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Sex, drugs & oil investigated in Denver federal office

DENVER - Investigators allege officials in a federal oil oversight office had sex with subordinates, participated in illicit sexual encounters, used illegal drugs, abused alcohol with oil company employees and accepted improper gifts.

"The single most serious problem our investigations revealed is a pervasive culture of exclusivity, exempt from the rules that govern all other employees of the federal government," wrote U.S. Department of the Interior Inspector General Earl E. Devaney in reports obtained by 9Wants to Know Wednesday

The report is expected to be released to the public by Thursday morning.

The alleged transgressions involve 13 Interior Department employees in Denver and Washington, D.C.

Their alleged improprieties include rigging contracts, working part-time as private oil consultants, and having sexual relationships with - and accepting golf and ski trips and dinners from - oil company employees, according to three reports from the inspector general.

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.

Between 2002 and 2006, nearly a third of the 55-person staff in the Denver office received gifts and gratuities from oil and gas companies, investigators found.

The reports describe a fraternity house atmosphere inside the Denver Minerals Management Service office responsible for marketing the oil and gas that energy companies barter to the government instead of making cash royalty payments for drilling on federal lands.

The government received $4.3 billion in such royalty-in-kind payments last year.

The oil is then resold to energy companies or put in the nation's emergency stockpile.

The Office of Inspector General says the more than two-year investigation cost nearly $5.3 million.

Devaney's report says oil giant Chevron refused to cooperate with the investigation, an allegation Chevron disputes.

"We can't comment on a report that we haven't seen. We have cooperated with the government investigation and produced all of the documents that the government requested months ago. I cannot provide additional information about this issue at this time," said Don Campbell, Chevron's manager of external communications.

Representatives from two other oil companies, Hess and Shell, say they too have cooperated in the investigation.

"Shell has been aware of the Inspector General's investigation regarding alleged improper conduct by certain [Minerals Management Service office] employees and cooperated fully with that investigation. However, it would be premature to comment on the Interior Department Inspector General report until we have had an opportunity to review the content," said an unnamed Shell spokesperson in a statement to 9NEWS.

"We cooperated fully with the Inspector General's office regarding an inquiry they had involving one of our employees. Our investigation indicated no wrong doing on our employee's part. We do not believe we are the focus of the investigation and we will cooperate with any further requests from the Inspector General's office that may arise," said Hess Corporation spokesperson Maripat Sexton.

Devaney said the former head of the Denver royalty-in-kind office, Gregory W. Smith, used illegal drugs and had sex with subordinates. The report said Smith also steered government contracts to a consulting business that was employing him part-time.

Smith, contacted by e-mail by The Associated Press, said he had not seen the report and could not respond. He and nine other employees in the Denver office are mentioned in the reports.

Lucy Querques Dennet, Jimmy Mayberry and Milton Dial are described in one report as "three senior executives who were good friends, and who remained calculatedly ignorant of the rules."

"Ms. Dennet manipulated the contracting process from the start," wrote Devaney.

The findings are the latest sign of trouble at the Minerals Management Service, which has already been accused of mismanaging the collection of fees from oil companies and writing faulty contracts for drilling on government land and offshore.

The charges also come as lawmakers and both presidential candidates weigh giving oil companies more access to federal lands, which would bring in more money to the federal government.

"The Bush Administration has turned our federal buildings into frat houses, and our public lands into party favors. The Inspector General report about the misbehavior at the Denver Minerals Management Services (MMS) office shows how the Bush Administration and the oil and gas industry have become one and the same," said Rep. Ed Perlmutter, (D-Colo.) in a statement.

"When sexual misconduct and drug abuse are the least of the charges in an investigation, you know there are real problems. After this report, few people can believe that the Bush Administration is serious about weaning our nation from its dependence on oil, foreign or otherwise," said Perlmutter.

Other politicians weighed in on the allegations too.

"I think the report is shocking and I expect action here in Congress. I hope the Department of Justice further investigates this matter," Sen. Wayne Allard (R-Colo.) through his spokesman.

"This is a disgraceful breach of public trust. The conduct detailed in this report shows a culture of corruption at a government agency that should be serving the public interest. The Department should immediately take action to comply with the recommendations of the Inspector General's report and fully commit themselves to regaining the trust of the American people," said Sen. Ken Salazar (D-Colo.) in a statement.

"If the allegations are true, this is a very serious matter that demands not just a response from the highest levels of the Interior Department but the close attention of law-enforcement agencies as well," said Rep. Mark Udall (D-Colo.).

Gov. Bill Ritter (D-Colo.) said, "The investigation also must closely examine how much this type of corruption has cost American – and Colorado – taxpayers. The oil-and-gas industry already benefits from taxpayer-funded subsidies, so the question is: how much has this scandal cost us in lost revenue?"

"This all shows the oil industry holds shocking sway over the administration and even key federal employees," said Sen. Bill Nelson. (D-Fla.) "This is why we must not allow big oil's agenda to be jammed through Congress."

While most government royalties for drilling on federal lands are paid in cash, the government in recent years has been receiving a greater share of its oil and gas royalties in actual product. More of that oil is also being sold on the open market, versus being deposited in the Strategic Petroleum Reserve, the nation's emergency oil stockpile. Congress earlier this year passed a law halting deposits of oil to the reserve to alleviate high gasoline prices.

Interior Secretary Dirk Kempthorne, who was asked about the reports earlier Wednesday before they were given to him and congressional offices, said the investigation was prompted by a 2006 phone call from employee who said there were ethical lapses in the Denver office.

"I look forward to having the opportunity to review the inspector general's findings so we can take the appropriate actions," Kempthorne said.

In the report, Devaney noted that most Interior Department employees were not involved in any wrong doing.

"...I believe that 99.9 percent of [Interior Department] employees are hard-working, ethical and well-intentioned," said Devaney.

If you have information about the people involved in this story or a tip, email investigative reporter Jace Larson at jace.larson@9news.com, Deborah Sherman at deborah.sherman@9news.com or Executive Producer Nicole Vap at nicole.vap@9news.com.

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