The Prosecutor, July-August 2009, Volume 39, No. 4

To catch an oil thief

2009
Oil theft in Wilbarger and Hardeman Counties caught the attention of authorities; here’s how investigators and prosecutors took down a theft ring that stole over a million dollars’ worth of crude.

PB Oil Company, a small, unremarkable oil company in Vernon, was owned and operated by two oil field pumpers, Terry Smith and Willie Greening. The company had two assets, the Lowke lease and the J.N. Johnston lease, both located in Wilbarger County. The two leases had one thing in common: prior to being purchased by PB Oil Company, they had been shut-in wells that had produced no oil for the previous two years.
Remarkably (and suspiciously), after being acquired by PB Oil Company, these two tired old wells produced about $1.2 million dollars worth of oil between 2003 and 2007. Not bad for a couple of wells purchased for salvage.

Investigation

In September 2007, I received a visit from Texas Ranger Dick Johnson and Railroad Commission employee Nick Nichols. Nichols and Johnson were initiating an investigation into oil field theft in Hardeman and Wilbarger Counties and were looking for guidance on how to proceed.
The Railroad Commission had received information from an oil field worker that Oscar Gray, an oil transport truck driver, was stealing oil for PB Oil Company. As a transport truck driver, Gray’s job was to pick up loads of oil at different leases and deliver the oil to the gathering company to be placed in the pipeline. When Gray delivered the oil to the gathering company, he turned in a manifest called a run-ticket that showed which well and which company had produced the oil. According to the informant, Gray was picking up oil from the Crews Lease, owned by Williford Energy Company, and delivering it to the gathering company with a fraudulent manifest showing PB Oil Company as the producer and the J.N. Johnston lease as the producing lease. Thus, PB Oil Company was paid for oil produced by another company.
At the initial meeting, we decided that we needed to gather more information before interviewing any potential witnesses or suspects. The goal was to catch Oscar Gray delivering a stolen load of oil to the gathering company. At the time we initiated the investigation, a 180-barrel load of oil was going for about $15,000.
Over the next couple of months, Nichols and Railroad Commission field personnel closely monitored the Lowke and Johnston leases to check for suspicious activity. In early October, Nichols performed a seven-day flow test on the Johnston lease to determine its production capabilities. The test revealed that the Johnston was capable of making only about 1 to 1.5 barrels of oil per day. Nichols attempted to conduct a flow test of the Lowke lease but the electricity to the pumpjack was turned off at the power pole. Nichols determined from his inspections that the Lowke lease was not capable of flowing oil into the storage tank and that its production capability was essentially zero.
Nichols gauged the Lowke and Johnston wells on a regular basis in October and November. In late October, he noted a strange phenomenon was occurring at both wells. Nichols would check the wells on one day and they would have very little oil in the storage tank; however, he would come back two days later and the storage tank would have over 180 barrels of oil in it. Amazing, considering that the wells weren’t capable of producing much oil at all. Nichols also noted bobtail truck tracks at both well locations, consistent with someone trucking oil into the leases rather than taking it out. During the period that Nichols was monitoring the leases, PB Oil Company sold over 900 barrels of crude oil valued at over $70,000 from the Lowke and Johnston leases. From January 1 to October 1, 2007, PB Oil Company sold over 5,500 barrels of crude oil valued at around $400,000 from the Lowke and Johnston leases.

 

