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America’s Oil and Natural Gas Producers React to Minerals Management Service’s Final Report on Royalty In-Kind Program

Four oil and gas trade associations reacted today to a final Minerals Management Service report that assesses the potential for taking oil and natural gas royalty payments "in-kind," which refers to the practice of taking the actual oil and gas product as a royalty payment instead of a calculated dollar amount.

The industry -- represented by the American Petroleum Institute, the Domestic Petroleum Council, the Independent Petroleum Association of America and the Mid-Continent Oil and Gas Association -- supports royalty in-kind (RIK) programs.

Today, these groups released the following statement:

"Today, we are encouraged by MMS’ final report which calls for moving forward on an examination of potential RIK pilot programs. To us, RIK is an appropriate and valid procedure to determine value and we encourage any steps MMS takes to move toward RIK.

"Over the past year, the valuation of royalties has become an important subject of debate. In fact, MMS is in the process of making dramatic and untested revisions to its valuation procedures. RIK can be an important solution to clearing up many of these valuation issues which exist. Therefore, we believe MMS should delay issuing a new valuation rule until RIK or other proposals, such as benchmarking, can be examined further. We strongly encourage RIK as a way to create certainty in royalty valuation. To this end, we hope MMS will work closely with industry as it further develops strategies which could lead to successful RIK programs.

"However, we believe that MMS must broaden its examination into RIK programs for both oil and gas. In the final report, MMS targets three areas for ‘further examining and developing detailed royalty in-kind strategies.’ We believe MMS must look at many more geographic areas, because the success and potential of RIK programs cannot be determined by only a few select locations. Market conditions vary across the country. MMS must recognize this and develop strategies that address such geographic differences. Simply, a broader investigation is vital in developing workable RIK programs.  

Last revised: 12/14/99