Ritter Questions Cost of Scandal Governor Wants to Know If Royalties Were Squandered

By Gargi Chakrabarty

A scandal involving a federal royalty collection agency in Lakewood allegedly embroiled in illicit sex, drugs and freebies comes as Congress debates more drilling on public lands and Colorado voters decide whether to collect more tax revenues from the oil and gas industry.

Gov. Bill Ritter wants to know if the scandal involving 13 employees at the Interior Department’s Minerals Management Service office resulted in lost federal royalty revenue to Colorado taxpayers.

“One of the questions we need to ask is, are we being short- changed because of these indiscretions? How much money has been squandered?” said Ritter spokesman Evan Dreyer. “We deserve answers as to whether this cost American taxpayers and Colorado taxpayers lost revenue.”

The scandal was reported Wednesday by the Interior Department’s inspector general, Earl E. Devaney, who said a two-year, $5.3 million investigation found that MMS employees “frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relationships with oil and gas company representatives.”

The MMS collects royalties or fees from energy companies drilling on federal lands or waters. Colorado received $123 million in federal royalty revenue in fiscal year 2007.

Ritter will discuss holding a congressional hearing with delegates in a day or two, Dreyer said.

Sen. Ken Salazar, D-Colo., on Thursday called for a congressional hearing on the investigation, saying Interior Secretary Dirk Kempthorne should be called to testify.

“As the Senate works to expand our oil and gas production from public lands, we must do everything we can to restore the integrity and financial rigor of these critical programs to ensure America taxpayers receive fair value from our precious national resources,” Salazar wrote in a letter to Sens. Jeff Bingaman and Pete Domenici, both New Mexico Democrats.

Bingaman is chairman and Domenici is a ranking member of the Senate Energy and Natural Resources Committee.

MMS spokesman David Smith said the agency was concerned whether employees handling billions of dollars on royalty contracts granted official favors in exchange for the sex, drugs, ski and golf trips and dinners they allegedly accepted from oil and gas executives.

“It is a concern whether there was any financial association with these behaviors,” Smith said. “The answer is we believe no, based on what we read so far, but we still need to continue going through the report to fully understand whether anything like this happened.”

Interior’s Devaney found that between 2002 and 2006, nearly a third of the 55-person MMS staff in Lakewood received gifts and gratuities from several energy companies, including Chevron Corp., Shell, Hess Corp. and Denver-based Gary-Williams Energy Corp.

Industry observers say the scandal will hurt the oil and gas industry’s standing on a number of national issues.

In Colorado, the industry is fighting a ballot measure – Amendment 58 – backed by Ritter that would increase state severance tax revenues collected by eliminating a tax credit. Supporters say the measure, if approved, would raise $320 million – the bulk of it going to college scholarships. Industry officials say it would hike pump prices and utility bills and discourage companies from investing in Colorado.

“Billions of taxpayers’ dollars tied to bribery, illicit drug use and inappropriate sex relations with federal employees,” said state House Majority Leader Alice Madden, D-Boulder. “Have they no decency? Trying to convince voters that this industry deserves a $300 million subsidy more than middle-class kids need a break on college tuition will be their next assault on civilized society.”

Chevron has contributed $1 million to opponents of Amendment 58, while Gary-Williams has given $100,000 to its supporters, according to the latest campaign filings.

“It is hard to argue this scandal is not going to have an impact on discussions surrounding any ballot initiative,” said Jim Sims, a Republican lobbyist who heads the Golden-based Western Business Roundtable. “If these allegations prove true, this scandal will tend to tar and feather a lot of companies that have nothing to do with MMS or offshore oil and gas exploration, and that’s very unfair.”

INFOBOX 1

Memo proposes changes

Randall Luthi, director of the Interior Department’s Minerals Management Service, on Thursday wrote to Interior Secretary Dirk Kempthorne outlining “swift actions” the agency plans to take in the wake of a report alleging ethical lapses of MMS employees.

* Consider conducting random drug testing

* Conduct comprehensive ethics training for all employees

* Conduct additional training for employees working in the Royalty in Kind program “so employees fully understand their ethical responsibilities dealing with private industry.”

INFOBOX 2

What is ‘Royalty in Kind’?

The 13 employees cited in the report (including four who have since left) by the Interior Department’s inspector general worked in the Royalty in Kind program. The program is under the Minerals Management Service office in Lakewood.

* The MMS collects royalties or fees from companies producing oil and gas in federal lands or waters. Colorado received $123 million in federal royalties in fiscal year 2007.

* The Royalty in Kind program allows companies to hand over a portion of the oil or gas produced, instead of estimating the value of the oil and gas and then paying royalties in cash. The MMS then sells the commodity to buyers and splits the proceeds with producing states, or injects it into the nation’s emergency stockpile.

* The Royalty In Kind program has been in place for offshore oil producers in the Gulf Coast and Wyoming. Colorado is not interested in participating in the program, said Evan Dreyer, spokesman for Gov. Ritter.

Originally published by Gargi Chakrabarty, Rocky Mountain News.

(c) 2008 Rocky Mountain News. Provided by ProQuest LLC. All rights Reserved.