Three related reports delivered to Congress last Wednesday revealed the underbelly of the Interior Department’s Minerals Management Service (MMS) that few knew about — one that involves drug usage, sex with oil industry contacts and between employees involved in the agency’s royalty-in-kind (RIK) program, as well as rigging of contracts and other financial misconduct at high levels.

In a cover letter that accompanied the reports, the department’s Inspector General Earl E. Devaney asked Interior Secretary Dirk Kempthorne to take “appropriate administrative action to bring this disturbing chapter of MMS history to a close.” Kempthorne Thursday said he would take “swift action to restore the public trust,” and added that he concurred with the recommendations of MMS Director Randall Luthi to review the implementation of random drug testing and to strengthen the agency’s comprehensive training for employees.

Sen. Bill Nelson (D-FL) last week called on Kempthorne to fire Luthi. The revelations further tarnish the image of an embattled agency. MMS has been under fire for several years for its failure to include price thresholds in deepwater leases issued in 1998-1999– an omission that is expected to cost the federal government billions of dollars in royalties (see NGI, June 9).

The investigation, which took two years, explored allegations involving more than a dozen current and former employees of the MMS, the federal agency that collects royalties each year from oil and natural gas production on the federal Outer Continental Shelf. Most of the alleged misconduct and violations involved employees associated with the RIK program, which was set up by MMS to accept royalties in-kind (product) rather than in cash, and sell the oil and natural gas at competitive prices.

“During the course of our investigation, we learned that some RIK employees frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relations with oil and gas company representatives,” the Office of Inspector General (OIG) reported. “We learned that two RIK employees who had attended a daytime industry-sponsored event had later spent the evening in lodging provided by that company because they were too intoxicated to safely drive to a nearby hotel…Other witnesses we interviewed stated that RIK employees ‘partied’ frequently with oil and gas industry representatives and that these two marketers were commonly referred to by industry representatives as the ‘MMS Chicks.'”

One of the reports focused exclusively on the alleged scandalous conduct of Gregory W. Smith, who had been the RIK program director in Lakewood, CO. He was accused of using cocaine with a subordinate, engaging in sex with employees, receiving gifts from the oil and gas industry and accepting fees for marketing work that conflicted with his RIK position.

In an interview with the OIG, an RIK employee said that “Smith often asked her for cocaine, and she provided it to him three to four times per year between 2002 and 2005. [She] stated that either she or her boyfriend delivered the drugs directly to Smith at the MMS office…On several occasions, Smith went to her house to pick up cocaine…Smith directed her to purchase cocaine for him during normal MMS business hours, and Smith used the term ‘office supplies’ when discussing cocaine while at work.”

Another RIK female employee recounted that she was forced to have sex with Smith in a car, the report said. “She said Smith was ‘real persistent’ but not violent, and she did not feel as though she had been sexually assaulted by Smith. She stated that it was difficult for her to have sex with Smith because he supervised her and RIK, but she ‘felt like [she] could get fired,’ so she did what Smith wanted.'”

Smith, who retired from MMS in 2007, admitted to having only one sexual encounter with the RIK employee in either January of 2003 or 2004, according to the OIG report.

The investigation further disclosed that between April 2002 and June 2003, Geomatrix Consultants Inc., an environmental and engineering consulting firm, paid Smith more than $30,000 for his work in marketing Geomatrix to various oil and gas companies — in direct conflict with his duties as RIK program director. He also failed to report that he received nearly $1,000 in golf outings and other gratuities from employees of Shell, Chevron and Gary Williams Energy Co.

The Department of Justice (DOJ) in May declined to prosecute Smith on various charges.

A separate report found that Lucy Querques Denett, associate director of MMS’ Minerals Revenue Management, had acted together with her special assistant, Jimmy Mayberry, to create a lucrative contract for Mayberry when he retired in January 2003 and started a consulting firm, which he called Federal Business Solutions. In June 2003 MMS awarded a contract to Mayberry’s firm.

Milton Dial, who was assistant program director for RIK and apparently good friends with Denett and Mayberry, oversaw the contract for MMS. Shortly after his retirement from MMS, Dial began working for Mayberry.

The matter involving Denett, Mayberry and Dial “paint[s] a disturbing picture of three senior executives who were good friends and who remained calculatedly ignorant of the rules governing post-employment restrictions,” Devaney said. The case is being referred to DOJ for appropriate action. The OIG noted that Mayberry already has pleaded guilty to a criminal charge.

In a third investigation, “we discovered [that] between 2002 and 2006 nearly one-third of the entire RIK staff socialized with and received an array of gifts and gratuities from oil and gas companies,” he noted.

Capitol Hill reacted quickly to the revelations. Sen. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee, called the reports “extremely troubling,” and said “this investigation raises very serious questions about management and organization at the Interior Department.”

The “confidence [in the agency] has been eroded by the activities exposed by the [Inspector General], widely reported whistleblower claims and the findings of the Government Accountability Office — where additional reviews of the federal royalty program are ongoing,” he said. “As we continue to assess more fully the future of the royalty-in-kind program, the secretary should take immediate steps to implement the [Inspector General’s] recommendations for enhanced ethics reform.”

The reports “[make] it very clear that drastic action needs to be taken. This isn’t about a few renegade individuals. It’s about a government agency fostering a culture of disrespect for both the public’s resources and trust. It’s time to clean house at the Minerals Management Service,” said Sen. Ron Wyden (D-OR).

“It’s critical that we see [a] response from Interior Secretary Kempthorne. We need to know what policies and procedures he has changed to ensure this cannot happen again. Additionally we are trying to find out why the Justice Department has not yet taken any action,” said Sen. Dianne Feinstein (D-CA). “This is a very serious matter and deserves very serious scrutiny.”

Rep. Henry Waxman (D-CA), chairman of the House Oversight and Government Reform Committee, has scheduled a hearing for Wednesday (Sept. 17) to further explore the findings of the reports. “It appears that the officials who are supposed to be looking out for the taxpayers have instead been corrupted by gifts from the oil companies and a culture of ethical failure.”

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