Caught red-handed

On December 14, 2007, Nichols received information from an oil field informant that Gray had been dispatched to pick up a load of oil from the J.N. Johnston lease. Nichols had been monitoring that lease and knew that there wasn’t sufficient oil in the storage tank to comprise an entire load of oil. Nichols set up on the Johnston lease early in the morning while a private investigator for Williford Energy Company monitored the Crews lease.
Gray never showed up at the Johnston lease. He did, however, upload a full 180 barrels worth of oil from the Crews lease. When Gray arrived at the gathering company to deliver the oil, he was met by Ranger Johnson and DA Investigator Jeff Case. In his hand, Gray held a run-ticket that showed that the oil had been picked up at the J.N. Johnston lease and that PB Oil Company was the producer. We had our first break in the case.
Gray agreed to cooperate with law enforcement and provided us with a confession. He admitted that he had been stealing oil for Terry Smith for about a year and that Smith would pay him $500 to steal a load of oil from the Crews lease and deliver it to the gathering company as though it came from the J.N. Johnston lease.
On December 17, we subpoenaed the bank records of PB Oil Company from a local bank. We asked for the most recent transactions first, and within a day or two we were provided with documentation showing that Smith and Greening had moved over $60,000 from the company account immediately after Gray was stopped with the stolen load of oil. Based on the information we had from Gray and Nichols’ inspections of the leases, we obtained a warrant and seized about $60,000 from the PB Oil Company account and Smith’s and Greening’s personal accounts.
Over the next couple of weeks, Ranger Johnson, Nichols, and Case interviewed scores of oil field truck drivers. Mark McLean and Steve Moorhouse, both oil transport truck drivers, had similar stories regarding their dealings with Terry Smith. McLean stated that Smith approached him in 2005 to “move oil” from one lease to another and offered him $500 per load. McLean said he told his supervisor Frank Ackerman about Smith’s offer and that Ackerman laughed it off and said, “I wondered if they would ask you.” Moorhouse stated that Terry Smith approached him in March 2006. Smith offered him $500 per load to haul oil from the Crews lease and to put on the run-ticket that the oil had come from the J.N. Johnston lease. Moorhouse declined Smith’s offer.
Investigators also talked to Frank Ackerman, Mark McLean’s supervisor and the lead driver for a gathering company in Hardeman County. Ackerman, after 30 minutes of denials, finally admitted that he had been approached by Terry Smith and offered $500 to move oil to the Lowke lease. Ackerman’s behavior and denials during the interview moved him up on our list of suspected drivers.
On January 15, 2008, Ranger Johnson interviewed a driver named Randy Hinsley. Hinsley worked for D.A. Loveless Trucking Company, a saltwater hauler located in Hard-eman County. Saltwater is a natural byproduct of oil production, and saltwater haulers pick up and dispose of saltwater from lease sites. Hinsley admitted immediately that not only had Terry Smith and Willie Greening approached him, but also that he had been stealing oil for them for $500 per load for almost two years. Hinsley informed Johnson that he had been paid in cash and by check to steal oil from various leases in Hardeman and Wilbarger Counties and to deliver the stolen oil into the storage tanks of the Johnston and Lowke leases. Hinsley’s saltwater truck had a 140-barrel capacity, and he estimated that he had stolen dozens and dozens of loads.
Two days later, Ranger Johnson arrested Terry Smith and Willie Greening for theft over $200,000 and engaging in organized criminal activity. The investigation was coming along nicely and we felt that we had more than enough information to convict Smith and Greening, but we were anxious to obtain the banking and oil company records that would corroborate our witnesses’ stories.

Records

The bank records came in slowly, but each one revealed an abundance of information. When the man from the bank dropped records by the office it was always a race to see who would get to review them first. One thing that we noticed immediately was the number of checks written for $500 and made out to cash. There were also numerous checks made out to cash for $1,000 or $1,500. We knew that the checks made out to cash for multiples of $500 had to be for stolen oil, but we needed to link them directly to a load of stolen oil.
The scheme became clear when we compared the check dates with the oil company records that indicated the dates that loads of oil were delivered from the Lowke and Johnston leases. It was a slow process but we eventually noticed a trend. Whenever Smith or Greening would write a check for $500 to cash, there would be a load of oil delivered within a day or two of the check’s date. For example, on January 17, 2007, Oscar Gray delivered a load of oil claiming it was from the J.N. Johnston lease. On January 18, 2007, Terry Smith cashed a $500 check. The proximity of the dates seemed convincing to us, but the records only got better from there.
In 2006, Greening and Smith had written checks in multiples of $500 directly to Randy Hinsley and placed “loan” in the memo line. Several other checks were made out to cash with “R.H.” in the memo line. The 2005 bank records revealed numerous checks in multiples of $500 made out to cash with “F.A.” in the memo. Oil company records revealed that Frank Ackerman had delivered loads of oil for PB Oil Company on the same date or within a day or two of the checks with “F.A.” written in the memo line. Ackerman was now a target.
On February 21, 2008, Terry Smith and Willie Greening were indicted for theft over $200,000, engaging in organized criminal activity, money laundering, and violations of the Natural Resources Code for filing false reports with the Railroad Commission. Oscar Gray and Randy Hinsley were indicted for Theft over $100,000 and under $200,000 and engaging in organized criminal activity. Frank Ackerman was later indicted in Hardeman County for theft over $100,000 and under $200,000 and engaging in organized criminal activity.

