MMS royalty in-kind program exceeds revenue goals

The US Minerals Management Service's crude oil and natural gas royalty in-kind program continued to exceed its goals during fiscal 2006, reported the Department of the Interior June 28.

Nick Snow
Washington Correspondent

WASHINGTON, DC, July 2 -- The US Minerals Management Service's crude oil and natural gas royalty in-kind program continued to exceed its goals during fiscal 2006, reported the Department of the Interior June 28. Financial returns increased, administrative costs decreased, and compliance cycles shortened, it said in an annual report delivered to Congress a day earlier.

The RIK program is now in its third year of full operation, said acting MMS Director Walter D. Cruickshank. He said the program generated $26.2 million more in revenues during the year than what would have been received if the government had taken its royalties "in value," as cash payments from producers. Combined with a $2.6 million gain from additional interest on RIK revenue received 5-10 days earlier than under a royalty in-value program, additional revenue was $28.8 million during fiscal 2006, Cruickshank said.

This followed $32 million of additional revenue in fiscal 2005 and $18 million more in fiscal 2004. With the fiscal 2006 increase, federal revenue under the RIK program has been more than $78 million above what it would have been under an RIV system, the MMS official said.

Under the RIK program the federal government takes its oil royalties "in kind" as product, which is then sold competitively on the open market. MMS received and sold nearly 75.3 million boe in-kind, valued at more than $4 billion, during fiscal 2006, the agency said. The Gulf of Mexico remains the core source for RIK crude, it added.

The program has drawn fire from House Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.), who noted during a May 23 hearing on HR 2337—the Energy Reform and Revitalization Act—that the US Department of Justice is investigating the operation. MMS subsequently said DOJ's inquiry came in response to findings by DOI's inspector general. The bill, which the committee approved in mid-June, includes a provision that would limit RIK payments to crude used to refill the Strategic Petroleum Reserve.

Cruickshank said that by the end of fiscal 2006, MMS took in kind about 72% of the crude oil and 45% of the natural gas royalty volumes produced daily in the gulf. The agency began taking gas in kind for federal production in Wyoming in April 2006 at the rate of 30,000 MMbtu/day, he added.

MMS and the US Department of Energy also will use the RIK program to begin filling the SPR during July, with an initial 50,000 b/d from the crude oil portfolio, Cruickshank said. MMS will continue to use RIK sales in tandem with RIV payments, depending on the particular business case, to ensure a fair return on federal royalty assets, he said.

Contact Nick Snow at nsnow@cox.net.

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