Energy Report June 2009

June

. 18,

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9

ENERGY REPORTENERGY REPORT

DICK LOWE

HUNTER ENIS

2009 LEGENDSLUNCHEONHONOREES

DICK LOWE

HUNTER ENIS

2009 LEGENDSLUNCHEONHONOREES

June 18, 2009 Energy Report ✦ 3

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4 The Lone Energy Star State Texas supplies the nation with more than just oil and natural gas

6 Hunter Enis and Dick Lowe The Texas Alliance of Energy Producers honors two veteran oil and gas men

8 Natural gas for transportation Ed Ireland argues that compressed natural gas is the only alternative fuel choice

10 Mineral right debates continue in the courtsA case in Sansom Park illustrates continuing tension between surface and mineral owners

12 Texas loses jobs as energy prices retreat Employment dropping in oil, gas industry in state

14 German euros drilling some Texas wellsOverseas investors look to shale

16 Obama’s energy paradox Robert J. Samuelson tackles the president’s energy plans

19 Shale Energy Symposium SpeakersKen Morgan – TCU Energy Institute

Gene Theodori – Sam Houston State University

Lisa Vaughn – Shannonm Gracey, Ratliff & Miller LLP

Kelly Mcbeth – Texas Energy Lobby

John Taylor – PlainsCapital Bank

25 Tim Raetz Finding stability in today’s volatile oil and gas industry

26 Charts How the industry measures up

30 Legends and Legacies of Texas Oil Michael H. Price profiles Don Harrington, a Panhandle legend

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When we ventured forth with the Barnett Shale Symposium in the summer of2008, things still looked moderately positive for the energy industry. At the time, noone knew what tomorrow would bring.

It wasn’t long after last summer’s meeting adjourned, however, that the U.S.economy began to unravel, oil and natural gas prices began a precipitous drop —and we all know the rest.

Still, there were signs the industry could prevail. After all, the Haynesville,Marcellus and Fayetteville shales were all waiting to apply the magic formula firstperfected in the Barnett Shale.

Now, a year later, there are more stones — and maybe a few boulders — in theindustry’s pathway.

But the energy industry — up or down — requires good, solid data. And we haveplenty of that to offer:

How Texas offers other energy options beyond oil and natural gas A look at ongoing mineral rights debates in the courts New markets for natural gas.An analysis of the Marcellus Shale by one of the field’s top geologists.Public opinion research on urban gas drilling.Maximizing oil and gas leases.How mineral owners should handle unleased assets. You’ll find this and more between this pages. We’ll offer this and more —

because who knows what tomorrow will bring

Robert Francis Editor

Fort Worth Business PressEnergy Report

What will tomorrow bring?

Cover photo by Jon P. Uzzel

Inside

PublisherBanks Dishmon

EditorRobert Francis

Associate Editor Michael H. Price

Managing Editor Crystal Forester

ReportersElizabeth Bassett, Betty Dillard

Aleshia Howe, John-Laurent TroncheLeslie Wimmer

ListsMary Kennan

ProductionBrent Latimer

Clayton Gardner

Advertising ExecutivesMary Schlegel, Elizabeth NorthernAndrea Benford, Annie Warren,

Bob Collins, Ann Alexander

ReceptionistMaggie Calhoun

PhotographersGlen E. Ellman

Jon P. Uzzel

4 ✦ Energy Report Fort Worth Business Press

By John-Laurent Tronche

Texas was built on competition and innovation in industry.Nowhere is that more evident than in the energy industry,according to industry officials.

“We have as many natural resources as any state, and in additionwe are much more advanced in planning for transmission upgrades asopposed to other states,” said Stephen Wiley, president ofGreenHunter Renewable Power, a subsidiary of Grapevine-basedGreenHunter Energy Inc.

Texas has as diverse an arsenal of energy resources as one can findanywhere in the world.

The Barnett Shale in North Texas is the lead-ing example of natural gas production forunconventional gas plays in other states andother countries. Head west, and there are oilwells that have produced for more than a cen-tury. In that same area, huge tracts of landnow boast significant investment for windfarms and solar power farms. Travel southeastto find the nation’s largest biodiesel refineryplant located just outside of Houston. More oilproduction sits off the coast in the Gulf ofMexico. Return to North Texas – passing a fewcoal-fired power plants along the way – andabout 40 miles southwest of Fort Worth is theComanche Peak nuclear power plant, one offour plants in the state.

Do other states compete with Texas on theenergy front?

“Not really,” said Alex Mills, president of theTexas Alliance of Energy Producers, which hasoffices in Austin, Houston and Wichita Falls.“Alaska comes pretty close on the oil side,Louisiana on the natural gas side, and California once was the largestwind producer. If we’re not No. 1 in all three of those things, we’redamn close to it.”

In fact, Texas is No. 1 in natural gas, oil and wind energy produc-tion. (On that last note: if Texas were a country, it would rank sixth inthe world in total wind capacity, behind Germany, the rest of the U.S.,Spain, China, and India, according to recently issued 2008 data andrankings from the American Wind Energy Association.)

In addition to competing with other states, Texas’ energy industrycompetes within itself, too.

“Everything begins with energy, so having it in your own backyardmakes it competitive,” Mills said. “We have plenty of energy in Texasfor all types of consumers: residential, industrial, transportation andutilities.”

Oil is the driving force behind transportation, but natural gas propo-nents – T. Boone Pickens and Chesapeake Energy Corp. CEO AubreyK. McClendon being two of the most vocal – want to change that byencouraging tax incentives to fleet owners who transition to naturalgas-powered vehicles. Additionally, coal-fired power plants have been

on the receiving end of much criticism by natural gas advocates(McClendon again with his “Coal is Filthy” campaign) who say naturalgas can produce more energy with less of an environmental impact.(Even the Academy Award-winning Coen brothers, no strangers toTexas, have hopped on that bandwagon by directing an advertisementin February criticizing clean coal, though not on behalf of natural gas.)

Nuclear power once again is gaining favorability for electrical gener-ation, and six of 30 proposed nuclear plants are planned for Texas.Coming into the fray is wind, too, Mills said.

“There is lots of competition on the utilities side between naturalgas and coal,” Mills said. “Wind has come on because of tax incen-

tives that the federal and state govern-ments have given them, but it’s still gotsome problems on the delivery side. Thewind-energy situation is very similar towhat natural gas was in the ‘50s and‘60s. We had plenty of natural gas, butwe had no infrastructure to get it to con-sumers. It has taken us 40 to 50 years tobuild that infrastructure, and it’s going totake wind a long time for it to developthe infrastructure to compete on thescale that’s needed for it to become aviable energy source.”

The state of Texas also is investing initself to give wind energy a chance togain a foothold. The state’s utility regula-tors will spend $5 billion to build asmuch as 2,900 miles of new power linesto move electricity from West Texas toTexas cities.

“We have one of the largest load cen-ters in the United States,” Wiley said.“Naturally, that guides companies to

want to do business here.”While Barnett Shale producers are betting on natural gas being used

more and more in the near future, other companies are looking evenbeyond the next decade, including Grapevine’s GreenHunter Energy,which specializes in wind-energy projects and biofuels.

“It’s clear, if you look at some of the proposed legislation comingout of Washington, that renewables are going to gain a larger andlarger share of the generation being created,” Wiley said.

“Right now we are serving different purposes for the areas that weserve,” Wiley said. “Right now, we aren’t competing with traditionalresources, but one would guess over time, as we become more costeffective and more renewable resources are created, we will ultimatelycompete with the traditional resources.”

Ultimately, it will come down to price.“The cost for renewables has fallen over time, and it continues to

move in that direction,” said Wiley, adding the line at which conven-tional resources are economical remains below the cost line of renew-able resources. “There probably will be a time when those two linescross.”

The Lone Energy StarTexas remains energy resource giant even in new era

We had plenty of natural gasbut we had no infrastructureto get it to consumers. It hastaken us 40 to 50 years tobuild that infrastructure andit’s going to take wind along time for it to developthe infrastructure to com-pete on the scale that’sneeded for it to become aviable energy sources.

Alex Mills, Texas Alliance of Energy Producers


Texas shows muscle in clean-energy economyTexas is one of the leading players in the rapidly expanding clean-energy economy, according to a study

released June 10 by the Pew Charitable Trusts. Texas ranked second to California in both number of jobs and clean-energy businesses, fourth in patents and

third in venture capital tied to clean-energy, according to the survey. The report says Texas has 55,646 jobs and4,802 businesses in the clean-energy sector. The state received 414 patents tied to that sector between 1999and 2008 and venture capital funds invested $716.9 million in the sector from 2006 to 2008.

Wind energy was a big factor in the state’s rankings. According to the report, if Texas were a nation, itwould rank sixth in the world for annual wind energy production, behind Germany, the U.S., Spain, China andIndia.

Pew reported that U.S. clean-energy jobs grew by 9.1 percent between 1998 and 2007 compared with over-all job growth of 3.7 percent in the same period.

“The clean-energy economy is poised for explosive growth,” said Lori Grange, interim deputy director of thePew Center on the States, in a press release. “These jobs are driving economic growth and environmental sus-tainability at a time when America needs both. There is a potential competitive advantage for federal andstate policy leaders who act now to spur jobs, businesses and investments in the clean energy sector.”

– Robert Francis

For more information: www.pewtrusts.org

Mills agrees price is the ultimate factor inwhich energy resources become crowd favorites.

“It’s good for consumers, competition is good,” hesaid. “Even competition between companies operatingin the Barnett Shale is good, competing for leases, accessto pipelines, to keep their costs down so they can be prof-itable in the tough times like we’re having in natural gas onthe price.

“We have a lot of resources available in Texas that most statesdon’t have,” he said. “That creates competition and an atmos-phere of costs down for consumers.”

[email protected]

ER



Good friends make good business partners, at least in the case ofDick Lowe and Hunter Enis.

