US Interior Dept Nixes Royalty-In-Kind Program

In a prepared testimony before the House Natural Resources Committee, Interior Secretary Ken Salazar confirmed that the U.S. Department of the Interior will terminate the agency's oil and natural gas royalty-in-kind program (RIK).

"Today, I am announcing a phased-in termination of the [royalty-in-kind] program and an orderly transition over time to a more transparent and accountable royalty collection program," Salazar said.

Under this petroleum fee system, the energy commodity is accepted in lieu of cash royalty payments from companies producing oil and gas on federal lands. According to Dow Jones, the program has sparked controversy due to a series of scandals recently associated with it.

Commenting on the news, Jack Gerard, President of the American Petroleum Institute said, "The Royalty-in-Kind program, which collected $6.6 billion in oil and gas deliveries in fiscal 2008, is one of the government's largest sources of non-tax revenue. The program is an effective means of ensuring that the American people receive fair compensation for development of federal resources.

He continued, "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," Gerard concluded.