Wildcatters are having a hard time making a go of energy exploration in North Carolina.
Since the state began accepting permit applications for fracking in mid-March, none have been filed, and there is little visible sign of any hydraulic fracturing activity in the state. A judge’s decision this month to temporarily halt all drilling permits for fracking in North Carolina adds another setback for energy exploration.
Legislators pushed through an energy bill last year expecting the state to see its first shale gas wells in 2015 and join Pennsylvania and Ohio in attracting the jobs that come with fracking. Instead, depressed energy prices worldwide and uncertainty over the amount of shale gas here have made the state unappealing to all but small, independent operators.
So far, of the two groups that have expressed interest in drilling here, one ceased operations last year before conducting any testing. And the second unraveled this year, leaving unpaid fees and estranged business associates, according to draft business plans and private emails provided by one of those involved in the effort, Mark Rabin, a Fayetteville energy broker and the son of state Sen. Ronald Rabin. The Republican senator represents part of Johnston and all of Harnett and Lee counties; Lee is considered to be the epicenter of future fracking activity.
The documents provided by Mark Rabin offer a glimpse at the activities of wildcatters, the moniker used in the oil-and-gas industry for prospectors who operate on thin margins. The emails chronicle an initial wave of giddy excitement, ending in mutual recriminations. They also highlight the problems in raising funding for such risky ventures and underscore the concern of fracking opponents who worry about the lack of technical proficiency and safety records of smaller operators.
“The wildcatter typically has less resources to do a good job, and an under-resourced operator is at a greater risk for failure,” said Dustin Chicurel-Bayard, spokesman for the Sierra Club’s North Carolina chapter. “It turns into a matter of accountability – of making sure that any environmental damage can be fixed and the people responsible can be held accountable.”
Investors hard to find
The group Rabin was working with had planned to incorporate as Energy Security but never reached that stage, failing to attract investors.
Last year, another company also ran aground. Triassic Energy Resources, a local subsidiary of Dallas-based Industry Petroleum, was registered in the state and had advanced farther along than Energy Security. Triassic was on the verge of beginning seismic testing of the state’s geology in 2013, according to testimony to state legislators by James Womack, then chairman of the N.C. Mining and Energy Commission.
The company had hired two lobbyists in North Carolina: McGuire Woods lawyer D. Bowen Heath, whose long roster of clients included Halliburton, Honeywell International and Koch Companies; and Chris Emanuel, a former political director and campaign operative for Gov. Pat McCrory.
Triassic’s CEO, Phil Barnett, did not return phone calls and emails.
By contrast, there is no public record of Energy Security here, and the venture likely would remain unknown if not for Rabin. He said he dedicated five months to network and broker deals here, and then “everyone ran the other way.”
Rabin, who proudly calls himself a wildcatter, is the founder of Apostle Energy, a one-man company that has a mailing address in Fayetteville and was incorporated last year in El Paso, Texas.
Rabin, 56, is fond of evoking the romance of the derrick, drill pad and “Christmas tree,” a term used to describe the drilling equipment on the surface.
“There’s nothing more beautiful than driving out to a rig in the middle of the night in South Texas, a hundred miles from the Mexican border, and seeing the Christmas tree lit up,” said Rabin, who lives in Fayetteville. “And you bring some beers out there and relax with the guys, and you see people working and making great money.”
Rabin took an interest in developing North Carolina last fall, and contacted Womack for references. Womack pointed him to Dan Fisher, a Salisbury real estate developer who is a corridor and property manager in the Rail Division of the N.C. Department of Transportation. Fisher already had energy contacts: He’s been conferring for several years with Washington, D.C., lawyer Bill Brack, who had his own firm, Energy Security. Brack’s firm was envisioned as the parent company of the North Carolina subsidiary bearing the same name.
Fisher was also working informally with J. Daniel Butler, a Southern Pines lumberman and real estate investor who owns more than 3,200 acres of drilling rights in Lee County. As the county’s single largest owner of “mineral rights,” which he acquired decades ago, Butler has the legal right to drill for natural gas deep under the surface of properties that are owned by others.
By January, Rabin completed this loose association and began participating in an electronic exchange of business plans and emails.
