0:33 Intro. [Recording date: May 29, 2014.] Russ: Let's talk about the technology of fracking. What is it exactly and how does it work? Guest: Sure. Fracking is just short for hydraulic fracturing. It's been going on since the 1940s in different parts of the country, the world. But only in that last decade or so has it been really focused on shale. Shale is a type of rock that's key to this whole energy revolution, this renaissance of energy production in the United States. Shale is deep in the surface down below, as much as 14,000 feet below the surface, and it's the source rock--in other words, it's the source of all oil, gas that historically has made its way over millions of years closer to the surface. And we've always drilled down vertically, like with a straw, and looked for reservoirs of oil and gas. But we sort of ran out of that, and hence the fear and worries in this country from the early 1970s on, about being dependent on countries that we weren't really friends with and didn't want to send all that money to. And there were issues, obviously with the Arab oil boycott or embargo in the early 1970s. And subsequently we've just sort of been nervous about our dependence on others. But that's all changed because we've finally figured out how to get lots of oil and gas from shale. And that's only happened in the last years; and that's the subject of my book, The Frackers. And getting back to your specific question about fracking or hydraulic fracturing, it really just means pummeling this shale rock--sometimes it's other kinds of rock, limestone, too, but usually it's shale--with a mixture of usually mostly water but little bits of sand and chemicals, too. And the whole goal is to create little fractures, little fissures in this rock that allow oil and gas companies to drill and set free and produce lots of oil and gas. You create these little fractures by pummeling the rock with this liquid concoction, create the little fractures, and then you get the oil and gas to come through the well bore or the hole in the ground that you've created and cemented and have steel casing around to get back to the surface. Russ: It's a huge amount of water, right? So, if there isn't water nearby, they actually truck it in. Guest: Yes. So, the average well uses about 5 million gallons of water. And usually it's fresh water; not always, and they are trying to work with other kinds of things, but usually it's fresh water. And most of these places do not have that much fresh water nearby, so there are trucks and trucks and trucks. And for all the worries about things like the chemicals getting into the water, the environmental issues--and there are some; they are overstated but there are some--the bigger issue for people in those neighborhoods, those areas, is the traffic that comes largely from these water trucks going back and forth, back and forth. It's not forever. The actual fracturing, the fracking, doesn't take especially long time. The whole process for a well is really 3-5 months. But the fracking part, or they call the 'stimulation'--you are really stimulating the rock and trying to get the oil and gas free--that only takes 1-7 days, really. But those 1-7 days use up a lot of water. Russ: Five million gallons. Guest: Exactly. Russ: The other part of the technology that's changed is this horizontal drilling. So, they've figured out a way, once they got to a productive piece of rock, to go sideways, right? Which is really miles below the surface. It's kind of crazy. Guest: Exactly right. So everyone focuses on fracking, and that's half of the reason we've had this renaissance in the United States of energy production. But the other half is this technological innovation, real breakthrough, where we figured out as a nation how to drill down vertically and turn the drill bit 90 degrees, to curve it to go horizontally. And the reason why we do that is that these shale formations, these layers of shale rock, are really long and narrow and full of oil and gas but the only way to get to it is by going horizontally. So, when we figured that out--and honestly it was the government did a lot of work there. When it comes to fracking, it was mostly independent entrepreneurs, but when it comes to drilling horizontally, the government gets a lot of credit for that. The patents were from government employees, and the industry took advantage afterwards. Russ: The other role of the government is the surveying, correct? And publicizing some of these rock formations, shapes, and stuff like that. Is that right? Guest: They do do that, but they often get it wrong. They've understated how much oil and gas we've got in these areas, these formations, time and time again. As recently as just a few years ago they were saying, there's not much up in the Bakken in North Dakota and it turns out we are getting now a million barrels a day from the Bakken. Some say we might hit 2 million. That's of the 8.4 million we are producing for the entire nation. So, the government does estimates and they are often wrong. Russ: I'm just thinking about the rock itself. How do we know what's down there? It's like a giant MRI (Magnetic Resonance Imaging). What's the technology if you know about it to figure out what rocks look like and where they are? Like, where shale is? Guest: I know just a little bit about it, because a lot of those advances were several years ago; but there is 3-D mapping. My book, The Frackers, is really a book about technology in a lot of ways, and innovation and creativity; the United States has really led the rest of the world, and they've got these fascinating ways to analyze formations that are a mile or more below the surface. And they can [?] it. They joke about it but they got into the fields, they can hit a specific spot a mile down below, like even as small as a Tide[?] pen. So they've got, they've perfected those means while they analyze it to drill. Russ: I just want to say about the book, and to my listeners: I do try to read every book that's the subject of an EconTalk episode. I don't always read every single word. But I try to. And I often do. This book, I did read every single word and I enjoyed every single word. I could not put it down. It's a ripping yarn, actually. It's told in a breathless style that's very effective. And part of the charm of the book is the characters--which is a big part of the book. We'll talk a little bit about them. But in the background, while all their adventures are going on in trying to be successful, the other part of what's going on is an incredible story of supply and demand. So we're going to try to get to a little of both of those today.

