STACEY VANEK SMITH, HOST:
Hello, and Welcome to PLANET MONEY. I'm Stacey Vanek Smith.
ROBERT SMITH, HOST:
And I'm Robert Smith. So I don't know if you've heard, but PLANET MONEY is a big deal in the oil business right now.
VANEK SMITH: Oh, yes. Last week, we bought a hundred barrels of crude oil, which works out to a little more than 4,000 gallons of Kansas sweet.
SMITH: Although, the guy we bought it from asked for the price for Oklahoma sweet. Go back two episodes if you want to hear the most awkward negotiation in the history of oil.
VANEK SMITH: Anyway, our oil is stranded in a tank in south central Kansas because it rained and the people coming to pick up our oil could not make it on the muddy roads.
SMITH: But finally, a shiny tanker truck pulls into this muddy road through a cornfield, and this guy gets out.
SCOTT ZIMMERMAN: Scott Zimmerman.
VANEK SMITH: What do you do?
ZIMMERMAN: Haul crude oil.
SMITH: How you not covered in oil? You look clean. I don't see any oil on you. You've been loading oil all day.
ZIMMERMAN: Well, you learn. When you first start out, when you go home, you wear more home oil home than you haul. And then, over the years, you learn how to stay clean.
SMITH: Part of it is rag management. He's always daubing up little bits of oil.
ZIMMERMAN: Oh, yeah - a lot of rags.
SMITH: Scott is the very first step in a long process of turning our crude oil - a hundred barrels of it fresh out of the ground - into gasoline for your car.
ZIMMERMAN: Now, we've opened up the tank, and we're going to open up our load lines.
VANEK SMITH: Scott putters around the truck, pulls out what looks like a giant vacuum cleaner tube...
VANEK SMITH: And hooks it up to the tank.
ZIMMERMAN: Let's open up our valve on our tank, and then we're going to kick our pump in. And that's the procedure right there.
SMITH: Scott pulls out. The oil refinery is about two hours north of here, and so Scott could theoretically just drive right there and start processing our oil, but he doesn't do that. He heads in a different direction.
VANEK SMITH: Scott is driving to a pipeline because the key to the oil business is to drive as little as possible and pipe everything you can. It's slower, but it is much cheaper.
SMITH: And it's safer. There are pipeline leaks, sure, but oil trucks and railcars get in more deadly accidents.
VANEK SMITH: So we meet Scott at a place that isn't even on the map. It's called the Shur Station on the Jayhawk pipeline.
SMITH: And it is surreal-looking - enormous, gleaming, white tanks, long, shiny pipes going off in every direction. One of these pipes is going to carry our oil to the CHS refinery in McPherson.
VANEK SMITH: If it passes the test.
SMITH: The test - Scott tells us, before he can put PLANET MONEY's oil in the pipeline, he has to do a quality check because it's going to mix with all the other, you know, professional oil.
ZIMMERMAN: OK, now we're going to get this sample right here.
VANEK SMITH: Scott pours a little sample of PLANET MONEY oil into a test tube, and then he opens up this metal box that's attached to the side of his truck. And inside of it is something that looks like a rice cooker. Scott is traveling with his own centrifuge.
ZIMMERMAN: And then I put it in here and spin it out for five minutes.
SMITH: And what are you looking for?
ZIMMERMAN: BS. BS is bottom settlement.
SMITH: And what is that? That's dirt and gook?
ZIMMERMAN: Well, it's just stuff in the oil, yeah. But it lets you know whether the oil's good enough to buy.
SMITH: So you've got a really good BS sensor?
ZIMMERMAN: There you go.
VANEK SMITH: Scott reaches into the box and flips a switch.
SMITH: If our oil does not pass this test, then PLANET MONEY is stuck in Kansas with 100 barrels of crappy crude.
ZIMMERMAN: Well, let's see what we got here.
SMITH: I am so nervous.
VANEK SMITH: Me, too.
ZIMMERMAN: See, we're talking about probably seven-tenths right there.
VANEK SMITH: So is that good or bad or...
ZIMMERMAN: That's viable.
VANEK SMITH: Oh, it is?
SMITH: It's OK oil?
ZIMMERMAN: Yeah, that's - there's nothing wrong with that.
