A big bowl full of oil

Tim Dunn is the co-founder and CEO of CrownQuest Operating, an oil and gas business in Midland, Texas. He showed me part of America’s sparsely populated but astoundingly productive oil and gas area in West Texas—and he also shows up in a feature story that begins on p. 46.

I saw a “Welcome to the Permian Basin” sign. You probably won’t find a “welcome to a geologic formation” sign anywhere else. It’s usually “Welcome to Seaside,” not welcome to a big bowl full of sediment that’s full of oil. Except for the oil business this area probably would have few people living in it.

Why are you here? A friend in school had a dad who was the refinery president. I went to his gigantic office. He was talking on the speakerphone, a space age thing at the time, about millions of barrels of oil. I said, “That’s what I want to be.” He had a chemical engineering degree, so I had one data point. Easy to make extrapolations when all you have is one data point. I hated school, hated engineering, hated every minute of it. I really wanted to be an oil company president, so I made it through.

How does CrownQuest work? Our geologists determine where is a good place to drill. We lease the right to drill to access the minerals. Then we raise money to drill a well, and we manage production. We subcontract out all the construction stuff. We will typically have 70 different companies involved in drilling a well.

You have geologists and engineers, but you also have blue-collar lease managers who manage that activity out of their pickup trucks. How much money do you think they make?

$50,000? It’s $80,000—and I’m talking Basin-wide.

What do they need to do to get a job like that? Pass a drug test, have a driver’s license, show us they’re sharp. They need to look at data and understand how machinery works.

College diploma? Not necessarily.

High-school diploma? Not necessarily. We teach them to do engineering analysis, so we want them to be smart. School might show you’re smart, but school doesn’t make you smart.

So with 70 different companies involved, you’re trying to mitigate risk? Always. In the oil and gas business, two-thirds of everything you do will be below average, and a lot of it is zero, so you need to do well on a few things. If you don’t have a good risk mitigation strategy, you’re going to go broke.

How to make a small fortune: Start with a big fortune? It’s real easy to lose money. You also have the danger in some parts of the world of nationalization, which is another word for stealing.

Is Venezuela providing a good example of how to wreck an oil business? Yeah. Oil business always requires investment. If you say, “Just give me the cash, and I’m not going to put any money back in,” you get misled.

A lot of investment in fracking now? The horizontal wells are just now beginning to be drilled, but there’s lots of excitement. The Permian Basin, this granite bowl full of sediment, has shale formations in anywhere from three to a dozen layers. Shale is just like slate, as in slate blackboards. They’re black because they contain carbon: It’s dead plants. We are 100 percent organic, biodegradable, naturally occurring solar power: God’s energy for people, and ready to transport.

Does fracking endanger the freshwater supply? Water wells are only a few hundred feet deep. Our wells go thousands of feet. We put extra 13-inch pipe in the holes for hundreds of feet that covers where the fresh water is. We pump cement between the hole and pipe all the way to the surface so freshwater zones are protected.

What about the EPA people who have studied this: Are they fearmongering? The EPA actually found no problems with fresh water—although that may not be what was reported. A lot of people are driven by a philosophical political agenda that says private capital is evil. The oil business is one of the last remaining businesses that doesn’t depend on Washington, D.C., for its well-being.

I can see why ordinary folks might be fearful—this is new—and NIMBY-ish: Not In My Back Yard. NIMBY is mainly about drilling. People generally don’t care about production. They don’t like the construction part: 30 to 40 big trucks lumbering down the road. But who do you think is bothered by this well being drilled in front of us?

A couple of snakes? Exactly. This is urban drilling in the Permian Basin. Not many people around.

Talking about snakes: Do some political attempts to increase class resentment resonate in this area? Resentment or envy is natural to any individual person, but Marxists and others with agendas push the idea that you’re part of an economic class and your problems all stem from that person over there. People generally stay in Midland to be productive. Those who don’t care about being productive usually don’t stay here.

Can fracking cause earthquakes? Earthquakes have nothing to do with fracking. You shouldn’t inject water near some faults, but all the injection wells in the United States would cover a thousandth or a millionth of a percent of all the places you can drill.

‘U.S. oil production went from 5 million barrels a day to 9 million barrels a day. That’s a totally untold story. Fracking caused gasoline prices to go down.’

How do you drill horizontally? Drill pipe can weigh more than 180,000 pounds; but when it is stretched over 8,000 feet, it is like a washer at the bottom of a string. A motor at the surface turns the pipe like a screwdriver. So you drill down to about 8,000 feet and put a little extra weight on the bit so it pushes sideways for 2 miles. Takes about 17 days to drill a well 1½ miles down and 2 miles out.

Takes a lot of water? One season of a pivot irrigation system for cotton is enough to frack five wells. The oil industry uses less than 1 percent of the total water in Texas.

Do you have to spend a lot of time on water logistics? We have two or three people that’s all they do: work on finding water, storing water, pumping water.

A complicated business. It is. It’s a wonderful business, with treasure hunting, drama, high technology, people.

And big price swings. A 1 percent change in world oil supply means a 10 percent change in price.

Why? People don’t say, “Gasoline is $2 today, so I’ll buy an Expedition,” and if it goes to $4 the next day, they don’t say, “I’m going to buy a Prius.” All those changes take time.

So why is gasoline now $2 instead of $4? The U.S. oil business. U.S. oil production went from 5 million barrels a day to 9 million barrels a day. That’s a totally untold story. Fracking caused gasoline prices to go down.

When oil was approaching $4 a gallon, newspapers ran all these stories about price gouging and how terrible that is, but we’re not seeing hurrahs about $2 a gallon. Or about all the jobs created. The reason Barack Obama has any positive kind of economic pulse to brag about is Texas and the shale boom.