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Chevron Caught Up in Oil Agency Scandal

By David R. Baker, San Francisco Chronicle
12 September 2008

A government scandal mixing alleged drug use, cronyism and sex at a federal office that handles billions of dollars in oil-drilling royalties has ensnared Chevron Corp.

The oil company, America's second largest, figures prominently in a report released this week that accuses government officials of growing far too close to their oil industry contacts. The report focuses on a little-known government agency at the heart of the offshore drilling debate, the Minerals Management Service, which leases government lands to oil companies.

The report accuses members of the Minerals Management Service of accepting thousands of dollars in industry gifts, including meals, drinks and ski trips. The report, from the U.S. Interior Department's inspector general, also accused some employees of using cocaine and having sex with oil industry representatives.

San Ramon's Chevron is one of four oil companies found to have given gifts - with Chevron giving just under $2,500 over the course of five years, most of it spent on meals and drinks. One of the government employees who had official business with Chevron also had a romantic relationship with a Chevron employee, as well as with an employee from Shell, according to the report.

In addition, Inspector General Earl Devaney singled out Chevron for criticism, saying the company refused to cooperate fully with the investigation. Chevron employees refused to be interviewed by the inspector general's office, according to the report.

The company insists that it did cooperate, turning over more than 13,000 pages of e-mails and expense records that are cited repeatedly in the report. As for the employees, Chevron respected their legal right not to talk to investigators, said company spokesman Don Campbell.

"The individual employees have individual rights to decide whether to accept the interviews," he said.

Campbell wouldn't say whether the company had disciplined any employees over the report's allegations but said the company is conducting its own investigation.

"We take any allegation of ethics violations by our employees very seriously," he said. "We began an investigation of the allegations right away, when we first got wind of it. We've been looking at this for a while."

The Minerals Management Service leases federal property to companies that want to drill for oil and natural gas. It also takes in royalties from those leases. Critics have often called it too close to the industry. It also came under fire two years ago for a costly bureaucratic snafu - leaving out important language in some oil leases, written in 1998 and 1999, that may have cost the government as much as $7 billion in revenue.

The specific office at the center of the inspector general's investigation handled the agency's "royalty in kind" program, in which companies give the government oil instead of cash royalties. That oil - worth about $4.3 billion in 2007 - can then go into the nation's Strategic Petroleum Reserve or be sold on the market.

The inspector general's report immediately became fodder for the offshore oil drilling debate playing a central role in the presidential race. Drilling opponents said the report shows that the oil industry holds too much sway over the government officials who would be in charge of any future offshore leases.

"We do hope this gives the Senate pause about opening up more of our coasts," said Athan Manuel, a Sierra Club lobbyist on oil issues.

The inspector general's report prompted expressions of outrage Thursday from both Republicans and Democrats, with most focusing on the government employees at the heart of the scandal. But at least one legislator, Rep. Jackie Speier, also sought to focus attention on the companies involved. Besides Chevron, the report counted gifts from Shell, Hess Corp. and Gary Williams Energy Corp.

Speier, D-Hillsborough, proposed that language be inserted into the Democrats' next energy bill that would bar from future oil lease sales any company not cooperating with a government investigation. The party leadership was receptive to the idea but hasn't yet made a decision, said Speier spokesman Mike Larsen.

"At a time of record profits for energy companies and declining confidence among the American people in both corporate and government bodies, we cannot allow this open and rampant abuse of power and office to go unpunished," Speier said.