Mineral Revenues:

Cost of Modifying Gas Royalty Provisions Overestimated by Interior

RCED-88-45: Published: Nov 5, 1987. Publicly Released: Nov 19, 1987.

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Pursuant to a congressional request, GAO reviewed the validity and reasonableness of the Department of the Interior's estimate of the cost to retroactively modify its natural gas royalty provisions.

GAO found that Interior's Minerals Management Service (MMS) estimated that retroactive modification of the basis for royalty payments on natural gas to reflect market prices, rather than ceiling prices, would result in the: (1) relinquishment of $134.5 million for the period January 1, 1983 through July 31, 1986; and (2) need to refund about $500,000 in royalties already collected from oil and gas companies. GAO also found that MMS based the estimate on several assumptions regarding the period of time and the quantities of natural gas subject to ceiling prices. GAO estimated royalty amounts using MMS assumptions but more accurate market price data, and found that: (1) about $87 million would be foregone; and (2) the MMS estimate of royalty refunds was reasonable. GAO believes that MMS underestimated the market price that companies received from the sale of natural gas.

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