Saturday, December 6, 2014



From a WSJ profile:

Consumers can thank Mark Papa, the oilman whose role in creating this income windfall remains, for the most part, unsung.

Mr. Papa retired last July as CEO of EOG Resources, the drilling company that he made into the largest crude-oil producer in the lower 48 over his decade and a half as chief. “They were among the pioneers of the unconventional oil and gas revolution,” says the peerless energy historian Daniel Yergin —a company that advanced new frontiers in hydraulic fracturing and horizontal drilling, allowing producers to tap dense, hard-to-extract shale.

“I can’t think of any other single event that has caused such a positive economic benefit to the nation as a whole as shale oil and shale gas,” Mr. Papa says on a visit to New York this week from his home near Houston. “The fact that oil prices have collapsed as much as they have is directly attributable to the shale revolution.”...

A petroleum engineer by training, Mr. Papa became “the accidental CEO” when Enron “decided to jettison tangible assets as they evolved into a trading company” and discarded its EOG division in 1999. Around that time, a billionaire wildcatter named George Mitchell proved in the Barnett Shale near Fort Worth that vertical fracking was a viable technology, and EOG refined horizontal drilling techniques for natural gas—directing the bit sideways through the layers of shale—and soon became an industry leader. The supermajors like Exxon and Chevron were taken by surprise.

“About 2007,” Mr. Papa recalls, “I looked around and said, EOG has found so much shale gas, but there are a whole lot of other companies that have found vast amounts of shale gas. All the other companies were ecstatic, and their whole business strategy was, ‘We’re going to find more shale gas.’ I stood back and said this probably doesn’t bode well for natural-gas prices in North America.”

If gas prices would remain depressed due to a glut, as in fact they would, Mr. Papa’s insight was that perhaps oil, as well as gas, could also be coaxed from shales. Oil molecules are several times as large as gas molecules, and “because the flow paths through these shales are very small, very narrow and restrictive, the general feeling was that you could not produce oil from shales commercially.”

Mr. Papa and his team suspected this was “an apocryphal old wives’ tale,” and no one had “really done the work to prove that conclusively. So we challenged that dogma, and it was incorrect.”

EOG maintains no central research-and-development department. “Our R&D was just applied R&D,” Mr. Papa notes. “We went out there, drilled some wells, and the first eight or nine were unsuccessful. We got improvements, improvements, improvements, until we finally ended up hitting the right recipe for success.” EOG’s decentralized technical operations and “minimum bureaucracy” encouraged engineers to experiment well by well.

Late in 2006, EOG showed that shale oil was feasible in the Bakken. This discovery meant that EOG could switch to oil, with production flipping to 89% liquids (mostly crude) this year from 79% gas in 2007. More to the point, by proving everyone else wrong—again—Mr. Papa changed the domestic industry as other companies chased his achievement. To the extent that U.S. shale oil is transforming world-wide markets, he deserves a lot of the credit.

Originally appeared at EconomicPolicyJournal.com.

No comments:

Post a Comment