Court: Stolen Mexican oil sold to large company

MEXICO CITY — A Texas oil executive says his small company was one of several that bought millions of dollars worth of stolen Mexican petroleum and then sold the illicit products to larger companies in the U.S. including chemical giant BASF.

Houston-based Trammo Petroleum president Donald Schroeder, the first to be convicted as part of a cross-border investigation, testified he was contacted by two fuel company representatives who “told me they had some Mexican condensate that they would like to sell,” according to U.S. federal court transcripts obtained Friday by The Associated Press.

His contact at one of those companies, Josh Crescenzi of Continental Fuels Inc., said that “the condensate was stolen,” Schroeder testified during a May court appearance.

“And, so what did you do about it?” Judge Ewing Werlein said.

“I bought it and sold it,” answered Schroeder, pleading guilty to buying and reselling stolen condensate, a liquid hydrocarbon that refiners can blend with crude oil as they produce fuel and other products.

Schroeder’s arrest came in a joint U.S.-Mexican investigation that is trying to ferret out criminals — mostly violent drug gangs — tapping remote pipelines in Mexico, and sometimes building pipelines of their own, to siphon off millons of gallons of oil each year, robbing Mexico’s government of a major source of revenue.

Schroeder and his attorneys have repeatedly declined to comment. Crescenzi could not immediately be contacted.

Joel Androphy, lawyer for Murphy Energy Corp., the other fuel company named in the court records, said Murphy didn’t commit any crimes and the company had been cooperating with U.S. investigators for “two or three” months.

He said authorities haven’t seized any of Murphy’s property or assets as part of the investigation.

“We’re happy to assist the government,” he said. “We want to make sure whoever’s involved in this thing is punished.”

Then, reading a prepared statement, he added: “Murphy Energy had no knowledge of any scheme to do anything illegal. Murphy Energy paid market value for a product that someone now says was stolen. If that is the case, then all of the people involved in the scheme on both sides of the border should be punished.”

BASF spokesman Daniel Pepitone says his company received a U.S. Justice Department subpoena related to the case and it is cooperating with authorities. He confirmed that Germany-based BASF did business with Trammo Petroleum and said that “we have no reason to believe that BASF had any involvement in the alleged wrongdoing.”

Schroeder is the first to be convicted as part of the cross-border investigation that began when Mexican state oil company Petroleos Mexicanos, or Pemex, contacted U.S. Immigration and Customs Enforcement in 2007 to report their suspicions that their products were being smuggled into the U.S.

Pemex, which is the only legal owner and exporter of Mexican oil to the U.S., has been struggling for years to quell a seemingly endless series of taps on its pipelines by thieves. U.S. investigators found some U.S. brokers were involved in illicit sales, according to the transcripts in Schroeder’s case. No one knows how much stolen oil crosses the border.

While Mexican authorities try to patch the leaks, U.S. officials are tracking various Texas bank accounts and taking a close look at several Texas companies. To date, the companies identified are small fuel distributors, not major U.S. refiners.

Earlier this month, Mexican President Felipe Calderon said drug cartels have extended their operations into the theft of oil, which finances about 40 percent of the national government’s budget.

Mexico’s federal police commissioner, Rodrigo Esparza, cited the Zetas as an example. He said the fierce gang aligned with the Gulf drug cartel used false import documents to smuggle at least $46 million worth of oil to U.S. refineries he didn’t identify.

The Schroeder transcripts gave this description of a smuggling operation: Various unidentified companies drove the stolen Mexican oil in tankers across the U.S. border, delivering illicit loads to the port of Brownsville, Texas. Continental Fuels paid with a series of wire transfers, then stored the oil until there was enough to load on a barge, which then embarked for Port Arthur, Texas, and ultimately was sold to BASF.

Even though they never handled the condensate, Murphy and Trammo bought the stolen oil during this process, the court records say.

Schroeder has been ordered to pay a $2 million fine to the U.S. government while he awaits a December sentencing, and U.S. officials have returned a separate $2.4 million refund check from Trammo to partially compensate Pemex for its losses.

AP Energy Writer Chris Kahn in New York and AP Writer Sharon Theimer in Washington contributed to this report.