The two men behind Four Sevens Resources Co. have a long andillustrious career pursuing oil and gas plays, but big success in theBarnett Shale over the past several years has afforded them the luxuryof being able to slow down after having worked solid since the1950s.

“It’s the greatest relationship,” Lowe said of his partnership withEnis. “We’ve been in business together for more than 20 years and itstarted with a handshake to be 50-50partners.”

During the explosive growth of theBarnett Shale over the past several years,Four Sevens thrice played its cards rightwith a series of deals that netted the com-pany about $1 billion, Lowe said.

In 2004, Lowe and Enis sold theirBarnett Shale holdings of 26,000 acres toXTO Energy Inc. for $155 million.

In the summer of 2007, the duo –along with partner Sinclair Oil Corp., outof Salt Lake City, Utah – sold 39,000 acresin the Barnett Shale for $845 million incash to Chesapeake Energy Corp., out ofOklahoma City. Four Sevens and SinclairOil split the bounty 50-50. Of that total acreage, about 26,000 acreswere in Johnson and Tarrant counties, while another 13,000 acres areoutside the core area of the Barnett Shale. The divested assets had agross production of 37 million cubic feet per day at the time and mid-stream pipeline transportation assets.

“We’ve sold out twice for a total of about $1 billion,” Lowe said atthe time. “I guess we must be doing something right.”

Since that time, the two have been biding their time.“We haven’t been doing a whole lot,” Lowe says bluntly. “We’ve

got some production in north-central Texas in a couple of wells andwe’ve got a non-working interest in some things in the Barnett Shalethat Denbury (Resources Inc.) is the operator of.”

They might not be as active as they once were, but that doesn’tmean they haven’t kept a sharp eye out for a deal.

“We’ve been looking around for a few places,” Lowe said. Whenasked if he has found some exciting prospects close to home, whichis Fort Worth, Lowe replies laughing, “Yea, but none I want talkabout.

“I’m looking for something geographically desirable,” he adds. “I

don’t want to do something way out there. I don’t want Hunter and Ito have to travel. We’re looking for something not too expensive,shallow – it’s hard to find something like that but we’re looking.”

The two have a good friendship, and Lowe credits Enis for helpinghim get off his feet. Lowe jokes he’s been rich four times and brokethree times. (“That isn’t going to happen again,” he says of goingbust.)

“The last time I went broke, and I mean I was really broke, I hadno car, no house, no income and I had $20,000 in cash dedicated tothe bankruptcy attorneys,” he said. “Hunter called me up and said,‘Why don’t we be partners?’”

“I said, ‘I’m sorry, but I don’t have any-thing.’”

“He said ‘That’s ok, I’ve got some money.When you get some you can pay meback.’”

Those honest relationships, agreementmade between two honest individualsincreasingly are a thing of the past,” hesaid.

“They are increasingly rare, and that’stoo bad,” he said.

Another credit to their success is a resist-ance to bite off more than they can chew.Many companies these days load up ondebt to grow by leaps and bounds, he said,but that can often lead to a difficult situa-

tion during trying times.“One of the things about this business is you have to watch how

much money you borrow because the price of the product can fluctu-ate so much, and you don’t want to get caught with a bunch of debtin a downturn,” he said. “I can testify that.”

In addition to a love for the energy industry, Lowe and Enis cantrace their similarities to Texas Christian University’s football program.Lowe is a former TCU linebacker who played on national champi-onship football teams coached by the legendary Dutch Meyer in the1940s. Meanwhile Enis, a Polytechnic High School graduate, playedas quarterback during TCU’s appearance at the SouthwestConference championship in 1958.

On retirement – official retirement, that is – Lowe, 81, said it’s notlikely to happen.

“I feel like I’m retired now,” he said. He’s a morning person, andworks out and plays golf several times a week. “I’m not working veryhard. I’ll probably keep on doing this until the final curtain call.”

[email protected]

ER

Four Sevens duo honored with Texas Alliance ‘Legends’ award

We’ve sold out twicefor a total of about$1 billion. I guess wemust be doing some-thing right.

– Dick Lowe


PHOT

OS

BY JO

N P

. UZZ

EL

Dick Lowe, left, and Hunter Enis will receive the Fort Worth Legends Award.

Texas Alliance of Energy Producers Fort Worth Legends AwardThe Texas Alliance of Energy Producersimplemented its Legends Merit Award pro-gram to honor members that had made along-time contribution to the betterment ofthe industry, community and country.

2002 Amon G. Carter and familyKay Kimbell and familyE.A. and W. A. Landreth

and familyW.A. “Monty” Moncrief

and familySid Richardson and family

2003 S.B. (Burk) BurnettDixon (Dick) Thomas

HarbisonCharles Anthony Fischer

2004 H. E. (Eddie) ChilesFrank Darden Jr.Edgar Sperry HillJames Houston Hill, George Pat Hill

2005 B. J. KellenbergerArch RowanCharles Rowan

2006 William L. AdamsCharles W. Seely

2007 Bob R. Simpson

2008 Ben Fortson Marvin Gearhart

2009 Hunter EnisDick Lowe


The Texas Legislature has mandated that morestate vehicles be powered by alternative fuels. Thebill emphasizes compressed natural gas as the

preferred alternative. This condition is spelled out in a legislative analysis of

House Bill 432, where compressed natural gas (CNG) iscited as the first option, followed by liquefied naturalgas. Only at the bottom of the list is there a brief men-tion about electricity for plug-in hybrids.

The bill will amend the state code to require agenciesto purchase or lease vehicles only if they use these alter-natives: “compressed natural gas, liquefied natural gas(propane), liquefied petroleum gas, methanol ormethanol/gasoline blends of 85 percent or greater,ethanol or ethanol/gasoline blends of 85 percent (E85)or greater, biodiesel or biodiesel/diesel blends of 20percent or greater, or electricity, including electricity topower a plug-in hybrid motor vehicle.”

In response to the bill’s passage, the Barnett ShaleEnergy Education Council and the Energy Institute ofTexas Christian University presented “Green Fleets:The Future Is Now,” a conference focused on natural-

gas vehicles. The June 17 meeting had co-hosts in theCity of Fort Worth, the Fort Worth Chamber ofCommerce and the North Central Texas Council of Governments. In atten-dance were fleet operators, transportation directors and business leaders fromacross the region.

Participants learned that fleet vehicles lend themselves perfectly to CNGbecause they return at the end of each day to a central fueling station.Another asset is the regional advantage: Fleets in North Texas travel atop ofone of the largest deposits of natural gas in the United States – the BarnettShale.

Another compelling argument from the conference is that natural gas isthe cleanest-burning alternative fuel. Because of its chemical makeup, naturalgas generates less nitrogen oxides, soot and greenhouse gases than other

petroleum fuels. Natural gas is mostly methane, which has only one carbonatom and four hydrogen atoms. Gasoline has eight carbon atoms and 18hydrogen atoms; diesel, 14 carbon atoms and 30 hydrogen atoms.

And natural-gas vehicles (NGVs) make little if any noise and thereforereduce noise pollution, the participants learned. In fact, the decibel level ofNGVs is 80 to 90 percent lower than that of their diesel counterparts. (Ifyou’ve ever been behind a Fort Worth city bus, you might have wondered ifthe engine is even running.) Finally, life-cycle costs are lower for NGVs than forgasoline and diesel vehicles. Not only does fuel cost less, but maintenancecosts less, as well.

Like all alternative-fuel vehicles, CNG vehicles are more expensive than reg-ular cars and trucks. Fortunately, numerous federal and state tax credits andsubsidies pay the entire premium, in most cases. Representatives from the

North Central Texas Council of Governmentsshared news about these funding options at theTCU conference. Several federal programs, tohelp offset the initial purchase price of CNGvehicles, are administered by the Department ofEnergy, the Federal Highway Administration andthe Department of Agriculture. The InternalRevenue Service even offers a 50-cents-per-gal-lon tax deduction for CNG, as well as a 50-per-cent tax credit for up to $50,000 to cover thecost of installing CNG fueling equipment.

The Texas General Land Office, the Texas Railroad Commission and theTexas Emissions Reduction Program also offer various grants and other incen-tives to encourage the use of CNG vehicles.

The bottom line is that there is a compelling case for operating fleets thatrun on CNG. Natural gas is plentiful, readily available and clean-burning. Andsubsidies are available to cover much of the cost of the switch. The situation isgood for our region’s economy and good for the environment – and that is awinning proposition for us all.

Ed Ireland is executive director of the Barnett Shale Energy Education Council. Formore information: www.bseec.org.

ER

Natural gas generates

less NOx, soot, and

greenhouse gases than

other petroleum fuels.

Clear choice for alternative fuel vehicles: Natural gas

ED IRELAND

Barnett Shale EnergyEducation Council

• There are over 120,000 natural gas vehicles on U.S. roads today and over 10 million worldwide.

• There are over 1,100 NGV fueling stations in the U.S. – over half are available for public use.

• Natural gas costs, on average, one-third less than conventional gasoline at the pump.

• Over 50 different manufacturers produce 150 models of light, medium and heavy-duty vehicles andengines.

• Roughly 22 percent of all new transit bus orders are for natural gas.

• Natural gas is sold in GGEs or gasoline gallon equivalents. A GGE has the same energy content(124,800 BTUs) as a gallon of gasoline.

Naturalgas

vehiclefacts

Source: Natural Gas Vehicles for America (www.ngvc.org)



Acourt case pitting the developer of a once-planned community inSansom Park against a local natural gas exploration and produc-tion company resulted in punitive damages of about $4.8 million

awarded to the developer and represents one of the few instances inwhich surface rights have been given greater importance than mineralrights.

