The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters (9 page)

“I thought that was the coolest thing ever,” he recalls. “I was really interested in how mountains and the earth are formed and things like that.”

Steinsberger’s parents didn’t quite understand their son’s growing curiosity. His father was a political science professor with a liberal bent, and his mother was a nurse. But they encouraged his interest nonetheless.

After studying petroleum engineering at the University of Texas at Austin, Steinsberger was hired by Mitchell Energy as an engineer, overseeing thousands of the company’s wells by the early 1990s. In the fall of 1995, when Jim Addison, who had been in charge of fracking wells in the Barnett Shale, was shifted to the company’s headquarters in The Woodlands, Steinsberger was tapped to replace him.

By then, the quest to find gas in shale had become so unpopular within the company that Steinsberger’s new job was more of a booby prize than any kind of reward. “At the time, being sent
away
from the Barnett was a promotion,” he recalls ruefully of Addison’s departure.

The company already had drilled over two hundred wells in the area, spending precious cash with little return. Gas prices were low, the industry was struggling, and prospects for extracting substantial amounts of gas from the Barnett Shale looked dim. In one of his first high-level meetings that year, Steinsberger got a clear sense of the gloom that enveloped management at the time.

“We might drill for a couple more years and then give up,” an executive told him.

“Management was getting ready to walk on the Barnett project, they were all pretty down on the whole thing,” recalls Steinsberger. “The entire industry was in the dumps.”

Steinsberger, a soft-spoken man who looked even younger than his thirty-one years, retained high hopes for what he and the team could accomplish. George Mitchell was among the few executives who still believed they could find a way to get large amounts of gas from shale. By that time, however, Mitchell no longer was running day-to-day operations at the company.

It was Bill Stevens who had assumed greater importance at Mitchell Energy. By then, everyone knew Stevens had a vastly different view of what was going on in the Barnett than the company’s aging founder.

As they discussed the company’s drilling program one afternoon, Stevens told Steinsberger that he probably was wasting his time, arguing that shale is a “terrible” reservoir. “Stevens came from Exxon and he had a big-company mentality that shales are a horrible thing,” Steinsberger recalls. “Majors didn’t have the patience or time to make shale work—they were all about out-of-the-park home-run wells in places like Angola.”

For his part, Stevens says that “the issue wasn’t can you hydraulically fracture and drill wells in the Barnett, it was can you do it economically and make money. We were in the business of making money, not drilling wells.”

Steinsberger and his colleagues kept working on the Barnett wells, experimenting with different liquids and gels as they blasted the rock, trying to create fractures and pathways for the trapped gas to get out. The liquid they used to shatter the rock was mostly water. But they also included sand to prop open the rock’s cracks and let gas flow, as well as a variety of heavy gels and chemicals, to transport the sand and loosen up the rock. The gel was made up of ground-up guar, a tiny and pricey bean harvested by dirt-poor villagers in northwestern India that acted as a thickening agent, carrying the sand to the wells.

The Mitchell group wasn’t doing anything special. Others fracking tough rock around the country were using the same combination of water, sand, and chemicals in their own liquid blasts, though Steinsberger and his colleagues used new combinations of chemicals and additives to try to make the gas flow.

“We tried every kind of fracturing material,” George Mitchell recalls. “Heavy water, oil, propane, ethane, and all sorts of things.”

Steinsberger and the others succeeded in fracturing the shale, just as they had hoped. But too little gas came out. The solution didn’t seem within reach. It seemed likely that Stevens or someone else would pull the plug on them.

“I knew we couldn’t stay in the play forever,” Steinsberger says. “I felt the pressure.”

In 1995, Mitchell’s key longtime customer, the Natural Gas Pipeline Company of America, bought out its twenty-year contract to buy natural gas from Mitchell Energy, two years before it was scheduled to expire. Now Mitchell no longer had a surefire customer at a guaranteed high price. The company still would sell natural gas to the Chicago area from its dwindling gas wells. Now, though, the price would be linked to lower market rates. The timing—with natural gas prices around two dollars per thousand cubic feet—couldn’t have been much worse.

