The Department of Interior’s Minerals Management Service said that a sale it recently conducted sold more than 379,000 MMBtu of royalty-in-kind (RIK) gas produced from federal leases in the Gulf of Mexico. Seven companies purchased the gas during a winter heating season sale.

Originally begun as a pilot program in the latter 1990s, the gas RIK effort continues to provide strong returns to the federal government and taxpayers, the MMS said.

The government agency noted that the sale was unique in that it offered royalty gas for the first time from the 8(g) zone offshore Louisiana, which provides for the royalty-in-kind gas to be delivered to 10 offshore pipeline systems originating in the Gulf of Mexico. The sales were for five or 12-month terms with delivery beginning Nov. 1, 2003.

“The competition for this sale was extremely strong,” said Johnnie Burton, MMS director, noting that nearly 70 bids were entered for the 10 pipeline-specific sales packages. “Taking this royalty gas in-kind,” she added, “improves government efficiencies, streamlines the cash-flow process, and reduces administrative and operational costs for both industry and government.”

Burton noted that the MMS determines whether to take royalty-in-kind or “royalty in value” cash payments based on which method will provide the greatest value to the nation.

Pointing out that the sale marked another step in positive federal/state relations, Burton said the offering was made possible by a cooperative Memorandum of Understanding between Louisiana and the MMS. Under the arrangement, a percentage of the proceeds from those specific sales packages in the 8(g) zone will be returned to the state to help fund “crucial programs.” The MMS said some of the sales packages also included royalty gas from the 8(g) zone offshore Texas, which also has a cooperative agreement with the agency.

Burton said winning companies in this month’s sale represented large integrated producers and affiliates of local distribution companies.

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