VANEK SMITH: OK, so he's not blown away by our oil. It's not A-plus oil. But, hey, it's good enough to get us in the pipeline.
SMITH: And once it mixes with the good stuff, no one will notice.
VANEK SMITH: (Laughter). OK, Robert.
SMITH: Should we say anything before the oil goes into the pipeline?
VANEK SMITH: Yeah.
SMITH: I mean, this is the last time we're going to see it.
VANEK SMITH: Goodbye PLANET MONEY oil.
SMITH: (Laughter). And now, Stacey, we wait. It is 45 miles from here to McPherson, Kan. It's going to take all night for oil to get there.
VANEK SMITH: The pipeline moves very slowly - only about three miles an hour.
SMITH: You could walk faster than the oil. But it does mean we have some time to kill now. So while we're waiting here on the radio, on the podcast, Stacey, you and Alex Goldmark are going to tell us a story - a legend, really - about the man who changed the oil business forever.
VANEK SMITH: You've probably never heard his name, but you have definitely heard of the thing that he accidentally invented - fracking, as we know it today.
(SOUNDBITE OF MUSIC)
VANEK SMITH: This whole process that PLANET MONEY has been going through of buying oil, if there's one thing we learned on this journey, it is that there are a lot of steps. And no one knows that better than the man behind the plan, our senior producer, Alex Goldmark. Hey, Alex.
ALEX GOLDMARK, BYLINE: Hi, Stacy. More steps along the way than I can even possibly count, all of them worth it. But the whole process, all along the way, has been fundamentally changed by one man.
NICK STEINSBERGER: My full name is Nicholas Steinsberger. I'm 52 now, so in 1995 I would have been 31.
VANEK SMITH: So the oil industry is legendary for these kind of aggressive, swashbuckling tycoon-types. You know, at least in the movies, there's Daniel Day Lewis from "There Will Be Blood."
GOLDMARK: I drink your milkshake.
VANEK SMITH: Drinking everybody's milkshake. There's J. R. Ewing from "Dallas." Nick Steinsberger is not one of those people. Nick is an engineer. He's a quiet guy with a big smile. He turns red really easily. His car is super tidy. It still has a new-car smell.
GOLDMARK: What Nick did that changed the oil business forever is invented something called slick-water fracking. That's basically just fracking as we know it today.
VANEK SMITH: And he showed me the spot where it all happened, which is pretty much out in the middle of nowhere.
STEINSBERGER: So we're - we are between towns called - of Justin and Ponder, Texas, which are two small, little towns in - in north of the Fort Worth area. I think Ponder National Bank was robbed by Bonnie and Clyde back in the '30s, I think, so...
VANEK SMITH: Oh, claim to fame.
STEINSBERGER: Claim to fame.
VANEK SMITH: And we're - we're sitting, I guess, where fracking was born.
STEINSBERGER: Yeah, so where the - where the modern slick-water job was done successfully.
VANEK SMITH: By you.
STEINSBERGER: By me, yes.
GOLDMARK: Fracking is a charged word. It has all of these really emotional associations. There are visions of environmental destruction, earthquakes in Oklahoma, stories of flammable tap water. And there's this whole other side of it. There's the big economic boom, whole cities rising up out of the prairie out of nowhere, tens of thousands of high-paying jobs and oil independence for the U.S.
VANEK SMITH: And all of this drama started out in the most boring possible way - a quiet engineer trying to save his job on the least-glamorous end of the oil business. It was 1995. Nick Steinsberger was working for a company called Mitchell Energy. He was 31, and he had just gotten a big promotion. He was put in charge of 200 oil and natural gas wells in central Texas. It was an area called the Barnett Shale, named for the shale rock where the gas and oil deposits were stored.
Were you in a suit?
STEINSBERGER: I think we had started to go to casual Fridays, but we were still wearing a coat and tie almost every day.
VANEK SMITH: Nick walks into this big conference room with about ten other men, and he's feeling pretty good. He is the youngest guy there by a lot. But then, one of the executive starts talking about the area that Nick has just been put in charge of, the Barnett Shale. And the executive says, we got to get out of there.
STEINSBERGER: The Barnett was failing. It was not an economic venture. And we probably were not going to be doing it much longer.
VANEK SMITH: So a couple of months after you got promoted here, they were like, we think we're probably going to shut this down.
