Nick Snow
Washington Correspondent
WASHINGTON, DC, Apr. 6 -- The US Minerals Management Service sold a record amount of royalty-in-kind (RIK) natural gas from federal offshore leases in a recent sale.
The sale, which the Department of the Interior agency concluded in mid-March, calls for delivery of about 118 bcf of RIK gas to 14 offshore pipeline systems originating in the Gulf of Mexico.
Customers began to take delivery Apr. 1 over periods of 7-12 months, MMS said.
Winning bidders included Atlanta Gas Light Co., Virginia Power Co., ConocoPhillips, National Energy & Trade LP, Louis Dreyfus Corp., Shell Trading Co., Chevron USA, Williams Power, and Total SA.
The sale represented a record not only in terms of the amount of gas sold but also in the number of bids received and the number of companies that made offers, according to MMS Director Johnnie Burton.
Twenty-one companies submitted 127 offers for the 14 packages in the latest sale, she said. MMS will deliver 509,800 MMbtu/day, up from the previous record of 485,400 MMbtu/day in an RIK sale a year earlier.
MMS began to explore the potential of taking some of its royalties in kind to competitively sell on the open market instead of as cash payments in the mid-1990s. The early success of its initial efforts led it to establish a full RIK program that it uses when economics determine that it would be the best approach.
Recent analyses indicate that taking royalties in kind can increase returns to taxpayers by 1-2% over what would have been received if they had been taken in value or as cash payments, MMS said.
The approach also reduces regulatory costs and reporting requirements, shortens the compliance cycle, and improves auditing, it added.
Combined with packages from last year's sale, recovering production from the 2005 hurricanes, and volumes from a recent Wyoming RIK sale, MMS said it was delivering more than 700,000 MMbtu/day of RIK gas as of Apr. 1.
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