in Houston, Texas
Sex, lies, oil, gas – and a toaster oven?
Friday, Sep 12, 2008, 05:28PM CST
By Jennifer Peebles
Don’t let the Denver datelines fool you. The sleaze-soaked federal Interior Department office that grabbed headlines this week is actually in Colorado, but there was plenty of impropriety going on in Houston by workers with Uncle Sam’s Minerals Management Service.

Sadly, our favorite bit of tawdriness in the scandal –- the one that involved a federal official snorting crystal meth off a toaster oven –- took place near the Mile High City, as best we can tell from reading the three special reports issued this week by the Interior Department’s inspector general. But the reports say officials with the federal Minerals Management Service were selling influence, cutting insider deals, getting freebies and meals and who-knows-what-else in the Bayou City.

Funny, that’s not what they were supposed to be doing. They were supposed to be collecting money from Big Oil on behalf of the taxpayers.

And not surprisingly, many of the petroleum-related firms giving the freebies and meals are based in Houston or do substantial business in the unofficial oil-and-gas capital of the world.

A new definition of 'arms-length'?


The MMS people are tasked with collecting and overseeing the money that the federal government gets from private industry for drilling oil, natural gas and the like. Some of these royalties come in the form of cash, and some of them are paid in oil or gas, which MMS then sells.

Their office might get little attention normally, but they’re handling $8 billion in business a year, making them one of the federal government's largest revenue sources outside taxes.

But the three reports issued this week by Interior Department Inspector General Earl Devaney suggest this little-known public agency was being run like National Lampoon’s Federal Office: A supervisor in a federal office forces a subordinate into sex, hits her up for drugs and then snorts crystal meth off her toaster oven when her friend can’t find the guy any cocaine. Parties, expensive gifts, desert safari trips, all given out by the oil companies to federal workers doing business with them –- and cocktails ‘til you’re too drunk to take yourself home and you have to spend the night at an oil company’s resort lodge. A federal official who’s supposed to be getting top dollar from the oil companies on behalf of We the People instead is having sex with oil company reps,and then tells an investigator she doesn’t think it’s a conflict of interest because having a one-night stand with someone is not having a “personal relationship” with them. (My favorite line in the reports is this one from the IG in his introductory letter: “Sexual relationships with prohibited sources cannot, by definition, be arms-length.”) If you ever wanted evidence that the federal government is in bed with the oil companies – well, here’s your proof.

This must be the most publicity the Department of the Interior has gotten since we bought Alaska. Maybe they should change the nickname from the Department of Everything Else to the Department of Anything Goes.

And a lot of it was going in Houston. It was on a flight to Houston in November 2001 that a federal official named Gregory W. Smith was first approached to become a consultant for a geology services firm called Geomatrix.

Smith was head of the federal program that gets a percentage of the oil and gas that the big oil producers take from the ground and then sells the government’s share to make money. Some of the most scandalous accusations are those levied against Smith –- he’s alleged to be the meth-toaster oven guy –- the IG's report suggests that, as he did his job for MMS, he also steered oil company reps toward also doing business with Geomatrix. (Read the complete report on the Smith allegations, one of three reports, in PDF form at this link; the second report, largely about sex, lies, drugs by MMS workers other than Smith, is at this link, and the third report, which largely deals with alleged bid-rigging, is here.)

Geomatrix is based in Oakland but has offices in Houston and Austin. President Tony Daus wanted Smith to help the firm expand its business in the Gulf, the report says. (Next time you look at your check stub and wonder where your money goes, remember this: Your tax dollars paid for Smith to FedEx some work papers to Geomatrix. They also paid for the 18 phone calls made from the Denver MMS office to the Geomatrix office in Houston.)

The report says Smith did make contacts for Geomatrix with people in the oil industry. Among those he had contact with in May 2003, according to the investigation, were reps from Houston-based Marathon Oil Co.; Hess, which has exploration and production headquarters in Houston; Burlington Resources, which was bought a couple of years ago by Houston-based ConocoPhillips; GulfTerra, which is part of Houston-based Enterprise Products Partners; Houston-based Apache; and Koch Supply and Trading, which has a Houston operation. And between April 2002-June 2002, Smith made contact with Enterprise, El Paso Corp., and Houston-based Millennium Midstream Partners. Enterprise and El Paso were also doing business at the time with the federal office that Smith ran, the IG noted.

Did it pay off for Geomatrix? The report doesn’t say in so many words, but it does say that Smith set up a meeting at an unnamed Houston hotel on Oct. 31, 2002, with four Enterprise reps and someone from Geomatrix. Geomatrix pitched itself to Enterprise, Enterprise laid out what it needed and after the meeting, the two firms did formulate an agreement to work together.

