Companies might turn to improving efficiencies in a downturn. But they would be unwise to turn away from technology. That mantra has kept Mike Harvey, chairman and CEO of Stonegate Production Co. and one of the Texas Independent Producers & Royalty Owners Association’s 2014 CEOs of the year, busy and productive since 1987.

Harvey began his career at Shell and had a few other positions before starting his own company, Gulfstar Petroleum, in ’87. In the 30 months between startup and sale, the company drilled 19 wildcats in the Gulf of Mexico and found 13 fields.

He founded Gulfstar Energy in the early 1990s and sold it four years later, moving then to Cheniere and spinning off Gryphon Exploration. That company was sold in 2005, and Harvey founded Stonegate in 2007.

“It’s great to start a company and build a company,” he said. “Investors want to make money—that’s why they invest. Starting companies, building them and selling them is the best way to do it. Take your money off of the table and reinvest it.”

It’s a strategy that has served him well. Harvey has relied on cutting-edge technology throughout his successful run. How is he able to discover 13 fields without a geology background?

“Hire the right people,” he said. “That was my first company. The second company had a better record than that, and the third was really successful.” That third company, Gryphon Exploration, was started with a $100 million line of private equity, of which he used $80 million, and it sold for $300 million. The second company, Gulfstar Energy, was started with $4 million in equity and $4 million in debt. It sold for $23 million four years after it was started.

“All of the companies I’ve founded have been focused on the use of leading-edge technology,” Harvey said. “The first three were geologically and geophysically oriented. Stonegate is completion- and drilling-oriented.

“I think the important thing is that we’ve always embraced technology.”

Enter The Eagle Ford

After his offshore successes with prior companies, Harvey directed his more recent focus to onshore plays. Initially he focused on fractured carbonates, and his attention was drawn to the Austin Chalk, which overlies and is sourced by the Eagle Ford Shale.

“The more we looked at the Austin Chalk, the more we realized we ought to be in the Eagle Ford,” he said. “We drilled our first Eagle Ford well in 2008 and fracked it in 2009. We were the leader in the oil window of the Eagle Ford.”

Stonegate’s acreage is located in La Salle and Dimmit counties. It began with 77,000 acres and sold a half-interest to Chesapeake.

So what has the company learned about drilling and completion technology through this endeavor? “On the drilling side, we’ve been able to reduce cost through a combination of selecting the right service companies but, more importantly, applying the known technologies that reduce costs,” he said. “It’s all about execution, execution, execution.

“On the completions side, it’s a different story. It’s marrying the rock properties with the correct completion technique.”

This is accomplished through core studies, physical rock studies, simulations, scientific observation and well performance observation, he added. This leads to experimentation with frack designs and then observing production results.

That is a large task, to be sure. “That’s why cores are so important,” he said. “We take a lot of core—conventional core, whole core. We also log one well on every pad. In fact, we recently logged two wells side by side and designed the frack in one well based upon the log and used our standard frack in the other one. We call it engineering the frack.”

Key Learnings

Harvey said there are many key learnings so far. For one thing, it’s important to realize that the rocks are very heterogeneous. Secondly, he said, a thorough understanding of the geology, rock mechanics and geochemical properties is a must. And seismic still has a role to play.

“There is a shift from using seismic data to identify traps and hydrocarbon indicators to identifying drilling hazards and structures,” he said. “It’s really using seismic as a development tool. But we’re also using it as an advanced tool in understanding lithology and deposition, things that you wouldn’t consider if you’re just manufacture-drilling.

“When you start seeing the variability of well performance, you start asking yourself a lot of questions that subsurface geology and geophysics can help you answer.”

One of the key strategies in Stonegate’s development is the use of W.D Von Gonten & Co.’s core lab in College Station, Texas. Harvey described Von Gonten as “the guru” when it comes to understanding the Eagle Ford Shale.

“He has put together a study with multiple operators,” he said. “We provide how we frack wells, where we frack wells, how we designed our fracks and our daily production, and he builds models based on all of this. He has been able to build a body of knowledge that far surpasses anyone else. He’s doing this in Argentina; he’s doing it for us and other Eagle Ford operators. He is also doing it in the Marcellus.”

Next Steps

Harvey said that Stonegate is rethinking its 2015 budget. Already the company has more than 100 MMboe of proved reserves, and it’s producing about 10,000 boe/d net. “We’re probably the only $1.5 billion company in town that nobody’s ever heard of,” he said.

If there’s any key to the company’s success, Harvey thinks it’s his hiring strategy. “We marry gray-haired senior management with young technical managers,” he said. “Our drilling manager is 30, our production manager is 33, our completions manager is 34, our reservoir manager is 34, our land manager is 30 and our CFO is 42. The senior officers are in their late 50s and 60s.

“What we found is that those of us who were raised and trained in the conventional business had prejudice and preconceived notions about the unconventional business, whereas the young professionals don’t. In fact, I joke and say they think every well has to be horizontal and everything has to be fracked, but literally that’s how they think.

“Rocks that would be sub-par for us in the conventional business are day-to-day for them. That lack of prejudice has caused our industry to make enormous leaps forward. So I’m a big proponent of smart, young, driven people. So young they’ve never drilled a vertical well.”

Contact the author, Rhonda Duey, at rduey@hartenergy.com.