The Outrageous Inside Story of the New Billionaire Wildcatters

The US shale revolution is a reminder of the deep pools of ingenuity, risk taking, and entrepreneurship in America

By Mark J. Perry 

I just finished reading an advance copy of a really interesting new book titled “The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters” by Gregory Zuckerman, a financial journalist and special writer at the Wall Street Journal. It’s a fascinating and detailed account of America’s great shale revolution, and I highly recommend it for anyone interested in learning more about what is probably the most important energy chapter in US history.

Zuckerman skillfully presents a very detailed and readable story of the American wildcatters who eventually “cracked the code” for shale oil and gas and revolutionized the US energy sector starting in about 2008. While the major oil companies had given up on finding new oil and gas in America and focused on exploration elsewhere – Africa, Asia, Russia – a small group of US “petropreneurs” were determined to find cost-effective technologies to unlock the oceans of oil and gas they knew were trapped inside shale rock formations saturated with fossil fuels miles below the Earth’s surface.

As the promotional material for the book explains: “Everyone knew it was crazy to try to extract oil and natural gas buried in shale rock deep below the ground. Everyone, that is, except a few reckless wildcatters – who risked their careers to prove the world wrong.”

Here is a slightly edited excerpt from the last chapter of the book that I think captures some of the key points about America’s shale revolution and the petropreneurs who made it happen:

A group of frackers, relying on markets cures rather than government direction, achieved dramatic advances by focusing on fossil fuels of all things. It’s a stark reminder that breakthroughs in the business world usually are achieved through incremental advances, often in the face of deep skepticism, rather than government-inspired eureka moments.

George Mitchell’s team spent 17 frustrating years trying to get meaningful amounts of gas from shale, Harold Hamm’s men failed to pump much oil out of the Bakken until 2007, while Charif Souki’s company was on its last breath before he seized on the idea of exporting gas. Their achievements are a reminder of the role of perseverance and obstinance in history’s advances.

Foreign nations lack perhaps the key element behind the US energy revolution: an entrepreneurial culture and ample incentives for the years of trial and error necessary for shale breakthroughs. George Mitchell, Harold Hamm, Mark Papa, and other headstrong wildcatters persevered because they knew they could gain both fame and remarkable fortune finding economic ways to tap shale. Comparable prizes don’t always exist in other countries, where governments can play a larger role in society.

The United States also boasts an extensive energy infrastructure, such as pipelines and elaborate databases of underground geology, deep capital markets to finance drilling, more rigs than anyone else, collection and storage facilities, and an experienced labor force.

The US legal system gives individuals ownership of mineral rights under their land and the ability to lease the rights to others. That has accelerated drilling in comparison with foreign nations, where mineral rights are controlled by slow-moving governments. And the United States benefits from light population density in places like North Dakota and Texas, where much of the richer shale beds are located.

There are a few things the United States seems to do better than anyone else, such as create computer apps, drones and rap stars. Fracking, so far, has been another area where there’s a distinct American advantage.

For all of the criticism the country has fielded for losing its edge in innovation, surging American energy production is a reminder of the deep pools of ingenuity, risk taking, and entrepreneurship that remain in the country. Author Niall Ferguson and others argue that Western civilization has entered a period of decline, but many smaller American towns are experiencing a rebirth, with some young people in the energy business enjoying six-figure salaries, suggesting an underlying resilience in a country still recovering from the deep economic downturn.

The successes of the architects of the shale era are attributable to creativity, bravado, and a strong desire to get really wealthy. It doesn’t get more American than that. Indeed, while the huge rewards promised in the market-driven American economy have led to an unfortunate income divide, they also provide incentive for remarkable achievement.

I might take minor issue with the statement in the last sentence about an “unfortunate income divide,” and point out that while the increase in the number of new billionaires and millionaires from the shale revolution may have contributed to greater income inequality, the “billionaire wildcatters” have generated enormous savings for Americans by lowering energy costs. For example, the table below shows that since 2008, Americans have collectively saved more than one-third of a trillion dollars ($357 billion) from lower natural gas prices between 2009 and 2012, based on data on gas usage and prices from the Energy Information Administration (see similar analysis here through 2011 by the American Gas Association).

Bottom Line: Even though the shale revolution may have bestowed great wealth on a small group of risk-taking wildcatters, I would suggest that their personal wealth is dwarfed by the significant benefits to society from lower gas prices and hundreds of billions of dollars in savings for Americans of all income levels, as just one example of the many benefits of the shale revolution. The country as a whole is significantly better off because of the Great American Energy Boom, and any “income divide” that has resulted would be a very small price to pay for the greater benefits and good fortune that we all experience. But that’s a minor quibble, and I have no hesitation recommending Zuckerman’s great account of a very remarkable energy success story that could have only happened in one place – the United States of America.