Monday, April 27, 2015

Enron's last laugh at Peggy Noonan

Back in 2002 WSJ columnist Peggy Noonan explained her brief role working for Ken Lay and Jeff Skilling; she was supposed to write Enron's annual report to stockholders;
I ... worked hard and tried to put together a speech and make a contribution to the annual report, but none of it really worked. Mr. Lay used at least part of the speech I worked on, about deregulation and its challenges. Some of what I tried to write for the annual report made it in. But mostly my contributions weren’t helpful, and I think for two reasons. One was that the guys at the top, and in the middle, seemed unable to communicate to me exactly what it was the company was doing to make money. So I didn’t absorb the information and make it understandable to others. The other was that I think I sensed a sort of corporate monomania at the top—if you can’t understand what we’re doing then maybe you’re not too bright.
But the key part was that I couldn’t help them explain their mission because I didn’t fully understand what their mission was. I understand what the Kenneth Cole shoe company does. It makes shoes and sells them in stores. Firestone makes tires. I couldn’t figure out how Enron was making its money, what exactly it was selling, and every time I asked I got a kind of gobbledygook answer or a cryptic one, like “The future!” [our bold]
Turns out they were. And the future was fracking;
EOG came from the most unpromising of beginnings. Its original name was Enron Oil & Gas Company and, until 1999, it was majority owned by Enron, the fraudulent energy group that collapsed in 2001. Having secured EOG’s independence just in time, though, [Mark] Papa led it to a strong position in the fast-growing shale gas industry.

Innovations driven by an industry veteran called George Mitchell had made it possible for the first time to produce gas at commercially viable rates from formations such as the Barnett Shale of north Texas. EOG was an early adopter of the technology....
When EOG found itself with an overabundance of natural gas, as well as many competitors who did too, they innovated some more and discovered they could also push oil through shale;
Conventional wisdom held that while small gas molecules might be able to slip through the tiny pore spaces in shale rocks, much larger oil molecules could not. “If you had taken a poll in 2005 of 1,000 industry executives, 999 of them would have said you cannot flow oil commercially through shales, because the hydrocarbon size of oil is too large,” he says.
Rather than taking the conventional wisdom on trust, Papa was determined to find out for himself. EOG studied shales using CAT scanners, and concluded that although the pore spaces were small, they were still big enough for oil to flow through them. Even so, when Papa announced his planned pivot to oil, many of EOG’s managers were sceptical.
 Now he's a billionaire too (and can afford to buy his wife tailored leather slacks like Mrs. Ken Lay had). And American motorists are again paying less than $3 for a gallon of gasoline.

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