The federal government is trying a novel approach to collect royalties from oil and natural gas companies that drill wells on federal lands.

Under the royalty-in-kind program launched last year, energy companies can simply hand over a portion of the oil or gas produced to the U.S. Department of Interior. Currently, producers estimate the value of the oil and gas they've pumped and then pay royalties -- a system that has exposed some of them to lawsuits charging they've undervalued their royalty payments.

The department sells the commodity to intermediate buyers. Then it splits the proceeds with the producing states when production is located onshore or in state waters, typically 3 miles from the shore. In most states, the royalty money goes toward school districts and local governments.

Royalties from off-shore production beyond state waters go toward land and water conservation funds, other federal funds and the U.S. treasury.

The royalty-in-kind program has been in place for offshore oil producers in the Gulf Coast. In the next few years, Colorado producers could benefit from it as well.

That's because the Department of the Interior is considering launching the program here, provided the state government agrees, said Gregory Smith, director of the program at Minerals Management Service (MMS) http://www.mms.gov/.

The MMS, headquartered in the Federal Center in Lakewood, is the arm of the department that collects royalties.

"The program allows us to bring the cost (of collecting royalties) down. The need for auditing virtually goes away," Smith said. "We also can close the books in six months rather than several years."

Smith said that natural gas prices received by the Rocky Mountain producers have grown closer to other states in recent years due to the construction of natural gas pipelines.

That could facilitate the royalty-in-kind program here, since the federal government could negotiate with pipeline companies the marketing and delivery of its portion of natural gas to buyers.

"There is a much greater chance of transporting the gas out of the Rockies to other markets," Smith said. "It means, perhaps, there is more opportunity for the royalty-in-kind program here."

But Smith reiterated a feasibility study would have to be conducted before launching the program in Colorado.

The royalty-in-kind program, which was tried on an experimental basis from 1996 through 2003, was formalized last year. It is mostly used in the Gulf Coast states for offshore oil producers. In 2004, the program yielded $2.68 billion, $18 million more than if the royalties were collected in cash.

And the cost incurred was 20 percent to 32 percent less compared with the royalty-in-cash program.

In fact, 150 million barrels of oil collected through the program was used to fill up the Strategic Petroleum Reserve in recent years.

From January through May, Colorado received $42.06 million in royalties from the federal government, up from $34.68 million in the same period last year. All the royalties were collected in cash from the oil and natural gas producers.

How companies pay

In the royalty-in-kind program, the federal government collects a portion of the physical commodity, such as oil or natural gas produced on federal lands, and sells it to intermediate buyers.

Currently, the federal government collects royalties only in cash from oil and natural gas companies in Colorado that operate producing wells on federal lands.

Copyright 2005, Rocky Mountain News.

http://www.rockymountainnews.com/drmn/business/article/0,1299,DRMN_4_3903316,00. html

Additional related, researched, recommended reading:

Congressional Testimony

June 27, 1996

Cynthia L. Quarterman, Director

Minerals Management Service, Department of the Interior

Prepared for the Subcommittee on Energy and Mineral Resources, Resources Committee

House of Representatives

Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity to appear today to present testimony on the Royalty Gas Marketing Pilot (pilot), which was implemented by the Minerals Management Service (MMS) in 1995. The pilot was one of the National Performance Review (NPR) labs implemented by the Department of the Interior and represents one of our many efforts to provide better service to the public at reduced cost.

The MMS gas pilot was conducted from January 1, 1995, to December 31, 1995, and tested the concept of MMS taking the Federal Government's royalty share of gas production in-kind from offshore federal leases and selling the gas at or near the leases to competitively chosen gas marketing companies. The royalty gas was provided by 14 lessees on 79 leases who volunteered to participate in, and helped MMS design, the pilot.

The MMS had two objectives in conducting this pilot: 1) to find processes for streamlining royalty collections in a manner that reflects changes that have occurred in the gas market; and 2) to test a process of royalty collection that promises increased efficiency and greater certainty in valuation. We are pleased with the results of the pilot. It has provided the information required by the Federal government to evaluate the potential of using in-kind royalty collection for gas.

