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BART SWEAZEA

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Bart Sweazea, president and CEO of Bedford, Texas-based Pangean Energy, talks with the Opportunist’s Managing Editor Leslie Stone about his success in the Barnett Shale of North Central Texas, his new projects in North Dakota and Montana, and why he believes hydraulic fracturing—also known as fracking—is the best thing that’s ever happened to the U.S. oil and gas business.

Bart Sweazea knows the oil industry inside out. His hands-on experience covers practically every facet of the business—from exploration, to drilling, to oil and gas brokerage. “I guess you could say I’m a jack-of-all-trades who went up through the chain of command from the bottom of the hole to the boardroom,” he says. “Most CEOs have never gotten their shoes dirty or had their hands on a drilling bit or rig. They wouldn’t know a packer if it was sitting on the table. I have rebuilt motors on drilling rigs in the middle of the night—on Christmas Eve—in sleet and snow just so we could keep drilling. You cannot buy that kind of education.”

Sweazea helped to launch one of the first well drills in the Barnett Shale—a geological formation beneath the city of Fort Worth, Texas, that some experts say might contain the largest onshore gas reserves of any site in the country—before the boom in horizontal drilling. “We were drilling for the majors such as Quicksilver, Denbury and Devon and we did a few for Chesapeake,” he explains. “We were drilling like crazy and finished in about 14 to 16 days, which is almost unbelievable. I took advantage of that situation because I wanted to learn.”

Today, Sweazea is revered for his knowledge and expert view on the state of the oil and gas industry and frequently appears at conferences around the country. He will be the keynote speaker at the Bakken Product Markets and Takeaway Capacity Congress in Denver on January 30, and he will also be speaking at the Pipeline Pigging & Integrity Management Conference in Houston in mid-February. [See websites listed below.]

Opportunist: For those who don’t know, can you explain exactly what shale is and why it’s so important to the oil and gas industry?

Bart Sweazea: Shale is the most abundant sedimentary rock. It’s very dense and similar to granite. You hear people talking about frac jobs a lot these days and that’s because the formation is so hard that you cannot get the hydrocarbons out unless you frac [fracture] it. Years ago, people in oil and gas extraction didn’t realize shale was vertically fractured and the product was stored within those fractures. Imagine wrapping a granite countertop around a curved surface—it fractures vertically. Through trial and error, a man named George Mitchell was the first to figure out how to crack open the layers of impermeable shale rock in the Barnett formation using hydraulic fracturing. Once he found out it was vertically fractured it became obvious it needed to be drilled horizontally. Texas was the first state off and running, and George Mitchell became the first fracking billionaire.

Opportunist: How does hydraulic fracturing work?

Bart Sweazea: Going sideways through the formation allows you to drill across those fractures. The further you go horizontally, the more fractures you crisscross and the more you expose the productive areas to the well bore. That’s where you can extract the product and raise it to the surface to sell.

Up until the 1990s, although drilling had been going on for 100 years, America had not realized what an impact these shale formations would have on the country. The United States has more shale than any other country on the planet. Through our experimentation in Barnett, we learned how to crack the formation open and get more product out. The way that is done is by taking sand and water—and now they’re even using ceramics—and pushing it into the existing fractures so the product will come to the surface.

Opportunist: How has this technology changed the oil and gas industry?

Bart Sweazea: The neat thing is this has changed the game because we aren’t necessarily exploring for oil and gas anymore—we are exploring for oil reserves that we know are already there. Oil is trying to get to the surface and it’s following the path of least resistance, so it will stop when it finds a storage space. Whether the storage space is in a sand formation or an old sheath of limestone, all of these rocks have a certain amount of permeability and porosity. Permeability and porosity is what makes a good production because the oil will travel to the surface and it will get trapped. Permeability allows it to flow out while the porosity is the storage space.

Opportunist: So are you saying that these so-called blanket formations of shale actually make it easier to harvest the oil and gas?

Bart Sweazea: Ninety percent of the time we were looking for oil and gas traps, which are hit and miss. That is what makes the oil and gas business, theoretically speaking, a very risky business. We have learned how to harvest the oil from the shale formations that we already know are there—and keep in mind that we have been drilling these formations for 100 years. We always knew where they were—we have logs and seismic data to show us—we just thought they were garbage all this time. Now we can go back into these old fields where there is a thick layer of shale and drill horizontally and fracture them and produce the product and sell it.

