MMS, Louisiana agree on federal offshore oil, gas royalties-in-kind

By OGJ editors

HOUSTON, Mar. 21 -- Louisiana and the US Department of the Interior's Minerals Management Service signed a memorandum of understanding Thursday, jointly agreeing to develop and implement a royalty-in-kind (RIK) pilot program for oil and gas leases in the federal 8(g) zone—the first 3 miles of federal lands beyond the state's 3 mile limit. Under the MOU, Louisiana also could include state oil and gas leases in the RIK pilot program.

MMS and Louisiana expect the pilot program to be in place with the first in-kind royalties to be collected Oct. 1. Louisiana currently receives 27% of the revenues associated with federal leases located in the 8(g) area. In 2002, it received $12.6 million as its share of these leases.

Under Outer Continental Shelf Lands Act oil and gas lease terms, royalty payments can be collected either in cash or in-kind. In the development and implementation of the RIK pilot program, MMS and Louisiana seek to "increase revenues, reduce conflict over the proper payment of royalties under lease terms, and reduce the administrative cost of managing federal and state royalty assets," MMS said.

"The RIK approach has been demonstrated to be an effective and efficient method of collecting royalties," said MMS Deputy Director Walter Cruickshank, who signed the agreement for MMS at a meeting of the Royalty Policy Committee in New Orleans. Jack Caldwell, Secretary of the Louisiana Department of Natural Resources, represented Louisiana.

"We are pleased to enter into this partnership with the State of Louisiana and look forward to this new opportunity to test the use of RIK," added Cruickshank. Nationally, through the RIK program, MMS receives more than 160,000 b/d of crude oil and 400 MMcfd of natural gas in-kind.

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