Hamm’s growing wealth and fame made him uncompromisingly certain of his own vision of the national destiny. As Romney’s handpicked energy guru, he refused to abide any nay-saying whatsoever about the prospects for American oil and gas. The sharecropper’s son need only point to his own company’s numbers in North Dakota. “We’ve doubled our oil output in the last five years,” he said in 2012. “We’ll double it again in the next five.” He estimated a future take of 24 billion barrels of oil in the Bakken field alone, “maybe more.” And what about Texas and Pennsylvania and Colorado? “America’s endowed with 163 billion barrels of recoverable oil,” Hamm said. “Enough to replace Persian Gulf imports for the next fifty years.” The mother lode of all that ancient wealth was finally within America’s grasp, see—so long as the anti-fracking paranoiacs and climate change alarmists and green energy missionaries and overreaching government regulators didn’t louse things up. The United States “could be completely energy independent by the end of the decade,” Hamm said. “We can be the Saudi Arabia of oil and natural gas in the 21st century.” And just in the nick of time. As Christopher Helman had put it in his red-white-and-crude Forbes paean to Hamm, “Sure, there remain legitimate concerns about the environmental impact of fracking. But you wouldn’t want to see what the American economy would look like without it.”
Hamm didn’t understand how anybody could argue against him—why anybody would want to argue against him. The collateral effects of his success had been truly and unexpectedly salutary, in part because a lot of wildcatters had followed his treasure map. North Dakota had jumped California and Alaska and trailed only Texas as the biggest oil-producing state in the country—increasing its output from just 29 million barrels of oil in 2003 to 395 million in 2014. The engines of the shale boom, hydraulic fracturing and horizontal drilling, had nearly doubled America’s overall daily oil production in just five years. That meant wealth creation. That meant jobs. Harold Hamm figured the Great Shale Boom (along with those ancient and helpful tax breaks) was good for about sixty thousand “direct, indirect and induced jobs.” That last kind must have been like “inducing” somebody to grill enough hamburgers at the new McDonald’s to feed the itinerant petroleum engineers and drilling crews roaming the cold plains of North Dakota. Or to repair the state highways and county roads torn up by the heavy drilling machinery necessary to grow oil production in the state by a factor of ten. Or to dispose of the environmentally hazardous “filter socks”—two feet long, eight inches in diameter—stuffed with TENORM (technically enhanced naturally occurring radioactive material) that frackers had illegally strewn around roadside gullies and Indian reservations and empty buildings in North Dakota. These haphazard disposal episodes included one in which more than two hundred bulging, fifty-five-gallon trash bags full of toxic tube socks were tossed into an abandoned auto shop in the town of Noonan. That’s nearly two giant plastic bags of steaming, radioactive socks per resident. “They were piled waist deep or higher,” according to the local chief sheriff’s deputy, who probably ended up with some oil-industry-“induced” (but taxpayer-funded) overtime pay.
Whatever. Industrial capitalism is not for the faint of heart. Gotta break a few eggs to make an omelet, right? Worried that burning hundreds of billions of newfound barrels of oil over the next fifty years might not be altogether sanguine for the general health of the planet? Harold Hamm wasn’t. “I don’t believe the scientific evidence of global warming is settled,” he explained to Senator John Kerry. “There are multiple conflicting studies on this subject.” There are not, actually. But as far as Hamm was concerned, these worrywart politicians and activists and scientists were looking at it all wrong. What really mattered was this: the oil industry had single-handedly hauled the country out of the long torpor of recession that followed the 2008 financial crash. Like Forbes said, you wouldn’t want to see what the American economy would look like without it.
What bothered Hamm, more than anything, was that oil and gas hadn’t got its proper due; the story of the boom hadn’t got the traction it should. For all his good press, his magazine covers, his nice warm seat at the friendly stock-hyping business TV shows, all the private invitations from Republican Party leaders—in 2014, what Republican pol wasn’t preparing to run for president?—despite all that, Harold Hamm felt mighty underappreciated. On behalf of himself. On behalf of his industry. On behalf of all the misunderstood true believers in the beauty and power of the free—and he meant free—market. “There shouldn’t be any limits,” said Hamm.