Oil fingerprinting

In March 2008, Nick Nichols informed me that oil can be tested to determine its various components and that generally speaking no two oils are the same. Both the Johnston and Lowke leases had been shut down since December 14, 2007, and their tanks each held a significant amount of oil.
The typical oil lease contains a pumpjack that pumps the oil up from the ground and a tank where it is stored until it is picked up by a transport truck. Once the pumpjack pulls the oil up from the ground, it passes through the wellhead, then it goes through the flow line into the storage tank. In theory, the oil in the wellhead should be exactly the same as the oil in the storage tank.
DA Investigator Jeff Case contacted a professor at the petroleum engineering department at Texas A&M University. When Jeff explained to him what kind of testing we needed, he referred us to Dr. Roger Sassen, a Texas A&M geochemist and an expert in the field of oil comparison. Dr. Sassen has tested and examined oils from all over the world for several major oil companies. He was intrigued by our case and offered to work with my office at a reduced rate. (Unfortunately, DPS does not provide lab analysis for oil samples.)
On March 26, 2008, Ranger Johnson, along with several Railroad Commission employees, executed search warrants on the Lowke and Johnston leases. The warrants authorized Johnson to collect samples from the flow line and tubing string of both leases to be compared with samples collected from the oil storage tanks. We also received permission to take samples from several different wells that had been identified as victim wells by Randy Hinsley. Those samples would also be compared against the oil in the storage tanks of the Lowke and Johnston leases.
A few weeks later, Dr. Sassen sent us his preliminary findings. The oil in the tubing string at the Lowke lease did not match the oil in the Lowke oil storage tank, and the oil in the Johnston wellhead did not match the oil in the Johnston storage tank. Additionally, Dr. Sassen indicated that the oil in the Johnston storage tank appeared to be a mix of different oils that looked like a combination of the oil samples we had provided from the victim leases. Dr. Sassen’s findings confirmed that the oil in the storage tanks of both the Johnston and Lowke leases had been trucked in from somewhere else. We immediately filed seizure warrants and became the proud owners of 240 barrels of crude oil which, converted into cash, came to around $20,000.

A deal is made

A few days after we received the results from Dr. Sassen, I got a call from Jeff Kearney, Willie Greening’s attorney. Greening wanted to cooperate. After a few days of wrangling, we eventually reached a plea agreement whereby he would cooperate with our investigation and plead guilty to theft over $200,000 with a 10-year cap on his prison sentence. Greening gave us the kind of detailed information about how the thefts occurred that we never could have obtained without an insider’s view of the conspiracy. We also struck a deal with Oscar Gray, the transport truck driver who was caught with a stolen load and provided a full confession. Gray pleaded guilty and was placed on probation for eight years.

Trial

By the time trial rolled around, the oil theft team had spent hundreds of hours investigating and preparing the case. We had so much evidence and so much information to present that I was worried that jurors would be overwhelmed. Also, I had become thoroughly immersed in the oil field industry and its terminology. I could talk about heating a tank, fracing a well, and pulling a bottom with the best of them. I had to remind myself that my jury pool would likely have the same minimal knowledge that I had when I first started working on this case.
I used a detailed PowerPoint presentation in my opening statement to provide the jury with a basic understanding of the oil field and its terminology. Willie Greening was the first witness; he provided an overview of the entire theft operation. He also explained how the oil field industry operates including how leases work and the use of oil transport trucks and saltwater haulers. According to Greening, the Lowke and Johnston leases were both poor producers that were incapable of producing much oil. Greening said that 80 to 90 percent of the checks made to cash in multiples of $500 were to pay drivers for stealing oil.
Mark McLain and Steve Moorhouse testified about how Smith had approached them and asked them to steal oil for $500 per load. Randy Hinsley and Oscar Gray testified that they had stolen oil for Terry Smith and Willie Greening and that they were paid $500 per load. Gray had stolen just over $100,000 worth of oil and Hinsley over $150,000.
Through investigator Jeff Case, we introduced numerous charts. We had a chart for each driver that showed the checks used to pay the driver, date of the stolen load, and total profit made by PB Oil Company from each load. Frank Ackerman’s chart, for example, showed eight checks with “F.A.” in the memo along with 11 associated loads totaling $108,000 worth of stolen oil. We also had charts for Randy Hinsley, Oscar Gray, and Wiley Thompson, a now-deceased driver whom Greening told us had assisted in the thefts. The checks on the charts totaled almost $500,000, though there were numerous checks for $500 cash that we did not include in the charts. (If a check was not dated within a few days of a load, we did not include it as a stolen load on our charts. While Greening told us that the checks were probably for stolen oil, we wanted the jury to see the strong correlation between the date of the check and the load of oil. If the dates were not close together, we did not include them.)
The charts were the most important pieces of evidence that we presented to the jury. They demonstrated the thefts in black and white. No matter how Smith’s attorney tried to spin it, his client’s signature was on 42 of the checks made to cash for oil theft, and Willie Greening’s was on 22.
The testimony of Dr. Roger Sassen was the icing on the cake. Dr. Sassen is a professor at heart. He stood at a dry-erase board for an hour educating the jury on how oil is produced and why oil from different locations has a different fingerprint. By the time he was through testifying, the jury knew without a doubt that the oil in the tanks at the Lowke and Johnston leases had been trucked in from another location.

