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Diana Davids Hinton: The TT Interview

The University of Texas of the Permian Basin professor and expert on Texas oil history on the current fracking boom and how it compares to the great booms of the past, as well as the strange way in which the Railroad Commission came to regulate oil and gas drilling.

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Growing up on Long Island in New York, Diana Davids Hinton never thought much about oil drilling. “The closest we got to oil and gas was the local Exxon station,” she says.

But upon moving to the Midland-Odessa area in 1973, “I learned it sure wasn’t easy to do 19th-century British history in the middle of Texas,” said Hinton, who wrote her dissertation on the seventh Earl of Carlisle, a 19th-century Briton. So she made the natural move to study oil, and she found herself in the midst of one of the great boom-and-bust cycles of all time.

As a history professor at the University of Texas of the Permian Basin, she has co-written two books on the colorful history of Texas oil. Another one on the Barnett Shale is under contract with TCU Press and, she hopes, will be out on the shelves in two years. Yet another project on Texas' post-World War II petroleum history is also in the works.

She spoke with the Tribune about how the current boom compares to the past and how the Railroad Commission of Texas — whose name lawmakers failed to change this session — came to regulate oil in the first place.

The interview has been edited and condensed.

TT: You’re at the University of Texas of the Permian Basin, which is in Odessa, and basically right in the thick of the oil boom. What is it like living there now, compared to even five years ago?

Hinton: Compared to even five years ago, probably the first thing you notice is the enormous amount of increased traffic on the roads. There are just one heck of a lot more people out there. And the next place you notice one heck of a lot more people is in the supermarket. Because any time you go the local H-E-B, there are just loads and loads of people there. The parking lot is really crowded, and the lines to check out are pretty long, no matter how many checkers they have working. So this is real different than five years ago.

The next thing you notice is when Midland is making money, Midland eats out. So if you’re smart, you don’t even think about eating out on Friday or Saturday nights, because it’s going to be a two-hour wait wherever you go.

The next thing you notice is that housing prices escalated incredibly in the last five years. And even a modest home now in my neighborhood will usually sell for more than $250,000. And five years ago the same home — and there’s one right across the street from me — the same home sold for about $130,000.

TT: How do locals feel about all that? What’s the coffee shop talk like?

Hinton: Well, on the one hand, everybody is glad the oil industry has good times because it means lots of jobs. It means lots of money in circulation. We’re doing well. Nobody’s against that. But on the other hand, everybody has noticed how the roads are just really congested. We’ve had an appalling number of traffic fatalities since the beginning of the year. Something like 15 people have died just on our roads in Midland-Odessa. And for us, it’s not something that happened before. It’s appalling.

TT: How does this current boom stack up to earlier periods of Texas oil history? I talked to one West Texas oilman the other week who said it felt like the old wildcatting times with the ability to explore new shales. 

Hinton: To compare it to the other boom I have immediate experience with, the great boom of late 1970s, early 1980s — this one started out a little slower. People who had been through the [oil-price] crash of '86 were wary of what would happen. There was another price crash in 1997. If you managed to weather those down times, you were warier of getting overly enthusiastic in this one and taking on a huge number of projects before you saw where this was leading. That wariness by now has evaporated, at least as near as I can tell. And as near as I can tell, we are in full-speed-ahead boom mode — damn the torpedoes. And so by now, we’re kind of like the way it was in 1979 and 1980.

People analyzing the boom have decided that this boom is real different because it’s based on improved technology. And in a sense they’re right. We can now get oil out of rock that really wasn’t economic to try to tap before. But here’s what everybody’s forgetting: You can have all the technology in the world, but the other thing you have to consider is prices. And we don’t control prices.

TT: Yes, what could cause this boom to go bust? Are people even talking about that yet?

Hinton: Here are two things that could really put a damper on the action. The first — if oil prices for some reason dipped below $50 a barrel, then the bloom would definitely be off the rose. What could ever let oil prices dip below $50 a barrel? [Well,] what would happen when everybody out there caught up in the boom mentality, brings in a huge amount of extra oil? Well that’s what we’re doing right now. And here’s one basic truth about any market in commodities: The more there is of it, the likelier it is that prices go down. You’ve got more oil, just like you’ve got more wheat or you’ve got more hog bellies, prices are going to go down.

Now, this hasn’t happened yet, because of the second element — the global economic situation. People are still betting that overseas, the European economy will pull out of its doldrums and use more oil, that the Chinese and the Indians will continue to have strong and growing economies. And they’ll be in the market for more oil. [So] even if people are producing a lot more oil, if overseas economies keep up their demand, then prices will probably stay high. However, there’s no guarantee that those overseas economies will continue to keep up the amount of demand that they’ve shown so far. They might. But then again they might not.

TT: And potentially we could export the fracking technology.

