For oil driller Harold Hamm, Bakken boom brings more billions and a chance to dabble in politics
By Steven Mufson,
Lexington, Okla. — Harold Hamm sat in a corner of the Railhead Diner, having polished off a plate of meatloaf and savored a bite of the fried pie with chocolate filling.
Hamm, who grew up just across the tracks, has a lot to savor these days. As the youngest of a sharecropper’s 13 children, Hamm spent his earliest years nearby picking cotton until the first snowfall or Christmas, whichever came first. Then he would scramble to catch up in school. Later, after the family moved to this small town, he delivered newspapers and played baseball in a lot that’s still here. Since his home had no television, he would go across the street to watch with neighbors. His surviving sister, Fannie, still lives in a modest home here.
Today, the 66-year-old Hamm is a multibillionaire who could buy the entire town several times over. An early believer in the notion that the techniques of horizontal drilling and hydraulic fracturing could be merged to unlock new layers of oil, he is the chief executive of Continental Resources, the leading exploration company in the booming Bakken Formation, which stretches across Montana, North Dakota and Saskatchewan. His 68 percent stake in the company is currently worth $7.7 billion, and Forbes recently ranked him the world’s 76th-richest person.
Now Hamm is exploring politics, too. He hosted a fundraiser for Mitt Romney’s presidential campaign and recently donated $985,000 to Restore Our Future, a super PAC devoted to supporting Romney’s candidacy. While super PACs are supposed to be independent, the former cotton picker has also become a member of Romney’s energy advisory team, feeding the candidate optimistic assessments about U.S. oil production. Hamm is trying to take the lessons of the Oklahoma and North Dakota oil patches and apply them in Washington for the nation’s benefit — and his own.
The Romney energy team, whose full membership list has not been disclosed, holds weekly conference calls, Hamm says. But Hamm is not bashful about his views. His rarely updated Web site says, “Since President Obama’s election three and a half years ago, he and his administration have done everything in their power to stop fossil fuel usage.” Hamm, by contrast, has lauded the virtues of keeping tax incentives for oil exploration companies such as his, even as Romney has opposed such incentives for wind energy. Hamm has also criticized the Environmental Protection Agency for rules that will phase in safer, cleaner hydraulic fracturing practices. Such guidelines, he says, should be left to states. And he supports the construction of the Keystone XL pipeline, which would ease the transportation crunch for North Dakota oil.
Most of all, Hamm promotes a vision of oil plenty. “There are two separate camps,” Hamm said. “One of them is that the oil and gas resource is very scarce and running out; that the glass is not half full; that it is drying up. And the other [camp] being one of abundance and what’s really here.”
He said, “The one of scarcity, that’s just wrong. It’s been overtaken basically by the technology that’s gone on with horizontal drilling.”
Not everyone shares Hamm’s optimism. Oil output in North Dakota has jumped sixfold over the past seven years, perhaps the biggest single increase in oil output worldwide, but that hasn’t stopped prices from soaring. Hamm believes that the Bakken area holds 24 billion barrels, nearly as much as the proven reserves in the rest of the country put together — seven times as much as the most recent U.S. Geological Survey report (now being revised) and more than Prudhoe Bay. By 2020, similar geologic formations and drilling techniques could push U.S. oil production to 6.7 million barrels a day, a level not seen since 1994, says Barrington Research.
Even that wouldn’t be enough to quench U.S. consumption and fulfill Hamm’s vision of energy independence for America.
‘A fantasy world’
Hamm explains his beef with Obama in personal terms. “I had hopes for President Obama as anybody in America did,” Hamm said. “I just felt like he had an open book.”
He says that he met with Energy Secretary Steven Chu to discuss developments in North Dakota and that the Nobel Prize-winning physicist took an interest in the advances in drilling technology. But Hamm says there was never any follow-up, and Chu stayed focused on promoting renewable energy.
Hamm says he was later part of a group that met with Obama and tried to impress upon the president the potential for new domestic oil supplies. “He just passed it off, I felt at that time,” Hamm says. He says that Obama talked about new battery technology and said that the country would soon be able to move away from fossil fuels.
