Fracking Begins Its Third Decade

Twenty years ago this June a revolution broke out in the world of fossil fuels, a world at the time bedevilled by the idea that it was at or near an irreversible global peak.

The contemporary wave of “fracking” is generally dated to the success of a well called S.H. Griffin #4, drilled to extract gas from the Barnett Shale, and the peak has been postponed indefinitely.

In June 1998, S.H. Griffin #4 started extracting natural gas from that shale, at a commercially viable cost, using a combination of techniques put together by Nick Steinsberger, a petroleum engineer for Mitchell Gas. Steinsberger had combined hydraulic fracturing with horizontal drilling. He had also opted to assign the hydraulic work to a mixture of water, sand, and a botanical gelling agent. The force of the water opened cracks in the shale, so that the sand and the gel could keep them open: and a viable well was born. Steinsberger’s inspired use of applied chemistry came to be known as “slickwater fracking.”

The specifics of Steinsberger’s technique are less important as a historical matter than the result. This was Lexington and Concord combined: this was a shot heard ‘round the energy industry.

From Lexington to Yorktown

It took a few years more before crude oil, too, became accessible through fracking techniques. Natural gas moves easily through pore “throats” in the ground in ways that help those who are seeking it out. Crude oil is a viscous liquid that is not at all as helpful. It wasn’t until seven years after the Mitchell Gas strike in Texas that EOG Resources, the corporate extension of entrepreneur Mark Pappa, started unlocking the crude from North Dakota’s Bakken Shale.

If the natgas well of June 1998 had in fact begun a revolution, then the conquest of crude oil by other frackers in the middle of the next decade was the Battle of Saratoga, a significant turning point.

It wasn’t until a few years further on, though (2011) that a major international oil company, Norway’s Statoil, spent $4.4 billion to buy Brigham Resources, one of the small shale-oil firms that by then made up a distinctive ecosystem in North Dakota.  Statoil was 67% owned by the Kingdom of Norway, and managed by the Ministry of Petroleum of that country. Brigham was a stand-out largely for the length of its horizontal wells, which could get as long as two miles.

Until 2011 the Majors, those globe-straddling vertically integrated oil firms, agencies of sovereigns among them, had operated very much in a different world from that of the scrappier US firms involved in America’s domestic/onshore exploration and production (E&P).

Gary Sernovitz, in his 2016 book on shale oil, The Green and the Black, gives an evocative description of the scrappier of these worlds. American E&P at the turn of the millennium included, he wrote, “geologist-driven dreamers, out for the big score,” as well as “grind-it-out businesses focused on improving margins on older fields” and some “shady promoters” operating behind corporate veils that were “barely companies at all.” Yet by 2011 this odd bunch had won the revolution. The Statoil purchase of Brigham was a Yorktown scale surrender of the Majors to the fact that the world had experienced a big shift in the way in which it fuels itself.

Statoil has since changed its name to Equinor, in order to suggest that oil has lost its centrality in its business. It remains an oil Major, although it is now one committed to investing more than 15% of its capex to energy alternatives by 2030.

Since the Revolution

What shall the third decade of fracking bring? Here are two early clues.

On July 31, 2018, Bryan Shinn, the CEO of US Silica, in a conference call, explained that gas and oil producers in the Permian basin are increasingly looking for local supplies of sand for their slickwater, so they don’t have to pay for transportation costs. US Silica, based in Katy, Texas, is in a good position to provide that sand, he said, adding that the company expects “to start accreting cash in the second half of the year [2018], and quickly generate significant cash flows in 2019, delivering free cash flow yield approaching 15 percent next year.”

Meanwhile, Cuadrilla Resources, a British company, has received final permission from the UK to employ hydraulic fracturing at its Preston New Road site, in the northwest of England.  The chairman of Cuadrilla is a geologist, Roy Alexander Franklin, who is also the deputy chair of the board of Statoil/Equinor.

The post-revolutionary oil and gas world, then, rolls on. 

 

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