Firms buy 76 bcf of federal gas in RIK sale

Four companies submitted winning bids as more than 76 bcf of natural gas was sold under the federal royalty-in-kind program, the US Minerals Management Service said Oct. 9.

Nick Snow
Washington Editor

WASHINGTON, DC, Oct. 10 -- Four companies submitted winning bids as more than 76 bcf of natural gas was sold under the federal royalty-in-kind program, the US Minerals Management Service said Oct. 9.

The gas from the Jonah-Pinedale area of western Wyoming was sold in 5-month and 12-month contracts, with delivery scheduled to begin on Nov. 1, the US Department of the Interior agency said.

Based on current gas prices of $5/MMbtu in the area, revenue would be more than $384 million, it added. Actual revenue will vary based on prices over the life of the contracts, MMS said. Wyoming's state government will receive half of the revenue, it noted.

MMS said 11 companies submitted 75 bids for the packages of gas that were offered. Constellation Energy Commodities Group Inc., Oneok Energy Services Co., Sempra Energy Trading, and Shell Energy North America were awarded contracts, according to MMS.

The royalty-in-kind program began as a pilot effort more than 10 years ago. It basically allows producers to pay royalties from production on federal land in kind instead of in cash. MMS then takes the oil or gas and resells competitively on the open market.

MMS said the program is designed to ensure a fair return on public royalty assets, improve government efficiencies, and reduce regulatory costs and reporting requirements.

But the MMS royalty-in-kind program also has been criticized frequently by US House Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.). Employees at its Denver office routinely ignored federal government procedures and accepted gifts from oil and gas producers during 2002-06, DOI Inspector General Earl E. Devaney said in a Sept. 9 memorandum to Interior Secretary Dirk A. Kempthorne. Kempthorne and MMS Director Randall B. Luthi responded immediately and announced several reforms (OGJ Online, Sept. 18, 2008).

Contact Nick Snow at nicks@pennwell.com.

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