STEINSBERGER: Yeah, yeah.
VANEK SMITH: How did you feel at that meeting?
STEINSBERGER: Well, a little depressed (laughter). I was thinking, well, maybe my job was isn't so secure anymore (laughter).
VANEK SMITH: You thought you were going to get fired.
STEINSBERGER: Potentially, yes.
VANEK SMITH: The wells Nick was in charge of were losing money. Getting natural gas out of the shale rock was way too expensive.
GOLDMARK: Shale rock is basically, like, a dried sponge, except it's made out of some of the hardest rock on Earth. And all of those little pockets are filled with oil and natural gas. To get the gas, Nick was drilling down a couple of miles into that shale rock and then blasting it apart with this white gel.
STEINSBERGER: Consistency of a - like snot or like Jell-O. I'm sorry.
GOLDMARK: The gel shatters those little pockets in the sponge and lets this tiny amount of oil and gas flow out. It's like trying to get a French fry that's fallen in between the car seats. It's like, you could get it, but it's a lot of effort, small reward.
VANEK SMITH: That's very colorful, although I have to say, if this were Nick Steinsberger's car, there would be no French fries.
GOLDMARK: But, look, nobody wanted to put in that kind of effort on the Barnett Shale. In fact, Exxon's headquarters were just down the road from Nick's wells, right on the Barnett Shale, and they weren't doing anything about it. George Zuckerman (ph) is the author of "The Frackers."
GREGORY ZUCKERMAN: You could see the headquarters of Exxon, the biggest oil and gas producer in this country, is literally - not even figuratively - literally on top of the Barnett Shale. And yet, ExxonMobil was drilling anywhere but their literal back yard. They were offshore. They were in Africa. They were in Asia. And that was because the conventional wisdom at the time was, don't waste your time trying to get gas from shale, even in your backyard.
VANEK SMITH: So they knew that the shale was there?
ZUCKERMAN: Yeah, everyone knew. It was no mystery. They just didn't think it was worth their time.
VANEK SMITH: But it was worth Nick Steinsberger's time. He and his wife had a new baby, and this was a rough time for the oil industry. Layoffs were happening all over the place. And Nick thought, if I lose this job, I might not be able to get another one. So he leaves the managers meeting in Houston. He goes back to Fort Worth, and he decides that he is going to find a way to save his job.
STEINSBERGER: You know, over the next days or, you know, at night, I mean, I was thinking, well, what can I - what can I do? As an engineer thinks, well, you can become more efficient in cost savings.
VANEK SMITH: Just little trims here and there?
STEINSBERGER: Yeah, that's right.
GOLDMARK: Nick knew right where to trim - that gel. It was expensive. It was made up of a ton of chemicals. Half the cost of fracking came from that gel. So Nick's idea - just like a bar might start watering down the cocktails to stretch the liquor further, Nick started watering down that gel. He put in a little more water and a little less chemical mix.
STEINSBERGER: So I was - keep on reducing the amount of gel or amount chemicals we were pumping by, yeah, just making small tweaks every week or two.
VANEK SMITH: As Nick added more water to the gel, he noticed something weird. The wells with the watered-down gel were producing just as much natural gas as the wells with the full-strength gel. So Nick kept pushing the envelope, adding a little more water and a little more water and a little more water.
GOLDMARK: To do the actual drilling, Nick contracts out to these big companies, like Halliburton and Schlumberger. And they are - they are not fans of this watering-down plan because they sell the gel. And every time Nick waters it down, these companies sell less of it. And so to make up for the money that they're losing from this watered-down gel, Nick says the company started charging him all kinds of new fees. One charged a horsepower fee for the trucks and equipment they were putting on site. Another company charged a non-gelling fee, charging more for using less of their product.
VANEK SMITH: And then, one day on one of the drill sites, these guys say, now you've done it. You've hit the ceiling. You've put too much water in, and now the gel is not gelling.
STEINSBERGER: And it got to be so I was - had reduced it by so much that they were telling me the product they were pumping downhole was just a thick, watery substance.
VANEK SMITH: Oh, it's like if you make Jell-O with too much water, it just doesn't gel. It's just sugar water.
STEINSBERGER: Right. So I didn't pump the Jell-O, I pumped the non-gelled Jell-O.