7:58 Russ: Let's talk a little bit to get us started on that about natural gas generally. Natural gas was kind of--I guess oil was too initially--kind of like, well, who cares, it's not important. So, give us a thumbnail sketch of how natural gas evolved as being important in the United States. Guest: Yeah. Natural gas was sort of the ugly sister of oil for a long time, largely because there was not much use for it. It was hard to transport it. And over time it became more popular. There were pipelines built to transport it, and along the way demand grew; electricity power plants, etc., over years, especially recent years, have shifted from coal. Coal was obviously a key component for the power industry for a long time and they shifted, and natural gas demand has risen along the way. Supply, thanks for this revolution, has kept pace and even topped it. Hence the glut that resulted and the drop in natural gas prices over the last 3 years. It's also a very domestic market, unlike crude. So, oil is easy to transport from one nation to another, so it's really priced in an international market, and all this oil coming from the United States has helped keep a lid on international prices, I would argue, but it really hasn't sent prices plummeting, despite some predictions like that. And that's largely because--again, it's an international market because crude is why it became so popular. It's so much easier to transport. You can put it on a tanker. It's just much easier. Whereas natural gas, you have to turn into LNG--liquefied natural gas. You cool it and it's a whole process, and an expensive process, to do so. Then you ship it and then you bring it back--you warm it up again so it turns back into natural gas. So it's a much more domestic market, and that's why all this natural gas that's been produced in this country has created a glut and sent prices down, but it hasn't affected oil prices as much. And the price at the pump--gasoline--hasn't been affected as much either, because that's also based on crude, which is international market. Russ: And not just international, but big. So our share of it is small relative to, say, domestic production of natural gas, as part of the U.S. natural gas market. I have two interpretations of the price impact on crude oil, and then the pump. One is: It's a smaller amount. The second is maybe there is some uncertainty about the regulatory environment and the absolute amounts that limit the impact on price. Because obviously the price today is affected dramatically by the supply tomorrow. If people think that there's going to be a huge, enormous increase in the supply of crude oil, current holders of oil--which are held in the ground and in natural, literal inventories--have an incentive to sell it now when the price is high; and that brings the price down now, well before the actual oil is pumped. So the fact that there has been a small impact on crude oil prices to me either means, one, the total effect of this shale oil revolution is relatively small or at least is thought to be small; or there is some uncertainty about whether the people who own, have access to it, will be able to bring it out into the market. What's your reaction to that? Guest: Those are good points. There's also the question, an open question, of how long this resurgence will last. And there are skeptics who say shale wells are notorious. They [?]. Shale wells are notorious for having really impressive early years of production and then it slows down. So they predict that's what will happen to this resurgence of production: it will last a few years, then end. I'm not of that view. I'm more optimistic that it's going to last. Not forever--I don't know, 10 years or so, maybe longer when it comes to oil and to natural gas, several generations, maybe it won't be 100 years as President Obama and others have said. But we should have several generations of ample natural gas. And that's because when you talk to people in the field, they continue to innovate. And they find different formations from a single drill pad, to all kinds of really impressive things that no one even considered a few years ago. So they are all aware--there's no surprise to anybody in the industry that shale wells do drop off rather dramatically. But then they level off at a still pretty impressive level for a long time. So that's their counterargument: Yeah, shale slows down but the production doesn't end. It plateaus at a decent level. And we continue to find new formations, new layers for [?] lots of oil and gas in this country.