During the pilot, MMS took, in kind, approximately 45.6 billion cubic feet of gas, totaling over 6 percent of the Federal government's royalty share in the Gulf of Mexico and sold it to gas marketing companies. The marketers were responsible for all costs downstream of the points of delivery. They also retained all proceeds from selling the gas to their customers in a free market environment.

The MMS plans to issue a report on the pilot results later this summer. My testimony today will address only the main conclusions from the report. We will provide the Committee with a copy of the report as soon as it is completed. Based on the results of this pilot , MMS is considering whether to pursue additional royalty-in-kind efforts, and if so how and where to conduct them. We will keep Congress informed of our progress in deciding whether to proceed and where.

Background

The pilot was a dramatic effort by MMS to do business in a different manner in response to recent changes in the gas marketplace (post FERC-Order 636). The MMS is testing the concept of removing itself from the complex practice of determining the appropriate value of production and auditing whether companies have paid royalties based on an appropriate value. In traditional gas valuation, much of the complexity arises from the difficulty in determining whether a non-arm's-length transaction represents the true value of the gas. We face additional complexity because of the problems inherent with calculating whether and to what extent certain costs incurred after production (e.g., transportation, processing, marketing) are deductible from the royalty value.

In the pilot, the valuation procedure is simplified dramatically. The producer is responsible for reporting only the total gas production from the lease and the royalty share of that gas delivered to the marketer. The marketer reports and pays MMS on the basis of the volume taken and the price/ MMBtu at the lease, which is the price the marketer bid for the gas in the competitive selection. Thus, production volumes become the sole focus of any audits.

The MMS designed, and has evaluated, this project in collaboration with its customers. This is an experimental effort to develop a regulatory approach that complements industry practices instead of adding burdens.

Some of the key features of the pilot include the following:

The procedures employed in the pilot were made possible by recent deregulation of the gas industry. Since the Natural Gas Policy Act of 1978, the gas industry has experienced several phases of deregulation including the decontrol of wellhead prices, the open access regulations for pipelines contained in Federal Energy Regulatory Commission (FERC) Order 436 and the formal separation of pipeline company sales and transportation services accomplished in 1993 by FERC Order 636. This deregulation has transformed the U.S. gas market in at least two important ways. First, wellhead prices for gas are now determined by competitive forces to a much greater degree. Second, marketing companies have emerged that provide the services required by buyers and sellers in today's gas market. These changes have improved the efficiency with which gas is marketed and allow the MMS to take advantage of the competition between marketing companies for in-kind royalty gas offered at or near the lease.

Results of the Pilot

In general, we are pleased with the gas pilot. We acquired information and experience that will be invaluable in deciding how to proceed with any future gas royalty in-kind efforts. In particular, I would note the following results:

While MMS intends to consider conducting additional pilot projects, there is one statutory constraint that could limit MMS' ability to conduct such projects on a significant scale on the Outer Continental Shelf (OCS). The problem for MMS arises because of the way in that the OCS Lands Act (OCSLA) defines and uses the term "fair market value." The Act appears to stipulate that in the selling of royalty gas taken in kind, MMS must obtain a price no less than that obtained by the lessee for its share of the production. Based on results of the pilot, it appears that MMS would encounter difficulty meeting this standard for each lease, each month. The MMS would be pleased to work with the Subcommittee to develop clearer legislative language that allows greater flexibility in defining the fair market value standard.

Conclusion

In conclusion I would like to emphasize that this pilot represented the true spirit of MMS's efforts to find ways to make our royalty management efforts more efficient and less burdensome for the industry. We worked with industry to design an efficient program that reflects procedures that have evolved in the industry and serve both their needs and ours. We have also been encouraged by industry's willingness to work with us in evaluating the results of our combined efforts. At the same time, we sought to structure the pilot in such a way as to ensure a fair return to the public from production of its resources.

We are evaluating the results of the pilot carefully to see how we can best move forward to reduce costs, both for government and industry, without compromising royalty collections. Please be assured that we will keep the Subcommittee apprised of our progress in evaluating the pilot and in considering whether to conduct future gas royalty in-kind efforts.

