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New MMS RIK Program Set for Spring

New MMS RIK Program Set for Spring

The Department of the Interior's Minerals Management Service (MMS) announced a continuation of the Outer Continental Shelf royalty-in-kind (RIK) pilot program last week and has doubled the amount of gas previously offered. Nearly 500 MMcf/d of production will go on sale this spring, the MMS said. Details for the sale are still being finalized.

The MMS will request bids for the gas produced at the platform in exchange for gas delivered to an onshore pool. This new offer will be the fourth RIK pilot program held by the MMS. The pilots are being used to determine the best method and most economic locations in the market for taking royalties in kind rather than in cash.

More than 200 MMcf/d will be newly-offered capacity and more than 265 MMcf/d is currently under contract. The contracts will expire March 31. While the new capacity will be offered through the Bluewater and Sea Robin systems, the contracted capacity will be dedicated to the Stingray, Pelican, High Island Offshore, and Transco North High Island systems.

The gas from this pilot will be delivered to the General Services Administration (GSA) for distribution to government agencies and sale of any excess volumes. The MMS currently does not have the manpower to manage transportation of such a large amount of royalty production, but depending on the economics it may add the staff in the future.

"We added production to this pilot. And while the GSA will contract for the same amount it did last time, [the MMS] plan on selling the excess volumes into the open onshore market," said Bonn Macy, an MMS spokesman. "That is one of the big differences between this spring offering and the previous pilot."

The last offering was held in October of 1999. Duke and Dynegy won contracts to transport 65 MMcf/d and 133 MMcf/d respectively (see NGI, Nov. 8) for delivery to the GSA. The goal is to get 800 MMcf/d of royalty gas allocated by the fall, Macy said. Overall, the MMS' royalty share of Gulf production is 2.5 Bcf/d.

The GSA is currently transporting some of its production from the wellhead in a different pilot in the Gulf offshore Texas, which is being conducted with the Texas General Land Office. The MMS is selling some of its royalty gas out of the Texas area through a commercial auction.

The invitation for bids will be posted on the MMS web site by Jan. 21. A tentative list of properties that are being considered for this sale is available at http://www.mms.gov.

John Norris

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