13:15 Russ: They two things I enjoyed most about the book were the characters and then that background economics I mentioned. Let's talk about the characters first. One of the things that strikes the reader is the incredible uncertain and risky nature of investment and entrepreneurship. Your book is a wonderful portrait of that risk. You have these people out there that are borrowing and risking millions, sometimes billions of dollars. And they really are not sure what's going to happen. A lot of people in your book are acting on what appears to be intuition. They persevere. And it turned out okay for many of them--not all of them, but many of them. And you think--were they just lucky? Or were they wise? Probably a little of both. So, give us--talk about the people, and you met a lot of them--talk about their character and their perseverance and their tendency to take risk. Guest: Yeah, those are good points. I think I'm drawn to those themes. My last book, I did a book in 2009 called The Greatest Trade Ever and it was about people betting that the financial crisis would happen. And trying to profit from it. And they go through lots of ups and downs along the way--angst, anxiety, euphoria eventually; some of them not. And the same thing here. I think I'm drawn to that theme where you have wildcatters, not unlike a financial trade. Where you've got intuition, you've done your homework, you've had your experts take a look it. But this stuff is way below the surface, a mile or more below the surface. It's hard to tell what's really going to happen down there. And every formation is different. The geology changes rather quickly in this country and elsewhere from one area to the next. And you can be riding high and doing really well, and all of a sudden the production slows. And you've got to convince your backers, investors, Wall Street investors and others to support you. The characters in my book, they all do have a lot in common. They are all really self-confident--maybe overly so. And they ignore the experts. And that's a key theme, I believe, to this book. The frackers, but all to this era--the experts all got it wrong. And that was exactly what happened with the financial crisis. Such, just like Bernanke and Geithner and Greenspan and all the heads of the banks all got it wrong, were caught flat-footed when it came to the financial crisis, the same thing happened here with the energy resurgence in our country. All the so-called experts didn't anticipate it. They gave up on America. And-- Russ: Talk about that. Talk about the big players, but also about the Peak Oil experts. Guest: That's exactly right. So there was an assumption until just a few years ago that Peak Oil was happening--in other words, that production had peaked in the 1970s and would forevermore in this nation slow. And drop. And it wasn't just kind of academics and nervous-nelly type people. It was a who's who, who agreed with this thesis. And they also agreed that shale was full of oil and gas but that there was no way that we as a nation were going to be able to access it, at least in an economic way. So, Exxon Mobile--you think of who should have led this revolution? Well, Exxon Mobile should have led this revolution. Not only were they the biggest and deepest pockets; they, in their headquarters in Irving, Texas, are literally--not even figuratively--are literally on top of the Barnett Shale, which is the ground zero, the epicenter of this whole revolution. That's where it all began. Barnett is in Texas. And again, Exxon's headquarters are on top of the Barnett. And yet, were they drilling there? No. They'd given up on America for all intents and purposes. They were drilling offshore. In Africa, in Asia. And they'd given up on their own backyard. And it's true of others I write about in the book, too. So, the people that I write about, some make it, some don't. You could be too early--just with the subprime trade. Some people were too early. I write about some smaller wildcatters, and even some companies that were early. One, called Oryx Energy, they were the first to really make a huge big bet on horizontal drilling. And they were ahead of the pack. And they should have been on top of this revolution and leading the way. And yet they blew it for various different reasons I write about. So, for every billionaire wildcatter I write about, there are many more who just couldn't pull it off. The one that got away. Or a big major who didn't see this thing coming. Russ: A lot of times these people are risking their own money. But a lot of the time they are risking people's money that they borrowed. And they are at risk at any moment; and many times they do go totally bankrupt. Because it doesn't pay off in time. Or their lenders [not borrowers--Econlib Ed.] lose faith and say it's over--we're pulling the plug. And the roller coaster ride of unimaginable wealth--and then, not much--is really dramatic in your book. Guest: Yeah. So, I'll talk briefly about a guy named Charif Souki, who-- Russ: Credible character. Guest: Interesting guy. He came from Lebanon. And there are a lot of immigrants in my book. It's a very American book--a lot of older people falling in a rut and hit their home run later in life, and show resilience. Souki immigrated to America from Lebanon and was a [?] banker; made some money when he retired and went skiing in Aspen for a few years and kind of blew it all on a divorce or two. And decided to do--was a restaurateur and owned some bars. But that really wasn't working out. And he just decided to go look for oil and gas. He didn't find that much but he did realize that we as a nation were running out of natural gas--that's what all the experts said. So he started a company called Cheniere Energy to import LNG--liquefied natural gas--into this country. And they built these huge terminals; they borrowed billions, tens of billions of dollars to do it. The terminals were in Louisiana. The terminals were looking good and he was worth about $200 million by around 2007 or so. And then it dawns on his investors and the market and the world that his state was producing huge amounts of gas from shale, and they don't need to import it. Russ: At all. It's not like he's not going to get as much capacity, filled up as he thought he might. It's like, well, I rolled the dice, and it's over. Guest: Right. He couldn't have been more wrong. And I give him credit--he could have thrown in the towel and said, I was completely wrong; this country does not need to import gas after all. And instead he said: I'm going to come up with some new idea. And his investors kept badgering him. And these are a who's who on Wall Street--Blackstone, and John Paulson and they had put money in this scheme of his, this idea that we needed to import gas, and they said, Charif, what are we going to do? Russ: A lot of money. Guest: 'Charif, what are you going to do?' And Charif had no clue. But then he finally realized that, if we are really going to have that much natural gas produced in this nation and there's really going to be a glut, maybe instead of importing gas, my company should export it. So he went back to his investors, and said, you know that whole thing I sold you on, that old scheme, that old idea of importing gas? Well, it was completely and utterly wrong. Couldn't have been more wrong. So, instead, I'd like to export it. And, it speaks to your point on good fortune. In some ways he had good fortune because his stock was $1 a share. His investors had written him off, and his company. They'd given up on the whole idea. They said, Charif, good luck; we've written this off all the way to zero. If you can figure something out, good luck to you, more power to you. And he became the first person to convince the government to give him an export license. He convinced other lenders to lend him still more billions and billions of dollars to re-fit these terminals in Louisiana, so they could export natural gas. And they were going to be the first ones, starting the end of 2015, to export huge amounts of natural gas, liquefied natural gas, from America from the lower states abroad. And today he's worth about $350 million. And he really was done, just a few years ago and had nothing left of his fortune. Russ: Yeah, he really had an easy sell. All he had to do is say, You know those business plans I told you? Just put a minus sign in front of everything. It's really trivial[?]. Instead of the boats coming in, they are going to go out. But he did have that asset. He had the land, and he had a place where the relevant kind of transport ship could carry and land there. Guest: That's exactly right. He had some advantages. But he also wasn't any kind of major player in the energy world and didn't have a good reputation at that time. But I give him a lot of credit. A lot of these characters in my book are really resilient. And creative.