Mr. Chairman, this concludes my prepared remarks. However, I would be pleased to answer any questions you or other members of the Subcommittee may have.

http://www.mms.gov/ooc/testimony/test6276.htm

=====

MMS Pilot Project to Assess Marketing Federal Royalty Gas - Officials Seek to Simplify Process for Government, Industry (#40045)

June 30, 1994

MMS Press Release

Contact: John Barclay 202-208-5890

MMS PILOT PROJECT TO ASSESS MARKETING FEDERAL ROYALTY GAS - Officials Seek to Simplify Process for Government, Industry (#40045)

The Interior Department's Minerals Management Service (MMS) is seeking natural gas industry volunteers in the Gulf of Mexico to participate in a Royalty Gas marketing pilot project, MMS officials have announced.

"This project will test whether we can simplify Federal royalty management procedures and achieve cost savings for MMS, the gas industry and American taxpayers," said MMS Director Tom Fry.  During the project, MMS will take gas in kind in lieu of royalty payments from volunteering producers.  The gas will be sold by MMS to competitively chosen marketing companies.

"We hope this new pilot will demonstrate that we can save accounting and administration time and money for MMS and the gas producing industry," Fry said.

The pilot project is in the spirit of the administration's National Performance Review (NPR), Fry said.  The NPR is an effort by all executive departments to find methods that will simplify government procedures, streamline reporting practices, eliminate duplication and waste, and provide better services at reduced cost to taxpayers and other customers. 

Unlike MMS's Oil Royalty In-Kind program, which is designed to assure an adequate supply of oil to small marketers and refiners, the Royalty Gas marketing effort will test an entirely new approach for collecting federal revenues.

The project, which affects only leases on the Outer Continental Shelf (OCS) in the Gulf of Mexico, will run for one year beginning in January of 1995.  MMS will take the gas at the lease or at a centralized gathering point.  Excluded will be gas produced from leases subject to Section 8(g) of the OCS Lands Act.  MMS officials will examine the results of the project to assess the revenue impacts and to determine whether there are significant savings in reporting, valuing, tracking and auditing.

Companies interested in participating in the project should contact MMS by July 22 by writing:

John Bratland
U.S. Department of the Interior
Minerals Management Service, Mail Stop 4013
1849 C. St., NW
Washington, DC  20240 -MMS-                         

June 30, 1994

QUESTIONS AND ANSWERS ON THE ROYALTY GAS MARKETING PILOT

1. What does MMS hope to achieve with this pilot project?

The project is being undertaken in the spirit of the National Performance Review, which has been undertaken by this administration to find ways to simplify government procedures, streamline reporting practices, eliminate wasteful duplication and  to provide better services at reduced cost to taxpayers and customers.  In this pilot, the MMS is trying to reduce costs and complexity so that the public is more efficiently served by the DOI's gas royalty management program.

The gas royalty in-kind procedures employed in this pilot have been made possible by recent deregulation of the gas industry.  Since the Natural Gas Policy Act of 1978, the gas industry has experienced several phases of deregulation including the decontrol of wellhead prices, the open access regulations for pipelines contained in Federal Energy Regulatory Commission (FERC) Order 436 and the formal separation of pipeline company sales and transportation services accomplished in 1993 by FERC Order 636.  

These decontrol measures have transformed the U.S. gas market in at least two important ways.  First, wellhead prices for gas are now determined by competitive forces to a much greater degree.  Second, marketing companies have emerged which provide the services required by buyers and sellers in today's gas market.  These changes have improved the efficiency with which gas is marketed and allow the MMS to take advantage of the competition between marketing companies for in-kind royalty gas offered at or near the lease.  

2. What are the possible benefits of taking Federal gas royalties in kind?

Administrative cost should be reduced significantly.  The taking of gas royalties in kind will simplify royalty collection and royalty reporting.  For example, the simplified procedure would eliminate payor reports associated with gas valuation and allowances for transportation and processing.  Also, audits will be simplified.  Under the procedures that will be tested in the pilot, audit activity will be limited to gas volumes and the revenue received by Minerals Management Service (MMS) from the marketing company.  These changes will reduce costs for both the Department of the Interior (DOI) and the industry.  

