Financial History Issue 127 (Fall 2018) - Page 34

A Primer on the Shale Bonanza For more than a century, from the Wil- liams well through the 1980s, energy companies drilled vertically into pockets of oil and gas called reservoirs, or strati- graphic traps. Those had accumulated over millions of years in voids and porous formations like sandstone as the hydrocarbons flowed molecule by mol- ecule from their kerogenic source rock. Those shales are the remains of ancient swamps, where eons of organic matter were transformed by heat and pressure. Three separate developments were brought together by a company called Mitchell Energy in the 1980s: three- dimensional seismic surveys to assess source rock, direction drilling that allowed the bore to be turned sideways through the shale layers and hydraulic stimulation where sand and water were used to open micro-channels in the source rock allowing economic flow. That is also known as hydraulic fracturing, or fracking. Together the technologies are known as unconventional development, or resource development, in contrast to conventional or reservoir development. Fracking has become highly controversial. It has been wildly successful, and now the United States is among the top oil and gas producing nations. There have also been spills and leaks, as well as industrialization of previously rural farmland. There have also been many myths and misreprentations. Most wells go about two miles deep and then two miles later- ally. For the record, it is not physically or geologically possible for fractures from the well to propagate anywhere near the surface or even to aquifers. Most frac- tures run about 500 feet from the bore- hole. That said, there have been surface spills of chemicals and hydrocarbons, as well as casing leaks. In the boom days of the shale bonanza, state and local regulatory oversight was poor, as was the industry’s willingness to police its less-than-diligent members. Those realities are now changing, but the controversy remains. It had never been economically feasible to drill source rock. The strata could be as thin as a few dozen feet top to bot- tom. Also the rock was too dense, the pores too small to allow economic flow. Sign marking the site of the first commercial oil well in North America. John Henry Fairbank expanded into the grocery business, the same sector where young John D. Rockefeller got his start in Cleveland. At the time, most kerosene and other petroleum derivatives were sold in tins and drums at hardware and grocery stores. He and Miller operated a refinery, and Fairbank also dabbled in banking. Parts of Fairbank’s operations were acquired by another company that ulti- mately became part of the Standard Oil colossus. But Fairbank Oil Properties is a going concern today, according to Sydorko. It is still family held, with the third generation now running the show. It is the oldest documented continuously operating oil company in the world. Cur- rent production has been estimated at 24,000 barrels a year. Standard barrels, not whiskey barrels. The man who took Canadian oil exper- tise to the world was William H. McGarvey. According to the Canadian Petroleum Hall of Fame, “McGarvey was from Hunting- don, Quebec. He moved to the booming Ontario oil region of Oil Springs and Petrolia in 1860 and formed his own mer- cantile and oil business. In 1874, McGar- vey and other oilmen took a commission from the Geological Survey of Canada and explored the Swan River Valley near Fort Pelly in eastern Saskatchewan. “Exploration opportunities further afield took him away in 1879 when he moved to Oelheim, Germany to look for oil. McGarvey hired drillers from Ontario 32    FINANCIAL HISTORY  |  Fall 2018  | www.MoAF.org and drilled the first big well near Krakow [now in Poland]. He also built the first refinery in the area. In 1882, McGarvey moved his family to Austria, and, upon the marriage of his daughter to Count Von Zeppelin in 1895, he gave the couple a 700 acre estate and castle. “The expanding oil company, Galzische Karpathen-Petroleum Aktien Gessel- schaft, eventually made McGarvey one of the world’s leading petroleum technolo- gists with more than 2,000 men working in his operations. Russians set fire to his wells and blew up his refineries in 1914, and on his birthday that year William McGarvey, Canadian foreign driller, suf- fered a stroke and died.” As indicated by the invention of the jerker-line system, all of the oil produc- tion in the early days was from wells, really pits, dug with cable tools. Those were heavy chisels suspended by long wires from flexible poles that were braced at the other end. The rig resembled a fishing rod and line with a heavy chisel rather than a hook. The pole was flexed, dropping the weight onto the rock and pulling it back up again. Oil flowed or seeped into the hole and was pumped out. The pole-drilling technique persisted even after Drake established the value of a rotary bit on a metal shaft, usually driven by a chain attached to a steam engine. Drake also pioneered the use of large- diameter pipe to line the bore, now called casing. The sticky clay and gum beds of the