22:36 Russ: Yeah; and as you said, they're also very over-confident. Or confident, at least. Self-confident. I didn't realize how wealthy and large these companies and their CEOs (Chief Executive Officers) got in this brief window, when the whole market went crazy. Guest: That's exactly right. I didn't either. Part of the reason I did this book is because there hadn't been enough focus on them. So, there's a guy named Harold Hamm--I can talk about him for a few minutes if you'd like. Russ: Yeah, go ahead. Guest: A real rags-to-riches story. Harold Hamm is one of the key characters in this whole era. And not many people know him. He was born dirt poor, a little town in Oklahoma. He was so poor--his parents were sharecroppers picking cotton and watermelon in the fields of Oklahoma and Texas. And Harold had to--he was the 13th of 13 children--he and his siblings had to help their parents in the fields, picking; and they couldn't really go to school till around Christmas time each year. That's when their school year began, because only then was it so cold that he was no longer needed to help his parents in the fields. He didn't go to college. But he had this hunger to find oil. And you still meet these people, when you travel the country. You meet these--it's like an American archetype. They hunger. They are wildcatters. They want to find a lot of oil. Russ: It's an archetype most of us don't run into very much, hanging out on the coasts. It's an interesting phenomenon. Guest: Taking a step back, this whole theme, this whole era, you really need to travel the country to appreciate. So, I'm on the East Coast; my wife is from Los Angeles. We spend a lot of time on both coasts. People have no clue on the two coasts how important this revolution is. To me it's the biggest business story in America. When you start traveling places like Pennsylvania and Ohio and North Dakota and Oklahoma, Texas, Louisiana like I did, you see the impact. You see the jobs in small towns in this country getting a rebirth and companies moving, re-shoring back into this country to take advantage of natural gas prices. But your point is a good one: you don't really have a sense of that on the coasts and you don't have a sense for people like Harold Hamm, who live and breathe and hope--it's all about finding oil. And it's for two reasons. It's to get really, really rich; and it's also, believe it or not, to change the country. And it sounds sort of corny. But I talked to people that dealt with Hamm decades ago, and he was talking about: America can become energy self-sufficient. Way back when. So, a lot of these people are very--it's a mix of reasons why they pursue this, both to fulfill some dream, to change the country, or to get really wealthy. And Harold Hamm was dirt poor his whole life, so he wanted to get rich. And he thought he'd do it through oil. But he didn't go to school, college, know anything about engineering or geology. So he started by doing other things. He cleaned out tankers--literally climbed in with a long broom and rake and cleaned the muck out of the bottom of tankers. That was one job he started doing, and started a company doing that. He did water transportation. But he saved his money and he learned a little geology on the side, and he picked the brains of veterans in the business. And he started drilling for oil in Oklahoma. And he did pretty well. And then he heard about the promise of oil and gas up north in Montana and North Dakota, and he headed up there with his company, called Continental Resources. They were the biggest--they leased more land than anybody else, in the Bakken area in North Dakota. And for several years, for a number of years, it really just didn't work. He was among the first, his company--not the first: there's a business lesson there, being a fast follower--to combine hydraulic fracturing with horizontal drilling. And they were making some progress but it really wasn't enough. By around 2006 or so, they were about to really give up, because it was expensive drilling and they were running out of money. So what they decided to do was try to sell half their acreage in North Dakota. And no one wanted it. The big giants, mid-size people, smaller people--no one wanted their acreage. So all he could do was keep going, but at a much smaller pace. And they did do that. And they kept working on innovating, and they finally figured--they went public in 2007--and they finally figured out how to get lots and lots of oil out of this. Really up there it's more limestone and other kinds of rock, but challenging American rock. And it exploded. And today the whole Bakken area produces a million barrels a day of oil. That's of the 8.4 in this entire nation. And Hamm's company is the biggest lease holder. So today this guy who grew up with no money at all, a little shack of a home that I visited, and couldn't even go to school each year on time, today is worth $7 billion, one of the richest men in America. He's worth more than the estate of Steve Jobs, more than Rupert Murdoch, Sumner Redstone, all kinds of people. And okay, he's not a household name, as you first said; and he's so wealthy now, he's going through a divorce now and his wife is going to walk away with more money than Oprah Winfrey. So, it's a real American rags-to-riches story. Russ: The part--I think I mentioned this earlier--is that so many times in the book you think you are watching this guy--and years are going by. It's not like they drilled and it didn't work out: okay, go home. They drill and they drill and they drill and they try something new. And they don't give up. The perseverance is so incredible. Most of us would just go, this is a bad idea. But they persevere. And of course there are many people who persevere and it is a bad idea; and you don't read about them. There's a big selection bias here. But it's fascinating how this faith or intuition or blindness or confidence, whatever you call it, sometimes pays off in just an incredible way.