3. What are the revenue implications of taking Federal gas royalties in kind?

There may or may not be any significant impact on MMS royalty revenues as a result of the pilot.  One of the purposes of the pilot is to measure and compare the net revenues of the in-kind gas sales against the net revenues of conventional in-value royalties.

4. What happens to the in-kind royalty gas once the MMS takes possession?

Actually, the MMS will not take physical possession of the gas.  At the appropriate point, at the lease or at a centralized gathering point near the lease, the offshore operator will relinquish the in-kind royalty gas and transfer it to a competitively selected marketing company.

5. How will the marketing companies be chosen?

Marketing companies will respond to a request for proposal (RFP) by bidding on the in-kind royalty gas.  The company(s) chosen will be those that meet certain qualifying criteria and that offer the highest price for the gas.

6. What is the legal authority for the taking offshore gas royalties in kind?

Offshore Royalty-in-Kind is governed by the Outer Continental Shelf Lands Act (OCSLA) (43 USC 1353).

7. Have any of the gas producing states taken royalty in kind on state leases?  If so will this experience be helpful to the MMS in this pilot?

The states of Texas and Alaska collect gas royalties in kind.  The Texas program includes the taking of gas royalties in-kind and the direct marketing of the gas to municipalities, colleges, State agencies, school districts, colleges and Texas correctional institutions.  The program was undertaken in 1983 and has operated successfully since its implementation.  The example of the Texas gas royalty-in-kind program prompted MMS to examine this option for Federal offshore gas.  The pilot has emerged from this initiative.  In designing the pilot, MMS has been able to employ the most useful features of the Texas program while at the same time taking advantage of the recent changes in the U.S. gas market. 

-MMS-

Subject: PR-06/30/94 Royalty Gas Marketing Effort/MMS Pilot Project to Assess Marketing Federal Royalty Gas (#40045)

http://www.mms.gov/ooc/press/1994/40045.txt

=====

Past Initiatives on Taking Royalty Production In-kind

August 26, 1997

Mike French, Director

Technology Assessment Division

Abstract

 

A number of times over the years, DNR has looked at the possibilities of taking royalty production in-kind as a potential method to enhance revenue from State production. The end result of each foray into this was to continue the practice of taking royalty payments in cash.

 

The idea of enhancing revenue by taking royalties in-kind is a sound concept. It is a method of royalty collection that is seldom practiced by government entities in the U.S., but it has been successfully employed, as by the city of Long Beach, California and the states of Texas and California. On the other hand, the Minerals Management Service (MMS) lost revenue in a recent pilot program for taking natural gas royalties in-kind in the Gulf of Mexico. The devil is in the details, and the details vary from place to place.

 

For Louisiana, the details that cause the greatest deterrents to implementing a royalty in-kind program are:

 

Lack of authority in state lease agreements prior to 1970 for the State to take royalties in-kind

 

Lack of concentration of enough large volume leases with in-kind provisions in a suitable geographical area to provide the State the needed marketing power to meaningfully enhance revenue over the cash payment returns, and

 

The administrative bureaucracy that would have to be created for the State to get into the business of marketing oil and gas and managing the transportation logistics of getting production to market.

 

Provided below is a discussion of some of these details.

 

Lease Provisions and Legal Authority

 

Legal authority for the State to take royalty production in-kind is determinant on when the lease was issued:

 

(1) 1930 and prior, the State's royalty is a stated share in-kind.

 

(2) From 1930 to 1970, leases were written giving the lessee the option of paying royalties on the basis of value or in-kind.

 

(3) From 1970 forward, R.S. 30:127(C) (copy attached) has required lessees to contain a provision specifically allowing the state to take royalty production in-kind. (Such action, however, may not be without litigation according to a past review by a legal advisor to the Mineral Board, since, for example, the majority of the State's royalty oil is sold under division orders, many of which have been in place more than 50 years. Division orders for affected leases would have to be canceled before a sale of in-kind oil could take place.)