Opportunist: Why does fracking get so much bad press?

Bart Sweazea: When an oil company comes to town everybody wants to make a dollar. They exaggerate the truth to try and squeeze more money out of the oil companies because they believe the oil companies are making more money than they are. Fracking shale is the best thing that has ever happened to the oil and gas business. It’s going to give us energy independence and eliminate our need to buy our oil and gas from foreign countries.

Opportunist: What initially attracted you to the oil and gas business?

Bart Sweazea: I grew up watching ‘Dallas’ and ‘The Beverly Hillbillies,’ so I knew the oil business was something that could make you a lot of money and I was intrigued with that aspect. In my early 20s I went to work for Gulf States Petroleum, an oil and gas exploration company in Dallas that was basically drilling wells. I immediately knew this was the kind of business I wanted to be in and found myself wanting to know more than what I learned at work every day. I would constantly sneak past the president’s office to the geologist’s office to find out exactly how the oil got there, how it was trapped and the different methods for extracting it. I eventually got my brokerage license and started selling oil and gas deals. Then, while working with geologists to find better projects for my investors, I decided to start pursuing my own projects and drilling my own wells. We knew that shale projects were going to be the next big thing in the energy business.

Unfortunately, I was almost killed in a head-on collision that knocked me out of the game for about six months. When I recovered a friend offered me a job out in the field helping to run a solids control company. Solids control is basically the back yard of the rig that removes the cuttings from the drilling fluid and the mud. I was running that for six rigs at a time.

Opportunist: What made you decide to go out on your own?

Bart Sweazea: I already knew how to put drilling projects together and I had a good background in geology from my personal studies, but I wanted the experience of being on the rig and actually going through the drilling process and seeing how it worked so I could have a complete understanding of the process from start to finish. We had drilled quite a few wells in Texas, Louisiana, Ohio and Oklahoma and we were doing really well about the time the first Barnett Shale play was taking off. There are literally hundreds of wells there now, by the way. I did that for about eight years and then I was ready to start my own company.

Based on my experience in the Barnett Shale, I wanted to get involved in shale drilling. I have drilled 425 wells so far and never missed a single well there, and that is when I realized the best place to drill an oil well is in the middle of an oil field. Before that I had been drilling projects all over the place, in much riskier places. When you’re looking for sand formation or reef formation they are hit or miss. You can have a great location and move one location over and drill a dry hole. These big shale deposits are what we call a blanket formation, which means as long as you don’t step off the edge you will find production.

My first projects were independent deals that I put together with a core group of geologists and investors.

Opportunist: When did you form Pangean Energy?

Bart Sweazea: In 2011. I had built contacts throughout the industry, including drillers, engineers, all the third-party contractors involved and had made connections that allowed me to immediately step into my role as the president and CEO and do what I needed to get the job done and get it done right. My primary role is in securing the leases and managing the fund-raising operations to make all of this happen.

Opportunist: Is there a meaning behind the name?

Bart Sweazea: Pangaea was the supercontinent from 300 million years ago before it separated into the continents that exist today. So, we thought of Pangean Energy as kind of a one-world kind of deal because it’s basically true that we are all still living on Pangaea—and we are drilling for fossils that are 300 million years old.

Opportunist: Can you tell us a little about your current projects?

Bart Sweazea: Pangean Energy is heavily invested in the Bakken Shale. We have over 87,000 acres under lease option that we are starting development on in 2014. We also plan to move into the Chainman Shale in Nevada and the Pilot Shale, which are the rock equivalents to the Bakken and Barnett formations. Engineers have tested the area and discovered that the chemicals were deposited at exactly the same time as the Bakken and Barnett formations, which are the two biggest producers in our country. We have already leased 46,000 acres and plan to start development in late 2014.

In the Williston Basin of the Bakken Shale, we are starting a project in Dunn County next to Chesapeake, and we also have acreage in North Dakota’s McKenzie, Williams and Divide counties that we will be drilling throughout 2014 and 2015. In addition, we have a project to put a refinery or rebuild a refinery in Roosevelt County, Montana, to process 20,000 barrels a day starting out from the Bakken.

