Report: ‘Culture of substance abuse and promiscuity’ at Denver oil and gas agency

Scathing reports released Wednesday charge officials with “a culture of ethical failure” involving sex, drugs and financial shenanigans at a federal agency in Denver charged with collecting energy royalties for taxpayers.

In three reports prepared for Congress by the Department of Interior’s inspector general, 13 current and former employees at the agency’s Minerals Management Service were charged with violating the public trust in a frat house atmosphere. MMS employees, according to the reports, accepted gifts from oil companies, had sex with industry contacts, and did drugs at the office and at oil company parties. Other MMS officials steered business to their own companies and set up consultancies to win contracts they drew up themselves.

The agency collects roughly $10 billion a year in oil and gas royalties from companies drilling on public lands. It also handles one of the federal government’s largest in-kind revenue sources, accepting $4 billion in oil and gas in lieu of cash royalty payments. MMS is based at the Federal Center in Lakewood and also has an office in Washington, D.C.

Several of those implicated have already resigned and one has pleaded guilty to felony conflict-of-interest charges. The inspector general recommends felony charges against at least one other MMS official.

A lengthy New York Times article details the abuses uncovered in the reports. Here’s what Times reporter Charlie Savage has to say about one official whose conduct was detailed in the probes:

The other high-ranking official the Justice Department has declined to prosecute is Gregory W. Smith, the former program director of the royalty-in-kind program. Mr. Smith worked in Colorado and reported directly to Ms. Denett, who was based in Washington, D.C.

The report said that from April 2002 to June 2003, Mr. Smith improperly used his position with the royalty program to help a technical services firm seek deals with the same oil and gas companies. The services firm paid Mr. Smith more than $30,000 for asking the oil companies to hire it, the report said.

Mr. Smith requested and received approval to take on the outside work, but the report says he misled the office into thinking he would be performing technical consulting, rather than marketing the firm to companies with which he also conducted official business

The report accuses Mr. Smith of improperly accepting gifts from the oil and gas industry, of engaging in sex with two subordinates, and of using cocaine that he purchased from his secretary or her boyfriend several times a year between 2002 and 2005. He sometimes asked for the drugs and received them in his office during work hours, the report alleges.

The report also says that Mr. Smith lied to investigators about these and other incidents, and that he urged the two women subordinates to mislead the investigators as well.

In discussions with investigators, the report said, Mr. Smith acknowledged buying cocaine from his secretary and having a sexual encounter with her at her home, but denied discussing drugs at work. He also denied telling anyone to lie, saying that he only told people that “no one has a right to know what I do on my personal time.”

The report omits any response from Mr. Smith about alleged sexual misconduct with another female subordinate, although it notes that “a substantial amount of information obtained through the federal grand jury process” was not included in the report.

Repeated efforts to reach Mr. Smith, who resigned in May 2007, were unsuccessful. His home phone number was continually busy, and his attorney, if he has one, could not be identified.

A Denver Post article includes detailed background on the investigation, which has been under way for more than a year. The Post examines a Denver-based company’s involvement with the MMS Royalty-in-Kind office:

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 Royalty-in-Kind 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 Royalty-in-Kind 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.

Talking Points Memo’s TPMMuckraker reporters have been on the story since January, dubbing the unfolding scandal “Lubrigate.” Read here for a roundup of TPM articles on the early stirrings of a sex-for-oil leasing scandal involving many of the players blasted by Wednesday’s reports.

Thanks to Paul Kiel at ProPublica, find the Interior Department’s inspector general’s reports online as PDFs (warning, some of the files are quite large):

Here’s the cover letter from Inspector General Earl Devaney, providing an overview of the scandal and the “culture of ethical failure” at MMS.

• A redacted report on Gregory Smith details the sex, drugs and oil lease imbroglio the inspector general discovered.

• A redacted report on MMS oil marketing examines ethical problems with the group charged with selling oil on behalf of taxpayers. As many as one-third of the MMS employees in this office accepted gratuities from the industry, according to the report.

• A redacted report on former Associate Director Lucy Denett, accused of handing contracts to a friend, who pleaded guilty to federal charges earlier this year.

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Ernest Luning

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