The news got still grimmer. In March 1996, a Wise County jury found in favor of eight plaintiff groups claiming that Mitchell’s natural gas operations had polluted their water wells. The plaintiffs were awarded $4 million in damages and $200 million in exemplary damages, a stunning blow. Some thought the company was done, since Mitchell Energy was worth less than $900 million at the time. Employee morale sank, as did Mitchell shares, though the decision was later overturned.

Behind the scenes, George Mitchell had become convinced his company didn’t have enough money to finance both his energy and real estate operations. He also realized they were no closer to figuring out how to produce natural gas from shale. He began discussing the idea of selling the energy business to focus on real estate. But the shocking lawsuit made the energy unit impossible to sell.

Mitchell decided he’d refocus on finding an answer in the Barnett. It was really the company’s only shot left at avoiding a complete collapse, he decided, no matter what Stevens and some others believed. Mitchell stayed in touch with his engineers and geologists, trying to encourage them. He couldn’t let go of the idea of getting gas out of shale.

At home with his family at night, he would ponder the effort and sometimes become downbeat. “I thought about it quite a lot—if it’s rich with gas, why can’t we make it work?” Mitchell recalls. “People told me I was wasting my money. It was discouraging. I thought there must be some way to figure the damn thing out.”

Mitchell didn’t have much time left, but he wasn’t giving up. The price of natural gas rose in 1996, making their expensive drilling in the Barnett a bit more palatable—if they could ever find some of that gas.

Once upbeat and optimistic, Mitchell turned more frustrated. After the group gave up on one well in the region and explained their rationale to him in a Monday-morning meeting, he became irritated, the endless failures finally taking a toll on him. “Have you really succeeded in what you set out to do with this well?” he scolded the men.
⁶
After another failure, he cursed and ranted. He told us “in no uncertain terms with a number of expletives that we weren’t that smart,” remembers Dan Steward, a senior member of the Barnett Shale unit.

Mitchell never shared his growing private doubts with his men. Instead, he kept telling them that he was sure they’d find a way to access the gas. “We’ve done the tests, there’s a hell of a lot of gas there,” he reminded one engineer, trying to keep his spirits up.

•   •   •

O
ne day, while supervising the fracking of a well in the Barnett region, Steinsberger noticed that the gel and chemicals that were part of the fracking fluid weren’t mixing properly. As a result, the substance being pumped by the crew of the contractor hired for the job, BJ Services, was more of a liquid than the thicker Jell-O-like substance normally used to fracture the rock and open its pores so gas could flow. The faulty fluid was one more piece of bad fortune for George Mitchell and his men.

“It was just a mistake,” Steinsberger says.

Steinsberger saw that the well’s results were surprisingly good, though. To most of the Mitchell crew, it seemed a fluke. The well was producing a respectable amount of gas
despite
relying on faulty and watery fracking liquid.

Steinsberger wasn’t so sure, though. Maybe watery liquid actually worked just as well at fracturing rock as the expensive gel everyone used, he thought.

He kept trying to find a way to reduce the company’s costs, figuring that might discourage senior executives from pulling the plug on the expensive Barnett project. Steinsberger’s predecessor already had cut some costs related to how they fractured the rock. Steinsberger wondered if there might be a way to trim expenses still further and maybe buy the group some time to find an answer to drilling in shale.

A few weeks later, Steinsberger went to an industry outing in Arlington, Texas, at a Texas Rangers baseball game. While enjoying barbecue and beer, he saw Mike Mayerhofer, a friend who worked for a rival company called Union Pacific Resources. They began to chat about work and Mayerhofer told Steinsberger that his company was drilling for gas in sandstone in a region called the Cotton Valley in East Texas using a fracking mix composed mainly of water, with most chemicals and gels left out.

Steinsberger was intrigued. It reminded him of the earlier well that relied on that watery fracking fluid. He scheduled a visit to UPR’s offices to get a better understanding of how Mayerhofer and his boss, Ray Walker, were doing it. Mitchell wasn’t drilling in the same area of the state as UPR, so Mayerhofer and his colleagues agreed to share their experience with Steinsberger.

