The Dallas petroleum geologist accused of backing an $80 million oil-and-gas fraud says he did nothing shady. He blames Christopher Faulkner, CEO of Breitling Energy, who the SEC says sold investors a bill of goods.
Joseph Simo described his former boss Thursday with a short expletive and said his own work met scientific standards.
“I’ll go to court and testify to that all day long,” he said.
Last week, the Securities and Exchange Commission issued a complaint against Faulkner, Simo and five other people who worked at Breitling. The complaint alleges that Faulkner transformed himself from a small-time tech entrepreneur into a self-described “Frack Master” and used his appearances on radio, TV and energy conferences to puff up a reputation that he then used to snooker investors into buying overpriced shares of gas and oil wells.
Faulkner, the SEC said, pocketed “at least $30 million in investor funds to maintain a lifestyle of decadence and debauchery.”
Faulkner’s lawyer, Larry Friedman, dismissed Simo’s criticisms of his client Thursday.
“Any criticism that is five years late is suspect,” Friedman said. “Joe Simo worked there for five years and never raised any complaints. Now that the ship is sinking and he wants a seat on the remaining life raft, he’s come up with an explanation, a way to get a seat on that remaining life raft.”
Would Faulkner be willing to comment in person about the allegations?
“I don’t think it’s prudent for him to make a public statement at this time,” Friedman said.
The sales pitches for the wells, the SEC says, were backed by geology reports produced by Simo that included production estimates that were “consistently, and abysmally, overstated; actual production on the wells was often less than 10 percent of Simo’s projections.”
The bad projections, the SEC says, happened because Simo “took historical production of the best performing wells within a predetermined proximity of the proposed drilling location and assumed those figures as the baseline for his projections.”
Simo admits that some of the SEC accusations are true. His predictions on many of the wells were “way wrong.” But not because his methodology was bad, he insists.
In an interview in his Dallas office scattered with oil exploration maps, a chrome-plated drill bit and oil-drilling artwork, Simo explained how he came up with his production forecasts.
In some of the oil fields, nearby wells had been drilled years before, he said. Technology and drilling efficiency have significantly improved since then. So Simo says it’s not unreasonable to predict that new wells would do at least as well as the old ones.
But he admits there’s a lot of uncertainty in predicting some kinds of geology. And the hard-to-predict rocks are the kind that many of Breitling’s proposed wells would be drilled in.
Plus, Breitling didn’t actually drill or complete the wells, he said. The company owned small percentages in most of the wells, and that’s what it sold. Other companies with greater control of the wells handled the operations. And Simo said whoever did the drilling didn’t do as good a job as he’d expected.
But Simo admits he has no explanation why so many of his wells failed to meet his predictions by so much.
Simo has been doing oil geology since the 1970s. He first made contact with Breitling on a midnight phone call about five years ago, he said. A company working with Faulkner was working a well. The geologist the company was using said the potential yield wasn’t worth the effort. Simo was called in to consult and agreed.
That led to a series of consultant reports, more than a dozen, over the next two years. Then he was hired full time.
The SEC says that Simo’s work was presented to potential investors as if it were from an “independent, unaffiliated third party.” That was true for the first couple of years, Simo said Thursday. After he was hired full time, he did another eight or nine studies.
According to the SEC, Faulkner wasn’t an oil-and-gas expert before going in the business in 2009. “In fact, his only exposure to the oil-and-gas industry was through website data hosting work he and his prior company, C I Host, performed for oil-and-gas companies.”
Simo noticed that Faulkner wasn’t exactly on top of the topics in which he was touting himself as an expert. Sometimes, he’d see Faulkner on TV, pushing himself as an experienced fracker.
“I’d think, ‘That guy has never drilled a frickin’ well in his life,'” Simo said.
And yet, Faulkner was no dummy, Simo said.
“Chris is a very intelligent guy. He picks up on things quickly,” he said.
A couple of years ago, Simo noticed that some of the vendors that Breitling was using weren’t getting paid on time. Some of them had been people he’d worked with for years, so his credibility was on the line. He says now that if he asked Faulkner about it, he was told it would be taken care of.
Simo spotted a more serious problem when he noticed a pitch to investors about a potential well he’d studied. It claimed ten times the potential yield that Simo had forecast. Faulkner claimed it was a typo, Simo said.
“I should have left then,” Simo said.
Why didn’t he?
“Money was good. Times were tough. Overhead was high,” he said.
He said he never looked at any of the other material Faulkner was using to see if there were any other “typos.”
Instead, he stayed long enough that his paycheck bounced in January of this year. And again in February.
“I kept working there, thinking this was going to clear itself up,” he said.
In April, he packed his stuff and left.
“I’m not sure if I got fired or quit,” he said Thursday.
If he had it to do over again, what would Simo have done differently about working with Faulkner?
“I probably would have looked him up on the Internet and just seen what his reputation was like,” he said. “And probably bailed out.”
“I never did that,” he said sadly. “Why I didn’t, I have no friggin’ idea.”
Staff Writer Dalton LaFerney contributed to this report.