“It was a fantasy world,” Hamm says.
That unabashed view of the virtues of oil differs from Obama’s position, which is to reduce oil use for national security purposes as well as to slow the pace of climate change. One of Obama’s first achievements in office was raising fuel efficiency standards for all American automobiles. If the United States is less dependent on imported oil today than it was a few years ago, that has as much to do with lower consumption as it does with higher U.S. oil production. Any prediction about reducing dependence on imports is based on expectations that U.S. oil demand may have peaked.
Yet Obama, like many executives at the nation’s biggest oil companies, may have underestimated the potential for higher oil output from North Dakota. Instead, he has talked of using natural gas as one way to cut oil consumption. Many city buses around the country sport logos about “this bus powered by clean natural gas.”
In Oklahoma City, Continental Resources has wrapped a few buses with the words: “Powered By American Oil.”
Striking it rich
Optimism and hard work are what made Hamm a quintessential American success story. His public relations person jokes that once people talk to the upbeat, personable oilman, they’re “Hammanized.” Even many of his political foes say he’s hard not to like.
After leaving Lexington, Hamm moved to Enid, a town north of Oklahoma City that was experiencing a small oil boom. He did a joint work-study program, pumping gas while finishing high school. It took up to 60 hours a week, and he wrote a paper about the Oklahoma oil industry success stories of the century. Inspired, he went to work for an oil service company and then for Champlin Petroleum, a major oil company at the time. Oil workers were, he recalls, “a different breed . . . charismatic, uninhibited.” After a few months, he went into the oil service business himself in 1966, starting out with one truck.
Although he was of draft age, with an A1 physical rating, he wasn’t called to serve in Vietnam. “I guess the Lord didn’t mean for me to go,” he says.
In 1971, he lined up his first exploration deal. He was lucky. The first well he drilled produced oil. The second produced at a rate of 75 barrels an hour, “a very, very nice well,” he recalls. The field ended up producing 6 million barrels, enough for Hamm to take college classes in geology and chemistry, though he did not earn a degree.
The sharp price increases that hit with the oil shocks of 1974 and 1979 created new demand for exploration in the United States. That helped Hamm’s service company, which then had 11 rigs, some of which could drill as deep as 20,000 feet.
Companies were beginning to learn how to do “directional drilling,” a precursor to today’s horizontal drilling. Suddenly, urban mineral rights were valuable. “We drilled 16 wells under the city of Enid between 1983 and 1985,” Hamm says.
What set Hamm apart from other moderately successful independent oil companies was the Bakken Formation and more effective drilling techniques. Horizontal drilling can snake a pipe through a two-foot wavy layer of oil-rich rock, and hydraulic fracturing, or fracking, can create more fissures over greater distances than before. Instead of tapping 15 or 20 feet vertically, oil companies can now tap miles of oil-bearing rock horizontally.
Hamm turned to North Dakota before most oilmen. Mineral rights were a fraction of what they cost now, and Hamm said he had “a gut feeling” that he would find a lode there. In 2004, Continental Resources drilled what Hamm calls “the first commercially successful well in the North Dakota Bakken to be both horizontally drilled and fracture stimulated.”
The North Dakota rush was on. The number of rigs drilling in North Dakota has increased tenfold since then, and production has jumped sevenfold. And it has turned Hamm, who was already a rich man, into a very, very rich man.
At the top of his game
One sign of Hamm’s changing fortunes — other than the shirt cuffs embroidered with his initials or the large diamond pin in his Hermes tie — has been moving the company headquarters from Enid, where Hamm first went after leaving Lexington, to an Oklahoma City skyscraper. Hamm himself had moved to Oklahoma City eight years ago so his daughters could go to better schools.
A day before the lunch at the Railhead Diner, Hamm showed off his plush new offices, featuring cattle skins on the floor, ornate carved chairs with fur backs, and dark wood paneling. From the desk, which faces floor-to-ceiling windows, he can look out over the heart of Oklahoma City.
“It’s with some reverence that I sit here,” he said, explaining that it was once the office suite of John W. Nichols, an Oklahoma City accountant who built Devon Energy, a huge independent oil and gas company.
