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Gulf RIK to Begin With 260 MMcf/d

Gulf RIK to Begin With 260 MMcf/d

The federal government will begin accepting royalty-in-kind (RIK) for some Gulf of Mexico gas production beginning Dec. 1 in what will be the Minerals Management Service's (MMS) third ongoing RIK pilot.

This time around, MMS is testing a different approach to RIK, using a competitive auction to move up to 260 MMcf/d initially. When the pilot ramps up fully, MMS could be taking 800 MMcf/d as royalty-in-kind payment. Bonn Macy, special assistant to the MMS director, said April is when the agency hopes to reach 800 MMcf/d.

The GOM pilot was supposed to begin this month but was delayed by additional preparations. It will involve federal properties offshore western Louisiana and is expected to include a large number of operators, leases and potential purchasers. Bidders will offer a quantity of gas at a specific market center location in return for royalty gas from specified locations at or near the leases. That will leave the government's General Services Administration with gas to supply various government agencies. In future Gulf RIK sales, additional royalty gas will be offered and additional methods of disposal will be tested.

Leases from which royalties will be taken in-kind are on several Gulf pipeline systems: Stingray Pipeline, the High Island Offshore System (HIOS), the U-T Offshore System, Transco's North High Island system, Tennessee's 800 line, and the Pelican Gas Gathering System.

Concepts being examined in the GOM pilot differ from the two MMS RIK pilots currently under way in Wyoming and the Texas offshore. The Wyoming oil pilot is testing competitive sales of crude oil at the lease. MMS and Wyoming recently held their third sale of royalty oil from both federal and state leases. The Texas offshore pilot includes leases offshore Texas in which both the state and federal governments have a revenue interest. MMS is managing the Texas pilot in cooperation with the Texas General Land Office, which has years of experience managing its own RIK program. The Texas pilot currently is taking about 76 MMcf/d as royalty-in-kind

"The purpose behind the pilot program is for the government to determine and test the key factors required for a successful federal oil and gas RIK program as well as test the effectiveness of collecting royalties in-kind, rather than in cash," said MMS Director Walt Rosenbusch. "All three pilots will help us make informed and effective decisions on where to use royalty-in-kind in the best interest of the taxpayer."

Specific information on the Gulf RIK pilot is detailed in an Invitation for Bid (No. RIK-200-GOMR-001) and posted on the MMS web site at www.mms.gov under "What's New."

Joe Fisher, Houston

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