In fiscal year 2003, the federal government collected $5.6 billion in royalties from oil and gas production on federal lands. Although most oil and gas companies pay royalties in cash, the Department of the Interior's Minerals Management Service (MMS) has the option to take a percentage of the oil and gas produced and sell this product-- known as "taking royalties in kind (RIK)." MMS has taken royalties in kind continuously since 1998 with the goal of achieving administrative savings while maintaining revenue. GAO attempted to (1) quantify the administrative savings that may be attributable to the RIK sales and (2) compare the sales revenues from RIK sales to what would have been collected in cash royalty payments.
Matter for Congressional Consideration
|Should the Congress seek a more systematic and timely evaluation of RIK efforts, the Congress may want to consider directing MMS to implement a systematic process for evaluating all future RIK sales in a timely manner and to quantify any changes in the administrative cost and revenue impact on royalty collections as a result of RIK.|