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The
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Release #: 3037
Date: March 4, 2004
MMS Reports Successes, Challenges in Royalty-in-Kind Projects
Internal Minerals Management Service (MMS) reports finalized today
conclude that two “Royalty-in-Kind” (RIK) pilot projects conducted
with the states of Wyoming and Texas resulted in increased revenues of
nearly 3 percent and 1 percent respectively, and improved
administrative efficiencies. According to the MMS, the bureau is now
also looking into developing better performance measures to further
advance RIK business activity.
“The Royalty-in-Kind program is providing solid benefits to
American taxpayers and the nation,” said MMS Director Johnnie Burton,
“yet more work remains to be done to fully assess the revenue impacts
of the program. We intend to pursue program improvements to
achieve consistent results.”
During the past decade, MMS has conducted several feasibility
studies and pilot projects to determine if taking royalty-in-kind (in
the form of product) as opposed to royalty-in-value (cash payments) is
in the nation’s best interests. Based on these projects,
including the joint sales with the states of Wyoming and Texas, MMS
has determined that RIK will be an integral part of its approach to
manage mineral royalties, to be used in tandem with royalties in
value.
Among the objectives of the effort are to return fair value on the
public’s royalty assets, reduce regulatory costs and reporting
requirements, shorten the compliance cycle, and improve overall
business efficiencies. In addition, taking royalties in-kind in
the form of product simplifies audits and can potentially reduce the
number of audits performed of royalty-in-value cash payments. In
the past, that auditing process for royalty payments could take
several years to complete, which is one reason the oil and gas
industry generally supports the government’s RIK efforts.
The Wyoming report concludes that the RIK program reduced the
period of time that it takes MMS to ensure it has received all
royalties due from years to months; that RIK royalty receipts exceeded
comparable in-value royalties by approximately $810,000; and that the
process established a foundation for administrative savings for MMS
and industry in the future.
The Texas report examined all of the Texas offshore section 8(g)
leases participating in the RIK pilot. It found royalty receipts
exhibited an uplift of approximately $997,000, or 1 percent over what
would have been collected through royalty-in-value.
Director Burton stressed that the MMS expects to do as well as any
other party selling gas and oil at market centers under industry
standard contract terms. “Our goal is to get fair market value
from RIK sales,” Burton said. She noted that assessments of the
RIK program to date indicate that efficiencies are being realized,
transaction cycle times are being reduced, and that MMS can expect
some RIK revenue uplifts from negotiating favorable transportation and
gas processing arrangements because of the size of the Federal royalty
portfolio.
The selected use of RIK sales, combined with taking
royalty-in-value payments when economics indicate that is the best
approach, will help ensure taxpayers receive fair value, Burton noted.
With an eye toward the future, MMS awarded a contract in January
2003 to independent management consulting company Lukens Energy Group
of Houston, Texas, to commercially assess the RIK program; recommend
improvements, particularly in performance measurement tools and
metrics; and make recommendations for future strategic planning.
The Lukens’ report was completed in December 2003.
Acting on Lukens’ recommendations, MMS is preparing a five-year RIK
Business Plan which is expected to be finalized in May 2004.
That plan will include strategic direction, goals, objectives and
specific management actions to advance the permanent RIK business
activity in the 2004-2008 timeframe.
MMS is the federal agency in the U.S. Department
of the Interior that manages the nation's oil, natural gas, and other
mineral resources on the Outer Continental Shelf in Federal offshore
waters. The agency also collects, accounts for, and disburses mineral
revenues from Federal and American Indian lands. Between 1982 and
2003, MMS distributed more than $135 billion in revenues from onshore
and offshore lands, an average of more than $6 billion per year, to
the Nation, States and American Indians. Nearly $1 billion from those
revenues go into the Land and Water Conservation Fund annually for the
development of State and Federal park and recreation lands.
Relevant Web
Sites
Wyoming Royalty-in-Kind Report
Texas Royalty-in-Kind Report
MMS Main Website
MRM Royalty-in-Kind
Main Site
Media Contacts
Curtis Carey
(202) 208-3985
Patrick Etchart
(303) 231-3162
MMS: Securing Ocean Energy & Economic Value for
America
U.S. Department of the Interior |