After The Gusher: Mark Papa transformed an Enron cast-off into one of America’s great oil companies. What he says about the fracking boom will surprise you.

When it comes to energy’s fracking revolution, few men have contributed more–or played the trend as profitably–as Mark Papa, the 66-year-old chairman of EOG Resources EOG -3.24%. So when he lays a chart out on a conference table in his skyscraper aerie in Houston, it’s surprising to hear him say that the Great American Oil Boom, which he helped create, is “not going to be as massive as people think.”

“The chances of the U.S. being independent in oil are very slim,” he says.

The chart shows how different fields will contribute to future supplies. And it is dominated by two areas: the Bakken shale region of North Dakota and Eagle Ford in South Texas. Those two fields–helped by the revolutionary technologies of hydraulic fracturing and horizontal drilling–have furnished the bulk of the 43% jump in U.S. oil supplies over the last five years. Together they contain an estimated 25 billion barrels of recoverable oil, and each may soon be pumping out 1 million barrels per day.

The rest of America’s big finds? Even the third-biggest new oil play, in the Permian Basin of Texas and New Mexico, won’t measure up, says Papa. “We’ve studied this from the rocks’ point of view,” he says, tapping the chart. Despite dozens of shale oil discoveries, he says, “there’s a whole lot of plays that will have zero significance.”

Why listen to Papa? Because under his command EOG shares returned 650% in the past decade, more than any other sizable U.S. oil company. EOG’s market cap is closing in on $40 billion–more than Apache APA -1.76% Corp. or Marathon Oil MRO -2.81%, and nearly triple the value of Chesapeake Energy CHK -0.4%. In five years EOG has increased its oil output at a compound annual rate of 37% to 190,000 barrels a day. “Mark has been very adept at seeing around corners in positioning the company,” says Pearce Hammond, an analyst at Simmons & Co.

During the land-grab phase of the shale boom EOG Resources–once a division of Enron–was one of the first companies into the Bakken shale, and it discovered the Eagle Ford (it has massive holdings in the sweet spots of both fields and many others). Unlike rival Chesapeake Energy, EOG didn’t go deep into debt to gobble up land. In fact, Papa had the discipline to sell off marginal acreage to greater fools willing to pay top dollar.

Now that the land grab is over, companies are stuck with more turf than they can drill, and prices have collapsed. Hess HES -1.24% Corp. just dumped subpar acreage for an $800 million loss. “In the game of musical chairs, all of a sudden the music stopped,” says Carl Tricoli, president of private equity firm Denham Capital. And EOG is sitting pretty.

Papa started out as a roustabout on a drilling rig in New Mexico. He worked in Corpus Christi, New Orleans and Dubai before landing with a small driller that Enron acquired in 1983. Papa became president and soon butted heads with CEO Jeff Skilling over Enron’s strategy. He agitated for what he recalls as an “acrimonious divorce,” which he got in 1999.

He steered EOG close on the heels of bil lionaire George Mitchell, whose Mitchell Energy made the breakthrough of using hydraulic fracturing–blasting millions of gallons of water mixed with sand down the well bore–to break up the shale and release bountiful supplies of natural gas. Papa and EOG combined fracking with directional drilling, steering the drill bit sideways through the shale layer. A revolution was born.

Discoveries in Pennsylvania, Texas and Louisiana made clear there were oodles of shale gas. But what about oil? Experts doubted it. Gas molecules are small and can squeeze through even impermeable rock. Oil is bigger. “Everyone had thought you couldn’t get oil molecules through the shale,” says Papa. But in late 2006 EOG, drilling in the Bakken, proved them wrong. EOG kept the discovery secret. At a strategy meeting in October 2007 Papa declared that the industry had found so much shale gas that “we had probably ruined the market for 20 years.” So, he said, EOG would shift entirely toward oil.

As natural gas prices climbed to a record $14 per thousand cubic feet in 2008, he stuck to his plan. “We still knew doom was going to hit,” recalls Papa. It did. Prices plunged in 2009, bottoming out below $2 in early 2012. Meanwhile, EOG was grabbing oil-rich acreage under the radar, first in North Dakota, then in Texas.

Of the roughly 26 billion barrels of original oil in place under EOG’s land in the Eagle Ford play, the company figures it can recover “only” 2.2 billion barrels. That recovery rate of 8% is about standard across the shale plays but pales beside a rate of 30% or more in conventional fields. Adding just a percentage point would mean 200 million more barrels EOG can recover–a goal it aims to hit over the next 15 years by drilling into 10,000 new spots.

Papa will watch from the sidelines. In July he passed the CEO reins to President Bill Thomas, a trusted lieutenant for 30 years. It’s an auspicious time to bow out. Now that the shale land grab is done, analyst Bob Brackett of Bernstein Research sees the likelihood that cash-rich and growth-hungry super?majors like Chevron will soon look to acquire winners like EOG. Not that Papa is looking to cash out the company or his $180 million in shares. “We’ve never postured ourselves for a sale,” he says.

But it just might turn out that way. “He’s done what he said he was going to do,” says Will Danoff, portfolio manager of Fidelity’s $64 billion Contrafund. “He’s built an organization that will continue to grow profitably.” No matter what happens to the boom

 


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