28:32 Russ: I want to turn back to natural gas. Hamm is oil, correct? You are talking about crude oil. Guest: Yes, crude oil. Russ: So, just to give people--I'm looking at data from the U.S. Energy Information Administration--an idea of the magnitude. In 2005, the United States produced 18 trillion cubic feet of natural gas. Eighteen trillion sounds like a lot; of course, it's hard to know. But what's important is that in 2012, which is two years ago, it was up to 25 trillion. It's a 40% increase in 7 years. That's just unbelievable. And of course what that does--try to talk about this because it's such an interesting part of the economics. So, you're in a world where gas, for a while, before this revolution, while it's in process, the price of natural gas is rising. Everybody thinks you are running out of natural gas, so they are making investments that make sense in a world where gas is expensive. They are buying up land, they are investing in techniques of drilling; they are hauling water to dig wells because gas is really expensive and it's worth it. And all of a sudden, all these people are doing it, in response to that high price the supply becomes--the quantity supplied, as we say in economics--enormous. And the price just goes through the floor. And all of a sudden all the users of gas are benefiting from all the investments that these people made, so confident that they were going to make enormous sums of money. They ended up mainly benefiting the people who used the gas. Guest: Yeah, that's exactly right. There is an interesting element in this whole era in that there are billionaires that have been created, some of whom I've talked about, write about in my book. But others were really early; and they were right about their prediction that we can get a lot of natural gas in this country, and they figured out how to do it--people like Aubrey McClendon, who started Chesapeake Energy. But in the end, they created a glut. And this is a commodity. They forgot that. They forgot how easy--for them it became much easier to produce natural gas, not only for them but for their competitors, too. Some were faster than others at shifting. There was a guy, and company called EOG Energy, which Mark Papa ran. And in 2007 they were doing a good job finding natural gas from shale for the first time, like Aubrey McClendon at Chesapeake, like a lot of competitors. And everybody at EOG was thrilled and they were high-fiving each other. And Papa one day said to himself, well hold on a second: if we're finding all this gas from shale, won't everybody else also find it much easier, and won't that create a glut? And won't that collapse prices? And he got really scared; and he got nervous; and he said, Guys, we have to find oil, because oil is priced, again, on an international market, or we're done. And right under the noses of the majors, the big oil and gas companies in Texas, leased up huge swaths of land in an area called the Eagle Ford--it's a formation of fields about an hour, hour and a half from San Antonio. And sometimes they couldn't even test the well, they had to go so quickly, they had so much pressure to get this land, because they thought--they weren't sure but they thought there'd be a lot of oil there. And they were exactly right. And today EOG is worth about $50 billion. Again, one of these companies and names that most people have never heard of. But they are bigger than Hershey, Alcoa, and Southwest Airlines combined. So they did it under the noses of the big companies by realizing that natural gas prices were going to collapse due to this oversupply. Russ: And that's going to persist for quite a while, it looks like. We are going to have very inexpensive natural gas in the United States for a long, long time. Tell me if I'm getting this right, the economics. You were talking how the actual fracturing process doesn't take very long. But it is expensive, right, to haul 5 million gallons of water around and to do all the research and all the trial and error. And there's all the failures. It's very expensive. But once they've figured out that, say, this particular shale formation is productive and they've already done some of that initial work, the supply--it's still going to be worth it to tap it, it's still going to be worth it to suck from that straw. So the supply is going to, despite the low price, continue for a long time. Is that a correct summary? Guest: You can make that argument. Yes. It is expensive, the whole process, about 3-5 months to drill a well, including the fracking which takes a few days but there's all kinds of other drilling and other issues. And if you were going for oil, you really need oil prices to be about $60 or $70 a barrel. So that's probably a floor in some ways; below that they probably won't get much production. But I don't think we're going down to $60 any time soon. But yeah, when it comes to natural gas, you've made that initial investment; you can keep pumping it. It's also the case that some of these leases were a demand that you keep pumping it or you lose the lease. And they've already spent money up front in terms of production, but also it's in the lease agreement, so they don't want to lose those leases, so that results in sometimes some overproduction as well. I'm not sure that's necessarily going to mean a hundred years of natural gas in this country, but there are new areas that guys keep finding, new formations, new layers in the ground full of oil and gas. Which is pretty interesting. Russ: And of course they [?] it all over the world. You point out toward the end of the book some of the problems that the rest of the world has in tapping their natural gas relative to the ease in the United States--regulatory differences, culture, access to finance, etc. But presumably--we're not the only nation that has shale under our borders. Guest: Yeah. I originally thought that my book, the first chapter, would be America, and the rest of the world would be later. Because Argentina, Mexico, Russia, China, the United Kingdom, Poland--they all have deep shale formations full of oil and gas. The problem is they lack some things that we have in our country, some that are God-given and some that aren't. And it's going to take a while for them to catch up. So, we've got more access to fresh water than other countries. Our shale formations aren't as deep as some places like China. We've got a pipeline system; we've got capital markets. And we've got an entrepreneurial spirit where, you can make a mistake in this country; and you are encouraged to make mistakes; and not so much in other places. And we also own our own land rights, mineral rights, under our homes and our properties and our farms in our nation. And you don't in almost every other country. So I was over in England to talk about my book. And you can make a real strong