An opinion has been requested as to whether a financial interest exception may be applied to the ownership of stock in two major oil companies by a Department of Natural Resources (DNR) Program Chief for Environmental Geology and Mineral Resources (the Employee).
This request arises out of the general review of financial disclosure statements of Maryland State officials and employees filed with the Ethics Commission pursuant to Title 4 of the Public Ethics Law (Article 40A, Title 4, Annotated Code of Maryland, the Ethics Law). In November and December 1984, notices were sent to individuals who disclosed on their 1982 statements interests in corporations which did business with their Department. These notices indicated that the holding of the interest brought the employee within the financial interest prohibition of §3-103(a) of the Ethics Law, and discussed the exceptions to the provision. As a result of receiving this notice, the Employee submitted an advisory opinion request to the Commission requesting an exception to §3-103(a) for his stock interests in Exxon, USA, Inc. (Exxon) and Standard Oil of Indiana (Amoco).
The Employee works at the Maryland Geological Survey (the Survey), an agency of the DNR. Its statutory functions include conducting topographic, geologic, hydrographic, and geophysical surveys; preparing topographic, geologic, and other types of maps to meet specific needs; preparing reports on the extent and character of the State's geology, mineral, and water resources; and supervising State provisions relating to archaeology. The Survey is organized into five areas of major responsibility, including Divisions on General Direction, Hydrogeology and Hydrology, Environmental Geology and Mineral Resources, Coastal and Estuarine Geology, and a Division of Archaeology. At the present time the Survey has approximately forty employees and an annual budget of about $1.7 million.
The Employee presently owns fourteen shares of Amoco, and sixty shares of Exxon. He has reported the interests on his annual financial disclosure statements since 1979. He originally purchased the stock while employed with Amoco, and his interest in terms of the total number of shares has not changed since 1979.1 Exxon apparently has done business with DNR and in particular the Maryland Geological Survey. According to the Ethics Commission list of entities doing business with the State for calendar years 1982 through 1984, Exxon received payments from DNR in each year, the total amount slightly over $200,000 each year. Of these total amounts, payment by the Maryland Geological Survey was $5,138.82 in 1982, $11,228.12 in 1983, and $5,769.51 in 1984. According to the Employee and the Survey's Director, these amounts generally represented automobile gasoline charges on a State credit card by field staff of the Survey and charges for gasoline used by the boat owned by the Survey and used in scientific field operations in the Chesapeake Bay and the Atlantic Ocean. Amoco was not listed as doing business with the Survey in 1982, 1983 or 1984.
The Employee is the Chief of the Environmental Geology and Mineral Resources Division of the Survey. This Division is generally responsible for geologic research and mapping, topographic map revision, environmental geology studies, mineral resource investigations, and the general dissemination of Maryland geologic information to the public. The Employee is a Geologist V and has been Chief of the Division for five years. He originally came to State service in 1977 as a Petroleum Geologist for the Survey. According to the Employee he had previously been a Petroleum Geologist for Amoco's exploration efforts in the Gulf of Mexico for approximately twenty years. In addition to his supervisory functions (involving the personnel, administrative and geological supervision of the six scientists assigned to the Division), he performs other geologic and topographic mapping functions. Also, as the Petroleum Geologist, the Employee is solely responsible for the oil and gas activities.
The Survey, however, does not issue oil and gas permits. The Energy Administration (another separate unit with DNR) through its Bureau of Mines is responsible for the issuing of permits to oil companies for drilling wells for production or underground storage of gas or oil on private land in the State. (See Title 6 (Gas and Oil) of the Natural Resources Article, Annotated Code of Maryland, and COMAR 08.13.08.01.) As a petroleum geologist, the Employee's duties in regard to leasing are twofold. He reviews applications for permits to drill wells on private lands either leased or owned by oil companies for geological concerns; and he has participated in the past in the development of regulations for the leasing of State-owned lands. Application for permits to drill wells are referred from the Bureau of Mines to the Survey for evaluation as to geological concerns. The Employee reviews the requests for such environmental concerns as the possible impact of the well on the soil, water supply and the topography. He indicates that he generally puts his comments in the form of a letter to the Bureau of Mines and may participate in meetings with the Bureau and the oil company to resolve any geological concerns.
The Employee indicates that his role in the permit review process is one that is not mandated by statute but has developed over a period of time somewhat out of courtesy between the Bureau and the Survey. Both the Employee and the Director of the Survey make clear their perception that should the review of the application result in significant geological concerns the Bureau would not issue the permit. According to the Employee and the Director, a total of four applications for permits were received since 1980. Permits have been issued to three companies and a fourth application is pending; none of them involved either Exxon or Amoco. Apparently Amoco has applied for and received a permit in the past. At the present time, the State does not have a permit procedure for the leasing of State lands for oil and gas exploration and storage. In 1980 and 1981 the Employee participated in drafting proposed regulations for leasing State land and in some discussions of the policy approach to the leasing situation. The regulations, although published as a proposal, were not adopted.
According to the Employee the only other contact he may have with the representatives of major oil companies at the present time would be either through his service on the Regional Technical Working Group of the Outer Continental Shelf Advisory Board and the committees of the Interstate Oil Compact Commission, or through general information requests that are received by the Survey. For example, in October 1985, the Director received a request from an individual landowner to evaluate a proposed oil and gas lease with the Exxon Corporation on some of the individual's private land holdings. The letter was initially referred to the Employee to prepare a response, but based on Ethics Commission staff advice was ultimately handled by the Director. The Director and the Employee state that these or other types of dealings with the major oil companies are a rare and infrequent occurrence. The Director describes the Survey as a service organization to other agencies in DNR and the public in general, and indicates that if the Employee were allowed to keep the interest but required to disqualify himself in matters involving Exxon and Amoco, this should not be an administrative problem based on the past workload of the Survey.
