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A Lot of Gas

In the fall of 1994, independent oilman Sanford Dvorin cracked open a Dallas County Yellow Pages and sent a letter to every person connected with the oil and gas industry. Sounding like every piece of over-the-top, too-good-to-be-true, direct-mail investment scheme literature ever written, Dvorin's letter boasted: "History is about to be made and you can be part of it!"

The mailer pitched the chance to become a partner in the first commercially viable natural gas well in Dallas County. But any oil and gas man with a shred of economic sense and an ounce of industry knowledge would tell you that you'd have a better chance of Ed McMahon showing up at your front door declaring you a sweepstakes winner than striking oil or gas in Dallas County. Rich reservoirs of primordial ooze simply don't lurk under Dallas, they'd tell you--because if they did, someone else would have already found them.

The few people who bothered to write back told Dvorin he was crazy, and those were the polite ones. Most of the responses Dvorin received were along the lines of the curt conversation he had with Michael Hart, a crusty Dallas-based petroleum engineer who'd logged more than 40 years in a rough-and-tumble business notorious for its gamblers and hucksters.

On December 12, 1994, at 10:50 a.m., according to an index card Dvorin kept on every follow-up phone call he made on his farfetched proposition, Hart told Dvorin exactly what he thought of his deal: "Dallas is not worth a flip."

But neither Michael Hart nor the 200 other industry people who'd raise serious doubts about Dvorin's scheme could deter him. He had come too far, dreamed too long. For 20 years, he had nurtured this hunch. Then, through some geological detective work, he discovered what he believed was proof that the Barnett shale, a thick rock formation that runs under most of North Texas, could be productive and profitable in yielding natural gas.

Now all he had to do was prove it.
At first, Dvorin bankrolled his hunch with his life savings--or what was left of it after the oil crash of the mid-1980s. But he needed much more money before he could even roll the dice on his Dallas County gas gamble. And he faced other hurdles. Not only did he want to drill in Dallas County, he wanted to drill in the heart of suburbia. Even if he could find someone to finance him, he still had to convince a landowner to let him set up a huge, noisy drilling rig in his backyard.

But even before that, he would have to convince the city fathers of one of Dallas' most image-conscious suburbs to bless his plans to bring the grimy petroleum industry inside city limits.

Sanford Dvorin had his work cut out for him. But he believed deeply that he was right. Of all the holes he'd punched in the ground in his 30 years in the oil business, he figured this one was the least risky.

"Nothing in the oil and gas business is a sure thing," he says. "If there was, this was it. But drill bits have made liars of the smartest people."

Much of the mystique of Texas is inextricably linked to the deeds of the oil industry wildcatters. They dared to drill where no man had drilled before, risking ridicule and possible financial ruin. But when they hit, they often hit big, changing their personal fortunes in the blink of an eye.

A wildcatter is a freelance operator who sinks a well in an area where no oil or gas is known to exist. Independent operators like these discovered the majority of oil and gas in this country and helped expand the state's economic horizons for much of this century.

But when the price of oil plummeted in the mid-1980s, the wildcatter's prospects nosedived with it. With the price of oil and gas relatively low and supplies stable, there had been little incentive for independent exploration. But technological and economic changes in recent years have set the stage for wildcatters like Sanford Dvorin to begin dreaming in earnest again.

Bolstered by an advertising campaign touting it as the "clean energy source," natural gas consumption has risen dramatically in the last decade, according to the Gas Research Institute in Chicago. While experts say there is enough gas to meet current demand, this fossil fuel, trapped in layers of rock under the earth, is becoming more difficult to find.

Government incentives have encouraged large corporations to search for natural gas in formations previously believed unproductive. And new technologies have made their searches increasingly successful, although much of that success has been enveloped in secrecy.

Large companies hunting for natural gas historically have confined their operations to rural areas, where they can lease large tracts of land from a handful of landowners. They shy away from developed areas where large parcels of land are difficult to come by and the hassles of zoning ordinances and public opposition are plentiful.

 

But to a shrewd, patient independent operator like Dvorin, drilling in suburbia, putting the gas well almost literally in the consumers' backyard, could be a gold mine. If you knew where to look.

For as long as he can remember, Sanford Dvorin wanted to be an oilman. He realized that was a strange destiny for a Jewish boy growing up in Newark, New Jersey. The closest he'd ever come to the oil industry was the Esso refinery that he drove by on the way to his father's meat-packing plant.

"All I knew about oil was that it was huge and everyone needed it," says Dvorin, a portly man of 58 with silvery hair and an easy-going manner that seems at odds with his almost quixotic determination. "It seemed easier than the packing-house business. Boy, was I mistaken."

