The drillers even staged a counterdemonstration on the steps of the capitol, the Rally for the Rigs, with its own signs: “Don’t Be a Fracking Idiot!” A thousand people rallied for oil and gas, including hundreds of Continental Resources employees Hamm had bused over from his downtown Oklahoma City office tower. (Frugal as always, he had taken over Devon Energy’s old headquarters when he moved Continental’s home office from Enid a few years earlier. Already set up for an oil company. Haven’t had to change a thing.)
Hamm’s former government affairs pro, Mike “Bubba” Cantrell, came out of retirement to headline the rally. Cantrell was as close a thing as there is to a quintessential independent Oklahoma oilman. He was the third generation from his family in oil and gas, and his own son had followed suit. Cantrell loved the oil business, he loved Oklahoma, and he loved politics. He was also no ordinary Bubba but a kind of poet-philosopher of the southern plains. Cantrell was born and raised in Ada, and when he finished his undergrad degree at East Central State College at the top of his class, he thought he was on his way to a PhD and a career in research psychology. But Bubba and his brother decided to put to use all they’d learned working in their dad’s oil business while they were growing up. What had felt like a forced march when they were kids turned out to be pretty damn useful. They borrowed money to buy out another driller and started punching holes in the ground. As soon as his first well hit, Mike was captured. He is not a traditionally religious man, but he speaks with godly reverence of his original successful well—of climbing up on the tanks and watching, for the first time, as his oil flowed in. He can still remember how it smelled.
Cantrell also made sure to remember that success in the oil business did not put him above his fellow Oklahomans, but wove him that much tighter into the warp and weft of their lives. At the moments in his forty-year career when the industry has been in bad odor in the state, Cantrell tried to do something about it—like starting an association of independent oil producers that has funded the cleanup of more than fifteen thousand abandoned well sites. “We’re not a bunch of altruists out here trying to be Greek gods or something,” Cantrell says. “We’re trying to make money and we’re trying to do it in a way that our kids and our grandkids and their kids can be okay.
“We’re the small producers. It’s our business. We’re not representing some big company. [We’re] not some New York money or some private equity money or some Korean stockholders’ money. It’s our money. So we have a longer-term view. The private equity funding model is the five-year model. You make your money. And you’re out. But we live in these communities. Seminole. Ada. Ardmore. Duncan. Almost every community in the state we’ve got members. We send our kids to public school. We don’t send our kids to private school. We don’t fly in on corporate jets from Houston and influence public policy. We call our neighbor down the street and say, ‘Hey, Joe, we need you to vote for this.’
“If you’re gonna live here—if you’re embedded in the culture—it’s only smart to play nice with everybody. Our mantra is we’ll never ask for anything from our state that’s not good for our state. We might have a difference of opinion on what that means, but that is sure the standard that we try to hold ourselves to.”
And as a dyed-in-the-oilcloth independent, Cantrell stood in particular awe of Harold Hamm. “He’s 68 percent of Continental,” Cantrell says. “He isn’t using everybody else’s money. He’s using his money. You can see why he’s a hero.” When Hamm asked for Cantrell’s help to fight the expiration of the favorable horizontal drilling tax rate, Cantrell answered the call. He knew there weren’t actually that many Oklahoma drillers benefiting from the big horizontal rebates; he could cite statistics, chapter and verse, about the enormous percentage of small-business, independent, wildcatter, regular old vertical drillers just like him who were paying seven times the tax rate as the big machers like Continental and Chesapeake and Devon. He didn’t appreciate being “lumped together as one big monolith called Big Oil.” But he was a true believer in the American oil and gas industry; mindful of the benefits it had bestowed upon his state and the world at large. And he was, withal, a team player.
