In January 1984, Trevor Rees-Jones left a successful partnership as an oil and gas bankruptcy lawyer to get into the oil business, which he had found to be more fascinating than practicing law. But within 18 months, oil had fallen from $30 a barrel to $10. Laughing about it now, he says it was a good thing he was single at the time or he never could have done it. And he didn't think the law profession would take him back.

But some 20 years later, his timing proved impeccable.

Last spring, Rees-Jones sold most of the assets of his Chief Oil & Gas LLC for $2.63 billion: the E&P properties in the package went to Devon Energy Corp. for $2.15 billion and the midstream assets went to Crosstex Energy for $480 million. This was at the height of the Barnett Shale drilling boom, when gas prices were surging to $8 per thousand cubic feet. At the time, Chief, a private company, had 180 employees and 617 billion cubic feet equivalent of proved reserves under 169,000 net acres. Devon expects to drill as many as 800 wells on those leases during the next five years and produce at least 2 trillion cubic feet of gas.

Now Rees-Jones is redeploying the proceeds into several new companies that will drill in the Barnett as well as in other basins and states-and into his ranch west of Fort Worth, which he regards as good therapy, a place to spend quality time with his two teen-aged sons.

At press time he had some 40 employees in the new entities and two rigs running. One was drilling on "Crockett's Bounty" in Hood County-land given to Davy Crockett's widow by Texas after the fall of the Alamo.

Rees-Jones visited with Oil and Gas Investor recently about his plans, on being an independent, his advice for start-ups, his tough on-the-job training, and why the Forth Worth Basin has done so well when he once thought it was "the sorriest and most depleted basin around."

Investor Were you surprised by the size and value of the company you had built?

Rees-Jones Yes. It was an amazing thing, needless to say. The values in the Barnett Shale have really boomed over a fairly short time. Having started in this business in 1984, I spent the first 10 or 15 years hoping for at least $2 gas, so to see what has transpired during the past year and a half or two years has amazed me. If you had told me back then that I could count on $2 gas for any sustained length of time, I would have been ecstatic. I would have slept a whole lot better.

Investor How do you explain the enormous value the Barnett is now generating after years of languishing?

Rees-Jones A number of factors have come into play, and from a timing standpoint, they have occurred fairly close to each other chronologically. The first event was when Hallwood Energy sold its first set of properties to Chesapeake Energy in Johnson County in late 2004. That deal attracted a lot of attention.

Another factor is horizontal drilling. It provides the key to unlocking a good bit of the potential in the so-called noncore areas or what people are now calling expansion areas (areas other than Denton, Wise and northern Tarrant counties). In the early days of drilling in the expansion areas, the vertical wells were really pretty poor. Devon and EOG were simultaneously drilling horizontals. Then, Hallwood started to also, after the industry drilled a number of poor vertical wells.

Horizontals work better where the Viola does not exist. We at Chief were sticking to the core area ourselves, but we were watching what was going on in the expansion.

Another important factor is that the new fracs acted better in a horizontal wellbore than in a vertical one. These changes in technology are very important. Putting a water frac on a well rather than a gel or sand frac is not rocket science, but experimentation like that has made production much better than anyone expected in the noncore counties, and it has reduced costs compared with a gel frac.

Investor Are the prices buyers pay for assets in the Barnett or other shale plays justified or too exuberant?

Rees-Jones That's a good question. It depends on where you are and what type of company you have. By that I mean an oil and gas company has to increase its resource base since it is always declining. But chasing porosity and permeability like we did over many decades is mostly over, so that leaves us the resource plays like tight gas, coalbed methane and shales-gas trapped in tight rock over a very wide area.

Certainly the industry has gotten very comfortable with paying more for undeveloped reserves. In the last two years the thinking has moved more to resource plays, and the question then is, how much of the resource in place can be exploited, and on what spacing? The industry has determined it is better to drill than to acquire, but that means your risks move to availability of drilling rigs, the cost of dayrates and services, downspacing and the price of gas.

To the extent that you are a fair-sized company, you have to be prepared to step out and pay for these kinds of reserves. That's not to say that there aren't plays that don't work in 2005 and that may work by 2010. The Barnett is a prime example of that.

Investor How so?

Rees-Jones Because it did not work for many years, but prices and technology have changed it. You have to hand it to Mitchell Energy & Development Corp. for continuing to bang away at the Barnett through the 1990s, when it didn't really work for other operators. They made it work because they had the gas-gathering lines and gas-processing plants, so they would drill to feed their plants that were undernourished.

Investor How did you get into the Barnett?

