U.S. government workers in oil industry sex, drug scandal

By Tom Doggett

WASHINGTON (Reuters) - U.S. Interior Department employees who oversaw oil drilling on federal lands had sex and used illegal drugs with workers at energy companies where they were conducting official business, an internal government report said on Wednesday.

Employees at the department's Minerals Management Service "socialized with, and received a wide array of gifts and gratuities from, oil and gas companies," according to the department's inspector general, Earl Devaney.

"When confronted by our investigators, none of the employees involved displayed remorse," Devaney said.

The alleged activities occurred between 2002 and 2006 and involved 19 former and current workers at the Minerals Management Service's offices in Denver and Washington. Devaney recommended that those still on the job be fired.

The workers were involved in the "royalty-in-kind" program that collects and sells oil and gas turned over by energy companies as royalties for drilling on federal lands. About $4 billion a year in royalty-in-kind oil and gas is collected and sold by the department.

The oil companies named in the report were Chevron (CVX.N), Shell Oil (RDSa.L), Hess Corp (HES.N) and Gary Williams Energy Corp.

The findings came as Congress considers legislation to expand offshore oil drilling, a priority of the Bush administration, which has been criticized for having close ties to the oil industry. Drilling opponents are likely to use the report as fodder to try to stop such legislation.

"It just underlies the fact that we shouldn't be putting the future of our coasts and beaches in the hands of people who obviously care nothing about the public," said Anna Aurilio, Washington office director for Environment America.