Hinton: We always export our technology. That’s actually one of Texas’s biggest invisible exports. Well, I say Texas because most of the tech breakthroughs usually are generated here in Texas. And that was true in this one, in terms of fracking and horizontal drilling. These are both technologies that were pioneered in Texas 

TT: Fracking pioneer George Mitchell was just honored in the Texas House this week.

Hinton: Right, in terms of the fracking breakthrough. And in terms of horizontal drilling — that got going in the boom of the late '70s, early '80s. So again, if we’re looking at prices, there’s no guarantee that prices are going to stay where they are. It has always been true in industry history that oil prices are very volatile. They go up, but they also go down. And what we can hope here in Texas is that they’re not going to go down anytime soon.

TT: What about a comparison between the present-day boom era and the 1920s, when people were fanning out all across Texas, excited about their new finds and their new technologies?

Hinton: What’s alike, in terms of the great wildcatting of the '20s and what’s going on now, is that people were really looking for oil in new horizons. They were looking for oil in formations that hadn’t been tapped earlier. What’s real different is that an awful lot of the oil that was discovered in the 1920s was quite frankly the product of dumb luck. People just tried their luck, and if they could get investors who were gullible enough to let them use their money, they would put down a well, and hey, sometimes they lucked out and lucked out big.

What’s going on now is in fact much more tied to geoscience and technology. Because we’ve got the geoscience now to understand a whole lot more about the rocks down under the soil than we ever did in the '20s. A person would be kind of mentally unbalanced if they were to go out and drill a well without any benefit of science.

We’ve got this technology that can now make oil production economic from sources that were not economic before. You could drill into the Barnett Shale, for example, around in Fort Worth, in 1960, and you would get a little bit of gas, but the production would be so small and so slow that you’d go broke before you ever paid off your well.  And now, given technology, of course — hey, you can make money as long as gas prices are high and be pretty sure about what you’re going to get. So the main difference [between now and the 1920s] is the application of science and technology. And what’s alike is we are going into new horizons.

TT: Do you have a sense of what would rank as the real risks of fracking?

Hinton: Yes, and essentially it’s the real risk of drunk drivers. The automobile is a perfectly safe thing to use in the hands of a responsible driver. In the hands of a drunk, an automobile can do a lot of damage. Similarly with fracking. Conducted by a responsible operator, where you’re responsible about your casing, you’re responsible about what you’re doing, you’re responsible particularly about disposing of your water, fracking does no damage to water supply or anything else. But if you get an irresponsible operator who takes the flowback from a frack and lets it run all over the ground; or loads it on tanker trucks and lets the truck just spread that out on the highway; or dumps the brine that comes back into a water source — if you’ve got stuff like that going on, then fracking is real damaging. But it’s because of the irresponsible operator, just like the drunk in the car.

TT: There’s been [an unsuccessful] move this legislative session to change the name of the Railroad Commission to something related to energy — oil and gas, the stuff it actually does — since it doesn’t do railroads anymore. Talk about how the Railroad Commission got into the oil business in the first place.

Hinton: That really is kind of a funny story in some ways. The Texas Railroad Commission was set up in the 1890s, and as the title indicates its original function was to regulate railroads. It had very few people actually working for it, but it made a start at regulating railroads.

Once Texas began to produce a lot of oil, one problem that many oil producers face, and still do in face, is you when you open up a new area, how are you going to get a large volume of oil from your wellhead to the refiner who wants to buy it? And of course the economical answer is pipelines. So back in the period of the 1910s, North Texas production [which had just opened up] was a considerable distance from those Gulf Coast refineries that were built after Spindletop [the 1901 gusher near Beaumont]. The larger companies had the money to build pipelines, and they did.

TT: What were they using before pipelines?

Hinton: Railroad tank cars. Which you can do, but it’s pretty inefficient and it’s pretty expensive.

Independent producers who didn’t have enough money to put in pipelines decided to put pressure on the Texas Legislature to make pipelines into common carriers, which means a pipeline has to be willing to accept anybody’s shipment, just like railroads.

Okay, the Railroad Commission regulates railroads as common carriers. Now we want pipelines to be common carriers. Gee, I wonder who could regulate that? Well, the Texas Railroad Commission! They’re used to regulating common carriers! So independents put pressure on the Legislature to have pipelines declared common carriers, and once they were declared common carriers, then they had to be regulated by the Railroad Commission.

Then in 1919, there was a considerable controversy over production of oil in North Texas. A number of fields came in. Wells were being drilled everywhere you could possibly drill a well — in the middle of a street, in cemeteries, in schoolyards, in people’s backyards. Independents and big companies realized this was a good way to lose money because you were basically competing with your neighbor to get oil out of the ground fast. Isn’t there some way that we could regulate production? Well who regulates oil now? The Texas Railroad Commission — since they could regulate oil pipelines, let's let them regulate oil as it comes out of the ground. Bingo! And that’s when the Texas Railroad Commission began to regulate oil and gas.

TT: I love that story.

Hinton: There’s a weird kind of logic to it, but the operative adjective is weird.

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