 

The Mineral Board is also given statutory authority in administering the taking of royalty production in-kind. R.S. 30:142 (copy attached), specifies the right of the State to take royalty oil in-kind, but deals almost exclusively with the taking of gas in-kind. It explains in great detail the procedures to follow in taking royalty gas in-kind for human needs purposes. R.S. 30:144 (copy attached), on the other hand, establishes procedures for DNR to follow in promulgating regulations for selling royalty oil to small refiners. The in-kind provisions of both of these statutes were enacted during the time of federal controls on the price and use of oil and gas and would probably need revision to reflect the current regulatory environment and market realities that did not exist at the time of passage.

 

Significant DNR Initiatives: Louisiana Institutions Self-help Agreements (LISA)

 

LISA was a proposed cost savings program to take royalty gas in-kind and supply it to state institutions (universities, charity hospitals, prisons, etc.) at substantially lower prices than the state was paying gas suppliers. This initiative was proposed by a team led by Vernon Helms who was the Director of the Mineral Income Division of the Office of Mineral Resources. The other members of the team were Don Hebert of the Pipeline Division of the Office of Conservation, and Mike French of the Technology Assessment Division of the Office of the Secretary.

 

In 1987, State institutions were paying approximately $6.00 per MCF for gas delivered to their sites. Much of this gas was the same gas the Mineral Board was receiving a royalty price of $1.00 per MCF. The essence of the LISA proposal is that the Mineral Board would take delivery of royalty gas in-kind, provide it to LISA at $2.25 per MCF, arrange pipeline transportation for $0.35 per MCF and delivery through the existing local distribution companies for $3.00 per MCF for a delivered price to State institutions of $5.60 per MCF. State institutions would then save $0.40 per MCF, and the Mineral Board would receive $2.25 instead of $1.00 per MCF for royalty gas, for a net gain to the State of $1.65 per MCF, or a total of $3 million to $8 million per year, depending on the number of state institutions participating. The State of Texas implemented a similar program in August 1986 supplying royalty gas to 55 state institutions at considerable savings.

 

A public hearing was held on July 27, 1987, meetings were held with several state lessees from whom royalty gas was available in sufficient quantities at below prevailing market prices, and meetings were held with gas pipeline companies and local distribution companies to develop a workable plan to pursue LISA. In order to implement and operate LISA, it was determined that the Office of Mineral Resources, Mineral Income Division would need to add two new full time positions (a gas sales coordinator and a gas sales specialist) and utilize the services of an engineer part time, for an annual personnel cost of $90,000. The primary duties of these new personnel would be to manage the wellhead supply, pipeline transportation, local distribution company delivery, and cost accounting of moving royalty gas to state institutions.

 

A request for the additional personnel was made to the Division of Administration, and it was turned down. Apparently then Commissioner of Administration Brian Kendrick decided the State was getting into the pipeline business, which was something the State should not do.

 

Oil Royalty Task Force

 

Several DNR staff members who over the years had looked at various ideas about taking State royalty production in-kind decided it was time to lay the issue to rest by giving it a dedicated opportunity to work. Bill Howe, then Chief Landman of the Office of Mineral Resources, obtained the go-ahead from the Mineral Board and the Secretary of Natural Resources to assemble a Task Force to study the issue and make recommendations. The Task Force consisted of:

 

The members of the Task Force agreed that if any form of in-kind program had a chance to work, it would be an oil in-kind program because gas can be transported only when there is access to a suitable pipeline; whereas, oil can be transported by pipeline, ship, barge, rail, or truck, and oil can easily be stored on site. Additionally, there is a greater demand for oil in the state than there is domestic supply, as opposed to gas, which the state exports a surplus (due to Louisiana OCS production). There is also a greater opportunity to receive a premium over posted prices for oil, than there is pricing flexibility in the market place for natural gas. Hence, the Task Force was named the ROYALTY OIL TASK FORCE. The Task Force proceeded to set up a one year trial oil royalty take in-kind program.

