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The NewsRoom
Release: #3502
Date: June 19, 2006
Royalty in Kind Report Highlights ’05 Performance
Revenues up, Administrative Costs and Conflicts Down
DENVER -- Decreased
administrative costs and increased revenue of more than $32 million
are among the highlights of a recently completed government analysis
that examined the Fiscal Year 2005 performance of the Minerals
Management Service’s Royalty in Kind (RIK) program.
“The Royalty in Kind program continues to deliver
solid and measurable benefits to the American taxpayer,” director of
the Department of the Interior’s Minerals Management Service (MMS),
Johnnie Burton said. “Through this program, we’ve been able to
improve government efficiency, reduce conflicts with industry, and
increase taxpayer returns.”
The report, available on the Minerals Revenue
Management web site at:
http://www.mrm.mms.gov/rikweb/PDFDocs/RIKPRPFY2005.pdf
(20 pages),
highlights the RIK program’s performance during Fiscal Year 2005,
the second full year the program was in an operational status after
six years of pilot testing.
Historically, the MMS collected the majority of
its royalties in the form of cash, or royalty in value (RIV),
payments. In the mid-1990s, MMS began exploring whether it was in
the nation’s best interest to take royalties in kind--in the form of
product--and then competitively sell that product in the
marketplace.
MMS conducted a series of feasibility studies and
pilot projects to test that approach, and in 2004 released the
Five Year Royalty in Kind Business Plan and moved the program to
an operational phase. The business plan incorporated suggestions of
the Government Accountability Office and a commercial consultant,
and included clear program objectives. The plan also emphasized
MMS’s commitment to measure program performance and report to
Congress on progress in achieving the plan’s goals.
During Fiscal Year 2005, a total of 82,364,035
barrels of oil equivalent were taken in kind and sold or exchanged
under the RIK program. The RIK oil and gas were valued at
approximately $3.7 billion, a 39 percent increase over the FY 2004
value, attributable to markedly higher energy prices in 2005.
The bulk of the RIK activity occurred in the Gulf
of Mexico, where the MMS took in kind approximately 75 percent of
the crude oil and approximately 30 percent of natural gas royalty
volumes produced daily.
According to Burton, measurement of the RIK
revenue performance for Fiscal Year 2005 indicated a revenue gain of
$30.8 million related to both the natural gas and crude oil business
units. Combined with an additional revenue gain of $1.5 million in
additional interest earned by receiving RIK revenues five to 10 days
earlier than under the royalty in value program, a total revenue
gain of $32.3 million was achieved, she said.
Burton also noted that the MMS, in conducting its
RIK program, reduced its administrative costs by more than $3.74
million. That is, without the RIK program, MMS would have needed to
spend an additional $3.74 million for royalty compliance. Taking
royalties in kind in the form of product simplifies the auditing
process for these transactions, which is one reason the oil and gas
industry generally supports the government’s RIK efforts.
In addition to increased revenue and improved
government efficiencies, Burton noted that the RIK program was
instrumental in helping fill the nation’s Strategic Petroleum
Reserve to support energy security and provided a reliable supply of
crude oil to support small refiner operations in the United States.
The RIK program grew from MMS’s responsibility to
ensure that all revenues from Federal and Indian mineral leases are
efficiently and accurately collected, accounted for, and disbursed
to recipients. These revenues totaled approximately $10 billion in
2005 and more than $156 billion since MMS’s inception in 1982. The
funds are disbursed to the U.S. Treasury, five Federal agencies, 35
states, 41 American Indian tribes, and some 30,000 individual
American Indian mineral owners.
Relevant Web Sites:
MMS Main Website
Gulf of Mexico Website
Media Contacts:
Patrick Etchart,
303/231-3162
MMS: Securing Ocean Energy & Economic Value for
America
U.S. Department of the Interior
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