He could not see why the Obama administration was handing out big fat cheap loans and tax incentives to wind and solar and the other green energy sectors. “Green whatever is not creating a lot of jobs,” Hamm asserted. And he could not see why, year after year, Team Obama kept threatening to construct federal environmental regulations for fracking (they hadn’t yet, thank God) or to water down the array of federal tax breaks the oil and gas industry had enjoyed for more than a century. Hamm made a rare trip to Capitol Hill to testify before the U.S. Senate committee that was considering muting the tax givebacks for oil and gas. Better think hard on this, Hamm told them, because losing those tax advantages might induce him to cut back his own production by as much as a third. “The unintended consequences, if we are not careful, of changing these rules could be devastating,” he said in his testimony. “We could stop this energy renaissance.” Nice little economy you got going on here; shame if something happened to it. There goes energy independence. Poof. There goes your precious economic recovery. Poof. There goes free enterprise in the last truly free country on earth. Poof. “When Hamm looks at Washington, at regulation and at the antifracktivists,” Helman wrote in that Forbes profile, “he sees them as simply out of step with his idea of America.”
Harold Hamm was fighting battles on multiple fronts in the spring of 2014. There was the biomass-solar-wind-green-whatever-loving, tax-and-spend Obama administration to contend with. And his wife’s divorce attorneys clawing at his bank accounts. And damn it all, if the twenty-five thousand people protesting outside the state capitol in Oklahoma were any indication, his own home state was after a pound of his flesh too. Oklahoma was staring down the barrel of a budget crisis, and the crisis was growing. Annual tax revenues were shrinking so precipitously that the state was close to declaring a “revenue failure.” Rainy-day funds were drying up, with little hope to raise money for basics like schools and cops and roads. But Oklahomans were still, as a rule, crouched in a rigid antigovernment posture; the voters there had made it clear they didn’t trust lawmakers to spend their money wisely. And they had gone out of their way—at the ballot box—to amend the Oklahoma Constitution to make sure their elected officials couldn’t reach too deeply into anyone’s pockets. The constitutional amendment passed more than twenty years earlier by referendum had created a nearly insurmountable hurdle for the state to raise any new money through taxation; any proposed tax raise had to get 75 percent approval in both houses of the Oklahoma state legislature. And that wasn’t going to happen. So more budget cuts were coming, wrapped in the same inane bumper sticker arguments. “We don’t have a revenue problem,” Republican lawmakers insisted. “We have a spending problem.”
Problem was, in 2014, there wasn’t much more spending to cut. Oklahoma schools were becoming a point of shame. Spending per student in public schools was down by almost 25 percent in less than ten years; the state ranked forty-ninth in the nation in that category. Oklahoma’s public school teachers were among the worst paid in the country, edging out only South Dakota, Mississippi, and sometimes Idaho.
News reports of Oklahoma teachers forced to work second jobs running cash registers at Walmart or waiting tables at Chinese restaurants were bad enough. But consider this long unfixed problem: In May 2013, in the Oklahoma City suburb of Moore, seven schoolkids were killed when 210-mile-an-hour winds from an EF5 tornado blew apart their elementary school. “A child is pulled from the rubble
of the Plaza Towers Elementary” is a caption from photos in the morning newspaper that you can’t unsee. There had been no room in the school strong enough to shelter the children from the fatal fury of that storm. In Tornado Alley. And it’s not as if there hadn’t been plenty of early warning. Really early warning. Oklahoma averaged fifty-seven tornadoes a year, and a deadly F5 had taken pretty much the same path into Moore back in 1999. F4 tornadoes had ripped through Moore again in 2003 and 2010. A study that followed the child-killing 2013 disaster found that only 15 percent of Oklahoma’s public schools had suitable shelters statewide, which left half a million teachers, staff, and schoolchildren vulnerable to the next inevitable, recurring terrifying weather event. But remedying even that kind of a simple problem was considered a nonstarter, budget-wise. Pay up to put safe rooms in those schools? How about, instead, just praying storms don’t come back. That’s free.
