Wednesday, January 28, 2009

Eliminate the MMS Oil 'Royalty-In-Kind' Program

The Obama administration should end the "Royalty-In-Kind" Program, under which the government receives oil or natural gas instead of cash for payments of royalties from companies that lease federal property for oil and gas development, then sells the product into the marketplace and returns the proceeds to the Treasury. Just have the companies pay the royalties directly. It is more efficient and eliminates any potential for manipulation.

The Royalty in Kind (RIK) Program is responsible for managing Minerals Revenue Management’s (MRM) commercial oil and gas commodity sales activity. Currently, the RIK Program is competitively selling over 800,000 MMBtu of natural gas per day and over 150,000 barrels of crude oil per day. Revenues from sales and other dispositions of RIK oil and gas in FY 2007 were over $4 billion.

RIK is one of two strategies used by MRM to manage the Nation’s substantial oil and gas mineral royalty assets. Federal oil and gas leasing laws and lease terms provide the Government with the option of receiving production royalty payments either in value (RIV) or in kind. In certain circumstances, it is to the advantage of the government to receive its royalty payments in kind; that is, in the form of oil or gas production. MRM’s RIK Program provides the capability both to identify opportunities for using the RIK strategy and to manage the sale and disposition of oil and gas royalties received in kind.

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