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Incentive + Ingenuity = Innovation

July 16, 2012

How the fracking revolution was born:

What has given the U.S. its edge is that the early development risks were largely borne by small-time entrepreneurs, drilling a lot of dry holes on private land. These “wildcat” developers were gradually able to buy up oil, gas and mineral leases from private owners while gathering enough geological data to bring in commercial producers.

Take Texas’s Barnett Shale, a particularly tight rock formation that had been eluding speculators for years. Houston-based Mitchell Energy & Development Corp. spent the 1980s refining horizontal drilling techniques, and by 1996 it was producing Barnett shale gas.

Jason Dvorin, a partner in the Dallas-based oil and gas leasing and exploration firm Dvorin LLC, recounts that when his father Sanford heard of Mitchell’s success, he decided to go all-in, having also spent years chasing Barnett shale. In 1997, father and son began buying individual leaseholds for mineral, oil and gas rights at $25-$50 an acre. By the time they sold their productive leases at the end of 2007, Mr. Dvorin recalls, they were going for as much as $30,000 per acre. “Even today, in a depressed market, operators are still paying $1,500 an acre.”

The growth in fracking is an object lesson in entrepreneurial drive that politicians and regulators should remember.   Entrepreneurs chase the product . . . subsidized interests too often chase primarily the subsidy.

 

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One comment

  1. […] written before about the McKelvey Box, and about my belief in technological positivism – that Incentive + Ingenuity = Innovation, and that – as it has in the past – innovation will bring the price down both in real […]



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