Fracking had been going on in places like Kansas for over two decades with just water. It was frequently referred to as a “river frac” because the water and sand often came straight from a local river. Mayerhofer and UPR also relied on a fracking liquid composed of water with just a little sand. But they had added a small amount of polymers to the mix to reduce the water’s surface friction and act as a lubricant so it moved faster. It was a high-pressure water stream aimed at breaking apart the dense rock.

Steinsberger returned to Mitchell’s headquarters determined to use more water on Mitchell’s wells and to cut back on costly chemicals and gels. It was a long shot, but maybe other wells could also produce gas with this cheaper fluid. If UPR was seeing success with this watered-down concoction, perhaps Mitchell also could, Steinsberger told his colleagues. Because the fluid was mostly water that was slickened with some of those polymers, Steinsberger and his colleagues named the new method “slick water” fracturing.

“We really need to try some slick-water fracks,” he told production specialists at Mitchell’s headquarters in The Woodlands.

Most everyone thought Steinsberger was out of his mind. It was one thing to use water on sandstone, like UPR was doing. But you can’t pour so much water on shale, a different kind of rock, they reminded him. Shale has clay in it. It’s almost like hardened mud. Everyone knew clay swells and absorbs water. When that happened, all those small fractures would be blocked, preventing gas from flowing, they told Steinsberger. Just look at what children’s clay does when water is poured on it; the clay soaks it up.

Behind Steinsberger’s back, some at the company expressed skepticism. Others did it to his face. Steven McKetta, a Mitchell petroleum engineer and the fracking guru for the entire company, was among the most dismissive. In a key biannual meeting with about a dozen senior members of the production unit, he let Steinsberger have it.

“I’ll eat my diploma” if the approach works, McKetta told Steinsberger, according to two people who witnessed the put-down.
*

It was a stinging rebuke that intimidated Steinsberger, the youngest employee in the room. Steinsberger responded that there was little downside to his idea—just time and some money—since they could always go back to using the usual gel.

“It’s a stupid idea,” McKetta retorted. “It’s not going to work.”

Soon, Steinsberger noticed that McKetta had stopped talking to him, a sure sign his career was headed in the wrong direction.

I’m really putting my neck on the line,
he thought.

Mitchell Energy employed a variety of companies, including BJ Services and Halliburton, to frack, or “complete,” the wells. Experts at these companies also were dubious. Without the gel, how are you going to get all that sand to the rock to prop open the cracks? they asked Steinsberger. You never want water to contact rock, experts reminded him. Yes, their fracking gel also had a lot of water in it, but it turned to a gelatin-like substance when it was pumped below the ground, where temperatures rose, preventing the water from contacting the rock.

The outside specialists had good reason to promote their gels—they could charge about $200,000 more for a frack job with gel than one without it. Anyway, everyone in the industry agreed that gels and chemicals were crucial to fracture rock.

Steinsberger didn’t necessarily disagree with the conventional wisdom. But the old approach didn’t seem to work, and he had to cut costs somehow. He figured it was worth a try to include more water, cut out the gel, and reduce the chemicals. He was just trying to save Mitchell Energy enough money so that his group could live to fight another day.

“We were still pumping chemicals, just not so much of them,” he recalls. “They weren’t working anyway.”

Senior Mitchell executives were concerned they’d get less gas from the Barnett with this new approach. But they were prepared to live with reduced production from Steinsberger’s new liquid mix if it could save them precious cash.

Steinsberger and his crew experimented with this new liquid, trying to ignore the critics. Instead of using gels to carry sand thousands of feet to prop open fractures in rock and make the fractures as large and long-lasting as possible, Steinsberger’s radical idea was to use smaller amounts of sand than usual to create micro-fractures in the shale. Maybe gas could travel through little avenues and side streets to the surface, rather than on a superhighway.

Like traditional fracking fluid, Steinsberger’s liquid mix also included various chemicals, such as polymers used for women’s makeup, and hydrochloric acid, commonly used to clean swimming pools, to help make the gas flow. But the chemicals and sand would make up about 0.5 percent of the new mixture, rather than about 10 percent in traditional fracking fluid. The rest of the new mix would be plain old water. Their slick-water frack also was called a “light sand” frack, because their blend only had a light sprinkling of sand in it.