The Frackers – the Outrageous Inside Story of the New Billionaire Wildcatters (a reprise from 2014)

The following piece is a reprise from a post in 2014. It is important to read the concerns of six years ago about this industry. Fortunately, the renewable energy industry continues to make huge strides.

I recently completed a very interesting book written by Gregory Zuckerman, a Wall Street Journal reporter called “The Frackers – the Outrageous Inside Story of the New Billionaire Wildcatters,” published by Portfolio/ Penguin Press in 2013. Zuckerman is also author of “The Greatest Trade Ever.” I highly recommend this book as it is as entertaining as it is informative, in multiple ways. It gives you a clearer picture of the risks and rewards of fracking, but also shows how hard it is to both glean the fossil fuel you are seeking and to be so highly leveraged in debt as you do.

The successful fracking companies, usually bucked the odds and the more measured risk takers in the larger companies who had much more capital to withstand some of the risk. As a result, even the ones who had success, usually failed before, after and sometimes during their success, due to the need to be land rich which came at a highly collaterized cost of debt. When some went public, they also had to contend with impatient shareholders. These wildcat developers made and lost huge sums of money, oftentimes with their egos getting in the way of knowing when to stop.

Zuckerman does an excellent job of telling the story of people like George Mitchell, who has been called the “father of shale fracking,” Aubrey McClendon, Tom Ward, Harold Hamm, Charif Souki, Robert Hauptfurher and Mark Papa, among countless others who were key to the success of gleaning natural gas and oil from places that were perceived too difficult to crack. He also defines why methods and strategies are so secretive, as companies will follow suit to leverage off your success. These men and their companies, Mitchell Energy, Oryx Energy, Chesapeake Energy, Continental Resources, Chenier Energy and EOG Resources, were truly the path finders in this process called fracking. They led the US to become more energy independent, yet in so doing, understated or overlooked the risks that came with those rewards.

As I read this entertaining book, I found myself convinced of a preconceived notion, that the main mission of these guys was to make a lot of money, as well as proving others wrong. Some even took delight that their hypothesis was true, even if they had not benefitted as greatly as the company that bought out their rights. Yet, what I also found this lust for money also was an Achilles Heel, and there seemed to be less consideration of what fracking was doing to the environment. They were more content to let the problems be handled by someone else and often belittled the complaints and complainers.

Zuckerman addresses these concerns from the frackers viewpoint earlier in the book, yet does devote an Afterword to the environmental risks that are real. But, before doing so, he notes that George Mitchell, late in life continued to buck convention. Per Zuckerman, Mitchell “gave millions to research clean energy even as he, along with his son and Joe Greenberg, invested in a new shale formation in Canada.” But the quote that interests me most, is by Mitchell who responds to those who contend how safe fracking is:

“Fracking can be handled if they watch and patrol the wildcat guys. They don’t give a damn about anything; the industry has to band together to stop isolated incidents.”

This dovetails nicely with a well-worn phrase I gleaned early on. Even if fracking were safe, it is only as safe as its worst operator. Mitchell, the father of fracking is more than acknowledging the bad operators. His son Todd, who was also in business with his father, said “his father’s work will have had a negative impact on the world if it forestalls progress on renewable energy, instead of giving innovators time to improve wind, solar and other cleaner energy sources.”

Let me close with an even-handed quote from Zuckerman, which frames the issue, yet also notes a caution. He answers the question “Is fracking as bad as activists say, and what will its impact be as drillers continue to pursue energy from shale and other rock formations?” His conclusion is as follows:

“The short answer: Fracking has created less harm than the most vociferous critics claim, but more damage than the energy industry contends. And, it may be years before the full consequences of the drilling and fracking are clear.”

With my reading I would agree with both of these sentences, yet not place the fulcrum in the middle of the scale. I would be more on the side of vociferous critics as the evidence continues to mount and as non-industry scientists are revealing issues. The massive water usage, the seepage of the poisonous slickwater fracking fluid into the environment, the particles that are blasted into the atmosphere which are causing breathing difficulty, and the degradation to the surrounding environment just to get vehicles and equipment into frack are compelling arguments by themselves.

But, the great caution in his last sentence is where we need to focus. “And, it may be years before the full consequences of the drilling and fracking are clear.”This is the bane of any environmental group fighting for people and the environment. Oftentimes, it takes years for the true damage to be seen and felt. Some show up in shorter order, yet when the companies making the money do not want to stop a mission, they can afford to fight people who cannot clearly make a connection. The developers want to settle with each complaint at minimal outlay and move on. Unfortunately, the people exposed to the problem, remain in harm’s way.

15 thoughts on “The Frackers – the Outrageous Inside Story of the New Billionaire Wildcatters (a reprise from 2014)

    • FC, I agree. There is a huge difference in measured risk takers and wildcatters. The fact many of these wildcatters get over his skis speaks volumes. Keith

      • FC, to me it usually means a small enterprise which may be only a couple of folks, who are taking huge risks to hit paydirt, often cutting corners and leveraging borrowed funds. Wildcatters have a low success rate. Keith

  1. There can be long, long term consequences in all endeavours.
    South East Wales is honeycombed with coal mining shafts going back to the 19th Century. Last week during a period of torrential rain a build up of water in one shaft broke through a flooded a community causing many homes to be evacuated and ruined by very dirty flood water.

    • Roger, so true. One key risk of burning coal has a very long tail. So, a company is exposed for some time to clean-up costs and litigation risk.. TVA had a huge coal ash pond breach about fifteen years ago. Duke Energy had a coal ash spill on the Dan River about ten years ago from a plant that had been dormant for awhile. Duke also had a seepage problem with coal ash into the water supply in some Charlotte suburban neighborhoods.

      Just this week, Duke settled for $1.1 billion to clean up the rest of the ash scattered around the North Carolina. Coal is the gift that keeps giving, in a negative way. Keith

      PS – as a shareholder of Duke, I wrote the CEO after the TVA spill and was told they had every thing under control. That was not a true statement, as litigation revealed Duke knew of the exposure on the Dan River for some time.

      • True. I was watching “Dark Waters” with Mark Ruffalo again yesterday. DuPont knew they were poisoning people with their Teflon factory runoff (and production), yet did little. Then, after agreeing to pay if data supported their role, they reniged when the data was overwhelmingly against them. It took three lost individual lawsuits for them to settle in a class action of doing what they promised to do once the data was analyzed. Keith

      • You wrote the dude at the top a letter! You should (morally) get something in settlement from them for what loss in value the share of them you owned had. A lie like that would make most people less likely to sell their stock.

  2. Question from someone not familiar with business finance: what do you use, and how do you use it, to evaluate when “leveraged” becomes “in over their heads”?

  3. FC, I would compare the debt to capitalization of the company, if publicly traded or the interest cost to revenue. However, these private companies don’t have to disclose to the public. Belk, a 133 old retailer filed for bankruptcy this week, as its private purchaser used too much debt to by them. Trump has had six corporate bankruptcies because he built where he should not have and borrowed too much. Keith

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