In the case, Northside Land & Development LLC sued WesternProduction Co. in August 2007 for interfering in a 274-home, master-planned community the developer had been assembling since early2005. Western Production leased the mineralrights under the 44-acre property and intend-ed to drill on Northside’s land but could notmove forward with a drilling permit due to thewell’s proximity to other properties, a violationof the 500-foot setback in Sansom Park’sdrilling ordinance. Negotiations between thetwo parties to allow for the community’s cre-ation as well as the realization of mineralsfailed, leading to the dispute’s appearance inthe 153rd District Court.

Generally speaking, mineral rights trumpsurface rights in Texas, according to severalarea energy attorneys. In other words, anexploration and production company’s rights supersede those of theproperty owner whose home or land may sit above the oil or naturalgas below ground.

In this case, however, the jury found May 5 that Western Productionpurposefully interfered with Northside’s planned community and award-ed the company and its owner, Wes Cottongame, about $4.8 million inpast lost profits, future lost profits and disgorgement, or repayment ofmoney gained in ill-gotten manners.

The factsCottongame, a former Haltom City community development coordi-

nator, said his Northside Land & Development acquired the land inJanuary 2005 and immediately set out to create a 274-home, master-planned community with room for a strip center as well. Sansom Parkwas supportive of the deal, he said, as was Fort Worth City Councilmember Sal Espino, whose District 2 is adjacent to Sansom Park.Sansom Park is in the northwest section of Tarrant County.

“This probably would have been another good housing stock for resi-dents to look at,” said Espino, adding he worked out an agreementbetween Fort Worth, Sansom Park and Tarrant County to improve near-by McCandless Street for the development.

Western Production leased the minerals to the property in June 2006and was told by Sansom Park officials that the city did not want oil andgas development at the expense of the planned residential develop-ment, according to court documents. The Sansom Park City Councilunanimously approved the Northside development June 7, 2007; aWestern Production representative present at that meeting raised noobjection.

Five days later, however, Western Production filed a gas drilling per-mit with the well located on Northside’s land; the permit was rejecteddue to the gas company’s misrepresentation of the well’s location, thesuit alleged, because Western Production officials knew the well could-n’t comply with city and Railroad Commission of Texas setback require-ments.

“Western showed up and I just really got an uncomfortable feelingwith the way they were trying to do business,” said Cottongame, whohad invested $1.2 million in the project by this time. “I have confidencewe tried everything in good faith to bargain with them and they did notwant to listen.”

Northside sued Western Production inAugust 2007, claiming tortuous interference.

Three months later, Western Productionsold the Sansom Park leases to ChesapeakeEnergy Corp. in November 2007.Chesapeake Energy bought the undevelopedacres and more land, totaling about 2,000acres, for an undisclosed amount; however,a court briefing estimates the transaction atmore than $40 million.

“My guys worked two and a half yearswith the city to get this project off theground. The city council unanimouslyapproved our deal,” said Hugh G. Connor II,

a partner with Kelly Hart & Hallman LLP in the firm’s Fort Worth office,who represented Northside in the suit. “And at the last minute Westerncame in and filed the application for a drill permit even though theyknew they couldn’t comply with the various rules and regulations.

“We say they did it solely so they could stop the city from signing ouragreement and it worked,” he said. “After that, they continued tointerfere by still filing amended drilling permits that still violated ourrules, all the way up until they flipped their leases to Chesapeake.”

A representative at Western Production said the individual who couldspeak to the matter wouldn’t be available to comment until after theBusiness Press’ production deadline.

Western Production was represented by Shayne Moses, an attorneywith Moses, Palmer & Howell LLP, a Fort Worth law firm whose clientsalso include Quicksilver Resources Inc. and Anadarko Petroleum Co.Calls to Moses were not returned.

The impactsThe Northside master-planned community now is on an indefinite

hold, Cottongame said. He wants to pursue the project but insists it’snot that simple, due to city council changes and, separately, a pipelinecondemnation that removed about 60 possible homes, he said.

“It was profitable at 274 homes and I don’t know if it would prof-itable with less lots,” Cottongame said.

Connor said this case represents a victory for the little guys.“The big point is that typically oil and gas companies can get away

with things because you’re typically talking about a small landownerwho doesn’t have the resources to fight back,” Connor said. “Myclients did fight back and ultimately prevailed and convinced the jury

Surface owners prevail in Sansom Park caseCase marks rare court victory over mineral rights in Texas

Invoking the accommoda-tion doctrine is the best waysurface owners can protecttheir rights in a dispute witha party seeking subsurfaceuse, some attorneys said.


Railroad Commission of Texason surface vs. mineral rights

Leases by county in the Barnett Shale

From Oil & Gas Exploration and Surface Ownership:

The general rules regarding free use of the surface to benefit the mineralestate may be changed by the specific terms of the mineral lease coveringthe property or of the deed that severed the mineral estate from the sur-face estate. In addition, many cities have municipal ordinances restrictingoil and gas activities on property within city jurisdiction. The rights of thelessee may also be limited by the “accommodation doctrine.” This legaldoctrine applies in limited circumstances to require the lessee to modify itsoperations to accommodate an existing surface use when reasonablealternatives are available. In specific circumstances in counties in or nearlarge metropolitan areas developers can impose restrictions on drilling andoperations sites by creation of a qualified subdivision as provided byChapter 92 of the Texas Natural Resources Code.

For more information:www.rrc.state.tx.us/about/faqs/SurfaceOwnerInfo.pdf

Bosque – 30

Cooke – 20

Comanche – 5

Dallas – 8

Denton – 2,447

Eastland – 12

Ellis – 22

Erath – 124

Hamilton – 5

Hill – 150

Hood – 548

Jack – 154

Johnson – 2,013

Montague – 3

Palo Pinto – 50

Parker – 951

Somerville – 57

Tarrant – 1,925

Wise – 2,003

Source: The Perryman Group

2004 2005 2006 2007 2008

1,112

1,629

2,503

3,643

4,145

Source: Railroad Commission of Texas

Drilling activity in the Barnett Shale Drilling permits issues for Newark, East Field (Barnett Shale)

that what the oil and gas company did was wrong.”Despite mineral rights’ importance in Texas, oil and gas companies

still must make concessions to surface owners, according to theAccommodation Doctrine, first expressed in the 1971 Texas SupremeCourt case Getty Oil Co. v. Jones. The accommodation doctrine seeksto determine whether the mineral lessee’s proposed use of the surfaceis unreasonable.

Invoking the accommodation doctrine is the best way surface own-

ers can protect their rights in a dispute with a party seeking subsurfaceuse, some attorneys said.

Chesapeake Energy’s Julie Wilson said it was too early gauge thecourt decision’s impact on the company’s drilling efforts. The companyis “exploring all options in the area,” said Wilson, vice president forcorporate development in the Barnett Shale.

[email protected]

ER

12 ✦ Energy Report

By Karr Ingham

Drilling activity in Texas continued declining steadily through April, reflect-ing weak natural gas markets and defying a crude oil price rally.Employment in the state’s exploration and production (E&P) industry has

dropped to its lowest ebb since January 2008, according to the latest TexasPetro Index (TPI).

“The Texas oil and gas industry remains in cost-cutting mode, idling rigs,reducing capital spending, and laying off employees as economic contractioncontinues,” said Karr Ingham, the economist who created the TPI for the TexasAlliance of Energy Producers. “The oil-price recovery that has occurred sincethe first of the year is benefitting producers in some regions of the state.

“But make no mistake about it. Texas is a natural gas state, in terms of theprimary E&P focus, with 80 percent of the rigs still actively drilling for naturalgas. As long as natural gas prices remain at current levels, producers in a lotof Texas gas plays will be unable to turn a profit on new gas wells.

“If wellhead prices would double from the current range of $3 to $4 perthousand cubic feet ($/Mcf), gas producers across Texas would be able torecover their finding and development costs.

“Sustained gas prices of $6/Mcf or more would drive a turnaround ofgas-related E&P activity in the state.”

A composite index based upon a comprehensive group of upstream eco-nomic indicators, the Texas Petro Index in April dropped more than 5 per-cent to 249, marking the sixth consecutive monthly decline since the indi-cator of the Texas oil and gas industry’s health peaked in September andOctober 2008 at 285.4. Among leading March indicators:

• Natural gas prices in Texas during April averaged $3.28/Mcf, 63.4 per-cent less than the same month of 2008. As a result of low prices, thevalue of Texas gas production during April was $1.9 billion, down from$5.5 billion in April 2008, despite a volumetric decline of only 2.6 per-cent.

• The Baker Hughes count of active drilling rigs in Texas dippedto monthly average of 393 in April, nearly 500 fewer rigs thanthe April 2008 monthly average.

• The number of Texans employed in the state’s oil andgas industry declined to 219,500 during April, accordingto the Texas Workforce Commission, from 240,000 inDecember last year, effectively wiping out job growthlast year since 219,500 Texans were working in theindustry in January 2008

Karr Ingham is an economist with the Texas Alliance ofEnergy Producers.

The Texas Petro Index is a service of the TexasAlliance of Energy Producers, an association of inde-pendent oil and gas producers.

ER

Crude rallies, but natural gas weakTexas loses jobs as energy industry in retreat

Fort Worth Business Press



Just as domestic energy producers invested in Middle Eastern oil andgas plays over the past several decades, it appears European energycompanies currently see benefits in acquiring stakes in U.S.-based

shale plays for application back home. Over the past several months, at least four European energy compa-

nies – from Britain, France, Italy and Norway – have bought stakes indomestic shale plays producing oil and gas. Most recently, Rome-basedenergy giant Eni purchased a portion of Quicksilver Resources Inc.’sleasehold interests in north Fort Worth for $280 million. Per the agree-ment, Fort Worth-based Quicksilver Resources sold Eni 27.5 percent ofits 270,000 acres surrounding its Alliance properties in north FortWorth.

Eni said the deal gives it a good foothold in the U.S., and the com-pany will gain “experience to support the exploration of high potentialunconventional gas opportunities worldwide,” according to a state-ment.

The Eni-Quicksilver Resources deal is justone of many that illustrate European interest inU.S. shales. Over the past year several otherenergy companies with roots across theAtlantic have invested in domestic producers.

