The Department of the Interior’s Minerals Management Service (MMS) said Wednesday that 329,000 MMBtu of royalty-in-kind (RIK) gas produced from federal leases in the Gulf of Mexico was sold to eight companies during a March sale.

According to the guidelines of the sale, the RIK gas is to be delivered to 11 offshore pipeline systems originating in the Gulf, and destined for consumer and industry use primarily during this summer’s cooling season. The MMS noted that deliveries under these sales began April 1.

“The competition for this sale was extremely strong,” said Johnnie Burton, director with MMS. He noted that 17 companies offered a total of 86 bids for the specific sales packages. “Taking this royalty gas in-kind reduces administrative and operational costs and is a win-win for both industry and government.”

The sale winners included Dominion Producers Service Inc., Houston Pipe Line Co., Cinergy Marketing & Trading, Coral Energy, Louis Dreyfus, Bridgeline, BP Energy Co. and ConocoPhillips. The MMS noted that winning companies represented large integrated producers and affiliates of local distribution companies.

While the RIK effort originally began as a pilot program in the latter 1990s, it continues to provide strong returns to the federal government and taxpayers today. Historically, the government collected most royalty revenues in the form of “royalty-in-value” cash payments made by those who lease and produce gas on federal lands.

The MMS said that taking “royalty-in-kind,” in the form of product when economics favor its use, allows the government to optimize taxpayer assets, reduce regulatory costs and reporting requirements, and improve overall business efficiencies.

Looking to give domestic production a necessary boost, the MMS announced last month that it will hold Lease Sale 192 — which covers the western Gulf of Mexico — in August (see Daily GPI, March 29). The agency noted that the upcoming sale could result in the production of 136-262 million barrels of oil and 0.81-1.44 Tcf of natural gas.

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