Interview with Dan Steward, Former Mitchell Energy Vice President

Mitchell Energy's first horizontal well was subsidized by the federal government, according to former geologist and Vice President for Mitchell. "They did a hell of a lot of work," said Steward, "and I can't give them enough credit for that. DOE started it, and other people took the ball and ran with it. You cannot diminish DOE's involvement."

The federal government's work on shale gas began in the 1970s. As Steward recalls, "The DOE's [1976] Eastern Gas Shales Project [in the Appalachia basin] determined there was a hell of a lot of gas in shales. It was the biggest accumulation of data and knowledge to date." From there, Mitchell and his team experimented to find the best and most economical way to fracture the Barnett Shale. Variations of fracking techniques through the 1980s led George Mitchell to bring the Department of Energy and the Gas Research Institute in in 1991. "By the early 1990s," said Steward, "we had a good position, acceptable but lacking knowledge base, and then Mitchell said, 'Okay, I'm open to bringing in DOE and GRI' in 1991."

Mitchell Energy's blockbuster contribution to the modern natural gas boom is not discredited by a partnership with federal agencies. Steward is the first to point out the pivotal long-term role the government must play in technological innovation: "Government has to be looking down the road. We really cannot wait to develop those other energies. Industry doesn't look as far down the road as the government should."

For more, see the Breakthrough Institute's "History of the Shale Gas Revolution" and "A boom in shale gas? Credit the feds" by Ted Nordhaus and Michael Shellenberger in the Washington Post.

The Breakthrough Institute: How would you describe the government's role in the shale gas revolution?

Dan Steward: In the seventies we started looking at running out of gas, and that's when the DOE started looking for more.

The DOE's [1976] Eastern Gas Shales Project [in the Appalachia basin] determined there was a hell of a lot of gas in shales. It was the biggest accumulation of data and knowledge to date. It set the stage for people to have the basic background and caused people to start asking questions, and that's always important.

They did a hell of a lot of work, and I can't give them enough credit for that. DOE started it, and other people took the ball and ran with it. You cannot diminish DOE's involvement.

BTI: Did Reagan cut the R&D money for unconventional gas research?

I know I'm conservative as hell, but the truth is that Reagan did a world of good for the gas business. When Carter was in, he put a moratorium on gas fired electrical plants. He was worried we were running out of gas. But with the moratorium on new plants the demand for developing more gas started going away. That is no fault of anybody, and I'm not throwing stones, I'm just telling you what happened. When Reagan came back, Reagan said we need those plants. This is where Mitchell came in. Mitchell felt like there was a lot of gas, and it wasn't until he could get the Barnett [shale gas] work that he felt he could prove he get it.

BTI: What was Mitchell doing?

DS: Mitchell got involved in the Cotton Valley limestone looking for gas, but it was tight rock, and George said, "I want to frack it." But he had a hard time to get his people to go along.

Mitchell was interested in Barnett and his geophysicist said, "It looks similar to the Devonian, and the government's already done all this work on the Devonian."

BTI: What help did you get from the government?

DS: In the 1990s they helped us to evaluate how much gas was there, and evaluate the critical properties as compared to Devoninan shale of Appalachia basin. They helped us with our first horizontal well. They helped us with pressure build-ups. And we worked with them on crack mapping. In 1999 we started working with GTI (formerly GRI) on re-fracks of shale wells.

BTI: When did you get involved?

DS: When I was a kid in KY, my dad worked for a company and they fracked gas sands in KY -- not massive, but small fracks.

I went to work for Mitchell in October of 1981. George had caused a well to be drilled to evaluate shallow conglomerates, and deeper viola limestone, and by going that deep it was going to penetrate the Barnett shale.

But at the time we started trying the Barnett, the thinking was we had to have open natural fractures. And so as we moved along we drilled wells and built the database.

There was trial and error. Frequently that's what has to happen. You have to take best science and trial and error things. That's how Barnett got started.

BTI: Did you draw on Eastern Gas Shales Project research?

DS: We were all reading the DOE papers trying to figure out what the DOE had found in the Eastern Gas Shales, and it wasn't until 1986 that we concluded that we don't have open fractures, and that we're making production out of tight shales.

BTI: So you were surprised you had to frack?

DS: We were expecting to have to frack. Even with Eastern Gas Shales they expected to frack. But it was in order to connect natural fractures. We thought those would be the storage container, because we didn't think the tight rock would give up enough gas to justify a well. We thought you'd use induced fracks to tie together the natural fractures.

By the time we figured out it had no open fractures - or they did, but they were healed - they were less contributory to production than the tight shale. By the time we figured out we didn't need to have natural fractures, we could establish commercial production. We realized that we needed to induce fractures to get the gas. Previously, they had assumed that open natural fractures you could get some gas, but they didn't expect being able to get gas out of primary rock.

BTI: What was Mitchell's involvement with government agencies?

DS: We got the DOE and GRI involved in the Barnett in the early 1990s. Mitchell hadn't wanted to get them involved because we were trying to understand it and didn't want competition for the Barnett until we had a handle on what we were doing.

By the early 1990s, we had a good position, acceptable but lacking knowledge base, and then Mitchell said, "Okay, I'm open to bringing in DOE and GRI" in 1991.

At that point the first thing we did was evaluate the core. They sponsored a horizontal well in the Barnett. That helped us to understand Barnett better.

BTI: How exactly did government pay for the first horizontal well?

