A horizontal drilling rig at sunset.
Getty
These are challenging days for many producers in the domestic oil and gas business, and challenging days invariably lead to speculation that the entire industry is somehow failing. This has been the case throughout the industry’s history, and it helps to explain why we have seen so many reports and opinion pieces in recent weeks speculating that the U.S. shale industry is somehow doomed to failure. But putting this all into a historical context tells a different story.
We have to keep in mind that the extraction of natural gas and, later, crude oil from shale formations is a paradigm-shifting event, a game-changer for the entire global industry. Such paradigm-shifting events invariably produce a years-long shaking-out period during which the weak tend to fail and the strong tend to either survive or get sold to other, bigger companies for princely prices. We must also keep in mind the fact that, although it may seem to anyone under the age of 40 that shale production has always been there, we are really in the very early stages of its life cycle, barely 20 years after the first successful development of the Barnett Shale actually began.
A longtime friend I spoke with last week fretted that the list of large independent producers is so dramatically different today than it was just ten years ago. That is true, but on the other hand, the list of large independent producers in 2009 was very different than the one for 1999, and the lists for every other 10-year sequence before that would have changed equally as much.
One good example of how the industry evolves over the years is Burlington Resources, where I was employed from 1987 through 2006. In the late 1980s, the company – then named Meridian Oil – made a huge bet on the San Juan Basin in general and the Fruitland Coal formation in particular, becoming the largest producer in that area, and perfecting the drilling and completion techniques used in producing natural gas from that game-changing prolific coal seam. The development of the Fruitland formation and other coal seams around North America coincided with deregulation of natural gas pricing by the federal government, and by the early 1990s, producers like Burlington were regularly selling natural gas for $.50/Mmbtu or even less.
When the company lost money for a couple of years in the mid-1990s, concerns arose about its ongoing viability and rumors abounded that it would be sold to a larger suitor for a bargain basement price. But a new management team, led by CEO Bobby Shackouls, was brought in, and the company began the road back to recovery.
Through a series of strategic acquisitions – including that of Dallas Production Co. to become an early large player in the Barnett Shale development – refinement of processes and constant high-grading of its asset base, Burlington Resources became highly profitable and was ultimately sold to
Like so many producers today, Burlington was a company built through a series of acquisitions, buying either all or parts of Southland Royalty Company, Diamond Shamrock, the Louisiana Land & Exploration Company, Canadian Hunter, Parker and Parsley, Poco Petroleum and others.