Ultimately, over time, that kind of decision making tends toward a reckoning. Or at least if things are working right, it ought to. In Oklahoma, this looked as if it might be happening on the last Monday in March 2014, when twenty-five thousand Oklahomans showed up at the capitol with homemade T-shirts and poster boards scrawled with slogans (“We Will Not Be Silent!”). They were there to protest the lack of funding for public schools. And the educators who had taken a personal day to attend the rally weren’t there just to scream about bigger paychecks for themselves. “Sure, I would love another couple of bucks in my pocket,” a teacher from Midwest City told a reporter. “But my students would really like technology in the classroom, adequate supplies, textbooks, all of that.”
This determined rally suggested a very serious and growing desire among Oklahomans to raise the money from those who could afford it. Where to find the who-could-afford-it crowd was pretty clear. Oklahoma-based oil and gas companies had been enjoying a fabulous windfall. The price of crude oil had been hovering near or above $100 a barrel for more than three years. Oklahoma energy companies were banking record profits. A nice portion of those profits owed to the huge jump in drilling inside Oklahoma’s state borders. Crude oil production was up by almost 25 percent in the last year alone. The oil and gas industry had accounted for about 8 percent of the gross state product in pre-boom 2003; it accounted for 18.4 percent in 2014.
Funny thing was, the state government of Oklahoma had managed to starve itself of the benefits of this incredible rise in economic activity inside its borders. The state’s signature industry was booming, but the state’s treasury was bare. From 2008 to 2013, tax revenues from oil and gas production had actually dropped from $1.14 billion to $529 million. More stark was this fact: at the height of the last big boom in 1982, oil and gas taxes accounted for 27.4 percent of all state tax revenues; at the height of the new boom, oil and gas taxes accounted for just 3.9 percent. And it’s not like Oklahoma had built up a lot of other hugely remunerative new industries in the meantime. It was still oil and gas all the way; it’s just that oil and gas (and the pets they fed and watered in the state legislature) decided they were done paying anything, anymore, that would support the state in which they operated, or the government that supposedly regulated them as an industry. Other shale boom states, like North Dakota and Wyoming, had seen their treasuries grow so rapidly they were able to sock away surpluses to hedge against the next (certain) downturn in oil and gas prices. But not Oklahoma.
Part of the way they pulled it off in the Sooner State—much to the lasting detriment of Oklahoma’s schools, roads, and every other thing even a small, conservative government is supposed to provide for—was something that began as a very sensible and forward-looking temporary tax incentive. It then grew into a suckhole of taxpayer money big enough to see from space.
Horizontal drilling was a promising new technology back in 1994, but it was unproven and expensive. To mitigate the downside risk and encourage more drillers to give it a go, the legislature in Oklahoma offered a big tax giveback for anybody willing to invest in horizontal drilling. All drillers would continue to pay the normal tax of 7 percent on the market price of all the crude oil and natural gas they took out of the ground. But if they got that oil or gas from a newly drilled horizontal well, they got a rebate of six-sevenths of the tax they had just paid. That made the tax rate on a new horizontal well just 1 percent—but only for the first two years the well produced, or until its profits paid back the up-front expenses. Whichever came first. The cost to the state of this giveback wasn’t much to speak of at first—maybe a few million dollars a year—but it didn’t prove particularly effective as an incentive, either. By 2002, eight years into the experiment, horizontal wells were still only about 5 percent of the total wells drilled in Oklahoma. That year, by unanimous vote, the legislature extended the 1 percent tax gimmick from two years to four years, or until payback. Still a sensible and inexpensive way to incentivize horizontal drilling.
