Tim Dunn’s CrownRock kept the pedal to the metal throughout the pandemic and doubled its output in time for oil’s spike to $100. Now the new billionaire is pumping his opportunistic windfall into his church and his state—but not his government.
Just a couple years after the price of oil briefly fell below $0, dusty, sweltering Midland, Texas, is a boomtown again. Hotels are at full capacity and there are 50% more rigs dotting the fields surrounding the West Texas city of 140,000, all thanks to crude prices above $100 per barrel. The Black Rifle Coffee shop (think Starbucks for gun aficionados) is bustling, and the wait for a table at Chuy’s Tex-Mex runs about two hours.
Inside the 60,000-square-foot headquarters building of Midland’s CrownQuest Operating, chief executive Tim Dunn is relaxing in jeans, sneakers and a golf shirt. He’s surrounded by the three of his sons who work for the family business. Wally, 35, is a geologist; Luke, 42, heads engineering and operations; eldest son Lee, 43, is in business development. It’s a warm environment—the four have a habit of completing one another’s sentences—but when it comes to assessing the energy markets, Dunn père offers cold comfort. “Oil is going to get more expensive,” he says simply. “We are reaching the end of where we can keep increasing supply.”
Still, no one can blame Dunn for the current petroleum shortage. The 66-year-old, who has spent his entire life working in and around Midland’s oilfields, has never stopped drilling, never quit exploring. Since the end of 2019, CrownRock LP, owner of the wells operated by CrownQuest, has doubled its output to 140,000 barrels per day, good for twelfth place among privately owned U.S. oil companies. Incredibly, CrownRock kept four rigs drilling right through the worst of the pandemic downturn.
“Two years ago, Wall Street was telling us, ‘We don’t need you, we’re going to run everything off sun and wind and reindeer and unicorns,’” Lee Dunn scoffs. Tim Dunn knew better. He had an unshakable belief that prices wouldn’t stay low for long, and he knew that equipment and workers are cheap when demand dries up. So he kept investing. This sort of persistence by producers like Dunn has led to the trebling of U.S. oil production to 11 million barrels per day in just a decade. “We have blown a big hole in the trade deficit and lowered energy costs for the entire world,” he says.
Vox Dei: Tim Dunn strums a treasured Gibson mandolin at his Midland, Texas, home. He has recorded a series of Beatles covers with son David, a professional musician.
Guerin Blask for Forbes
Not that it has garnered them any love in Washington. As prices rebounded—West Texas Intermediate is up 40% over the last 12 months—energy producers have become convenient political targets. In June President Biden said that the profits being made by oil companies in “a time of war” were “not acceptable.” Senator Elizabeth Warren (D.-Mass.) is busy crafting a windfall profits tax. Dunn doesn’t appreciate either sentiment. The global energy business is a multifaceted megalith, projected to post $4 trillion in profits this year. Individual players are “price takers” that don’t enjoy margins nearly as fat as those of, say, Apple or Microsoft. Dunn was miffed by a recent Biden tweet demanding that gas station owners lower their prices. “Most gas stations break even on the gas and make their money selling ice cream cones,” he says.
Dunn himself is doing far better. Thanks to the oil price surge, CrownRock will likely earn upward of $1.5 billion on revenue surpassing $3.5 billion in 2022. If it were a publicly traded company, the operation would have an enterprise value on the order of $8.3 billion. After accounting for debt, the Dunn family’s roughly 20% stake is now worth about $1.2 billion, double what it could have fetched 18 months ago.
Tim Dunn has no interest in being the face of windfall oil profits, but he isn’t shy about defending the fossil fuel industry, either. “The extremists want to deindustrialize America,” says Dunn. “They want to live in huts around a campfire.”
Dunn grew up in Big Spring, Texas, about an hour from Midland, in the heart of what was once Comanche territory. His parents never graduated from high school; they worked on farms and factories in California during the Great Depression and World War II. After the war, Dunn’s father moved to Texas and turned to insurance sales. The youngest of four boys, Tim settled down early. The Eagle Scout went to Texas Tech, where he majored in chemical engineering, got married and had his first child by the time he graduated in 1978. After a brief stint at Exxon, he went to work on oil deals at First City Bancorp in Midland. When oil went bust in the mid-80s, Dunn was tasked with examining the books of small oil companies that had gone belly-up. It was a crash course in risk management.
“The number one objective of an oil company is just to stay in the phone book,” he says.
In 1987 Dunn left the bank and joined Midland-based oil producer Parker & Parsley, where he eventually rose to chief financial officer. Toward the end of his eight years at the company, Dunn partnered with a fourth-generation West Texas oilman named Bobby Floyd, who was experienced in buying and selling drilling leases. In 1995, Dunn left Parker & Parsley to set up CrownQuest Operating with Floyd. The mission? To lease land and drill in West Texas’ Permian Basin, America’s largest oil field, which currently produces 5 million barrels a day, about half of total U.S. output.