The verdict

The jury came back with the guilty verdict for theft over $200,000 on Friday afternoon after three hours of deliberations. The court convened the proceedings until Monday morning.
The punishment phase was short. Smith had no prior convictions so we simply re-offered the evidence from guilt-innocence in punishment. His attorney, Dan Hurley, called up several character witnesses to tearfully testify that Smith was a good provider for his family. At 5:00 p.m. Monday, the jury returned a verdict of 10 years’ probation along with a $10,000 fine.
Needless to say, we were disappointed with the jury verdict. In the days after the trial we started talking to some of the jurors about their decision. In our discussions, the name of one particular juror, Carae Reinisch, kept being repeated. She was very pro-defendant and was talking on her cell phone a lot during the deliberations. We also found out that she disclosed during the course of the deliberations that one of Terry Smith’s relatives, and a witness on his behalf, was her babysitter.
We obtained a subpoena for the juror’s phone records and noted numerous calls while the jury was deliberating. When we tracked down the phone numbers that Reinisch was calling, we noted a very interesting connection. The juror was calling Terry Smith’s cousin Jessica Lacy, a woman who had been present for almost the entire trial. Those calls were not made during deliberations, but they did take place during the week of trial and on the weekend between the guilty verdict and the start of the punishment phase. I wanted to find out what they had been talking about.
I had my investigators coordinate with each other so that they were face to face with the two women at exactly the same time. That way Reinisch and Lacy wouldn’t be able to call each other and get their stories straight. The juror stonewalled us. She said she hadn’t talked to anyone about the trial during the trial and that her phone calls from the jury room were just to coordinate the pickup and delivery of her children from daycare. Lacy told us a different story. She said that she called Reinisch during the week of the trial and told her that Terry Smith had a big heart and was a good man. Also, after the guilty verdict was rendered on Friday, Lacy talked with Reinisch in person. Lacy told Reinisch that she was heartbroken that the jury was going to send her relative to prison on Monday. Reinisch assured Lacy that wasn’t the case, that all of the jurors had to consider probation to get on the jury, and that the case was not yet decided. At that time, Reinisch and Lacy had an extensive discussion about the case and about probation.
Lacy said she talked to Reinisch about the case because Terry Smith had called her and asked her what she thought the jury was going to do. Lacy said it was unusual for Smith to call her and that, while he didn’t ask her to contact Reinisch, she felt like that is what he wanted her to do. The discussions between Reinisch and Lacy violated Article 36.22 of the Code of Criminal Procedure, which states that “no person shall be permitted to converse with a juror about the case on trial.” Judge Dan Mike Bird admonished the jury each and every time they left the courtroom not to discuss the case with anyone. Article 36.23 provides that a violation of Article 36.22 is punishable by up to three days in jail. On December 10, 2008, we filed a motion for contempt of court against juror Carae Reinisch. We did not file on Lacy because she was truthful and remorseful regarding the conversations, and we needed her testimony against Reinisch.
On January 12, 2009, after a hearing in which Lacy and Reinisch both testified, Judge Bird sentenced Reinisch to three days in the Wilbarger County Jail for contempt of court. Unfortunately, there is no provision in Texas law for a new trial for the prosecution. We were stuck with the verdict of probation, but we still had two first-degree felony charges and four Natural Resource Code violations (two to five years) pending against Smith.

The aftermath

In February 2009, Randy Hinsley pleaded guilty to his involvement in the thefts and was given a 10-year sentence with a provision for shock probation. Frank Ackerman was convicted by a Hardeman County jury and sentenced to 71⁄2 years in prison March after a three-day trial. Following his conviction, Ackerman agreed to cooperate and testify against Terry Smith.
At the end of April, Terry Smith pleaded guilty to money laundering in exchange for a 91⁄2-year prison sentence. We also agreed that his probation in the theft case would be revoked and that he would serve a 91⁄2-year sentence to run concurrently with the money laundering case.
Willie Greening is testifying in a related case and has yet to be sentenced.✤