 

The Task Force gathered information from across the country on government entities that have in-kind programs, and reviewed copies of lease forms, financial records, and other documents from the states of California and Texas, the City of Long Beach, California, and the Minerals Management Service. California received premiums of $0.25 to $3.56 per barrel above postings. Texas gained an average of $0.37 per barrel above posted prices, and a professional marketer with whom the Task Force met thought Louisiana could get a premium of $0.54 per barrel that he was averaging for his customers.

 

In a recent assessment of the Texas program, Spencer Reid, senior deputy commissioner of the Texas General Land Office, said that over the past 14 years, the Texas in-kind program has increased royalty revenue for the Permanent School Fund by over $11 million in gas royalty and $5.1 million in oil royalty, saved state agencies over $90 million in gas utility bills, and saved untold thousands of dollars for the General Land Office and for oil and gas producers by eliminating the need for financial accounting for royalty volumes of oil and gas taken in-kind.¹

 

Texas had the advantage of having large blocks of production under state lease, giving Texas considerable marketing power to offer buyers a significant volume of production from one geographical area. Texas found that the mere threat of potentially taking production in-kind led producers to pay premiums to continue purchasing the state's royalty share of their production.

 

Unlike Texas and California, though, Louisiana does not have large volumes of royalty production located in close proximity and with lease provisions that give the State the right to take royalty production in-kind. Excluding Texaco production, which was not considered by the Task Force due to the then ongoing lawsuit over Texaco royalty payments, the Task Force found only 3354 barrels per day of royalty oil suitable for the take in-kind trial. This production was from 10 leases held by 7 lessees from about 20 fields. Though these fields were not all adjacent, and some were separated by significant distances, these were the best candidates available in which the lease gave the State the right to take royalty production in-kind.

 

The total royalty volume of the above leases was less than desirable, and the leases were somewhat scattered geographically, so the Task Force decided to pursue discussions with lease holders whose leases did not give the State the right to take royalties in-kind. The Task Force met several times with Chevron and Shell in their offices and at DNR. Much was learned in these meetings, particularly the information and details discussed with Chevron about the logistics, mechanics, accounting, legal, and marketing aspects of taking royalty production in-kind. Both companies expressed interest in being permitted to bid on any oil the State might take in-kind and then later offer for sale. Neither company was willing to release any royalty production not required by the lease to be available for the State to take in-kind. Chevron and Shell were chosen because they both had significant production from State leases near the leases previously mentioned that gave the State the right to take royalties in-kind.

 

To further explore all of the possibilities, complexities, and ramifications of instituting a take in-kind program, the Royalty Accounting Committee of the Mineral Board conducted an Informational Hearing on Royalty Oil on October 11, 1989 and solicited written comments from industry on the issue as well. All of the oral and written materials were evaluated by the Task Force. After further study and discussions with Texas and California officials, the Task Force presented a proposal to the Mineral Board to conduct a trial program in which royalty production from selected State leases would be taken in-kind and then sold by competitive bid at a premium over prevailing posted prices. All transportation logistics would be the responsibility of the purchaser. This recommendation was presented to the Mineral Board, which approved it for implementation.

 

With further research, the Task Force had hoped to be able to provide at least 5000 barrels of oil per day available for the in-kind program, but it was not feasible without Texaco production. Therefore, a bid package was issued in January 1991 soliciting bids for 8 offerings, The individual offerings ranged from about 81 to 1215 barrels per day for a total of 2902 barrels per day. The bid specifications used a base price of the average of the prices posted by Amoco, Chevron, and Exxon for South Louisiana Sweet of like gravity and quality at the day of delivery and required the bidder to pay a premium above this price plus and administrative charge to cover the cost of the Office of Mineral Resources to administer the contract for one year.

 

Interest on the offered take in-kind leases was extremely disappointing. No bids were received for 6 of the 8 offerings. Arco bid on 2 offerings. One bid for 1215 barrels per day was rejected because there was no price advantage. Arco's other bid for 236 barrels per day from Amoco's State Lease No. 42 would initially have increased the State royalty by $0.65 per barrel, but the bid was rejected when Amoco revised their posting of the West Hackberry production to an amount equal their South Louisiana Sweet posting, which negated the price advantage of Arco's bid.

