First Oil

Vol. 233 No. 8

“If you’ve been successful, you didn’t get there on your own … somebody invested in roads and bridges. If you’ve got a business—you didn’t build that. Somebody else made that happen.”

—President Barack Obama, July 13, 2012.
Read the entire speech at whitehouse.gov.

It will be news to George Mitchell that he didn’t inspire the shale revolution. The credit must also go to the U.S. government and the construction workers, who built the I-20 highway that extends west across the Barnett shale play from Fort Worth. In his political stump speech, President Obama did not address the individual initiative that is required to initiate a paradigm change. Mitchell had a vision about drilling a lateral through shale and then employing multi-stage fracturing to crack open the trapped gas and liquids. Of course, there were earlier attempts in tight gas formations and much government-sponsored research. But the studies would have gathered dust on library shelves, if not for Mitchell’s perseverance despite initial failures that delivered the right strategy in the Barnett shale.

President Obama is right, however, in suggesting a role for group effort. If the human civilization didn’t coalesce into families, villages, tribes, states and nations, we would have remained mired in the struggle for survival in the jungle. The modern emphasis on individual freedom is made possible only after thousands of years of nation building.

We cannot discount the role of financial support, either. Christopher Columbus had the vision of discovering a Western route to the Indies. But he could not have floated his idea without the financial backing of Spain’s Queen Isabella in launching his three frail ships into the deep unknown. Today, angel investors and investment bankers play a key role in technology innovation and business growth.

In shale development, credit goes to many business leaders. After George Mitchell, we have Aubrey McClendon, who led his company, Chesapeake’s first efforts in the Marcellus and Haynesville plays. Dick Stoneburner, first with Petrohawk and now with BHP Billiton, made some of the first forays into the Eagle Ford shale. For the most part, however, the effort of individuals is directed through corporate enterprises. Chesapeake, Range Resources, EOG and Whiting Petroleum are just some of the corporate entities, who were pioneers in the North America shale revolution.

The oil and gas business has a unique model that encourages the pioneer spirit while rewarding corporate financial strength and project development skills. In the international arena, it is the minnows, such as Tullow, Premier and Kosmos, that take the tremendous risks, in acquiring leases in the frontier areas and scoring the initial wildcat successes or spectacular dusters. Subsequently, it takes the financial strength and project development skills of large independents, such as Anadarko, or majors, such as ExxonMobil, Eni and Total, to farm into the lease and take oil and gas development to the next stage.

The independents have a role to play, once again, at the mature end of the E&P cycle. Apache has farmed into aging fields in the North Sea and the Permian basin with the departure of some of the majors, who require a larger scale for their business projects. With the application of advanced technologies, such as 4-D seismic, the independent has revitalized the fields and discovered significant bypassed reserves. Interestingly, Apache is playing a pioneering role in Argentina’s frontier Neuquén shale play.

Economic development is not a stark black-and-white image, but a complex mural of individual initiative, corporate enterprise and government policies. In my opinion, the role of the government in this landscape is to create a level playing field to encourage innovation, initiative and strategic growth at all levels—individual, small business and corporate.