The Wolfberry Chronicle

Copyright © 2021 Gregory Berkhouse

All rights reserved. No part of this book may be reproduced, distributed, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the publisher or author, except for the use of brief quotations in a book review.

Ebook: 978-1-7331869-4-0

Paperback: 978-1-7331869-5-7

Hardback: 978-1-7331869-6-4

Contents

Author’s Notes

Prologue: So What’s the Story Here?

Chapter 1: The Wonder Years

Chapter 2: A Little Ol’ Spraberry Driller

Chapter 3: Permian Basin Rocks for Jocks

Chapter 4: From Austin to Appalachia

Chapter 5: Henry Petroleum Version 2.0

Chapter 6: The Executive Office

Chapter 7: MIPs, Flips and Floods

Chapter 8: What Is a Frac?

Chapter 9: Another Dennis

Chapter 10: Setting the Wolfberry Stage

Chapter 11: Birth of the Wolfberry

Chapter 12: Growth Ballistic

Chapter 13: Departures

Chapter 14: Concho

Chapter 15: Transitions

Chapter 16: The Horizontal World

Chapter 17: Henry Goes Sideways

Epilogue: Now We Are Fifty-Two

Author’s Acknowledgements

Author Bio

Author’s Notes

Jim Henry is a man blessed with two first names, and he also named his oil company Henry. So, to avoid confusion, I call the man by his first name, and I refer to the oil company as Henry. Besides, I know Jim; he is my friend, and it would feel pretentious to call him by his last name. As most of the other people in the book are also my friends, or at the least my acquaintances, for the same reason I call them by their first names, except when there are complicating factors. For example, Henry Groppe, once introduced by his full name, must become Groppe. And when Dennis Johnson is talking with Dennis Phelps, they must for the moment be Johnson and Phelps.

Oil is a technical industry. I wanted to make this book interesting and understandable to readers who don’t have a petroleum background, but without compromising the technical accuracy. One of my guiding principles in writing was: accessible to the non-technical, inoffensive to the technical. To that end, I have provided brief explanations of most of the technical terms and concepts. I have also devoted a few pull-over chapters to more fundamental technical matters in the story: it would have been impossible to sprinkle in enough information about fracs, horizontal drilling and Permian Basin geology to give the reader context, while still preserving the flow of the narrative.

That said, I wanted to address a few technical matters here at the outset, beginning with our abbreviations for volumes and producing rates, which I use throughout. The basic unit of volume for oil is a 42-gallon barrel, abbreviated BO, and for gas it’s one thousand cubic feet (at standard temperature and pressure), abbreviated MCFG. By the way, in the petroleum industry, to denote one thousand we use M from the Latin mille, rather than K from the Greek kilo. When we describe cumulative produced volumes, whether during a month or over the lifetime of a well, we generally speak in terms of thousands of barrels of oil, abbreviated MBO, and millions of cubic feet of gas, abbreviated MMCFG (MM is one thousand thousands, or one million). For reference, a good vertical Permian Basin Wolfcamp well makes at least 100 MBO and 200 MMCFG over its lifetime, and a good two-mile horizontal makes maybe 750 MBO and 1500 MMCFG (or 1.5 BCFG, where B signifies billion). We describe producing rates in daily terms: barrels of oil per day, abbreviated BOPD, and thousands of cubic feet of gas per day, MCFGD; 120 BOPD and 250 MCFGD is a good initial rate for a vertical Wolfcamp well, and 1000 BOPD and 2000 MCFGD for a horizontal.

Also, there is the expression of energy equivalence. One barrel of oil yields about the same amount of energy as six thousand cubic feet of gas: 1 BO equals 6 MCFG. For convenience, we often combine the oil and gas volumes into a single unit of measure, called oil equivalents (note the different word) and abbreviated OE, by using that ratio. For example, a well that is producing 100 BOPD and 180 MCFGD is making 130 BOEPD, and one that cumulatively produced 300 MBO and 600 MMCFG yielded 400 MBOE.

