MMS Sells 195,000 MMBtu/d of Royalty Gas to Chevron, Sequent, BP

Chevron Natural Gas, Sequent Energy Management LP and BP Energy Co. were the winning bidders in the Minerals Management Service's most recent Gulf of Mexico royalty gas auction. More than 195,000 MMBtu/d of royalty gas was sold under five and 12-month terms starting Nov. 1.

The sale was conducted in early October and provides for a total of 195,575 MMBtu of royalty-in-kind (RIK) gas to be delivered to six offshore Gulf pipeline systems, ANR Nearshore, Central Texas Gathering, Garden Banks, Seagull Shoreline, Stingray and Tennessee Gas' 800 Leg. MMS has reserved the right to have the gas processed and the liquids removed. MMS said a total of 42 bids were received on the seven individual gas packages that were offered.

"Taking this royalty gas in-kind ensures that the federal government and taxpayers receive a fair market value for this critical energy resource," said Lucy Querques Denett, associate director of the Minerals Revenue Management program. She said the RIK program continues to help reduce regulatory costs and improve overall business efficiencies.

The RIK program started as a pilot project in the late 1990s. The government typically collects its royalty share of production in cash payments made by those who lease and produce gas on federal lands. However, through the pilot project the government found that taking gas in kind allowed it to maximize taxpayer assets, reduce costs and reporting requirements, and improve overall business efficiencies.

The economic benefits of taking royalties in kind rather than in cash also may end up supporting low income families possibly as soon as this winter. With gas prices shooting up to near $14 already, the cost of heating a home this winter will skyrocket. As a result, an MMS spokesman confirmed that the agency has received two requests to supply royalty gas this winter to low income customers in two states. Sources have told NGI there have been discussions about royalty gas being delivered to customers in New York and Colorado, but the MMS said the details of the program are still being worked out.

So far this year, MMS said it sold a total of 630,000 royalty gas through two auctions. Its five-year RIK plan released in 2004 calls for volumes to eventually ramp up to 1.2 Bcf/d.

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