Royalty-in-kind: R.I.P.

The Department of Interior said this morning it will cancel the royalty-in-kind program, in which oil and gas producers pay the government for hydrocarbons they pump off federal lands not in cash but in the commodity. The program appears to have been poorly managed by the Minerals Management Service under DOI, as there are millions that remain uncollected. There may have been some other shenanigans, too.
Naturally, the industry isn’t thrilled. American Petroleum Institute President Jack Gerard said R.I.K. is one of the government’s largest sources of non-tax revenue, with $6.6 billion in oil and gas deliveries in fiscal 2008:

“Terminating this straight-forward method of handling royalty payments runs the risk of raising administrative costs and adding additional layers of paperwork required to determine the value of oil and gas production. The government’s Minerals Management Service itself noted administrative efficiencies brought on by the program, and pointed out that another of benefits of RIK is the reduction in costly lawsuits tied to product valuation.
We urge Secretary Salazar to carefully weigh the impacts his ‘fundamental restricting’ of the royalty system could have on U.S. production of oil and gas, American jobs and revenue to the government. America’s oil and natural gas industry is ready to work with the administration to improve the royalty-collection system so Americans enjoy the benefits of increased domestic development. Raising the cost of bringing much-needed domestic supplies online in the United States is not the way to achieve energy and economic security.”

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