The Department of the Interior’s Minerals Management Service(MMS) announced a continuation of the Outer Continental Shelfroyalty-in-kind (RIK) pilot program last week and has doubled theamount of gas previously offered. Nearly 500 MMcf/d of productionwill go on sale this spring, the MMS said. Details for the sale arestill being finalized.

The MMS will request bids for the gas produced at the platformin exchange for gas delivered to an onshore pool. This new offerwill be the fourth RIK pilot program held by the MMS. The pilotsare being used to determine the best method and most economiclocations in the market for taking royalties in kind rather than incash.

More than 200 MMcf/d will be newly-offered capacity and morethan 265 MMcf/d is currently under contract. The contracts willexpire March 31. While the new capacity will be offered through theBluewater and Sea Robin systems, the contracted capacity will bededicated to the Stingray, Pelican, High Island Offshore, andTransco North High Island systems.

The gas from this pilot will be delivered to the GeneralServices Administration (GSA) for distribution to governmentagencies and sale of any excess volumes. The MMS currently does nothave the manpower to manage transportation of such a large amountof royalty production, but depending on the economics it may addthe staff in the future.

“We added production to this pilot. And while the GSA willcontract for the same amount it did last time, [the MMS] plan onselling the excess volumes into the open onshore market,” said BonnMacy, an MMS spokesman. “That is one of the big differences betweenthis spring offering and the previous pilot.”

The last offering was held in October of 1999. Duke and Dynegywon contracts to transport 65 MMcf/d and 133 MMcf/d respectively(see NGI, Nov. 8) for delivery to the GSA. The goal is to get 800MMcf/d of royalty gas allocated by the fall, Macy said. Overall,the MMS’ royalty share of Gulf production is 2.5 Bcf/d.

The GSA is currently transporting some of its production fromthe wellhead in a different pilot in the Gulf offshore Texas, whichis being conducted with the Texas General Land Office. The MMS isselling some of its royalty gas out of the Texas area through acommercial auction.

The invitation for bids will be posted on the MMS web site byJan. 21. A tentative list of properties that are being consideredfor this sale is available at

John Norris

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