CHAPTER 6 ROYALTY-IN-KIND AT THE MMS

• Jurisdiction: United States

Federal & Indian Oil & Gas Royalty Valuation and Management III
(2000)
CHAPTER 6
ROYALTY-IN-KIND AT THE MMS
Donald T. Sant
Minerals Management Service
Denver, Colorado

[Page 6-1]

Introduction

Why are we doing RIK?

What are we doing?

[Page 6-2]

• Goals

• Where does RIK make sense

• Can we save money

• Does RIK simplify royalty payment

• Does RIK create value

[Page 6-3]

From Pilot to Program

Wherever it makes business sense

[Page 6-4]

Denver Post Headline

December 12, 1999

U.S. Threatens Action Over Rising Oil Prices

[Page 6-5]

Why RIK?

• To make money

• To eliminate valuation disputes

[Page 6-6]

How Do You Make Money?

Aggregate

Go down stream

Offer superior service

[Page 6-7]

Aggregation

• Exxon USA — 96	• MMS
• 587,000 barrels/day	• 200,000 barrels/day
• 2.1 billion cubic feet/day	• 2.2 billion cubic feet/day — Gulf of Mexico

[Page 6-8]

Go Down Stream

Transportation

Processing

Storage

[Page 6-9]

Superior Service

Reliable Supply

Lower Customer Cost

Risk Management Services

[Page 6-10]

When Does RIK Work?

When competition exists for the purchase of the RIK

[Page 6-11]

When Doesn't RIK Work?

When competition doesn't exist for the purchase of RIK

• Gas in Alaska

• Gas at LaBarge

[Page 6-12]

Important Parameters

• Lease selection

• Selling or bidding method

• Location of delivery

• Term of contract

• Bid evaluation

[Page 6-13]

Wyoming Oil RIK

Cooperative effort with the State of Wyoming

Crude oil in Powder River and Big Horn Basins

[Page 6-14]

Wyoming Oil RIK

• Federal and State leases

• Competitive bidding at the lease

• Six-month term

• First deliveries October 1, 1998

[Page 6-15]

Wyoming Oil RIK

• Third Sale

• 3250 barrels per day

• Pipeline connected properties

• Fourth Sale and current term

• 5100 barrels per day

• Pipeline connected properties

[Page 6-16]

SPR Project

• Negotiated exchanges

• Delivery began May 1

• Held two competitive exchange sales

• Ends when 28 million barrels are delivered to DOE

• Expected end of September

[Page 6-17]

Gas Daily

February 1, 2000

DOE Delays Oil Shipments To Emergency Reserve

[Page 6-18]

Small Refiner RIK

• New process to require competitive bidding

• Sale October 1999

• Sale February 2000

• 16,500 barrels per day Pacific

• 64,000 barrels per day Gulf of Mexico

[Page 6-19]

Texas 8(g) Gas RIK

Cooperative effort with the Texas General Land Office Deliveries to GSA...