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The San Francisco Chronicle

Chevron Caught Up In Oil Agency Scandal

David R. Baker

Chevron logo seen at a Chevron gas station in San Francisco, California. Canada's Newfoundland province will sign a final deal Wednesday with a consortium led by US giant Chevron to develop its fourth offshore oil field, worth billions of dollars, the government said Tuesday. (AFP/Getty Images/File/Justin Sullivan)

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.

For more information

To read a copy of the inspector general's report, go to


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