Cantrell had already made his rounds and used the goodwill he’d built up over more than forty years of politicking in the state. He made a call on Governor Mary Fallin and on the senate president pro tem and on the chairmen of the energy committees in both the senate and the house. What he proposed to them seemed like a reasonable solution: say a 5 percent gross production tax rate across the board for both horizontal and vertical drillers. Everybody’s happy, because it’s still less than half the tax on new wells in hot shale-play states like North Dakota and Wyoming. Doesn’t encourage the sort of production that leads to a glut in reserves and a precipitous fall in prices—look at Aubrey McClendon and the natural gas problem. And it would actually add revenue to the state. Cantrell’s wife had been a teacher for almost forty years. The dwindling school budgets were serious conversation at his own dinner table.
Cantrell was a little uncomfortable with the tone of some of the other speakers at the Rally for the Rigs; they brought a sharp edge of anger to the podium. There were threats of walking away from new drilling—walking away from the state—if the legislature let the tax break go away. There were plenty of other shale plays to go after outside Oklahoma, right? And here’s that implicit gangster-style threat again: nice little industry you got going on here; shame if something happened to it.
When it was Cantrell’s turn to speak, he turned down the heat. There was no state in the Union that had done more to promote the oil and gas industry, as far as Cantrell was concerned. “Oklahoma’s got a long history of doing what is best for the oil and gas industry because they realize that’s what’s best for Oklahoma,” he said. “We’re not here to protest anything. We’re not mad about anything. We’re just here to remind our legislative friends, as they take up policies, of how important our industry is.
“We want to make sure they don’t create any unintended harm with what they do….Our job is merely to tell them our story.”
* * *
—
The story of oil and gas in Oklahoma is pretty much the story of modern Oklahoma. As to the chicken and the egg question, there is little doubt—energy came first. Oil was discovered in Oklahoma long before it was a state and still trumps government and governance. This much is clear when you walk the capitol grounds in Oklahoma City, which sit smack in the middle of a long-productive oil field. The most renowned producer on the capitol grounds, Petunia No. 1, a slant-drilled (quasi-horizontal) well that angled from a neatly tended flower bed (hence the name) to right under the capitol itself, was completed in 1941. The dome of the capitol, by way of comparison, was not completed until sixty years later. Petunia No. 1 had been capped by then, but not before producing 1.5 million barrels of oil. And it wasn’t just Petunia No. 1: there was a time when two dozen wells simultaneously pumped oil and gas out of the state-owned grounds; gushers were said to have shot oil onto the walls of the white capitol.
Though the capitol grounds have now gone pretty much dry, you can still visit Petunia No. 1, and defunct derricks and pump jacks still dot the surrounding grasslands as outdoor museum pieces. The past is the present in Oklahoma City. And the future, too. Raise your eyes up to the horizon, and you can see above all else the sleek, new, 845-foot-high, Gotham-like tower that the oil and gas behemoth Devon Energy built on the recent shale boom.
As much as the oil and gas industry has defined the economy of the state, it has also helped to define the personality of the state and its citizens. There is a gamblers’ aspect to life in Oklahoma, both in its promise of unexpected windfall and in its inherent fatalism. Thousands of families in the state receive “mailbox money” for leasing the mineral rights on their land. These royalty checks from oil and gas drillers arrive on a regular and ongoing basis, sometimes for decades. It’s always somebody else, of course, wh
o hits the big money, the millions-that-change-lives money. (That’s part of the fatalism vibe; it’s always somebody else who hits big.) Most of the actual luck is on the scratch-off lotto card scale—the sort of meager bonus that adds a welcome little percentage to the monthly paycheck or Social Security payment.