Finally, most Permian Basin reservoirs that produce oil also produce what we call associated gas. Gas is dissolved in oil similarly to CO2 dissolved in Coke (except in oil it happens naturally). When you relieve the pressure on the oil by bringing it to the surface, much of the gas is liberated, just as CO2 foams up in the glass when you pour your Coke. The produced oil and gas are separated at the surface and processed differently.

I hope you enjoy the read.

Prologue

So What’s the Story Here?

On November 1, 2019, Jim and Paula Henry’s oil company turned fifty.

That’s a big deal for any company, but especially for one that began as a mom-and-pop shop without any capital. And their company has not only survived but thrived in a commodity-based industry with volatile pricing. Henry is still going strong today and is still family owned. So the Henrys’ half-century is a big deal.

As a continuing part of their fiftieth anniversary celebration, Jim and Paula wanted a book about the history of their oil company and its success. They asked me to write it for two reasons. First, I have worked at Henry for twenty of its fifty years, so I personally know the company and its people, employees, partners and service providers. And second, I am a geologist and an engineer. Henry is a technical company in a technical industry, and its history needs a technical teller.

There is one rather important qualification I do not have: I am not a writer. But two out of three ain’t bad. And besides, I thought, history is straight forward enough—a lot of dates, numbers and names. I figured I could pull that off.

But of course, history is much more than dates and numbers and names. History is at heart a story, a tale, and Jim and Paula wanted their tale told. They wanted a book not merely about their company’s statistics but about its soul, its personality, its maturing in wisdom and in stature through the years.

I knew there must be a profound story here, and I knew at least some of its components. Henry hires smart people. But there are smart people at a lot of companies, and most companies don’t achieve what Henry has achieved. And everybody knows about Jim and Paula’s generosity, their great benevolence to their employees and their community. That’s uncommon practice, and it must be important to the story. But no actual mechanism in benevolence could, by itself, bring about such material and measurable success. There had to be other gears in the box.

So I interviewed a lot of key players in Henry’s history—more than forty folks from inside and outside the company, more than seventy hours of conversations, and untold email inquiries and follow-up texts. I asked questions, and I let them tell their tales. They talked, and I listened. I learned a lot—such is the reward of listening.

I expected to hear about wild wells. Henry is an oil company, after all—we drill wells, and wells can get wild. I also expected to hear about the getting of great wealth. As I said, Jim and Paula started their company with no capital—the only thing in Jim’s wallet then was a business card. But between 2006 and 2010, they conducted three asset sales that made their company a billion dollars. That’s billion, with a b. So I expected to hear about wild wells and great wealth gotten, and I did. This is all good, because Jim wanted the book to be exciting, and it’s hard to make dates and numbers and names exciting.

Most books and movies about oil include wild wells and great wealth. The problem is that many of them stop right there: blowouts and riches, The End. And while wild wells do sometimes establish a company’s success, they sometimes cause its demise. And great wealth is the result of success, not the cause. So the Henry story must have a firmer soul.

As I listened to my interviewees, a common theme emerged—sometimes explicit, sometimes half-hidden in the background. Sometimes I didn’t see it until I tied together two or three testimonies. The theme is very simple and yet very profound: favor given and received. The cause of Henry’s great success is not only that Jim and Paula themselves have been so benevolent, so ethical and of such bright character, but also that their company has collaborated with kindred spirits, folks of similar stuff, and received good from them in turn. Henry hired quality people and treated them well, and those people worked hard for Henry. Henry’s employees selected vendors and service providers of the same ilk, and all parties did right by each other. The Henry field team took care of their landowners’ properties, and the landowners expressed their gratitude in fair terms. Henry management identified investors and business partners with similar priorities and dealt with them equitably, and partners of the same sort sought out Henry. And as Midland helped Henry to prosper, Jim and Paula gave back to the community many times over.

Of course, not all the company’s relationships worked well, and none was perfect—many were difficult, and a few were downright disasters. But overwhelmingly, favor and fairness were exchanged.