Dvorin got a degree in engineering, which he didn't use, instead following his older brother into the family business. In the late 1950s, the brothers decided to migrate to Texas to be closer to the cattle market. They settled in Tyler and eventually built the largest beef-boning operation in the state. But soon the real estate boom lured the brothers' financial backers away. They couldn't find enough capital to keep their enterprise afloat, and closed it down. That's when Dvorin decided to follow his childhood dream and become a wildcatter.

He moved to Dallas in the early 1960s and began putting together deals to drill for oil and gas in North Central Texas. He rode the roller coaster of respectable finds and dry holes, ultimately doing well enough to marry and raise a son and daughter in relative affluence in the new bedroom community of Plano.

In 1976, while trying to scare up a juicy drilling prospect for himself, Dvorin went to the oil-industry library housed in the newly opened One Energy Square building on Greenville Avenue. Curious about the history of drilling locally, he took out the file on Dallas County. It was a very thin file. In it he found the Magnolia well, a deep well sunk 10,231 feet in 1955 by the company that would later be known as Mobil. The well had yielded a good gas test, which Dvorin found surprising. But the well had been capped, probably because prices made it uneconomical to exploit. The file didn't say where in Dallas County the well had been located.

"I had a feeling where it was--the surface terrain near the [D/FW] airport looked 'oily,'" Dvorin says. "But time marched on."

Almost 10 years later, in 1985, he would be reminded of the Magnolia well when he was drilling in Jack County, northwest of Fort Worth. He was hoping to hit the Mississippian reef, a prolific but elusive fossil-fuel formation in the area. In the course of drilling this well, he burrowed into the Barnett shale formation, which served as something of a marker to people in the industry that the Mississippian reef might be near. Dvorin drilled 200 feet into the shale. The mud logger, a technician who monitors and records information brought to the surface by the displaced mud from drilling, got tremendous gas shows.

The mud logger dismissed his findings as simply shale gas, the fossil fuel equivalent to fool's gold. Geologists had long known that the 300-million-year-old Barnett shale was a source rock for fossil fuels, the geological birthing place of crude oil and natural gas. But these scientists also believed that these fuels migrated to other rock formations. The Barnett shale may contain traces of gas--or so the thinking went--but not in sufficient quantities or of high enough quality to make it profitable to mine. Also, the shale's lack of permeability prevented what gas there was from flowing easily to the surface.

But Dvorin refused to believe he'd merely found shale gas. The mud logger--whose services had only recently become affordable to the independent on-shore oilman, Dvorin says--used more sophisticated tests that revealed a high concentration of butane and pentane gases in the Barnett shale sample.

"This is not shale gas, this is gas-well gas," Dvorin figured. He went back to the library and dug out the information on the Magnolia well. It contained 440 feet of Barnett shale.

Dvorin also was aware of the rumor buzzing around the industry that Houston-based Mitchell Energy and Development Corp., the largest independent oil and gas company in the country, was exploring the Barnett shale in its vast Wise County holdings, just northwest of Fort Worth. The operation was strictly "tight hole"--industry parlance for top secret. But Dvorin's curiosity was gnawing away at him, and he came up with a way to trick the Mitchell people into telling him once and for all what they were up to.

 

Dvorin sent the gas tests down to Mitchell company researchers in The Woodlands, a planned community Mitchell built north of Houston. He got one petroleum engineer on the phone who told him to complete his Jack County well and see what he got. Then Dvorin nonchalantly asked the man how their Barnett shale test well was doing.

"The jury's still out," the man said, inadvertently confirming for Dvorin that Mitchell was in fact exploring the Barnett shale.

Finally armed with proof about the existence of Mitchell's test well, Dvorin spent the next eight years chasing the Barnett shale, finding out as much information as he could and talking to other operators about partnering up to drill the Barnett. He couldn't find any takers, which is just as well. The technology wasn't even available yet for him to do what he wanted to do; and anyway, he didn't have the money.

Like the majority of independent oilmen, Dvorin had plowed most of his profits back into new exploration. Never a high roller, Dvorin made a comfortable living. But when the mid-'80s crash came, his finances plunged precipitously. "I sold off all my production little by little just to keep from starving," he says, wincing at the memory. "For years, just years, it was 'Do I buy clothes for the kids, or a new shirt for me?' Those kinds of decisions. We didn't even have enough money to go out to eat.

"Holy moly. Every day I gave my wife, Patty, a reason to run off. But she's stuck it out for 31 years so far," Dvorin says.

By the late 1980s, Dvorin hit some decent times again, and by the early 1990s was supporting his family by buying, refurbishing, and selling used wells. But through all those years, he never gave up on exploring the Barnett. In 1993, he told his son, Jason, a financial consultant, that it was time to go for it.

