Can This Oil Baron’s Company Withstand Another Quake?
One of the most productive oil fields ever discovered in Oklahoma lies directly beneath its seat of government. A 32-square-mile underground reservoir, the Oklahoma City oil field was first tapped in 1928, a decade after the State Capitol building was finished. Some of its earliest wells were famous gushers, spouting oil hundreds of feet into the air for days before being brought under control. Over the next three decades the field produced close to a billion barrels of oil, helping Oklahoma weather the Great Depression and Dust Bowl and securing its ties to the energy industry.
By the late 1960s the Oklahoma City oil field was largely spent. As crude was sucked out, it gradually flooded with vast amounts of salt water, the remnants of an ancient ocean that once covered the Midwest. The pockets of oil and gas that remained in the reservoir were trapped deep inside rocks. The only way to get at them was to “dewater” the field—which meant pumping out hundreds of millions of barrels of salty, often toxic wastewater, then disposing of it.
David Chernicky saw an opportunity. A trained geologist turned wildcatter, he’s devoted most of his 35 years in the oilpatch to perfecting the business of reviving oil fields instead of exploring for new ones. “I try to pick the ugly girl at the dance,” he says. Chernicky spent years studying the Oklahoma City field, poring through stacks of geological studies and surveys, some of which went back 65 or 70 years. He figured it still held about 50 million recoverable barrels of oil. “That 2-foot-thick file of data on Oklahoma City says there’s a ton of oil still there, but you have to think outside the box to get it,” he says.
The problem isn’t so much pumping the water out, but finding a place to put it. In Oklahoma, the easiest thing to do is inject it back underground. With most disposal wells capable of handling only a couple thousand barrels per day, Chernicky needed something an order of magnitude bigger. In 2003 his Tulsa-based company, New Dominion, began work on a new breed of injection well, a type that could take down tens of millions of barrels a year and bury it deep underground. Chernicky, who has a bawdy streak, named the first one Deep Throat.
The kinds of disposal wells Chernicky pioneered have been instrumental to Oklahoma’s fracking boom, which has doubled the state’s oil production in the past five years. They’re also at the center of a controversy. In the past decade, as wastewater disposal rates have doubled, seismic activity has exploded across Oklahoma. After averaging 1.6 earthquakes per year of magnitude 3.0 or higher, the state experienced 64 in 2011, including its largest in recorded history—a 5.7-magnitude temblor on Nov. 6, 2011, centered in Prague, 50 miles east of Oklahoma City, that buckled a highway, destroyed 14 homes, and injured two people. Last year the number soared to 585 quakes, making Oklahoma the most seismically active state in the continental U.S.; it’s on pace for 900 quakes in 2015. Swarms of quakes have rattled other states with oil and gas operations, including Arkansas, Colorado, Kansas, New Mexico, Ohio, and Texas.
Seismologists who have studied the phenomenon of man-made quakes—which they call “induced seismicity”—ascribe them to the massive amounts of oil and gas wastewater being injected deep underground near fault lines. Over time, geologists say, the disposal water changes underground pore pressures, in essence lubricating the fissures between tectonic plates and causing them to slip. “Wastewater injection,” says Bill Ellsworth, a seismologist at the U.S. Geological Survey, “is undoubtedly responsible for the majority of these earthquakes.” On April 21, the state-run Oklahoma Geological Survey (OGS) issued a statement declaring that the oil and gas industry is “very likely” contributing to the huge rise in earthquakes in Oklahoma.
Few companies have more at stake than New Dominion. A July 2014 study published in Science found that four high-volume disposal wells owned by New Dominion on the outskirts of Oklahoma City may have accounted for 20 percent of all seismic activity in the central U.S. from 2008 to 2013. Two victims of the 5.7 quake from 2011 have sued New Dominion for damages; the state Supreme Court has agreed to hear the case of Sandra Ladra, a 64-year-old resident of Prague, who sued after her stone chimney crumbled during the quake, sending rocks crashing down on her legs. Should the court establish a precedent where New Dominion and companies like it can be held liable for earthquake damage, the fallout could be severe. “If wastewater wells come under heavy fire from lawsuits and regulations, it could change the entire economics of the oil industry in this state,” says Kim Hatfield, chairman of the regulatory committee at the Oklahoma Independent Petroleum Association. Steve Everley of Energy In Depth, an industry-backed research group, says, “If you shut down [wastewater] disposal, you’re effectively shutting down production.”