So you will see, if you read on, a story of reciprocal trust and requited respect, of goodness and gratitude manifested in both directions, of the company and its relations doing unto each other as they would have the other do unto them.

The Henry story is a tale of mutual goodwill.

(And of wild wells and the getting of great wealth.)

Chapter 1

The Wonder Years

The caricature of a petroleum engineer is a rectilinear guy or gal religiously devoted to calculation: he gathers his numbers, pours them libation-like into the Almighty Equation, and bows unquestioningly to the output. He is spellbound by spreadsheets, and he balances his checkbook to three decimal places. He struggles with the concept of concept. His safe place is the Binary—on and off, yes and no, black and white; indeterminants like gray and maybe disquiet him. To such a one, all unknowns are negative, and every risk anathema.

Jim Henry is a petroleum engineer. But he is not that petroleum engineer. Jim can calculate, equate and evaluate with the best of them, but he also gets that not all things can be measured. Some things must be imagined—in some situations, some amount of risk and uncertainty is acceptable. Especially when the potential gain is great.

In late 1969, ten years into his professional petroleum career at age 35, Jim encountered an unanticipated crossroads and had to make a major vocational decision. Being a good engineer, he first identified the options, listed the pros and cons of each and assessed their relative merits. One option presented significant risk and correspondingly great reward. But there were too many unknowns, and he was unable to quantify its value. So Jim departed from the caricature engineer: he quit calculating and gave over to imagining.

__________________

From the time he was a young teenager, Jim knew that he was fashioned to be an engineer. In elementary school he had done poorly in spelling because he was taught by memorization rather than phonics; as Jim said, I’m a rules guy, and so I struggled. But in junior high he encountered algebra and excelled at it, and later he mastered geometry and trigonometry. I found out then and there that I had an analytical mind for subjects like math, and so I knew in junior high that I wanted to be an engineer. Jim had no doubt inherited some of his ciphering skills from his father, James, who had also chosen engineering as his profession (although in mining rather than petroleum).

Early in his collegiate career, Jim established a straightforward professional goal: he wanted to be the head of a good oil company. And he sketched out a path to get him there. I had a plan when I was graduating from college. I wanted to work for a major [a large oil company] because they had the best training. Then I wanted to move to a smaller company and climb through the ranks and end up running it. That was my Plan A. Jim qualified himself academically for his goal by obtaining bachelor’s and master’s degrees in petroleum engineering from the University of Oklahoma, where he also enrolled in the Air Force ROTC program. After graduating in May 1958, he served two years as a second lieutenant in the Air Force, working as a research officer at Wright-Patterson AFB in Dayton in its Propulsion Laboratory, Fluids and Lubricants Division.

Jim then entered the petroleum industry and began walking out his plan. He rejoined Humble Oil and Refining Company, where he had interned while writing his master’s thesis prior to enlistment. The cream of the crop of all the companies that were interviewing at OU was Humble Oil. Everybody wanted to go to work for Humble, not only because they were a great company but because they also had a great training program. Humble initially assigned Jim to its Monahans District in West Texas, then, a few months later, sent him to Houston for a tour in the production department computing group, where he also enrolled in the company’s reservoir engineering school. A year later, Humble transferred him to the Midland office, where he worked in engineering computing.

Jim finally got his hands oily in the Andrews District, in June 1963, where he was deployed as a reservoir engineer. The work in that niche suited him well. But not the bureaucracy. I always liked to dig with a sharp shovel, as they say. I like to get things done. But getting things done, or at least getting things approved by management, was difficult. In one assignment, Jim had taken a bottom hole pressure measurement from a producing well. The project was simple enough, but he was made to rewrite his report several times because his writing style did not conform to the corporate template. He also devised a novel method of assessing an oil sample’s in situ characteristics (that is, its chemical constitution while still in the reservoir, before being brought to the surface), but the powers that be were not open to novel, and they dismissed Jim’s process. In such events, when his creativity and initiative were stymied by stodgy management, Jim generally responded in ways that did not help his cause—as he said, I was not very good at company politics.

