Interior pledges to reform royalty collection program

Interior Secretary Dirk Kempthorne told members of Congress on Thursday at a hearing of the House Committee on Natural Resources that his department has made substantial changes in procedures, policies and personnel in the Minerals Management Service office responsible for collecting in-kind payments on federal oil and gas leases.

The hearing was triggered by an inspector general investigation that documented egregious behavior between 2002 and 2006 by long-term civil servants in Washington and in the royalty-in-kind program office located near Denver. In three separate reports made public last week, the IG found that senior executives steered contracts to friends; nearly one-third of the 55 people working in the program accepted gifts and gratuities from oil industry officials with whom they did business; and a number of employees engaged in sexual misconduct (among themselves and with industry officials) and abused drugs and alcohol.

"I deeply regret the reason for this hearing," Kempthorne said. "I am outraged that the public's trust, an important and necessary part of public service, has been abused."

Specifically, the investigation found that Lucy Querques Denett, associate director of the Office of Minerals Resources Management at MMS worked with Jimmy Mayberry, her special assistant, to create a lucrative contract for Mayberry upon retirement. Mayberry actually drafted the statement of work for the contract while he was employed by MMS, the IG found.

Denett initiated the contract's creation and later served on the technical proposal evaluation committee that rated Mayberry's company. Also serving on the evaluation committee was Milton Dial, who acted as the contracting officer's technical representative and then later retired and went to work for Mayberry on the same contract. Mayberry and Dial have pleaded guilty to conflict of interest charges and contract rigging.

Denett retired in February during the probe. The Justice Department declined a request from the IG to prosecute her for conflict of interest violations.

Justice also declined to prosecute Gregory Smith, director of the MMS royalty-in-kind program in Lakewood, Colo., who also retired during the course of the investigation. Smith, while a government employee, worked as a contractor for engineering firm Geomatrix, marketing the firm's services to the oil and gas companies he did business with at MMS, the IG found. Smith also used cocaine and had sexual relationships with subordinates, according to the IG.

"This isn't the first time I've been disappointed by a decision by the Justice Department," said Interior Inspector General Earl Devaney, who also testified at the hearing. "I decide who to investigate. They decide who to prosecute." He said Justice officials gave no explanation for their decision.

Kempthorne said he was frustrated by the length of time involved in the investigation because it prohibited him from taking disciplinary action against employees; however, as Devaney's office identified problem employees during the last two years they were removed from the royalty-in-kind program, he and Devaney said.

"All employees are long-term career employees and must be afforded due process," Kempthorne said. "I can assure the committee that this process will be completed as swiftly as possible, and we will examine the full spectrum of disciplinary actions, including terminations."

Last January, a new manager was appointed to the royalty-in-kind program and a new director of Minerals Revenue Management, which oversees the office, was selected from outside the Minerals Revenue Management program, Kempthorne said. The reporting structure of the royalty-in-kind program also was changed in accordance with the IG's recommendations.

Interior also will expand its ethics office and appoint an attorney adviser in Denver to provide oversight and technical assistance.

It's impossible to know how much, if any, revenue was lost to taxpayers as a result of the misconduct chronicled by the IG.

"It was in fact very difficult to get a figure. The contract files were in terrible shape. They were unauditable," Devaney said. "I would say there were probable losses."

Both Devaney and Kempthorne told lawmakers they were confident the royalty-in-kind program was now being properly and ethically managed. "I'm satisfied our employees are on the right track" Devaney said.

Rep. Nick Rahall, D-W.Va., and chairman of the Natural Resources Committee, said, "These issues are serious within the context of onshore oil and gas leasing, and leasing within the Gulf of Mexico, but they will become amplified when we expand leasing off the Atlantic and Pacific coasts."