 

Recent Experience of Minerals Management Service

 

In the days of oil supply interruptions, the federal Minerals Management Service (MMS) developed procedures and regulations to sell federal in-kind royalty crude oil to small and independent refiners under the Emergency Petroleum Allocation Act. On several occasions, MMS has sold royalty oil under these arrangements. In 1995, though, MMS began experimenting with royalty in-kind programs to enhance revenue to the federal treasury. Under this experimental program, MMS sold 45.6 billion cubic feet of natural gas from leases in the Gulf of Mexico. The mechanics and logistics of the sale worked well, but MMS received $0.09 per million BTU less in royalties than if the gas royalties had been paid under the existing system based on fair market value.¹ MMS Director Cynthia Quarterman said with more study and under favorable conditions a royalty in-kind program could be revenue neutral or positive and administratively more efficient for MMS and industry.

 

Conclusion

 

Royalty take in-kind programs have shown mixed results by those who have tried them. Some programs have been great success stories, such as those in the states of Texas and California and the City of Long Beach, California. In these programs, the governments have received significantly higher royalty revenue and / or obtained lower cost fuel supplies under take in-kind programs. Texas has even shown that the administrative financial accounting burden can be significantly reduced. Some experiments such as the recent MMS pilot program were disappointing, and some attempts by some states have been total failures.

 

In essence, the idea of taking royalty production in-kind appears much simpler than it really is. With careful planning and procedures and the appropriate legal authority, programs can be set up to work smoothly and to increase revenue flows to the government entity. The successful programs tended to have one thing in common -- the managing government agency stayed out of the oil and gas marketing and transportation business by establishing procedures by which industry performed those functions for the government entity owning the royalties.

 

References

 

¹Producers ask Congress to allow them to pay royalties with in-kind method, The Energy Report. Pasha Publications: Arlington, VA.; August 4, 1997, pp.585-586.

http://www.dnr.state.la.us/SEC/EXECDIV/TECHASMT/data/oil_gas/royalty_in_kind_199 7/in-kind.htm

=====

Reforming the Federal Royalty Program for Oil and Gas

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Specifically, the Minerals Management Service (MMS) in January 1997 proposed ... crude oil volumes taken as in-kind royalty would enhance royalty revenues, ... commdocs.house.gov/committees/ resources/hii49151.000/hii49151_0.htm - 513k - Cached - Similar pages

Past Initiatives on Taking Royalty Production In-kind

... days of oil supply interruptions, the federal Minerals Management Service (MMS) developed procedures and regulations to sell federal in-kind royalty crude oil ... www.dnr.state.la.us/sec/execdiv/ techasmt/lep/in-kind/in-kind.htm - 20k - Supplemental Result - Cached - Similar pages

Royalty payments in product instead of cash "not feasible"

... requiring the federal government to accept the in-kind royalty payments ... The federal government, through the Minerals Management Service, collected $4.1 billion ... texnews.com/1998/biz/oil0821.html - 37k - Supplemental Result - Cached - Similar pages

EPA: Federal Register: Regulations Under the Outer Continental ...

The Minerals Management Service (MMS) of the Department of the Interior observes ... OCS Producers urge that participation in MMS in-kind royalty payments ... www.epa.gov/fedrgstr/EPA-IMPACT/ 2000/April/Day-17/i9447.htm - 153k - Cached - Similar pages

Corpus Christi Caller-Times / Government joins suit against oil ...