Outwardly, Chernicky doesn’t sound concerned. “It’s pure, unmitigated s---,” he says of the Ladra case. Although New Dominion isn’t one of the major producers in Oklahoma, the 61-year-old Chernicky is one of the state’s most recognizable entrepreneurs, a gregarious, eccentric oilman prone to spontaneous acts of generosity. Once, he saw two ladies in a gas station with a beat-up car that wouldn’t start, so he went and bought them a new one, no strings attached. He’s adamant that the evidence tying underground wells to earthquakes is unreliable and confident New Dominion will prevail. “I deal with science,” he says. “That’s what this will come down to. Is it about science? Or is it about emotion?”
With his wavy, shoulder-length hair, toothy grin, tanned face, and fondness for Bermuda shorts, Chernicky could pass for an extra on Miami Vice. He hosts parties and civic functions at his condo overlooking downtown Oklahoma City, which he dubbed the Champagne Penthouse, and owns an assortment of boats, homes, and property in Colorado, Oklahoma, and rural Pennsylvania. Divorced with no children, he estimates his net worth at $300 million to $500 million, depending on the price of oil.
The fourth of 10 children, Chernicky learned to work hard early. His father, Thomas, was a first-generation American whose parents emigrated from Ukraine. After serving in World War II, Thomas worked at Tinker Air Force Base near Oklahoma City, helping retrofit B-52s. The Chernicky children didn’t get any allowance and were all expected to earn their own keep. “Dave was probably the most industrious of the kids,” says his older brother Wayne. “Of all the 10 kids, Dave saw the opportunities to make money the earliest.” David took on four or five paper routes. When he turned 14, he realized he could make $1.10 an hour at McDonald’s, where he’d sometimes work more than 80 hours per week.
After a stint in the Air Force, Chernicky earned a degree in exploration geophysics from the University of Oklahoma. He went to work in Wyoming and the Rocky Mountains for Marathon Oil and Amoco before striking out on his own as an independent petroleum geologist. He quickly gained a reputation for his unconventional methods of finding oil. “I’ve never found an appreciable drop of oil through textbook geology,” he says. When oil prices tanked in the mid-1980s, things got tight. “At that time, working at McDonald’s probably paid better than being a self-employed geologist in Oklahoma,” says Wayne. To get by, David drove a truck for Wayne’s office supply business in Tulsa. “I’ve seen him come through good times and bad times,” says Wayne. “Each time, I see him come out stronger.”
By the mid-1990s, Chernicky had established himself as a technical master of dewatering, putting his consulting company, Chernico Exploration, in high demand. His first big success was dewatering an old oil field called the Red Fork, lowering large, submersible pumps into the wells to suck out massive quantities of water. The more water that was drained, the more oil and gas seeped out of the sandstone. A successfully dewatered field quickly shrinks the ratio of water to oil. In one of its earliest wells, New Dominion initially pulled up 160 barrels of water for each barrel of oil. Over 16 months, that improved to 7.5 to 1. “It was a very smart idea,” says Kurt Rottmann, a petroleum geologist who has worked on Oklahoma oil fields for four decades. “David Chernicky recognized the potential of this very early on.”
Chernicky, however, was growing impatient with consulting and watching other companies botch his handiwork. Dewatering was a precise science, and he felt he could make it work better by controlling every facet of the operation. “Oil companies kept f---ing up my oil fields, so I figured I was ready to try it on my own,” he says. He started New Dominion with two other partners in 1998. By the early 2000s the company was operating more than 100 wells, producing a total of 4,000 to 5,000 barrels of oil a day, plus millions of cubic feet of gas.
Chernicky set his sights on the long-dormant oil field beneath the Capitol, investing millions to replace the old pipes and underground pumps that were defunct and rotting. “If you asked a dozen different geologists, they would have said you can’t get that oil,” he says. “There’s no way. Well, I didn’t get that memo.” The centerpiece of Chernicky’s plan was Deep Throat, the disposal well that switched on in 2004. By 2006 it was pumping water at full throttle. In the next eight years, it would inject 100 million barrels of wastewater into a limestone formation about 2 miles beneath the city. That’s equivalent to all the water falling over Niagara Falls for nearly two hours.
