Republican Interior Dept. Scandal: Sex, Drugs, Money From Oil Companies

WASHINGTON — Government workers in Denver engaged in secret sex and
drug abuse with oil company employees and accepted thousand of dollars
in gifts while handling billions of dollars worth of energy contracts,
federal investigators said today.

Employees at the Minerals Management Service including the former head
of the Denver division repeatedly and "without remorse" violated
ethics rules over a four-year period, the Interior Department's
Inspector General said.

The three reports released today describe a widespread pattern of
abuse as well as a pervasive belief that the rules didn't apply.

In the Royalty in Kind division of Minerals Management Service, the
report said, "between 2002 and 2006, nearly one-third of the
Interior Scandal

* Read the cover letter from the Office of the Inspector General
to the Chairman of the Secretary of the Interior, Dirk Kempthorne and
the redacted Report on Minerals Management Services. (36 pages, PDF)
* Read the redacted Federal Business Solutions Contracts report
(30 pages, PDF)
* Read the redacted Investigative Report of Gregory W. Smith (24
pages, PDF)
* Read the cover letter from the Office of Inspector General to
the Chairman of the House Committee on Natural Resources. (1 page,
PDF)

staff socialized with, and received a wide array of gifts and
gratuities from oil and gas companies with whom RIK was conducting
official business...these employees accepted gifts with prodigious
frequency."

Gifts included ski and golf trips and dinners.

The Inspector General found ethics breeches by 19 employees, but
focused on 13 workers.

In addition to the sex, drugs, and gifts, the employees are accused of
rigging contracts, improperly helping oil company workers fix problems
with their contracts, and working part-time as private oil consultants
g to three reports released today by the Interior Department's
Inspector General.

The employees argued that they needed to socialize with oil company
executives in order to gain information, and "when confronted by our
investigators," the IG report said, "none of the employees involved
displayed remorse."

One report from the Inspector General focuses on Gregory W. Smith, the
former head of the Denver Minerals Management Service. In charge of 65
employees, Smith "served as the public face of RIK as its senior-most
representative to the oil and gas industry."

The report alleges that Smith had sex and took illegal drugs with
subordinates.

Democrats immediately seized on the allegations. From House Speaker
Nancy Pelosi to Colorado Gov. Bill Ritter, they issued statements
arguing that a too-cozy relationship between oil companies hurts
taxpayers.

"The investigation also must closely examine how much this type of
corruption has cost American - and Colorado - taxpayers," Ritter said.
"The oil-and-gas industry already benefits from taxpayer-funded
subsidies, so the question is: how much has this scandal cost us in
lost revenue?"

Pelosi, who Wednesday unveiled new energy legislation, tied in
President Bush and Vice-President *** Cheney.

"Little did we know how cozy the relationship between Big Oil and the
Administration's regulators have been," Pelosi said. "This report
documents the
Former Minerals Management Service chief Johnnie Burton (The Denver
Post / MMS)
'pervasive culture of exclusivity' that has cheated the American
taxpayer out of billions of dollars owed them by the oil companies.

Last month, The Denver Post reported on the pending release of the
Inspector General's report, saying it was expected to help explain
breakdowns in accountability in government energy deals and other
questionable activities discovered by the office's investigators and
whistle-blowers in recent years.

Many of the alleged misdeeds occurred when Gale Norton worked as
Interior Department Secretary. Now working as a general counsel with
Royal Dutch Shell in Denver, Norton declined comment.

"It's appropriate for me to let the Shell public affairs people
discuss it," Norton said.

She declined to address the issue from the standpoint of the
department she once headed.

Shell is one of the oil companies named in the report, along with
Chevron, Hess Corporation and Denver-based Gary Williams Energy
Corporation.

During the past year, in September and again in May, inspector general
reports have portrayed MMS as a nest of conflict, lapsed controls and
potential criminal conduct. Last year, the division collected $11
billion from fees charged to oil, gas and mining companies for
extracting offshore minerals in addition to production on federal and
Indian lands. The report notes that MMS is one of the federal
government's largest sources of non-tax revenues.

MMS officials have allowed certain oil companies to skirt bidding
procedures, modify sales contracts and avoid paying interest on
royalties owed to the government, according to documents.

The MMS's royalty-in-kind program is at the center of the scrutiny.

The oil-and-gas lobby long pushed for such a system before it was
implemented in 2004 under Norton.

The RIK program allows energy companies to pay the government a share
of the actual oil product for the right to drill, instead of cash,
avoiding accounting rules.

Such sales are held to fill the nation's Strategic Petroleum Reserve
or to make oil available on the open market.

Executives at Denver-based Gary-Williams Energy were among those who
paid for meals, drinks and golf outings for MMS officials, according
to the report. A review of industry expense reports showed that Stacy
Leyshon, who served as a minerals revenue specialist for the interior
department's RIK office, received gifts valued at $1,068 from Gary-
Williams from 2002 to 2006, the report states. The gifts included
tickets to PGA events.

Don Hamilton, vice president of raw materials supply for Gary-
Williams, offered the following philosophy about RIK employees
attending industry events: "(You) cannot market oil and get top dollar
sitting in an ivory tower."

Gary-Williams bought products through Royalty-in-Kind's Small Refiner
Program.

Gary-Williams assistant treasurer Rob Saunders confirmed that he
purchased meals for MMS officials, according to the report. Saunders
said he felt taking individuals out for meals helped build rapport
with them and made them more comfortable "assigning open credit" to
Gary-Williams in conjunction with the oil the company purchased.

Sally Allen, a Gary-Williams spokeswoman, said today that the company
had not seen the report.

While many oil-industry experts view the RIK program as potentially
simpler than paying the government cash, Interior managers have
allowed energy companies to twist rules at transaction levels
generally unseen by the public, investigators say.

Oil corporations have frequently won changes to sales contracts and
been allowed to submit bids after deadlines, tilting deals to their
financial favor, without explanation and with little or no scrutiny of
government lawyers, examiners have found.

Such practices, the inspector general concluded, lead to potential
favoritism for certain energy companies, still unnamed, as well as
taxpayer losses. An examination this year of 718 bid packages turned
up changes to 118 that appeared to inappropriately benefit
corporations by $4.4 million — at the expense of the government.

Hints of unethical and potentially illegal activity were threaded
through the May and September reports. "RIK staff had inappropriate
relationships with industry executives. RIK personnel still meet," one
report said. "Potential criminal conduct of managers" needs to be
explored, according to the other report.

Denver Post Staff Writer Andy Vuong contributed to this report.
.