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House Subcommittee Reports Out Royalty-in-Kind Bill

House Subcommittee Reports Out Royalty-in-Kind Bill

The House Subcommittee on Energy and Mineral Resources last Thursday approved royalty-in-kind legislation (H.R. 3334) to require the federal government to take the actual oil or natural gas product as its royalty payment instead of cash for production offshore and on federal lands.

The bill, opposed by the Interior Department's Minerals Management Service (MMS), included an amendment which would allow the government to continue to receive cash for production from marginal wells or wells in remote locations. Subcommittee Chairman Barbara 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 substitute language to clarify the issues of processing and transportation versus gathering. In a briefing paper Thornberry made clear that transportation and gathering costs would not be accounted any differently under an in-kind program than they have been in-value. "If a lessee is granted a transportation allowance when paying in-value, then so shall the lessee receive the same allowance when paying royalty in-kind....Likewise, the Thornberry substitute will clarify processing allowances, such that the status quo is maintained." The MMS had maintained the bill would shift transportation and processing costs to cut government royalty revenue.

Producers have supported the legislation as a means of simplifying payment of federal royalties. They maintain the current scheme based on the value of gas at the wellhead is no longer workable since gas was decontrolled in the 1980s and is no longer sold at the wellhead.

"We are hopeful that the administration will find this bill to be a winning solution to the current complex and problematic valuation system," a spokesman for the Independent Petroleum Assoc. of America said.

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