From the Wall Street Journal:
Over the past five years of business history, two events have shocked and transformed the nation. In 2007 and 2008, the housing market crumbled and the financial system collapsed, causing trillions of dollars of losses. Around the same time, a few little-known wildcatters began pumping meaningful amounts of oil and gas from U.S. shale formations. A country that once was running out of energy now is on track to become the world's leading producer.
What's most surprising about both events is how few experts saw them coming—and that a group of unlikely outsiders somehow did. Federal Reserve chairmen Alan Greenspanand Ben Bernanke failed to foresee the financial meltdown. Top banking executives were stunned, and leading investors such as Bill Gross, Jim Chanos and George Soros didn't fully anticipate the downturn.
Wall Street talks up the importance of being contrarian. But in 2007, most traders subscribed to the mantra that the Fed wouldn't let housing crumble or that the boom would continue, while others couldn't find a good way to short subprime mortgages. They left it for the amateurs to figure out.
Less well known, but no less dramatic, is the story of America's energy transformation, which took the industry's giants almost completely by surprise. In the early 1990s, an ambitious Chevron CVX -0.42% executive named Ray Galvin started a group to drill compressed, challenging formations of shale in the U.S. His team was mocked and undermined by dubious colleagues. Eventually, Chevron pulled the plug on the effort and shifted its resources abroad.
Exxon Mobil XOM +1.04% also failed to focus on this rock—even though its corporate headquarters in Irving, Texas, were directly above a huge shale formation that eventually would flow with gas. Later, it would pay $31 billion to buy a smaller shale pioneer.
"I would be less than honest if I were to say to you [that] we saw it all coming, because we did not, quite frankly," Rex Tillerson, Exxon Mobil's chairman and CEO said last year in an interview at the Council on Foreign Relations.
In 2003, Alan Greenspan warned that the nation's gas fields were running dry and urged Congress to back costly facilities to import gas. Famed investors Warren Buffett andHenry Kravis invested in a record-setting utility-company buyout in 2007, wagering that a dearth of U.S. natural gas would send prices higher. Instead, the U.S. has so much cheap natural gas today that it is set to export it. The country is also pumping 7.9 million barrels of oil a day, up more than 50% since 2006 and the most in nearly 25 years.
The resurgence in U.S. energy came from a group of brash wildcatters who discovered techniques to hydraulically fracture—or frack—and horizontally drill shale and other rock. Many of these men operated on the fringes of the oil industry, some without college degrees or much background in drilling, geology or engineering.
In the late 1990s, George Mitchell, the son of a Greek goatherder, ran a midsize Houston-based company with shrinking natural-gas production. His stock price was falling, the industry was on its back, the 79-year-old had been diagnosed with cancer and his wife was in the early stages of Alzheimer's disease. In almost two decades of trying, his men had not been able to coax enough natural gas from Mitchell Energy's DVN -0.47% Texas shale fields. But in 1998, one of Mr. Mitchell's engineers finally figured out how to properly fracture shale, stunning colleagues and larger competitors while launching the American energy revolution.
Harold Hamm grew up dirt-poor in a tiny town in Oklahoma. He began school around Christmas-time each year, once it became too cold to pick cotton, and he started his career raking out oil tanks. Over the past six years, Mr. Hamm and his company have discovered so much oil in North Dakota that he is now worth $14 billion.
Aubrey McClendon and Tom Ward of Oklahoma were land-leasing specialists; they managed to build the nation's second-largest gas producer by leading the charge into shale fields. Charif Souki, a Lebanese immigrant and former restaurateur who knew more about fajitas than fracking, today runs Cheniere Energy, LNG +0.86% a Houston-based company that is on track to become the first to export gas from the contiguous U.S.
Bucking conventional wisdom is always risky, and many would-be mavericks in finance and the energy industry have failed. But corporate caution and complacency have their costs too, and today's emphasis on short-term performance means that executives are even less likely to take long-term risks, to anticipate the unexpected. For the next great business revolution, it would be smart to bet once again on stubborn, flamboyant dreamers.
