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Eight employees disciplined at Minerals Management Service

Firing, demotion over sex, drugs at Lakewood office

By Gargi Chakrabarty, Rocky Mountain News (Contact)

Published November 22, 2008 at 12:05 a.m.

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A federal agency with an office in Lakewood has taken disciplinary action against employees who used illicit drugs, had inappropriate sex, and took ski and golf vacations from oil and gas executives who paid billions in royalties to the agency.

The actions announced Friday by the Interior Department range from demotion to termination. The agency would not confirm how many employees were fired or how many were demoted, citing privacy concerns.

The eight employees at one time worked in the Lakewood office of the Minerals Management Service, an arm of the Interior Department, which collects billions of dollars in federal oil and gas royalties.

The investigation by Earl E. Devaney, the Interior Department's inspector general, was prompted by a 2006 phone call from an MMS employee in the Lakewood office who reported ethical lapses.

"While the behavior of some MMS employees prior to 2007 was clearly inappropriate and warranted strong administrative action," said MMS Director Randall Luthi, "the vast majority of our employees take great pride in the service they perform for our nation."

Devaney issued three reports in September, detailing how 13 former and current employees worked in a partylike atmosphere at the MMS office.

The investigations reveal a "culture of substance abuse and promiscuity" by a small group of individuals "wholly lacking in acceptance of or adherence to government ethical standards," wrote Devaney, whose office spent more than two years and $5.3 million on the investigation.

The employees rigged contracts, worked part time as private oil consultants, accepted trips and dinners from oil and gas executives and had sexual relationships with them, the reports allege.

The employees worked for the Royalty-in-Kind program, which markets oil and natural gas that energy companies barter to the government in lieu of cash royalty payments for drilling on federal lands and waters.

The oil and gas is then resold to energy companies or put in the nation's emergency stockpile. The government received $4.3 billion in such Royalty-in-Kind payments last year.

"Sexual relationships with prohibited sources cannot, by definition, be arm's-length," Devaney said.

Also, between 2002 and 2006, nearly a third of the 55-person MMS staff in the office received gifts and gratuities from oil and gas companies, including Chevron Corp., Shell, Hess Corp. and Denver-based Gary-Williams Energy Corp., the investigator found.

Gov. Bill Ritter has pressed to further investigate whether the scandalous behavior by the employees resulted in lost federal royalty revenue to Colorado taxpayers. In fiscal year 2008 ended Sept. 30, Colorado received a record $178.4 million in royalty revenue from the MMS - up 45 percent compared with the prior year.

"I don't know if there is a next step," said MMS spokesman Dave Smith. "We already have taken action to improve the Royalty-in-Kind program. We'll continue to evaluate the program and make more improvements."

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