Note: This post is a little more screaming left-wing than my usual but I was pushed further down the spectrum by this event and its followup.
During a companywide conference (we make AI software), our CMO highlighted the guy who invented fracking as an example of someone who “changed the world by just trying to do his job”: junior engineer Nick Steinsberger. People then speculated on how much $ he’s now worth. Meanwhile I was stewing because whatever he gained from the discovery, it’s blood money, IMO. Fuck fracking.
Later research proved bitterly satisfying. The crowd was optimistic, as aspiring capitalists often are. Because Steinsberger works for capitalists, he got NOTHING. Although it was nice of our CMO to name him — instead of his boss, George Mitchell, who has taken all the credit. Steinsberger received no bonus or equity stake for his breakthrough, just his ~$100,000 salary, and three years later, his boss sold the company for $3 BILLION, pocketing $2 BILLION all by himself, and now George Mitchell is considered the “father of fracking.”
Robber barons, all.
And because I will never give this lobbyist/blogger more clicks, here’s Steinsberger’s story (highlights mine), included in its entirety through the eyes of an admirer who does not even recognize the many gross injustices he describes:
The greatest economic miracle of the last ten years has been hydrocarbon fracking in the U.S. The benefits are plentiful and rich.
Some 750,000 – to 1,000,000 jobs have been created. Utility bills and gasoline bills have been slashed. Manufacturing boomed and continues to expand due to the low cost of fuel stocks. Equity values climbed by more than $2.5 trillion.
Furthermore, fracking has put pressure on malevolent dictators including Russia, Venezuela and Saudi Arabia. The U.S. has ramped up crude and natural gas exports to the tune of 1.984 million barrels of crude a day as of two weeks ago.
Almost inconceivable 15 years ago, America is on the verge of energy independence – a national goal that’s been pursued for over 40 years.
To put this in perspective, Kuwait ships 2 million barrels a day. Furthermore, U.S. crude is $6 cheaper than Brent.
Hug a Fracker
The benefits of fracking are so enormous you’d think the rest of the world would dive right in… they haven’t. Some of this has to due with geography. North America has the layered formations that make fracking possible. For example, China has been trying for years with little success.
Some of it has to do with politics and mineral rights. Just last week the Scottish government overwhelmingly rejected fracking despite evidence of major oil deposits. In many places traditional oil and gas producers own the regulatory environment and don’t want the competition.
Fracking also requires lots of water and mid-stream infrastructure such as pipelines. The U.S. has both.
But perhaps the most important item is expertise. Fracking was invented and developed in the United States over the last 70 years. It was perfected in the mid 1990’s by a small Texas gas company called Mitchell Energy.
George Mitchell, the owner lived the American dream. He began his life in 1919 as the son of Greek goat herders and ended with the sale of his company for $3.1 billion. Along the way his company produced a number of innovative geologist who combined hydro-fracking with horizontal drilling. This changed the world.
Now this same group of Mitchell engineers have formed their own company and are in Mexico to make a fortune on virgin fracking land.
You see, the same geological forces that created the Permian Basin and Eagle Ford, also created similar basins down into Mexico.
And since Mexico liberalized their oil industry two years ago, and has the geography and political will all the conditions are in place for a fracking boom, including expertise.
South of the Border, Down Mexico Way
Team of Experts
First a little history on the Mitchell fracking experts. Gregory Zuckerman’s book, The Frackers, is sitting on my desk as I write this. The names you see below are some of the main characters in the fracking legend…
In the 1980s and 1990s, Mitchell Energy had holdings in the Barnett Shale region of Texas. They knew it had tons of natural gas but couldn’t make it profitable. The company didn’t have enough money to buy more expensive holdings, so it kept drilling and experimenting with proppants and horizontal drilling, hoping that its cash flow would hold out until it scored.
Through hard work and dumb luck, it finally figured it out.
Here is a summary of the book by Canadian Business:
The story Zuckerman tells is in many ways the prototypical narrative of American business success. A group of low-level players, operating in fields the big companies long ago abandoned, bucked all expert opinion to create billions in value out of virtually nothing.
McClendon’s co-founding investment in Chesapeake, to cite one example, was just $50,000. By 2008 his stake was worth $3 billion. And he enjoyed spending it. From $10,000 wines to homes all over the world and even his own NBA team (McClendon bought a 19% stake in the Oklahoma City Thunder), the resource player’s lifestyle was especially outlandish. But getting there, for him or the rest of the fracking pioneers, was never easy or guaranteed.
The men Zuckerman profiles, and they are all men, took on enormous debt and sometimes risked ridicule to get ahead of the shale-gas curve. In many cases they were buying up access to land before they even had the technology to profitably drill it. When George Mitchell, the president of Mitchell Energy, a Texas natural gas company, wanted to lease more acreage in the Texas shale in 1998, even his own board scoffed at him.
The breakthroughs that finally made the process profitable didn’t come quickly, or even on purpose. A Mitchell engineer named Nicholas Steinsberger discovered the right mix of fluids to shoot down into fracked wells largely by accident. He then pursued the process despite skepticism and even open mockery from his senior engineers in the company. (He also received no bonus or equity stake for his breakthrough. In the year he helped make fracking profitable, he made about $100,000.)
In 1999, George Mitchell’s company was under tremendous financial strain and heading for bankruptcy. By 2001 production was up 250%, and he sold Mitchell Energy to Devon Energy for $3.1 billion. George Mitchell went home with nearly $2 billion.
Nicholas Steinberger, as well as three others from Mitchell Energy, now work for a tiny $0.20 company I’ve been recommending in Crisis & Opportunity.
I would love to tell you all about this unique opportunity, show you the charts and the maps… Tell you how Mexico will create vast fortunes of hydrocarbon wealth. However, I am over my 1000 word limit.
If you are interested in the massive upside of Mexican fracking, please read this special report.
All the best,
@TheDailyHammer on Twitter
Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor’s page.