Feds Gone Wild, Part I

Part I	Part II	Part III

From James Watt to Cynthia Lummis: The Inside Story of the Department of Interior Oil and Gas Royalty Scandal and Its Wyoming Roots.

Part One: The Wyoming Stage

By Laton McCartney and Rone Tempest

On a cold, blustery January 28, 2009, the newly appointed Secretary of the Interior of the United States, Ken Salazar, arrived at the headquarters of Minerals Management Service at the Federal Center in the Denver suburb of Lakewood, Colorado.

With him were two men: Interior’s Inspector General Earl Devaney, a former Secret Service agent and police officer, and Salazar’s chief of staff Tom Strickland, the former U.S. attorney for Colorado.

Minerals Management Service is, to the few people outside the energy industry who’ve ever heard of it, an obscure Interior Department agency. Yet it has an enormously important mission: leasing out onshore and offshore sites for exploitation by oil and gas companies, and collecting tens of billions of dollars in royalties from those companies. In fiscal 2008, those revenues came to a whopping $23.4 billion. Royalty payments are this country’s second largest source of income (the largest, of course, being taxes). And not incidentally, Wyoming, which gets 49 percentⁱ of the federal royalties collected in the state, ⁱⁱ is the largest recipient of these revenues. In fiscal 2008, the Cowboy State received $1.27 billion dollars in federal oil, gas and coal royalties, almost twice as much as any other state.

The Lakewood branch of Minerals Management operated differently from its parent in Washington, D.C. Following the Bush administration’s oft-expressed desire to run government like a business, the Lakewood office functioned like a quasi-business, collecting royalty payments not in cash, but in “kind,” that is, in actual oil and gas. The Lakewood office then sold this oil or gas on the open market, competing with private sector traders.

Lakewood’s operations were unique in another way. The office had become a rogue enterprise, a feds-gone-wild hotbed of sex, payola, cocaine and  corruption.ⁱⁱⁱ Which was why Salazar’s visit was no ordinary meet-and-greet. Eight days after taking office, Salazar and his colleagues had come to Colorado to lay down the law.

“We are no longer doing business as usual,” the Stetson-wearing secretary told reporters. “There’s a new sheriff in town.”

“The President has made it clear that the type of ethical transgressions, blatant conflicts of interest, wastes and abuses that we have seen over the past eight years will no longer be tolerated,” Salazar warned Lakewood employees. He vowed to re-open a two-year-old investigation into alleged corruption and mismanagement that critics—and former Interior Department employees—claim had cost Americans billions of dollars in lost revenue.

When you read Inspector General Devaney’s 2008 report on the office, the word “tawdry” leaps to mind, astonishment not so much that Minerals Management personnel were corrupt, but how cheap they were. Devaney’s report doggedly details hundreds of industry gifts to federal Royalty-in-Kind employees: golf games, tacky little sight-seeing tours, luggage, golf bags, silver-plated trays, dip bowls, boozy Christmas parties, visits to bars, ski lift tickets, snowboarding lessons, hotel rooms, country music concerts, tailgating parties, paintball outings, drunken dinners etc., etc. Sure, it all adds up to tens of thousands of dollars, but come on!

The contempt in which the oilmen held the government officials shines up off the pages: references to Minerals Management marketers as the “MMS chicks;” e-mails damp with sexual innuendo, such as the Shell Pipeline Company official inviting the marketing specialist “girls” to “meet at my place at 6 a.m. for bubble baths and final prep. Just kidding…”

Yet the report also has its moments of pathos, as when Minerals Management marketing specialist Stacy Leyshon tells Devaney that, yes, she did sleep with a Shell Oil guy, but she didn’t have an improper “personal relationship” with him because a “one-night stand” isn’t personal.^iv And what about the hurtful revelation to Minerals Management marketing specialist Crystal Edler? She thought she was dating a man from Hess Corporation, but Devaney found that the guy was putting her down on his expense account when they went out—he was working.

And then there was Greg Smith, the Lakewood office boss of the Royalty-in-Kind program. Devaney’s report observes, almost as an aside, that Smith used illegal drugs and had sex with his subordinates “in consort with industry,” which brings to mind a fairly unlovely picture. The statement that government was in bed with the oil and gas industry was not, in this case, metaphorical.

The September release of Devaney’s report brought a quick response from Wyoming Republican Senator John Barrasso, who with Ron Wyden (D-Oregon) co-sponsored a bill (S.3556) to rein in the agency.

Minerals Management Service “cannot be allowed to carry on like some corrupt Third World bureaucracy from a bad Hollywood movie,” Wyden explained in a press release announcing the bill, which would have suspended the royalty-in-kind program unless the Secretary of the Interior implemented all of Inspector Devaney’s recommendations within 60 days.^v

“The recent investigation raises serious questions of public trust and illustrates a total disregard for personal, professional, and programmatic ethics,” Barrasso added, accurately if somewhat colorlessly.

“The Department of the Interior will raise the bar for ethics, and we will set the standard for reform,” Salazar promised last January. But he also said the scandal at the Minerals Management Service royalty-in-kind office in Lakewood was the fault of a “few individuals”—nearly a third of the royalty-in-kind office was involved—and “special interests” who exploited an “outdated and flawed royalty collection system.”

Exactly what was this “outdated” and “flawed” royalty collection system? Will it be changed now that the new sheriff is, so to speak, sitting tall in the saddle? Is the problem really just a “few individuals” in Lakewood, or is it a bigger mess? Since its inception in 1982 under the Reagan administration’s Interior Department, Minerals Management Service has not been an especially strict guardian of the people’s purse—quite the contrary. So what’s up with the billions the nation—and Wyoming—are owed for their precious, rapidly vanishing minerals?