The federal government received a total of $50 million more in revenues in fiscal years 2004 and 2005 because of oil and natural gas producers paying royalties in kind instead of in cash, the Interior Department’s Minerals Management Service (MMS) reported to Congress.
Royalty-in-kind (RIK) receipts to the federal Treasury were increased by $18 million and $32 million in fiscal years 2004 and 2005, respectively, over what would have been received if the MMS had taken its royalties in cash payments, the agency said in a progress report on the RIK program. The report, which was forwarded to Capitol Hill on Sept. 29, was required by the Energy Policy Act of 2005.
The MMS said the RIK program also resulted in 50% administrative cost savings compa red to what it cost to manage royalties received in cash. It estimated it saved $3.74 million in this area in fiscal year 2005.
Approximately 82 million boe of oil, valued at $3.75 billion, were taken in kind by the MMS during fiscal year 2005, primarily from offshore leases in the Gulf of Mexico, the Interior agency said.
The MMS said it anticipates a significant expansion of its natural gas RIK portfolio in the future. Since publication of its five-year plan in May 2004, the MMS said its natural gas RIK sales have increased to 700,000 MMBtu/d from 500,000 MMBtu/d. It projects RIK gas volumes will climb to 1.3 Bcf/d by fiscal year 2009, with much of this coming from the Gulf. It anticipates that its RIK oil volumes will increase to 190,000 bbl/d by the same year.
The MMS told lawmakers that its goal is to enhance net revenues from the RIK program by $50 million over the course of the five-year plan and to experience estimated administrative cost savings of $17.5 million over that same period. This would reflect a total net return on the RIK program of $67.5 million by fiscal year 2009, it said.
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