Parsley Energy's Sheffield flamed out as a trader, but Texas oil tycoon has worked out When he left Midland, Tex., in 1997, Bryan Sheffield didn't plan on returning. His father and grandfather both had built their fortunes drilling wells in this flat, dusty landscape, living through oil industry booms and busts. Sheffield aimed for a career in finance. After earning an undergraduate business degree, he moved to Chicago and traded futures. By his late 20s, he was trading German bonds at an office in Gibraltar and living in a beach town on Spain's Costa del Sol. "I never dreamed of becoming an oilman," Sheffield says. He's sitting in his black GMC Denali, parked beside a nodding donkey pump a few miles west of Midland that's been pulling two or three barrels of oil a day out of the ground since Joe Parsley, his grandfather, drilled the well some three decades ago. "It's just this magnet that pulled me back," he says. The oil industry drew Sheffield in partly because the world of interest-rate swaps and sovereign debt pushed him out. Sheffield says his income never cracked $100,000 a year on the trading desk: "I was a scratch trader. I was drinking beer while my friends were ordering hundred-dollar bottles of wine. Sheffield, who is 36, can order the expensive stuff now. In seven years back in Texas, he has built a fast-growing oil and gas producer with 650 wells and 4,000 future drilling sites around Midland. Sheffield and his company, Parsley Energy, have applied the latest horizontal drilling and hydraulic fracturing methods to a vast petroleum deposit that frustrated many oilmen before him. Count Sheffield's success among the many stories that, taken together, add up to a fracking revolution in the United States, boosting domestic oil supply and cutting imports. As founder, chief executive and largest shareholder of Parsley Energy, Sheffield became a billionaire when he took the company public in May. He was the youngest billionaire in the oil business, although the drop in crude prices and shares of fracking companies in recent months has pushed his net worth below $1 billion. There are about two dozen billionaires worldwide under age 40 identified by the Bloomberg Billionaires Index. Among them, Sheffield would be the only one whose fortune is self-made and not from a technology company. Sheffield's wealth comes from 13.4 million Parsley Energy shares, which represent a stake of more than 14 percent, plus convertible securities that could give him an additional 22.7 million shares. He also receives payments from the company under an agreement entered into when Parsley Energy went public. The size of the payment is based on the company's tax liabilities, and Sheffield received $56 million shortly after the IPO. Oil was discovered near Midland in 1943. Drive out from the city in any direction today, and you'll find drilling sites that stretch across the scrub and grassland. The oil-bearing rock 7,000 feet beneath the surface is known as the Spraberry Trend, part of the much larger Permian Basin. Only Alaska's Prudhoe Bay field has bigger proved reserves than the Spraberry, according to the U.S. Energy Information Administration. Stingy field Unfortunately, it's tough to get the oil out. In 1953, Time magazine dubbed the Spraberry the largest uneconomic oil field in the world. Traditional drilling gets at just 6 percent of the oil here, while the average recovery rate from an oil field is 35 percent. Even in this stingy field, drillers have had success over the decades - Sheffield's forebears notable among them. In the late 1960s, Joe Parsley and his friend Howard Parker started what would become Parker & Parsley Petroleum, and they made money in the Spraberry. Parsley's son-in-law, Scott Sheffield - Bryan's father - eventually joined the business. In 1997, Parker & Parsley merged with Mesa, the oil and gas company built by T. Boone Pickens, to form Pioneer Natural Resources. Scott is CEO of Pioneer. "In 1997, when I graduated high school, it was tough times in the oil business," Bryan Sheffield says. He recalls his father cutting budgets and firing people at Parker & Parsley as boom turned to bust. A decade later, as Sheffield's attempt at a trading career was winding down, his grandfather pitched him on the idea of entering the oil business. When Pioneer was formed, Parsley retained the right to operate 109 wells that he had drilled years earlier. Sheffield got started in 2007 by managing those sites, which gave him some income - a financial cushion. But merely collecting fees and overseeing maintenance crews held little appeal. He decided it was time to learn the industry thoroughly. "I understood futures and spreads, butterflies and backwardation," he says. That was all I knew - how to trade, speculate, hedge. I didn't know what I was walking into. For more than a year, Sheffield worked for Pioneer and studied how things are done. During this time, he talked on the phone with his grandfather almost every day, he says. In 2009, Sheffield began to raise money for his own drilling projects. He borrowed $500,000 from Curtis Kayem - whose father had supplied pipe to Parker & Parsley - to be paid back over five years. For extending the loan, Kayem got 10 percent equity in a company that had a plan but no assets: "Just my heart and soul," Sheffield says. With Kayem's money, Sheffield started buying lapsed leases just as the financial crisis and global recession caused oil prices to drop to a five-year low. He also acquired the severed rights, which give the buyer the right to drill beneath the upper layers of rock that are already leased. This allowed Sheffield to get at a geologic formation deeper underground known as the Wolfcamp. At the time, horizontal drilling and well stimulation techniques were just coming into their own; the fracking revolution was starting. Sheffield's intention was to squeeze more oil out of an old field, in keeping with his grandfather's advice to focus on predictable returns. He soon realized that the new drilling methods opened up the possibility of more spectacular profits. Scott Sheffield, 62, says development of the Spraberry and the Permian Basin is just getting started. "People will be going after these zones for the next hundred years," he says. The Permian will end up being the largest field in the U.S. and one of the top 10 largest in the world. With a growing portfolio of drilling sites, Parsley Energy - Sheffield named the company for his grandfather - attracted bigger investors. In 2012 and 2013, the company borrowed $200 million from Chambers Energy Management, a Houston investment bank where Phillip Z. Pace is a managing director; Sheffield had met Pace on a ski trip his father organized. One lesson Sheffield says his grandfather taught him is that relationships matter in the oil patch. "There's a mafia we don't talk about - a network in Midland," Sheffield says. His family connections helped him get started, and his family's knowledge of the fields around Midland gave him direction. Pace says, however, that Sheffield built his success mostly through his own smart decisions. "It's easy now for people to connect the dots and say he got lucky," Pace says. I watched it, and there's a lot of skill to get from Point A to Point B. Scott Hanold, an oil industry analyst at RBC Capital Markets, says Parsley Energy has assembled a good collection of drilling sites to tap the Spraberry and Wolfcamp rock formations. "They're positioned well in the basin," Hanold says. One risk, though, is that investors have become overly enthusiastic about the region's prospects. Early in the development of these plays when you see good initial results, there are heightened expectations for what growth could be. But over time, there are some logistical constraints that need to be considered. Exxon's arrival Sheffield says the rising excitement about the Spraberry worries him insofar as it might increase competition for equipment, supplies, services and talented employees - and raise his expenses. Exxon Mobil recently bought a 40,000-acre ranch abutting Parsley Energy land. "It makes me nervous," Sheffield says. A big company that wants to ramp up to 50 rigs out of nowhere would drive up costs. To keep expenses down and help recruitment - people often don't want to relocate to Midland, Sheffield says - Parsley Energy moved its headquarters to Austin. Then there's the risk no energy producer can fully control: falling prices. Oil mostly stayed above $90 a barrel during the past two years, and then it went into a swoon. Benchmark U.S. crude futures dropped 29 percent from their June peak to $75.47 a barrel on Nov. 17. Parsley Energy shares slid, too, dipping under their IPO price in October before rebounding after the company raised its production forecast. "Tough times for oil," Sheffield says. Luckily, we have a great Zip code to drill in. Even with the drop in oil and in his stock, Sheffield's worth about $900 million - much better off than he was as a trader living on the Mediterranean coast.