There is even a gamblers’ approach to Oklahoma-style religion. The state’s wealthiest and most famous man of the cloth was Ada-born Oral Roberts, who grew up in dust bowl privation and just escaped being felled by tuberculosis when he was seventeen years old. An itinerant preacher with no real prospects, Roberts earned a reputation as a miracle maker by laying on hands to heal the halt and the lame at tent revivals. He also promised to deliver true believers from poverty (if that’s what they desired), preaching what he called “seed faith” in the 1940s, long before today’s ubiquitous “prosperity gospel” took hold. Roberts called on his followers to do what he had done—ante up some cash to God (through the Oral Roberts Ministry, of course) and shorten the odds on receiving a fair share of earthly treasure. His pitch was a lot like what you might hear from the oil and gas salesmen. Make that investment, whatever you could afford, and Pastor Roberts will do the gospel drilling for you. And everybody knew somebody, or knew somebody who knew somebody, who had hit—in the spirit, or the flesh, or the wallet. Which means that message has had staying power in Oklahoma. Almost seventy years later, his son and inheritor is still singing that song. “God has a plan for your needs to be met,” the Reverend Richard Roberts exhorts. “You can talk to God about your specific need, as you give.” Like any lotto, ya gotta be in it to win it.
The whole casino feel of living in an oil- and gas-dominated state also maps neatly onto the only other vital industry in Oklahoma. “Farming is capital intensive,” a wheat grower from the Oklahoma Panhandle explains. “A new John Deere tractor might be a half million dollars. By the time you get all the add-ons and equipment you need you could spend a million. No local bank is big enough, or stupid enough, to take the risk, because after you’ve made the investment, everything depends on the weather. The weather is the thing. And the weather is beyond your control. I’ve been doing it for forty years, and I’ll tell you what farming in Oklahoma is. It’s a gamble. Farming in Oklahoma is like going to Vegas every year.”
* * *
—
That beyond-anybody’s-control attitude—you try stoppin’ a tornado—is part of what made the low rumble of a real citizen pushback against the oil industry in early 2014 such a big deal. Generally speaking, Oklahomans hadn’t got much worked up when the state budget would bust for the nth year in a row. You figure you’re playing against the house, as always. The fix is in. The lobbyists hold sway. Most years, when the good-governance pros and academics and lefty do-gooders make all the reasonable, data-rich arguments for why Oklahoma needed to shore up its tax revenue by making the oil and gas drillers chip in their fair share, voters shrug and let it pass. But 2014 was different, judging by those twenty-five thousand citizens (who were not bused in by their bosses) who showed up at the capitol to shout for school funding in March 2014, with T-shirts and slogans and homemade poster board signs. You could also tell 2014 was different by the fact that near the end of the legislative session, after handing plenty of money out to plenty of lawmakers, the oil and gas industry had not yet won the day.
But that just meant Harold Hamm had to lean in a bit more than usual. Courage!
On April 29, 2014, with just three weeks to go in the session and the horizontal drilling issue still hanging fire, Governor Mary Fallin’s budget director, Preston Doerflinger, hosted a meeting at his boss’s official residence in Oklahoma City. The main agenda item was deciding what was the right thing to do about the horizontal drilling tax break. The attendees, besides Doerflinger, were the heads of the three biggest oil and gas companies in Oklahoma City: Harold Hamm of Continental Resources, Larry Nichols of Devon Energy, and Aubrey McClendon’s replacement at Chesapeake Energy, Robert D. “Doug” Lawler. This made Doerflinger the fourth most powerful man in the room, and it wasn’t even close. And that meant he was really just there to listen. The Oklahoma energy bosses had come to dictate terms. Their terms were these: a flat rate of 2 percent on all new wells, horizontal and vertical, for four years. So the horizontal drillers would essentially maintain a tax rebate of 71.4 percent, down from 86 percent. The vertical drillers would get their own new 71.4 percent rebate.