Glass cases hold testimonies to Hamm’s donations to diabetes research. There is a small sculpture of an early-20th-century oil worker driving an exploration tool into the ground with a sledgehammer. In the hallway, a case contains a rock collection.
“That one is one of a kind,” he says, pointing to one chunk, “the only piece of a core” sample taken from a large Oklahoma oil field his company found in a crater. Another wall has a signed photo of St. Louis Cardinals manager Tony LaRussa, whom Hamm calls “one of my best friends. . . . He is a team leader.”
Yet Hamm seemed awkward giving the tour. As he strolled down the hall, people scrambled to attend him, but he waved them off, ducking into other executives’ offices to show off the commanding views. When he sat down to talk, he chose a small room with a conference table, a map, and white board walls. This is where much of the company’s real work gets done.
While companies such as Chesapeake Energy focused on natural gas, using fracking in places such as Pennsylvania, Continental Resources has focused on oil. And while natural gas prices have collapsed, oil remains near record levels.
So Continental is thriving. It expects to grow nearly 50 percent in 2012. Capital spending is expected to hit $2.3 billion, up from $1.8 billion, with most of the increase concentrated in the Bakken play, according to Barrington Research. The company is also expanding in similar places, including the Anadarko Woodford play in Oklahoma.
Hamm can’t resist a little dig at natural gas and wind promoter T. Boone Pickens, who bought hundreds of turbines, then had to sell them when he couldn’t complete a project. “Banks were giving them away with toasters,” Hamm jokes.
‘We cleaned it up’
Alhough backing Romney may be Hamm’s first major foray into national politics, he has played at the state level.
In North Dakota, where the legislature only meets every other year, Hamm backed then-Gov. Edward T. Schafer (R), who drove a bus around the state advocating a reduction in state oil taxes. When oil prices are below a certain threshold, no taxes need to be paid for two years, and Bakken wells produce much of their oil in the first two years. Hamm later put Schafer on the Continental Resources board of directors.
Hamm blames politics in North Dakota for charges brought by U.S. Attorney Tim Purdon against Continental Resources and six other companies for causing the deaths of 28 migratory birds that landed in waste pits from drilling activities. Though Continental was charged with only one of those deaths, which would be a misdemeanor, Hamm chose to fight the charges in court and won.
Now that he is backing Romney, he has come under scrutiny from environmental groups for everything from spills to waste pits to his use of hydraulic fracturing and the disposal of used fluids.
“Our air was polluted, and we cleaned it up,” says Hamm. “Our rivers were polluted, and we cleaned them up. What’s going on with fracking? What’s the problem? There’s not a problem. The regulatory aspects should be with the states, with the North Dakota Industrial Commission. . . . None of us wants to pollute any of our water. If it meant not fracking another well, I wouldn’t do it if it weren’t safe.” Environmental groups reply that state agencies don’t have enough inspectors or regulators to monitor the thousands of wells drilled every year and the pipelines and other oil infrastructure.
Many of the things Hamm says in casual conversation might not stand up to greater scrutiny. He once said that the Dickinson, N.D., McDonald’s was the second-busiest in the world, which isn’t the case. More important, he says that the U.S. government could make $12 trillion in royalties from oil and gas drilling on federal lands and waters. Assuming the current 13 percent royalty rate, production on federal lands and waters would have to exceed current worldwide oil production for the next 25 years.
In elaborating on his unhappiness with Obama, Hamm has complained that millionaires are qualifying for food stamps and that under Obama individual freedoms are in danger.
Yet for Hamm, whose family received federal food aid when he was young and poor, life has never been better. And he has the money to promote his views.
Asked whether he felt it was fair that wealthy people like him could write million-dollar checks to sway a national election, he said: “I see President Obama go to a West Coast movie star’s place and raise $16 million in one deal, so it’s six of one, half dozen of another.” He added, “Those are the rules today. I don’t know if they’re right or wrong or what kind of impact it will have. We’ll have to see how it plays out.”
Instead he likes to talk about how the world has more oil in the ground than it has produced. “I tend to look at the big picture,” Hamm said. “That’s what I do. All this other stuff, throw it aside. That’s the prize.”