Rees-Jones By 1994, I had spent the past 10 years drilling and exploring in Texas and other states, and I was looking for a way to lower my risk. At that time, the Fort Worth Basin was the sorriest and most depleted basin around, but I was going to pick the last meat off the bones from the Bend Conglomerate play there. It was a play we could make work if gas was only $1.50 or $2-if I could get the leases.

Between 1994 and 1999, we drilled about 40 Bend Conglomerate wells. We drilled our first Barnett well in 1997, and it wasn't a very good well. But we shifted to the Barnett in 1999. There was a round of layoffs from Mitchell then because oil had plunged to $10 again, and we could pick up some leases Mitchell had let go in northern Tarrant County.

Investor So by accident, it turns out you bought at the right time.

Rees-Jones That's right. First, the water frac was replacing the gel frac, so well costs fell 20% to 30%, and then, the price of gas started surging.

Investor With such success, what made you decide to sell Chief?

Rees-Jones Let me answer that this way, because I could talk about it until the sun comes up. We never fathomed that the field would get as large as it did. Since 1984, I can point to dozens of times when a field stopped growing just as it reached my lease line and never got to me!

The Barnett expanded far beyond our wildest expectations. We maintained our involvement and kept growing along with it, kept pace with the field, but we kept having to hire more people. Anyone will tell you, one thing we know now is that to operate in a resource play requires a different mindset than other plays.

By the fall of 2005, this had grown to such an extent that we considered if it would be better handled by a much larger company. I just felt different about it than I ever did before. We were not funded by private equity or a mezzanine fund that required us to sell as part of some exit strategy.

Investor But you were getting pressure from lots of eager buyers?

Rees-Jones We had gotten a few calls from time to time and we were flattered, but we didn't pay too much attention. Those calls played no part in our decision to sell. We are a company that is better suited to the front end of a play, rather than managing a play. We enjoy building the asset base. I always said we would exit when things quit being fun. The strength of Chief is in getting involved in a play early, not in competing with larger companies later on. I just finally understood why some people sell.

Investor But you are not out of the Barnett entirely, are you?

Rees-Jones We retained a healthy set of assets, albeit smaller, from the old Chief Oil & Gas and we intend to grow from there. Certain relationships we wanted to keep. We retained our alliance with Ross Perot Jr. and Hillwood Co. near the Alliance Airport, where we have one rig working. We retained the Hunter Ranch properties in Denton County.

We also excluded a healthy position in several thousand acres just south of DFW Airport in far west Dallas County on the Tarrant County line. We plan to drill our first well there in 2007. And we have acreage in Johnson County and on a couple ranches in Parker and Hood counties, with one rig running there. The latter is on land that was given to Davy Crockett's widow by the state of Texas after the Alamo.

Investor Is it too late to get into the Barnett?

Rees-Jones It would be very tough for a small company to establish any position in the Barnett right now. This play is at the development stage where much larger companies, like ExxonMobil or Shell, might make a move. If you wish to do business in the Barnett now, be aware you're going to pay an extraordinary price for leases and services.

Investor You've started other companies?

Rees-Jones We have formed Chief Operating LLC and Chief Exploration & Development LLC. E&D will do business in the Barnett but on properties other than the ones we excluded from the sale, and in other basins.

Investor All resource plays?

Rees-Jones No. Post-sale we are a well-capitalized company with expertise, so we'll do business in the Barnett, but we'll evaluate opportunities in other basins. We currently have activity in three other basins-two are resource plays and one is a conventional oil play. One is high-risk. One is in the Rockies and one is in Oklahoma.

Investor What is PEC Minerals?

Rees-Jones That is my personal investment separate from Chief. With two partners, I bought mineral and royalty interests from Sempra Energy for $225 million. It's scattered in 31 states. I liked the deal from the standpoint that the interests are scattered over a more diversified area, and they're minerals. But we are not going to be passive royalty owners. We are actively engaged, promoting the leasing and drilling of those minerals, to create as much activity as we can.

Investor What advice do you have after all these years?

Rees-Jones This is a tough business. Have you seen that cartoon of a stork in a pond about to eat a frog? The frog is in his mouth, but his arms are around the stork's neck, trying to choke him. It says, "Never give up." I have that picture on my wall.

If this is a business you want to be in, you have got to love it, because it will try to knock you down and you've got to bang back-you've got to be persistent. After my first 10 years in this business, I had very little to show for it, but I was not ashamed of that. I have never lost my love for the oil and gas business. I could stand for it to be a little easier, because it is a roller-coaster. I am not a geologist, an engineer or a landman, so my on-the-job training involved a few substantial kicks in the rear.

Get out there and go for it.