The federal government should receive more than $1 billion in revenue as a result of a royalty-in-kind (RIK) sale of natural gas conducted earlier this month, according to Interior Department’s Minerals Management Service (MMS).
The sale, concluded March 8, will deliver approximately 137.5 Bcf of RIK gas, or approximately 398,300 MMBtu/d, over seven-month or 12-month terms. Assuming a current natural gas price of $7.50/Mcf, this translates into more than $1 billion in gross revenues, the MMS said. It noted that actual revenues will vary based on gas prices over the life of the contract.
The gas will be delivered beginning April 1 of this year to 13 offshore pipeline systems originating in the Gulf of Mexico. The volume is enough to supply the average needs of approximately 1.7 million U.S. households for one year, the agency said.
Ten companies were awarded contracts for the 13 sales packages that were offered. Winning bidders were Bear Energy, Eagle Energy, Coral Energy, Louis Dreyfus, National Energy and Trade LLC, Williams Power Co., BG Group, Total Gas & Power North America Inc., Fortis Energy Marketing & Trading and Constellation Energy Commodities Group Inc.
The MMS reported that bidding was strong in the sale, with 20 companies tendering 152 bids.
The gas sold in the RIK sale was taken from Gulf of Mexico operators as in-kind (product) payment of royalties in lieu of a cash payment. MMS then sells the gas competitively in the open marketplace.
While highly touted by the MMS, the RIK program is the target of a criminal investigation by the Department of Justice (see Daily GPI, Jan. 3). Federal authorities are investigating whether the MMS played favorites or took money from energy companies bidding on contracts under the agency’s RIK program. In addition, the chairman of the Senate Energy and Natural Resources Committee in February asked the Government Accountability Office to undertake a “thorough review” of the RIK program (see Daily GPI, Feb. 16).
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