VANEK SMITH: Why did you decide to pump it anyway?
STEINSBERGER: I'm not sure. I was mad at them (laughter). But, you know, we were already on that - we were already so close to there already that I said, let's just pump it and see what happens, basically.
VANEK SMITH: This was definitely kind of a swaggery, oilman, I-drink-your-milkshake moment for Nick. Botching a drill job is no joke. Drilling a well costs almost a million dollars. And nobody, not even Nick, thought the well would work without at least a little gel to crack the rock apart.
GOLDMARK: Here's the worry - conventional wisdom was that pumping too much water into the Barnett Shale would make the clay down there swell up and become a big, slimy mess, blocking all of those pockets of oil and gas, and then nothing would come out at all.
VANEK SMITH: So Nick stood there, super-mad and starting to get super-worried. He watched the drill team pump the super-watered-down, non-gelled gel into the ground. And it was like this standoff. The gel-mixing guys are standing there, getting ready for their big I-told-you-so moment. Nick is standing there, braced for the big I-told-you-so moment.
GOLDMARK: But it never came. Even with the over-watered Jell-O, that well produced the same amount of gas as the gel wells had.
VANEK SMITH: In fact, it produced a little bit more. Nick had no idea why this was happening, but standing there, he had this eureka moment. What if we just used water? That would cut costs by a third. We could add just a little bleach to kill the bacteria, a little soap to make the water flow more easily down the pipes. And if we did that, the Barnett Shale wells would be profitable - no question - and he could keep his job.
GOLDMARK: So he picked a well to test his theory out.
VANEK SMITH: All right, can we - can we go see it?
VANEK SMITH: So about 20 years ago today, you were driving up, as we are right now, to this well to see if your idea had worked.
STEINSBERGER: That's right.
VANEK SMITH: The well itself looks so underwhelming. I know that it goes a couple of miles underground, but all I can see is just this little tangle of pipes sitting on a 20-by-10 gravel plot, surrounded by a chain-link fence with a metal sign wired to it.
So do you mind reading the sign?
STEINSBERGER: OK, the name on the sign says the SH Griffin No. 4. There's still the Mitchell Energy sign on it.
VANEK SMITH: So that's the original sign that was there?
STEINSBERGER: That was the original sign that was there.
VANEK SMITH: The SH Griffin No. 4, named after the family that sold the land. It was June, but kind of chilly and overcast. And Nick got up before dawn, put on jeans and a hardhat and work boots, got some coffee and arrived at the well.
STEINSBERGER: This whole area that we're sitting on, this three acres, it would have been full of people and equipment and sand and water for - to do this job at that - at that point.
VANEK SMITH: Do you remember that day?
STEINSBERGER: Oh, yeah.
VANEK SMITH: What was it like?
STEINSBERGER: There would have been about 10 frack pumps.
VANEK SMITH: How big are those?
STEINSBERGER: They were a big truck.
GOLDMARK: Giant drills, thousands of feet long, went down into SH Griffin No. 4 and into the shale. Eight-hundred-thousand gallons of Nick's soapy water - what he was calling slick water - were blasted into the rock.
VANEK SMITH: And what did you see?
STEINSBERGER: We saw the pressure was going up and up and up and up, and we were excited.
VANEK SMITH: So the pressure valve was, like, the modern version of a gusher?
STEINSBERGER: I guess so, yeah.
VANEK SMITH: Nick is a reserved guy, but he told me this was one of the biggest moments of his life.
GOLDMARK: The gas started to flow and flow and flow.
VANEK SMITH: Tightly enclosed in tubes, of course.
GOLDMARK: Without any gel, the water had smashed the shale and created a gusher. Nick's well produced double what other wells were producing.
VANEK SMITH: Hydraulic fracturing - fracking as we know it - was in business.
STEINSBERGER: Right here.
VANEK SMITH: The world changed.
STEINSBERGER: I didn't know - realize that at the time, but yes.
GOLDMARK: No one could have realized at the time what a game-changer this was. Fracking with water was way cheaper, but it also produced way more natural gas. And they tried the same technique on oil - same results. Twenty years later, the U.S. is the largest producer of oil and natural gas in the world because of fracking.
