Last week I wrote about a wonderful interview conducted by Platts Energy Week’s Bill Loveless with Devon Energy CEO Larry Nichols. In the course of celebrating the life of entrepreneur George Mitchell, the father of fracking, Mr. Nichols put the lie to the notion that the federal government was the primary impetus in the development of the drilling technologies that led to the American oil and gas boom. In addition, he posits that George Mitchell could never have perfected hydraulic fracturing had he operated in today’s regulatory environment. Watch the whole interview here. Below, we’ve provided a transcript.
MR. BILL LOVELESS: Hello, I’m Bill Loveless. Welcome to Platts Energy Week.
He was called the father of fracking, a man who found the way to blast natural gas from shale deposits using water, sand, and a mixture of chemicals. George Mitchell died recently at 94, but not before leaving a legacy as a man who put hydraulic fracturing on the map and paved the way for today’s resurgence in U.S. gas and oil production.
Joining me to discuss this industry pioneer is a man who knew George Mitchell well. In fact, his company bought Mitchell Energy Development in 2001. Larry Nichols, executive chairman of Devon Energy, joins us from Oklahoma City. Welcome to the program, Larry.
MR. LARRY NICHOLS: Glad to be here.
MR. LOVELESS: Larry, fracking has been around for decades, but Mitchell began to draw more attention to it in the 1980s when he experimented in the Barnett Shale in Texas. What difference did he make?
MR. NICHOLS: Well, yeah, fracking has been around for about 60 years. Clumsily done when it was first done, but over time, people experimented with it. And George Mitchell had this almost fanatical belief that he could frack the Barnett Shale and get gas out of it. We all knew the gas was there, but could not produce it, and he relentlessly over years and years kept pounding away, experimenting with different techniques, different refinements until he finally started making it work.
MR. LOVELESS: Well, you know it was not widely accepted for a long, long time, including when he sought a buyer for his company in the late 1990s. Were you among the skeptics?
MR. NICHOLS: Absolutely, I hate to say. In 1999, George Mitchell hired Goldman Sachs to sell his company and they auctioned it off to anyone who they thought might be interested. And my company, Devon, along with all the rest of the industry, went to their data room, looked at it, were skeptical, and said no.
MR. LOVELESS: A couple of years later, your company was going back to Mitchell with some interest in the company. What happened?
MR. NICHOLS: Yeah. A couple years later I was at an energy conference and I saw a presentation that Mitchell was making, and noticed that their production was actually going up. And I got one of our engineers and said, “I know we don’t think the technology works, but explain to me how they are able to start growing their production.”
And called George and said, “We would like to come visit again.”
We sent our team down to Houston, looked at it, and after some really in-depth analysis, came back and said, “You know, this really might work, particularly if we’re able to combine his hydraulic fracturing technique with horizontal drilling.”
We really got optimistic about that.
MR. LOVELESS: And Mitchell’s work was primarily—he was drilling vertically, correct? He was not using the horizontal process that I know Devon has been—has really been big on for a number of years now.
MR. NICHOLS: Yeah, they tried that a couple of times, but it had not worked. They just had not figured that out yet. But he was able to make the vertical drilling work in a small part of the Barnett Shale. But you really had to combine that with horizontal drilling to make that technology work in the rest of the Barnett Shale and, indeed, in most parts of the United States and the world now.
MR. LOVELESS: You know, did these sorts of breakthroughs in oil and gas exploration and development only happen really—I’m talking the big ones—I know there is always refinements—but do the big ones happen sort of every few decades?
MR. NICHOLS: Yeah, the big ones do come on. It’s interesting. When I went to college in freshman geology, there’s a professor who had a study that showed that—quoting some governmental or professorial study back in—right after World War I—noting that all the oil had been discovered. And you can go through time, and about every decade, there is some learned study that says, well, with current technology, all the oil and all the natural gas that is there has already been studied, it’s in irreversible decline.
And decade after decade, generation after generation, those studies are proved wrong. And they’re proved because of technology, our ability to drill deeper wells, to use hydraulic fracturing. There’s always something out there that pushes our knowledge forward in our ability to recover oil and natural gas.
MR. LOVELESS: You know, you talked to George Mitchell off and on over the years. With all this controversy going on over fracking in the U.S. now, what did he think of that? Did you ever talk to him about that? Do you have any sense of how he might have viewed that?
MR. NICHOLS: Sure. He had the same frustration that we all did because study after study has shown that there is no danger to surface groundwater caused by hydraulic fracturing. The director of EPA has acknowledged that. The Department of Energy has acknowledged that. And yet, the scare tactics that have been used to try and stop the production of natural gas and oil really has penetrated into the public mind.
MR. LOVELESS: Mitchell, as I’ve read, was saying even as recently as a year ago that there should be more regulation of fracking, and suggesting it should be done by the federal government and by the Department of Energy. I mean, is that surprising?
MR. NICHOLS: Well, we all share that frustration of how do we get this off our back, how do we get back to the business without this distraction for these false fears. And at times you do play around with the idea of federal regulation, maybe that will put it all to rest. But Mr. Mitchell also understood that if there had been federal regulation, he would never have been able to do the experimentation that he did to discover how to make it work in the first place because that required drilling a well, see what works, see what didn’t, changing it a few months later, drilling another well, and keep modifying and modifying until he got there. If all of that had been tightly controlled by regulation, he would have never been able to do what he did.
MR. LOVELESS: Could he have done what he had done without any government assistance? There was some research money spent. There are tax breaks that the industry receives—(inaudible). Could he have done it without that assistance?
MR. NICHOLS: Oh, absolutely. When we heard some people at the Department of Energy claim that government studies had led to all that, I asked all the people involved with Mitchell and with Devon in hydraulic fracturing if there was any government work that we knew about or had used in any of our work—I asked George Mitchell if he knew of any. No one knows of any government studies that actually led to what George Mitchell was able to do.
MR. LOVELESS: Well, the tax breaks, though. And there were tax breaks for that sort of work.
MR. NICHOLS: Oh, early on, yeah, but those were long gone. It really shows that, you know, the old adage that success has many fathers. And whenever there’s something successful like that, there are lots of people who claim that they were a part of it.
MR. LOVELESS: Larry Nichols is the executive chairman with Devon Energy in Oklahoma City. Thank you very much.
MR. NICHOLS: Thank you.