DS: Money wasn't given directly, but like on the horizontal well, Mitchell paid the cost of a vertical well, and government paid the rest. If the horizontal well cost $1.5 million, but the vertical was 800k, the DOE contributed the difference between the two. I don't know exact numbers. But there was a contribution of money toward that well.

BTI: What was the government's role in imaging and mapping?

DS: In 1997 and 1998, we did a number of projects with GRI, which was partly funded by the DOE. And that included trying to map the formation. In 2000 the equipment had gotten worked through to the point where we could start using it as a tool, and it was tremendous breakthrough.

We ran frack maps in 1995 and 1997 and got encouraging results. The tools weren't yet functioning properly. We couldn't tell where these events were - "Is it northeast of the well, is it northwest of well, or what?"

With microseismic frack mapping you're lowering seisemic tools into a listening well near the well you are fracking. You frack it, and the seismic devices pick up the noise of the frack where rocks are breaking, and you triangulate that noise and place it vertically and horizontally so you know how much frack growth and geometry looks like. DOE and GRI had the tools to listen to these downhole events while fracking. And they had to triangulate.

The displacement of those devices is a short distance, which is harder when displacement is long distance. You have to have tools that are extremely accurate and you have to have software and hardware that can take the readings and processing. That's what DOE and GRI did.

BTI: Where did microseismic mapping come from?

DS: Microseismic had gotten started in mining industry. They weren't looking to be able to place where events were but the frequency of the events in time. Because a lot of microseismic events, the mine is becoming more dangerous. And was used in England and other countries to predict mine failure.

People said, "We can do this in the subsurface and spot those events in space." [DOE's] Sandia [National Laboratory] worked on that, and using some of what Sandia did, used tools to do this.

BTI: How did that work exactly?

DS: The DOE gave money to the GRI, and the GRI kept DOE updated. For instance, the microseismic frack mapping was being done out of Sandia labs, which was doing an awful lot of that work.

There was a brilliant engineer there. I was extremely impressed with him, though I can't remember his name.

We tried on two wells one time and a third time three years later where we were trying this microseismic, and we thought when they get the bugs worked out this is going to be break. Until 1997 the bugs hadn't been worked out.

In 2000 a consultant came along who had set up a company to do this work. He may have been using the Sandia labs work. This guy had been doing microseismic at Carthage, and we saw those results, and we knew that it was the same technique that had been used earlier.

BTI: Had the key innovations all occurred by early 2000s?

DS: By the year 2000, Mitchell Energy had proven shale as a workable and viable. The energy industry recognized it, but financial markets didn't recognize until 2002, and politicians only realized it in 2006.

In 2002 we actually started drilling horizontals in the Barnett as part of Devon Energy, which had bought Mitchell. They started with single fracks in the horizontals. And then from frack mapping they realized that we're not connecting with much of the rock.

The keys were the frack mapping and the horizontal drilling. Devon said, "Look, you have to do horizontals across the board."

BTI: Why was Mitchell the leader on shale gas?

DS: Mitchell was selling his gas dollar and a quarter over the spot price. We would never have been able to do what we did in the Barnett without that. Mitchell had the money to invest in R&D. And he had the vision. He had people in the company saying this is bullshit, this is wasting our money, you're using our retirement money on something that's no good. They'd say, "Dan, if Barnett is the best thing we have, then we don't have shit."

BTI: How important were the federal tax credits for unconventional gas?

DS: The tax credits helped, as did the different pricing scenarios for newly discovered gas.

We had a gas contract with a natural gas pipeline that gave us a higher price. We had a basket of prices and gases and with the different categories we could keep our gas price. So you could say that those pricing scenarios, and the tight gas tax credit, created the possibility for shale gas.

BTI: Where did your fracking method coming from?

DS: Mitchell got the slickwater frack from UPR [Union Pacific Resources]. They developed it. Nick Steinburger, one of our engineers, who was working on the Barnett, asked to talk to UPR about Barnett if they would share slickwater, and UPR was fine with that, and he went to talk with them about slickwater, and in may of 1997 we did our first slickwater frack and it had cut our costs down, it had been $375k per well, and our first slickwater was $85k.

We did 3 of them, and one of them was a home run, every bit as good as the massive hydraulic gel frack where you mix water with gelling agent, and this gelling agent gets high viscosity so it can carry sand.

BTI: What other government agencies were involved?

DS: It wasn't until 2006 and 2007 that we finally found the porosity, thanks to work done by the Bureau of Economic Geology, which I think gets state and federal funds. We knew there was porosity in the rock but couldn't see it with available technology. They experimented with ways to look at the rock at a higher resolution. And applied argon milling used in metallurgy where you could mill a surface on a piece of metal that was so clean that you could look at surface with high resolution.

They did this with shales and discovered the organic carbon in the rock that was the source of the hydrocarbon and were many pores but they were nano-sized. Nanometers are smaller than a gnat's ass. Gnat's asses are larger than a nano-meter, and we couldn't see at the nano-meter scale!

BTI: What do you make of the controversy over solar subsidies?

DS: I don't bad mouth government involvement in solar and wind because we have to be experimenting with that. We're not far enough along in them for solar and wind to provide much energy. Gas has bought us the time to develop the other things. Renewable and nuclear along cannot provide us the base load energy we need today, but we need to get started in developing them. Government has to be looking down the road. We really cannot wait to develop those other energies. Industry doesn't look as far down the road as the government should. And politicians are often looking for their next election.