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Here's why Don Gray will never win a popularity contest: He doesn't shy away from inconvenient facts. Corporate Canada is a clubby sort of place and, like any club, it has rules. One of those rules is that you don't trash your own industry in public. You especially don't do it when key players in that industry are frequently in need of money.

Gray is famous for making bushels of money for himself and his investors on a natural gas play called Peyto Exploration & Development (No. 135 in our Top 1000 ranking). If you'd invested a $1,000 grubstake in Peyto in 1998, you would have had about $400,000 a dozen years later. Gray stepped down as CEO in 2006, and he is now chairman. He's primarily a venture capitalist, seeding promising oil and gas exploration firms, and he's as wealthy as Croesus. Yet he still doesn't fit in with the Alberta oil establishment and, as such, doesn't consider himself bound by its rules.

That establishment, as a general observation, is reasonably impressed with itself. Gray is less impressed. "We reward mediocrity. We reward the people who are the promoters." In describing the modus operandi of a number of Calgary energy companies, Gray drops the P-word: "It's a giant Ponzi scheme."

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After Madoff, that's a particularly loaded word. Gray, to be sure, isn't saying that something illegal is going on. But he is bothered by what he calls "an ongoing threat to the integrity of our energy sector"-the way oil and gas companies spin their results, the better to attract more capital from investors. Actually, he doesn't use the word "spin." Gray prefers words and phrases like "mislead," "try to confuse" and "yahoos on every corner selling snake oil to unwitting investors." You can find those gems and more in his letter to Peyto shareholders in the company's annual report.

When you get past the rhetoric, what Gray is really talking about is growth. Every energy company is trying to grow-otherwise, what's the point? But Gray argues that many Canadian oil and gas producers aren't nearly as good at growth as they would have you believe. They're far too eager to promote their spending-big land purchases, monster drilling projects and the like-without ever giving their investors enough information to decide whether such projects will be profitable, he says. They don't explain clearly how their wells are performing. In fact, if you dig into their own numbers, you can see that much of their "growth" is, in fact, illusory. When you break it down, many companies are spending vast amounts of money but not really growing.

Take, for example, Daylight Energy Ltd. (No. 944), a Calgary oil and gas producer that stamps the word "growth" over all its reports to investors. And grow it does: Between 2007 and 2010, its total production doubled, reaching more than 40,000 barrels of oil equivalent (BOE) per day last year.

This was achieved through a steady diet of acquisitions and spending to drill new wells, funded primarily by borrowing money and issuing a large number of new shares. So what's the bottom line? Suppose you bought 1,000 shares in Daylight five years ago. In 2007, your slice of its annual production was equal to about 98 barrels of oil. By last year, your stake had been cut to 76 barrels. Sure, there's growth. But it's not real growth, at least not yet.

"Anybody can grow at a certain cost," scoffs Gray. Pengrowth Energy Corp. (No. 88) is another example that proves the point. Over a four-year span, its production grew by a healthy 19%. But that came at a high price-more than $1 billion in capital spending, much of which had to be funded by selling new shares. So the investor who used to own 130 barrels of production per 1,000 shares now owns 90 barrels.

Back in the day, Pengrowth was a favourite among the income trust crowd because it paid a generous dividend. Investors who were seduced by the rich payout have paid the price: Pengrowth shares have posted a total return of -5.7% over the past five years.

In fact, considering the high price of oil (natural gas is still in a funk), the list of value-destroying duds in the Calgary energy patch is surprisingly long. Yet people are still willing to give cash to the executives who run them. Pengrowth has raised about $350 million since the beginning of 2009 by selling stock. Daylight bagged $165 million last year from investors who bought bonds that can be converted into shares.

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And that might be the thing that Gray finds the most frustrating. The whole game-raise money to show "growth" so you can raise more money-is aided by short memories and helpful analysts, who "turn a blind eye" to the per-share figures, he says. "It's a ripe environment for promoters to be out there talking about big wells they've drilled or big tracts of land they've bought." He thinks this will end badly. And you know what? There's another reason Don Gray will never win a popularity contest: because he's telling the truth.

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