fall. The hedge funds were betting big money that Cheniere would go bankrupt, they told New.

“Well, reasonable minds can differ,” New responded, trying to stick up for Cheniere. He didn’t share his own frustrations with what was going on at the company.

Souki’s unusual background didn’t help alleviate the concerns of the investors and board members, one large Cheniere investor says.

“If he was a guy from Midland, Texas, it would have been easier for people to deal” with the repeated reassurances, says a board member. “But he was Lebanese, it was a cultural thing. People would say, ‘Where the hell did this guy come from—he owned Mezzaluna!’” referring to the infamous Los Angeles restaurant.

Behind the scenes, Souki and his top executives were becoming more committed to the idea of exporting gas and convinced they could retrofit the Louisiana terminal and turn it into one capable of turning natural gas into LNG so it could be exported.

In the spring, Souki and his team received an estimate from Bechtel, the global construction firm, with a cost to reconfigure their plant. Bechtel judged it would cost about $450 for each ton of LNG it wanted to export. At that price, it would cost over $8 billion to convert the terminal into one that could export natural gas using four “trains,” or liquefaction and purification units. That would be enough to ship eighteen million tons of gas a year.

Most anyone would blanch at a price quote like that. With financing costs and other expenses, Souki knew he’d have to raise as much as $12 billion to make the switch, even as financial markets remained unstable in the aftermath of the global economic crisis.

Souki clearly was not like most anyone, however. If there was one thing he was confident about, it was his ability to raise boatloads of money, even billions of dollars, if necessary.
This is going to be child’s play,
he figured.

“When it came to raising money, that I knew I could do,” he says.

Other Cheniere executives turned almost giddy when they digested the Bechtel report. The price tag was sky high, but the staff had feared the cost would be even higher. If Bechtel was accurate, Cheniere actually might make money exporting gas, Souki and his executives determined.