are shaped like a giant dinner plate—wide and shallow. Drilling into them is like punching a nail through the plate, which allows the drill to tap a tiny portion of the gas.
This is where the second technology comes in: horizontal drilling. With horizontal drilling, the nail could penetrate the dinner plate and then make a sharp right turn, traveling through the heart of the entire deposit. The final technology was a group of chemicals, known as proppants, that could be injected into the shale rock along with sand, dislodging gas and allowing it to be sucked to the surface. When gas became expensive in 2007, it finally justified the expensive process of extracting it through fracking.
The earliest waves of the fracking boom came as a surprise to Koch’s leadership team. The boom was catastrophic for gas prices, which fell roughly 85 percent between 2008 and 2012, from a peak of $12.69 per million BTUs (or British thermal units, a metric that’s widely used as the basic measurement of energy use) to a mere $1.95. As it turned out, this catastrophe played to Koch’s advantage because natural gas is the primary ingredient for nitrogen fertilizer. When prices fell, Koch was suddenly able to make its fertilizer for a fraction of the cost. It was a breathtakingly lucky break. Retail prices for fertilizer stayed high because of strong demand from farmers, who needed fertilizer more than ever to keep production high. When gas prices and production costs collapsed, Koch’s profit margins swelled. Koch was the fourth-largest fertilizer maker in the United States thanks to its purchase of Farmland’s fertilizer plants in 2003, for pennies on the dollar. Now those plants were printing cash.
Still, Koch’s senior management was uneasy. They hadn’t seen it coming.
“You look back and go, ‘Yeah that was obvious! How’d I miss it?’ ” said Steve Feilmeier, Koch Industries’ chief financial officer. “We started reflecting on ‘How did we miss that?’ ”
This reflection occurred largely in the offices of Koch’s crude oil and refinery division, Flint Hills Resources. Once they began looking into the fracking business, Koch’s managers began to anticipate where it might go next. They missed the advent of new gas supplies, but it helped them see the next step. Brad Razook, who was CEO of Flint Hills, had reason to believe that the fracking revolution wouldn’t stop with natural gas deposits.
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Brad Razook and other senior executives at Flint Hills worked in windowed offices that ring the top story of the Tower, offering them views of downtown Wichita to the south and flat grasslands and suburban subdivisions to the north. The middle of the top floor is filled by a sprawling maze of cubicles. This is where Flint Hills’ traders work.
The trading pit could easily pass for a branch office of any insurance company in central Kansas. No one was shouting orders or waving their hands in the air. There was just the quiet murmur of people on the phone. The beige dividing walls between desks were decorated with drab attempts to individualize each cubicle, like cardboard cutouts of the Wichita State University mascot—a scarecrow-like figure called WuShock—and family photos. The only signs of the global reach of the young traders were the multiple computer monitors at the desks, flashing with numbers and charts. A set of clocks along one wall display the local times at trading hubs around the world.
Koch’s young traders observed odd occurrences in oil markets during 2011. The traders who bought oil supplies for Koch’s Pine Bend refinery observed chaos in local midwestern markets. New supplies were coming into the market from North Dakota, of all places, causing supply gluts, bottlenecks, and transportation problems. And all of this was happening in a region where the oil industry had been dead for decades. The new oil coming out of North Dakota was similar to the new natural gas supplies: they were drilled by frackers in a region called the Bakken Formation. A fountain of crude oil sprang up in the Northern Plains, and no one knew how to deal with it. “It was almost comical how much crude was coming online,” said Tony Sementelli, Flint Hills’ chief financial officer. “It was very curious to us because it was almost unthinkable.”
Razook and Sementelli started holding meetings to figure out what was going on. The signals from the marketplace were confusing. Fracking had already opened new pools of natural gas. But the big question was whether the process could be repeated with crude oil. The oil glut