The Department of Interior’s Minerals Management Service (MMS) Monday touted its royalty-in-kind (RIK) program in an annual report to Congress, reporting that its benefits for fiscal year (FY) 2007 more than doubled those of the previous year.
The report estimated that the RIK program generated a total gain off $63 million over what would have been realized if the federal government had taken royalties “in value,” or as cash payments from producers. It attributed part of the gain to the run-up in crude prices this year. The RIK program permits the MMS to take royalties “in kind” in the form of production (oil or natural gas), and competitively sell the product in the open market.
Of the $63 million in gains realized in FY 2007, $56.5 million in additional revenue was achieved through open and competitive sales of oil and gas, compared to what would have been received if MMS has taken its royalties “in value;” $3.5 million was achieved through administrative savings; and $3 million was gained through what is called “time value of money,” attributed to receiving receipts several days earlier than royalty-in-value payments.
The MMS report noted that the majority of the savings were realized from natural gas ($40.2 million,) with crude oil generating $22.7 million in benefits.
The Interior agency reported that FY 2007 savings were more than double those of FY 2006 ($31.2 million). It estimated that more than $150 million in savings have been achieved since the RIK program became operational four years ago.
One of the program’s primary goals is to realize 825,000 Mcf/d of RIK natural gas sales by FY 2009. This has been revised downward from its initial estimate of 1.3 Bcf/d. MMS said it expects to maintain volumes of 190,000 b/d of crude oil through FY 2009.
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