Interior scandal fuels outrage

Legislators excoriated top Interior Department officials Thursday at a hearing on the sex, drugs and gifts scandal in the oil royalties program, saying the scandal could have dire ramifications for the anticipated expansion of offshore drilling along U.S. coasts.

The hearing before the House Committee on Natural Resources came a week after the department’s inspector general, Earl E. Devaney, released three separate reports alleging that program employees helped to rig bids, accepted gifts from energy company officials, had sex with subordinates and industry contacts, and used illegal drugs, including marijuana and cocaine.

Also at issue was a Government Accountability Office investigation released last week, which found that because of decreased oversight and widespread inaccuracies in measurement, the Interior Department may not be collecting all the royalties owed by energy companies for the oil and natural gas they draw from federal property.

“These are serious issues,” said committee Chairman Nick J. Rahall II (D-W. Va.). “But they are more serious now as we face the certain prospect that vast swaths of federal waters will become open to oil and gas leasing in the very near future.”

Interior Secretary Dirk Kempthorne testified that he was outraged and disgusted with the actions of more than a dozen current and former employees. Two are being prosecuted, others transferred, he said, and an attorney will be appointed as an advisor to ensure ethics compliance.

He is also considering implementing a random drug-testing program, prohibiting all employees in the oil royalties division from receiving gifts and gratuities, and firing eight employees, he said.

The Interior Department collects more than $8 billion a year in royalties from energy companies that lease federal land. That money represents the government’s largest source of revenue other than taxes.

Devaney’s reports are the latest to question the close relationship between the energy industry and the Minerals Management Service, the Interior Department agency that issues drilling leases to energy companies on taxpayer-owned land and then collects royalties from those leases.

The reports detailed “a culture of substance abuse and promiscuity” from 2002 to 2006 at a Denver-based division of the Minerals Management Service. That office deals specifically with royalty-in-kind payments of oil instead of cash.

At Thursday’s hearing, Devaney called the employees’ actions “egregious” but said: “I reiterate my belief that 99.9% of DOI employees are ethical, hard-working and well-intentioned.

“Unfortunately, the conduct of a few does cast a pall over the whole, at least for a time.”

As for the energy company representatives who allegedly gave gifts to, and had sexual relationships with, the government employees, Devaney said he was “at a loss to explain” their behavior.

Federal employees cannot accept individual gifts worth over $20 and can accept no more than $50 worth of gifts each year.

Nine employees allegedly accepted drinks and meals, golf trips, snowboarding lessons, hotel rooms, and baseball and concert tickets. The four companies identified in the reports are Shell Oil Co., Hess Corp., Chevron Corp. and Gary-Williams Energy Corp.

Devaney, under rapid-fire questioning from Rep. George Miller (D-Martinez), said his investigators could show no explicit connection between the gifts and the manipulation of bidding. The contract files were in “terrible shape” and were basically unauditable, Devaney said.

Miller said, “I just find it kind of disturbing that one-half of the crime here just goes on and conducts business as if it -- as if nothing happened.”

Industry representatives denied that gifts were exchanged for preferential treatment, the report said.

“We take ethics violations, or allegations of ethics violations, very seriously,” Chevron spokesman Dave Samson said Thursday night. “When we first learned of these allegations we started looking into them immediately . . . but, in this case, it is not a systemic issue.”

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cynthia.dizikes@latimes.com