Deep Throat caught the attention of Dan Boyd, a petroleum geologist at the OGS. Boyd was well aware of previous instances where injecting fluid deep underground caused earthquakes. In 1961 the U.S. Army drilled a 12,000-foot disposal well in the Rocky Mountains to get rid of millions of gallons of toxic waste from napalm production and other sources. Shortly after injection began, quakes began rattling the nearby Denver area, including a 5.3-magnitude temblor in 1967. A year after injection stopped, the seismic activity faded. Boyd believed the wastewater pouring out of Chernicky’s disposal wells might trigger similar activity in Oklahoma. “I’d never seen a well that could put away as much water as Deep Throat,” he says.
On the night of Dec. 20, 2006, Boyd’s fears were realized. A few minutes after 8 p.m., residents on the southeast edge of Oklahoma City heard a loud boom, followed by a sharp jolt that shook people’s houses. Four hours later, just after midnight, it happened again. Calls flooded into police and fire emergency lines. The initial fear was that something had happened at nearby Tinker Air Force Base—an explosion, an attack—but by the next morning, scientists at the OGS determined the area had been struck by two earthquakes. “It was an epiphany,” says Boyd.
In January 2007, New Dominion opened a second disposal well near Oklahoma City called Sweetheart. A month later, a small swarm of quakes struck nearby. In March, Boyd and three other scientists at the OGS drove to Tulsa for a four-hour meeting with New Dominion. The meeting was hosted by Steve Chernicky, New Dominion’s director of field operations and David’s brother. David also showed up, Boyd recalls, wearing a golf shirt and Bermuda shorts. He placed three or four mobile phones in front of him on the conference room table and excused himself from the meeting each time one rang. While nobody accused New Dominion of causing the earthquakes, there was a “tacit understanding that the well had something to do with this,” says Boyd. “Everybody in the room was thinking about earthquakes. The correlation was obvious.”
After lunch, as the meeting concluded, New Dominion agreed to pay for the OGS to install $100,000 of seismic equipment around Oklahoma City, including some at New Dominion’s wells. In recalling the meeting, Chernicky says he was mindful of the James Bond movie A View to a Kill, where an evil microchip tycoon played by Christopher Walken tries to destroy Silicon Valley with an earthquake. “We wanted to prove we weren’t being the James Bond villain,” he says. The deal placed no limit on New Dominion’s wastewater injection volumes. Over the next two years, New Dominion added two more high-volume disposal wells to the area, named Chambers and Flower Power.
As Chernicky looked for other dewatering opportunities, he found a lot of rundown communities whose oil had run out decades earlier and needed some help. In Carney, he gave $10,000 to finish a high school. In Prague, he donated $1 million for a city water expansion project and $50,000 to help build a new library. In January 2006, after a busy wildfire season, he donated $15,000 to local fire departments. He also started throwing an annual party in Prague called New Dominion Dayz to raise scholarship money for local students. Kids played on inflatable bouncing slides. Riding lawn mowers were given out as raffle prizes. A highlight was Chernicky in the dunk tank. In news articles, Prague’s city manager called Chernicky the “T. Boone Pickens of Prague.”
Chernicky’s largesse has helped to deflect attention from the role New Dominion may be playing in the crescendo of earthquakes across Oklahoma. The record 5.7 quake that hit Prague in November 2011 was the second of a trio that rumbled through over a four-day period, all measuring 5 or higher on the Richter scale. An air-conditioning duct fell through the ceiling of the Prague library Chernicky had helped build. Library Director Pam Batson got some cracks in her home, though she says she’s grateful for the donations from companies such as New Dominion. “It’s sort of like a double-edged sword,” she says.
A few blocks up from the winding Arkansas River in Tulsa, New Dominion is headquartered in a four-story, 40,000-square-foot building with an exterior of brick and red Arizona sandstone, as well as an intricate metallic cornice. An arch soars above the entrance. Inside the glass doors, a marble-floored atrium leads to the front desk. Off to one side of the entrance is a conference room, where a vibrantly colored portrait of Chernicky hangs prominently in the middle of the wall.
