The House Subcommittee on Energy and Mineral Resources lastThursday approved royalty-in-kind legislation (H.R. 3334) torequire the federal government to take the actual oil or naturalgas product as its royalty payment instead of cash for productionoffshore and on federal lands.

The bill, opposed by the Interior Department’s MineralsManagement Service (MMS), included an amendment which would allowthe government to continue to receive cash for production frommarginal wells or wells in remote locations. Subcommittee ChairmanBarbara Cubin (R-WY) authored the amendment.

The bill’s sponsor, Rep. William M. “Mac” Thornberry (R-TX),started out the mark-up session last week by offering substitutelanguage to clarify the issues of processing and transportationversus gathering. In a briefing paper Thornberry made clear thattransportation and gathering costs would not be accounted anydifferently under an in-kind program than they have been in-value.”If a lessee is granted a transportation allowance when payingin-value, then so shall the lessee receive the same allowance whenpaying royalty in-kind….Likewise, the Thornberry substitute willclarify processing allowances, such that the status quo ismaintained.” The MMS had maintained the bill would shifttransportation and processing costs to cut government royaltyrevenue.

Producers have supported the legislation as a means ofsimplifying payment of federal royalties. They maintain the currentscheme based on the value of gas at the wellhead is no longerworkable since gas was decontrolled in the 1980s and is no longersold at the wellhead.

“We are hopeful that the administration will find this bill tobe a winning solution to the current complex and problematicvaluation system,” a spokesman for the Independent Petroleum Assoc.of America said.

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