In March, Paris-based Total purchased a 50-percent interest in American Shale Oil LLC tocooperate on a western Colorado shale oillease that, over time, could be expanded tomore than 5,000 acres of federal land, accord-ing to the deal.

Similarly, during the past several years,Netherlands-based Royal Dutch Shell quietlyhas been working on shale oil developments innorthwest Colorado and Wyoming, not farfrom Total and AMSO.

Above all others, however, Chesapeake Energy Corp. has beeninstrumental in helping Europeans gain insight into U.S. technology forapplication elsewhere.

In July 2008, the Houston-based arm of BP Plc, based in London,purchased Chesapeake Energy’s interest in Oklahoma’s WoodfordShale – about 90,000 acres producing about 50 million cubic feet ofnatural gas per day – for $1.75 billion. In September 2008, BP AmericaInc. agreed to purchase a 25-percent interest in Chesapeake Energy’sFayetteville Shale assets in Arkansas for $1.9 billion. As a result, thecompanies would cooperate on the Oklahoma City-based energy pro-ducer’s 540,000 acres of lease producing about 180 MMcfe per day,with BP owning about 135,000 acres of the total.

Chesapeake Energy followed up with a third transaction – thelargest, to date – for its Marcellus Shale holdings.

Norwegian state-controlled energy company StatoilHydro would pay$3.375 billion for a 32.5-percent stake in the former’s 1.8 million netacres of Marcellus Shale assets, according to a November 2008 agree-ment. StatoilHydro paid $1.25 billion in cash at closing, and theremaining $2.125 billion over the next three years “by funding 75 per-

cent of Chesapeake’s 67.5 percent share of drilling and completionexpenditures until the $2.125 billion obligation has been funded,”according to the Nov. 11 statement.

While Chesapeake Energy has yet to comment on the possibility ofoverseas exploration, a StatoilHydro executive said during a May inter-view with Bloomberg that the two companies had identified 14 differ-ent unconventional natural gas projects worldwide and currently werewhittling down their selections. The companies were looking at playsin Hungary, Poland, India, Australia and China.

It appears the question isn’t whether Europeans will experience thesame explosion of natural gas development that North Texas’ BarnettShale ignited in the U.S., but rather when they will experience it.

German euros run through some Texan oil, gas wellsThe Barnett Shale turned the average homeowner into a partner in

natural gas wells across North Texas, and one Fort Worth company isgiving that same opportunity to invest in wells to people more than5,000 miles away.

TEXXOL Inc. and its German equivalentTEXXOL Mineralöl Ag pair Germaninvestors with Texan oil and gas assetsthrough an investment system wherebysomeone with as little as 50 euros amonth, or about $70, can secure a stakein properties they might never see,according to the companies’ two chiefexecutives.

“The nice thing is by these install-ments we have two advantages: first tothe investors, usually they can participatewith that amount and it’s only possiblebecause we have computerization.Without computers it wouldn’t be possi-

ble,” said Sönke Harrsen, president and CEO of the German arm,which is based outside of Hamburg, Germany. “And the other thing isit has a great advantage to the investors because they are participatingnow in a commodity that is not usually available to them.”

In other words, middle-class investors have the opportunity to investin an industry that is likely out of financial reach if they were to actalone. Strength in numbers is the key, however, and currently the com-panies own stakes in more than 150 oil and gas wells in more than 20locations across the state and into southern Oklahoma. Other compa-nies act as the operators on the wells.

Harrsen, who previously worked for German oil company DEMINEXamong other energy firms, met Kevin Grubbs in the late 1980s, whenthe latter was working as an accountant for the Ray Richey &Company Inc., a startup oil and gas exploration company. Throughoutthat decade, Harrsen had been securing German investors for domes-tic gas wells in west central Texas and north Texas and investing thatmoney with Grubbs’ employer, but eventually the two agreed “to justroll those partnerships up into a corporation because it was just toohard to do all the individual tax returns for all those Germans,” saidGrubbs, who was named president of the new company, IEP Inc., in

Barnett Shale-bred technology making leap overseasForeign investment becoming big player in U.S. shale plays

Over the past severalmonths, at least fourEuropean energy companies– from Britain, France, Italyand Norway – have boughtstakes in domestic shaleplays producing oil and gas.


1993.“[Barnett Shale pioneer Mitchell Energy & Development Corp.] was really

big and Ray Richey & Co. was really small and we were just going aroundpicking up the leases Mitchell let fall through the cracks,” Grubbs said oftheir investment strategy at the time.

The two kept in touch, and Grubbs continued to serve as an adviserwhen needed. In 1999, Harrsen acquired ownership in TEXXOL MineralölAg. Grubbs continued to advise Harrsen and company until he went towork full-time for TEXXOL in January of this year.

How it worksTEXXOL is financed by German investors known as “silent partners,”

Harrsen said, who participate in one of two ways: monthly installmentswith a minimum of 50 euros for up to 15 years or with a single paymentwith a minimum of 1,000 euros.

In the same way that President Barack Obama raised more than $235million during his presidential campaign by attracting a large number ofdonations in small amounts, such as $5, $10 or $20, Harrsen raises fundsby attracting the small- to mid-sized donors in addition to the large dona-tions.

Currently, Harrsen has about 2,000 accounts of these smaller-sizeddonors, each of which contributes at least 50 euros per month with a mini-mum commitment of eight years.

Additionally, TEXXOL has 50 partners who have invested at least$20,000; the largest investment received has been $150,000, Harrsen said.

“There are basically two categories: middle-income and high-income,”Harrsen said.

At the end of 2008, total capital subscriptions amounted to more that$32 million, Harrsen said. The system works because of Harrsen’s relation-ship with Grubbs, they said.

“In this respect we are the only company in Germany offering this. Idon’t know why but nobody is competing with us up to now. It might bebecause the advantage from our side is knowing Kevin for such a long time– and a lot of other people but Kevin is the key – we have solid connec-tions over here,” Harrsen said. “Other companies arrive at the airport andsay, ‘We have a lot of money, please let us find someone who invests it.’”

Grubbs adds, “Sönke and I have been friends a long time,” he said. “I’vebeen a CPA for a long time and it was just very easy to do. It was easy togo to work for my client.”

And it works.Since 2002, the company has doubled its investment, and all the original

investors still remain.“Even for standards over here, it’s not bad,” Harrsen said. “Track record

we can show.”

[email protected]

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Sönke Harrson, president and CEO of TEXXOL Mineralöl AG, and Kevin Grubbs, president and CEO of TEXXOL Inc., allow German investors a chance toown shares in oil and gas wells across Texas.


Considering the brutal recession, you'dexpect the Obama administration to beobsessed with creating jobs. And so it is,

say the president and his supporters. The troubleis that there's one glaring exception to theirclaims: the oil and natural gas industries. Theadministration is biased against them – a bias thatmakes no sense on either economic or energygrounds. Almost everyone loves to hate theworld's Exxons, but promoting domestic drilling issimply common sense.

Contrary to popular wisdom, the United Statesstill has huge oil and natural gas resources. Theouter continental shelf (OCS), including parts that have been off-limits todrilling since the early 1980s, may contain much natural gas and 86 bil-lion barrels of oil, about four times today's "proven" U.S. reserves. TheU.S. Geological Survey recently estimated that the Bakken Formation inNorth Dakota and Montana may hold 3.65 billion barrels, more than 20times a 1995 estimate. And there's upward of2 trillion barrels of oil shale, concentrated inColorado. If only 800 billion barrels wererecoverable, that's triple Saudi Arabia's provenreserves.

None of these sources, of course, willquickly provide oil or natural gas. Projects cantake 10 to 15 years. The OCS estimates arejust that. Oil and gas must still be located – acostly and chancy process. Extracting oil fromshale (in effect, a rock) requires heating theshale and poses major environmental problems. Its economic viabilityremains uncertain. But any added oil could ultimately diminish depend-ence on imports, now almost 60 percent of U.S. consumption, whileexploration and development would immediately boost high-wage jobs(geologists, petroleum engineers, roustabouts).

Though straightforward, this logic mostly eludes the Obama adminis-tration, which is fixated on "green jobs" and wind and solar energy.

Championing "clean" fuels has become a political set piece. On EarthDay (April 22), the president visited an Iowa factory that builds towers forwind turbines. "We can remain the world's leading importer of oil, or wecan become the world's leading exporter of clean energy," he said.

The president is lauded as a great educator; in this case, he providedmuch miseducation. He implied that there's a choice between promoting renewables and relying on oil. Actually, the two are mostly dis-connected.

Wind and solar mainly produce electricity. Most of our oil goes fortransportation (cars, trucks, planes); almost none – about 1.5 percent --

generates electricity. Expanding wind and solar won't displace much oil;someday, electric cars may change this.

For now, reducing oil imports requires using less or producing more.Obama has attended to the first with higher fuel-efficiency standards

for vehicles. But his administration is undermining the second. At theDepartment of Interior, which oversees public lands and the OCS,Secretary Ken Salazar has taken steps that dampen development: can-celled 77 leases in Utah, because they were too close to national parks;extended a comment period for OCS exploration to evaluate possibleenvironmental effects; and signaled more caution toward shale for similarreasons.

Any one of these alone might seem a reasonable review of inheritedpolicies, and it's true that Salazar has maintained a regular schedule of oiland gas leases Still, the anti-oil bias seems unmistakable.