Then the trio went as a team to the big local media outlets in Oklahoma City to announce the generous “compromise” they had offered. The oilmen’s assurance that the plan would be revenue neutral, even in the worst case, met with a bit of skepticism, even among other Oklahoma oilmen. The state was in “desperate financial circumstances,” according to the Tulsa oil billionaire George Kaiser, and most of the financial benefit of the proposed “compromise” would accrue to investors outside the state, while teachers and students in Oklahoma sucked fumes. “I have lived here for more than two-thirds of the life of this state,” Kaiser said. “I see what’s happening to the state. Something has to give. I’m prepared to pay my fair share.” The implication was that all the other rich-guy oilmen should be willing to do the same. Some agreed. Most did not. And so George Kaiser of the Kaiser-Francis Oil Company, and later the Bank of Oklahoma, became a bogeyman: the George Soros of the Sooner State, a pinko who just wanted to grow the government into a monster. He was invested in solar energy, for gawdsakes! He was one of Obama’s key fund-raisers. Sure, maybe he was from Tulsa, but they morphed him into an American heretic, without proper appreciation of free-market capitalism’s meritocracy. “I recognized early on that my good fortune was not due to superior personal character or initiative so much as it was to dumb luck,” was a Kaiser quotation his critics liked to trot out. How about that for being out of step with the idea of America?
Turns out the critics didn’t need to blow that hard at Kaiser’s house. The Continental-Devon-Chesapeake proposal was quite warmly received by the state’s bureaucrats and legislators. The budget director, Doerflinger, who a year earlier had advised Oklahoma legislators to think long and hard before they extended the horizontal drilling rebate—“It’s not responsible for government to give money away as an incentive if no incentive is needed”—was now singing a new tune. “The governor is inclined to support the concept,” he announced, “and thanks the industry and the Legislature for collaborating in the review process.” The senate president pro tem, Brian Bingman, who had come out of his office to show his support at the Rally for the Rigs, expected the proposal to be “received very favorably” in his august body. “I think it’s a very fair and reasonable proposal,” said Bingman, who brought special insight to the issue, being in the oil business himself.
Two big legislative items came down to the wire in Oklahoma in 2014: tornado shelters for schools and the horizontal drilling tax rebates. The tornado shelter legislation had been drawn up in a way that it wouldn’t cost a dime out of state coffers. Everyone knew there was no way the Republican-dominated legislature was going to raise the revenue (Taxes! Ack!) needed to build shelters in schools across the state. Instead, the proposed legislation, as described by one local reporter, simply “called for a statewide vote on allowing school districts, with local voter approval, to increase their bonding authority to build tornado shelters.” Let the nearest and dearest decide whether it was worth their own hard-earned money to protect their children from storm-borne disaster. “The elegance of paying for shelters locally is that it allows school districts to decide whether they want a shelter and, if so, what it would look like and how much they will pay for it,” the governor’s spokesman explained. This solution, alas and alack, was not elegant enough for Oklahoma lawmakers, who voted the bill down on their way out of town.
But they did pass the horizontal drilling “compromise” and almost exactly as Hamm and friends had proposed it: a 2 percent tax for every driller for the first three years. (
A good bit over half of the oil and gas produced by a typical horizontal well is captured, and thus taxed, in the first three years.) The measure passed both houses of the legislature by comfortable margins. “Oil and gas has a ton of weight, and by darn they wanted their credit,” said one of a handful of Republican lawmakers who voted against. “By golly they got their credit.”
The only surprise at the end of the day was that the industry lobbyists managed to get this new tax break made permanent. No sunset, no pretending that at some point the teachers and tornado-shelter-less schoolkids of Oklahoma might get to end their “incentivizing” the drilling of oil and gas in their state. The measure to make permanent the 2 percent deal squeezed through by only one vote; Fallin’s lieutenant governor had to rush over to the senate to cast the tiebreaker. But the tax break that Harold Hamm and the other oil pooh-bahs wrote for themselves was forever. No backsies. A few legislators tried to joke it away. “Nothing is permanent in this building,” the house Speaker, Jeff Hickman, said during the floor debate on the bill. “I firmly believe if Elvis had died in this building he would be alive today.” But good luck getting the 75 percent vote needed to raise the taxes on drillers, ever again.
The head of government and regulatory affairs at Continental Resources started calling friends in the business as soon as he got the good news. “You’re not gonna believe this,” he told one former co-worker. “We got this thing permanent.”
“Harold [Hamm] can’t pay you enough for what that’s worth,” the friend answered.
Blowout Page 33