The Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM) said in a report sent to Congress Friday that it was nearing the orderly close of the scandal-riddled royalty-in-kind (RIK) program. The program officially ends on Sept. 30 when the remaining contracts expire, the Interior Department agency said.

“BOEM should be regulating industry, not participating in their market activities,” said BOEM Director Michael R. Bromwich. “The work we have done to successfully end the RIK program only enhances our continued efforts to eliminate the real and perceived conflicts of interest as we fulfill our regulatory oversight and revenue collection responsibilities.”

In September 2009 Interior Secretary Ken Salazar announced plans to terminate the controversial RIK program for oil and natural gas producers, calling it a “blemish” on the entire department (see Daily GPI, Sept. 17, 2009).

Both Interior’s Office of Inspector General and the Government Accountability Office concluded that the RIK program had contributed to “problems and ethical lapses within the department,” Salazar said. The RIK program, which began in the late 1990s, permitted producers to pay their royalties in-kind (with product) to Interior, rather than in cash.

The latest report to Congress, which covered RIK sales for fiscal 2009 (October 2008 through September 2009), showed the federal government received total benefits, based on varying marketing assumptions, that ranged from a low of negative $21 million to a high of positive $57 million.

In FY 2009, BOEM estimated that it sold about 226 Bcf of natural gas and 30.35 million bbl of oil. In addition, BOEM said it provided about 4.5 million bbl of crude oil to the Department of Energy to help fill the Strategic Petroleum Reserve.

Because the remaining contracts to receive royalties in-kind will expire on Sept. 30, BOEM said it will prepare its final RIK annual report for Congress in 2011, covering FY 2010.

The report was sent to Vice President Joseph Biden; House Speaker Nancy Pelosi (D-CA); Sen. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee; Sen. Lisa Murkowski (R-AK), the ranking Republican on the Senate energy panel; Rep. Nick Rahall (D-WV), chairman of the House Natural Resources Committee; and Rep. Dock Hastings (R-WA), the ranking Republican on the House panel.

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