Conceivably, Salazar may reinstate administratively many restrictionson OCS drilling that Congress lifted last year. Meanwhile, he's promotingwind and solar by announcing new procedures for locating them on pub-lic lands, including the OCS. "We are," he says, "setting the Department

on a new path" – emphasizing renewables.It may disappoint. In 2007, wind and

solar generated less than 1 percent of U.S.electricity. Even a tenfold expansion will leavetheir contribution small. By contrast, oil andnatural gas now provide two-thirds ofAmericans' energy. They will dominate con-sumption for decades. Any added oil producedhere will mostly reduce imports; extra naturalgas will mostly displace coal in electricity gen-eration. Neither threatens any anti-global

warming program that Congress might adopt.Encouraging more U.S. production also aids economic recovery,

because the promise of "green jobs" is wildly exaggerated. Consider. In2008, the oil and gas industries employed 1.8 million people. Jobs in thesolar and wind industries are reckoned (by their trade associations) to be35,000 and 85,000, respectively. Now do the arithmetic: A 5 percent risein oil jobs (90,000) approaches a doubling for wind and solar (120,000).Modest movements, up or down, in oil will swamp "green" jobs.

Improved production techniques (example: drilling in deeper waters)have increased America's recoverable oil and natural gas. The resistanceto tapping these resources is mostly political. To many environmentalists,expanding fossil fuel production is a cardinal sin. The Obama administra-tion often echoes this reflexive hostility. The resulting policies aim more tosatisfy popular prejudice -- through photo ops and sound bites – thannational needs.

Samuelson’s column is published by the Washington Post Writers Group.

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Almost everyone loves to

hate the world's Exxons, but

promoting domestic drilling

is simply common sense.

Obama’s policies push domesticoil and gas industry aside

ROBERT J.SAMUELSON

Guest Column


SYMPOSIUM SPEAKER

How quickly thingscan change in thisindustry. Just last

summer, shale gas explo-ration was running at fullspeed led by the success ofthe Barnett Shale and thepromise of yet more greatopportunities in theHaynesville, the Fayettevilleand the even largerMarcellus Shale play. Buteven a year ago, many were starting to wonder ifthe frantic pace of drilling, production and elevat-ed prices could be maintained, given that over-production inevitably leads to lower prices.

Independent U.S. exploration and productioncompanies lead the world in developing newtechnologies for shale gas extraction. As a matterof fact, they are all so good at finding and supply-ing this resource that the Department of Energyreports gas storage has continued to climb to anew five-year high of 2.2 trillion cubic feet (tcf) asof May 2009.

With a mild spring in the U.S. and ample sup-plies, natural gas prices continue to struggle tostay near $4 per million btu (MMbtu). Along withthe stalled economy and lower industry demand,the pace of drilling has slowed and the U.S. rigcount is about half of what it was last year. Throwin the darkening political clouds boiling up inWashington, D.C., associated with cap and trade,drilling incentive reductions and proposed taxincreases, the outlook can look a bit unsure andgloomy for the domestic oil and gas business.

One thing we know for sure … thanks toMitchell Energy, Devon Energy and a host of otherlocal independents, we now have the ability todevelop lots and lots of domestic natural gas. Butwith the likelihood of chronic oversupplies, fluctu-ating prices and uncertain government actions,the question remains as to how to maintain sta-bility for the approximately 5,000 independentoperators that currently supply 82 percent of U.S.yearly natural gas production (source:www.ipaa.org).

Thanks to these companies, we are now anation with a vast amount of newly discoverednatural gas that makes up only about 24 percentof our nation’s energy use. It appears that themuch anticipated and needed recovery in the nat-ural gas business will only emerge when demand

for natural gas goes up. Clearly, a more aggres-sive approach is needed to develop expandedmarkets for all this abundant natural gas. Thechallenge is for independent producers to ventureinto the business of helping to stimulate poten-tially large markets for their natural gas.

More demand needed Some anticipated growth in demand will even-

tually come from the development of a morediversified electrical “smart grid,” especially if nat-ural gas is used instead of coal at generating sta-tions. Natural gas will almost certainly be thedomestic “backup and base fuel” for all the pro-posed wind and solar initiatives over the next fewyears. Things will also get better as the economyimproves and industrial demand recovers from thedrop off at the end of 2008. All of this will help,but another potential growth area for natural gascould and should be in transportation uses.

Currently, natural gas makes up a very smallpercentage of transportation uses in the U.S.(mostly buses), yet the technology exists for alltypes of vehicle conversion to “cleaner burning”compressed natural gas (CNG). In a recent studyof CNG versus diesel fuel use in United ParcelService (UPS) delivery trucks, their CNG trucksproduced 75 percent lower carbon monoxide(CO) emissions, 49 percent lower nitrogen oxides(NOx) emissions, and 95 percent lower particulatematter emissions than diesel trucks of similar age.(Source:www.ctts.nrel.gov/heavy_vehicle/pdfs/31227.pdf)

Similar results are reported when NGVs are com-pared to gasoline emissions. Carbon monoxide isreduced by 70 percent, nitrogen oxides by 87 per-cent and carbon dioxide by 20 percent (source:www.ngvc.org/mktplace/fact.html).

So what can we do locally? Well, let’s see, wehave the Barnett Shale right here beneath us,local companies know how to tap into this abun-dant and clean-burning resource, and an equiva-lent gallon of natural gas is cheaper by 30 to 50percent than either diesel or gasoline. All of thisabundant domestic natural gas also comes at atime when the public is rethinking what Detroit(and other manufacturers) should be offering forpublic and private transportation. Some questionsto ponder:

Wouldn’t it be great to have a dozen or moredifferent low emission natural gas cars and trucksto choose from at dealerships?

How about developing “refueling locations” atthe many scattered compressor stations through-out the Metroplex?

Our city buses have already successfully-switched to natural gas, so what about area widefleet vehicle conversion as a next step?

To help stimulate the transportation use ofnatural gas in the Metroplex, the TCU EnergyInstitute has teamed up with the Barnett ShaleEnergy Education Council (BSEEC) to organize aNatural Gas Vehicle Symposium “Green Fleets:The Future is Now” (www.energyinstitute.tcu.eduor www.bseec.com). This is the first in a series of“Creating New Markets” symposia that will focuson “fleet owners” in the Metroplex as webecome more educated on the possibility of fol-lowing the city’s lead of converting all of theirbuses over to natural gas.

As hoped, the local energy companies arestepping forward by providing the leadership andfinancial commitment needed to host this timelysymposium. This is an important major step tohelp promote the education and development ofthis potential growth market for one of our most abundant and clean fuel resources … natu-ral gas.

Ken Morgan is director of the TCU Energy Institute.

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KEN MORGAN

TCU Energy Institute

Shale success means new markets needed for natural gas

The challenge is for independent producers toventure into the business of helping to stimulatepotentially large markets for their natural gas. Clearly,a more aggressive approachis needed to developexpanded markets for allthis abundant natural gas.


The paradox of public opinionon the energy industry

Every year, numerous national and internationalpolling entities produce extensive macro-levelsurvey results on perceptual issues associated

with the oil and gas industry. These findings are thenwidely disseminated through the mass media.

One example that I often use when discussing per-ceptual issues with energy-industry personnel is theGallup Organization’s poll on the images of variousbusiness and industry sectors in the United States. Forthe past eight years, Gallup has polled Americans ontheir views of more than 20 sectors of business andindustry. The survey asks respondents to rate eachbusiness and industry sector in the United States on afive-point scale ranging from “very positive” to “very negative.”

Between 2001 and 2008, the industries ranking near the top and bottomof the list have remained fairly consistent. Either the computer industry or therestaurant industry has topped the list as the most favorably viewed sectoreach year. (The computer industry rated most favorably in 2001, 2002, 2003,2004 and 2008. The restaurant industry rated most favorably in 2005, 2006and 2007.) Can you guess which industry has constantly ranked as the leastfavorably viewed industry? If you guessed the oil and gas industry, then youare spot-on.

In 2001, the year of Gallup’s initial such poll, slightly more than half therespondents (54 percent) viewed the oil and gas industry in a negative man-ner (“somewhat negative” or “very negative”). One year later, that percent-age dropped to 44, and in 2003 it dropped to 43.

From 2004 through 2008, however, the slightly improving pattern reverseditself. The percentages of respondents who rated the oil and gas industry neg-atively in 2004, 2005, and 2006 were 58, 62, and 77, respectively. In 2007,this figure dropped to 67 percent. According to the most recent Gallup data(August 2008), approximately three of every four respondents (76 percent)regarded the oil and gas industry in a negative light. This perception is inter-esting and, to some extent, predictable – but I wonder how beneficial suchdata are to the oil and gas industry in its decision-making processes.

Several of my students and colleagues and I have engaged in a recentseries of research projects that may not only be of interest but also of value toenergy producers, as well as to state and federal regulatory agencies, environ-mental organizations, private landowners and the general population. Twotopics of substantial interest are the popular perceptions of the industry, and ofpotentially problematic issues associated with natural gas development.

Recent and current studies In three Barnett Shale counties – Johnson County and Wise County, in

2006; and Tarrant County, in 2009 – we asked members of the general popu-lation to give their impressions of the energy industry. By-and-large, we foundthat the public has a mixed view. Overall, almost nine in ten individuals (88percent) said they believe that natural gas operators must adopt and usemore environmentally-friendly drilling practices. Roughly three of every fourindividuals (77 percent) said that natural gas companies will do only what isrequired by law. That same 77 percent agreed that not enough informationconcerning the development of natural gas is being made available to thegeneral public.

Approximately two of every three individuals (67 percent) said they believethat natural gas operators are drilling and producing too close to homes andbusinesses, while 65 percent said that too little attention is being paid to thesocial costs of natural gas development. Sixty-three percent agreed that natu-ral gas operators in their local areas are too politically powerful. Fifty-five per-cent said that, even when carefully controlled, natural gas development islikely to upset the quality of life in a local area. And 50 percent agreed thatthe natural gas companies have no compassion for the natural environment.

At the same time, however, 61 percent agreed that the benefits of naturalgas development for their local areas are greater than the costs. Moreover, 75

GENE L. THEODORI

Sam Houston State University

SYMPOSIUM SPEAKER

percent agreed that, in the long run, the people intheir local areas will be better off if their natural gasresources are developed.

