Fighting Mad

Tycoon Jack Grynberg says the energy industry has stolen millions from him -- and billions from the government. What if he's right?

When Jack Grynberg breezes through the doors of the Grynberg Petroleum Company, attention must be paid. Wearing a dark-blue pinstripe suit, dark glasses and a well-traveled Stetson, an unlit cigar scissored between the fingers of one hand, he seems like a shorter, Greenwood Village-CEO version of the Lone Ranger, come to set things right.

The receptionist hands him a stack of phone messages. There are reports to be reviewed, correspondence needing his signature. Grynberg waves it all aside. A pupil awaits, and there's nothing the 74-year-old wildcatter likes better than giving lessons in how the oil and gas industry really operates.

Grynberg leads the way down a corridor cluttered with boxes of legal files, past his paper-strewn corner office and shelves crammed with maps and production reports from gas fields around the world, to a conference room bedecked with seismic readouts and more maps. He dims the lights, takes off his hat, leaves the shades and the stogie in place. Then he fires up a PowerPoint presentation dealing with one of his industry's most closely guarded secrets: not how to find natural gas -- that's the easy part -- but how to steal it.

"In the summer of 1994, I went out to a field where I had 22 gas wells in northwestern Colorado," he begins. "This is the Blue Gravel Field, just eighteen miles north of Craig. I'd been getting monthly reports from the pipeline company on the amount of gas production and the heating-content analysis. To get the heating content, you have to have a temperature probe."

He pauses. On the screen, a diagram of a gas pipeline flashes, showing the gas going through a separator and a dehydrator before reaching a meter and a probe.

"I went out there," he continues, "and I couldn't find a single probe. Not for 22 wells."

For the next hour or so, Grynberg holds forth on the dozens of ways that pipeline companies and other entities can chisel gas producers out of their due. The alleged techniques involve mis-measuring gas volume and heat content (BTUs) or not measuring at all; tampering with meters or bypassing them; funny math, bad chemistry and substandard equipment. It's an astonishing lecture, backed up by court exhibits that Grynberg has used in his prodigious litigation against some of the largest gas companies in the country. He speaks quietly, but with a tone of unmistakable outrage:

"There are eleven ways to steal using analog meters. I went to a place where they make the meters in Littleton, and they showed me six ways you could tamper with the spring.... Then I discovered that on nine of my wells, they had the audacity to be super-crooks, to have a line going around the meter.... Here's a picture of the orifice plate. If it's larger than reported or it's chipped, the computations can be off to the fourth power."

It would be easy to dismiss another man ranting about a far-flung conspiracy to cheat him as slightly paranoid -- but not Grynberg. After more than forty years in the business, his family-owned companies have interests in hundreds of wells, most of them overseas, with a success rate that would put most independents to shame. And over the past two decades, he's fared almost as well in the courtroom as he has drilling for gas. Although many of the settlements are confidential, Grynberg says he's collected more than $60 million from his lawsuits against the energy giants, including whopping checks from Kinder Morgan, Questar and even Enron, years before its notorious collapse.

Among his foes, Grynberg is regarded as intensely litigious, "a professional plaintiff," a nuisance, a pariah and worse. He hasn't always prevailed in his lawsuits; even the savviest oilman hits a few dry holes. But his accusations of widespread fraud in the oil and gas industry have implications well beyond his own pocketbook. They've attracted the attention of Congress, government investigators and watchdog groups looking into how energy companies have shortchanged taxpayers and Indian tribes on billions of dollars of royalties owed for production on reservations, public lands and offshore leases.

Much of the heat has fallen on the Minerals Management Service, an obscure branch of the Department of the Interior responsible for collecting federal royalties on oil, gas and mineral leases. Energy production on federal lands has soared in recent years, spurred on by higher prices. But under the Bush administration, the MMS has cut back sharply on the number of audits it conducts of energy companies, despite alarming reports of bungled leases and dubious accounting ("Duke of Oil," September 8, 2005). That's prompted several MMS auditors, frustrated by their bosses' refusal to pursue cases of possible fraud, to file their own claims against the companies under the False Claims Act, a federal law that allows whistleblowers to sue on behalf of the government and collect a portion of any proceeds for themselves.

The Project on Government Oversight, a Washington-based nonprofit, has identified more than $11 billion in lawsuit settlements owed by oil and gas companies to states, tribes, the feds and private parties as a result of royalty underpayments from 1990 to 2001. But that may be just the beginning. "There's no doubt that there's an enormous amount of fraud," says Beth Daley, POGO's director of investigations. "They've been caught with their hands in the taxpayers' pockets over and over again."

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