By then, Dvorin had made two important discoveries. In late 1993, he finally received a technical paper prepared by the Gas Research Institute on Mitchell's exploration of the Barnett. The information had been kept confidential for several years until GRI's "tight hole" contract with Mitchell ran out. The paper confirmed Dvorin's suspicions that Mitchell had figured out how to extract gas from the test wells in the Barnett and had gone on to drill many more. A few months later, he learned just how productive Mitchell's wells were when he got a copy of Dwight's Report, an energy information survey.

Between June 1982 and July 1994, Dvorin recalls, Mitchell's Barnett shale wells produced 40 billion feet of natural gas. "That was pretty respectable at the time," says Dvorin, "and the production curve kept going up."

Though Mitchell would eventually drill close to 300 wells without hitting a dry hole, Dvorin still could not convince potential investors that he was on to something. Perhaps the crash had tamed their adventurous spirits, but these other independent operators refused to believe the Mitchell corporation was making any money on its Barnett wells. Dvorin would stumble onto proof of that later. In the meantime, he and his son had a lot of research and development to do, which he would bankroll himself.

With the price of gas still relatively low, Dvorin figured the best way to maximize his profits in a Barnett shale well, which would be a relatively expensive well to drill, was to drill it as close as possible to where the demand was--near a city.

"I didn't want to be a slave to the pipeline," he says. "In a rural area, you have to sell your gas for whatever the pipeline is willing to pay you. Take it or leave it. In an end-user market, we could get more for our gas. I knew Dallas County was where we needed to be."

The first thing Dvorin did was to track down the location of the Dallas County Magnolia well whose existence he'd stumbled across in 1976. He dispatched his son Jason to Austin to slog through the archives in the Texas Railroad Commission, which regulates the oil and gas industry. After searching for two days, Jason dug up the old plats and discovered that the old well was located somewhere along the southern edge of the Dallas/Fort Worth International Airport.

Dvorin eventually found the well remnant in a small Irving park just south of the airport at Valley View Lane and Highway 114. He considered going back into the old well, but it was a risky proposition. There's always the potential that the old well will cave in. Plus, he wanted to get as close as he could to a Lone Star Gas transmission line.

 

The closest transmission line to the Magnolia well--an area in which he was certain to find the Barnett shale--was in Coppell. Calling itself "The City with a Beautiful Future," Coppell is a young and affluent suburb with paving-stone intersections, white-bannistered bridges, and turn-of-the-century lampposts. With the average house selling for $250,000, its residents were at first reluctant to open their city to the oil industry.

It took the Dvorins more than a year to persuade a landowner to lease them their mineral rights. He found partners in Bill and Adelfa Callejo, high-profile Dallas lawyers who owned 130 acres of open land zoned for light industrial development that they leased out for cattle grazing. In the iconoclastic Dvorin, the Callejos, known for decades of local political activism, found a kindred spirit.

"We were mispacha [Yiddish for family]," says Bill Callejo, a New Yorker of Puerto Rican Catholic descent. "We established a good family relationship, and the business came later." Originally trained as an architect and engineer, Callejo listened with an open mind as Dvorin offered to make him a royalty partner. Callejo conferred with some friends in the oil business; they told him he had nothing to lose.

"Sometimes success comes from admitting you don't know something, rather than thinking you know more than you do," Callejo says. "So now you have a Puerto Rican Yankee, a Mexican Texan [Adelfa Callejo], and a Jewish oil operator from New Jersey. What a trinity. It couldn't have happened in a more bigoted citadel," he says, referring to Dallas. "We're giving it a legitimacy it claims in TV shows."

Despite Dvorin's optimism, the future of his well in Coppell was far from set. After securing a lease from the Callejos, it would take another year of lobbying public officials and conducting public hearings before Dvorin could convince the city to issue him a special use permit to mine within the city limits.

"The only time our hearts were in our throats was when the city planner recommended that our special use permit be denied," Dvorin says. But the board of planning and zoning ultimately overruled his recommendation. The decision was encouraged by the prospect of Dvorin's well contributing to city tax rolls: If the well produces for 10 years, the school district and city stand to receive more than $300,000.

Now all Dvorin needed was to bring in the well.

The city of Coppell gave Dvorin its blessing in February 1995, but by then the financing he'd lined up had fallen apart. Everything he owned was riding on this well. He didn't have the money to renew the Callejos' lease. But the Callejos agreed to forgo the lease payment and struck a deal worthy of wildcatters. If Dvorin drilled a dry hole, he wouldn't owe them a cent. But they'd get double their money if he struck gas.

Still struggling to convince potential financial backers that the Mitchell corporation was making money on their Barnett wells, Dvorin had a brainstorm. He filed an open records request with the state comptroller's office to determine what Mitchell's exemption to the state severance tax amounted to. He learned that in 40 months, that number came to $17 million. "And that was just his exemption," Dvorin says. He estimated that Mitchell must be pulling in revenues in the hundreds of millions.