The Employee's ownership of Exxon stock and Amoco stock raises questions under §3-103(a)(1)(i) of the Ethics Law. This section prohibits an employee or official from holding a financial interest in an entity that is subject to the authority of or has contractual dealings with his agency. Section 1-201(m) of the Ethics Law defines "financial interest" to include the "ownership of any interest as the result of which the owner has received, within the past three years, or is presently receiving, or in the future is entitled to receive, more than $1,000 per year...." Following the approach of our predecessor agency, we have consistently held that the ability to sell an interest for in excess of $1,000 brings the interest within the definition. (See Opinions No. 79-1 and No. 83-19.) Applying this definition to the Employee's interests it is clear that his Exxon holdings constitute a financial interest. His Amoco holdings, though clearly an interest (as defined in §1-201(n)), are just below the $1,000 financial interest level, based on stock values when the request was considered.2 It would also appear, at least as a technical matter, that Exxon meets the other criteria of §3-103(a) since it did business with DNR and the Survey in 1982, 1983 and 1984. There is also a possibility that Exxon could in the future be subject to the authority of the Employee's agency. Should Exxon seek a well drilling permit, it would need to file an application with the Bureau of Mines in the Energy Administration. This application would then be reviewed in part for its geological impact by the Employee, and both the Director and the Employee indicate that the Employee's views are a significant part of the permit decision process. Apparently at the present time, however, DNR has no regulations which directly subject Exxon to its authority. It is therefore our view that there is currently no authority relationship between Exxon and the Survey. We do conclude, however, that the Employee's ownership of the Exxon stock disclosed on his form would be prohibited by §3-103(a), based on its fuel purchase contracts, unless it is excepted under the interest exception regulations (COMAR 19A.02.02).
These regulations implement introductory language in §3-103(a), which provides that the prohibitions of subsection (a)(1) apply "except as permitted by regulation of the Commission where such interest is disclosed or where such employment does not create a conflict of interest or appearance of conflict." The purpose of the exception is to avoid situations where a violation would result from technical application of the elements of §3-103(a) even where there is no conflicting relationship between a private interest or employment and official duties. The exception criteria define the circumstances where the relationship between an employee's official duties and private interest is remote, and the possibility of a conflict of interest or the appearance of conflict is unlikely.
In addition to requiring disclosure of the interest, the criteria include findings regarding the impact of the employee's duties on the entity or a contract between the entity and his agency, the supervisory or other relationships between the Employee and others whose duties significantly impact on the entity or a contract between the entity and the agency, the value of the contractual interests, and review of the specific circumstances of the situation to ensure they do not otherwise create a conflict of interest or the appearance of a conflict. In recent months in applying the criteria we have informally advised several employees to dispose of interests where their official duties included significant procurement activities involving the entity, or other functions resulting in frequent interaction with the entity.
Evaluating the Employee's holdings in view of the exception criteria, it is our conclusion that the relationship between Exxon and the Employee's program and duties as now described is sufficiently remote to allow an exception pursuant to §3-103(a). Though automobile or boat gasoline purchases may result in contracts between the Survey and Exxon, these activities are handled by the agency's administrative office, and are peripheral to the Employee's duties and the functions of his position. Moreover, the potential for Exxon being involved in the permitting process and subject to review by the Survey is remote, and other more informal review or correspondence involving the company is infrequent (as stated by the Director, only a few times in the past 2-3 years).
Also, because some of the criteria could technically come into play, we have requested the official views of the Secretary of DNR. The Department through the Assistant Secretary of Administration, has advised that the employee's general role tends to be advisory, that reviews and approvals involving Exxon are infrequent, and that the Department supports the granting of an exception. Under all of these circumstances, we conclude that an exception can be allowed as to the Employee's Exxon stock, and that his Amoco stock, since it does not constitute a financial interest, is not now covered by the prohibition of §3-103(a).
We wish to caution, however, that these conclusions are based on the facts as they are currently presented, both as to the Employee's and the Survey's program and functions, and as to the nature and value of the Employee's holdings in these companies. It presumes, for example, that the State does not undertake a more aggressive leasing program, and that the involvement of the Survey with these major oil companies continues to be infrequent and insubstantial. It assumes also that the Employee would completely disqualify himself from any participation in any matters that involve or would impact upon either Exxon or Amoco,3 and, further, that the Employee does not substantially increase his investment in either company.
Thomas D. Washburne, Chairman
Herbert J. Belgrad
Reverend John Wesley Holland
Betty B. Nelson
Barbara M. Steckel
Date: November 26, 1985
1 The Employee indicates that he also has a vested interest in a pension plan from Amoco. He is not currently receiving a pension, and he believes that this plan has been determined to be a qualified trust by the Internal Revenue Service. Section 1-201(n) of the Ethics Law specifically excludes from the concept of interest vested rights in a pension fund approved under the Internal Revenue Code. Based on this definition and the Employee's representations regarding the Amoco pension fund, we have not addressed his pension rights in this inquiry.
2 The Employee held sixty shares of Exxon valued at $50 per share at the close of business on September 26, 1985, totaling approximately $3,000. His fourteen shares of Amoco were valued at $65.25 per share (or a total interest of $913.50) on the same date.
3 Note that the non-participation provisions of §3-101 of the Ethics Law could be read to apply to Amoco as well as Exxon, since the Employee clearly has an interest in the firm, whether or not the share value brings it up to the financial interest level.