The Frackers
How wildcatters and shale debt rewrote US supply.
Summary
Zuckerman reports the shale revolution through the individuals who drove it: George Mitchell, who spent seventeen years and his own money working out how to fracture the Barnett Shale economically; Harold Hamm at Continental Resources in the Bakken; Aubrey McClendon and Tom Ward at Chesapeake; and Charif Souki, who converted a liquefied natural gas import terminal into an export facility.
The technical story is that hydraulic fracturing and horizontal drilling had both existed for decades and neither worked alone. Mitchell's contribution was finding a cheap enough fracturing fluid, essentially water with sand, and the combination with horizontal laterals made shale rock produce at commercial rates. Zuckerman is clear that the major oil companies dismissed the opportunity and that the revolution was executed by independents financed with debt and by land acquisition at scale.
The financial story is the more interesting one for investors. Zuckerman documents that most of these companies were land assemblers funded by capital markets, that Chesapeake in particular was a leasing machine whose production growth never generated free cash flow, and that McClendon's personal borrowing against his working interests destroyed him when gas prices fell. The industry produced an enormous amount of energy and very poor returns on capital for its investors, which is the central lesson. The book was published in 2013, before the 2014 to 2016 price collapse, the wave of bankruptcies, and the eventual shift to capital discipline, so it captures the boom without its resolution. The environmental debate is covered but is not the focus.
Key takeaways 7
- Shale production became viable when slickwater fracturing and horizontal drilling were combined, and neither technique was new on its own.
- The major integrated oil companies rejected shale and the revolution was executed by independents with far less capital and far more risk tolerance.
- George Mitchell's breakthrough came from seventeen years of persistent unsuccessful experimentation funded by an unrelated cash-generating business.
- Shale companies competed primarily on speed of land acquisition, which made them capital markets operations more than engineering operations.
- The shale boom produced enormous energy output and poor returns on invested capital, because production growth was funded by debt that production never repaid.
- Individual wells decline extremely fast, which means shale production requires continuous drilling capital simply to hold output flat.
- The United States shift from expected gas importer to exporter happened within roughly five years and was not forecast by anyone in the industry.
Who should read it
Energy investors and founders in capital-intensive industries who want a case study of a technology that transformed an industry while destroying its investors' capital.
About Gregory Zuckerman
Special writer, The Wall Street Journal; three-time Gerald Loeb Award winner
The Man Who Solved the Market is the definitive account of Renaissance Technologies, and The Greatest Trade Ever is the standard narrative of Paulson's subprime short.
Where it sits in the reference 4
Who recommended it 1 · 1 direct
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