The founder and CEO of Parsley Energy, Bryan Sheffield, became a billionaire when his... Read More
After earning an undergraduate business degree, he moved to Chicago and traded futures. By his late 20s, he was trading German bonds at an office in Gibraltar and living in a beach town on Spain’s Costa del Sol.
“I never dreamed of becoming an oilman,” Sheffield says. He’s sitting in his black GMC Denali, parked beside a nodding donkey pump a few miles west of Midland that’s been pulling two or three barrels of oil a day out of the ground since Joe Parsley, his grandfather, drilled the well some three decades ago. “It’s just this magnet that pulled me back,” he says.
The oil industry drew Sheffield in partly because the world of interest-rate swaps and sovereign debt pushed him out, Bloomberg Markets magazine will report in
its December issue. Sheffield says his income never cracked $100,000 a year on the trading desk. “I was a scratch trader. I was drinking beer while my friends were ordering hundred-dollar bottles of wine.”
Bryan Sheffield built Parsley Energy on the idea it could squeeze more oil from old... Read More
Fracking Revolution
Count Sheffield’s success among the many stories that, taken together, add up to a fracking revolution in the U.S., boosting domestic oil supply and cutting imports. And his success has come fast. As founder, chief executive officer and largest shareholder of Parsley Energy, Sheffield became a billionaire when he took the company public in May. He was the youngest billionaire in the oil business, although the drop in crude prices and shares of fracking companies in recent months has pushed his net worth below $1 billion, at least for now.There are about two dozen billionaires worldwide under age 40 who have been identified by the Bloomberg Billionaires Index. Among them, Sheffield would be the only one whose fortune is self-made and not from a technology company.
Spraberry Trend
Sheffield’s wealth comes from 13.4 million Parsley Energy shares, which represent a stake of more than 14 percent, plus convertible securities that could give him an additional 22.7 million shares. He also receives payments from the company under an agreement that was entered into when Parsley Energy went public. The size of the payment is based on the company’s tax liabilities, and Sheffield got $56 million shortly after the IPO.
Bryan Sheffield, left, posed with his father, Scott Sheffield; grandfather, Joe... Read More
The oil-bearing rock some 7,000 feet (2,100 meters) beneath the surface is known as the Spraberry Trend, part of the much larger Permian Basin. Only Alaska’s Prudhoe Bay field has bigger proved reserves than the Spraberry, according to the U.S. Energy Information Administration.
Stingy Field
Unfortunately, it’s tough to get the oil out. In 1953, a decade after oil was found, Time magazine dubbed the Spraberry the largest uneconomic oil field in the world. Traditional drilling gets at just 6 percent of the oil here, while the average recovery rate from an oil field is 35 percent, according to Rigzone, an industry publication.Even in this stingy field, some drillers have had success over the decades -- Bryan Sheffield’s forebears notable among them. In the late 1960s, Joe Parsley and his friend Howard Parker started what would become Parker & Parsley Petroleum Co., and they made money in the Spraberry. Parsley’s son-in-law, Scott Sheffield -- Bryan’s father -- eventually joined the business.
In 1997, Parker & Parsley merged with Mesa Inc., the oil and gas company built by T. Boone Pickens, to form Pioneer Natural Resources Co. (PXD) Scott became CEO of Pioneer and remains in that role today.
Boom and Bust
“In 1997, when I graduated high school, it was tough times in the oil business,” Bryan Sheffield says. He recalls his father cutting budgets and firing people at Parker & Parsley as boom turned to bust with surprising speed. A decade after leaving, though, Sheffield returned to Midland. As Sheffield’s attempt at a trading career was winding down, his grandfather pitched him on the idea of entering the oil business.When Pioneer was formed, Parsley retained the right to operate 109 wells that he had drilled years earlier. Sheffield got started in 2007 by managing those sites, which gave him some income -- a financial cushion. But merely collecting fees and overseeing maintenance crews held little appeal. He decided it was time to learn the industry thoroughly.
“I understood futures and spreads, butterflies and backwardation,” he says. “That was all I knew -- how to trade, speculate, hedge. I didn’t know what I was walking into.” For more than a year, Sheffield worked for Pioneer and studied how things are done. During this time, he talked on the phone with his grandfather almost every day, he says.