Then they decided that the “until payback” part was maybe still a little miserly toward the oil and gas companies. In 2010, the legislature decreed that horizontal drillers would get their 1 percent tax rate for four years no matter what—forget the part where that sweet deal ended when the well’s profits had finally earned back the cost of drilling. They didn’t even bother calling it a “rebate” anymore, and told drillers they no longer had to write the up-front checks. Legislators reminded their constituents that this further giveaway to the industry was still subject to a “sunset” review, which would allow them to end the big tax break a few years down the road. And by 2014, many Oklahomans were glad they had given themselves that out, because by then it was clear that the combination of hydraulic fracturing and horizontal drilling had taken off, and there was no longer need to sweet-talk anyone into drilling horizontally. The expense of drilling a horizontal well had come way down, and drillers found that unlike regular vertical wells a horizontal well rarely came up dry. At the high point of the shale boom, almost nine in every ten new wells drilled in Oklahoma were horizontal. Thanks to what started as that little temporary tax incentive back in 1994, the boom in horizontal drilling became one of the most expensive things the government of Oklahoma paid for. In 2014 alone, the state was on its way to shoveling nearly $300 million to the oil and gas companies drilling in the state. That’s $300 million, to companies that really didn’t need it. Whereas horizontal drillers paid 11.7 percent in production taxes in Wyoming, 11.5 percent in North Dakota, and 6.7 percent in Texas, horizontal drillers in Oklahoma paid an effective total rate of somewhere around just 3 percent. Check the school budgets to see how that works out in the end.
The brightest light at the end of the tunnel for Oklahoma’s worsening fiscal crisis was that the great horizontal drilling tax dodge was finally going to sunset, as most of the state’s citizens thought it should. An April 2014 poll found that only 28 percent of Oklahoma voters were in favor of extending the horizontal drilling tax break past 2015. Sixty-four percent favored simply letting the tax break expire “in order to provide more funding for education, public safety, highways and other state needs.” For Harold Hamm and the other bosses in the oil and gas industry, this was a problem. They said the poll’s results were a “myth”; this was a Democratic poll, after all, conducted by an outfit from up in New York City. The industry girded for a fight. At Hamm’s Continental Resources, the vice president for public relations explained the company’s guiding ethic at the Governor’s Energy Conference in 2014. “A gentleman was in our office late last year, and he was just talking about courage,” VP Kristin Thomas said. “He said, ‘Just like cowardice is contagious, so is courage.’ I wrote that down that day. And that is sort of our theme for the year….We try to apply courage in everything that we do every day. Be courageous and proud of the message we have to tell.”
Continental and its friends came out swinging, courageously, to save their epic and ruinous tax break. The industry commissioned its own poll, a Sooner Survey, run by homegrown Republicans, and found that 70 percen
t of Oklahomans were actually opposed to any such “tax increase.” Yeah, when you asked it that way, you might get that answer. What was due to happen wasn’t actually a “tax increase”; after all, a tax increase would require an affirmative vote from three-quarters of both the house and the senate, which was still absolutely, positively never gonna happen. What was actually on its way was the preplanned expiration of a huge, outdated, long-running program, which began with the state actually sending big fat checks to the oil and gas companies every year, to the tune of hundreds of millions of dollars. And those companies would call it a tax hike, or Martha in the morning, or Scooby Dooby Doo—anything—if they felt that would help them hold on to that deal.
Lobbyists patrolled the capitol corridors while the legislature was in session that spring, courageously telling the story of oil and gas. Ending the tax break “will definitely mean fewer wells drilled in the state,” was how The Wall Street Journal quoted Continental’s vice president of government and regulatory affairs, Blu Hulsey. Devon Energy’s PR team concurred: “While some may think that raising taxes on the oil and gas industry could provide additional funding for education, drilling less wells in the state will end up decreasing total revenue traditionally designated for education in the long-run.” To make that point in person, Devon shuttled a score of Oklahoma state legislators over to its mammoth new office tower, which looked down on the dowdy state capitol in the distance.
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