The House Natural Resources Committee held a hearing Thursday, September 17 to examine reports released last week on improper conduct within the Minerals Management Service (MMS), the part of the Interior Department responsible for managing oil and gas leases.

The reports found MMS staff received frequent gifts from industry and engaged in sex and drug use with business contacts.  An investigation of ethics violations at the Interior Department was stymied after oil company employees refused to cooperate, according to testimony by a federal inspector general before the House panel.

Lawmakers present at the hearing have said the scandal merits more prosecutions and calls into question the agency’s entire royalty-in-kind program.   “Simply stated, the MMS employees named in these latest reports had a callous disregard for the rules by which the rest of us are required to play,” said Interior Department Inspector General Earl E. Devaney.  Devaney said the investigation slowed after some oil company officials refused to talk to investigators. Five Chevron employees declined to be interviewed by investigators and a former Shell employee also refused to cooperate.

Congressman Peter A. DeFazio, D-Oregon, said Congress should explore ways to suspend Chevron from bidding for contracts because its staff would not talk to investigators. “They were stonewalling the investigation, and it seems to me a little bit of a club might have been helpful,” DeFazio said.

“When the government requested interviews with a small number of employees, we took steps to facilitate those interviews,” said Chevron spokesman Don Campbell. “However, employees chose to exercise their individual rights and declined to be interviewed.” Campbell added that the report relies heavily on more than 13,000 pages of documents provided by Chevron.

Citing poor record-keeping on oil and gas leases, Devaney was unable to say how much the employee misconduct may have cost taxpayers.  “We were unable to show that any of these particular personal relationships resulted in any particular benefits to the oil and gas executives,” which if found could lead to criminal prosecution, he said. “There probably were some losses but we have no idea what that figure would be.”

Three reports released by Interior Department officials last week describe 13 employees, mostly in a Denver office, accepting improper gifts and socializing with employees of oil companies they help oversee.  Several employees named in the report have been transferred or terminated, while a few have been indicted for violations of federal conflict of interest laws.    Lawmakers questioned why oil companies whose employees gave improper gifts have not faced consequences.

Two of the reports questioned whether MMS is getting fair value through the royalty program.  Under the program, created in 1997, firms are allowed to give the government a percentage of the oil and natural gas produced from leases of federal land instead of making cash payments.

The investigation comes just as Congress is on the verge of opening vast new areas offshore to oil and gas leasing. A federal moratorium on leasing off the Pacific and Atlantic coastlines is set to expire October 1. The House passed a bill (HR 6899) earlier this week that would allow more limited offshore drilling, some of it at states’ discretion.

“These are serious issues, 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,” said House Natural Resources Chairman Nick J. Rahall II, D-West Virginia.

Interior Secretary Dirk Kempthorne spoke at the hearing in an attempt to reassure Congress that the report describes activities between 2002 and 2006 and that such behavior is in the past. “The inspector general has assured me that he believes the behavior described in these reports no longer exists in these programs,” he said.