Buying Leases
In 2009, Sheffield began to raise money for his own drilling projects. He borrowed $500,000 from Curtis Kayem -- whose father had supplied pipe to Parker & Parsley -- to be paid back over five years. For extending the loan, Kayem got 10 percent equity in a company that had a plan but no assets: “Just my heart and soul,” Sheffield says.With Kayem’s money, Sheffield started buying lapsed leases just as the financial crisis and global recession caused oil prices to drop to a five-year low. He had the foresight to also acquire so-called severed rights, which give the buyer the right to drill beneath the upper layers of rock that are already leased. This has allowed Sheffield to get at a geologic formation deeper underground known as the Wolfcamp.
At the time, horizontal drilling and well stimulation techniques were just coming into their own; the fracking revolution was starting. Sheffield’s intention was to squeeze more oil out of an old field, in keeping with his grandfather’s advice to focus on predictable returns. He soon realized that the new drilling methods opened up the possibility of more spectacular profits.
Permian Basin
Scott Sheffield, 62, says development of the Spraberry and the Permian Basin is just getting started. “People will be going after these zones for the next hundred years,” he says. “The Permian will end up being the largest field in the U.S. and one of the top 10 largest in the world.”With a growing portfolio of drilling sites, Parsley Energy -- Sheffield named the company for his grandfather -- was able to attract bigger investors. In 2012 and 2013, the company borrowed a total of $200 million from Chambers Energy Management LP, a Houston investment bank where Phillip Z. Pace is a managing director; Sheffield had met Pace on a ski trip his father organized.
One of the lessons Sheffield says his grandfather taught him is that relationships matter in the oil patch. “There’s a mafia we don’t talk about -- a network in Midland,” Sheffield says.
Local Knowledge
His family connections helped him get started, and his relatives’ knowledge of the fields around Midland gave him direction. Pace says, however, that Sheffield built his success mostly through his own smart decisions. “It’s easy now for people to connect the dots and say he got lucky,” Pace says. “I watched it, and there’s a lot of skill to get from point A to point B. The key is, he executed really well, and his team is fantastic.”Scott Hanold, an oil industry analyst at RBC Capital Markets LLC, says Parsley Energy has assembled a good collection of drilling sites to tap the Spraberry and Wolfcamp rock formations.
“They’re positioned well in the basin,” Hanold says. One risk, though, is that investors have become overly enthusiastic about the region’s prospects. “A lot of times, early in the development of these plays when you see good initial results, there are heightened expectations for what growth could be. But over time, there are some logistical challenges and constraints that need to be considered.”
Exxon’s Arrival
Sheffield says the rising excitement about the Spraberry worries him insofar as it might increase competition for equipment, supplies, services and talented employees -- and raise his expenses.Exxon Mobil Corp. recently bought a 40,000-acre (16,000-hectare) ranch abutting Parsley Energy land. “It makes me nervous,” Sheffield says. “A big company that wants to ramp up to 50 rigs out of nowhere would drive up costs.”
To keep expenses down and help recruitment -- people often don’t want to relocate to Midland, Sheffield says -- Parsley Energy in August moved its headquarters to Austin, some 300 miles (500 kilometers) to the east.
Then there’s the risk no energy producer can fully control: falling prices. Oil mostly stayed above $90 a barrel during the past two years, and then it went into a swoon. Benchmark U.S. crude futures dropped 29 percent from their June peak to $75.47 a barrel on Nov. 17. Parsley Energy shares slid along with the commodity price, dipping under their IPO price in October, though they rebounded somewhat last week after the company raised its production forecast.
“Tough times for oil,” Sheffield says. “Luckily, we have a great zip code to drill in.” Even with the drop in oil and in his stock, Sheffield’s worth about $900 million -- much better off than he was as a trader living on the Mediterranean coast.
Sheffield says that when he looks back on the days when he thought he would make his fortune anywhere but in the oil business and in Midland, he’s amused: “I can’t believe I would ever think such a thing.”
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