By the summer of 1996, Dvorin had found a partner in Foundation Drilling and Exploration, a small Richardson company that Dvorin says was smitten with his enthusiasm. (Foundation Drilling representatives didn't respond to requests for comment.) Several months passed before a drilling rig became available.

On January 3, the Dvorins broke ground--called spudding the well--and for the next 21 days, a 115-foot rig pummeled the pasture with an incessant roar just a few thousand feet from a new development of expensive brick homes. The noise bothered some neighbors, but before long almost everyone in Coppell began rooting for Dvorin to succeed.

"I never prayed to God for money, only for the health of my family," says Adelfa Callejo. "I know if the gas well comes in, I will benefit. But I asked God to please let it happen--for the Dvorins. They have so much at stake."

They hit the Barnett shale 300 feet higher than they anticipated. Dvorin had no doubt he would hit it, because unlike other hydrocarbon-producing formations, the shale exists in one continuous sheet. But the shale was almost twice as thick as the formation Mitchell was drilling in Wise County, which made the next--and most crucial--step risky and expensive. In mid-March, after weeks of rain had stalled progress at the well site, conditions were finally right to stimulate the well.

 

In a process akin to giving the earth a massive enema, two million pounds of special sand from Canada mixed with water and chemicals were pumped into the well at tremendous pressure. The "slurry" is forced into holes that have been shot into the shale casing, causing the formation to fracture, allowing pathways for the gas molecules to flow to the surface. It took Mitchell Energy years of costly trial and error to get the frac formula down right. Contacts Dvorin made with Mitchell in recent years helped him design the "size" of the frac--what combination of sand, water, and pressure would crack the rock and make it give up the gas trapped inside.

Dvorin and his family munched on bagels and whitefish in a trailer parked at the well site. Tables of barbecue in silver trays were set out for the workers who'd toil through the night until the hydraulic frac was finished. Local politicians milled around, and Jason Dvorin handed out T-shirts reading "The Well in Coppell."

Despite the celebratory mood, it would still be weeks before the water would be pumped back out and anyone would know for sure if they'd struck gas--and, if so, just how much. The gas flowed back slower than they had originally expected, and results of the first tests were disappointing. But on April 14, a second gas well back-pressure test was done.

"I haven't slept since we got the results," says Sanford Dvorin, sitting in his small, cluttered office near the North Dallas Tollway and Arapaho, clad in his ever-present mud-caked work boots. "This has got us so excited, we can't see straight."

He hands over a copy of the test results. With an absolute open flow of 15,350 million cubic feet of natural gas and more than 3,000 pounds of bottom-hole pressure, Dvorin is convinced he's sitting on a commercial reservoir.

"That's a big well. A very big well," he says.
It was easy to get caught up in Dvorin's excitement. But several independent operators were less enthusiastic, and some dismissed Dvorin as a self-promoter and huckster. A geologist with a large oil and gas development company who asked to remain anonymous says that although Dvorin's discovery looks promising, it's too soon to tell for certain how well it will produce.

"Those numbers are good, very good," says Ron Bliss, a certified petroleum landman in Dallas who had been one of the hundreds of people Dvorin contacted about the deal over the years. "But it could go poof in two days. The pressures sound good, but it doesn't mean it is not limited in size."

The well, dubbed "Callejo #1," has to produce a significant amount of gas over at least a year and a half before Dvorin and his partners can recoup their investment, much less make a profit. But Jason Dvorin says predictions are that the well has a life of about 15 years. "But only the shadow knows for sure," he adds.

The Dvorins are involved in negotiations to sell their gas--which is so pure it doesn't need to be refined--to Lone Star Gas, whose distribution line sits just a few hundred feet from the Coppell well. Within a few weeks, Lone Star Pipeline is set to tap the Dvorins' line and install a meter, so the Coppell well could go into production soon. Sanford is so optimistic about his first well that he's secured permission from the city of Coppell to drill a second well on the Callejo property, about a half-mile away from the first well. He plans to begin drilling in June.

Sanford Dvorin's goal is to become the predominant operator of Barnett shale within the Dallas-Fort Worth area. He thinks the formation can support about 100 wells. To that end, he's been busy leasing new properties in the western part of Dallas County every day.

"No matter what happens in my life and my family's life, nobody can take away the fact that we made Dallas County history," Dvorin says.

After all he's been through, maybe you can forgive the man for gloating. Last week, on a lark, he called back Michael Hart, one of the hundreds of operators he contacted who told him he was nuts.

"Remember me--the guy with the Dallas County gas well project?" Dvorin said. "Well, I'm here to tell you were wrong."

"It's still not worth a flip," Hart said. "I can breathe more gas than can come out of this thing," he added.

 

"I have two words for you. Happy Birthday," Dvorin said, and hung up.


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