'Wildcatters' Hoping for High Oil Prices

Nov. 6, 2007— -- At gas stations across the United States, people aren't very happy about where the price of oil is heading this week, this month and this year.

But if you're the one pumping the oil, like Cactus Schroeder, those oil prices just keep getting better and better.

"When I get out of the state of Texas I don't spread the news around that I'm in the oil business," said Schroeder.

Schroeder is most certainly in the oil business -- he owns several boutique-scale oil wells in and around Abilene, Texas, and with crude bumping up near $100 a barrel, he faces a whole new landscape. The price of crude oil has never hit the triple digit mark, and just yesterday Schroeder and his team were out drilling a brand-new well. By this morning, they had already drilled a mile into the earth.

Little Oil

Schroeder has a notion there's some new oil to be found beneath the Texas earth, and he has struck oil not too far from his new well site. Whenever you see one of the horsehead pumps in oil territory -- some people call them nodding donkeys -- there's a hole with oil under it that someone's found.

"What I'm looking for out here [are] wells that'll make 100,000 barrels per well … ;in it's lifetime," Schroeder said.

Actually, that's not big oil. It's the opposite: Guys like Schroeder are little oil, working the fields the major oil companies abandoned long ago. The area around Abilene used to be Texaco territory; Schroeder and his ilk lease the land, get some acquaintances to put up money, and then they go for it. You could call it a mom-and-pop operation, but those in the business call risk taking guys like Schroeder wildcatters.

"People think of them as being gamblers, but I'm more of a taking a calculated risk," he said. "And once you weigh the risk versus reward, then you've got a much better idea of your business plan."

Business plan? Risk-reward ratio? Wait. His name's Cactus. This is Texas. Don't we have stereotypes to protect here?

As it turns out, Cactus is a childhood nickname. His full name is Charles Schroeder III, and he's the son of a military officer.

A former junior high school tennis teacher, Schroeder got a second college degree and became a geologist. Schroeder was on hand yesterday morning as that drill kept drilling. He had done his homework on the geology of the location, and he knows how to analyze the soil that's coming up.

"That's roughly about 70 percent oil and about 30 percent saltwater, which is still a pretty good oil cut," he said, holding up a sample.

Money in the Bank, or Down the Drain

But Schroeder is a gambler as well as a scientist, and he always wants to hit it big.

"Our costs on this particular well are running about average -- to drill a well is half a million dollars," he said.

Now there are some interesting numbers. Schroeder hopes to find wells that yield 100,000 barrels in their lifetimes. At $100 a barrel, that's $10 million per well. But if he drills and finds nothing it's called a dry hole, which is not $10 million in the bank. It's half a million down the drain.

"The hardest part of my job is when we do drill a dry hole, calling my partners, and you know, it's disappointing to tell them, you know, we've done all this work, sunk all this money into it and we've come up with nothing," he said.

Still, Schroeder "absolutely" believes that under the surface there are still "billions of barrels" oil out there in Texas, even if the oil is hard to get to.

"The fact of the matter is that all these large oil fields [that] have been found in Texas and elsewhere, you only get out about 30 to 40 percent of the oil that's actually there, and the rest of it, you can't get it out because it's not economically viable to get it out," he explained. "And so there's a lot of that country out there that might be risk-worthy at $100 dollars [a barrel] but not at $50, or it might be risk-worthy at $200 but not at $100, and so it's whatever is economically viable at the time."

That's the biggest risk in what Schroeder is doing right now. The worst-case scenario is not that there's no oil to be found. It's that the oil price will go down. Back in the 1980s the price was so low -- about $10 a barrel -- that he was considering desperate measures.

"I was looking at law school at one point to get out entirely, I mean, I really enjoyed the industry but I also didn't want to starve to death," he said.

'I Do Feel Guilty'

Now, of course, it's everybody else who's miserable about the high price of oil. And it's boom time for Cactus.

"I do feel guilty from the standpoint that I hate to see a lot of people go without things they actually need to be able to get transportation just to go to work," he said.

Still, he wants it known, high prices are not his fault, or even the fault of Big Oil.

"A lot of people blame Exxon -- it's not Exxon's fault," he said. "I mean, when you think about it, you know, from a world production basis we're only coming up with about 10 percent of the oil; the rest of it is coming out of Russia, Iraq, Iran, OPEC countries."

And so this morning they reached the target, and the result … nothing. Dry hole.

"Unfortunately we drilled a duster -- we sunk half a million dollars into this hole, and then we basically came up with nothing," he said.

Oh well. Wherever he is tonight, Schroeder is letting his investors know. But at least he's not feeling guilty about the rest of us.