Fighting Mad

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

By that point, he'd dabbled in uranium mining, drilling contracting and a host of other projects. In more recent years, he's focused on oil, gas and gold ventures in the former Soviet Union, Africa, the Middle East and Latin America. On any given day in his Denver Tech Center offices, it isn't unusual to hear talk of the prospects of generating electrical power from sugarcane in the Caribbean, good news from a well in New Mexico and an update on Grynberg's interests in the gas fields of Kazakhstan.

It's also not unusual to hear discussion about Grynberg's other long-range, high-risk enterprise: battling energy companies in court. His disputes with pipeline companies date back to the late 1980s and early 1990s, when he became embroiled in a series of lawsuits with Enron, Questar and KN Energy (now Kinder Morgan) over the value of his gas. The companies claimed they were following standard practices of a highly regulated industry, but the closer Grynberg looked, the more suspect the "standard practices" appeared.

Grynberg had seen digital meters on state-of-the-art pipelines in Europe and Canada. Many older American pipelines used less accurate analog meters, and the errors he found tended to favor the pipeline companies. In other countries, the temperature probe measuring heat content is located upstream of the meter. The probes on Grynberg's gas were placed downstream of the meter, farther away from the wellhead and in the wake of a cooling process, known as the Joule-Thomson effect, that occurs as a result of the gas compressing as it passes through the meter and then expanding again. The result is a lower BTU measure, and a lower price to the seller.

It would be one thing if these practices were consistent throughout the American gas industry, but Grynberg insists they aren't.

"You tell me the answer," Grynberg says. "When Questar buys gas from me, they put a probe downstream of the meter. When the gas reaches Salt Lake City and it's sold to a Questar affiliate, the probe is upstream of the meter. They make my case."

As Grynberg dug deeper, he found a pattern of what he considered deliberate cheating. The pipes carrying his gas led to a master meter miles away. Because of the inevitable leaks and shrinkages involved in transporting gas over long distances, you would expect the figures on the master meter to show at least a slight decline in the volume of gas compared to the measurements of the same gas at the wells. But the master meter figures for one of the pipeline companies showed a significant increase over what the company was reporting to him. "They were stealing as much as 12 percent a month," he claims.

There was more. Lines supposedly used for maintenance that bypassed the meters entirely. Ways of skimming condensate or creating turbulence in the line to temporarily lower BTU figures. Using the wrong filters or outmoded equipment to undervalue the gas. Some of the techniques reduced the payments the pipelines made to him by only a percentage point or two; if employed collectively, though, they amounted to as much as a third of the total value of the gas.

Grynberg intently studied the paperwork the companies had to submit to the Federal Energy Regulatory Commission, hunting for discrepancies between what they reported to him and what they reported to the government. He even devised a formula expressing the relationship between the specific gravity of natural gas and its heating content so that he could chart the undervaluations. When he found numbers that simply wouldn't add up on a form submitted by an Enron subsidiary, he brought it to the attention of the regulators -- and soon became convinced that the government was, to some extent, complicit in the scam.

"I write to FERC," he recalls. "I say, 'Hey, look at these forms. They're stealing.' I call them up, they say, 'We're studying it.' I call them up again. 'We're still studying it.' Finally, I call them up, and they say, 'Don't call us. We'll call you.' Three months later, they discontinued the forms. The lobbyists earned their money on that one."

In a contractual dispute over gas prices with Enron, Grynberg brought in Lawrence Klein, the Nobel-winning pioneer of econometrics, to testify as an expert witness. On the fourth day of trial, the smart lads at Enron handed Grynberg a check for $8.5 million to settle the matter. Grynberg's lawsuit against Questar also went to trial. Although his stolen-gas claims were dismissed, the jury returned a seven-figure verdict in his favor on pricing issues. The judge reduced the amount to a mere $250,000; an appeals court reopened the matter, eventually leading to a settlement more in line with the original award.

Not all of Grynberg's suits were successful. Some got thrown out. Others became knock-down, cash-draining battles stretching over a decade or more. The litigation with KN Energy's Rocky Mountain Natural Gas Company began before his trip to the Blue Gravel Field in 1994 and chugged on for years, bouncing from one courtroom to another. At one point Grynberg produced an affidavit from a former company accountant stating that he'd been ordered to pay Grynberg on a different basis than his contract called for, shortchanging him by at least 15 percent, and that gas produced by wells owned by the company was valued at double the rate Grynberg was paid for gas of comparable quality. According to court and SEC records, the complex dispute was finally settled in 2002, with Kinder Morgan making payments to Grynberg totaling more than $32 million, while making no admissions of wrongdoing.

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