“I thought Rabin was going to be the answer,” Fisher said last week in a phone interview. “He had a company. He was Sen. Rabin’s son. He came in saying, ‘I can put this together, I’ve done all these deals.’”
Mark Rabin said he’s brokered between 100 and 200 deals, typically ranging between $1 million and $3 million, the biggest at $8 million. Yet according to one of the business plans the group was considering, the North Carolina operation would cost as much as $125 million.
Their email exchanges show that Fisher, Butler and Rabin met with the N.C. Geological Survey in January, at the height of the trio’s energy euphoria, to conduct due diligence. After that meeting, Butler emailed Fisher and Rabin as well as senior state geologist Jeffrey Reid and state geologist Kenneth Taylor.
“Our time together yesterday was outstanding!” Butler wrote in an email obtained from Rabin. “I think it can be done for a lot less and will get additional information to be pertinent to our project in Sanford.”
Reid promptly advised Butler to curb his enthusiasm.
“Being the first holes, and the depth involved, you will be surprised at the cost – do not underestimate what can, and will, go wrong!” Reid wrote back. “I have had several personal catastrophes drilling that were by bad luck despite our careful planning and contingency plans.”
Rabin had been working his contacts and retained the services of geophysicist Jeff Sporl, in Durango, Colo., to work up data, mapping and other technical estimates. According to emails and invoices provided by Rabin, Sporl logged about 64 hours of work in January, February and March, and billed $9,893.
Sporl said earlier this month that he is still waiting to get paid before he releases the engineering study. Rabin acknowledged that it’s ultimately going to be his responsibility to pay the bill.
In a phone interview, Sporl dismissed North Carolina’s shale gas resource as “small potatoes” and its energy explorers as “naive characters.”
For his part, Butler disavowed any association with Fisher and dismissed Rabin as “totally unreliable.”
“I resent very highly the insinuation that I have any involvement with these people,” Butler said in a phone interview. “I’m not involved with anybody.”
Rabin said Butler second-guessed him and had unrealistic expectations.
Rabin and Brack broke off contact in April, but Brack said he is still pushing ahead with his energy plans, noting that his interests here extend beyond fracking and include alternative energy vehicles fueled by natural gas.
“This industry has a lot of different people – they’re not all on the up-and-up,” Brack said. “It’s simply a matter of putting something together that landowners trust.”
Following the richest vein
Around Lee County, it’s widely understood that if fracking ever gets underway, Southern Pines resident J. Daniel Butler stands to reap the financial windfall from much of the natural gas produced. Butler is the county’s single largest owner of “mineral rights” below properties owned by Lee County residents.
Lee County residents who own their mineral rights would also profit if they negotiate high royalties and other favorable terms.
According to research conducted this year by Butler and others, the most promising area to drill three to six test wells would be a 12-mile straightaway mapped in 1986 and known as Seismic Line 113. Seven vertical test wells were drilled along the line between 1974 and 1998, and all showed indications of the presence of natural gas or oil.
The energy-rich vein courses under such Lee County landmarks as the Ole Gilliam Mill and Jackson Brothers BBQ, as well as Tramway Elementary School and the Cricket Hearth subdivision in Sanford. Seismic Line 113 crosses the properties of 91 different owners.
Butler’s access is governed by 1975 land deeds that transferred the mineral rights to his possession. Those deeds give Butler “the right to enter upon said lands for the purposes of drilling” and also “to occupy and make use of so much of the surface of said land as may be reasonably necessary.”
The deeds also require Butler, who lives in adjoining Moore County, to pay Lee County landowners for any damage to their land or crops from his drilling operations. According to Lee County property records, 37 landowners are bound by the terms of these deeds.
Staff writer John Murawski
The story so far...
2008: N.C. Geological Survey publishes evidence of natural gas trapped in the state’s Triassic-era shale rock formations.
2012: Energy legislation passes over Gov. Bev Perdue’s veto. It calls for creating fracking regulations and sets a moratorium until the rules are adopted. Mining and Energy Commission starts meeting to develop the safety rules.
2014: New law eases the moratorium and lets the state’s future fracking rules go into effect without a legislative vote.
March 17: The fracking moratorium ends, and safety rules go into effect.
May 6: The moratorium is reinstated when a Wake County judge halts the approval of fracking permits until the N.C. Supreme Court rules on a related legal matter.