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
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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