The pandemic wasn’t the first difficult time Dunn bet big. In 1998, when the Asian financial crisis pushed oil’s price down to $12 a barrel, Dunn sold his family’s horse ranch and used the proceeds to double his stake in CrownQuest. His sons remember him sitting the family down and telling them that oil this cheap was an opportunity they couldn’t pass up.
“He operates from the idea that what he believes is right. And he’s comfortable doing things that may piss people off.”
“‘The best time to buy is when things look darkest,’” Lee recalls his father telling him. “I was sad that I couldn’t ride horses anymore.” It was well worth it. The ranch proceeds were “the only real cash equity we ever put into it,” Dunn says. When they wanted to drill, they tapped GE Capital for financing. Then in 2007 came CrownQuest’s big break: $97 million from Houston private equity firm Lime Rock Partners to form CrownRock LP to drill traditional wells into conventional oil reservoirs. Dunn’s operations made prodigious returns, selling seven oilfields to Linn Energy and BreitBurn Energy between 2010 and 2013. The BreitBurn deal alone was worth $280 million.
Then the game changed, literally beneath their feet. Although hydraulic fracturing, or fracking, has been around since the 1940s, it wasn’t until about 2008 that the North American fracking boom got underway. Enticed by record-high oil prices, entrepreneurs began to try new techniques in an effort to get oil and gas out of ever deeper, tighter, thinner layers of rock. Drillers invented steerable drill bits that enabled them to go 2 miles down, then turn horizontally and bore directly into thin layers of shale in which oil and gas lay trapped. The infamous fracking process involves a fleet of trucks blasting millions of gallons of water mixed with sand down into the wellbores, where it breaks up the rock and props open fissures, allowing oil and gas to seep out and up the well. Within five years this process spawned giant shale fields with names like the Barnett (Texas), Bakken (North Dakota), Marcellus (Pennsylvania) and Haynesville (East Texas/Louisiana).
No one thought the new techniques would work in the Permian, because its deep layers of oil-soaked rock didn’t look like other shale formations. No matter. In 2013, Houston’s EOG Resources, fresh off a massive drilling campaign in the Eagle Ford shale of South Texas, was the first to try horizontal drilling and fracking of 2-mile-deep Permian carbonate layers. At first these horizontals were not as fruitful as CrownRock’s cheaper vertical wells. “We weren’t going to do that,” Dunn says with a smile.
But companies kept drilling more horizontals closer to Dunn’s acreage. And they got better at it. “They were drilling wells that we never thought could be drilled,” Dunn says. “It completely changed our way of looking at it.” Instead of going after a handful of shallow targets, CrownRock now drills a smorgasbord of wells at up to a dozen different depths. Says Floyd, who serves as president of CrownQuest, “Basically, it was serendipity.”
“I view investing in politics as a philanthropic exercise. I pay dues to lobbyists to prevent bad regulation.”
Driving up to the Dunn family’s 17-acre Midland compound, visitors are welcomed by a small herd of free-range golden retrievers scampering across an expansive green lawn. Under the swimming pool’s water slide is the “Hobbit House,” a kid-friendly grotto that offers welcome shelter from temperatures that routinely reach the triple digits. Nearby is a lush vegetable garden with melons, zucchini and tomatoes growing under the searing July sun. It’s an oasis in arid West Texas, but just a quarter-mile away you can see the flames from excess methane being burned off at wellheads.
Five of the Dunns’ six children and 17 of their 19 surviving grandkids live in Midland, several in newly built homes in the compound, exemplars of the “modern farmhouse” trend. Dunn bought the land 25 years ago when his family’s homeschooling efforts inspired him to found Midland Classical Academy, a K-12 Christian school that sits just on the other side of the fence and now boasts 655 students and a waiting list.
Down the street is the Midland Bible Church, where Dunn taught Sunday school for 20 years and is a member of the “pulpit team,” occasionally preaching to the congregation. In his oil-patch twang, Dunn refers to the Good Book as “the Baaa-bul.”
Christian ideals are a big theme at CrownQuest. All new employees, including roughnecks, are handed the book Servant Leadership, a system for managing organizations based on Biblical principles. “It’s always a question of how much we can get them to read,” Dunn says. The book’s author, David Kuhnert, is a retired U.S. Army sergeant major who heads up training at CrownQuest. Dunn sums up the book’s philosophy: “Love other people as you want to be loved. If you’re against that, you’re for exploitation.”
In 2015 tragedy struck the family, when Dunn’s 2-year-old granddaughter Moriah died suddenly. Dunn turned his grief into a book, Yellow Balloons: Finding Power to Live Above Our Circumstances, and launched a website and podcast offering daily inspirational messages. This has led to another site, thebiblesays.com, dedicated to helping the Bible—and life—“make sense to the ordinary person.” Staunchly anti-abortion, Dunn funds adoption services in the West Texas region and supports foster homes for more than 300 children.
“If you’re not giving anything, you’re taking a risk that your money is going to own you,” warns Dunn, whose definition of philanthropy is broad enough to include his forays into politics.
