The Man with Billions in Shale

With the innovation of fracking, George Mitchell made a fortune for himself. But his legacy could be much more significant.

In the competition for the most influential American of the past century, the name George Mitchell is rarely mentioned. However, the Texas oil billionaire, who died in 2013 at the age of 94, might deserve this title. His legacy is the development of shale gas drilling, or fracking as it’s called for short. With his company of the same name, Mitchell revolutionized natural gas drilling through fracking. What was once considered to be a fanciful dream is today a reality.

The Dream of Every President

Formations like the Marcellus Shale in Pennsylvania, the Bakken Formation in North Dakota, or the Permian Basin in Texas provide so much gas that the U.S. soon could be independent from imports. This has been a dream of every American president since the oil crisis. Barack Obama has the chance, thanks to Mitchell’s pioneering work, to be the president under which the U.S. comes closest to energy independence. The economic and geopolitical implications of this shift are not to be underestimated. Wall Street analysts agree that Mitchell’s efforts will lead to massive value added and capital formation.

Like other oil men in Texas, Mitchell started off working with conventional methods. One borrows some money, drills a hole and hopes for crude oil. If it doesn’t work, one borrows more money and attempts it again someplace else. The procedure continues until crude oil is found or the entrepreneur goes bankrupt. Mitchell survived this phase of his career in good shape. As the son of a Greek immigrant, he fit very well in the ranks of immigrants who similarly made a fortune out of nothing.

The breakthrough with shale gas came in the so-called Barnett Shale. The formation in the Dallas area had supplied conventional natural gas for decades. Typically, energy is extracted from reservoirs located either under or above a layer of rock. The natural gas seeps out of the rock and gets trapped in the reservoir. Mitchell asked if he should drill directly into the rock itself. The problem with this method is that the natural gas molecules in the rock are trapped and do not flow freely. Mitchell solved the problem with the so-called fracking method.

Force the Stone Open

Fracking refers to the method by which one pumps a liquid mass of sand and chemicals into shale rock. The pressure jolts the rock and releases the natural gas molecules trapped inside. The gas then flows into pipes for removal. When Mitchell began with fracking, the method was still very expensive. It lacked infrastructure and experienced engineers. However, Mitchell put every penny into the development of the Barnett Shale and finally posted the hoped-for success. In 2002, his company was taken over by Devon Energy for several billion dollars.

Yet Mitchell’s achievement extends beyond this. An entire sector of firms has formed around fracking, the market capitalization of which is valued in the tens of billions of dollars. The shale revolution has spread straight across the country, and also led to euphoria on Wall Street. Firms like Devon, Anakarko, EOG and Range Resources have increased their market capitalization thanks to fracking. To be sure, the risk exists that euphoria will lead shareholders to hold unreasonable expectations. Still, up to now the results have been positive.