A friend from high school who had been best man in his wedding, Daroyl Curry, suggested to Jim that Skelly Oil in Tulsa allowed more freedom of motion. Daroyl made some introductions, and Jim was soon off to Tulsa.

He didn’t go alone. Five years earlier, Jim had married Paula Hargrove, nine years his junior. Paula was born in Brownfield, Texas and raised in Carlsbad, New Mexico. She attended Midland Business College with two of her girlfriends from Carlsbad and, upon graduation, took a job with Phillips Petroleum as a geological technician (a geotech serves as a geologist’s assistant). A true quick study, Paula loved the work and acquired a good knowledge of the geological side of the oil industry. She was grateful for the mentoring given her by the geologists she worked with, although she did not follow all of their advice: One thing they taught me is that engineers are bad news, and they almost disinherited me when I married Jim. So goes the traditional cross-discipline rivalry.

Jim stayed at Skelly for almost five years, until Daroyl and his elder brother, Max, invited Jim to join them in Midland at their small-shop venture, Solar Oil Company. The organization had only ten employees, and Jim thought Solar might be the company he would end up running. He accepted their offer and joined them in early 1969 as chief engineer. He was thirty-five years old and one step from the completion of his plan.

Within six months of his arrival, the company folded. The company’s financial backers went broke and took Solar down with them. Jim’s Plan A was stalled, at least temporarily. He could find work at another small company and continue on, or regress to another major to wait for the next opportunity. Both options seemed doable, but neither was very exciting.

There was a third option: Back in college I also had a Plan B: if I didn’t like working for a company, I would start my own. Here was Jim’s crossroads, and here was his decision to make: stay the Plan A course and throw in with another company, or switch to Plan B and go it on his own? Boring security or exciting risk?

By this time, there were family matters to be considered. Jim and Paula had their first two children in Tulsa, so when Solar closed its doors in Midland, the Henrys had little mouths to feed. Their situation was serious, but Paula, ever optimistic and firm in her faith, was not overly concerned: As traumatic as it sounds, I wasn’t that upset. Jim is brilliant—I knew he could get another job and so could I. We could live comfortably and that was all we cared about.

So, faced with Plan A versus Plan B, Jim completed his standard pro-and-con evaluation, then presented the lot to Paula: he could go to work for another company, small or large, or he could go out on his own. He was leaning toward the latter.

Paula’s response, true to her character, was immediate: Let’s do it!

__________________

Jim would be on his own, but not alone. Bob Landenberger, ten years Jim’s senior, was chief geologist at Solar when the company folded. Like Jim, Bob had served in the Air Force and obtained a degree from OU, but Bob’s degree was in geology. After bouncing between menial jobs at small oilfield vendors for a time, Bob hired on with Cities Service as a geologist and stayed with them for several years. He later left Cities and joined Yates Petroleum in Artesia, New Mexico for a few years before striking out on his own as a consultant. For reasons beyond his control, that venture had not gone well, but along the way he had done some work with the Curry brothers, who invited him to join Solar in mid-1968. When Jim showed up at Solar the next year, the two became good friends, admiring each other’s technical abilities and work ethic.

But while Jim and Bob had a lot of background and character in common, their personalities were markedly different. As their longtime friend, Gene Sledge, put it, "What you’re gonna have to learn about Jim is, there’s not many funny stories. Jim was always serious, always—that’s the engineer in him. Bob was a jokester. Those two guys were so opposite. Gene was good-naturedly exaggerating Jim’s serious side, but he was leaning in the right direction. Bob’s wife, Lynn, was a little understated in her assessment of the pair but said basically the same thing: Bob and Jim were such good friends although they were so different—they complemented each other."

As a consequent outworking of their personalities, Jim and Bob looked at finances very differently. Jim was a planner, big on forecasts, budgets and balance sheets. Bob was happy-go-lucky, big on que sera, sera. During his consultant days, when he was barely getting by, Bob managed to land a gig that paid him $500. When he finished the job, he took his family on a $500 vacation and returned home broke again, although the family had collected some happy memories.

