a federal tax credit for drilling for so-called unconventional natural gas. Over the years, that incentive did what it was supposed to do—it stimulated activity that would otherwise not have taken place. In the 1990s, the tax credit mainly supported the development of two other forms of unconventional natural gas, and gas from tight sands, the very name of which conveys the challenge.
“FIGURE A WAY”
But even with the incentive of the Section 29 tax credit, producing commercial-scale shale gas—another form of unconventional gas—was proving so much more difficult. In addition to Mitchell, a few other companies were also tackling the problem, but they became discouraged and dropped out. In 1997 the only one of the major companies working on shale gas development efforts in the Barnett region shut down its office. Only Mitchell Energy and a few other smaller independents were left. George Mitchell would just not give up. “It was clear to him that Barnett held a lot of gas, and he wanted us to figure a way to get it out,” recalled Dan Steward, who led the development team. “If we couldn’t, then he would hire other people who could. He had a way of getting things out of people they might not know they could deliver on.”
The introduction of 3-D seismic much improved the understanding of the subsurface. Still, Mitchell Energy had not yet cracked the Barnett’s code. “All sorts of experienced, educated folks,” said Steward, “wanted to bail out of the Barnett.”
Indeed, by the late 1990s the area was so much off the radar screen that when people did forecasts of future natural gas supplies, the Barnett did not even show up. Mitchell Energy’s board of directors was becoming increasingly skeptical. After all, when almost two decades of effort were added up, it was clear that the company had lost a good deal of money on the Barnett play. But George Mitchell would not give up; he insisted that they were getting closer to cracking the Barnett’s code.3
BREAKTHROUGH
Fraccing—otherwise known as hydraulic fracturing—is a technique that was first used at the end of the 1940s. It injects large amounts of water, under high pressure, combined with sand and small amounts of chemicals, into the shale formation. This fragments underground rock, creating pathways for otherwise trapped natural gas (and oil) to find a route and flow through to the well.
Mitchell Energy had been experimenting with different methodologies for fraccing. By the end of 1998, the company finally achieved its breakthrough: it successfully adapted a fraccing technique—what is known as LSF, or light sand fraccing—to break up the shale rock. “It was the trial-and-error approach that Mitchell Energy used that ultimately made the difference,” said Dan Steward.
George Mitchell recognized that developing the Barnett was going to take a lot of capital. He had also been at it as an independent for sixty years and that was a long time. He had other interests; he had developed the Woodlands, the twenty-five-thousand-acre new community north of Houston. He put Mitchell Energy up for sale. Three other companies looked at the company but they all decided, after due diligence, to pass. It appeared to all of them that while Mitchell’s pursuit of shale gas, fraccing included, may have been an interesting idea, it was a commercial flop.
The team at Mitchell went back to work on the shale, further developing its capabilities, deepening its understanding—and producing a lot more natural gas.
One of the companies that had passed was another independent, Devon Energy, from Oklahoma City. But in 2001, its CEO, Larry Nichols, noticed a sudden surge in gas supply from the Barnett Shale area. “I challenged our engineers as to why this was happening,” said Nichols. “If fraccing was not working, why was Mitchell’s output going up?” The answer was clear: Mitchell Energy had indeed cracked the code. Nichols did not waste any more time. In 2002 Devon acquired Mitchell Energy for $3.5 billion. “At that time,” added Nichols, “absolutely no one believed that shale drilling worked, other than Mitchell and us.”
Devon, for its part, had its own strong capabilities in another technology, horizontal drilling, which had begun to emerge in the 1980s. Advances in controls and measurement allowed operators to drill down to a certain depth, and then drill on at an angle or even sideways. This would expose much more of the reservoir, permitting much greater recovery of gas (or oil) from a reservoir.
Devon combined the fraccing know-how (and the team) it had acquired from Mitchell with its own skills in