Opportunist: Who is your competition?

Bart Sweazea: We have a lot of competition fighting for leases and the opportunity to claim their stake in these projects, but we spent all last year securing acreage that will keep us busy for the next 10 years. I also believe our overhead is lower due to the fact that we have the best professionals in the business on our team. We believe we can make some of the biggest wells and biggest production in these areas at a lower cost to our investors, which will bring them much higher returns.

Opportunist: Are any joint ventures in the works?

Bart Sweazea: We have a joint venture with PetroTech Oil and Gas, a publicly traded oil and gas technology firm [OTCMKTS: PTOG] and we are also working very closely with Ringo Drilling on all of our Bakken projects as well as our Nevada acreage. We also work with D.S. Services, a Houston-based engineering firm that specializes in a new type of frac technology, and we have a dream team of geologists, geophysicists and engineers that we put together over the past 12 months to lead the charge.

Opportunist:  From your vantage point, do you believe it’s possible for the United States to become less dependent on foreign oil?

Bart Sweazea: I believe the shale boom is going to change America and, hopefully, bring it back to its glory days. It’s a fact that when we’ve got inexpensive or affordable energy, companies can do more, people can get more places and get more done and make more things happen and that is exactly what we need in America. When we are at the mercy of foreign countries that are holding all the oil and gas at an extremely high price they are basically holding us for ransom. America is now in a position to provide its own energy and eliminate the need for foreign oil because we have enough shale oil in this country to last 100 years. We already know where it is—all we have to do is go and get it. In the 1980s President Reagan made investments in domestic oil and gas exploration 100 percent deductible for U.S. taxpayers. He did that so we could reduce our dependence on foreign oil. He wanted Americans to get behind America and he gave us those advantages to stimulate that movement. That was a great offset to the risk associated with oil and gas because investors knew going in that if the hole was dry they could at least write off the loss on their taxes.

New technologies and advancements in oil shale development have reduced the risk in oil and gas investment. Americans should rally behind the oil and gas industry here in this country because it not only will eliminate our need for foreign oil but will also create hundreds of thousands of jobs. It’s a win-win.

Opportunist:  What are the benefits of investing in energy?

Bart Sweazea: One of the greatest benefits of investing in oil and gas is not only the tax benefit but also the fact that you don’t have to leave your money tied up in a stock portfolio and worry about whether it’s going to crash. You receive monthly checks based on production that you can use to enjoy your life.

However, I will say that oil and gas is not for everyone. Even in shale plays, just like any investment, there is risk. You could lose all or a portion of your investment due to a dry hole or a marginal producer. But, like I said earlier, the best place to drill is in the middle of an oil field and we know exactly where those fields are. There were over 54,000 millionaires made in the Bakken Shale play in North Dakota last year. That’s a pretty impressive number. In the past three years there has not been a single dry hole in the Bakken Shale. That doesn’t sound too risky.

Opportunist: Are there any plans to take the company public?

Bart Sweazea: We talked about it but at this point we are going to iron out some of this production before we make that move. If we go public our investors lose their tax benefits. For example, if you invest in Exxon, a publicly traded company, you don’t get the tax write-offs you get when investing in a private company. The way it stands now, 15 percent of each dollar an investor makes out of the ground is tax free. Let’s say you’re in the 39 percent tax bracket and you have $150,000. Thirty-nine percent of that $150,000 would have been a tax liability, but with this write-off Uncle Sam is basically subsidizing your investment. That is what Ronald Reagan did for us; God bless him.

Opportunist: Where do you see Pangean Energy in five years?

Bart Sweazea: I am in my prime, so I look forward to seeing my company become one of the most efficient oil and gas operations in the country. We have a lean-and-mean team of professionals with the aim of keeping our costs down and our returns up. We have relationships with the finest contractors in the drilling and completion business and we intend to take that experience with us as we move forward with the Bakken Shale in North Dakota and the Chainman Shale in Nevada.

Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in Florida. Follow her on Twitter at @les7989.

Pangean Energy - www.pangeanenergy.com

For more information call: (888) 987-5738

Bakken Product Markets and Takeaway Capacity Congress - http://www.bakken-product-markets-2014.com/

Pipeline Pigging & Integrity Management Conference - http://www.clarion.org/ppim/ppim14/index.php

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