In 2005, Smith hired a man who had worked for El Paso to run the Houston “gas front office” of the agency Smith supervised -– a guy with whom Smith had had dealings on behalf of Geomatrix, one report says. (Later, as the IG was investigating, IG agents surveilled Smith and the man as they met for drinks and discussed the IG probe. The guy later lawyered up and refused to be interviewed by the IG; he quit a few months later, the report says.)

While Smith was working for the Interior Department, he also was working for what is now Ageiss Environmental, based in Colorado. IG investigators found documents that said Smith, on each trip to Houston, tried to make contact with at least two companies for Ageiss.

The reports also allege Smith had a close working relationship with an executive for Houston-based Lukens Energy Group, which wound up getting a federal contract to do an assessment of the program that Smith ran. It says the IG’s office probed allegations that Smith’s office was improperly influenced in the contract awarding, but those allegations could not be substantiated. Smith was in Houston in December 2002, a week before a key presentation was to be made in the contract-awarding process, the report says, and records show Smith communicated with the Lukens executive about meeting up while Smith was in town.

Free stuff


But aside from toaster ovens and insider deals, the goodies were flowing freely in Houston, according to the three investigative reports:

  • Shell and Chevron reps bought meals and food for Smith in Houston.

  • A Hess worker took an oil marketing specialist from Smith’s office and some of his co-workers to dinner at Houston’s downtown Flying Saucer restaurant in September 2003, costing $57.55.

  • A male Hess employee often went out socially in Houston with a female oil marketing specialist, with him buying meals and drinks for her on four occasions, worth about $100.

  • A male Shell rep bought two female oil marketing specialists dinner in Houston on Jan. 9, 2003.

  • The same Shell rep bought dinner and drinks in Houston for another female oil marketing specialist and other workers in her office on Oct. 20, 2005.

  • A Shell employee offered a free ticket to an Astros game to another male oil marketing specialist in summer 2006. The federal worker told the IG agents he turned down the ticket.

  • Among the other social events put on by the oil company reps and attended by these federal workers was a tailgate at a Houston Texans NFL game, featuring free beer provided by Big Oil.


And Houston-based companies were also giving away the free stuff, even if it wasn’t always given in Houston. Burlington Resources gave one MMS oil marketing specialist a ticket to a Toby Keith concert.

When the IG’s agents asked her about the ethical implications of the free ticket, she answered: “I really didn’t think about it.”

And we wonder why TK is the angry American.

IG: Also the first two letters in 'ignored'


The Minerals Management Service isn't the only often-overlooked federal agency involved here.

If anything, this scandal -- and the exposure of it this week in the national press -- is a reminder of the power of the federal inspectors general, who often labor with little thanks and a great deal of headache.

Interior Department IG Earl Devaney

Most federal cabinet-level departments, I believe, have IGs -- and the IGs even have their own group and their own group Web site (appropriately called IGnet).

At left: Interior Department IG Earl Devaney.

Ideally, IGs (are the consciences of their agencies. They're there to stand up for propriety, following the law, following the rules and keeping an eye on the agency pocketbook. In reality, their effectiveness seems to vary from agency to agency. Some are true do-gooders who tell it like it is, and sometimes are penalized for it; some are longtime agency insiders who don't seem to see very much wrong about how their agency conducts its business.

As as with all matters in the federal government, there can be politics involved, or at least the specter of politics being involved -- in that the party in charge sometimes dismisses the IG's findings as being politically motivated.

Devaney, the IG who dug up all this stuff, is a former Secret Service agent who later ran the criminal investigations unit for the EPA. He was also appointed to his post by a Democratic president, Bill Clinton. The people running the executive agencies of the federal government are, obviously, Republicans, and the incumbent secretary of the interior is former Idaho Gov. Dirk Kempthorne, a Republican (pictured at left), who on Thursday said he is "outraged" at the behavior of the Interior Department employees described in the IG reports.

(Here are two questions to throw out to our commenters: Would this have come to light if the IG had been a Bush appointee? In general, is it better for the public if inspectors general are from different parties than the administration they are watchdogging, or otherwise in an adversarial role? Talk amongst yourselves.)

IG reports can be a good source of details and leads for journalists and bloggers, one that, like the offices that generate the reports, are not often noticed by the public at large.

Now, if you'll excuse me, I have a sudden urge to clean off my toaster oven.

Got tips? Comments? Hate mail? Leave 'em for me in the comments below, or e-mail me at jennifer @texaswatchdog.org. Twitter users: Follow us at texaswatchdog. We're also on Facebook and MySpace.
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