VANEK SMITH: Nick's boss at Mitchell Energy became a billionaire. Nick did not. In fact, he didn't even get a bonus. It seems unfair that it's your invention.
STEINSBERGER: They were better better businessmen than I was (laughter). I was a young engineer, and I had no idea about the business world, about - I was in a very small microcosm of that industry. I'm also quiet, as you - I'm pretty quiet and reserved. So, you know, other people - the oil industry has a lot of interesting characters in it. And - and a lot of people are very outgoing, very aggressive.
VANEK SMITH: In the meantime, Nick was watching the world change because of his invention. When Nick had started out his career in the early '90s, everyone was talking about how the world was running out of oil, how the price was going to go up and up and up and all of the problems that was going to cause.
GOLDMARK: Nick's invention meant that there were enormous reserves of oil and gas right here, beneath our feet, that could be cheaply extracted. Gregory Zuckerman, the author of "The Frackers," says it's almost impossible to overestimate how much fracking has changed the U.S.
ZUCKERMAN: It was a consensus that we were running out of oil and gas in this country, and we were going to be dependent on nations that we really didn't want to depend on for the future. And to think that, in a short number of years, we not only have this surplus and glut, we're actually exporting oil and gas from this country. It's remarkable. It opens up all kinds of opportunities for us.
VANEK SMITH: George (ph) says the whole global power structure changed. You're Saudi Arabia - you suddenly have half as much income as you used to. You're Venezuela, Russia - your economy is falling apart because oil prices are lower, and the U.S. is not buying like it used to. If you're in the U.S., you've got lots of jobs. Gas is cheaper.
GOLDMARK: And if you're an environmentalist, this is really bad news. Just start with the issues with the drilling itself - earthquakes in Oklahoma, contaminated tap water in Kentucky. Nick says he's heard all of these things.
VANEK SMITH: People really hate fracking.
STEINSBERGER: Yeah. I think - that's very disturbing to me. I am an environmentalist. I'm a Boy Scout. I love camping and hiking. I love the environment. And I'm not - and I've been on thousands of frack jobs. You know, fracking is a - is misunderstood. You know, fracking with a K - I just - that bothers me because fracture stimulation does not have a K in that word. But they put a K in it because it's - quantify - it's a dirty word that way.
GOLDMARK: Nick says the problems with frack sites are overblown and that fracking has really improved over the last 10 years.
VANEK SMITH: But individual drill sites are not the real environmental problem. The real problem is what fracking has done to the price of oil. If you're an environmentalist, you want oil to be expensive to push us into alternative fuels. When gas is cheap, people drive more. People buy more SUVs. There's no economic incentive to change.
GOLDMARK: Fracking took us from a world where we thought it was just going to be more and more expensive to get that last little bit of oil out of the ground. But now it has opened up so many new oil fields that the alternatives, solar and wind, they just don't make as much economic sense anymore.
VANEK SMITH: Nick says he doesn't look at it that way.
STEINSBERGER: Of all the potential issues or issues with it, I think it creates so many benefits for our country, both economically - the amount of jobs, the amount of economic revenue we've established here and the security for our own country.
GOLDMARK: Nick says he's proud to have invented fracking. He's even made peace with the fact that he did not get rich off of his invention. He's got his own consulting firm now and a big family - five kids.
VANEK SMITH: Nick did tell me that if he could go back in time, he would have been a little more aggressive. He would have quit Mitchell Energy, started his own company and grabbed some of the glory and money for himself. But as we were about to leave the oil field, Nick did something that totally surprised me. He told me he really wanted to steal the sign, the metal sign, that was wired to the chain-link fence, the one that marks his first hydraulically fracked well, S.H. Griffin #4.
STEINSBERGER: I'm definitely taking that sign. I don't have any pliers (laughter).
VANEK SMITH: Nick tells me he wants to put the sign in his living room. He tells me it's important to his soul. And suddenly, it's important to my soul that Nick puts the sign in his living room.
I got the top one. But...
STEINSBERGER: Did you really?
VANEK SMITH: ...I think that's just the easy one. Yeah.
In the end, we could not get the sign off the fence. We had to leave it there.
STEINSBERGER: It's all right. I'll come back some day and get it.
VANEK SMITH: That sign should be yours.
