A House bill proposing a nationwide royalty in-kind (RIK) schemefor collecting royalties on oil and natural gas produced on federallands would result in a net revenue loss of $141 million to $367million to the federal government during the first 8 1/2 years ofits implementation.
This was the key finding of the Interior Department’s MineralsManagement Service (MMS) in a detailed analysis issued last week ofRIK legislation proposed by Rep. William M. “Mac” Thornberry(R-TX). The measure would permit the federal government and thestates to accept oil and gas production from producers to settletheir royalty payments in lieu of cash payments.
Interior, which is strongly opposed to Thornberry’s bill,calculated the net figure by offsetting projected gains of $42.5million ($7.3 in administrative savings and a potential “uplift” of$35 million) against anticipated revenue losses of $183 million to$374 million, mostly in royalties.
Specifically, the Interior agency said net revenues would bereduced due to increased costs in several areas: treating ($85-$178million); processing ($4-$8 million); gathering ($13-$42 million);marketing ($17-$46 million); transportation prior to the deliverypoint ($15-$31 million); and transportation beyond the deliverypoint (up to $63 million). The majority of the added costs – about63% or up to $288 million – would come from the offshore.
At the same time, MMS estimated that administrative savingsassociated with royalty collections would drop to $59 million from$76 million in the first 8 1/2 years of implementation of the RIKprogram, for a projected savings of $7.3 million. But since therewould be additional functions associated with the administering ofan RIK program on a nationwide basis, it projected that “actualsavings will be less.”
Beyond this period, administrative savings could grow to $24million largely due to reductions in audit costs that would beginto occur in the latter half of the ninth year, it said, adding thatlitigation cost savings, if realized at all, wouldn’t occur untilabout 11 or more years after enactment. Lost revenue from NetReceipts Sharing, up to as much as $6.2 million per year, alsocould occur depending on the extent of RIK functions assumed bystates, MMS added.
Surprisingly, Thornberry indicated that he was “encouraged” byInterior’s analysis of his legislation, and believes that “once weget a chance to set down with them [MMS] we can bring the costsdown even further,” said press aide Lou Zickar.
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