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(Adds comments from U.S. lawmakers, environmental group)
By Tom Doggett
WASHINGTON, Sept 10 (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 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.
"American taxpayers deserve to have confidence that their interests are being protected when it comes to collecting royalties from the production of public oil and gas resources, especially given the potential for expanded domestic drilling," Democratic Sen. Jeff Bingaman, chairman of the Senate Energy Committee, said of the inspector general's report.
Devaney said he discovered "a culture of substance abuse and promiscuity" among workers in the royalty-in-kind program.
He said one supervisor engaged in illegal drug use and had sex with subordinates. Several staff admitted to illegal drug use and "illicit sexual encounters," he added.
There was also alcohol abuse among government workers when they socialized with employees at regulated oil companies, he said.
For example, Minerals Management Service staff accepted lodging from energy companies "after industry events because they were too intoxicated to drive home or to their hotel."
Devaney said the same government workers "engaged in brief sexual relationships with industry contacts."
He said many of the employees did not believe federal government ethics standards and department policies applied to them because of their "unique" role.
"Employees said they felt that in order to effectively perform their official duties, they needed to interact in social settings with industry representatives to obtain 'market intelligence,'" he said.
One agency worker went so far as to say that a goal of the royalty-in-kind program was to be "part of the industry," Devaney said.
Rep. Nick Rahall, chairman of the House Natural Resources Committee, said the activities of the Minerals Management Service staff "are so outlandish that this whole IG report reads like a script from a television miniseries -- and one that cannot air during family viewing time."
Rahall, a West Virginia Democrat, said it was no wonder the Minerals Management Service was doing a poor job of overseeing the government's oil royalty program.
"Clearly the employees had 'other' priorities in that office," he said. (Editing by Peter Cooney)