(Adds details on companies accused of wrongdoing, paragraph 6)

WASHINGTON, Sept 18 (Reuters) - U.S. Interior Secretary Dirk Kempthorne told Congress on Thursday he was “dismayed” about the “inexcusable” behavior of some department employees who had sex, used drugs and took gifts from workers at regulated oil and gas companies.

Kempthorne testified at a House Natural Resources Committee hearing on the findings by the Interior Department’s inspector general about “a culture of substance abuse and promiscuity” at the department’s Minerals Management Service (MMS), whose employees handled billions of dollars in oil and natural gas supplies that were turned over by companies as in-kind royalty payments for drilling on federal lands.

“The abuse of the public trust in this instance is tragic,” Kempthorne testified. “I am outraged that the public’s trust, an important and necessary part of public service, has been abused.”

In his findings, Interior Department Inspector General Earl Devaney said about a dozen MMS workers in the royalty-in-kind program took cocaine and marijuana and had “illicit sexual encounters.”

Government workers also got drunk at social events with employees of oil companies doing business with the agency and MMS workers had “brief sexual relationships” with industry contacts, the inspector general said.

The oil companies named in the report were Chevron CVX.N, Shell Oil RDSa.L and Gary Williams Energy Corp. Hess Corp HES.N was accused of providing gifts to MMS employees.

While all the companies provided documents, Devaney said Chevron slowed the investigation by hiring counsel for its employees, who then did not make themselves available to be interviewed by the inspector general’s investigators.

Democratic Rep. Nick Rahall, who heads the House committee, asked whether “the cronyism between MMS employees and the oil and gas companies” cost the government lost royalty revenue.

Devaney said “there probably were some losses” in royalty money that should have been paid by the companies, but he has no idea how much.

“Those contract files were in terrible shape” and could not be audited, he said. However, Devaney said if the records had been in order there may have been criminal prosecution of some energy company workers.

Devaney said he did not uncover any evidence that energy company workers were directed by their managers to provide gifts to MMS employees. “I don’t think it went too high,” he said.

Devaney said he was disappointed that the Justice Department decided against prosecuting some MMS employees for their wrongdoing. “I would like to see a more aggressive approach,” he said.

Kempthorne said the MMS has accepted four recommendations the inspector general made to clean up the agency, including enhancing the ethics program for employees and boosting oversight of the agency’s Denver office where the royalty-in-kind program is run. (Reporting by Tom Doggett, editing by Matthew Lewis)