The investigations expose a small group of individuals "wholly lacking in acceptance of or adherence to government ethical standards," wrote Inspector General Earl E. Devaney, whose office spent more than two years and $5.3 million on the investigation. "Sexual relationships with prohibited sources cannot, by definition, be arms-length," Devaney said.
The reports describe a fraternity house atmosphere inside the Denver Minerals Management Service office responsible for marketing oil and natural gas that energy companies barter to the government in lieu of cash royalty payments for drilling on federal lands. The government received $4.3 billion in such royalty-in-kind payments last year. The oil and gas is then resold to energy companies or put in the nation's emergency stockpile.
"During the course of our investigation, we learned that some RIK employees frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relationships with oil and gas company representatives," the report said. Two government employees who had to spend the night after a daytime industry function because they were too intoxicated to drive home were commonly referred to by energy traders as the "MMS Chicks."
Between 2002 and 2006, 19 oil marketers - nearly a third of the 55-person staff in the Denver office - received gifts and gratuities from oil and gas companies, including Chevron Corp., Shell, Hess Corp. and Denver-based Gary-Williams Energy Corp., the investigators found. The investigation focuses on nine employees - all but one of whom received ethics training - who attended meals, parties, paintball games and concerts whose value exceeded the $20-per-gift limit or $50-a-year thresholds on outside gifts. In the case of two marketers, gifts were accepted on at least 135 occasions. The report identifies eight of the employees by name and a ninth only by job description.
One worker admitted having a one-night-stand with a Shell employee. That same individual allegedly passed out business cards for her sex toy business, Passion Parties Inc., at work, and bragged that her income from that business exceeded her salary at the Interior Department. The employee was authorized to conduct such outside employment, and denied to investigators that she advertised for it during work hours, the report said. She admitted selling products to several of her subordinates.
Devaney said the investigations took so long because Chevron refused to cooperate. An Interior Department official said Chevron would not allow investigators to interview its employees.
Don Campbell, a Chevron spokesman, said Wednesday that the company "produced all of the documents that the government requested months ago." A Shell spokeswoman said it would be premature for the company to comment on the report until it had time to review it.
Maripat Sexton, a spokeswoman for Hess Corp., said the company's investigations "indicated no wrongdoing on our employee's part." "We do not believe we are the focus of the investigation," she said.
One of the reports claims that the former head of the Denver royalty-in-kind office, Gregory W. Smith, purchased cocaine from a co-worker, and one occasion had it delivered to the office. He also allegedly had oral sex with subordinates. The report also said Smith steered government contracts to Geomatrix Consultants Inc. and used government databases and e-mail accounts to conduct business for the company, which paid him $30,000 for his work from April 2002 through June 2003. Smith retired from the office in May 2007.
Smith's attorney, Steve Peters, called the claims "sheer fantasy."
"Greg Smith was a loyal, dedicated employee of the federal government for more than 28 years," Peters said Wednesday. "His efforts in running the royalty-in-kind program resulted in one of the most profitable government programs in American history."
MMS Director Randall Luthi, in an interview, said the agency was taking the report "extremely seriously" and would review the allegations and weigh taking appropriate action in coming months. Luthi said four of the employees were transferred to other departments last year. The inspector general is recommending that current employees implicated be fired and be barred for life from working within the royalty program.
House Natural Resources Chairman Nick Rahall, D-W.Va., said "this whole IG report reads like a script from a television miniseries and one that cannot air during family viewing time. It is no wonder that the office was doing such a lousy job of overseeing the RIK program; clearly the employees had 'other' priorities in that office."
One of the employees named in the investigation, Jimmy Mayberry, already has pleaded guilty in U.S. District Court in Washington to violations of conflict-of-interest laws. The Justice Department declined to prosecute Smith and former Associate Director of the Minerals Revenue Management program Lucy Querques Denett, who the report says manipulated contracts to ensure they were awarded to former Interior employees.
The findings are the latest sign of trouble at the Minerals Management Service, which already has been accused of mismanaging the collection of fees from oil companies and writing faulty contracts for drilling on government land and offshore. The charges also come as Congress and both presidential candidates are debating whether to open up more federal offshore waters to oil and natural gas drilling.
"This all shows the oil industry holds shocking sway over the administration and even key federal employees," said Sen. Bill Nelson, D-Fla. "This is why we must not allow Big Oil's agenda to be jammed through Congress."
Rep. Darrell Issa, R-Calif., urged Democrats to reopen a House investigation of the Minerals Management Service that was initiated in 2006 by House Republicans. "Looking into and fixing these problems would have meant highlighting the enormous revenues that domestic oil and natural gas production contributes to our treasury. This just didn't fit into their anti-drilling campaign," he said.
Rep. Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee, announced late Wednesday that he would hold a hearing on the investigations next week.
While most government royalties for drilling on federal lands are paid in cash, the government in recent years has been receiving a greater share of its oil and gas royalties in the actual product. More of that oil is also being sold on the open market, versus being deposited in the Strategic Petroleum Reserve, the nation's emergency oil stockpile. Congress earlier this year passed a law halting deposits of oil to the reserve to help alleviate high gasoline prices.
The investigation was prompted by a 2006 phone call from an employee in the Denver office who reported ethical lapses.
Associated Press writers H. Josef Hebert in Washington and Ivan Moreno in Denver contributed to this report.
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