argument why they should be fracking, because the North Sea is running out, and they are importing our dirty coal. I was confounded by this, but we are literally selling coal to Newcastle. Because they need our energy; and we don't need coal as much as we used to. We are shifting to natural gas because of the shale revolution. So, you can make an argument why England should be fracking, but then you get to the countryside, and it's so beautiful where they have natural gas or oil down below, and it's hard to make an argument to an individual that they should be supportive of fracking in their backyard when they are not being compensated--where they are in America. Here in America you go--a land man representing an energy company has to go door to door and cut a deal with the landowner. And they get a nice sum of money. And it's kept a lot of people in their farms, and it's given people new lives. So they are being compensated for what they have to go through--it's an industrial endeavor. It's noisy, smelly. There's a lot of traffic that results. So you need to be compensated, and you can be in America. Whereas other places like I said in the United Kingdom the Crown owns the mineral rights below people's property. So it's an advantage that we've got in this country. Russ: Yeah. And we're going to talk about the environment issues in the last part of the conversation. But I do want to emphasize at this point--I'm going to read a quote from the book, which I love: "The successes of the architects of the shale era are attributable to creativity, bravado, and the strong desire to get really wealthy." And we do allow that, still. Not so eagerly sometimes in the United States. But it's still a huge part of our culture, that it's okay to get rich. And as you say, we still have some private property and we still let people use their land the way they want--sort of, kind of, and that does make a big difference. Guest: Yeah, very much so. These wildcatters need an incentive. The risks they take, every time they drill down below--they've got to get backers; it's a challenge. So, yeah; in this country there is still that entrepreneurial spirit where you can roll the dice and be creative and try to get really rich. Russ: And lose all your money, sometimes. Which is also what happens. Guest: Yes. And then start all over again after you've lost it all, if you've got a good idea. Look at Aubrey McClendon. I write about him; he's a key part of my book. His whole career is about rising and falling, rising and falling, collapsing, and being aggressive. And he's been able to restart his career once again after getting kicked out, after getting fired from Chesapeake Energy, which is a company he started; and it became the second largest natural gas producer in this whole country. He got kicked out for various reasons I write about in my book; and he's restarting once again. Russ: It's an amazing thing. And thank goodness there are no bailouts when you lose your money in this industry. Unlike the financial sector. Guest: That's true. Russ: It's great. In that way [?] it's a very American story. At least, the old America that some of us like.

38:36 Russ: Let's talk about some of the environment issues. It's really rather extraordinary. I think I have the numbers right. Carbon dioxide--CO 2 in the United States are down 13% in the last--in 2007 to 2012. That's an enormous decrease that if it had been legislated--and a lot of people wanted to legislate it, in the name of reducing global warming. A lot of people wanted to force U.S. carbon dioxide emissions down. It's happened naturally through this discovery. And yet the environmentalists that I talk to, and I just had dinner with some folks the other night, they really don't like fracking. And that reduction in carbon dioxide, I think, is mainly a result of switching from coal to natural gas as natural gas prices have fallen in reaction to the shale revolution. So, talk about the environment story there and what people are worried about, and your perception of whether they are right or wrong. Guest: Sure. First I'll talk about all the reasons why environmentalists should love fracking and this whole era. And then I'll talk about some of the concerns, the real concerns, I have. I'm very much a centrist. So, I've gotten a lot of flack from both sides. Yes, our carbon dioxide emissions have dropped to 1994 levels, and that's because at the margin we are shifting from coal production to natural gas because we are finding so much gas from fracking in shale. And yeah, in London--everyone in Europe thinks they are big environmentalists and they laugh at us because we didn't sign the Kyoto Agreement. Well, we're complying with Kyoto now. Not that we ever signed it, but because of this revolution. So, that's helped. And if you believe or are worried about global warming, you've really got to be a huge fan of fracking. Why is that? Because the only way we can make any dent into global warming is, nothing in Europe--they can't do anything about it; and we can't either. You've got to get China to stop being so reliant on coal. And the only way they are going to stop being reliant so much on coal is if they start fracking, and they start shifting over to natural gas. So, if you're an environmentalist, you've really got to be rooting for fracking, believe it or not. My view is that the biggest concerns people have are overstated. The chemicals are unlikely to ever get into the water system. When you talk to scientists, as I have--and that's largely because we are drilling so far below the surface, as much as 14,000 feet below. And the water is about 400 feet below. So, miraculously, could the chemicals somehow move up so high through the rock into the water? It's possible, scientists say, but it's really, really unlikely. And other concerns are overstated, too, things like when you turn on the faucet and you light a match--we've seen those movies--and there's a fireball. Well, that does happen, and it's from methane getting into the water. The only problem is, that's always happened in this country. It has nothing to do with fracking. There are three towns in this country named 'Burning Springs.' The native Americans used to light the water on fire. I met an old-timer in Dimock, which is ground zero for the protest; she said, Greg, I used to go to school early, turn on the faucet, and then light a match for kicks. So it just happens to be that there are some parts of this country where methane naturally gets into the water. Nothing to do with fracking. So I'm not as concerned about those issues as environmentalists. I do think that oil and gas companies make way too many mistakes. So, there's nothing inherent in fracking that makes it dangerous. But they make mistakes all the time; the casing often is compromised, the casing around the well. And