Sunday, September 14, 2008


Reports released by the US Interior Department on Wednesday revealed that employees at the US agency in charge of collecting royalties from energy companies have been involved for years in inappropriate and illegal behavior, including accepting gifts, handing out sweetheart deals and engaging in sex and illegal drug use with oil company employees.

The reports from Interior Department Inspector General Earl E. Devaney detail the activities of employees of an arm of the Minerals Management Service (MMS), the agency that issues lucrative drilling leases to energy companies and collects royalties from the leasing of federally owned land.

MMS takes in up to $10 billion a year in royalty revenue from energy companies, making it one of the US government’s largest non-tax sources of revenue. The revelations of misconduct at the agency come as Congress prepares to lift restrictions on offshore drilling and leading Democrats move closer to an agreement on expansion of the practice.

At the center of the investigation, conducted over two years at a cost of $5.3 million, is the 60-employee Denver, Colorado-based Royalty in Kind (RIK) program, which collects royalty payments made “in kind,” e.g., in oil instead of cash, and then resells the resources on the open market. Energy companies named in the report include Chevron, Shell Oil, Hess Corp. and Gary Williams Energy Corp.

According to the inspector general’s investigation, employees of RIK engaged in a “culture of substance abuse and promiscuity.” Employees also reportedly allowed energy companies to revise their lease agreements, resulting in millions of dollars of lost government revenue.

Between 2002 and 2006, according to the investigation, “nearly one-third of the entire RIK 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 gifts included, among others things, meals, high-priced wines, golf outings, sporting event tickets, concert tickets, paintball games, concert tickets and a desert-island treasure hunt.


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