GOLDMARK: So Stacey, the PLANET MONEY oil that you and Robert bought in a field in Kansas - that was not from a fracked well. But, like every other well in this country and all of the oil in America now, it was affected by Nick Steinsberger's innovation.
VANEK SMITH: Because when fracking went big-time, the amount of available oil in the U.S. more than doubled. Selling oil got a lot more competitive, and the price went down.
GOLDMARK: That was good for us when we were buying our oil, but we also have to sell our oil. It'll eventually make its way to a refinery. And over the next couple episodes, it'll get turned into fuel and other products that people can buy. But the refinery will not buy directly from us. So Stacey, you and Robert Smith called up somebody else.
JOSHUA WADE: My name is Joshua Wade. I'm with Ascent Midstream Partners. I'm a crude-oil purchaser.
SMITH: So are you a middleman we always hear about, the middleman?
WADE: Yep. I technically do take ownership of it. But it's only for a fraction of a second - milliseconds.
SMITH: Can you make a profit by owning oil for milliseconds?
WADE: You can.
VANEK SMITH: Josh agreed to buy our hundred barrels of oil. And we were hoping to make a little profit off of it or at least break even.
VANEK SMITH: So - we should probably talk price.
WADE: So the price that we were looking to do for this barrel is 31 - $31.20 a barrel.
VANEK SMITH: OK.
VANEK SMITH: That feels low. We paid Jason Bruns, the guy who drilled our oil - we paid him $40 a barrel.
VANEK SMITH: We were starting to get the feeling that this was not going to go well. Josh told us he could not give us $40 a barrel or even anything close to that. And part of the problem was timing because, in this market, oil is bought and sold using a monthly average. And when we bought our oil, it was July 29. And we were using the price for July when we bought our oil from Jason Bruns.
But you might remember that a huge storm blew into Kansas, and the roads got so muddy that the oil truck could not get in. We could not sell our oil. And by the time the roads dried out, it was August. And the price for oil was much lower. So when we were trying to sell our oil to Josh, we were looking at a much different price.
SMITH: So I'm going to boil this down. It looks like we lost $820 on the deal.
WADE: It sounds like it a little bit (laughter).
SMITH: So you're telling me Jason Bruns, oil man and preacher...
SMITH: And preacher.
SMITH: ...Pastor on the weekends, made out like a bandit off of this oil deal?
WADE: I wouldn't say he made out like a bandit. He got a good deal.
VANEK SMITH: We also bought him lunch.
WADE: Now, depending on how much that lunch was, he got a really good deal.
VANEK SMITH: A really good deal for August prices anyway, according to Josh.
SMITH: Are you saying if it had not rained and we could have gotten that oil out in July instead of August...
SMITH: ...Then we would have made out better on this deal?
WADE: Yeah. And that's what happens a lot of times in this industry.
VANEK SMITH: Robert, I think we have no business in the oil business is what I think.
SMITH: I think we're a little bit cursed.
VANEK SMITH: I think - well, also that.
(SOUNDBITE OF DOUGLAS SISEMORE AND MICHAEL RADOVSKY SONG, "FURTHER DOWN THE ROAD")
VANEK SMITH: So - OK. We lost $800 on our oil deal. But - but our oil is in the system. Next time on PLANET MONEY, we follow our oil to the refinery and see what becomes of our hundred barrels.
GOLDMARK: If you've got questions about our oil or want to tell us how we could've done a better deal at negotiating for it, send us an email. We are email@example.com.
VANEK SMITH: Also, we have been posting photos from our oil journey. You can check them out on Twitter and Facebook. Go find us there. Today's episode was produced by Nick Fountain. Thanks, Nick.
GOLDMARK: And we want to thank Christian Curtin, our comptroller at NPR. Who even knew we had a comptroller? He had to deal with all of our regulatory filings incorporating us in the state of Kansas to buy oil legally. Thank you, Christian.
VANEK SMITH: And if you are looking for another podcast, check out NPR's Pop Culture Happy Hour. Every week, they talk about the latest movies and books and TV shows. And they have really interesting discussions with people like Trevor Noah and Shonda Rhimes. You can check that out on the NPR One app or at npr.org/podcasts. I'm Stacey Vanek-Smith.
GOLDMARK: And I'm Alex Goldmark. Thanks for listening.
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