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Last Update: Tuesday November 19, 2019

Key Idea: Use Technology To Reduce Risk

Keith Hutton explains how XTO targets the precise location for drilling.

Key Question:

A: 

Each year technology takes us deeper within "inside space." We see things that have never been seen before. Even today, the genomics research is opening the way to hundreds of new start-ups based on things that were not even imagined just a few years ago. And, this work is just beginning.

Most of our common sense world view is based on the sciences that describe things outside of ourselves. The new world of science is an ever-increasing exploration of that which exists deep within. There are various starting points for this exploration, however, to date there are no generally accepted "first principles" of interiority or interior states.

Here is a domain rich for exploration and for new business opportunities. And Google, with its complexity of new algorithms that create order out of massive blocks of data, is an excellent example to study and to use to explore this domain further. 

Q: What makes XTO Energy / Cross Timbers Oil different from the "big" oil companies.

A:
Bob and Steve go into an oil field after the big companies are finished with it. A big company will drill holes and if the site doesn't produce a certain number of barrels per day, they declare it a "dry hole." Big companies have big overhead and they must have a certain production level to stay profitable. XTO / Cross Timbers buys these "dry holes" from big companies and is able to make a few changes in the hole and drilling techniques in order to pump enough to make money. It is like feasting on the crumbs from the King's table.

Q:
Is there a place for 3D -- three-dimensional geometries -- within your business modeling?

A:
Yes. First, examine your database. Typically databases are two-dimensional, a spreadsheet of columns that describe various facets of a business. Now, take that information and place an active time stamp on each piece of information, then place the names of the people who have updated the information with an additional time stamp. You are now looking at a simple, but relatively complex 3D model that could give you an amazing ability to parse a 400,000 name list and get just the 20 businesses you desire. We are all heading in this direction! Make sure you have a robust database. Ours is DB2.

Think about it

What new technology should you be considering now?

Clip from: XTO Energy (aka Cross Timbers)

"I'll be back."

Fort Worth:  Remember when oil was $9 per barrel?  Bob Simpson and Steve Palko do.  They founded Cross Timbers Oil & Gas in Fort Worth at the same time others were getting out of the business. These two visionaries with a long range plan  teach us all what it means to take calculated risks.

Palko was the  VP of Engineering for Southland when there was a hostile take over of the company.  As a reminder to everyone in their newly-formed venture, one of the first things he did was to buy the "I'll be back" bronze (above).   And, surely, they did come back with a vengeance!

Today, know as XTO Energy, the business has quickly grown out of the ranks of a small business, but we believe the spirit of small business will permeate this business forever.  These people dream the impossible dreams then turn them into multi-faceted realities with deep-seated values.

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XTO Energy, Inc.

Gary Simpson, Senior Vice President

810 Houston St.
Fort Worth, TX 76102-6298

Visit our web site: http://www.xtoenergy.com

Business Classification:
energy, oil and gas

Year Founded: 1986

Use Technology To Reduce Risk

HATTIE: (Voiceover) Keith Hutton is a petroleum engineer and calculates risk.

KEITH HUTTON: (Voiceover) There's a finite amount of oil and gas, so that'll always decline. What you're really looking for is an area where it declines slowly, which probably means there's more in the ground in that particular area.

We look for a company selling properties that we think shouldn't be selling, that have a lot of upside but have been undermanaged for a while. Not to knock those particular companies, but to them, it's small potatoes. Then, we'll pay a pretty good-sized amount of money for that property, but the key is, if that property has the right attributes, we normally increase the return on it.

We usually find 60 percent more reserves than what were thought to be on the property.

One of the things that happened when we bought a property producing about 1,000 barrels a day-- by the end of this year, it's 2,900 barrels a day.

HATTIE: You've tripled it.

KEITH: ...triple production.

HATTIE: So you're pretty good at knowing where to drill.

KEITH: Yes, we are. Our success ratio has averaged about 97 percent every year, which means 97 percent of the wells that we drill find oil and gas.

HATTIE: Doesn't that sound astounding? I mean, isn't that just like -- how can that be? How can you get it so right?

KEITH: It's basically the type of drilling that we do. What we're doing is drilling wells where oil and gas already exists.

TECHNICIAN: There's been big advances that have occurred in the oil and gas business; it's really revolutionized exploration and development. The computer. Since about 1990, the big thing in geophysics has been the advent of 3-D seismic.

(Pointing to an illustration) This is a well right here that's been drilled. It's a dry hole, OK? I can pull up that line and take the well information and create a synthetic seismic section from the well information.

(With this new technology dry holes often become productive again by redrilling in a slightly different direction than the original hole. The soil samples from the old hole provide the key seismic data.)

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