that's when methane or chemicals can get into the water. So again, you can do it properly, but there need to be better regulations. There are some recently in some states about some of these issues. Like Wyoming, and Colorado has a great new law, in which all the gas companies have come together with one environmental group, EDF (Environmental Defense Fund), in the state to introduce a law, to produce a law where they are not emitting as much methane. Methane is a greenhouse gas, and a dangerous one, and there are leak issues all the time. So the country can clamp down on the stuff. My own view is, instead of condemning the frackers--they are not going away; we're not going to somehow magically turn this clock back. And we are sitting on some of the deepest gas reserves in the world. To expect a nation still digging out of the deepest economic downturn to say, Yeah, we've got all the gas but instead of using it and enjoying this bounty, we're going to keep sending all this money to countries we really don't like--it's just too much to ask. So, we're the key producer; we're going to keep fracking. Let's put pressure on the oil and gas companies to reduce the mistakes and to do a better job of it rather than just condemning them and hoping they'll go away, saying fracking poisons. Russ: And you point out in the book that of course there is variation in how careful people are. And I would point out that there's variation in the incentive people have to be careful. Beside just complying with regulations, a company doesn't benefit from having an embarrassing incident or harmful incident, a spill or some kind of problem. And the more established firms of course have more at stake, and they are going to be more careful. Whereas some of the newer firms that haven't made their name or made their money are more likely to push the envelope. And those are the ones where we'd expect there to be more problems. Guest: That's true. And I also should make the point that a lot of the problems, a lot of the mistakes were early on, when companies, often smaller companies, just weren't as familiar with the geology as they could have been. And they'll own up to it; they'll admit it. There's a company called Cabot Oil, which is in Pennsylvania, which made huge mistakes. And people's water was ruined. There were homes and farms impacted. And it's because they didn't understand the geology as well as they should have, early on. We're talking 2007 kind of period. And they've improved. They've learned their lessons and they do a better job with the community around them, and they have much better relations. And some of the mistakes are still being focused on by critics; but they have done a much better job. They aren't faultless but they've done a much better job, they and other oil and gas companies in the last couple of years.

45:05 Russ: As you mentioned earlier, the fracking process combines water with lots of other stuff--sand, chemicals. Some of that stuff is toxic, it's added. And companies are not thrilled with talking about what they put in that mix because they want to preserve any competitive advantage they have. They also might be worried about how they might be perceived by the public. What do you think of a requirement to be open about what you put into your mix? Guest: I think oil and gas companies should share with us. I get their argument. Their argument is that they are a secret sauce: 'We spent years working on it, trying to get the right fracking concoction together, the right mix of chemicals. So we don't want to give it up.' But, the public really is concerned. And they do this thing where they share most, or some of the chemicals right now, in some states, or most states. But they, with the industry, it's a frack-focused thing, but they need to share more of it. And there's no really reason by this point they shouldn't. Russ: We think about toxic things. I don't know what the nature of those are. Of course, there are many toxic things 14,000 feet below the earth's surface already. So injecting them down there doesn't--and they are very far away from us. So, to me, partly, doesn't it come back to this issue of: What's the likelihood it's going to affect me? Especially if I'm the landowner. Right? If I want to take that risk, are there spillover issues that we should be worrying about? It's one thing for my water supply to be damaged, but if I'm damaging yours in the process of making a lot of money, then we should incentivize people to take that into account. What's the real risk of toxic stuff here? Guest: Well, it's not just the locals. It could be--he gets the area water supply, there are pipelines involved; potentially bursting a pipeline. The concern I would have is that the integrity of the well sometimes is compromised. I've seen different data. But sometimes they have to go in, as much as 1 in 10 or maybe 1 in 15 wells; and you've got to remediate the structure of the wells. They've got casing around them, cement and steel. But sometimes companies don't do a good job. And, again, rather than saying, Aha, sometimes chemicals do get into the water from cracks or holes or mistakes in the casing, therefore we're going to stop fracking, I would rather there would be better regulation. And companies can do a better job of making sure the integrity of the wells is according to regulation. They are starting to do that. But they should be everywhere. So, it can be done safely, fracking. That's not saying that it is. Russ: But it's never 100%. I think part of the lesson, when you think about the incredible initiative and creativity this is and represents, things go wrong. It's inevitable. There are going to be spills, just like we know in anything like this. It's part of the price of having an industrial, civilized, modern life. Depends on the magnitude, of course. And as you point out, there are ways to make the probability small that bad things will happen. But like you say, when you are digging deep in the ground and then transporting it around, things are going to happen. Guest: That's exactly right. Listen, we had the huge BP (British Petroleum) spill in the Gulf of Mexico. And I don't hear anyone saying that, as a result, there shouldn't be any drilling for oil. And we all like to drive our cars, still. You get in your car and there is a possibility there will be an accident. You have surgery, there is always a possibility that something goes wrong. There is always going to be some possibility, industrial activity, some possibility of something going wrong when it comes to fracking, and producing oil and natural gas, in the United States. The key is to reduce, as you said, reduce the possibilities. Russ: And assuming they can be reduced to a probability that we would--in some dimension 'we'; I'm not sure who 'we' are--but that people would be comfortable with.

