Employees in the same US agency whose errors cost the government billions of dollars in oil royalties had sex with their industry contacts and took illegal drugs such as cocaine, an inspector general investigation found.
Workers in an Interior Department program through which the government is paid with oil rather than money for rights to drill on federal lands also accepted gifts from oil companies, the department’s inspector general said in a report submitted today to members of Congress. The program is known as royalty in kind, or RIK, and its former director took illegal drugs and had sexual relations with subordinates, according to the report.
“We discovered that between 2002 and 2006, nearly one- third of the entire RIK staff socialized with, and received a wide array of gifts and gratuities from, oil and gas companies with whom RIK was conducting official business,” Interior Department Inspector General Earl Devaney said in a letter accompanying the report. Two staffers “engaged in brief sexual relationships with industry contacts,” he said.
The Minerals Management Service, part of the Interior Department, collected $US11.4 billion in the government’s 2007 fiscal year from companies that used federal and Indian lands to produce oil, natural gas or minerals. The agency came under increased scrutiny after revelations in 2006 that it failed to include price triggers in offshore leases that could cost the government $US10 billion in lost revenue.
“The activities at the RIK office are so outlandish that this whole (inspector general) report reads like a script from a television miniseries, and one that cannot air during family viewing time,” West Virginia Democrat Nick Rahall, chairman of the House Natural Resources Committee, said in a statement. “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.”
In his letter, Devaney singled out San Ramon, California- based Chevron Corp., the second-biggest US oil company, for allegedly refusing to cooperate with the investigation. Company spokesman Donald Campbell said Chevron did cooperate, providing all requested documents. He said he wouldn’t comment further because he hadn’t seen the report.
According to the report, then-director Gregory W. Smith bought drugs from RIK subordinates and accepted almost $US1,000 in gifts from Chevron, Royal Dutch Shell Plc and Gary-Williams Energy Co. While still heading the program, he worked for a consulting firm that did business with the agency, the inspector general said.
Cocaine purchases alleged
Smith couldn’t immediately be reached for comment. Sally Allen, a spokeswoman for Denver-based Gary-Williams Energy, declined to respond until the company reviews the report. Darci Sinclair, a spokeswoman for The Hague-based Shell, said her company cooperated with the investigation. She declined to comment further.
Smith retired in May 2007 after two years in charge of the RIK program. Devaney said Smith bought cocaine from a subordinate three to four times a year between 2002 and 2005, paying about $US60 each time.
Smith asked the employee to get drugs for him during work hours, referring to them as “office supplies,” and he offered to raise the subordinate’s performance award by $US250 in exchange for drugs, according to the report.
The employee, who also said sex with Smith, said Smith snorted crystal methamphetamine off of her toaster oven. Another employee said Smith demanded oral sex from her, and she was worried about reprisals if she didn’t comply.
The US Justice Department declined to prosecute Smith and Lucy Querques Dennet, his boss, Devaney said. He said the RIK program had “a culture of substance abuse and promiscuity.”
The program had a “pervasive culture of exclusivity, exempt from the rules that govern all other employees of the federal government,” Devaney said in the letter. He said workers in the program “accepted gifts with prodigious frequency,” including taking free lodging after becoming too intoxicated at industry events to drive home.
“American taxpayers deserve to have confidence that their interests are being protected when it comes to collecting royalties from the production of public oil and gas resources, especially given the potential for expanded domestic drilling,” New Mexico Democrat Jeff Bingaman, chairman of the Senate Energy and Natural Resources Committee, said in a statement.
The agency in the mid-1990s began accepting royalties in the form of a%age of the oil or gas produced from a federal lease, in lieu of cash payments. The RIK program is based in Lakewood, Colorado, and has about 50 employees and a $US19 million annual budget.
The investigation took two years and involved interviewing 233 witnesses and reviewing 470,000 pages of documents.
The inspector general said in a May report that government employees involved in the royalty program had “inappropriate relationships” with the oil industry.
“Since you have already taken assertive steps to replace key leadership in the affected components of MMS, I am confident that you will now act quickly to take the appropriate administrative action to bring this disturbing chapter of MMS history to a close,” Devaney wrote in the letter to Interior Secretary Dirk Kempthorne.
“Where there are areas to make corrections, we will make corrections,” Kempthorne said today in an interview in Washington, prior to receiving the report.
Randall Luthi, head of the Minerals Management Service, said in an interview today that his agency would “take action” when it receives the report. He, too, spoke before the report was submitted.
“It’s something we take very seriously,” Luthi said. Royalty oil sales occur several times a year.
Royalty oil, especially from offshore leases, is used either to fill the nation’s petroleum reserve or is sold on the open market. Last year, the royalty program sold about $US1.7 billion to the market and sent $US306 million worth of oil to the reserve.