These are challenging days for New Dominion. Dewatering is among the most expensive ways to produce oil, and with crude trading at around $50 a barrel, down from $100 last summer, New Dominion’s fields likely aren’t as profitable as they once were. “This is the first time in over 20 years that I haven’t had a single drilling rig working for me,” Chernicky says. The company won’t hold its New Dominion Dayz festival this year. In January, Chernicky sued several former business partners, alleging they unduly paid themselves millions in bonuses before the partnership unraveled, a claim the former business partners dispute.
The biggest threat to New Dominion’s prospects comes from Ladra, the plaintiff in the lawsuit over the 2011 Prague earthquake. Academic researchers published a paper in Geology in 2013 that linked the quake to a couple of nearby disposal wells, including one owned by New Dominion. In August 2014, Ladra filed her lawsuit, accusing New Dominion and others of knowingly causing the earthquakes, seeking both personal injury and punitive damages. An Oklahoma judge dismissed the suit months later, saying the matter should be handled by the state’s oil and gas regulators. When Ladra appealed, the state Supreme Court stepped in and agreed to rule on whether the courts should decide these cases. “Anybody that isn’t worried about the potential for lawsuits hasn’t been paying attention to the recent legal environment,” says Hatfield of the Oklahoma petroleum association. “There are plenty of lawyers out there looking for litigation that they view as an opportunity”—and the oil and gas industry has always been a ripe target. New Dominion is more vulnerable than most energy producers should the courts hold oil and gas companies responsible for earthquakes. Not only is it smaller and focused exclusively on Oklahoma, where the state averages 10 barrels of water for each barrel of oil, but it sought out the most water-soaked fields in the state. Lawyers for the company have issued grim assessments about what a loss in the courts would mean for its business. “These wells will become economic and legal liability pariahs,” Robert Gum, New Dominion’s attorney, told a judge last year.
For the moment, there’s little political pressure on Oklahoma’s oil and gas industry to change the way it operates. Republican Governor Mary Fallin has long claimed there isn’t enough information to determine what’s causing the quakes. She describes the OGS’s new position statement as “significant.” But when asked if the governor agrees that the industry is likely responsible for the quakes, her spokesman, Alex Weintz, didn’t respond.
At the Statehouse, the only two lawmakers willing to talk openly about the issue are Democrat Cory Williams and Republican Jason Murphey, who represent districts that have been shaken by quakes. Last fall they teamed up on a bill to study the quakes in greater depth, but so far nothing’s come of it. “It’s ridiculous,” says Williams, who’s pushing a moratorium on wastewater injection in 16 Oklahoma counties. “The oil industry threatens us by saying if you touch seismicity issues we’ll start laying down rigs and laying people off. This is the problem of having industry so intertwined with government. We know what’s causing it, and we are doing absolutely nothing to stop it and barely anything to regulate it.”
At New Dominion headquarters, the company promotes its own theories for the astronomic rise in Oklahoma quakes. Jean Antonides, the company’s craggy-faced vice president for exploration, produces a 2-inch-thick cardboard folder stuffed with maps, presentations, and papers—evidence, he says, that the quakes are the result of rapid changes in water levels of underground aquifers caused by drought and heavy rain.
Chernicky, for his part, dismisses the research linking earthquakes to wastewater disposal wells. “The meager amount of science put forward is so flawed, it can’t even be considered science,” he says. “It is emotion.” He contends that the Oklahoma quakes are “the result of tectonic activity happening all over the world.” In a year or two, he predicts, the flurry of quakes bedeviling Oklahoma will migrate north into the seismically sleepy states of Iowa and Nebraska, vindicating the oil industry. The vast majority of earthquake scientists disagree. “Pure b.s.,” says Martin Chapman, a geophysics professor at Virginia Tech University. “They just don’t want to admit they’re causing earthquakes.”
Chernicky is unswayed. He insists nature’s on his side. If humans can cause an earthquake, then they “can probably fart and shift the orbit of the planet, too.” He adds: “Man does not cause tsunamis in Japan. Man did not cause the volcanic blast at Krakatoa. And man does not cause earthquakes.”
—Additional reporting by Freeman Klopott