As Solar was winding down in late 1969, Lynn and Bob had six children, the oldest about to enter college and the youngest in kindergarten. We had no money at all, Lynn said. So when Bob came home one day and said he had been talking with Jim, and told her, We think we can do this on our own, her response to her husband was as affirmative as Paula’s but, understandably, lacked the enthusiasm: Well, Bob, if that’s what you want to do, OK. We can’t get any poorer than we are right now.

Lynn and Paula’s relationship mirrored Bob and Jim’s: Paula was always so upbeat, Lynn said, and I was just the opposite—I was the worrywart. Jim always gave me comfort because he always knew where every penny went. Paula’s recollections expressed her reciprocal appreciation: Bob Landenberger was a wonderful person and I knew that he and Jim would do well together. The pair presented the archetypal geologist-engineer antithesis: Bob was the yang to Jim’s yin. And because of this, they stood an excellent chance of succeeding.

__________________

So it was decided. Jim, ever the planner, drew up a three-stage business strategy. They would begin as consultants. Consultants in the oil industry function much like those in other industries. They often do projects that are either too small or too large for a company to conduct with its own manpower, and they supply expertise that a company may lack. In the Permian Basin oil community, there are commonly small partnerships that have some, but not all, of the skills required for developing oil and gas prospects. For example, a lease negotiator might partner with a finance expert. The two together can handle the business, but not the technical aspects of geology and engineering. Such an entity might hire a Jim-and-Bob-type team to evaluate the potential of a lease, recommend drill sites and oversee the drilling of wells. Jim’s plan was to provide all of these services in the first phase of their business.

Then, when they had established a proper reputation as skilled consultants, the partners would step up to for-fee operators. In petro parlance, an operator—specifically an owner-operator—is an entity that locates, drills for and produces oil and gas. (By the way, this segment of the petroleum industry is called the upstream.) Operators generally maintain a staff of people trained in all the skills requisite for the niche: geologists, engineers, field personnel, lease negotiators, legal eagles and finance folks. A large operator’s staff may include several representatives of each discipline, while a small shop might have only one of each, or even fewer, with some of the employees wearing multiple hats. Most operators, whether large or small, outsource the actual drilling of wells to a drilling rig company, as a homeowner pays someone who owns a lawnmower to cut the grass. Operators also contract the completion work on their drilled wells. Completion is the process of stimulating and equipping a drilled well to enable it to produce from the downhole reservoir (this work includes hydraulic fracturing, which I will later describe in detail). But once the drilling and frac crews are done and dismissed, the operator maintains stewardship of the wells as they produce oil and gas. An operator’s enterprise generally ends where the petroleum leaves the lease and is sold to the next link in the chain, as most operators (excepting mainly the largest, such as Exxon, Chevron and Shell) do not engage in transportation (trucking and pipelines), refining or marketing. (This segment is referred to as the downstream.)

All of that said, in Jim’s second step of for-fee operating, they would conduct the leasing, planning, drilling and completion of the wells for the lease holder, who would assume responsibility for the wells once they have been brought online (that is, once they are actively producing oil and gas). So, a for-fee operator is akin to the building contractor who superintends the remodeling of your home, for a fee, and turns it over to you when the job is finished (not that a home remodeling job is ever finished). To augment their income from fees during this phase, Jim figured they would retain overriding royalty interests, or overrides, on the leases they secured for clients. An override in oil and gas is like a royalty in other enterprises: a share of the revenue from sales, without an accompanying share in the investment and expenses necessary to obtain it. Overrides of the type that the pair could keep are pretty small, and it takes a lot of them to generate significant cash flow. But every little bit would help.

Finally, with the money made from fees and overrides, Jim and Bob would transition to full-fledged, fully staffed owner-operators, as described above. They would hire a full staff to do their own prospecting and leasing, and they would keep a working interest in all the wells they drilled. A working interest, unlike a royalty interest, is burdened by the investment and expenses,