... The Minerals Management Service, which administers the royalty payments, receives about $4 ... has countered with a proposal to make in-kind royalty payments to ... www.gocorpuschristi.com/busarch/bus3565.html - 6k - Supplemental Result - Cached - Similar pages

Justice Department joins lawsuit against oil companies

... The Minerals Management Service, which administers the royalty payments, receive about $4 ... has countered with a proposal to make "in-kind" royalty payments to ... texnews.com/1998/biz/suit0227.html - 38k - Supplemental Result - Cached - Similar pages

The San Angelo Standard - Times Online

... The Minerals Management Service, which administers the royalty payments, receive about $4 ... has countered with a proposal to make ``in-kind'' royalty payments to ... web.gosanangelo.com/archive/98/february/22/4.htm - 7k - Supplemental Result - Cached - Similar pages

[PDF] RAILROAD COMMISSION OF TEXAS

File Format: PDF/Adobe Acrobat - View as HTML Panther transports the State’s in-kind royalty gas for the Texas General Land ... Department of the Interior (DOI), Minerals Management Service (MMS). ... www.rrc.state.tx.us/divisions/ gs/rap/bulletins/bu729.pdf - Similar pages

[PDF] HISTORICAL AND PROJECTED OIL AND GAS CONSUMPTION

File Format: PDF/Adobe Acrobat - View as HTML ... Department of Interior, Minerals Management Service (MMS) • leases and administers offshore ... The state currently sells its in-kind royalty oil through two ... 204.126.119.8/oil/products/publications/ annual/hpmay99/historical%5Chp99.pdf - Supplemental Result - Similar pages

WAIS Document Retrieval

... Fairness Act of 1996 allows the Minerals Management Service (MMS) seven years ... 3137.113 May the United States take an in-kind royalty share of unit ... www.emlf.org/Archives/Resources/cases/BLM.html - 513k - Cached - Similar pages

EPA: Federal Register: Onshore Oil and Gas Leasing and Operations

... ticket information to BLM and the Minerals Management Service, when requested, ... 3137.113 May the United States take an in-kind royalty share of unit ... www.epa.gov/fedrgstr/EPA-GENERAL/ 1998/December/Day-03/g31671.htm - 513k - Cached - Similar pages

BLM Regulation: 43 CFR Part 3100, et al., Comprehensive Oil and ...

... (BLM) or to the Minerals Management Service (MMS), as appropriate. ... 3137.113 May the United States take an in-kind royalty share of unit production? ... www.blm.gov/nhp/news/regulatory/3100p5.html - 513k - Cached - Similar pages

[PDF] Fiscal System Analysis: Concessionary and Contractual Systems Used ...

File Format: PDF/Adobe Acrobat of the Interior, Minerals Management Service, Gulf of Mexico OCS Region, New ... and can be paid in cash or in kind. Royalty represents a cost of doing ... www.gomr.mms.gov/homepg/regulate/ environ/studies/2004/2004-016.pdf - Similar pages

[PDF] Omnibus Energy Legislation (HR 6): Side-by-side Comparison of Non ...

File Format: PDF/Adobe Acrobat - View as HTML Page 1. Congressional Research Service The Library of Congress CRS Report for Congress Received through the CRS Web Order Code RL32033 ... https://www.naseo.org/committees/ govaffairs/legislation/HR6-NonTaxProvisions.pdf - Supplemental Result - Similar pages

FR Doc 03-20354

SUMMARY: The Minerals Management Service (MMS), an agency of the US Department of ... oil originating from royalties taken in kind. Royalty oil volumes from ... a257.g.akamaitech.net/7/257/2422/14mar20010800/ edocket.access.gpo.gov/2003/03-20354.htm - 14k - Cached - Similar pages

[PDF] A Section-by-Section Analysis of the House Energy Bill (HR 4)
File Format: PDF/Adobe Acrobat - View as HTML
... 6 Department to reimburse the industry for any transportation and processing
costs associated with the in-kind royalty payments. 29 ...
reform.democrats.house.gov/ Documents/20040827105034-51520.pdf - Supplemental Result - Similar pages

[PDF] Raiding the People’s Money: How the House Energy Bill (HR 4) ...
File Format: PDF/Adobe Acrobat - View as HTML
... 7 Department to reimburse the industry for any transportation and processing
costs associated with the in-kind royalty payments. 29 ...
reform.democrats.house.gov/ Documents/20040827105742-73573.pdf - Supplemental Result - Similar pages