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Oil Theft Soars as Downturn Casts U.S. Roughnecks Out of Work

  • Crime rises with unemployment; drill bits and crude disappear
  • In Cotulla, they siphon by night as 200 barrels go missing

The moon was a waning crescent sliver Sept. 9 when a man emerged from an oil tanker, sidled up to a well outside Cotulla, Texas, and siphoned off almost 200 barrels. Then, he drove two hours to a town where he sold his load on the black market for $10 a barrel, about a quarter of what West Texas Intermediate currently fetches.

“This is like a drug organization,” said Mike Peters, global security manager of San Antonio-based Lewis Energy Group, who recounted the heist at a Texas legislative hearing. “You’ve got your mules that go out to steal the oil in trucks, you’ve got the next level of organization that’s actually taking the oil in, and you’ve got a gathering site -- it’s always a criminal organization that’s involved with this.”

From raw crude sucked from wells to expensive machinery that disappears out the back door, drillers from Texas to Colorado are struggling to stop theft that has only worsened amid the industry’s biggest slowdown in a generation. Losses reached almost $1 billion in 2013 and likely have grown since, according to estimates from the Energy Security Council, an industry trade group in Houston. The situation has been fostered by idled trucks, abandoned drilling sites and tens of thousands of lost jobs.

“You’ve got unemployed oilfield workers that unfortunately are resorting to stealing,” said John Chamberlain, executive director of the Energy Security Council.

In Texas, unemployment insurance claims from energy workers more than doubled over the past year to about 110,000, according to the Workforce Commission. In North Dakota, average weekly wages in the Bakken oil patch decreased nearly 10 percent in the first quarter of 2015, compared with the previous quarter, according to the Federal Reserve Bank of Minneapolis.

With dismissals hitting every corner of the industry, security guards hired during boom times are receiving pink slips. That’s leaving sites unprotected.

“There are a lot less eyes out there for security,” said John Esquivel, an analyst at security consulting firm Butchko Inc. in Tomball, Texas, and a former chief executive of the U.S. Border Patrol in Laredo. “The drilling activity may be quieter, but I don’t think criminal activity is.”

Special Charges

States are trying to get a handle on the theft, which can include anything from drill bits that can fetch thousands on the resale market, to copper wiring that can be melted down, to the crude itself. Texas lawmakers met earlier this month in Austin to craft a bill that would increase penalties related to the crime. A similar measure passed both houses of the legislature this year, but Republican Governor Greg Abbott vetoed it, saying it was “overly broad.” Lawmakers, at the urging of industry, are hoping to revive it next legislative session.

In Oklahoma, law-enforcement officers recently teamed with the Federal Bureau of Investigation to intensify their effort. In North Dakota, the FBI earlier this year opened an office in the heart of oil country to combat crimes including theft, drug trafficking and prostitution.

The lull in drilling has given oil companies more time to scrutinize their operations -- and their losses.

During booms “they are moving at such a rapid pace there’s not a lot of auditing and inventorying going on,” said Gary Painter, sheriff in Midland County, Texas, in the oil-rich Permian Basin. “Whenever it slows down, they start looking for stuff and find out it never got delivered or it got delivered and it’s gone.”

Oil theft is as old as Spindletop, the East Texas oilfield that spewed black gold in 1901 and began the modern oil era. In the early 1900s, Texas Rangers were often deployed to carry out “town taming” in oil fields rife with roughnecks, prostitutes, gamblers and thieves. In 1932, 18 men were indicted for their role in a Mexia ring that included prominent politicians and executives and resulted in the theft of 1 million barrels.

The allure of ill-gotten oil money remains strong.

In April, the Weld County Sheriff’s office in Colorado recovered almost $300,000 worth of stolen drill bits. In January, a Texas man pleaded guilty to stealing three truckloads of oil worth nearly $60,000 after an investigation by the FBI and local law-enforcement officers. Robert Butler, a sergeant at the Texas Attorney General’s Office whose primary job is to investigate oil theft, said in the legislative hearing that he is investigating a case of 470,000 barrels stolen and sold over the past three years worth about $40 million.

In Texas, oilfield theft has become entangled with Mexican drug trafficking, as the state’s newest and biggest production area, the Eagle Ford Shale region, lies along traditional smuggling routes. That’s thrust oil workers in the middle of cartel activity, and made it even more difficult to track stolen goods across the U.S.-Mexico border, said Esquivel, the retired Border Patrol agent.

Trickling Away

Oil thieves are a slippery bunch. Criminals sand off serial numbers of stolen goods to evade detection or melt them for scrap. Tracking raw crude is even trickier, since tracing it to its originating well is almost impossible once it’s mixed with other oil. Many companies fail to report the crime, making it difficult for investigators to trace the origins of stolen goods.

Many of the crimes are inside jobs, with thieves doubling as gate guards, tank drivers or well servicers. Last year, a federal grand jury indicted three Texas men in connection with the theft of $1.5 million worth of oil from their employers, including Houston’s Anadarko Petroleum Corp.

“Your average person wouldn’t know the value of a drill bit or a piece of tubing or a gas meter,” said Chamberlain. “It’d be like breaking into a jewelry store; unless you know what’s valuable, you wouldn’t know what to steal.”

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