49:03 Russ: I want to go back to this environmental issue, though, more generally, and give you my take and see if you've encountered this in your conversations with environmentalists. I'm sure you've had plenty, especially since the book came out. You do mention a number of the environmental issues. But the book is a celebration of this human achievement, to a large extent. I'm on that side. I like the incredible achievement of it, the idea that we can drill 2 or 3 miles below the earth's surface and do something productive is mindboggling. That it works at all is incredible. But I assume a lot of this is religious, in the following sense. I assume a lot of people don't like fracking because we just don't have the right to break up Mother Earth this way. These rocks down there, you are smashing them. You are sucking out this oil and natural gas. And the right attitude is just to leave the earth the way it was. You say we all like to drive our cars. Well, a lot of people don't like that whole idea. The whole idea that we need to pull resources out of the ground to sustain our lifestyle. They want a simpler lifestyle. They want more bicycles. They want more walking. They want less--I always call it civilization. They want more pristinity--pristine, how they define that, which era they use, whether it's pre-American, native American, after. There's a lot of romance to me, which has a fundamentally religious character about tampering with the earth. Do you encounter that? Do you think I'm right? Guest: I see there are some of those people. I'm not sure I'd call it religious. They cannot be very religious. Russ: This is their religion. Guest: It's their religion. Maybe that is really--you are right. Maybe not in the sense maybe [?] I was thinking. There are environmentalists I give a lot of credit to, and there are a lot of people concerned about this era who I respect. And their view is, if you look back in history, at the industry and energy broadly, there have been a lot of examples where they have left the fields that they have produced, the mines, coal especially, in terrible states after they have sucked the natural resources out of the ground. And they've pulled up, they've moved on to the next town, or back home. And people have suffered in those areas. And there have been also booms and busts in those areas and places in this country when it comes to oil and gas, where it hasn't looked especially pretty after the rigs have been collapsed and gone home and the wildcatters have gone home. So, I understand that concern. And a lot of people also have a suspicion of big business. And oil and gas companies--you know, I had this view, this initial view when I started doing the work, that for these guys, you know, they were Houston boardroom types, and [?] views, cigar-chomping and they're [?] left and right and [?] along the way. But then when you--I had the privilege of traveling the country and talking to people. And when you talk to them--the engineers, the geologists, they are not calloused[?] in this environment. A lot of these people are ranchers. Geologists--they like rock. [?] They are hunting, they are fishing. I'm sitting at my desk most of the day. They are outdoors more than I am. So, I'm not saying they are angels. They often make mistakes. But they are not bad people looking to pollute. They just need some more regulations sometimes. But I think there is this image of oil and gas people that is a horrible image, partly because people don't want to think. They like to pull[?] up and turn on their air conditioning and use their heat in their home. They don't want to think where it comes from. But-- Russ: It's like chicken. Guest: It's like chicken. Russ: Chicken is this thing in a plastic wrap that's kind of soft to the touch and chilly when you touch it, because it's been in the 'fridge. And it comes from the meat department of the grocery. That's where chicken comes from. And oil--and gasoline comes from that pump at the corner, where that nice person works who takes your money. Guest: Right. So the worst criticisms I've had for my book have been from the Left. I've been told I need to do penance for what I've done, and the New York Times wrote-- Russ: Religion. Guest: Yeah. The New York Times wrote two reviews. One was pretty good, and the other one really condemned me. Russ: Not so good. I read that one. Guest: Yeah. They had problems from everything from not enough women in my book--you know, so I think--listen, I looked. As a writer you want-- Russ: You found a few, there's a few in there. But it's hard. Guest: Yeah. So, I do think that there is a view from the Left that if it's oil and gas it's got to be bad. And the people doing it are bad. And God forbid you should write something about the risk-takers who have changed the country and helped move us towards energy independence. But that's okay. I can take it.