In 2010 he cofounded Citizens for Self-Governance, a project to revise the U.S. Constitution and promote personal responsibility. His head schmoozer at the Capitol in Austin is Michael Quinn Sullivan, former advisor to Rep. Ron Paul and publisher of the right-wing website Texas Scorecard. Federal Elections Commission data show that Dunn has made more than 300 political donations since 2008. Recent checks include $250,000 in April to the Club for Growth Action, a PAC devoted to cutting taxes, and $100,000 to the American Greatness PAC, a conservative opinion generator best known for attacking former FBI director James Comey. In early November 2020 Dunn gave $50,000 to the Trump for Victory PAC. “I view investing in politics as a philanthropic exercise,” he says. “I pay dues to lobbyists to prevent bad regulation.”
“People assume he’s an angry firebrand, handing out torches and pitchforks, but he’s anything but that,” says businessman Ryan Sitton, who owns Pinnacle Advanced Reliability Technologies, a Houston firm specializing in oil-patch engagements and who, with Dunn’s support, won election in 2014 to the Texas Railroad Commission, the state’s oil and gas regulator. Sitton insists Dunn is not interested in being a kingmaker; he just wants to see progress on halting regulatory creep. “He operates with a calm humility, from the idea that what he believes is right. And he’s comfortable doing things that may piss people off.”
To minimize his company’s interaction with federal agencies like the Federal Energy Regulatory Commission and Bureau of Land Management, Dunn is careful to keep most of his operations within Texas’ borders. He would like to see the Environmental Protection Agency dismantled and its “permit by decree” system, which mandates that a federal bureaucrat must sign off on new projects, scrapped. In its place he would replicate the approach taken by his allies at the Texas Railroad Commission, known as “permit by rule”—in which operators get penalized only if they get caught running afoul of regulations.
“Love other people as you want to be loved. If you’re against that, you’re for exploitation.”
Dunn has also come out against such actions as the addition of the dunes sagebrush lizard and the prairie chicken to the endangered species list. “The lizard thing is a scam,” Lee Dunn says. “There’s lizards all over the place.”
Says an indignant Tim Dunn, “People who live in Washington, D.C., are telling us, making rules for us, on how to clean up the place where we live. We live here!”
Outside observers tend to focus on Dunn’s religious beliefs and his heavy-handed right-wing “philanthropy,” but within the company they aren’t the subject of much discussion. Instead, he and his management team focus on what they call a culture of “relentless optimization.” Translation: Drill, baby, drill—or, more specifically, frack, baby, frack.
Given that full-scale horizontal drilling requires a lot of upfront investment before the cash flows kick in, CrownQuest issued $1 billion in senior notes in 2017 and a year later sold $475 million in preferred equity to Evanston, Illinois’ Magnetar Capital and Washington, D.C.–based EIG Global Energy Partners. To date, private equity fund Lime Rock has made an estimated 40-fold return on its initial 2007 investment in CrownRock. In 2018, it raised $1.9 billion to cash out limited partners who had been in since the beginning. It still owns 60% of the venture. Late last year, Goldman Sachs raised $200 million to finance Dunn’s acquisitions of oilfield royalty trusts, which pay a dividend of roughly 20% on each barrel pulled out of the ground.
Global demand for petroleum now stands at nearly 100 million barrels per day, and Dunn is looking to produce as much of that black gold as he can from the 90,000 Permian acres his company controls. CrownQuest is now spacing its wells together as tightly as possible despite the risk of having adjacent wells run into each other, or “communicate,” which can cause pressure problems and reduce output.
“Our incentive is to maximize this value because we’re not going to get another one of these things,” Lee Dunn says, referring to their prodigious acreage, acquired at a tiny sliver of its present value.
The Permian Basin’s operators need to drill, frack and pump more than 2,000 wells every year just to supply the 2 million barrels a day of new capacity needed to balance out natural production declines. It’s not an easy task. The industry is struggling with shortages of manpower, horsepower and drilling equipment. Relief will be slow to come. Oilfield services giant Halliburton said in mid-July that it was “sold out” and couldn’t take on any new customers for the rest of the year.
Dunn has an advantage here, too, though. He kept operating and cutting paychecks when everyone else was firing folks and shutting down wells. That has bought him a great deal of loyalty.
“They’ll sponsor guys to set up their own companies, promising that CrownRock will buy services from them,” says J. McLane, Lime Rock’s chief investment officer. “They aren’t cutthroat. They won’t grind contractors down in tough times, but they expect to maintain preferred access during [boom] times like now.”
Exactly how long the boom will last this time around is anyone’s guess. How much longer will Vladimir Putin prosecute his vicious war in Ukraine? How aggressively will Europe wean itself off Russian energy? Is there a global recession on the horizon? More Covid-19 lockdowns in China? A newer, deadlier coronavirus variant? Dunn isn’t worried: “When has the world not been energy transitioning?” And he has enough acreage to keep fracking for a decade.
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