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MMS: RIK Program Netted $32M More in Royalties in FY '05

The Interior Department's Minerals Management Service (MMS) reported that it received $32 million more in royalties during fiscal year 2005 by taking oil and natural gas in-kind rather than in cash payments from producers.

Of that $32.3 million, the agency received $19.1 million more in royalties from in-kind natural gas and $13.2 million more in royalties from in-kind crude oil transactions during fiscal year 2005, according to a recently released report examining the performance of its royalty-in-kind (RIK) program. The 2005 results "indicate that the five-year, $50 million incremental revenue goal for the MMS RIK program is quite achievable," it said. At the same time, the MMS said it shaved $3.74 million in administrative costs from its RIK program.

Last year, MMS said a total of 82,364,035 barrels of oil equivalent was taken in-kind, mostly from the Gulf of Mexico, and sold or exchanged by the agency. The volume was 97% of the volumes taken in-kind during fiscal year 2004 -- the decline mostly reflecting the effects of the 2005 hurricane season on RIK activity.

In contrast, the value of RIK oil and gas in fiscal year 2005 was $3.73 billion, a 39% increase over the prior year due to the markedly higher energy commodity prices last year.

The Gulf of Mexico remains the core source area for RIK volumes sold or exchanged, according to the MMS. At the end of fiscal year 2005, the agency said it took in approximately 75% and 30% of the crude oil and natural gas royalty volumes, respectively, produced daily in the Gulf. To capitalize on the success in the Gulf region, MMS and the state of Wyoming plan to begin an RIK project for onshore natural gas production in that state in fiscal year 2006.

The agency's federal RIK program is now in its second full year of operation after six years of pilot testing. It gives producers the option to pay the royalties owed on their production in cash or with product (oil and gas).

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