Furthermore, when asked about potentiallyproblematic issues associated with natural gasdevelopment, respondents viewed social and envi-ronmental issues as “getting worse” as a result ofdevelopment. Such issues included the amount offreshwater used, depletion of aquifers, noise pollu-tion, air pollution, environmental quality and dis-agreements among local residents, among otherconcerns. Conversely, economic and service-relatedissues such as local police protection, medical andhealth-care services, quality of local schools, fireprotection services, and availability of good jobswere all viewed as “getting better” because of thedevelopment of natural gas.

A paradoxHerein lies the paradox: On the one hand, the

general public distrusts the intrusion of the gasindustry and dislikes certain problematic issues per-ceived to accompany it. On the other hand, themajority of citizens appreciate and welcome theeconomic and service-related benefits that accom-pany the industry.

So what can industry do to change the negative(mis)perceptions? A paramount concern involvesthe funding and promotion of informational andeducational programs at the local level. Take, forexample, the popular notion that natural gas opera-tors must adopt and use more environmentallyfriendly drilling practices. Almost nine in 10 individ-uals in our study agreed with that statement.

The reality is that an increasing number ofindustry operators are striving to satisfy energydemands while safeguarding the natural environ-ment. These operators are producing hydrocarbons,using an environmentally-friendly approach to ener-gy development, which includes advances in areassuch as these: rig technology (smaller and lighter-weight drilling rigs); drilling technology (directional,multilateral, extended-reach drilling and paddrilling); waste management (reduction, reuse andsafe disposal of drilling wastes); low-impact accessand transport (artificial or temporary road technolo-gies to eliminate or reduce negative ecosystemimpacts); and pollution control (reduced rig noiseand air emissions). The fact that the majority of thepublic does not know about these environmentally-friendly measures indicates that the industry mustdo a better job of promoting its accomplishments.

Second, energy operators must make a moreconcerted effort to communicate openly with thepublic and enhance involvement at the communitylevel. Residents need to be informed about localenergy developments. Open communication –including full and honest disclosure about thepotentially positive aspects and negative conse-quences of energy development – is likely to reducethe chances of rumors and inaccuracies about cur-rent activities and proposed developments.Moreover, efforts to find ways to work with andgive back to communities will contribute to theconnection between local residents and the energyindustry and, in turn, may decrease community dis-satisfaction and increase support of industry opera-tions. As I often say, such efforts will surely meaninvestments in time and money; failure to do so,however, may prove to be even more time-consum-

ing and costly.Finally, the energy industry must recognize that

it cannot change its negative (mis)perceptionsalone. Oil and natural gas producers and servicecompanies must develop working partnerships withuniversities, governmental and regulatory agencies,environmental organizations and other stakeholdersif they are to gain the trust of the general public.

In short, my take-away message is this: Oil andnatural gas producers and service companies mustinitiate the process that will build trust, promotetheir environmentally-friendly measures, and reme-

dy the misconceptions the public holds toward theirindustry. By doing so, the companies will likely seefewer objections to increased development.

And a substantial amount of new gas resourcesfrom unconventional reservoirs can then be real-ized.

Gene L. Theodori is associate professor and directorat the Center for Rural Studies: Research & Outreachin the Department of Sociology at Sam HoustonState University in Huntsville. He can be reached [email protected].

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Fort Worth Business Press22 ✦ Energy Report

SYMPOSIUM SPEAKER

With the wide-spread leasing inthe Barnett Shale,

many now understand thatsmall tracts of land are usu-ally “pooled” – that is, theyare grouped together toform a drilling and produc-tion unit for a well. In Texas,pooling is usually establishedby voluntary agreement.However, to protect smallerlandowners who might beunfairly excluded from leasing pools, the TexasLegislature enacted the Mineral Interest Pooling Act(“MIPA”), which authorizes the RailroadCommission of Texas to force interests into a poolin certain circumstances.

Economic reasons to pool To exploit their mineral interests, most small

landowners will need to pool because their land istoo small or houses are too close together to sup-port drilling. Operators also need to pool because itallows them to hold many leases by drilling a singlewell, and allows the well to be placed far fromwhere the reservoir will actually be tapped in orderto comply with various spacing and municipal regu-lations.

Pooling also allows operators to insulate them-selves against potentially expensive applications toobtain exceptions to RRC rules governing wellplacement, or having to defend against expensivelawsuits alleging underground horizontal drillingtrespassed their land or breached other operatorduties. Economic reasons notwithstanding, howev-er, sometimes interest owners simply cannot reachan agreement on pooling.

Economic operation of the MIPA Although MIPA was originally designed to bene-

fit small tract owners, it has proved too expensiveto efficiently protect those interests and the majori-ty of MIPA applications are simply abandoned.However, MIPA contains no boundaries on the sizeof the applicant’s interest and so – to the surpriseof many – is easily accessible to operators or largeinterest owners. Although there are numeroustechnical requirements of a MIPA application, themost significant restriction is that a party can applyonly after “fair and reasonable” offers to voluntari-ly pool are rejected.

The MIPA statute provides that an offer to pool“on the same yardstick basis” as those owners thatare already included within the pool is “fair andreasonable.” That yardstick basis must take intoaccount what are called “reasonable risk penal-ties.” A “risk penalty” is essentially a surcharge onlater occurring profits if a party does not pay hisproportionate share of the costs before the out-come of the well is known. In the Barnett Shale,because “dry holes” are nearly unheard of, any-

thing more than a nominal risk penalty will surelyput the offer outside the “fair and reasonable”standard.

In addition, MIPA dictates that a pooling offercannot be fair and reasonable if it gives the opera-tor a right to unfair advantages, such as grantingpreferential rights to purchase mineral interests,charging other than reasonable overhead, or pre-cluding disputes over operation. If the hurdle of afailed “fair and reasonable offer” is met and theRRC is persuaded to grant an application to forcepool, the RRC has several options for apportioningownership of production, distribution of royalties,and responsibility for drilling and completion costs.

In all cases, however, the RRC’s mandate is toreach a fair result for all parties and prevent thedrilling of unnecessary wells, prevent waste, or pro-tect correlative rights. There are several other tech-nical requirements, but none precludes an operatorfrom attempting to use MIPA, although most hadnever considered it until recently.

In late 2008, Finley Resources, Inc. became thefirst operator to successfully use MIPA after leasingefforts obtained leases for only 83 acres in a 96-acre area near Fort Worth, and those unleased

acres were scattered in small quarter-acre lotsthroughout the interior of the 96-acre unit. In itsapplication, Finley argued that if the unleased inter-ests were not forcepooled, neither the leased northe unleased interest owners would be able todevelop their minerals and the entire project wouldremain dormant. Finley supported this argumentby showing that the sizes and locations of the non-pooled interests precluded efficient drillpipe place-ment and made it too likely that underground drillpipe would unintentionally trespass one or more ofthe unleased interests.

Accepting Finley’s arguments, the RRC foundthat forcing all leased and unleased parties into theproposed pool would benefit them all and soordered the forced pooling. The RRC did not grantthe involuntarily pooled owners a signing bonus,but did grant them the same royalty percentage asthose who had last voluntarily joined the pool. Inaddition, the unleased owners were granted a per-centage of the profits to be generated after gassales, enough for Finley to recover its drillingexpenses. Thus, if actual production is largeenough, it is possible that the involuntarily pooledowners may eventually receive more cash thanthose who voluntarily joined the pool before theMIPA application; until that point happens, howev-er, those who voluntarily joined received the mostlucrative deal simply by virtue of their signingbonuses.

In light of Finley’s successful use of MIPA, sever-al operators have already filed or are planning tofile similar applications. The RRC, however, hasmade it clear that MIPA can be used in this novelway only when it is proved to be necessary to pre-vent the drilling of unnecessary wells, preventwaste, or protect correlative rights. In a similaroperator-filed MIPA application filed by XTO withinmonths after Finley’s result was announced, theRRC stated that although Finley’s result is precedentfor this type of use, the RRC will hold strictly to itsmandates. Thus, finding that XTO’s proposed planwas not necessary to protect correlative rights, theRRC denied XTO’s application after XTO admittedits proposed well and its underground pipe wouldnot drain the minerals under the unleased tracts.At the time of this writing, it is unclear whetherthat decision has become final or whether it hasbeen appealed.

Either way, Finley’s success has made it clearthat MIPA has the potential to be a cost-effectivemethod for operators to complete development inurban areas when it fails to obtain leases for all ofthe lots under which, or very close to which, hori-zontal drill pipe must pass. Thus, in the most diffi-cult of circumstances, MIPA’s forced pooling maybe an old dog that has learned a new trick.

Lisa Vaughn is an attorney at Shannon Gracey Ratliff& Miller LLP.

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LISA VAUGHN

Shannon GraceyRatliff & Miller LLP

Accepting Finley’s argu-ments, the RRC found thatforcing all leased andunleased parties into theproposed pool would bene-fit them all and so orderedthe forced pooling.

Use of pooling act changes as drilling goes urban


SYMPOSIUM SPEAKER

Every other year, a cer-tain sound that canbe heard in Austin.

You must be close to theCapitol to pick it up, andusually only a trained earcan identify it. In fact, itgoes unnoticed by most citi-zens. But it is an importantsound. It is a critical sound.It greatly disappoints someand causes others tobecome jubilant. It is the sound that keeps excitingthings from happening. It is the sound that stifleschange.

It is the sound of bills dying. Legislators eagerly meet every other January to

begin a five-month session to bring change to ourstate and take something special home to their dis-tricts. Sometimes, their proposals are ideas fromconstituents. Often, the bills are the product ofinterim studies, carefully crafted to strike a delicatebalance among industrial stakeholders. Many havegone through endless hours of rewriting by staff.Some are repetitions from earlier sessions thatfailed to make a deadline.

This session, over 7,000 bills were filed – arecord. Can you even imagine that 7,000 thingsneeded to be changed in our state?

