Land is king in 21st century Texas
CEOs under 40 making millions in the oil business by flipping leases
John Sellers and Cody Campbell are holding court one hot August evening in the corner of an oil-themed dive bar in Midland, Texas. After flying in on their private jet, they’re shaking hands, cracking jokes and talking deals with aspiring oilmen, contractors and land traders, almost all in their early 30s. A life-size, stuffed grizzly bear stands by a wall wearing a baseball cap embossed with: “Make Oil & Gas Great Again.”
It’s not difficult to see why Sellers and Campbell are in such high demand in this hardscrabble city that has become the global center of the shale revolution. Over the past decade, they’ve bought and sold tens of thousands of oil leases in the Permian Basin, making deals blessed with a handshake in diners, on the hoods of trucks and in bars such as this.
The co-CEOs of Double Eagle Energy III Holdings may be the most prolific, and richest, Texas dealmakers you’ve never heard of. At just 36 years old, they’ve personally made at least $500 million combined, according to an analysis by the Bloomberg Billionaires Index. They declined comment on their wealth.
The oil industry has produced many billion-dollar fortunes, from H.L. Hunt, who rose to fame in the 1930s, to Harold Hamm, who led the innovations in shale that began in the 2000s. But while most were made from striking oil, the new game in town is land. Sellers and Campbell began as land men, specialists in buying and quickly selling drilling rights, which, in Texas, are all privately owned.
“You can have the best drilling engineer, the best geologist, the best of everything, but if you don’t own an oil and gas lease, you can’t drill a well,” Campbell said, wearing a polo shirt, jeans and cowboy boots and sipping whiskey on the rocks. “The land man was always looked down upon because he wasn’t a scientist. Not anymore.”
They’re not alone. Dozens of young entrepreneurs, mostly in their 30s, are running private-equitybacked companies in the frenzied boom in West Texas and New Mexico that may each be worth billions of dollars.
Whether they realize that kind of cash will depend on the vagaries of the shale industry, where consistent profits remain elusive. Rising costs and pipeline shortages have put the brakes on growth this year. And like any property boom, an early entry can make a career while being late can break one. Many of the young men admire the late Aubrey McClendon, the founder of Chesapeake Energy Corp., who became a billionaire leasing land for natural gas drilling in the 2000s. But he’s a cautionary tale: He was ousted after he had borrowed heavily betting on rising gas prices that never came.
The young upstarts are unperturbed by all that. With larger rivals continuing to bulk up — $30 billion in deals have been announced in just the past six months — they see themselves as prime takeover targets, and they’re angling for that big payday.
Sellers and Campbell have been friends since their days in junior high school just south of Amarillo. They played football together, first in high school and then at Texas Tech University. Sellers was a defensive lineman and Campbell an offensive lineman who’d go on to have a brief NFL career before a pectoral injury drove him out of the game.
They had gotten into real estate while in college, but business stalled in 2008 due to the financial crisis. So, on the advice of friends, they put whatever they had left into a lease in the Haynesville shale play in East Texas. They were able to quickly sell it to an operator who was looking to drill and made a profit.
For the next four years they perfected the play, expanding to the Eagle Ford in South Texas and the Permian to the west. “It was all in, all in, all in, every time,” Sellers said.
Their model at first was to simply flip leases quickly and then to participate as a non-operating partner in drilling. But they soon saw that the fast-growing world of fracking opened up a massive opportunity, one that fit perfectly with their backgrounds in real estate.
Historically, Permian wells were all vertical, meaning there was no incentive to find adjoining land. But since the late 1990s, when fracking began, shale production has meant drilling sideways, pumping water, sand and chemicals at high pressure to create cracks in rock deep in the ground to release oil or natural gas.
As operators became more sophisticated, they drilled wells longer, running horizontally for two, sometimes three miles. That meant they needed to line up multiple, connected land leases. The shale game became less about finding oil and more about patching together the land needed to drill long wells. That’s what Sellers and Campbell do — put the jigsaw puzzle together. And, of course, several contiguous leases that enable two miles of horizontal drilling are worth exponentially more than by themselves.
“In certain areas we’re in now, it’s thousands of people who could own units you think can be drilled,” Campbell said.
In 2013, private equity came knocking. With the shale revolution well underway, Apollo Global Management backed Sellers and Campbell in an Oklahoma deal in which they more than quadrupled the original investment in a year, they said.
Their biggest payout to date came last year, when they sold about 70,000 acres to Parsley Energy Inc. for $2.8 billion. Since then they’ve raised more money from Apollo, assembled an even larger position of 80,000 acres and started a drilling company. Based on recent sales prices, their current holdings could be worth as much as $6 billion. They declined comment on that estimate.
The two have a reputation for being aggressive buyers, freely paying broker commissions, a practice that often held up deals in the past.
“If someone brings us a deal, they’re going to be well-compensated,” Sellers said. “Our philosophy is we don’t care what other people make as long as we’re OK with the price.”