What does a dying bill sound like,you ask? Mostly, it sounds like some-one talking –talking too much and toolong. Most bills are strangled by mem-bers who talk them to death. Theminute a bill gets filed, the talkingbegins. Lobbyists start talking.Legislators start talking. Voters starttalking. They talk about how to makeit better, how to delay it, how to kill it,how to pass it. The problem is that, allthe time they are talking, the clock isticking.

If you are in the Capitol during alegislative session and you hear expla-nations and then debate for a pro-longed period of time, you might behearing a worthwhile exchange ofideas and vetting of a proposal. Butyou are also probably hearing thesound of some bills dying.

It reminds one of a wise pastor’sproverbial admonition: “You shouldtalk less and pray more.” The adagecould easily adapt to advice for suc-cessful bill passage: “Talk less and passmore.”

What greater example than ourrecent 81st Legislative session? Nearthe end, it became clear that HouseDemocrats planned to kill the Voter IDbill by questioning whether each billscheduled before it had been on the

calendar for the maximum allowed time. In anunprecedented manner, the talking allowed aDemocratic minority House to own a Republican-controlled House for five days and nights.

While they managed to keep Voter ID fromcoming to the House floor, that intentional talkingdid a lot of collateral damage. For five days, youheard the sound of bills dying. By the time the talk-ing had stopped, the deadline for bills to be heardin the House was barely a day away.

All that talking resulted in the passage of onlyabout 1,400 of the 7,000 bills filed. Granted, somegood proposals fell short of passage. But the talk-ing also did away with a lot of impractical ideas.

What talking killed in the 81stVoter ID – Its death brought down over 200

bills with it. It would have required a photo ID ortwo forms of identification at the polling place.

Eminent domain reform – Established a subjec-tive standard that must be satisfied before a con-demnation may occur, and included new protec-tions for landowners.

Statewide smoking ban – A second-sessionattempt to make Texas a smoke-free workplacestate.

Guns on college campuses – A proposal toallow students with concealed handgun licenses to

take their guns to school and store them in theirdormitories.

Restrictions on college tuition increases – Abipartisan effort to freeze college tuition rates.

Notice requirement for drilling permits issued –Would have required the Railroad Commission tonotify local elected officials each time a drilling per-mit is issued.

CHIP expansion – Increased qualification to chil-dren who are 300 percent over the poverty level.

Unemployment insurance – Would have applied$500 million in stimulus funds to unemploymentbenefits for the next two years.

Medicaid reform – This bill would haveincreased the quality of and access to health care,making Medicaid more efficient and focused onpreventative health.

Local option transportation funding – Wouldhave allowed counties to call a local election toraise a number of fees and taxes, including thegasoline tax, to pay for regional transportationprojects.

Needle exchange program – A second sessionin a row attempt to allow intravenous drug usersaccess to sterile needles (which exists in nearlyevery other state).

Electricity consumer protections – The bill creat-ed a market monitor with discipline power for bad

actors in the retail market and gavecompanies limited ability to disconnectcustomers during the summer months.

Construction indemnificationreform – In construction contracts, thisbill would make each party responsiblefor their own liability and would pre-vent the transference of that liability toanother party.

Agency sunset bills – The $17 bil-lion Texas Department ofTransportation sunset bill was notapproved and neither was the reviewof the powerful Texas Department ofInsurance Workers’ CompensationDivision. The possibility of a special ses-sion to address these agencies is possi-ble.

There is only one master of the uni-verse in a legislative session. It isn’t theleadership, it isn’t the prevailing politi-cal party. It is the clock.

The clock is sometimes subject tomanipulation. It happened once in theSenate this session when the SergeantAt Arms was asked to unplug theclock just before the midnight deadlineso the Senate could continue working.

In the end, the clock wins – it is theonly trump to the talking.

Kelly Mcbeth is an energy lobbyist inAustin.

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KELLY MCBETH

Texas Energy Lobby

The 81st Texas Legislature: Few bills pass, many die

This session, over 7,000 bills were filed. It was a record. Can you even imagine that 7,000 things needed tobe changed in our state?


SYMPOSIUM SPEAKER

With oil and gasprices significant-ly lower than just

a year ago, mineral ownersmust closely monitor theiroil and gas assets in order tomaximize their opportunitiesto earn royalty income. As aproperty owner, your workdoesn’t end when youreceive your bonus payment.You are essentially starting abusiness and entering a long-term relationship withthe operator.

Organize your oil & gas business You’ll need at least three files to keep all your

oil and gas assets organized: a property file, a leasefile, and a well file.

The property file contains deeds and estaterecords which prove your ownership of the mineralassets. These documents show how you acquiredownership in the minerals and what percentage ofthose minerals you own. If you do not have thesedocuments, you can ask the lessee to provide anydocumentation they may have.

Next, set up a lease file for each lease you havesigned. Develop a summary sheet showing theeffective date of the lease, the operator name andcontact information, the primary term, the expira-tion date of the lease and the number of acresincluded in the lease. If you have a map of thelease, include it in this file.

Finally, create a well file for each well drilled.This file contains the plat and permit filed with theRailroad Commission of Texas (RRC), which showsthe size and shape of the unit and which lands itencompasses, among other things.

Confirm that drilling has begun The operator must begin a well within the pri-

mary term of the lease, which is usually two orthree years. If the operator does not drill a wellwithin this period, the lease lapses and reverts backto the owner, unless the lease allows for an exten-sion.

There are several ways you can monitor theoperator’s progress. You can check with the opera-tor regarding the drilling schedule and anyupdates. You can also check with the RRC to learnthe status of wells on your property, as operatorsare required to report wells to the RRC. If drillinghas begun on your land, the RRC will know aboutit.

If you have an information clause in the lease,you can request the operator send you a copy ofthe drilling permit and other documents they file

with the RRC. You can always drive out to the lease and look

for drilling activity. Operators are required to postsigns when activity begins. Be sure to write downthe information on the signs such as the name ofthe operator, the RRC well number and the nameof the well. This will help you when looking updata on the RRC site.

Confirm that the entire well site is on your leaseIn some cases, an operator may combine or

pool the acreage from two or more leases into asingle well spacing unit. Pooling is more economi-cal for the operator but it can reduce your royalties.That’s why it’s important to confirm that the entirewell is on your land (provided you have enoughacreage). Check with the operator to confirm theentire spacing unit is on your lease.

If this is not the case, review the pooling provi-sions in your lease. If your lease requires the lesseeto obtain your permission prior to pooling, thenyou are in a much stronger position. Essentially,your lease should not be pooled without your con-sent.

You can also review the drilling permit or theplat filed with the RRC to determine if the entirewell site is on your land.

Review the division order before signingIf the well is successful, division orders will be

prepared and sent to you for signature. Review the division order carefully to verify the

royalty amount and to determine if the divisionorder comes from the first purchaser or the opera-tor.

Verifying the royalty amount is a simple mathe-matical calculation. Multiply the royalty in yourlease times your ownership interest of the minerals.For example, if your lease called for a ¼ royalty,and you owned a 1/5 of the minerals under thetract, your royalty would be .25x.20=.05 or 5 per-cent of the total production generated by the well.

If your tract is pooled, multiply your royalty by

your lease’s share in the overall unit. In the aboveexample, if your lease was 40 percent of the wellunit, your share of the royalties would be .05x .4=.02 or 2 percent.

If you suspect the royalty amounts are incorrect,you need to contact either the operator or the pur-chaser issuing the division order. Once you haveverified the royalty amount, look to see who thepayor is on the division order. Typically, the payor isthe first purchaser that buys the oil and gas prod-uct from your well. Occasionally, the payor is theoperator. In this instance, the first purchaser paysthe operator who in turn pays you.

Being paid by the first purchaser is the preferredscenario. The first purchaser is typically a larger,more credit-worthy company—you don’t have toworry about slow payments or bankruptcy. If youget paid by the first purchaser, you typically receiveyour royalty payments 20 to 30 days sooner than ifyou get paid by the operator.

If you are paid by the operator, the paymentprocess is generally slower because the operator isthe middle man. Once the operator receives thefunds, it takes time to process and cut checks toroyalty owners. Your lease may have a clauseallowing you to take production in kind, which inmost cases will provide the leverage to be paid bythe first purchaser instead of the operator.However, in many cases, gas may still be paid bythe operator as it involves more complexities, suchas contracts.

Finally, you need to make sure the division ordercomplies with the Texas Natural Resources Code. Inthe past, some division orders have included claus-es extending, ratifying or modifying the lease. Youcan either strike any language that contradicts theTexas Natural Resources Code (TNRC), or you cansign and attach an executed rider in which youstate that you are only signing the division order tothe extent it conforms to the TNRC. If you havedoubts, have an attorney or knowledgeable oil andgas professional review the division order.

When it comes to managing oil and gas assets,there are several opportunities for mistakes to hap-pen and royalties to be affected. Understandingthe details of your lease is imperative as is carefulmonitoring of the drilling process and the paymentof royalties. Remember to carefully review all thedocuments you receive before signing them. Mostimportantly, keep the lines of communication openwith your operator and enlist the help of profes-sionals when you need it.

John Taylor is PlainsCapital Bank Wealth andInvestment Management Group president. Contactat 214-252-4162 or [email protected]

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JOHN TAYLOR

PlainsCapital Bank

Maximizing income from oil and gas royalty payments

As a property owner, yourwork doesn’t end when youreceive your bonus pay-ment. You are essentiallystarting a business andentering a long-term rela-tionship with the operator.


The volatility of the oil and gas industry overthe last year has proven that such investingis not for the faint of heart. While many

mineral owners have tried to go it alone withoutenlisting the help of financial experts, it is moreimportant than ever to protect oil and gas assets inthese challenging times.

Overnight sensation Five years ago, no one expected oil and gas

leases in Denton and Wise counties to go for $500an acre. Then, almost overnight, lease pricesjumped to $2,500 an acre and leasing activity expanded into TarrantCounty and Johnson County. Bonus payouts skyrocketed from $5,000 anacre to $30,000 an acre, depending on the size of the tract of land.

Hundreds of landmen descended upon county courthouses, runningtitle checks on neighborhood tracts. Neighborhood associations, munici-palities, school districts and country clubs formedcommittees to explore ways to lease their landfor oil and gas exploration.

Nearly all the surface and mineral rightsassociated with neighborhoods in Tarrant andJohnson counties were attractive to prospectivelessees.

While drilling opportunities abounded in theBarnett Shale, the rapid expansion of oil andgas exploration in urban areas caused pipelineissues and increased drilling costs. But oil andgas operators continued to lease and drill asquickly as they could.

On Wall Street, energy stocks continued to rise in value. By 2008, oiland gas prices had hit all time highs of $140 per barrel and $13 per MCF.

People in the industry began to ask: How long can this boom last?

Everything changes When the economic downturn began last fall, oil and gas prices began

to plunge on rumors of an oversupply of gas. By December 2008, oil andgas leasing in the Barnett Shale had all but stopped. Oil marketers wereleft holding large contracts of undelivered oil. Leasing bonuses haddropped dramatically, and drilling costs remained high. Operators, fearingthe worst, hoped at least to break even.

Now in the second quarter of 2009, drilling costs have begun to dropwhile oil and gas prices are rising. In addition, leasing activity in theBarnett Shale is growing, and bonus payouts are averaging about $2,500per acre.

However, drilling activity in the Barnett Shale has not returned to previ-ous levels, and many of the major players have shifted their focus to othershale plays across the U.S. In fact, some are beginning to sell their Barnettholdings to other companies in the hopes of raising capital.

Many of the national banks that once courted the Barnett Shale miner-al owners are moving on, too. Because of the drop in prices, the bankshave experienced significant drops in their oil and gas portfolios. BarnettShale mineral owners are not as wealthy as they once were, so the nation-al banks have re-focused their attention on other segments of the market.

The good news for mineral owners is that many of the local andregional banks remain committed to their Barnett Shale clients. Mineralowners can choose to do business with a local wealth manager who hasextensive knowledge of the Barnett Shale and the local oil and gas indus-try.

Stability in the midst of volatility For mineral owners who have tried navigating the oil and gas industry

on their own during these turbulent times, some order and stability cancome from working with a wealth management team that has experi-enced oil and gas property dealings. An experienced oil and gas propertymanager has the time, expertise and resources to monitor closely a client’smineral holdings while at the same time positioning the client for future

gains. Mineral owners are often busy professionals

who do not have the time to manage their oiland gas assets. An oil and gas property managermonitors pricing, production and reporting on aregular and consistent basis to ensure the clientis receiving the right amount in royalties.

While oil and gas property managers can rep-resent a valuable resource to mineral ownerswhen they are negotiating a lease, many timessuch managers are not brought on board until

after the deal is done. When looking for an oil and gas property manager,a mineral owner should consider the experience and qualifications of theindividual as well as that person’s accessibility to clients and — equallyimportant — the overall experience of the wealth management team. Themineral owner also should inquire about the financial institution’s stability,its commitment to this area and its ability to process and react to oil andgas issues in a timely manner.

Last year, when oil was selling at $140 a barrel, everyone knew theprice was inflated and that eventually there would be a correction. I donot believe anyone anticipated the dramatic decrease we have experi-enced. However, I am seeing signs that oil and gas activity is picking up.While prices probably will not return to their previous levels, mineral own-ers can still profit from their holdings. How well they profit depends ontheir ability to preserve and protect their oil and gas assets.

Tim Raetz is senior vice president and senior oil and gas manager forPlainsCapital Bank’s Wealth Management & Trust Group. Raetz may be con-tacted at 817-258-3764 or [email protected].

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The good news for mineralowners is that many of thelocal and regional banksremain committed to theirBarnett Shale clients.

Finding stability in today’svolatile oil and gas industry

TIM RAETZ

PlainsCapital Bank


Number of Producing Barnett Shale Wells Over Time as of Jan. 1, 2009All Counties/Fields in the Fort Worth Basin

Historical Performance by County of Barnett Shale Producersto January 1, 2009


June 18, 2009

Number of New Vertical and Horizontal Producer Wells by Year as of Jan. 1, 2009All Counties/Fields in the Fort Worth Basin

Charts and graphs courtesy of Powell Barnett Shale Newsletter www.barnettshalenews.com

Relevant. Reliable. Responsible. www.fwbusinesspress.com

Energy Report ✦ 27


Barnett Shale Gas Proved Reserves* and Proved Ultimate Recovery**

Barnett Shale Monthly Natural Gas Production and Total Producing Wells


June 18, 2009

Barnett Shale Monthly Liquid Production and Total Producing Wells

Barnet Shale Liquids Proved Reserves* and Proved Ultimate Recovery*

Energy Report ✦ 29


By Michael H. Price

Thirty-five years have passed since thedeath of Donald De CourseyHarrington, an Amarillo-based force in

the petroleum industry and its conjoined-twin field of philanthropy – and still thename carries a news-making impact.Coupled with the arts-patron identity of hiswife, Sybil Harrington, the influence persistsin arenas ranging from university-basedresearch programs to Scouting to theMetropolitan Opera of New York.

Keystone dates to which their social bear-ing can be traced – apart from the standardbirth-and-death milestones – would includeIllinois-born Don Harrington’s arrival in 1926at Amarillo in pursuit of a career amidst aregional oil-and-gas boom; his marriage in1935 to Sybil Buckingham; and their gift in1945 of 640 acres in Palo Duro Canyon tothe Llano Estacado Council of the BoyScouts of America. Camp Don Harringtonremains a busy incubator of merit-badgeprojects, with its 12 permanent campsitesand an array of athletic amenities.

From that first step toward a legacy ofgrand-scale philanthropy, the Harringtonsdeveloped a history of bequests that haveranged into the hundreds of millions of dol-lars. In 1964, the Harringtons donated theirentire collection of 19th century Europeanart – the likes of Monet and Renoir – to the Phoenix Art Museum, alongwith funding for expansion, endowments and art conservation.

Each spring, the Donald D. Harrington Fellows Program of theUniversity of Texas presents a symposium at Amarillo College. In a recentarticle for the local newspaper, lawyer and Harrington-circle friend WalesMadden Jr. used the occasion to impart some revealing backgroundabout the founders:

“The Panhandle oil boom of the 1920s attracted a variety of adventur-ers, harboring an entrepreneurial spirit mixed with a willingness to gam-ble on long odds,” wrote Madden. “Into this environment saunteredDon Harrington, a man generously endowed with the intellectual, physi-cal and competitive qualities to succeed … Thirty years later, DonHarrington and his partners [notably, patriarchs of the influential Hagyand Marsh families] had amassed an impressive portfolio of oil-and-gasproperties and had sold a portion of these for more than $100 million.”

Madden recalls that, in 1984, Sybil Harrington told him: “I want tocreate a scholarship program that will appeal to leading academiciansaround the world and would be comparable with a Rhodes Scholarship.”Hence the Don Harrington Fellows Program.

“Ultimately,” as Madden tells it, “it was Mrs. Harrington’s wish thatthe program should have no limitations on academic disciplines… Mrs.Harrington insisted that there be no publicity until after her death.” (SybilHarrington died in 1998.)

“I concluded I would make one final effort to convince Sybil that she

should be recognized for her benefactionwhile she was alive… Her comments give areal insight to one of the most remarkablewomen the Panhandle has ever produced:

Madden: “Now hold on, Sybil, don’t say,‘No,’ until I finish.”

Mrs. Harrington: “You’re finished,Willie.”

Madden: “The university would like tobring you to Austin to host a dinner, recep-tion and attendant press events.”

Mrs. Harrington: “Ghastly.”Madden: “How about a trip to Austin

with a scaled-down social function?”Mrs. Harrington: “Never.”Next paragraph: “We can skip every-

thing, Sybil, other than an announcementfrom Austin?”

Mrs. Harrington: “We can skip every-thing … My name will be used only as thedonor – in memory of Don. Comprendevous?”

“Since its inception,” adds Madden, “theDon Harrington Fellows Program has madeawards to 21 faculty fellows and 68 graduatefellows from virtually all corners of theearth.”

At the beginning of Don Harrington’scareer in a boom-town environment, his Yaletraining as an engineer provided an edge inacquiring oil-and-gas leases – a coherent big-picture grasp of an industry that had begun

in lucrative chaos. Few rivals or colleagues perceived the industry in suchdeep-focus perspective. His development of the historic Cargray Plant –named after its home-counties of Carson and Gray – established lastingstandards for petroleum production. In affiliation with Lawrence Hagyand Stanley Marsh Jr. since the late 1920s, Harrington nailed oil-and-gasrights on thousands of acres in the crucial Panhandle and Hugoton fields,along with ranching interests, while sustaining a citizen-of-the-world out-look that ranged from the Amarillo Country Club to the Brooks Club ofLondon.

Sybil Harrington, an accomplished pianist, relished the opportunitythat such wealth allowed her to become a patron of the arts. TheHarrington Foundation’s gifts to the Amarillo Symphony Orchestra andWest Texas State University led to ever-greater bequests on an ever-broadening scale. In 1979, Mrs. Harrington began a campaign of supportfor New York’s Metropolitan Opera, which in 1987 christened its mainhall as the Sybil Harrington Auditorium.

In a late-in-life interview with the Amarillo Globe-News, LawrenceHagy remembered his business partner from the long-gone wildcatterdays in emphatic terms: “Work was a way of life for Don. He workedharder and longer hours than anyone I have ever known. He never quitworking until the day he died. Some of us slowed down, but not Don.What he made, he earned.”

[email protected]

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Don Harrington: A Panhandle humanitarian of nationwide influence

Legends and Legacies of Texas Oil

Documents

Energy Report June 2009